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Turning trash into gold

Samantha Chiew and Chloe Lim
Samantha Chiew and Chloe Lim9/8/2022 09:38 PM GMT+08  • 8 min read
Turning trash into gold
The waste management industry has long been known to be a resilient one. In uncertain times like today, is this sector rubbish or a gem? Photo: Unsplash
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With an increasing awareness of environmental, social and governance (ESG) matters, the zero-waste movement has grown, as more people try to cut back on their amount of waste. While the overall volume of waste can be reduced, waste cannot disappear completely — it is something communities will produce day in, day out, making the business of managing and treating it a resilient one.

As consumers and businesses become more conscious of the need to reduce waste in the name of sustainability, market players, both existing and new ones, have identified new opportunities by coming up with more efficient ways to operate such businesses.

Long before companies started looking at reducing their carbon footprint or going green, waste management companies have already been doing so as the original ESG players in the market.

Efforts gone to waste management

Several companies listed on the Singapore Exchange (SGX) are in the waste management business. Enviro-Hub, headed by chairman Raymond Ng, was listed in 1998 as Leong Hin Holdings before the name change in 2005. Another example is 5E Resources, with its operations in Malaysia, listed just four months ago in May.

As part of its broader so-called integrated urban solutions portfolio, government-linked Sembcorp Industries has a subsidiary that is one of the key waste collectors here. For 1HFY2022 ended June, its solid waste business generated a turnover of $113 million. Although this amount is a fraction of the company’s total turnover of $4.76 billion, the revenue from this business was the same back in 1HFY2021 — given how waste collection contracts are mainly long-term ones, thereby, translating into better certainty in cash flow for companies.

See also: Deglobalisation is a climate threat

Indeed, this particular aspect of the industry might be one of the reasons that has attracted its share of M&A deals. On Aug 24, Keppel Corp announced that it is expanding its waste management business with the acquisition of an 80% majority stake in waste collector 800 Super Holdings, through a consortium comprising Keppel Asia Infrastructure Fund (KAIF) and Keppel Infrastructure Holdings.

KAIF and Keppel Infrastructure will hold 48% and 32% interest respectively in 800 Super, while William Lee, 800 Super’s co-founder and CEO, will hold the remaining 20% interest. Lee will continue in his role as CEO post-investment by the Keppel consortium.

Currently, Lee holds a 20% indirect interest in 800 Super, which will be acquired by the Keppel consortium. After the completion of the acquisition, Lee will reinvest substantially all of his sale proceeds to subscribe for a new 20% indirect interest in 800 Super. The total purchase consideration for the 100% interest in 800 Super is $380 million, of which the Keppel consortium will be funding $304 million.

See also: Temasek's Stewardship Asia Centre honours 25 APAC organisations for exemplary steward leadership

800 Super was previously listed on the SGX in 2011 at 22 cents per share. It was then privatised in May 2019 at 90 cents with the help of renowned PE firm Kohlberg Kravis Roberts & Co. The privatisation offer represented a premium of 30.6% to 800 Super’s one-month volume weighted average price, based on the closing price of 81 cents on April 26, 2019.

Keppel’s acquisition comes hot off the heels of the bid by Keppel Infrastructure, KAIF and Keppel Infrastructure Trust to acquire a South Korean waste management company for $666 million. Announced on Aug 8, this deal is expected to be completed in 2H2022.

Singapore’s state investment agency Temasek Holdings, too, has been making moves in the waste management sector through its investment platforms. In June, it announced that it will be committing some $5 billion to set up GenZero, an investment platform aimed at driving solutions in energy-saving and carbon-reducing technology. One of GenZero’s notable investments include US-based bio-material manufacturer Newlight, which produces methane from waste plastics.

Newlight’s notable products include AirCarbon, a thermoplastic material made by melding air and methane-based carbon emissions to form a non-polluting material. AirCarbon is used in the process of recycling as a type of “biological digestion”, where AirCarbon absorbs greenhouse gases.

Temasek’s investment in Newlight forms part of its efforts to support Singapore’s larger sustainability mission. It is no secret that although Singapore is a small country, it has a high rate of waste generation as a metropolitan and urbanised city.

