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Keppel Infrastructure Trust: A Business Trust Unaffected By Economic Cycles

Back in March 2011, business consulting firm McKinsey noted that US$8 trillion of infrastructure spending in total would be needed in Asia till 2020 and around 80% of that would go to energy and transport.

The Asian Development Bank did its own calculations back in 2009 and came to a similar figure of US$8 trillion that would be needed for infrastructure investments in Asia up to 2020. But, just a few weeks ago, the bank said that its US$8 trillion number would have to be revised upward.

What these underscore is the importance of spending to build infrastructure within Asia. The field of infrastructure development is actually wide and includes, amongst others, electricity generation, waste treatment, water desalination, and information technology.

In Singapore’s stock market, there is one listed entity that has exposure to all four fields and that is none other than Keppel Infrastructure Trust (SGX: A7RU), the largest infrastructure business trust listed in Singapore. Right now, the trust has total assets of more than S$4 billion.

One interesting aspect of Keppel Infrastructure Trust is the long-term nature of its leases. Its shortest lease expires only in 2024. For perspective, industrial REITs in Singapore have an average lease expiry of 3.5 years.

These long-term contracts have another effect on the economic characteristic of the trust. According to Keppel Infrastructure Trust’s recent September 2016 investor presentation, it “generates long term predictable cash flows uncorrelated to GDP [gross domestic product].” In other words, the trust thinks its business does not ebb and flow with the general economy.

Right now, of Keppel Infrastructure Trust’s nine main assets, only Basslink’s main customer is a foreign government (Australia). The rest of the assets either have the Singapore government as a customer, or sell to Singapore-based companies and households.

But, its sponsor – the infrastructure arm of Keppel Corporation Limited  (SGX: BN4) – has a geographically diversified business. It has interest in countries such as Poland, China, the United Kingdom, and Qatar.

While Keppel Infrastructure Trust has total assets of S$4.09 billion, it does have total debt of S$1.75 billion. The trust’s borrowings could be something to keep an eye on for investors.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat doesn’t own shares in any companies mentioned.