Keppel Ltd. (BN4.SI) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. We welcome all of you, including those viewing this over the web, to the conference for Keppel Corporation's first half financial results for 2023. We have on the panel this evening from your left Mr. Thomas Pang, CEO of Data Centers and Networks Division; Mr. Louis Lim, CEO of Real Estate Division; Mr. Chan Hon Chew, CFO; Mr. Loh Chin Hua, CEO; Ms. Christina Tan, CEO of Fund Management and Chief Investment Officer; Ms. Cindy Lim, CEO of Infrastructure Division; and Mr. Manjot Singh Mann, CEO of M1. We will begin the session with presentations by CEO, Mr. Loh Chin Hua; and CFO, Mr. Chan Hon Chew, followed by the question-and-answer session. Mr. Loh, over to you, please.

Thank you. Good evening, everyone. The first 6 months of 2023 were transformational and productive for Keppel. After concluding the successful divestment of the Offshore & Marine business at the end of February, we unveiled a major restructuring program to remove our conglomerate structure and reorganized ourselves as one company with 3 platforms: the fund management, investment and operating platforms. Keppel today is advancing as a global alternative real asset manager with deep operating capabilities in infrastructure, real estate and connectivity. With a sharpened focus and strong growth initiatives, we will create value for Keppel's shareholders, investors in the private funds and trusts that we manage as well as other stakeholders. In first half '23, Keppel delivered its highest net profit on record in 55 years. We achieved a net profit of over $3.6 billion compared to $498 million in first half '22. About $3.3 billion of this was from gains achieved from successfully divesting the O&M business. Annualized return on equity was 36.8% in first half '23 compared to 8.4% in first half '22. Excluding the discontinued O&M operations from both periods, we delivered a robust net profit of $445 million in first half '23, higher than the $434 million in first half '22. As we continue to execute our strategy and restructuring plans to be an asset manager and operator we are confident of improving performance as we grow our business, capture synergies and optimize costs. We remain watchful of risk in the high interest rate environment keeping borrowing costs stable while maintaining flexibility to respond to opportunities. As at end June 2023, about 65% of the group's borrowings were on fixed rates with an average interest cost of 3.53% and weighted tenure of about 3 years. As at end June 2023, our adjusted net debt to EBITDA was 4.7x, comparable with that of other global asset managers. In appreciation of the support and confidence of the shareholders, the Board of Directors has approved an interim cash dividend of $0.15 per share for the first half. The interim cash dividend, which will be paid to shareholders on the 18th of August 2023, is comparable to last year's interim dividend of $0.15, reflecting the Board and management's confidence in Keppel's performance and execution of our transformation strategy. With the latest interim cash dividend of $0.15 for first half '23, coupled with the financial year '22 final cash dividend of $0.18 per share that was paid in May '23, shareholders will be receiving a total of cash dividend of $0.33 in 2023 for every Keppel share held. This translates into a cash dividend yield of 4.7% based on Keppel's closing share price of $6.99 last evening. In addition, to the interim cash dividend, we are pleased to announce a proposed special dividend in-species of Keppel REIT units on the occasion of Keppel's 55th anniversary. For every 5 Keppel Corporation share held, our shareholders will receive 1 Keppel REIT unit. Keppel REIT traded at $0.915 per unit on its closing last evening. A key goal of our transformation into a global asset manager and operator is to deliver sustainable growth and high returns to our shareholders. The proposed dividend in-species or KREIT units is a part of our capital management initiatives and will allow Keppel shareholders to own a stable investment with steady use. Keppel's proposed dividend in-species will be put up for our shareholders' approval at an EGM to be held later this year. Further details on this EGM will be announced in due course. Post distribution, Keppel will remain the largest unitholder of KREIT with an interest of about 37.1%. As a global asset manager, we are committed to drive KREIT's growth and have strong alignment with the interest of KREIT unitholders. Our proposed distribution will increase KREIT's public float, allowing it to widen its investor base and enjoy higher liquidity, both of which are beneficial to KREIT unitholders in the longer run. We set for ourselves and delivered on many ambitious targets under Vision 2030. The acceleration and strong execution of our transformation plans have created superior tangible value for shareholders. Over the 18 months period from 