Published October 3, 2008

EPF invests in Paradigm developer

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(KUALA LUMPUR) Malaysia's Employees Provident Fund (EPF), a cash-rich retirement savings fund, plans to invest almost half a billion ringgit (S$208.5 million) in a commercial project in Petaling Jaya, a deal that sees it tying up with WCT Bhd, a construction and property group, says a report in Malaysia's Business Times.

The EPF is also a substantial shareholder in WCT, holding 17.22 per cent.

The tie-up also comes as the cost of borrowing money in capital markets has risen. A weak stock market makes it difficult for companies to raise funds.

'(The deal) provides an opportunity for WCT to raise funds for the general working capital requirements of the WCT group and to finance viable property development projects that may arise in the future,' WCT said.

Under the deal, WCT will sell 30 per cent of Jelas Puri Sdn Bhd (JPSB) to the EPF for RM87.36 million cash. JPSB will also issue five-year redeemable secured loan stocks worth some RM390 million to the EPF. The loan stocks carry interest of 6 per cent a year.

The bulk of the loan stocks, or RM320 million, will be issued in the first quarter of 2011, and the rest in the fourth quarter of the same year.

JPSB is developing The Paradigm, WCT's first high-rise commercial project in Petaling Jaya. The project has a gross development cost of RM1.06 billion, and JPSB has spent some RM107 million to date.



Last year, local authorities approved a revised plan for the project. It will feature four blocks of 27- to 33-storey office buildings, one block of 15-storey office suites, one block of 20-storey office suites and a six-storey shopping complex.

However, JPSB is preparing a new application to revise plans for the shopping centre and the four blocks of 27- to 33-storey office buildings, WCT said.

Shares of WCT on Bursa Malaysia closed seven sens higher at RM2.60 on Tuesday.

Published October 3, 2008

KL to discuss sensitive issues in US trade talks

Govt procurement and other thorny, erstwhile 'no-talk' matters to be aired

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(KUALA LUMPUR) Malaysian Trade Minister Muhyiddin Yassin says the government is ready to hold talks on sensitive areas including the thorny government procurement issue in trade talks with the United States.
Mr Muhyiddin: We hope for a boost in trade but it has to be on the basis of a win-win situation

'Earlier, it was a no-talk issue (but now) the Cabinet has given some indications that a non-binding sort of discussion (is possible),' Mr Muhyiddin said, according to a report by state news agency Bernama.

'It is not a negotiation or commitment. It is just a discussion,' the minister was quoted as saying.

He said a committee headed by Deputy Prime Minister and Finance Minister Najib Razak has also allowed talks on other no-go areas including Malaysia's competition policy, intellectual property rights and labour, Bernama said late Wednesday.

The US-Malaysia free trade talks began in March 2006 and have since been bogged down in sensitive areas including the services sector, investment and government procurement.

Kuala Lumpur has said it will not sacrifice its national interests to forge a deal with the US, referring to its affirmative action policies, which favours Malays in business and education.

The US is seeking access to lucrative Malaysian state contracts that favour the ethnic Malays and indigenous groups or 'bumiputras', as they are known.

Some local critics fear a free trade agreement (FTA) could leave Malaysia in an unfavourable trading position.

The Malaysian Trade Ministry said negotiations had moved forward during an eighth round of talks earlier in July in Washington.

'The ninth round of FTA talks is set to take place by year-end,' Mr Muhyiddin said, adding that Malaysia was pushing hard to secure the deal, although no deadline has been set yet.

'In general, we hope for a boost in trade but it has to be on the basis of a win-win situation,' he said.

The US is among Malaysia's top trading partners and wants a deal to be struck before President George W Bush leaves office in January 2009, although it has warned talks could end after then. -- AFP

Published October 3, 2008

Keppel wins two deals worth $150m

Both ship conversion contracts from repeat customers

By NISHA RAMCHANDANI
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KEPPEL Shipyard, a wholly owned subsidiary of Keppel Offshore & Marine, has landed contracts totalling $150 million from repeat customers for the upgrading, modification and conversion of two vessels.

The contracts are not expected to materially impact Keppel's FY2008 NTA and EPS.

Single Buoy Moorings Inc (SBM) has engaged Keppel Shipyard for the conversion of a tanker into a floating production, storage and offloading vessel (FPSO), which would make it the tenth FPSO conversion project undertaken by Keppel Shipyard for SBM since 2000. The second contract, from Golar LNG, will involve the conversion of a membrane liquefied natural gas carrier into a floating, storage, re-gasification unit (FSRU). This is Keppel Shipyard's second such project for Golar LNG.

'We are pleased to again be entrusted with new projects from owners who have worked with us before. We will continue to strengthen our partnership, providing safe and high quality services, especially in the current tight market conditions,' said Nelson Yeo, executive director of Keppel Shipyard.

Work on the vessels is expected to commence this month but the contracts are not expected to have a material impact on the net tangible assets and earnings per share of Keppel Corp for FY2008.

In a research note, Kim Eng Research said yesterday that it is downgrading its recommendation on Keppel Corp to a hold and cutting its price target to $7.65, as the tightening credit market is expected to put the squeeze on the overall offshore and marine sector.

'While Keppel's Offshore and Marine earnings are expected to be solid for the next 18 months on its current orderbook, we are concerned that its order flow will start to dry up,' Kim Eng analyst Rohan Suppiah said in the note. 'Drillers may be faced with little choice but to defer newbuilds as banks may be unwilling to continue to finance a business that is highly capital intensive and risky in nature.'

In addition, Keppel has an 80 per cent stake in subsidiary Keppel T&T, whose share price dropped 70 per cent over the last week on the back of sales by its second largest shareholder. Kim Eng estimated that the selldown wiped out 86 cents per share from Keppel's value.

Keppel also holds 70 per cent of the Reflections at Keppel Bay property project, where 'recent transaction flows have not been encouraging, with just six units sold in August'. The research report said that 'there are still 500 units left unsold'. Heavy construction costs are also expected to limit profitability.

Keppel closed 13 cents lower at $7.72 yesterday.

Published October 3, 2008

Rough seas ahead as credit crunch squeezes shipping

By VINCENT WEE
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THE mantra at the past few results briefings of major shipyards Keppel Corp, Sembcorp Marine and Cosco Corp (Singapore) has been that in various ways they all have 'good' customers who will not cancel contracts or default in any way. But as the days of the credit crunch get darker, one wonders if this is a case of whistling in the dark.

Drillers may be faced with little choice but to defer newbuilds, says Kim Eng's Rohan Suppiah.

Small cracks are starting to appear in the bold front from various quarters. UpstreamOnline reported earlier this week that Norwegian rig contractor MPF Corporation had gone bust despite trying to stay afloat under Chapter 11 protection.

Upstream said the company was hit by spiralling costs on its ambitious new drillship, the Multi-Purpose Floater 01 (MPF-01), touted as the world's first combination drilling and production floating platform.

The unit's hull lies at Cosco's Dalian yard awaiting mobilisation to Keppel Shipyard for fabrication of topsides.

Keppel itself has yet to disclose the fate of the 140 million euro (S$283 million) floating heavy lifter project which its Dutch yard Keppel Verolme signed with MPU Offshore Lift at the end of 2006 and who then filed for bankruptcy this July.

From the shipping side of the industry, some indications also started to appear this week when Star Cruises announced on Tuesday that a US$218 million sale- and-leaseback deal on one of its ships had fallen through. Although this will have little impact on Singapore yards, which are barely in the cruise ship market, what it suggests is a nervousness in the market that was not there two quarters ago.

And while contracts are still flowing through, the pace of expansion of some of their clients must be starting to pose a worry. Norwegian rig contractor Sea Drill, for example, in one fell swoop ordered nearly US$1 billion worth of jack-up rigs from both SembMarine and Keppel in June.

And it continues to have both new and outstanding orders with both yards while at the same time trying to take over competitor Scorpion Offshore.

