Darco: No decision reached on whether to proceed with Gaoyi project

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Darco Water Technologies emphasized Friday it has not yet reached a decision on whether it would proceed with an investment in the Gaoyi project, citing outstanding information needed from Wang Zhi and expected by end-September.

That was in the company’s response to a letter earlier this month from Singapore Exchange Regulation (SGX RegCo), which had directed Darco to disclose a detailed report on the status of the investment.

In 2018, Darco Water Tech said it signed a non-binding letter of intent with Wang Zhi for a proposed investment in a build-operate-transfer Gaoyi Domestic Waste Water Treatment Project with a 30-year concession. Wang Zhi, who held his stake in the project via He Bei Kai Yuan Cheng He Water Engineering Co. (HKC), was to transfer his equity interest in the project to Darco, the letter had said.

So far, Binnies Singapore, which was appointed as an independent party to conduct due diligence in June, has only conducted the first of five stages of its evaluation, Darco said in the response filed to SGX Friday.

According to the filing, Binnies told Darco it had not been provided with document proof to show some of the conditions of the deal had been met, including completion of a plant upgrade; verification of key assumption on plant-operating parameters and costs; and procurement of approvals on concession rights and licenses from Chinese authorities to take over the plant.

In addition, the filing said Binnies pointed to a need for substantiation of some assumptions in the cash flow projection document to show the investment would meet its 12 percent project internal rate of return (IRR) target.

“A major doubt is cast on the treatment volume of 40,000 cubic meters/day in the near future when the concession agreement is only for a 20,000 cubic meters/day plant with no mention of 40,000 cubic meters/day,” Binnies said, according to the filing. “Based on a preliminary review of the cashflow projection document, it appears that for the Gaoyi Asset to achieve a 12 percent project IRR at a value of 60 million yuan is less than likely.”

Binnies added that it did not recommend proceeding further with subsequent stages of the due diligence work as none of the critical requirements for the deal have been met.

Read Darco Water Technologies’ full response to SGX RegCo’s letter.