Some shelter from the recession. CitySpring Infrastructure Trust posted S$97.3m in 4Q revenue, up 1.5% YoY but down 4% QoQ. Cash earnings rose 8% QoQ and 7.3% YoY to S$21.8m. CitySpring will pay out 1.75 S cents in 4Q DPU, flat QoQ and up 9.4% YoY. The manager guided that SingSpring and Basslink's long-term availability-based contracts should provide some protection from the economic downturn. However, it cautioned that City Gas could face a "more challenging environment" in FY10. About 50% of sales by volume are derived from industrial and commercial users such as hotels, who may see business slowing down in line with the economy. Households, which contribute the other 50% of sales, use town gas for essential activities like cooking.

DPU maintained at 7 S cents. Manager's guidance for FY10 DPU is 7 S cents or a yield of 12.6%, unchanged from FY09. This is roughly equivalent to 56-57% of total cash earnings. A further increase in the payout ratio is unlikely, in our view, because of the high level of debt and the nature of the businesses (which have seen cash flows fluctuate on a quarter-to-quarter basis).

Organic growth possibilities at Basslink. Basslink's plans to commercialize its fiber optic cables are well under way. CitySpring terminated Basslink's telecoms agreement (TA) with the Tasmanian government in April and the network should be operational in the next couple of months. Basslink has already signed up some customers - the manager guided that these revenues should "more than compensate" for the lost A$2m/year (our estimate) from the TA.

Cash call worries. Several Temasek-linked companies (TLCs) have announced equity issues in recent months. In cases like CitySpring where Temasek is a direct shareholder, Temasek has given monetary support to the TLCs (by subscribing for rights issues, for instance). We think that CitySpring is not the most urgent recapitalization on the table from Temasek's perspective - cash flows are fairly stable and the trust's first loan maturity is only in 2011. But the situation as it stands is unsustainable, in our opinion. The trust has S$1.6b in debt which dwarfs equity (compare this to the net proceeds of S$391.2m raised from the 2007 IPO). S$370m of that debt is at the trust level - infrastructure loans are typically at the asset level - a stopgap measure at best. CitySpring could potentially tie an equity issue to a new acquisition or raise funds opportunistically to capitalize on the equity market's recovery. Maintain HOLD with S$0.57 fair value.