If a giant like Sea Drill were to encounter problems with its credit lines, it won't be long before the banks start a panic run out of the sector, regardless of what the oil price is or is expected to be.

Some analysts remain confident about the sector for now. DMG and Partners analyst Serene Lim has maintained her 'buy' call and $4.28 price target on SembMarine based on sum-of-the- parts valuation.

Factors like continued contract flows from new clients, like the recent US$229 million jack-up rig deal with Sinopec, were cited as 'a pleasant surprise'.

Kim Eng Research's Rohan Suppiah, on the other hand, cut Keppel's rating to 'hold' and target price to $7.65 on concerns that order flow may dry up.

'While we have highlighted that offshore demand should remain strong on the back of the need for increased crude oil production, drillers may be faced with little choice but to defer newbuilds as banks may be unwilling to continue to finance a business that is highly capital intensive and risky in nature,' said Mr Suppiah in a note issued yesterday.

That, in a word, simply means that the industry must brace itself for possible storms, squalls and shallows around the corner.

Published October 3, 2008

Singapore recession will last several quarters: Citi economists

Worst will likely be in H1 2009, they predict in new report

By ANNA TEO
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(SINGAPORE) It's no longer a question of if but how severe, and not just 'technical' in nature.

Mr Chua: Severity, length of recession will depend on how global downturn and credit crunch pan out

The recession widely expected to have set in here may not be short and shallow but could well last several quarters, say Citigroup's Singapore economists.

And that's several quarters of year-on-year contraction in GDP, not just quarter-on-quarter dips, with the worst likely coming some time in the first half of 2009, the Citi analysts, led by Chua Hak Bin, write in a Singapore Strategy report published this week.

A technical recession in Q3 - with two consecutive quarters of GDP declines - had pretty much been on the cards even before the negative August manufacturing data released last week all but confirmed it. Economists across town have cut their estimates of Singapore's 2008 growth to sub-4 per cent.

Among the more bearish, Citigroup economist Kit Wei Zheng pared his GDP growth forecasts to 2.8 per cent for 2008 and 2.5 per cent for 2009. He reckons the upcoming Q3 flash estimates will likely show a one per cent dip from a year ago, and a 7.4 per cent fall from the preceding Q2.

Declaring that they are 'not ready to call the bottom', his Citi analyst colleagues say the severity and duration of the recession is still unclear, and will depend on how the global downturn and global credit crunch pan out.

'A protracted downturn, with a continued contraction in Q4 2008 and early 2009, cannot be ruled out,' they say.

Bear markets typically do not hit bottom until the economy is at or past the worst quarter of a recession, they note, and the current slump is only in its 50th week, still short of the average 85 weeks in previous bear markets with recessions.

The 1985-86 and the 2001 recessions each saw four quarters of year-on- year GDP contraction, while the 1997-98 Asian crisis had three. The 2003 Sars recession was a 'short' single-quarter downturn, due largely to successful disease containment rather than economic factors.

But now more than half of the world's economies (notably the major and big ones) are at risk of recession - with the US and the UK, in particular, on the brink of a systemic financial crisis.

Singapore's financial services will soon feel the impact of the credit crunch and global consolidation - and job growth may turn negative next year, the Citi report says.

Standard Chartered Bank economist Alvin Liew also believes the recession at hand here will not be short and shallow, as the externally driven Singapore economy lacks 'buffer' sectors such as commodities to help offset some of the global slump.

His forecasts see a small 0.4 per cent Q3 GDP growth from a year ago, but one risk is that the sequential contraction could be slightly deeper and could well lead to a year-on-year contraction - 'something not seen since June 2003', he notes.

Stanchart's GDP forecasts for Singapore have been slashed to 3 per cent for 2008, and 2 per cent for 2009.

'This is not just about export competitiveness, but . . . the implications of a protracted external demand collapse, and subsequent impact on domestic demand,' Mr Liew says.

Furthermore, inflation is not easing fast enough, he notes. Imported inflation 'is still hounding us', with core inflation remaining elevated at 5.8 per cent in August, he estimates. It would, therefore, be premature to switch entirely to an easing or even neutral monetary policy, he says.

Amid the gloom and doom, one economist who remains relatively if cautiously optimistic is Daiwa Institute of Research's Prasenjit K Basu.

While conceding that a technical recession 'unfortunately, looks rather likely', he maintains that it will be just that - a short technical recession, one due largely to the volatile pharmaceutical sector. The latest investment commitments in Singapore have been the strongest yet, he points out.

The financial turmoil will likely take its toll here in Q4, with reduced turnover volumes and growth, but the overall impact will not be huge, in his view.

Indeed, Mr Basu believes Asia's 'relative strength' will show up amid the global and US financial meltdown.

'Even in the near term, we believe Asia will stand out as a relative pillar of strength in the global economy, supported by the resilience of intra-emerging economy demand,' he said.

Published October 3, 2008

Singapore recession will last several quarters: Citi economists

Worst will likely be in H1 2009, they predict in new report

By ANNA TEO
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(SINGAPORE) It's no longer a question of if but how severe, and not just 'technical' in nature.

Mr Chua: Severity, length of recession will depend on how global downturn and credit crunch pan out

The recession widely expected to have set in here may not be short and shallow but could well last several quarters, say Citigroup's Singapore economists.

And that's several quarters of year-on-year contraction in GDP, not just quarter-on-quarter dips, with the worst likely coming some time in the first half of 2009, the Citi analysts, led by Chua Hak Bin, write in a Singapore Strategy report published this week.

A technical recession in Q3 - with two consecutive quarters of GDP declines - had pretty much been on the cards even before the negative August manufacturing data released last week all but confirmed it. Economists across town have cut their estimates of Singapore's 2008 growth to sub-4 per cent.

Among the more bearish, Citigroup economist Kit Wei Zheng pared his GDP growth forecasts to 2.8 per cent for 2008 and 2.5 per cent for 2009. He reckons the upcoming Q3 flash estimates will likely show a one per cent dip from a year ago, and a 7.4 per cent fall from the preceding Q2.

Declaring that they are 'not ready to call the bottom', his Citi analyst colleagues say the severity and duration of the recession is still unclear, and will depend on how the global downturn and global credit crunch pan out.

'A protracted downturn, with a continued contraction in Q4 2008 and early 2009, cannot be ruled out,' they say.

Bear markets typically do not hit bottom until the economy is at or past the worst quarter of a recession, they note, and the current slump is only in its 50th week, still short of the average 85 weeks in previous bear markets with recessions.

The 1985-86 and the 2001 recessions each saw four quarters of year-on- year GDP contraction, while the 1997-98 Asian crisis had three. The 2003 Sars recession was a 'short' single-quarter downturn, due largely to successful disease containment rather than economic factors.

But now more than half of the world's economies (notably the major and big ones) are at risk of recession - with the US and the UK, in particular, on the brink of a systemic financial crisis.

Singapore's financial services will soon feel the impact of the credit crunch and global consolidation - and job growth may turn negative next year, the Citi report says.

Standard Chartered Bank economist Alvin Liew also believes the recession at hand here will not be short and shallow, as the externally driven Singapore economy lacks 'buffer' sectors such as commodities to help offset some of the global slump.

His forecasts see a small 0.4 per cent Q3 GDP growth from a year ago, but one risk is that the sequential contraction could be slightly deeper and could well lead to a year-on-year contraction - 'something not seen since June 2003', he notes.

Stanchart's GDP forecasts for Singapore have been slashed to 3 per cent for 2008, and 2 per cent for 2009.

'This is not just about export competitiveness, but . . . the implications of a protracted external demand collapse, and subsequent impact on domestic demand,' Mr Liew says.

Furthermore, inflation is not easing fast enough, he notes. Imported inflation 'is still hounding us', with core inflation remaining elevated at 5.8 per cent in August, he estimates. It would, therefore, be premature to switch entirely to an easing or even neutral monetary policy, he says.

