Keppel Infrastructure Trust - Equity fund raising may impact distribution outlook

What happened?

Keppel Infrastructure Trust (KIT) completed a private placement of 456.6m new units at S$0.438 each in early September 2024. 

This represents 8.2% of existing unit base and 7.5% of the enlarged unit base of 6,083.3m. 

The placement raised S$200m for the repayment of a S$390m bridge loan taken up to acquire Ventura Motors Pty Ltd. 

In July 2024, KIT also raised S$200m through issuance of perpetual securities at coupon of 4.9%.

Unit holders will receive a stub distribution of 0.7 cents/unit for the distribution for the period from 1 Jul to 2 Sep. This will be paid on 18 Sep.

What's the impact?

The new units were issued at distribution yield of 8.1%, based on our estimate. 

Our FY24E and FY25E DPU forecasts are lowered to 3.67 cents and 3.6 cents, from 3.86 cents and 3.89 cents, respectively. 

This is due to an enlarged unit base, and factoring in dividend payable on additional perpetual securities, and interest savings. The funding cost of the bridging loan is about 3%. 

Our DPU forecasts are based on distributable income that we estimate KIT would receive from its investee companies, less corporate and funding costs. 

There is upside risks to our DPU estimates as KIT could draw on debt for distributions to unitholders. 

For instance, in 1H24, it paid distribution of S$110m, or 1.95 cents/unit, though distributable income was S$91m. However, this would reduce net equity.

Total debt is estimated to fall to S$3.1bn after the placement exercise. As a business trust, KIT is not subject to a cap on gearing ratio.

What would Beansprout do?

We downgrade KIT to Neutral (from Buy) and lower our target price to S$0.48. 

Our target price is derived from dividend discount model, at weighted average cost of capital of 9.2% and terminal growth rate of 2%, over the enlarged unit base. 

Our target price translates into distribution yield of 7.6% and 7.5% for FY24E and FY25E, respectively.

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