The South Korean fund has made history with a first-of-its-kind minority stake acquisition in China. It joins a company that is looking to use its relationships with international financial backers to create a model for Chinese water project developers abroad.

In the first ever investment by a South Korean company in the Chinese private water treatment sector, IMM Investment bought an 8% stake in Chinese private water developer and operator United Water Corporation for $40 million in late April. Both parties expect their international expansion plans to benefit from the deal.

United Water has secured investment from a variety of international funds since 2007, including Blue Ridge Capital, Infinity Fund, the World Bank’s International Finance Corporation (IFC), and Olympus Capital Asia, although not all of these investors have kept hold of their stakes in the company.

With a solid domestic water portfolio consisting of 23 existing concessions, the company has ambitious plans to expand overseas into other Asian developing markets by leveraging the partnership with IMM.

IMM, for its part, has been actively eyeing increasing its exposure to Asian infrastructure with the former director of Asia Infrastructure and Resources at the IFC, Hyun Chan Cho, on board since 2019. In addition to United Water’s stable water revenue-generating capability – the company has a combined water and wastewater treatment portfolio amounting to 2,600,000m3/d of capacity –synergies are expected to be created through the investment.

“I think for IMM we are a good fit, as we are both looking to expand our inter-national businesses,” James Beeson, CFO of United Water, told GWI this month. “IMM has historically focused on South Korea, and is now seeking opportunities in Asia, while we have historically been focused on China and are now also looking to expand our operations overseas, mainly targeting regions in South and Southeast Asia where there is a significant need for water infrastructure development, driven by economic and population growth, and by urbanisation.”

United Water made its first move abroad last year, signing a deal with the Bangladeshi government on 12 November to finance, build and operate water supply facilities with a capacity of 340,000m3/d in Bangladesh’s biggest planned new township, Purbachal New Town, on the outskirts of capital city Dhaka. The company is cooperating with local player Del-cot Water on the project, which includes 15 deep tube wells and over 600km of water distribution network. It is the first water project in Bangladesh under a public-private partnership initiative, with a total project investment of $70 million. “The project aims to reach financial close and start construction in October this year, while closely monitoring the current situation in Bangladesh as it is still under lockdown,” Beeson said.

With the majority of China’s water companies pursuing their interests globally mainly by cooperating with large state-owned EPCs that have extensive project experience in the regions along the One Belt, One Road international initiative routes, great challenges remain for private Chinese developers seeking to establish themselves overseas on a stand-alone basis. Common obstacles include a lack of local networks, language barriers, and cultural differences in working habits.

Besides acquiring foreign technologies to access markets abroad – which Chinese private systems integrator Shanghai Safbon did through purchasing Doosan Hydro Technologies, KWI and ItN Nanovation (securing projects in the United Arab Emirates and Kazakhstan as a result) – establishing a good relationship with international organisations could be another way to facilitate the process.

United Water has been working closely with the IFC to source deals outside China since bringing in the institution as a stakeholder alongside private equity firm Olympus Capital Asia through an equity financing round in 2015. “The IFC introduced us to the Bangladesh project, and they acted as advisor to the local government on the contract. The IFC encouraged us to look at expanding the business internationally and introduced us to potential overseas opportunities,” Beeson explained to GWI.

The company has also turned its subsidiary Suqian Yinkong Tap Water into a platform holding all its project investments in order to enable it to file for an initial public offering (IPO) on the main board of the Shanghai stock exchange. “Our plan is to file during the second half of this year. The proceeds will be mainly used for business expansion both domestically and internationally,” Beeson added. “The listing plan is also one of the rea-sons that IFC and Olympus Capital Asia exited in 2019 and 2020 [respectively], as they were unable to extend their investment life that long.” The turnaround time between application and listing on China’s mainland exchanges is typically more than a year.