Amid the gloom and doom, one economist who remains relatively if cautiously optimistic is Daiwa Institute of Research's Prasenjit K Basu.

While conceding that a technical recession 'unfortunately, looks rather likely', he maintains that it will be just that - a short technical recession, one due largely to the volatile pharmaceutical sector. The latest investment commitments in Singapore have been the strongest yet, he points out.

The financial turmoil will likely take its toll here in Q4, with reduced turnover volumes and growth, but the overall impact will not be huge, in his view.

Indeed, Mr Basu believes Asia's 'relative strength' will show up amid the global and US financial meltdown.

'Even in the near term, we believe Asia will stand out as a relative pillar of strength in the global economy, supported by the resilience of intra-emerging economy demand,' he said.

Published October 3, 2008

Bailout plan sails through Senate - but here comes the hard part

Markets expected to be in nervous limbo until House clears bill on Friday

By ANDREW MARKS
NEW YORK CORRESPONDENT
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WALL STREET is bracing itself for another ride on the see-saw of hope and fear even though the US Senate has on Wednesday overwhelmingly approved a US$700 billion bailout for the financial system.

Ending the uncertainty over how the federal legislature will respond to the crisis would be a big shot in the arm for investors who have seen the stock market panic on a scale not seen since 1987, said stock market analysts.

'But no one's going to be singing in the streets today,' said John O'Donoghue, chief equity trader at S G Cowen. 'If the House approves the deal, there will be a sigh of relief, but it's been more than a week that we've had to digest the possibility of this rescue plan, and nobody believes that it's going to solve this crisis all by itself,' he said.

On Wednesday night the Senate approved a bill similar to the one voted down by the House of Representatives on Monday, but with several amendments that make it more appealing to House members who rejected the first one. This is read as the latest sign that Washington is finally getting in line with Wall Street on the severity of the financial crisis and the urgency of taking measures to prevent an outright collapse of the frozen credit market.

The revised bill before the Senate includes a temporary increase in the Federal Deposit Insurance Corp's insurance on bank deposits to US$250,000 from $100,000. The bill also extends existing tax breaks for individuals and businesses for two years.



The bill also will temporarily let the FDIC borrow unlimited funds from the Treasury to further bolster its insurance of US bank deposits. Such a move could help alleviate strains on banks, as depositors have increasingly reduced deposit levels to the current US$100,000 FDIC insurance limit.

But the US stock market reacted with nervous scepticism in early trading yesterday morning, perhaps unsettled by the indecisive back and forth of the government's moves to buy the banks' worst assets and unfreeze the credit markets.

Shortly after the opening bell, all the major indices were moderately lower. The Dow Industrials, for example, was down 154 points, or 1.5 per cent, at 10,677. By noon, the Dow Industrials had slipped further, to 10,602.56, and the Nasdaq Composite was down 52.92 points at 2,016.48.

Commenting on the Senate action, Art Hogan, chief investment strategist at Jeffries & Company, said: 'This should be a positive for the stock market. But we've been down this road before and no one's going to be celebrating until the rescue is a done deal.

'The Senate vote is meaningless unless until Wall Street sees the House of Representatives getting on board and voting for the rescue plan too.'

And that final and crucial element is unlikely to happen before Friday, when the House of Representatives is scheduled to vote on the new version of the bill.

In the meantime, market watchers are expecting another day of high volatility and reversals, as was the case on Wednesday, when the blue chip index sank as much as 200 points before rallying to finish the day just 19.59 points down, or 0.2 per cent, to 10,831.07. The S&P 500 lost 5.3 points, or 0.5 per cent, to close at 1,161.06, while the Nasdaq was Wednesday's biggest loser with a fall of 22.48 points, or 1.1 per cent, to 2,069.4.

Further weighing on stocks was the latest sign of how heavily the credit crisis is hurting the economy, as the government reported that the number of people seeking unemployment benefits rose last week to 497,000, a seven-year high.

If it's any consolation to the market, Swiss bank UBS has announced it would net a small third-quarter profit after four consecutive quarters of big losses and massive write-downs.

But until the House of Representatives votes on Friday, said Mr Hogan, 'the only thing Wall Street is interested in is what happens in Washington.'

Published October 2, 2008

M'sia tops list of foreign investors in Vietnam

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(HANOI) Malaysia heads a list of 40 countries and territories which have invested in Vietnam over the last nine months, following the licensing of its US$9.8 billion project to construct a steel complex in southern Ninh Thuan province.

Quoting the Foreign Investment Department, the Vietnam news agency (VNA) reported that the Malaysian businesses are currently registered to invest in 37 projects worth a total of US$14.8 billion in Vietnam, making up 4.1 per cent of the total number of projects and 26.4 per cent of registered capital.

The Malaysian Berjaya Land Bhd Corporation has invested US$3.5 billion in a construction project to develop urban areas and universities in Ho Chi Minh City, and another US$930 million to build the Vietnam Financial Centre in the city's District 10.

The corporation has also invested US$230 million in projects being implemented in the centre of Bien Hoa city in southern Dong Nai province, and US$500 million in projects being carried out in Thach Ban new city in Hanoi.

Construction of the steel complex in Ca Na, which was licensed by the provincial People's Committee on Sept 19, is the biggest foreign investment project in Vietnam so far.

It will be jointly executed by the Lion Corporation and the Vietnam Shipbuilding Industry Corporation.

The Malaysian ambassador to Vietnam, Lim Kim Eng, praised the investing environment in Vietnam particularly, and said that it has attracted an increasing number of foreign investors including Malaysian businesses.

Malaysian investors have plans to invest in real estate as well as in the construction of hospitals, hotels, banks and production factories, she added.

The Malaysian Minister of Industrial Trade and Industries, Muhyiddin Yassin, paid a visit to Vietnam at the end of last July, accompanied by representatives of large businesses seeking investment and business opportunities. -- Bernama

Published October 2, 2008

Write-downs could see property stocks slip further

Larger developers saw 31-50% stock price falls in 2001, says Credit Suisse

By ARTHUR SIM

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THE outlook for developers here could get worse, with write-downs on asset values possible, says Credit Suisse.

Projects: CapitaLand could write down on Farrer Court (above), while Tianjin eco-city (next) is reminiscent of Singapore Suzhou Industrial Park

In a report, its research analyst Tricia Song says CapitaLand, for one, could write down as much as $200 million on its Farrer Court and Char Yong Gardens projects alone.

This is based on an estimated breakeven figure of $1,429 psf and an estimated average selling price of $1,280 psf for Farrer Court project. For Char Yong Gardens, the estimated breakeven figure is $2,564 psf and the estimated average selling price $1,960 psf.

In its analysis, Credit Suisse says Keppel Land and Allgreen could at worst face respective gearing of 1.7 and 1.5, assuming a prolonged downturn with major outgoings and no cash inflows. In June, Keppel Land's gearing was 0.54 and Allgreen's was 0.45.

A possible write-down factor for Keppel Land is its exposure to the troubled Vietnam market, where it has nine residential projects and one major township.

Credit Suisse notes that as gearing rose to 52% for big-cap developers by Q2 2008, gearing for smaller developers rose to 242%

Credit Suisse says Tianjin eco-city, in which Keppel Land may take a stake, is reminiscent of Singapore Suzhou Industrial Park, which resulted in huge write-offs in the 1990s.

Noting that CapitaLand and Keppel Land are now trading around 1.2 times price-to-book value (P/B) and City Developments (CDL) is trading at 1.7-times P/B, Credit Suisse reckons CDL should not trade below book. It bases this assessment on CDL's conservative accounting policy of using historic costs for investment assets and limited write-downs on its residential landbank. But it still expects CDL's premium to narrow.

Unlike other developers, CDL does not account for asset revaluations directly in its profit & loss statement.

Write-downs signal developers' acceptance of price falls. Credit Suisse says that in 1998 and 2001, the larger developers suffered respective stock price falls of 66-79 per cent and 31-50 per cent.