1st January 2022 to end June 2023, including the completion of the O&M transactions and the distribution in-specie of Seatrium shares worth $2.19 per Keppel share. Keppel's TSR reached 118%, outperforming STI's 9.62% by more than 12x. For shareholders who held on to their distribution in-specie of Seatrium shares, the combined value of the Keppel and Seatrium shares would be $9.76 based on the share prices of the 2 counters at the end of business yesterday. Reflecting Keppel's strategy and our shift away from lumpy EPC and development profits, our recurring income surged 62% year-on-year to $340 million in the first half '23, making up over 3/4 of our net profit compared to just under half in the first half '22 from continuing operations. The strong year-on-year improvement was bolstered by higher operating income from our Infrastructure division, which continues to accelerate its growth in renewables, clean energy and decarbonization solutions. As a global asset manager and operator, we have refined the definition of our assets under management to include some $12.4 billion of real assets on Keppel's balance sheet. These are assets in the monetization program that can be potentially converted into fee-bearing funds under management over time. Our FUM or what we have previously referred to as AUM increased to $53.2 billion at the end of June '23 from $50 billion at the end of 2022 with the completion of new acquisitions. Of this FUM, we have about $10 billion in dry powder, which we can deploy into new investments. Our asset management's fees, which amounted to $116 million in first half '23, translates into an annualized fee to FUM ratio of 50 basis points, putting us on par with industry peers. Looking ahead, we will continue to work with laser focus towards achieving our FUM targets of $100 billion by 2026 and $200 million by 2030, exploring both organic and inorganic opportunities to drive long-term growth. Against a volatile market and a prevailing high interest rate environment we adopted a more cautious approach in our investment activities during this period. Nevertheless, we continue to grow our asset management business in first half '23, with our fund management and investment platforms raising about $1 billion in equity, completing $1.1 billion in acquisitions and divesting $0.5 billion of assets. We have been prudent in holding back on new investments, but believe that second half '23 will present more interesting investment opportunities as the market adjusts to the new pricing paradigm, which better reflects the title credit markets, higher interest rates and more subdued economic growth outlook. The anticipated increase in investment activity in the second half will, in turn, contribute to higher asset management fee income. Our private funds, REITs and business trusts are currently pursuing over $13 billion of deals across the spectrum of infrastructure, real estate and connectivity assets. We will continue to invest to achieve the best risk-adjusted returns for our funds and investors. We have been actively marketing our new flagship funds, the Keppel Sustainable Urban Renewal fund, the Keppel Core Infrastructure Fund and the Keppel Asia Infrastructure Fund II. And we'll continue working with our limited partners to provide differentiated products that capitalize on Keppel's strong operating capabilities. Notwithstanding more cautious sentiment amongst investors, we announced the monetization of about $420 million of assets in the year-to-date. Since the start of our asset monetization program in October 2020, we have announced more than $4.8 billion of transactions. These monetized assets have released some $3.1 billion of cash, which can be used both to seek new opportunities as well as to reward shareholders. With strong capability in sustainability and connectivity solutions Keppel is in the right space at the right time and is well positioned as an asset manager and operator to seize growth opportunities created by mega forces such as the transition to low-carbon economy and increasing digitalization accelerated by generative AI. Amidst the volatile environment, we are seeing a growing pool of investors, including sovereign wealth funds and pension funds, seeking to allocate capital to alternative assets, which can serve as a hedge against inflation. This is where Keppel can make a difference with our extensive experience in asset management and operating expertise across diverse asset classes. We are uniquely placed to give investors in our private funds, exclusive access to strategic, real assets in Keppel's proprietary pipeline, many of which offer critical infrastructure and prime real estate solutions that produce strong inflation-protected cash flows. Examples of these Keppel projects include the Keppel Sakra Co-Gen plant, Singapore's most advanced and first hydrogen-ready power plant, which broke ground last week. The new Keppel Data Center Campus at Genting Lane