Foreign buyers are eyeing a piece of the Tuaspring power and desalination plant, in a transaction that could take Singapore's largest desalination plant out of local hands.
Tuaspring is owned by Hyflux, which last week appointed DBS Bank and China International Capital Corp as financial advisers to evaluate a partial divestment of up to 70 per cent.
Regulatory approval is needed although the national water agency PUB, which buys water from Tuaspring, said it has been notified of Hyflux's intent but is yet to receive a formal application to divest.
Hyflux would first have to start receiving bids for the plant. Its financial advisers would then come up with the proposed sale structure, which could be done via equity transfer or a trust structure, for example.
Tuaspring, Asia's first integrated water and power plant which cost more than $1 billion to build, has attracted buying interest for years.
Most requests are from Chinese and Japanese buyers, although there is interest from South-east Asia and the Middle East as well.
Potential buyers include infrastructure funds keen on stable income, or operators looking to beef up their track record and gain an advantage when they bid for projects overseas.
Although Tuaspring's power plant is loss-making, under a Water Purchase Agreement signed with the PUB, the facility is to supply the national water agency with 70 million gallons of desalinated water a day over a 25-year period from 2013 to 2038. The plant goes back to the PUB at the end of 25 years.
Asked by The Straits Times if there are any restrictions on foreign ownership for Singapore's strategic water assets, the PUB said: "Any divestment or change in the identity of the concession company or its shareholding... will require PUB's approval."
The contract terms are confidential.
But Tuaspring would not be Singapore's first water asset to be placed under foreign ownership. In January, a $170 million Newater plant - Singapore's fifth - was opened in Changi. That plant is an 80-20 joint venture between Chinese water utilities company BEWG International and Singapore environmental engineering firm UES Holdings.
Notably, a change in ownership will not have any bearing on the price at which Tuaspring sells water to the PUB, or from the PUB on to end consumers.
Hyflux group executive vice-president Lim Suat Wah said: "The price at which PUB buys water from Tuaspring is governed by a Water Purchase Agreement between PUB and Tuaspring over the concession period of 25 years."
It is also likely that Hyflux will continue to operate and maintain the Tuaspring plant after its partial divestment. In 2006, Hyflux sold off part of its stake in Singapore's first desalination plant, SingSpring, to CitySpring Infrastructure Trust (now Keppel Infrastructure Trust). Hyflux retains a 30 per cent stake in SingSpring, but also handles all of the site operations and maintenance.
There is no restriction on foreign ownership of power generation assets in Singapore's power sector.