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Published on October 9, 2007

The PrimaVest Thailand Dynamic Water Fund will be the second fund in the Thai market to invest in water-related businesses, from utilities to infrastructure to water management, and PrimaVest executive vice president Darabusp Pabhapote says it has targeted a 150-per-cent expected return.

Darabusp pointed out that about 70 per cent of the Earth's surface was covered by water, yet only 2.5 per cent of it was fresh water, and a smaller fraction still was usable. Combined with the fact that most utilities infrastructures - some of them dating back to the mid-19th century - are rusting and past their prime, this points to an opportunity for capital inflow in exchange for fluid returns, he said.

The fund will invest in the 20 stocks listed in the World Water Total Return Index, such as the French giant Veolia Environment, Watts Water Technologies and Kurita Water Industries.

On sale from next Monday to October 24 through its sole distributor, Standard Chartered Bank (Thai), the open-end fund will invest directly in the Hong Kong-listed Lyxor Dynamic Water Fund, managed by Lyxor Asset Management, a wholly owned subsidiary of corporate and investment bank Societe Generale. PrimaVest expects to raise up to Bt1 billion from the local market.

Malcolm Thomas, Societe Generale's director for structured products in Asia (except Japan), said demand for clean water for consumption and industrial use would outstrip supply as early as 2025. However, the Hong Kong fund saw a sharp drop in late July, from the US$10 offer price when it was launched in March to $9.25 about mid-August.

Thomas said Lyxor, using a proprietary trading strategy, would borrow to invest as much as 10 per cent of net asset value when the underlying was going up, while switching to cash when the going got tough. The cost of borrowing will not exceed the London Interbank Offering Rate plus 0.5 per cent, he said.

Unlike any other industry, the water industry is very capital intensive and often has a free negative cash flow. Writing in CFO magazine, Peter Cook, director of US industry group the National Association of Water Companies, said $3.45 (Bt118) had to be invested for every $1 in revenue. Compare that with $1.61 of revenue per US dollar of investment for electric utilities, $1.11 for telephones and 94 cents for natural gas.

He said, however, that China, with three of its major rivers heavily polluted, had allocated $132 billion over five years to tackle its water-management problems. With other major economies similarly cleaning up their acts and water prices going up around the world, the liquidity was there, albeit closely tied to geopolitical interests.

 Ki Nan Tsui

 The Nation