where the first 2 buildings are fully contracted, the Bifrost Cable System, the largest capacity, high-speed optical cable across the Pacific Ocean, which will soon commence cable laying operations in the third quarter of this year, as well as landmark Grade-A commercial assets in the central business districts of Singapore and Shanghai. In our operating platform, our infrastructure operations and portfolio continue to advance on their growth trajectories. In first half '23, our renewable energy portfolio, which includes co-investments with our private funds and Keppel Infrastructure Trust grew to 3 gigawatts making up over 60% of our total energy portfolio of 4.9 gigawatts with projects across the spectrum of solar, wind and hydro power. Our integrated power operations in Singapore continued to perform strongly, contributing over $245 million to our recurring income in the first half '23. Almost all of our existing electricity markets are locked -- electricity customers, I should say, are locked in on fixed or index electricity price plans, providing a cushion for us against power price fluctuations. Analysts have asked about the possible impact of Singapore's temporary electricity price cap announced in June which we believe is quite limited. Based on the EMA's estimates, had a temporary price cap being in place from October 2022 to April 2023, it would have resulted in a 3.2% reduction in the average uniform Singapore energy price. The net impact of this power price reduction on Keppel Infrastructure's operating income in first half '23 would have been less than 1% or about $3 million. We continue to actively grow our end-to-end Energy as a Service offerings. As at end June '23, our backlog of long-term contracts comprising EaaS and operations and maintenance reached $4.1 billion and will continue to provide -- will provide income visibility for the next 10 to 15 years. Significantly out of the $2.1 billion in EaaS subscriptions, $1.2 billion were secured this year. We have grown our presence beyond Singapore to Thailand and Vietnam. Our EaaS projects will typically start contributing to the bottom line within 12 to 15 months of contract signing, thus allowing Keppel to quickly scale our base of recurring income. In the real estate division, we are expanding our Sustainable Urban Renewal offerings or SUR for short, across Asia Pacific. The Real Estate division is actively working with our private funds to incorporate SUR features as part of our arsenal of asset enhancement initiatives. By incorporating smart and sustainable features into retrofitted buildings, we can also help the asset's performance and value. In China, economic growth slowed after a strong rebound in the first quarter. While sentiments amongst international investors have turned very cautious with regard to China, we continue to see pockets of opportunities in the cities where we operate and for the sustainable solutions that Keppel provides. In first half '23, our home sales in China increased 2.5x year-on-year to 1,200 units. In the Sino-Singapore Tianjin Eco-City, our master developer sold 2 residential plots in the first half, underscoring the continuing demand for quality land parcels despite the broader economic slowdown. We have recognized $14 million in profit from the first land transaction, while the second will be completed later this year. In line with our push away from lumpy development profits to more recurring income, our real estate division has monetized over $3 billion of assets in China since 2017 and recognized a profit of more than $1 billion. Some of the unlocked capital is being reallocated to pursue opportunities in different countries such as India and Vietnam as well as different asset classes, leveraging our asset-light model. In our Data Center and Networks division, we achieved financial close for the Bifrost Subsea Cable System with Keppel's co-investors holding a 60% stake in Keppel's share of the fiber path. Importantly, we will earn operating and maintenance fees over 25 years once the system is completed in 2024. We have already secured over $400 million in long-term operating and maintenance fees for the first 2 committed fiber paths. Meanwhile, M1 continued to expand its solutions and services to both business and consumers. Revenue from the Enterprise business grew 50% year-on-year to $222 million in first '23, making up about 37% of M1's revenue for this period. M1's customer base grew 12.5% year-on-year widening its lead as Singapore's second largest mobile operator. To sum up, whilst 2023 is turning out to be a challenging year, Keppel has had a fruitful first half. We have our work cut out for us for the rest of the year, but we also see good opportunities as we continue our transformation and accelerate our growth as a global asset manager and operator. Our CFO will now take you through the group's financial performance based on our new horizontal reporting structure. Thank you.

