Keppel Corp's K-Green Trust: Things for Investors to Note

I previously made a brief post on the K-Green Trust, and this post has received a lot of hits since its publication. In this post, I will elaborate on some pointers for Keppel Corp investors to consider when they are thinking about the Infrastructure division of Keppel Corp and the K-Green Trust.

1. Why Dividend-in-Specie and not IPO? When Keppel was announced as the winner of the NEA's tender to acquire the Senoko Incineration Plant (SIP), it was stated clearly in the Sep 2008 press release that the listing of the KGT was meant to be as an IPO. Later on, when the financial crisis hit, the IPO was shelved due to adverse market conditions. Since then the markets have returned to relative normalcy, however, instead of going ahead with the planned IPO, Keppel suddenly changed the listing structure to a dividend-in-specie and not an IPO. Why did Keppel not go ahead with the IPO? Wouldn't it have made sense to monetise the trust in the equity capital markets so that Keppel Corp would have cash, especially if the market valuation was going to be a higher one than the price Keppel originally paid for the assets? 
2. What is the value of the Senoko Incineration Plant? The bulk of the value of the trust is in the value of the SIP. The value of the SIP as listed on Keppel's balance sheet is the purchase price that Keppel paid to NEA. "The purchase price of SIP was mutually agreed within the indicative price of S$462 million between KIE and the Singapore Government on a willing-buyer, willing-seller basis." (source: Keppel press release) Keppel is also investing a further $48 million to upgrade the SIP, bring the net cost of the SIP to Keppel to $510million. This $510 million is for a 15 year PPP contract, meaning that at the end of the contract, subtrust will have ZERO residual value. In contrast, the government originally built by the government for $560 million in 1992 (17 years ago), expecting it to last about 30 years. (source: NEA) Does it make sense for an asset expected to last 30 years and costing $560m, to be worth $462m +$48m after 17yrs of depreciation?  Investors need to ask themselves whether the price that Keppel paid for the project assets is a fair price for the assets. If not, how to determine the value of the assets? 
3. Independent valuation of the Trust. There is an independent valuation report in the prospectus for the KGT dividend-in-specie (see Appendix F of intro doc). They state that their valuation of the trust is in the range of $674-731 million on an aggregate basis i.e. they do not break down into the valuation of each of the sub-trusts, and that is all they say. They do not state their methodology of valuation (DCF, multiples, book etc.). They do not state the details of their methodology (if DCF, what is discount rate?) They do not break down the valuation into each of the 3 assets. Why? why? why?
4. Is Yield the correct method for valuation? So far the analyst research reports (all bullish) state their valuation method as depending on the trust yield. Is this the correct method for valuing the underlying projects?
• Finite life projects with zero terminal value The sub-trusts contain projects which have a finite lifespan with ZERO TERMINAL VALUE. Once the contracts expire, UNIT HOLDERS WILL BE LEFT WITH NOTHING. Is yield the correct method to value such assets? Yield was originally used as a concept to value stable blue chip companies with steady dividends that were expected to be around a long time. In contrast, the KGT has projects that last only 15,20 and 25 year with zero terminal value. Yield valuation was not meant for these kind of projects!
• Mismatched Life of Assets The biggest project of the 3 is the Senoko plant which has a contract lifespan of only 15 years. The NEWater plant is contracted for 20, while the Tuas DBOO plant is contract for 25 years. That means that there will be a significant decline in the cash flows from the KGT in year 16 and year 21. And ultimately to zero after the Tuas project expires. Isn't the yield concept supposed to describe steady, consistent cashflows that do not diminish to zero???
5. Capital structure of the Subtrusts The KGT prospectus doc describes the capital structure as "KGT will not have any debt as at the Listing Date which will provide it with an optimal debt financing capacity for future investment opportunities." Is zero debt = optimal capital structure??? LOL. Infrastructure projects backed by PPP contracts are usually leveraged to a significant level, up to 80%. Banks are willing to take this leverage levels because the counter-party to the contracts is the triple A rated Singapore government. So why is Keppel funding the KGT projects with 100% equity which usually has a required rate of return of 15%, when banks are willing to fund the AAA rated projects with term loans  that typically have a cost of debt of 5% max? Is the KGT's zero gearing structure really optimal? And if it isn't, who is getting the short end of the stick???

I could go on and on, but I think readers will get the point. I will not state my conclusions but I think the above questions are plentiful enough for readers to hunt for clues and come to their own conclusions.