Shanghai Industrial Holdings, the municipal government's investment arm in Hong Kong, plans to plough two to three billion yuan (HK$2.45-$3.67 billion) into water and environmental protection projects in two years and will list a water unit here that is already listed in Singapore.
The conglomerate aims to raise its total daily processing volume of fresh water supply and sewage treatment projects to 10 million tonnes in the next 18 months, up from the current 8.5 million tonnes, said Zhou Jun, chairman of the firm's infrastructure division. This will mainly be achieved via acquisitions and self-built projects, and it will only buy those with return rates of at least 8 per cent.
'We are optimistic about the sewage treatment sector's prospects, as it is one of seven industries being pushed by the central government for rapid development,' he said.
Shanghai Industrial has doubled its daily water processing capacity since 2009 and is now the mainland's third-largest water services firm. State-backed, Shanghai-listed rival Capital Group said it had 13 million tonnes of daily capacity at the end of last year, while Hong Kong-listed Beijing Enterprises Water Group said its capacity was 8.7 million tonnes.
The central government has in recent years begun to reform water pricing to allow a gradual increase to reflect the resource's scarcity and meet treatment costs, as well as to promote conservation and recycling.
Shanghai Industrial has two operating units in its water business - a 54.6 per cent stake in Singapore-listed Asia Water and a 47.5 per cent stake in General Water of China, a joint venture with China Energy Conservation Investment.
Zhou said both Asia Water and General Water are expected to achieve about HK$1 billion in sales this year. This would mean its water business would be similar in size, by revenue, to its toll road operation.
Asia Water aims to list in Hong Kong by the end of next year and is in talks with potential institutional investors to buy its shares ahead of the flotation.
On Sunday, it said it would pay 409.3 million yuan for a 69.4 per cent stake in Nanfang Water, which has 17 sewage treatment projects in southern China with a daily capacity of 1.2 million tonnes.
Asia Water's net profit jumped fourfold last year to 110 million yuan on acquisitions. Nanfang's net profit fell 16.5 per cent to 32.2 million yuan last year, which Zhou said was due to 'certain accounting measures'.