Thank you, Chin Hua, and a very good evening to everyone. For the first half of 2023, the group recorded a net profit of $3.6 billion, significantly higher year-on-year due to the recognition of disposal gain of approximately $3.3 billion from the successful divestment of Keppel Offshore & Marine. Excluding this continued O&M operations, net profit from continuing operations improved by 3% to $445 million from $434 million in the first half of 2022. Annualized ROE was significantly higher at 36.8% due to the disposal gain. Annualized ROE for continuing operations was 8% as compared to 7.3% for the same period last year. All segments were profitable with improved year-on-year performance from infrastructure and connectivity. Infrastructure segment was the top performer for the first half of the year, delivering net profits of $291 million, which represented almost 2/3 of the group's total earnings from continuing operations. Despite headwinds in some markets, the real estate segment remained a key contributor with $186 million in net earnings. Connectivity segment's net profit grew year-on-year, contributing 8% to the net profit from continuing operations. I further elaborate on the performance of each segment later on. Despite the substantial distribution in-specie of shares in Sembcorp Marine or now, Seatrium and payment of financial year 2022 final dividend, net gearing increased slightly from 0.78x as at end December 2022 to 0.86x as at end of June 2023 due to significant disposal gain. Free cash outflow was $732 million as compared to $127 million in the same period last year. This was largely due to short-term increase in working capital requirements from the Infrastructure segment and the divestment of KOM. As KOM had a net cash balance of $968 million, the completion of the divestment resulted in net cash outflow for the group, partially offset by the receipt of $500 million in cash consideration. Excluding the results of discontinued operations of $3.2 billion, net profit from continuing operations was $445 million, with positive contributions from all income streams. Underpinned by robust earnings from the Infrastructure segment's Integrated Power business, recurring income, which comprises asset management income and operating income grew 62% to $340 million from $210 million a year ago. This represents about 76% of first half 2023's continuing operation's net profit, up from 48% last year. Earnings from EPC and development projects continue -- accounted for 29% of the group's net profit at the same level as last year with contributions mainly from Singapore trading projects and from Sino-Singapore Tianjin Eco-City. Net loss from corporate activities was $69 million as compared to breakeven in the same period last year. In the prior year, there were significant fair value gains from the group's investments in new technology and start-ups, in particular, in Envision AESC Global Investment L.P. In the current half year, fair value gains from investments were lower, and net interest expense was higher. Discontinued operations recorded a net profit of $3.2 billion, comprising 2 months' performance from KOM excluding certain out-of-scope assets for the period January 1st to February 28th 2023 as well as the gain from the completion of the divestment of KOM at the end of February this year. Moving on to the segmental performance. The Infrastructure segment achieved a net profit of $291 million in the first half of 2023, more than double the net profit recorded in first half 2022 of $139 million. This was led by robust earnings from the integrated power business on the back of higher net generation and contracted spreads partly offset by lower share of results following dilution of interest in an associate company in second half of 2022. The lower EPC contribution arose from environmental projects abroad, partly due to lower progressive revenue recognition in the first half of 2023 and unrealized foreign exchange differences. Asset management income was lower year-on-year as first half 2022 benefited from significant acquisition fees recognized by Keppel Infrastructure Fund Management. This was partly offset by higher base fees following the change in the fee structure that took effect in second half of 2022 for public trust managed by KIFM. The Real Estate segment delivered a net profit of $186 million, which was 29% lower year-on-year, mainly due to lower operating income and fair value gains from investment properties. These were partly offset by higher asset management income, development profits and gains from capital recycling. The decline in operating income was a result of lower contributions from our sponsor stakes, higher net interest expense and costs incurred from new initiatives. Last year's operating income was also boosted by a reversal of cost provisions relating to a commercial project in China. Fair value gains decreased by $77 million to $31 million compared to a year ago, largely due to lower value gains from investment properties and share of fair value losses recognized by Keppel REIT on its investment properties as compared to fair value gains in the same period last year. The Real Estate segment achieved an increase in asset management income driven by higher acquisition fees from an office tower in Seoul and higher management fees relating to acquisitions completed in 2022. On the back of higher contributions from Singapore trading projects and from the Sino-Singapore Tianjin Eco-City with the sale of land plot in first half of 2023, development profits rose 29% from $110 million to $142 million. During the half year, $21 million gain was also recorded from en-bloc sales of a project in Ho Chi Minh City, in Vietnam and the project in India. Net profit from Connectivity segment of $37 million was 12% higher than the first half of 2022 of $33 million, mainly due to higher operating income asset management income was stable year-on-year. Supported by continued growth in revenue from enterprise ICT and managed services, M1 registered an 11% improvement in the net earnings. This was partly offset by lower contributions from the Data Centers and Networks Division mainly due to costs of entering into new markets and initiatives. With that, we have come to the end of the presentation, I shall hand the time back to CEO for Q&A. Thank you.

