Kohlberg Kravis Roberts has revealed a $40 million follow-on investment in United Envirotech (UEL), a Singapore-listed water treatment provider in China. The new equity injection will be used to fund the acquisition of water treatment plants, upgrade existing plants and help fund the Chinese firm’s working capital, according to a joint statement.
This new transaction increases KKR’s investment in UEL to $153.8 million, following an October 2011 subscription to $113.8 million of convertible bonds. KKR has agreed on an offer price of S$0.50 (€0.31; $0.41) per share, an 8.5 percent premium to UEL’s average 30-day share price, according to the statement.
KKR declined to comment further, but a source close to the matter confirmed that KKR’s stake in UEL will increase to around 40 percent, pending the close of the deal.
The same source also said that this investment came from KKR Asian Fund I, the same fund the firm used for its first investment in UEL.
UEL operates a portfolio of waste water treatment plants across China and provides engineering services to municipal and industrial waste water treatment projects.
The need for such water treatment is becoming more critical in China, according to a recent study by Emerging Markets Private Equity Association, because of the country’s severe water shortage. Per capita water resources are less than one quarter the world average.
Water pollution is also worsening, the study found. All seven of China’s major river basins have “top grade” pollution, according to government classification. The Chinese government intends to invest $300 billion to expand water treatment capabilities over the next ten years, according to the study.
KKR made the initial investment in UEL in 2011. According to the EMPEA study, during a one-year period following the investment, UEL’s revenue and profit grew by 54 percent and 90 percent, respectively. In the trailing three years before the investment, the figures were 26 percent and 52 percent, according to the EMPEA study.
“Working with KKR, we are able to leverage their global resources, operational capabilities with KKR Capstone and their China team’s local experience,” Yucheng Lin, chairman and chief executive of UEL, said in the statement.
KKR has invested approximately $5 billion in Asia since 2005. Of that amount, roughly 27 percent is in Greater China, according to the firm.