CapitaLand and Keppel Land wrote down between $900 million and $2.1 billion in 1998, and between $700 million and $900 million in 2001. Credit Suisse says they could 'do so again due to aggressive expansions and acquisitions, and substantial revaluation gains in recent years'.

Perhaps more significantly, it reckons small-cap developers could put an added drag on the property market. It notes that as gearing rose to 52 per cent for big-cap developers by Q2 2008, gearing for smaller developers rose to 242 per cent.

'This reinforces our belief that small developers will drive the price cuts in the near future in the primary markets, especially in the prime and mid-high end, as some of them have acquired prime sites at peak prices,' it says.

In its analysis, small-cap developers include Aspial, Koh Brothers, Heeton, Hiap Hoe, Ho Bee, Roxy, SC Global, Sim Lian, Sing Holdings, Soilbuild and Tee International.

Published October 2, 2008

Time to buy? No - patience is a virtue

By R SIVANITHY

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WHENEVER stock markets behave as they are now, it's tempting to ask whether it's time to 'bargain hunt'. Indeed, as each passing day brings a new low - be it 24, 25 or 26 months for the Straits Times Index - the temptation to buy probably grows stronger, aided no doubt by a steady stream of 'buy' calls from brokers, all and sundry.

So will it soon be time to buy? Maybe it will? And perhaps for the Straits Times Index, the fact that the 2,300 level has held twice in the past fortnight suggests this may be where there is strong support?

Our take, though, is that there is no need to rush and that patience is a virtue. Brokers and independent researchers have consistently under-estimated risks to the downside for the past year, so their 'buy' calls should be taken not with a pinch of salt but a bucket.

Analyst credibility aside, a major reason for saying this is that despite America's woes, and despite it triggering the biggest financial meltdown ever, US stocks have not capitulated yet. Even after Monday's 7 per cent collapse, the Dow Jones Industrial Average was down only 22 per cent this year and the S&P 500 down 25 per cent - much less than the 35-50 per cent falls suffered by other markets.

From its all-time high, the Dow's loss to 10,365 was 27 per cent and the S&P's loss 28 per cent - over almost a year, compared with the 20 per cent crash in one day on 'Black Monday' Oct 19, 1987.

Seen in this light, the current losses on Wall Street could justifiably be taken to be part and parcel of a normal bear market and not really that much cause for concern.

Why has Wall Street not fallen as much as other markets? One possibility is the huge amount of liquidity the US Federal Reserve has pumped into the system. But more likely, it's the still-lingering hope of a government-led bailout, despite the initial proposal being rejected.

If a modified proposal is cobbled together before the end of this week and if this is again rejected, the full-scale removal of a 'bailout premium' will see US stocks start to reflect their true fundamental values.

Furthermore, it is debatable whether any US Treasury-led bailout would have any effect at all. Recall that on Monday, markets went into a tailspin many hours before the US Congress voted on the plan. So, even if a second plan is pushed through and even if this does push stocks up, it can only be a matter of time before reality sets in with regard to the US market and its fundamentals. And once this happens, investors might just cotton on to the fact that US stocks are grossly over-valued.

Bloomberg's analytic service gives the S&P 500 as trading at a historic earnings per share consensus analyst estimate of US$51 and a forecast figure of US$83. With banks disappearing, unemployment rising, consumer spending shrinking, no growth to look forward to, no bottom yet in housing and a possibly vicious recession just around the corner, how likely is it that US corporations will report such a big jump in earnings?

As for the local market, Citi Investment Research warned last week that it is possible for the STI to fall to 1,800 - a warning many investors reckon is too pessimistic. But if the index were to drop to 1,800, that would only take it to a four-year low which, given the huge risks to growth posed by America's problems and the unpre-cedented nature of the present bank failures, is arguably within reason.

The upshot of all this is that risks are still tremendously high and that Wall Street is still heavily exposed to the downside.

Investors should also realise that even if the STI's bottom does lie at 2,300, this does not automatically mean the start of a new bull market - stocks can drift for years within narrow bands before embarking on any uptrend. As such, it is clearly not time to buy yet.

Published October 2, 2008

New business park space looms over CBD

New supply over next 5 years projected at about 7.8m sq ft: CBRE

By ARTHUR SIM

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(SINGAPORE) With the Singapore market still digesting the fact that there is about 10.2 million sq ft of office space in the pipeline, news that there is also substantial business park space coming is not likely to go down well.

According to CB Richard Ellis, projected new supply of business park space over the next five years is about 7.8 million sq ft. This includes developments like The Icon@International Business Park, Solaris, Mapletree Business City, and Centric Singapore.

CBRE also believes 67 per cent of this has already been pre-let.

By comparison, only about 25 per cent of future office supply is thought to be pre-let.

While certain conditions apply before anyone can move into a business park space, it has become increasingly clear that businesses themselves have no qualms about moving to the outskirts of the city. Already, Changi Business Park has attracted MNCs like Citigroup, Standard Chartered Bank and Credit Suisse.

CBRE executive director (office services) Moray Armstrong added that many new leases in business parks 'are in motion', boosted by the availability of quality business parks.

'The business parks have evidently been the sweet spot for many occupiers over the past 12 months,' he added.

And business parks, which Mr Moray describes as a 'hybrid' of traditional office space and high-tech industrial space, is set to evolve even more.

While Changi Business Park is characterised by individual developable land plots available for end users or developers to construct build-to-suit corporate buildings, Mr Armstrong reveals that the upcoming 1.7 million sq ft Mapletree Business City in the Alexandra vicinity will be a more office-like integrated precinct including retail space under single ownership. It is also just minutes from the CBD.

And the concept is proving to be popular as over 400,000 sq ft of pre-lease deals have already been done ahead of completion in H2 2010.

Demand for business park space is likely to grow at the expense of standard office space. Business park rents, at an average $3.15 psf per month in Q2 2008, are considerably lower than average prime rents of $16.10 psf per month.

But while Mr Armstrong believes that business parks will certainly compete to an extent and will slightly dilute overall office demand, he said: 'Nonetheless, we do not expect this to impact the office sector significantly.'

He added: 'There is far less speculative business park development as a rule. Most projects that are being built are pre-let or built-to-suit.'

According to CBRE's analysis, Grade A office space vacancy remained tight in Q2 '08 at 0.6 per cent. However, vacancy rates for the CBD fringe rose significantly from 4.6 to 7 per cent.

For the same period, vacancy rates for decentralised areas dipped to 1.6 per cent from 3 per cent. CBRE noted there was 'heightened interest' in the Alexandra/Harbourfront micromarket.

Interestingly, new supply could also have a diluting effect on the business park space segment as well. JTC's Q2 '08 quarterly facilities report reveals that its occupancy level for its business park space declined marginally by 0.4 percentage points quarter-on-quarter to 94.3 per cent. This was partly attributed to new supply from Fusionopolis which saw gross allocation of about 450,000 sq ft of space.

UBS Investment Research estimates that financial firms occupy 20 per cent of CBD offices and 30-50 per cent of the prime buildings within it.

UBS does not expect major job losses here from the fallout of the US financial crisis. Losses, if any, will only occur in 2009. Still, it said that if even between 1.5-6 per cent of the estimated 156,900 financial sector jobs are lost, it could equate to a drop in demand in office space of between 243,000 and 971,000 sq ft.

Published October 2, 2008

Italy's top two banks take a battering

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(MILAN) Italy's leading banks yesterday felt the shockwaves from the world financial crisis sweeping over Europe as their share prices took a battering.

Italy's top bank UniCredit and its nearest rival Intesa Sanpaolo both saw trading in their shares suspended on the Milan stock exchange.

Shares in UniCredit, which has the most foreign exposure among Italian banks, saw precipitous drops on Monday and Tuesday to their lowest level in 10 years.

They opened up 5.8 per cent at 2.75 euros yesterday after the banking giant announced, just before the opening bell, that it would place part of its real estate assets into a special fund to improve its solvency.