So we've come to the section on Q&A. First and foremost, I'd like to thank our invited guests who came in person. Of course, we have quite a number of attending online. But maybe I will start off with seeing whether we have any questions. So Zhiwei?

Zhiwei from Macquarie. I have 2 questions. The first one is on capital recycling. That seems to have slowed a bit in the second quarter. I think if my math is right, you did about $5 billion year-to-date, which is up from the $4.9 billion you disclosed in the first quarter. So I'm keen to hear how you intend to keep up your capital recycling momentum over the next 12 months. And then of the initial $17.5 billion in assets you highlighted that was available for monetization. How much is left? And which buckets should we expect future capital recycling to come from? Now the second question is more on financials. I know that from your horizontal reporting that Infrastructure did very well this quarter. I mean, this first half. right? And you actually had a surprising loss in operating income for real estate. So the question is, what drove that loss within your real estate operating income? And as for your operating income in Infrastructure the $303 million. How sustainable are those earnings? And what was driving the margin expansion in the first place?

I will take the first question. This is on capital recycling. Yes, indeed, it has slowed. I have alluded to the fact that even on the investment side, we have been a bit more cautious in terms of our acquisition activities for the funds in the first half. But we believe that we are still working on quite a number of monetization opportunities. And we believe that the pace will pick up, and we still are looking to hit that $10 billion to $12 billion by 2026. So on the second, there was another question on the -- what was it? Can you -- which bucket? We don't disclose the buckets. But suffice it to say, I think I've explained this before, we have a very -- we have a program. So for every 6 months as we look down maybe 2 to 3 years, what are some of the assets that we could potentially monetize. And of course, this is not -- this is just our planning. So over time, some markets will probably not allow us to monetize, but there will be some assets that would be -- that we can move forward. So as I explained in examples before, it's a bit like planes taking off. So we have a control tower. So over time, we see if there are some slowdown in particular flight then we will see whether we can move any of these projects that we have targeted for monetization in later quarters or 6 months to move them forward. So as I said, we don't give a breakdown of what the different buckets are. But generally, we are looking to see -- we expect to see this pick up in the second half.

Maybe I'll touch on the second question. First of all, on real estate, you asked about the operating loss. I think I did cover that in my address, I highlighted the points that contributed to the net operating loss in real estate, mainly because this year, there was an increase in net interest expense. There's also an increase in some expenditure on new initiatives. And at the same time, I also mentioned about lower returns from some of the sponsor stakes. And this includes, for example, interest in Keppel REIT. And you have seen the announcement -- results announcement from Keppel REIT, this year, they had lower fair value gains from investment properties. So we took a share of that, and that resulted in the lower operating profit for real estate. You also asked about infrastructure. They did very well this year indeed. We actually have a recurring business, right? We actually also operate a power plant, right? So there are recurring income coming from those businesses. But of course, there would still be market movements. So it is a recurring activity, but there would still be market movements like electricity prices but we do actually lock in, as I think Chin Hua mentioned in his opening address, right, in some of the retail contracts that it's locked in 1 to 2 years. And at the same time, we also hedged our gas prices. So as a result, we do contract -- we have contracted spreads that are sustainable, right? But of course, market -- you are still exposed to market movements beyond a certain period. Yes. So the short answer is, yes, it is a recurring business and it's indeed a recurring income.

Maybe I also ask Cindy, you want to add anything to that?

Sure. So the infrastructure division under Keppel runs an integrated power business as well as a decarbonization and sustainability solutions business. So as we have seen in the slide earlier, under our integrated power business, our margin contribution comes from the way we contract our gas, the way we run our generator, in this case, the CCGT, we have 4 units. And the way we secure electricity retail contract. So the contracting strategy, the gas purchase strategy and the ability to run our generator at high efficiency and high reliability all contribute to healthy spread. That's one. And under our recurring business for decarbonization and sustainability, we do have long-term O&M contracts. The ability to improve efficiency in terms of how we run such critical assets become our secret sauce because of how we reduce OpEx, how we improve uptime, whether in the district cooling plant, in the waste energy plant as well as water plant. So I think all these add up. And what we see is promising learning curve efficiency that translate directly to the bottom line.

