Saturday, June 05, 2010

K-Green Trust: Keppel Corp pulls a fast one past the Research Analysts

A couple of research analysts have released their research notes on keppel corp's K-Green Trust. Keppel recently released the listing documents for the KGT, which you can find here. It is interesting to note that both the research reports I have found so far are bullish on the KGT, and both suggest significant upside to the listing valuation.

My personal take on the KGT is that it is a structured finance vehicle (not unlike a CDO) meant to house junk project assets that Keppel does not want to have on its balance sheet. By hiving off the 3 project assets (Senoko & Tuas Waste-to-energy plants, Ulu Pandan NEWater plant) into a business trust, Keppel can obfuscate the substance of the assets and divest it to the fools in the market who haven't got a clue what they are buying into.

And, judging by the comments of the research analysts, it appears they have been comprehensively fooled. They have completely missed the substance of what is going on here and are acting as cheerleaders to what in my opinion is fundamental destruction of shareholder value by the Keppel Corp management.

I am very interested to see what more analysts think of the KGT and if any of them will actually call Keppel out on what is actually going on here. But judging by what happened with structured finance vehicles in the USA in the years past, I doubt any of the analysts have the brains to figure it out. And even if they do, none of them will have the guts to call Keppel out on its bullshit.

Update: I have elaborated significantly on my thoughts of the KGT here.


Lim & Tan Securities

Based on projected distribution of 3.91 cents for 6 months and 2 days in 2010, and 7.82 cents for ye Dec ’11, the yield at $1.13 would be 6.82% (annualized) and 6.95% respectively. As a comparison, City Spring offers a trading yield of 7% at 60 cents (DPU of 4.2 cents). Note however two key differences between the two:
  • KGT is Singapore-centric whereas 50% of City Spring is accounted for by Basslink in Australia;
  • KGT is debt free vs City Spring’s high gearing, which has implications for KGT’s growth strategy going forward.

We believe KGT is attractive. KGT’s listing is expected at end June, and results from the distribution-in-specie by Keppel Corp on the basis of 1 KGT unit for every 5 Kep C shares, valued at 22.6 cents per Kep C share.

Kim Eng Securities

The listing price for Keppel Corp’s Keppel Green Trust (KGT) has been set at $1.13 per unit. Keppel projects a DPU of 3.91 cts for the remainder of FY10and 7.82 cts for FY11. This generates a yield of 6.82% in FY10 (annualised) and 6.95% in FY11. We see fair value of KGT at $1.53, with the implied yield of 5% derived from a highly stable cash flow.

Morning Bulletin 27 January 2010
Top Ideas

23-ct dividend in specie from KGT distribution
Shareholders will receive one K-Green Trust (KGT) unit for every 5 shares as a dividend in
specie. 50.5% of the trust will be distributed to shareholders. The effective value per unit is
therefore S$1.16. Financial details such as expected DPU, earnings and yield will be
forthcoming over the next few weeks, with a listing by 2Q10. We expect the terms to be
attractive, and to provide long-term, regular and predictable distributions to its unitholders. We
also estimate that KGT’s listing could see up to 40% upside from its base NTA valuation of

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