But trading in UniCredit was quickly suspended as the share price dropped to 2.55 euros.

Meanwhile Intesa Sanpaolo's shares lost 5.33 per cent to 3.64 euros in early trading, becoming the second Italian bank to be hit hard by the shockwaves of the US financial crisis.

Italian Prime Minister Silvio Berlusconi said he would 'not tolerate speculative attacks on banks (causing) Italians to lose their savings.' - AFP

Published October 2, 2008

Don't count on a Santa bailout

Rising risks from US will fan headwinds in stock markets, say analysts

By LYNETTE KHOO

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(SINGAPORE) It looks like Santa Claus may not deliver a stock market rally this Christmas, with investors bracing themselves for lean times in the fourth quarter.

While technical charts suggest oversold positions and that a bottom is near, analysts say the escalation of risks from US and Europe would only fan headwinds in markets.

'I think the effects of the sub-prime crisis that affected Singapore from the fourth quarter last year is now more serious and deep-rooted. This being the case, it will take a longer time to unwind all these that are affecting the equities market,' says Macquarie Securities research head Soong Tuck Yin.

The benchmark Straits Times Index has slumped 31.9 per cent year-to-date. It is now set to end 2008 lower than the 3,465.63 level at end-2007. The MSCI's Asia Pacific Index of regional shares has dropped 32 per cent since the beginning of the year.

DBS Vickers says in a report that although current valuations look cheap compared to the average PE of 15.6 times, and are close to the Sars low of 9.3 times, the derating of the market amid heightened risks presents a potential downside for the STI of a low of 2,100 points.

Many analysts believe there is still hope for the US bailout package but think its resuscitation may not bring an extended rally beyond a brief technical rebound.

'A lot of the developments are still unravelling in the US and Europe right now; the big picture does not look good and I doubt that markets have troughed,' says Kim Eng director of research Ong Seng Yeow.

'In the short term, our technical strategy team believes that the Straits Times Index may be heading toward the support level of 2,307 where a technical rebound or rally may occur,' he adds.

UOB Asset Management senior director Wong Ann Derk notes that the plan to buy troubled assets is helpful in boosting liquidity, buying time for banks to recapitalise and instilling market confidence, but the root of the issue remains, namely the US housing problems, slowing growth and poor consumer confidence.

For Singapore, there are clouds, too. The odds of another quarter-on-quarter decline in GDP in the third quarter has risen after non-oil domestic exports hit the skids in August, sinking 14 per cent from a year ago.

'I think there are ominous signs that the domestic economy is weakening. While our market is somewhat more resilient because of our safe-haven status as an oil refinery hub, don't forget that sentiment is determined by the aggregate money flows of the world economy,' says Mr Ong of Kim Eng. 'Our equity markets are equally at risk if the financial turmoil in US and Europe spills over to Asia.'

Market sentiment over the economy and corporate fundamentals remain weak, analysts say. They note that the fiscal third-quarter results due out in the fourth quarter have already been factored in and focus has shifted to the dismal earnings outlook for fiscal 2009.

DBS Vickers says it expects the cycle of earnings downgrades to continue into 2009, with the biggest risks to earnings coming from the property and banking sectors.

Describing the current market situation as a 'stalemate', OCBC research head Carmen Lee says investors are staying on the sidelines. But for those with a two to three-year horizon, current valuations offer good yields. With no clear bottom in sight, analysts hail cash as king.

But any window- dressing by fund managers at the end of the quarter cannot be ruled out.

To stay invested, analysts recommend defensive stocks that give predictable dividend yields, and companies that are well-capitalised and need little financing.

Mr Soong suggests avoiding companies that are highly leveraged. He is 'overweight' the offshore sector and Reits.

Mr Ong of Kim Eng favours oversold plantation and agricultural stocks, and defensives like SMRT and SPH.

'The value investors will definitely be the first to come back into the market,' Ms Lee of OCBC says. Those hoping for a market recovery would probably go for the blue chips, which are usually the first to rebound, she adds.

Published October 1, 2008
ST Engg will acquire assets at distress values

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SINGAPORE Technologies Engineering Ltd, Asia's biggest aircraft maintenance company, will seek acquisitions as a global financial crisis cuts asset prices.
'During such times, there are opportunities for the group in the midst of the market challenges,' the company said yesterday in response to Bloomberg queries. 'We may be able to acquire companies which are now more appealing in terms of valuation.'
ST Engineering said that it will not make use of shareholder approval to buy back shares, preferring to conserve cash for 'better business opportunities'. Stocks worldwide plunged yesterday, extending the worst global sell-off in 21 years, after US lawmakers rejected a US$700 billion rescue plan for the financial markets, deepening concerns of a widespread recession.
ST Engineering had an order book totalling $9.2 billion as at June 30. The company repairs aircraft and makes military vehicles and navy vessels.
The company added nine cents, or 3.5 per cent, to $2.69 at the close of trading in Singapore. The stock has fallen 28 per cent this year.
ST Engineering has bought assets at distress values before. In 2002, the company purchased the shipbuilding business of US-based Friede Goldman Halter Inc for US$66 million in a bankruptcy auction. -- Bloomberg

Published October 1, 2008
Storm clouds gathering over banks
By SIOW LI SEN

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LOCAL banks normally make money from gapping operations, that is, lending on the interbank market. So the silver lining - as some see it within this awful mess - is that the three local banks can earn profits from deploying funds on the wholesale interbank market as local interest rates spike up.
But talk to any veteran banker from any of the three banks - DBS, United Overseas Bank and OCBC Bank - privately, they are likely to tell you that they'd rather not earn this kind of profit because what caused the spike is the contagion of fear which has now landed on our shores. Risk aversion of lending to other banks and customers, which has caused global financial markets to seize up since last year, has caught up with bankers here, as no one knows which institution may be hit next. This caused short-term interest rates, or the three-month interbank rate, to more than double from one per cent in August to 2.23 per cent last Friday before the Monetary Authority of Singapore (MAS) injected money into the system and the rate eased back to 2 per cent. Yesterday, the rate fell to 1.85 per cent.
The interest rate trend over the next few weeks is far from clear though some are even betting that the US Fed will reduce its rate to one per cent from the current 2 per cent in the near term. Local rates will follow. In the meantime, many central banks including the MAS will continue to inject funds into the system to ease market funding pressures. MAS said last Friday that it was prepared to inject additional liquidity, if required.
What's becoming increasingly likely is that we are headed for a recession and things will get very tough. MAS could loosen monetary policy to help exporters and increase our competitiveness vis-a-vis regional rivals. But that means a depreciation of the Singapore dollar. As MAS moves on the Singapore dollar, asset values such as property and stocks will be hit further because of capital outflows.
Part of Singapore's attractiveness has been its strong dollar over the past three years and foreign investors invested here to enjoy currency gains as well as asset appreciation. The Singdollar has since fallen about 6 per cent from its July high of $1.345 to one US dollar. Some predict that the Singdollar could drop to $1.50 by the year-end though others say the fall will be capped by it being regarded as a safe haven currency within the region.
Downward spiral
A note from Citi yesterday commenting on the failure of the US rescue plan said that it will accelerate the downward spiral in global financial markets, as markets are dragged into a new vicious cycle of losses and accelerated deleveraging. 'Asset prices in Singapore will not be spared, as downside risks to earnings, heightened risk aversion, and a flight to quality could accelerate outflows of foreign portfolio capital,' it said. In August, Singapore's foreign exchange reserves fell by US$4.86 billion to US$170.1 billion.
Citi banking analyst Robert Kong thinks that based on history, the STI can fall by more than 50 per cent from its peak during prolonged downturns. At yesterday's close of 2,361, the STI had corrected around 40 per cent from its peak in October 2007. He said that depending on the depth of a possible recession, an STI of 1,800 by mid-2009 is no longer unrealistic. Citi also expects a longer export slump than originally expected, and domestic demand - which has held up relatively well so far - could weaken substantially as well. 'Although job creation has held up remarkably well in the current downturn, this is likely to slow substantially, and mass retrenchments cannot be ruled out.'
Citi property analyst Wendy Koh thinks that sentiment in the property market, already fragile, would be dented further, while job losses in the financial sector could add to housing woes.
High-end residential property is expected to decline a further 25 per cent, while prices in the mid-market could fall another 15 per cent, and the mass market could decline 5-10 per cent. Ms Koh had earlier predicted that high-end prices would fall 20-30 per cent from their recent peak.
She expects office rentals to halve by end-2010 and capital values to fall some 38 per cent from current levels. Apart from oversupply, there is a risk of rapidly falling demand and potential withdrawal of office space amid the financial crisis.
Whatever gapping margins the three local banks will enjoy could be more than offset by upcoming problems in the wider economy.