You would also note that in my speech that I mentioned about the amount of the total quantum of -- between the EaaS as well as the O&M contracts that was -- Cindy mentioned, is about $4.1 billion, and this number is growing. So I think these are all indications that, yes, we are in this business. There are some volatility as what Hon Chew said. But at the end, we are making it. It's a recurring business, and we are also changing the business model to allow us to have longer-term contracts that will improve the quality of the earnings. Okay? Yes.

This is Brandon from Citi. Just a few questions. The first one would be on this additional $12.4 billion that you put out as part of the AUM. Can you share with us the speed or timing at which they can be converted into FUM. It seems that $8 billion of this are like real estate and the remaining $5 million is infra. Yes. Do correct me if I'm wrong.

Sorry, what was your -- you are telling me what the number is?

Yes. I mean I just want to confirm whether I'm wrong, or I'm right. Yes, because it seems that a lot is catered towards the real estate. Yes. That's my first question. The second would be the $13 billion of deal pipeline that you've guided. Can you share with us your -- the chances of converting them into actual business or FUM, so to speak. The third one would be for Keppel REITs DIS. Can you share with us the ROE impact of that and the rationale behind divesting 9%? And why not 15%, and why not 20%? And why now?

Okay. I think the first question, I'm trying to -- now getting old, cannot remember all the questions. First question is on the $12.4 billion. This is how quickly we can -- well, first the what's the composition of this one. So you can see that -- I think that -- of course, there are various real assets in there. These are assets that we have also identified in our monetization, right? So you work out, we have said $17.5 billion as a target from October. We have also now announced about $5 billion. So we have about -- so the number kind of tallies quite closely. It doesn't match exactly but it tallies quite closely. Some of these would be land bank. You are right. But some of it would also be the credit notes, which are quite a significant part of that. Now in terms of the pace, I think this would be along the same lines of what we have said that we expect to get between $10 billion to $12 billion by 2026, which means that we are currently at $5 billion. So we have to do about another, say, between $5 billion to $7 billion over the next 3.5 years. So that's roughly the pace. Your next question is on?

$13 billion of deal pipeline.

The $13 billion, deal pipeline maybe I'll ask Chris to answer that.

Yes, sure. Brandon, on the $13 billion of deal pipelines, I think we are seeing a lot of deals now in infrastructure, in real estate as well as connectivity sectors, segments. So like in real estate, we have just recently closed the deal in Korea. We're seeing more because of the illiquidity in the market. I think now it's a more interesting time to look for deals in the market, given a bit more stress in the system. So you will see cap rates actually expansion, which is actually more to the benefit of the buyers. So people with dry powder actually it is the best time to look for deals now. So we are looking at deals across in the key markets, whether it's Japan, in Korea, in Australia, some of these key markets that we are focused on. In infrastructure, I think we are also seeing quite a lot of interesting deals. We always focus on deals that provide essential services that generate good long-term cash flows for investors. So some of this will be also looking at leveraging on our Keppel's key capabilities. So whether it's in the digitalization area, it's subsea cables, whether it's in the energy transition working with Keppel Infrastructure team. So these are some of the key focus that we have.

Are you able to share the rate of conversion of this $13 billion?

The rate of conversion, yes, sure. I think the -- actually, most of -- quite a lot of deals we are in negotiations and discussions with the potential seller right now. We are looking forward to converting quite a number of these deals in the third quarter as well as in the fourth quarter of this year.

Maybe Hon Chew, you can answer the question on impact on ROE?

Yes, okay, sure. We actually have a separate announcement that actually depicts the financial impact. So I will explain using the pro forma that is included there. There will be a onetime impact on net profit. So on a pro forma basis, using the 2022 numbers, mainly assuming the DIS was done 1st January of 2022, there will be an impact on the profit, it will be impacted by $135 million on a pro forma basis because the Keppel REIT shares are still trading below net asset value, right? So that's one component. But of course, if the DIS is done at the beginning of the year, the equity share of profit from Keppel REIT also comes down. So there's 2 elements of the onetime impact. But this is just onetime. Going forward, the DIS reduces retained earnings. It will help to enhance our ROE.

