JZPU was incorporated in 2009 and was granted a special 30 year operating license to treat and supply drinking water and waste water-treatment activities in Jining City. It is also responsible for meeting the domestic and industrial water treatment and water supply needs of the city district. This special license makes them the sole water supplier in Jilin City, which has a population of about 8.43m. Currently, JZPU has four water supply plants and one water treatment plant, with daily water supply of 300,000m³ and daily water treatment output of 200,000m³ . The entity has a total assets of approximately RMB990m and net asset of around RMB640m.

 

Synergy within the Water Division: 

Tritech has a mega membrane processing plant in Qingdao and has engineering and construction expertise with the acquisition of Anhui Clean Environmental Biotechnology Co., Ltd (ACEB). The entry of JZPU helps to form a vertically integrated value chain where Tritech has the complete technical know-how, from the production of membrane parts to the construction and management of water and wastewater treatment plants.

 

 

Funding the Acquisition: 

In connection to the acquisition, Tritech has entered into a non-binding term sheet with Successive Investments Limited and a group of proposed investors to issue S$42m of convertible loan. The loans have an indicative interest rate of 12% per annum and the repayment will be done via the allotment and issue of new fully-paid ordinary shares &ndash which will be priced at a 10% discount to the last seven trading days and subject to a minimum conversion price of S$0.200 per share and maximum price of S$0.280 per share. The introducer will also be issued about 9.1m new shares as commission (subject to successful drawdown of the loan) and an option to subscribe for 30m new shares at an exercise price of S$0.231. We reckon that this loan coupled with internal cash or some bank borrowing will be more than enough to finance the JZPU acquisition.

 

Industry Outlook: 

Water scarcity and quality remain a top priority amongst the government officials and emphasis have been placed on agricultural environmental pollution and over-extraction of groundwater. To tackle the financing problem, China water prices have been rising steadily over the past few years and the authority is looking to implement tiered structure approach towards water pricing over the next two years. The higher tariffs can encourage corporates to upgrade the existing facilities and improve the overall water treatment standard. We believe the trends are advantageous to Tritech, which has the technical expertise to execute these changes.