Published October 1, 2008
SMRT buys stake in China transport firm
It will pay $89.7m for a 49% stake via its subsidiary SMRT Hong Kong
By TEH SHI NING

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SMRT Corp has agreed to pay $89.7 million for a 49 per cent stake in a leading road transport company in Shenzhen.

Via subsidiary SMRT Hong Kong, SMRT has entered into a deal to buy investment company Shenzhen Zoto Investment's equity interest in Shenzhen Zona Transportation Group (Zona).KhattarWong provided legal services for the transaction.Zona has a fleet of 803 buses, 142 charter and tourist buses, 78 long-haul coaches, 830 taxis and 260 leased cars in the Shenzhen region.
The Zona group comprises 10 subsidiaries and three associated companies.
Zona itself will become an associate company of SMRT following the acquisition.
SMRT said Zona has grown its bus fleet from just 300 in six years. It is the bus operator in Shenzhen's Bao An district, so growth is expected to be robust.
SMRT president Saw Phaik Hwa described the acquisition as a milestone in the expansion of SMRT's business overseas.

The other 51 per cent of Zona's equity will continue to be held by National Express Transportation Group (NE), a company that provides inter-city bus services in China.
SMRT president and CEO Saw Phaik Hwa said the acquisition is a 'milestone in the expansion of SMRT's business overseas'.
Zona is SMRT's first equity investment. Its other overseas venture was in August last year when its subsidiary SMRT Engineering partnered Dubai real estate developer Nakheel to operate The Palm Monorail there.
The investment in Zona will be accretive to SMRT's earnings but is not expected to have a material impact on the group's financial results for full-year 2009.
SMRT posted a 6.2 per cent rise in net profit to $40.3 million for its first quarter ended June 30. Revenue rose 11.2 per cent from the previous year to $215.9 million.

Published October 1, 2008
Govt may review growth target, says Najib

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(PUTRA JAYA) Malaysia may review its growth targets for 2008 if the global economy worsens amid deepening financial turmoil, Finance Minister Najib Razak said yesterday.
'If the current situation leads to a significant downturn, then we would have to re-evaluate' the targets, Mr Najib said.
'While the economy is affected by the global economic slowdown, we're a more diversified economy and stronger links to Asia will allow us to be in a better position to weather this challenging period.' Malaysia's government forecast last month growth will slow to 5.7 per cent this year from 6.3 per cent in 2007.
Asian stocks plunged yesterday after the rejection of a US bailout plan. Malaysia's ringgit touched 3.4595 a US dollar, the weakest level since Sept 19.
'As far as I'm concerned the ringgit still reflects the true value of the fundamentals of the economy,' said Mr Najib. Malaysia isn't facing a shortage of US dollars, he added.
Malaysia should be able 'to withstand external shocks,' Mr Najib said.
'Liquidity in the banking system remains ample,' funding continues to expand, international reserves are high and non-performing loans have fallen to 2.5 per cent of total lending, he said. Exports to Asia will counter declining US demand, Mr Najib said.
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The country's exports to the US have fallen to 16 per cent of total overseas sales last year from 20 per cent in 2003, while shipments to South-east Asia, China and India have climbed, he said. -- Bloomberg

Published October 1, 2008
US crisis may pose risks to growth, says Zeti
Not time to cut rates, says central bank governor

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(KUALA LUMPUR) The US financial crisis is in its early stages and may pose added risks to Malaysia's growth, its central bank head told Reuters in an interview on Monday, though she said that it was not time to cut interest rates.

Ms Zeti: Malaysia has not reached the state where the concern is great enough to consider any relaxation of monetary policy
Bank Negara governor Zeti Akhtar Aziz, who helped shepherd Malaysia through its recovery from the Asian financial crisis a decade ago, said that action in the very early stages of a crisis was crucial to ensuring a recovery.
'This is precisely what is happening now, but on a larger scale than what we saw in Asia 10 years ago,' she said.
She was speaking as US lawmakers prepared to vote on Monday on a US$700 billion government fund to buy bad debt, a step in a process to encourage banks to start lending again to each other.
'This kind of resolution needs to address the root of the problem and it also requires the problem to be addressed comprehensively . . . it has to be addressed on all fronts and this is from our own experience during the Asian crisis,' Ms Zeti said.
Malaysia spurned cash and advice from Washington when it grappled with its own financial meltdown in 1997 and 1998 as the region's tiger economies plunged into crisis due to overvalued exchange rates, persistent current account deficits, speculation in financial markets and dependence on short-term capital flows.
It recapitalised banks and pooled the toxic assets.
'We actually came out of it in the money and in the case of the purchase of the bad assets, we didn't warehouse these assets, we pooled them to enhance the value of these assets and then disposed (of them) and we had a recovery rate of about 60 per cent so we were able to minimise the cost of these operations,' Ms Zeti said.
By issuing bonds and making provisions throughout, that meant that taxpayers now and in the future had not borne the cost burden of the recovery, she said.
Still, some effects of the 1997-98 crisis linger and Malaysia has controls on the offshore market for the ringgit, which Ms Zeti said had limited the potential for speculation against the currency.
There is no chance that controls will be lifted in the current environment, she said when asked if there were immediate plans to revise the rules.
'Not in the near term and we generally introduce new regimes or frameworks during more stable periods which have some degree of predictability rather than periods of great uncertainty,' she said.
Malaysia's central bank is forecasting economic growth to slow from the 6.7 per cent recorded in the first half of 2008 and believes that it will not bounce back until the second half of the 2009.
Inflation is also seen dropping to below 4 per cent year-on-year by the middle of 2009 from 8.5 per cent now, Ms Zeti said.
'The (economic) assessment essentially remains the same, but the issue of growth has become more of a concern because it comes from more than one source, the deflationary effect of higher commodity prices, which has receded to some extent, and the external conditions and then the potential wealth effect (in Malaysia from the US),' she said.
When asked if that meant rate cuts were now on the cards, Ms Zeti said no.
'They (rates) might not be aggressively accommodative, but we have not reached that state where the concern is great enough to consider any relaxation of monetary policy,' she said.
The central bank has been criticised by some economists for holding its benchmark rate at 3.5 per cent since April 2006, through a boom and now a global financial bust.
Even as inflation climbed to 8.5 per cent year-on-year in July and August from 3.7 per cent in May, the bank stood pat, saying that the rise was due to spiking food and oil prices and the removal of fuel subsidies.
After the government cut fuel subsidies in June, petrol jumped by 41 per cent from RM1.72 (72 Singapore cents) per litre and diesel leapt by 63 per cent from RM1.58. -- Reuters

Published October 1, 2008
Inflation forecast raised to 5.9% this year

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(KUALA LUMPUR) Malaysian inflation will fall towards the end of the year from 27-year highs as the effects of a commodities price shock and a cut in fuel subsidies fade but a poll shows it will still come in higher than initially expected.
According to the poll, inflation will fall to 4.4% in 2009 compared with a prior forecast of 4.6%.