Yes, so your question is why this particular amount? I think first and foremost, I would say that Keppel REIT is a very important REIT for the group, and we remain very fully committed to Keppel REIT. But as part of our capital management exercise, we have looked at how we can monetize some of the assets that we have. So this would -- if approved, this will become part of the monetization. But instead of selling it, we felt that it actually represents quite good value. And the yield, I believe, is about 6%, 6.5%. So we thought this would be better that we distributed in-species to our shareholders. And I hope that many of our shareholders will continue to hold this very good REIT, very well managed by a strong management team and a Board. And of course, the assets are best-in-class in Singapore, in Australia. So I think for all those reasons, we think that -- and of course, as I shared earlier, this would also go towards improving the free float for Keppel REIT. So for all those reasons. But I think we are quite sure that this is what we want to hold at this point. So I don't see that, to your next question, are there anything planned if you're thinking about that? Short answer is, no. Nothing is planned for the moment. So we are quite comfortable with this number. I think Siew Khee was next.

Yes, front row.

Siew Khee from CGS-CIMB. Can I just check on infrastructure? I do understand that you mentioned there's market movement. And you also mentioned that your contracts are actually contracted for 1 to 2 years? Is it 1 to 2 years from 2023 or 2022? That's one. And then -- and I understand that you hedge your gas because I think gas has been quite all right in terms of the pricing year-to-date. And do you have gas sales in the division. That's why electricity cost jump up? Or is it purely because of repricing of electricity prices with the retail customers, which include industrial, I suppose? And so that is like first question on whether we just want to ascertain your $319 million operating profit of infrastructure, whether it will sustain there, right? Because in there, you have O&M of plants, you have power sale and probably some EPC recognition somewhere...?

Can I stop you there, Siew Khee? Before you go to the second question, I ask Cindy to address it.

The electricity, 1 to 2 years that we disclosed is this year, starting from, yes, January. Having said that, we are already actively also executing our contracting strategy for next year, which I can't reveal what is the percentage now. Earlier, I mentioned our integrated power business, you are right. We also selectively retail gas. I think the important point here about managing the spread is also how we diversify and manage our gas supply, be it pipe natural gas, LNG and depending on the market situation, we may also opportunistically do spot cargo. So as to whether there are margin from gas sales at first half, we don't break down the contribution because that is our secret sauce to running an integrated power business to provide that resiliency and minimize volatility in this recurring business.

Sorry, just to clarify that, the spot cargo gas sale is included in the operating recurring nature?

When we do spot cargo gas if it happens, will be used to generate our generator.

Okay. So you don't do gas sale. You only sell your excess?

We do sell some excess gas as part of our business.

Okay. But that would just be like a recurring business, okay, I understand. And also I know that you're growing your energy assets so there's, so in terms of revenue, it's quite high. But how should we look at the profit and margin on that? And I know it's long-term contract, but is the profit material? And when will it be material?

We don't think we can share with you that. I mean that's -- you're asking us for the margins, right?

So I think the way to look at it is in one of the slide we did show the contribution from integrated power business as well as the contribution from decarb and Sustainability Solutions business. Here the key is to show the growing contribution from our EaaS and O&M business. One thing to note is the new contract that we announced as secure has not translated to contribution because these are newly secured in the first half. So what we can suggest is, as we execute the project, the top line will translate into the bottom line in the next months to come.

I just have 2 more questions. In terms of -- I'm sure the property analysts really ask a bit more detailed question than this, but just wanted to hear your view on China home sales actually dropped so significantly in 2Q. And whether you think that the recent meeting in the government, whether that actually gives you a bit more hope in the sector in China? And my last question is, where is the coupon for Asset Co part?

Maybe Louis...

I'll do the property one first. So I think Siew Khee very consistent with what you said we, as mentioned, did see some green shoots in the first quarter, but in the -- sorry, second quarter, has continued to be challenging. So I think we just see an uncertain market ahead, even though we are always cautiously optimistic, we're also prepared for navigating the market as I think the other players are. But as we do this, I think we're looking still for opportunities where we can invest with co-investors through funds into the China market where appropriate. And at the same time, we're also investing in things like our Engine 2 products. So we're launching our senior living business at the end of the year and also looking at sustainable urban renewal.

