Keppel Infrastructure Trust: Diving Into the Subsea Cable Solutions Market

OCBC Investment Research | 1 April 2025

Keppel Infrastructure Trust (KIT) is making a strategic move to diversify its portfolio and tap into the growing digital infrastructure market. The trust has announced a proposed investment in a 46.7% stake in Global Marine Group (GMG), one of the world’s largest independent subsea cable solutions providers.

Diving into the Subsea Cable Market

The proposed investment is an aggregate of USD90.6 million (SGD122.3 million), comprising a subscription consideration of USD86.6 million (SGD116.9 million) and a ticking fee of USD3.9 million (SGD5.3 million). Post-completion, KIT is expected to provide equity commitments of up to USD52.5 million (SGD70.9 million) to fund GMG’s growth plans, such as the construction of additional vessels to increase capacity and drive revenue growth.

GMG: A Global Leader in Subsea Cable Solutions

Headquartered in the UK, GMG is one of the world’s largest independent subsea cable solutions providers. The company maintains 450,000km (~31%) of global maintained subsea cable length and has installed 320,000km (approximately one-fifth) of global cumulative installed subsea cable length. A substantial portion of its business (80% of FY24 revenue) is secured by long-term maintenance zone and charter contracts with customers like telcos and hyperscalers, providing stable and predictable cash flows.

Aligning with KIT’s Investment Strategy

The investment in GMG marks KIT’s first foray into the digital infrastructure segment and is expected to generate long-term, stable cash flows for the trust. On a historical pro forma basis, assuming the proposed transaction had been completed on 1 January 2024, KIT’s FY24 funds from operations (FFO) would have been 1.3% higher at SGD294.6 million, while distribution per unit (DPU) would improve 3.5% to 4.04 Singapore cents.

Defensive Play Amid Volatility

KIT is a defensive play in the face of heightened market volatility, with the secular tailwind of rising infrastructure spending providing further support. The trust’s portfolio is well-diversified, with assets spanning energy transition, environmental services, and distribution and storage, located in jurisdictions with well-developed legal frameworks. Many of its assets are backed by long-term concession agreements, with more than 90% of its portfolio insulated against inflation via cost pass-through mechanisms or strong price-setting capabilities.

Maintaining Fair Value Estimate

OCBC Investment Research maintains its fair value estimate of SGD0.50 for KIT, pending the necessary approvals and an indicative timeline for the GMG transaction. The investment is considered an interested person transaction (IPT) and will require approval by unitholders at an Extraordinary General Meeting, on top of regulatory approvals and customary closing conditions.

Conclusion

KIT’s proposed investment in GMG aligns with its strategy to build a well-diversified portfolio of core and core-plus infrastructure assets. The subsea cable market is poised for growth, driven by the increasing reliance on digital technologies and the corresponding expansion in underlying infrastructure. This investment is expected to further strengthen KIT’s position as a defensive play in the infrastructure space, with the potential to deliver long-term, stable cash flows for its unitholders.