Sembcorp Industries will reap a gain of $350 million by offloading its interests in an integrated waste-management business in Australia.
The company is selling its 40 per cent stake in SembSita Pacific to its joint-venture partner, Suez Environment Asia, for A$485 million (S$489 million).
"Since we first invested in SembSita in 2000 with Suez, the joint venture has grown significantly and become one of the leading integrated waste-management players in Australia," said Sembcorp Industries president and chief executive Tang Kin Fei yesterday.
"Proceeds from its sale will provide us with additional resources to invest in businesses and markets with high growth potential, in line with our focus on the energy and water sectors," Mr Tang said.
A wholly owned Sembcorp unit bought 40 per cent of SembSita, a joint venture vehicle formed to acquire Pacific Waste Management, around June 2000. Pacific Waste was then the second-largest waste-management company in Australia.
Sembcorp wanted to use the acquisition as a launchpad to expand into regional markets where landfills were used commonly for the disposal of rubbish. Its waste-management business was then still relatively small.
Today, Sembcorp considers waste management as part of its utilities operations. These operations are mainly in providing energy, water, on-site logistics and solid-waste management to industrial and municipal customers.
Utilities contributed about 59 per cent of Sembcorp Industries' profit for the six months ended June 30.
Analysts said the divestment proceeds would go into ramping up Sembcorp's operations in growing economies.
The company announced last week that it had just finished the second 660-megawatt unit of a US$1.5 billion (S$2.1 billion) coal-fired power plant in India. Construction for its seventh Vietnam- Singapore industrial park also began last week.
Sembcorp said in April it would begin constructing a 1.3 billion yuan (S$287 million) wind farm in Laoshibeihe, China, this year.
OCBC investment analyst Low Pei Han said yesterday that Sembcorp could put the proceeds into higher-yielding investments.
"In emerging countries which they are looking at like India and China, the rate of growth will be higher, compared with Australia, which is a mature area," she said.
OCBC's investment research team assigned Sembcorp a "buy" rating with a target price of $4.03, citing its expanding operations.
Sembcorp is cheap compared with utility companies in Malaysia and Indonesia, Ms Low added.
Its price/earnings ratio was seven times, while those of utilities companies in the region such as YTL Power were around 12 to 13 times.
RHB Bank also assigned Sembcorp Industries a "buy" rating, setting a target price of $4.20.
It said the sale lent greater confidence to the sustainability of Sembcorp's dividend.
Sembcorp Marine, which is also part of Sembcorp Industries, has suffered falling revenue and profits from the current slump in oil prices.
OCBC said Sembcorp Industries' target price had been hit by the bank's lower valuation for Sembcorp Marine.
Sembcorp Industries shares ended 0.7 cents up at $3.57 yesterday.