A quarterly Reuters poll conducted last week showed that the inflation forecast for 2008 had been raised to 5.9 per cent from 5.1 per cent in a July poll.
Economic growth forecasts were unchanged from the prior poll at 5.3 per cent, despite the global slowdown and lower commodity prices, a big earner for Malaysia.
According to the poll of 12 economists, inflation will fall to 4.4 per cent in 2009 compared with a prior forecast of 4.6 per cent. Growth forecasts were trimmed to 5.0 per cent for 2009 from 5.1 per cent.
That is the slowest rate of growth since 2005 when it was also 5 per cent.
'There is a big uncertainty surrounding the export outlook in the face of all the global uncertainty. Malaysia has held up reasonably well so far and the expectation is that it will continue to outperform the global economy,' said David Cohen from Action Economics.
Malaysia's outlook has also been clouded by ructions in the government as the opposition under Anwar Ibrahim, a former deputy prime minister, has mounted a challenge to the government.
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That has led to government policy flip-flops, first it slashed subsidies for fuel in order to rein in escalating government spending and then it gradually cut the price of petrol and diesel in the face of popular anger and in response to falling oil prices.
After the government cut fuel subsidies in June, petrol prices jumped by 41 per cent from RM1.72 ringgit per litre and diesel leapt by 63 per cent from RM1.58.
There were subsequent reductions on Aug 23 and Sept 25 as oil prices fell but prices are still well above May levels at RM2.45 a litre for petrol and RM2.40 for diesel.
That has made forecasting inflation more difficult.
'Inflation year-on-year will remain high unless there is a sharp drop in oil prices,' said Matt Hildebrandt at JPMorgan.
Despite the spike in inflation, Malaysia's central bank has left interest rates unchanged at 3.50 per cent for the past two-and-a-half years. It is seen staying pat as the economy slows and the threat of second-round inflation effects diminish.
Malaysia's trade balance is likely to reach US$40.0 billion this year, up from US$34.3 billion in the previous quarterly poll, after exports exceeded expectations in the last three months.
Export volumes have been strong despite commodity prices sliding since mid-year but demand is expected to fall in the coming months, economists said. -- Reuters

Published October 1, 2008
Ease bumiputra shareholding rules: Bursa
30% ethnic Malay equity requirement seen marring market's appeal
By S JAYASANKARAN IN KUALA LUMPUR

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BURSA Malaysia, the former Kuala Lumpur Stock Exchange, has asked the government to relax shareholding requirements that mar the market's attractiveness, industry officials say.

Eyeing investors: The policy is said to be making firms with overseas assets reluctant to list locally and driving a number of them to go private
The requirements - which stipulate minimum bumiputra, or ethnic Malay, shareholdings - are said to be making local companies with overseas assets reluctant to list locally, and driving a growing number of them to go private or list overseas.
Thirty per cent of a listed company's equity must be set aside for bumiputras, but this is not really being contested.
The main point of contention is that should a company top-up its capital base - say, through a rights issue - regulators can demand that bumiputra equity be restored to 30 per cent if it has been sold down. This has always been a concern because shareholders rightfully complain about earnings dilution.
The bourse wants the rules changed so that once a company is listed and the 30 per cent bumiputra equity requirement is met, it should no longer be subject to any top-up conditions.
Industry officials say Bursa Malaysia also wants all sale moratoriums to be abolished. At present, bumiputras cannot sell their shares inside a set time. This disadvantages them in bear market conditions, whereas non-bumiputras face no such limitation.
The officials also say Bursa has suggested that if there is no or insufficient take-up of bumiputra shares, these shares should be offered to the public instead of being placed in escrow, as they are now.
They point out that the current bear market has made it extremely difficult to find investors, as few shares trade above their initial public offer price.
According to them, only two of the past 12 listings have traded above their IPO price.
The 30 per cent condition originated with Malaysia's New Economic Policy, implemented many years ago after race riots.
The policy was originally slated to expire in 1990 but has been extended to 2020. It seeks to bridge economic disparity between bumiputras and richer non-Malays by discriminating in favour of bumiputras.
The original aims of the NEP were to eliminate poverty irrespective of race and to restructure society so no race would be identified with a specific economic function.
This was to be achieved through targets - specifically, 30 per cent bumiputra ownership in every sphere of society, from employment and occupation to house ownership and corporate equity.
Securities industry officials say Bursa Malaysia's proposals to ease bumiputra shareholding requirements will be considered by the country's Economic Planning Unit. It isn't clear if any of them will be approved, as similar suggestions have been made many times in the past. But this time the suggestions come from an arm of the government, which will carry more weight.
Also, the proposals are backed by powerful ethnic Malay businessmen including Nazir Razak, chief executive of investment bank CIMB and younger brother of Finance Minister and soon-to-be prime minister Najib Razak.

Published October 1, 2008
Maybank closes sweetened deal for stake in BII
With $315m rebate, it'll pay $1.77 billion for 55.6% stake held by Sorak
By PAULINE NG IN KUALA LUMPUR

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MALAYSIA'S Maybank has clinched a controlling stake in Bank Internasional Indonesia (BII) after persuading the core shareholders of the Indonesian lender to sweeten the deal.
Maybank managed to obtain a rebate of $315.2 million, or the equivalent of a 15 per cent discount, for the shares held by Sorak Financial Holdings. Sorak's shareholders are Fullerton Financial Holdings, a unit of Temasek, and South Korea's Kookmin Bank.
This amounts to an implicit price payable per BII share held by Sorak of 433 rupiah.
Maybank has, nonetheless, indicated its intent to stick to an earlier general offer of 510 rupiah per share payable to BII minorities - probably to appease the Indonesian capital market watchdog Bapepam, which was upset the deal was not completed last week.
'For the avoidance of doubt, the Tender Offer will still be conducted at 510 rupiah per BII share,' Maybank said.
With the price reduction of $315.2 million, the total acquisition cost for Sorak's effective 55.6 per cent equity interest in BII will amount to $1.77 billion.
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The proposed acquisition was completed yesterday. The deal has seen numerous twists and turns, the final one being last week's request by the Malaysian central bank for a price revision in view of the global financial crisis and possible impairment to Maybank's fundamentals if it were to abide by the original price.
However, it was not mentioned in the company's announcement to the exchange whether Bank Negara had approved the revisions to the deal, which in its original form priced the entire BII stake at RM8.6 billion (S$3.6 billion). The bank will now pay slightly over RM7.8 billion.
Analysts saw the new deal as a compromise. The effective discount of some 7 per cent did not reduce BII's valuations by much - the further rebate of $78.8 million from Fullerton's $236.4 million reduction offer last week notwithstanding.
Instead of 4.6 times book, the revised price now values BII at about 4.3 times book, according to AmResearch banking analyst Fiona Leong's back-of- the-envelope calculations.
'It's still pricey,' she opined, pointing out the revised price does not address Bank Negara's concerns on the issue of impairment to Maybank and, by extension, the rest of the local banking system.
The Minorities Shareholder Watchdog Group, which has called for Maybank's board to resign over what they perceive as a wretched proposition, had maintained the bank ought not to pay more than 3 times book, given the prevailing crises in global finance.
Maybank's biggest shareholder is the country's largest state-owned unit trust agency Permodalan Nasional, which has thousands of account holders.
The Employees Provident Fund is also a substantial shareholder of Maybank and, owing to growing concerns of potential impairment losses, has also called on Maybank's board to take responsibility if the transaction proves to be ill advised.

