SINGAPORE (Feb 6): Sembcorp Industries has reported that it expects to book a net loss for 4QFY2019 ended December on the back of impairment losses worth $245 million. 

In a regulatory filing on Thursday, the group says that the impairment losses arose from its periodic assessment of the recoverable amounts based on expected future cash flows of its energy assets. 

One of the contributors to these losses includes a $64 million impairment from the group’s divestment of its water business in Chile, which was also reported on Thursday. Under the divestment, Sembcorp Utilities - a wholly-owned subsidiary of Sembcorp Industries - agreed to sell 100% of their interests in the water business for a total consideration of 27.8 billion pesos ($49 million) to SACYR S.A., a Spanish construction company. 

The net asset value of the assets involved in the divestment was noted to be $107 million. 

The group notes that impairment, which includes transaction and costs, will be booked due to the difference between the sale and net asset values of the business. In addition, a foreign currency translation loss, which stood at $30 million as at end-December last year, will be recognised upon the completion of the sale. 

The divestment is expected to be completed by mid-2020, subject to the satisfaction of certain conditions precedent, including merger control clearance in Chile. 

“Realisable value for the assets has been impacted by escalating operational and regulatory costs as well as the deterioration of Chile’s economic, social and regulatory environment since October 2019,” says Sembcorp Industries. 

“The business is also facing increasing uncertainty and risks in the Chilean water sector including the potential reduction of regulated returns,” it adds. 

Apart from the divestment in Chile, Sembcorp Industries’ impairment losses include a $158 million impairment of UK Power Reserve (UKPR) assets, as well as a $23 million impairment in China for its wastewater treatment assets. 

The group says that its divestments in the UK and China came on the back of challenging market conditions and the introduction of new and more stringent effluent discharge standards respectively. 

Despite a stumble in its 4QFY2019 results, Sembcorp Industries still expects to deliver an improved underlying profit for FY2019 than FY2018, as its energy business continues to deliver positive net profit figures. 

Sembcorp Industries will release its unaudited consolidated financial results for 4QFY2019 and FY2019 on Feb 21. 

Shares in Sembcorp Industries closed four cents higher, or 1.9% up, at $2.16 on Thursday prior to the announcements.