Generally, as you I'm sure would have read, it's quite challenging at the moment in China. But I think medium to long term, as I -- as we said in the speech, for those cities that we are looking at and also for those solutions we are providing on sustainability, we still see a lot of good traction long term. Hon Chew, if you can touch on that.

Yes, right. So the interest income on vendor notes is under other operating income.

In corporate and...?

Under other operating income line.

And in corporate and others are...?

Under corporate. You're asking the segment?

Segment, exactly, where is it important to...

Sorry, sorry, I just had one more last question. I know that you actually had 2 plots of land sale in Tianjin Eco-City. Do you -- are you able to share the profits for the second plot?

That was around $14 million.

Yes, yes, $14 million on the first one.

The second plot is...?

Not yet recognized.

Can you share the -- okay.

Joy from HSBC. A few questions from me. First of all, just a follow-up on Asset Co. You've done some impairments prior to divesting. Is there any room for potential write-backs? And would that affect your sort of earnings going forward on that part? And secondly, on Asset Management segment, could you share a little bit more on the current LTVs for the existing fund? And you also mentioned sort of new funds under marketing, what are the typical fund size that you're looking at, given how the fundraising market? Could you share a little bit of LP's sort of required returns and color on that?

So I'll ask Chris to answer the second and third question. But before that, on Asset Co, we can't speculate on write-backs. All I can say is that the credit notes are backed by the -- as you know, by the rigs. And the rig market has certainly improved. We are starting to see utilization rates for jackups rising to, I believe, 83%. You also have drillships, new generation drillships as high as 97%. So we are starting to see -- once the utilization rates go up this high, day rates are also improving. So we are obviously watching this very closely to see one, whether we can move forward the monetization of these credit notes. And two, whether we can -- how that would happen an -- would have a positive impact on our P&L.

Okay. Joy, on asset management, for the private funds, the typical LTV is not more than 60% on a portfolio basis. So typically, we would borrow less than 60% at a portfolio basis. In terms of the kind of fund size that you are looking -- we are looking at for the new funds. Basically, the Keppel Sustainable Urban Renewal funds, for KSIF, Keppel Core Infrastructure Fund and then for KAIF II we're probably looking around about $2 billion in terms of U.S. dollars in terms of the fund size. But the -- most of these funds have different accountants. So like for KSIF, KAIF is more -- KSIF is core plus, whereas KAIF II infrastructure is more like a value-add fund. And then rest for Keppel Core Infrastructure is more focused on yield with a single-digit total return, and that's a more evergreen fund in nature, yes.

If I just follow up your stake in these funds, would it be in line with the traditional stake?

Yes, I think typically Keppel will always put in our -- the stake as our quite in the past in traditional stake. But I guess where we see that there's actually very interesting opportunities. Keppel will look to actually put more into the funds as well, yes. But I mean, right now, we typically follow what we would do as a sponsor stake into each of the funds.

And could you share today with your existing $50 billion AUM, what's your sponsor stake?

I think our average is about maybe $10 billion to -- actually, it's less than that, it is $3.6 billion out of $50 million, yes.

Maybe if it's okay, we'll take one question from -- 1 or 2 questions from online. I think Derek of DBS has been waiting a while. So he has -- Derek has 3 questions. First question, management spoke about better opportunities in the second half '23. What kind of further discounts to valuation you're anticipating and which markets and type of asset classes? I think that's something that you have already addressed?

Yes.

Yes, anything else you want to add to this?

No. I mean, Derek, the opportunities are really in all the 3 sectors that Keppel is good at, whether it's in real estate, infrastructure or connectivity and we are seeing that the market is coming closer towards us. So like whether it's in real estate, it's probably -- we're seeing cap rates expansion anywhere between like 50, 100 basis points or even upwards of that or depending on the seller's position. For infrastructure, as we said, we always look at essential services, things with good cash flow. So those, we don't look at cap risk expansion, but we always like infrastructure as an asset class given there's CPI index as well so that matches the income and liabilities really well for our investor base. For connectivity, I think given the capabilities that we have in-house on data centers, on the subseas and all that I mean this is something that is more deals generated by ourselves, by our respective data center team.

Second question from Derek, again, maybe for Chris. What is management's view about setting up a private credit fund?