Published October 1, 2008
COMMENTARY
Who is behind the mess at the Capitol?
By LEON HADAR IN WASHINGTON

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CAPITOL Hill is a place where US lawmakers have supported policies and approved legislation that changed American and world history, including the protectionist Hawley-Smoot Tariff Act that accelerated the coming of the Great Depression and the global economic crisis of the 1930s.
It's not inconceivable that the last days of September 2008 would be recalled by future historians as a time when US lawmakers, driven by a desire for political self-preservation and ideological dogma, helped set in motion the Great Depression II.
Leading the set of villains would be those lawmakers who would be seen as responsible for one of the most shocking legislative debacles in American history, the Monday vote having scuttled the proposed US$700 billion financial bailout plan.
Heading the charge were a group of conservative Republican lawmakers in the House of Representatives who decided to vote 'no' for the compromise legislation that had been worked out over the weekend by Democratic and Republican leaders on Capitol Hill and Bush administration officials, led by Treasury Secretary Henry Paulson.
And why did they decide to change their vote in the last minute, causing the stock market to plunge and to wipe US$1.2 trillion off the books?
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Well, it seems that the oh-so-sensitive Republican lawmakers were furious at the Democratic Speaker of the House, Representative Nancy Pelosi from California, for criticising the Bush administration's economic policies when she introduced the legislation. The poor kids. Teacher Pelosi hurt their feelings so much.
So they decided to punish the Republican Bush administration and anxious investors who were waiting for Washington to come to their rescue.
Bipartisan negotiation
In fact, in her short speech before the vote, Ms Pelosi expressed her own shock when Mr Paulson and US Federal Reserve chairman Ben Bernanke had warned her and other Congressional leaders of the danger of a financial meltdown, and pleaded for a bailout.
She stressed that she and her fellow Democrats felt that they had no choice but to negotiate with the Republicans on a legislative deal to help save the economy. But the House Republicans claimed that they were appalled that the Speaker would say such things. In fact, they just used Ms Pelosi's speech as an excuse to vote against the Bill that they and their constituents at home didn't like. (The Congressional election takes place next month.)
'We put everything we had into getting the votes to get there today,' said John Boehner, the Republican Minority Leader in the House. 'But the Speaker had to give a partisan voice that poisoned our conference; it caused a number of members, who we thought we could get, to go south,' he explained.
'There's a terrible crisis affecting the American economy,' responded House Financial Services chairman Barney Frank, a Democrat from Massachusetts. 'We have come together on a Bill to alleviate the crisis. And because somebody hurt their feelings, they decide to punish the country?' he said.
The result was a defeat for the Bill, 205-228, with two-thirds of Republicans and more than a third of Democrats (most of them were members of the Black Caucus) voting 'no' - which stunned officials, lawmakers and the media in Washington. It was greeted in Wall Street with a sense of foreboding. Pundits raised the possibility that the American economy was heading, indeed, into a painful and long recession as the credit freeze creates disincentives for new investment. There is going to be more personal and business bankruptcies, followed by rising unemployment.
No new votes were scheduled for yesterday and today over the Jewish New Year, which means that the American and global financial markets would probably continue to slide down in the next two days.
'Grown-ups' will take charge
But top Democratic and Republican leaders insisted that the 'grown-ups' would take charge before the end of the week and get the bailout plan approved by both the House of Representatives, followed by the Senate (where there seems to be a clear majority in favour of the legislation).
So everyone seems to be waiting for those 'grown-ups', although one of the main concerns on Capitol Hill is that the Republican presidential candidate, Senator John McCain, would attempt once again - like he did last week - to interject himself into the negotiations in Washington. He may demand perhaps that the televised debate between the two vice-presidential candidates scheduled for tomorrow be cancelled.
Who knows? Is it possible that his running mate, Alaska governor Sarah Palin - who boasted about her foreign policy credentials by noting that she can see Russia from the window of her home in Alaska - might try to help end the financial crisis? Perhaps she can also see Wall Street from the window of her house.

Published October 1, 2008
Hope flickers as US seeks to revive bailout
Interbank markets severely strained, but stocks recover on hopes US rescue plan may be saved
By CONRAD TAN

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(SINGAPORE) Stocks worldwide plunged yesterday and then clawed their way back after US lawmakers stunned investors by rejecting a sweeping plan to save the financial sector.

Plans to salvage the massive rescue package aimed at removing the rot from banks and other financial institutions there are already underway.
Last night, Keith Hennessey, director of the National Economic Council which advises the US president on economic policy, said the government is considering changes to the proposals that were rebuffed by lawmakers on Monday, according to Bloomberg. President George Bush himself warned of 'painful and lasting' economic damage to the country if the rescue plan is delayed further.
The idea is to make minor amendments and pass the bill, whose failure wiped more than US$1 trillion from financial markets.
'We don't intend to leave here without the job being done,' said Christopher Dodd, who chairs the high-level banking committee in the US Senate, one of the two lawmaking bodies in the US Congress. He said US senators may deal with the bill as early as today.
Members of the House of Representatives, the lower house of Congress, who defeated the bailout package by 228 votes to 205, are also expected to do a rethink. 'The Dow dropping 777 points is a pretty powerful force to find another 12 votes,' said Chris Lehane, a political consultant for the Democratic Party.
US lawmakers were expected to reconvene only tomorrow after a two-day holiday but efforts are now afoot to push this forward.
Even if the plan is approved, 'we should expect a longer, deeper recession' and further consolidation of the banking sector in the US, said Gerard Lyons, chief economist at Standard Chartered Bank, in a report yesterday. 'Across Europe we will see a deteriorating economic situation and further financial fallout.'
If the rescue plan fails, it 'could accelerate the downward spiral in global financial markets, as markets are dragged into a new vicious cycle of losses and accelerated deleveraging', said Citigroup analyst Kit Wei Zheng in a separate report.
If so, Singapore would likely suffer a more prolonged and severe slump in exports than expected, as well as damage to domestic demand and the local property sector, he added.
Reflecting the uncertainty, Asian markets swung between despair and hope. Major share indices plummeted at the start of trading with the Dow Jones Industrial Average falling 7 per cent on Monday. But most stock benchmarks in the region recovered later in the day, as the price of futures contracts traded on major US equity indices rose on hopes that the bailout plan may still be saved.
Stocks in Europe also opened lower, but reversed losses to trade higher. By midday in London, the FTSE-100 index was up 0.2 per cent.
Investors around the world had earlier believed that the proposals, which include a plan for the US government to buy up to US$700 billion worth of troubled assets from banks and other financial institutions, would be approved after a weekend of frenzied talks between leaders from both major political parties.
Multiple bank failures across Europe on Monday added to the shock of the plan's defeat by a narrow margin, sending shares in the US into free-fall, while indices tracking stock market volatility there soared to record highs.
'We hit a policy brick wall - and confidence across the financial sector collapsed,' said Mr Lyons. 'The big worry is that the lack of trust now being seen in the banking market spreads and we see contagion into other markets.'
The Straits Times Index ended just 0.1 per cent down after falling 5.1 per cent earlier, while Hong Kong's Hang Seng Index actually finished 0.8 per cent higher after sliding 6 per cent in the morning. In Japan, where trading ended before markets in Europe opened, the Nikkei-225 index sank 4.1 per cent.
'Despite the serious setback, it remains our view that Congress will eventually vote to approve the bailout package,' said UBS analysts in a report.
Interbank lending was once again under extreme stress, even as central banks worldwide continued to flood the banking system with liquidity in a desperate attempt to unblock credit channels and bring down short-term borrowing costs.
Here, the Singapore interbank offered rate or Sibor for overnight US dollar loans more than doubled to 6.25 per cent from 2.67 per cent on Monday - the biggest one-day jump on record. Interest rates for US dollar loans between banks of longer maturities also rose, but less sharply, while rates for Singapore dollar interbank loans eased from earlier highs.
Banks in Hong Kong, Australia and Japan were also charging each other unusually high rates for funds or hoarding cash, prompting regulators to take drastic measures to get banks to resume lending to each other.
In a statement last night, the Monetary Authority of Singapore said it had intervened to ease recent upward pressure on Singapore dollar interbank rates and is ready to inject additional liquidity if needed. 'Financial institutions in Singapore are functioning normally,' it added.
Indonesia, Taiwan and South Korea announced restrictions on short-selling stocks - betting that share prices will fall - while Hong Kong regulators warned that they would act against abusive short-sellers.
In a statement just past noon yesterday, the Singapore Exchange said trading here remained orderly.