1. GWI / 23
ASIA PACIFIC
JANUARY 2016
Asian water finance
New investment platform targets industrial
water opportunities in Asia
Odyssey Capital and Macquarie have teamed up to leverage water expertise and capital to generate superior returns in the Asian water
sector. How will the new investment vehicle operate?
A
new fund which aims to take a
unique approach to creating value
in the Asian private water market
reached its first close earlier this month,
with committed capital of $110 million
from blue-chip international investors.
The Tigris Water Fund – which has a
target size of $300 million and a hard cap
of $400 million – is the brainchild of Saud
Siddique, the former CEO of Hyflux Water
Trust. It will provide growth capital by tak-
ing minority equity stakes of between 20%
and 49% in small to medium-sized water
companies active in emerging growth mar-
kets throughout Asia, with the option of
investing directly in treatment plants by
holding majority stakes in project compa-
nies.
The emphasis will be on EPC (engi-
neering, procurement and construction)
companies looking to take on more of a
project developer role, and the fund is likely
to cherry-pick targets with an established
presence in the industrial water market,
although it will also consider municipal
opportunities.
“In order to remain competitive and
avoid shrinking margins, Asian water EPC
companies are finding that they need to
develop integrated solutions, which can
include owning and operating assets,” Sid-
dique explained. “They are very good at
engineering, but they lack the manage-
ment capacity to be able to take their busi-
ness to the next level. Secondly, banks are
unwilling to lend to most of these compa-
nies because of their lack of cashflow vis-
ibility,” he told GWI.
The Tigris Water Fund aims to take
advantage of an uptick in build-own-oper-
ate (BOO) contract opportunities in Asia
by supplying growth capital to engineer-
ing companies with an established track
record, whilst at the same time leverag-
ing the water competency and transaction
structuring expertise of Siddique and his
team to ensure rapid growth.
When Siddique and his business part-
ner Daniel Yeung first attempted to drum
up interest in an Asian water fund around
four years ago, they initially met with sig-
nificant resistance. It was only when they
switched their strategy and decided to
develop a pipeline of prospective invest-
ment opportunities that they began to gar-
ner serious interest.
“We secured more than a dozen advisory
mandates with water companies throughout
Asia, in order to show investors what’s really
out there,” explained Siddique. “Once they
felt we could actually add value to the busi-
ness, that allowed us to develop a close rap-
port with the owners of these companies.”
The fact that Siddique and Yeung’s
Odyssey Capital vehicle was able to survive
on the fees from those advisory mandates
gave them time to re-appraise the concept
of a fund – this time with a ready-made
pipeline of opportunities and established
relationships. With Frédéric Devos – a
20-year Veolia Water veteran and currently
a member of Macquarie Capital’s invest-
ment committee – an enthusiastic support-
er of the concept, the team gradually began
to gain support from the international
investment community.
Initial discussions with Australian pow-
erhouse Macquarie resulted in Odyssey Cap-
ital snagging the bank as a co-general part-
ner on the fund, while Dutch development
bank FMO, Japanese engineer Nippon Koei
and Eastspring Investments – the Asian
asset management business of Prudential
plc – all subsequently signed up as LPs.
Siddique estimates that the business
relationships it has nurtured over the past
three years represent around $500 mil-
lion of theoretical investment opportuni-
ties right off the bat. He predicts a steady
flow of projects to support the expansion-
ary efforts of the companies backed by
the Tigris Water Fund, driven by a mix
of chronic historical underinvestment in
water and wastewater infrastructure in
much of Asia, continued industrial growth
in China of around 6% in 2016, and
increasing regulatory pressure to curb pol-
lution, particularly in India and China.
The bulk of the investments are likely
to be made within the first four years of
the fund’s eight-year life, allowing for exit
opportunities after an average holding peri-
od of between three and five years. “After
a rapid ramping-up of the business, these
companies then become attractive to strate-
gic buyers and large generalist funds, which
would be our source of exit,” said Siddique.
“When we invest, the valuation multiple is
a lot lower because these are EPC compa-
nies. By the time we exit, they are much
bigger companies, and then there’s a derisk-
ing process happening in the meantime,
because more of the revenues are coming
from BOT contracts, which are under-
pinned by long-term cashflows.”
Further opportunities to enhance
returns could emerge as the stable of pro-
jects grows, raising the prospect that the
developers backed by Tigris could then
recycle capital by spinning off assets into a
privately held business trust.
“This is a multi-billion dollar market
opportunity, and we don’t see anyone else
out there that has this combination of skills
and background,” maintains Siddique.
“Once we’ve established a track record in
Asia, there’s huge potential for this to go
global.”<
A fresh odyssey
Saud Siddique’s unique approach has convinced
international investors – including Macquarie
Bank – to sign up to his new Asian water fund.
Source: Odyssey Capital