KKR buys into United Envirotech's growth ambitions

Buyout firm KKR is investing $113.8 million in United Envirotech, a provider of engineering services to municipal and industrial waste-water treatment projects. United Envirotech also operates a portfolio of waste-water treatment plants across China. It has been listed on the Singapore Exchange (SGX) since 2004.

KKR has agreed to buy convertible bonds carrying a coupon of 2.5%, which will convert into equity shares at a conversion price of S$0.45 per share any time during the next five years. The agreed price represents a 37.3% premium to the average closing price of United Envirotech on the SGX for the 30 trading days to July 30. Assuming KKR exercises its right to convert all the bonds, it will own 38.4% of United Envirotech after conversion. KKR has also negotiated the right to nominate three directors to United Envirotech’s board, with immediate effect after the deal closes.

United Envirotech met other investors as it sought to identify sources of capital to fund its business pipeline, said a source, however the investment by KKR was agreed on a negotiated basis and was not the result of an auction. Stirling Coleman Capital was arranger for the deal, while Credit Suisse advised KKR. Paul, Weiss was international legal counsel for KKR.

The environment sector in general — and water treatment opportunities specifically — are a focus area for KKR, which plans to add value to United Envirotech’s existing business by opening doors to banks that can be potential sources of funds. The team from KKR Capstone will also help the company achieve further operational efficiencies.

“In addition to bringing in capital to support our growth, KKR’s global network, strong operational capabilities and extensive local knowledge will add significant value to our future development,” said Lin Yucheng, chairman and chief executive officer of United Envirotech, in a written statement.

KKR has $61 billion in assets under management and has made five investments in China to date. Its first was a $115 million investment in Tianrui Cement in 2007, then in 2009 it made two further investments: an undisclosed amount in Ma Anshan Modern Farming, a dairy farming company headquartered in Anhui, which at the time had a total production capacity of more than 150,000 tonnes of raw milk per year and revenues of $77 million; and, in a consortium with GIC Singapore and China International Capital Corporation (CICC), it invested $160 million for a significant minority stake in International Far Eastern Leasing Company, the leading provider of financial leasing in China and a subsidiary of Sinochem Group.

Last year, together with TPG Capital, The Great Eastern Life Assurance Company and the Government of Singapore Investment Corp (GIC), KKR bought a 34.3% stake in CICC from Morgan Stanley; and also invested an undisclosed amount the same year in VATS Liquor Store, China’s biggest liquor store chain.