According to the National Environment Agency, Singapore’s growing population and booming economy contributed to an around sevenfold increase in the amount of solid waste disposed of, from 1,260 tonnes a day in 1970 to a peak of 8,741 tonnes a day in 2021.

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Infographic: Irene Saswito/The Edge Singapore

Future of trash

To tackle Singapore’s waste solution head-on, Singapore has introduced a Zero Waste Masterplan to build three new resiliencies: climate resilience, resource resilience and economic resilience. The Ministry of the Environment and Water Resources has set an ambitious target: to reduce the amount of waste (per capita) that is sent to landfills by 30% by 2030. This is on top of its existing target to achieve a 70% overall recycling rate by 2030.

Today, about 61% of Singapore’s waste is recycled while the remaining is incinerated, with a fraction sent to Singapore’s landfill “island” Semakau. The Semakau landfill island was created in 1999 and extended in 2015 to meet Singapore’s waste disposal needs until at least 2035. The landfill, which spans over 350ha, received in 2021 an average of 2,098 tonnes of incineration ash and non-incinerable waste each day.

With Singapore’s land scarcity, the country has struggled with room for waste disposal. Hence, effective waste management and recycling efforts have become a strong focus for Singapore.

According to McKinsey, there is a potential for a fourfold increase in plastics reuse and recycling by 2030. This would then generate US$60 billion ($83.7 billion) in profit-pool growth for the global petrochemicals and plastics sector.

By association, such trends will drive the demand for workers with skills in science, engineering, automation and related capabilities.

Furthermore, according to global business information publisher MarketLine, the Singaporean waste management industry had total revenue of $400 million in 2020, representing a CAGR of 0.7% between 2016 and 2020.

With that, the Singapore government vows to support the industry transformation and the upskilling of the country’s workforce to create new economic opportunities for local companies, and sustainable jobs for Singaporeans.

Currently, there are about 500 waste management companies, employing about 12,000 workers who provide services from waste collection, sorting, recycling, and waste-to-energy solutions, to project consultancy, as well as research and development. There are also about 320 licensed general waste collectors in Singapore.

Already, Singapore’s efforts have shown some improvement. According to MarketLine’s research, the industry consumption volumes declined with a compound annual rate of change of 0.6% between 2016 and 2020, to reach a total of 7.5 million tons in 2020.

Keppel is expanding its waste management business by acquiring a majority stake in 800 Super Holdings through a consortium. Photo: 800 Super

Opportunities in Asia

Although waste is a global problem, Asia, in particular, is increasingly regarded as a hot market for greater sustainable action and the creation of a “circular economy”, across many energy services operations and particularly in the waste management industry.

“The opportunity is in Asia, and opportunity has always been the prime move to mobilise capital,” says En Lee, LGT Group’s managing director and head of sustainable and impact Investments in Asia, in an interview with The Edge Singapore, on the topic of wider sustainability-related investments.

This is considering how Asia as a region is also seeing a spike in wealth accumulation, where wealth has grown fourfold such that Asia now accounts for some 42%, or US$218 trillion, of total global wealth, according to a report by McKinsey Global Institute.

“So we now have that critical intersection of the largest accumulation of wealth and intergenerational transfer in the same place as some of the most significant developmental challenges from financial inclusion, [energy consumption, to waste management],” En adds. “Now, there is that ability to give back in a way that can really inform future generations, and to do it in a way that retains an [Asian] identity, values and its legacy.”

While the issue of excess waste production is not an Asia-specific issue, there continues to be tremendous opportunity to invest in South and Southeast Asia, infrastructure and business-wise, according to Regula Schegg, managing director, Asia, at Circulate Capital.

“With Asia’s rapid levels of growth, production and development in this day and age, this invariably makes the region a consumption powerhouse, which gives an enormous opportunity for investments, particularly to those ‘circular’ in nature, that we hope to build into our solutions [in the waste management sector],” says Schegg.

This phenomenon can be seen in several Asean countries such as Thailand and Indonesia, where pollution and wastage levels are at all-time highs and, fortunately, see a growing amount of business development in the area of waste management to provide solutions for this problem.

While the world progresses to reverse its harm on the earth, there continues to be much work to be done, considering the amount of waste that is expected to be produced moving forward.

Cover Photo: Unsplash

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