Hankore

Hankore: Announced that the exclusivity period for the M&A in which HanKore will acquire all water assets of China Everbright (CEI) will be extended to 31 May 2014 (original expiry date was 29 Apr 2014). DMG views the one-month extension of exclusivity period as reasonable. Reckons the extension is necessary for both parties to finalize the details of the merger, i.e. due diligence process and the consideration price for China Everbright’s array of 22 projects with 1.98m tonnes/day capacity. Believes there is minimal downside risks, given that there is strong incentive for the CEI merger to come through: i) strong synergies – both have a foothold in Jiangsu and Shandong region, owning key large-sized water treatment plants in the areas; ii) HanKore will gain state-backing that will enable it to significantly lower financing costs – from 7.5% to under 4% – and thus improving IRR on its projects; and iii) CEI will gain access to a strong management team in HanKore DMG assumes the CEI merger will go through. Maintains Buy with TP $0.161.