Cascal Trickles Into China

Global water services provider Cascal announced a 51.0% stake in a new joint venture company in China's Henan Province that's expected to expand its Chinese presence to more than 1.5 million residents.

Cascal N.V. said its subsidiary, China Water, will partner with the Zhumadian Bangye Water Group, forming a new joint venture company called Zhumadian China Water Company. Exact details of the long-term contract weren't released but similar contracts made by Cascal typically run for at least 20 years.

Cascal's subsidiary agreed to acquire a 51.0% stake in the company for $18.0 million. Cascal shares rose 28 cents, or 2.7%, to Monday's trading session at $10.79.

"The signing of the Zhumadian joint venture agreement represents another important milestone in the growth of our China Water subsidiary, and our second significant acquisition in China this year. China has been our fastest growing region, and we anticipate this trend to continue in the future," said Cascal's Chief Executive, Stephane Richer.

Water treatment is in high demand in developing markets where increased industrialization, which swallows water supply and creates more pollution, makes uncontaminated water a precious resources for the countries' growing populations (See: Innovation: Water's Life Saver).

Zhumadian China Water Company will provide water services to 400,000 people and is slated to begin operations in the next few weeks. Cascal said Zhumadian Bangye Water Group will transfer its water supply assets to the joint venture once Zhumadian China Water receives its business license.

Cascal plans to fund the majority of its acquisition through its corporate debt facility with HSBC , which was recently increased to $60.0 million from $20.0 million.

The new joint venture company plans to invest $42.0 million to construct a water treatment plant for extra output of 26.0 million gallons a day. The new plant will supply seven major industrial customers, including companies involved in power generation and chemical and steel production.

Cascal expects the acquisition to add an additional $6.0 million to $13.0 million to its sales through the first three years of the long-term contract. The British company provides water and wastewater services to Great Britain, South Africa, Indonesia, China, Chile, Panama and the Philippines for a total population of 3.6 million. Last April, it guided for 2009 sales between $179.0 million and $184.0 million, a 13.0% increase from 2008's expected sales.

Cascal reports fourth-quarter and 2008 year-end results late Tuesday.

(Forbes)