Published October 11, 2008

China Printing seeks trading suspension

CEO, deputy CEO not contactable; parent company faces bankruptcy

By LYNETTE KHOO
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CHINA Printing & Dyeing Holdings has requested a voluntary trading suspension of its shares on Monday, amid the uncertainties surrounding the group after its parent company reportedly went broke.

It is also seeking protection from relevant authorities in Shaoxing County for its assets held under wholly owned subsidiary Zhejiang Jianglong Textiles Printing & Dyeing Co Ltd.

In a filing with the Singapore Exchange (SGX) yesterday, the group's board of directors said that they are unable to comment on market rumours and media speculation.

According to recent media reports, China Printing's parent company Jianglong Holdings faces bankruptcy due to mounting debts, which includes some 200 million yuan (S$43 million) owed to 300 small suppliers, while its chairman and CEO have gone missing.

Jianglong chairman Tao Shou Long is also CEO of China Printing, and his wife Yan Qi, who is CEO of Jianglong, is deputy CEO of China Printing. They are based at the premises of Zhejiang Jianglong at Shaoxing County.

China Printing's independent directors (IDs) said yesterday that the husband and wife, who are also executive directors of the company, have not been contactable since Tuesday, despite repeated attempts to reach them.

'The chief financial officer visited Zhejiang Jianglong's factory in Shaoxing County on Oct 8 and 9 and has verbally informed the independent directors of his preliminary observations,' the IDs said in the SGX filing, without elaborating on what the preliminary observations were.

The IDs said that they 'hope to have better clarity on the state of affairs and financial condition of Zhejiang Jianglong in the near future'.

But according to a source close to China Printing, operations at China Printing and its parent company in China have ceased. The status of these companies needs to be sorted out at this point, the source said.

China Printing secretary Elle Zhang, the only employee located at its office here, told BT that she has not heard anything from the company yet and continues to report for work.

Phone calls made by BT to Zhejiang Jianglong Textile Printing & Dyeing Co Ltd in Shaoxing County suggested that the line was no longer in service and e-mail messages to the company have bounced back.

Mr Tao, his wife, the deputy CEO as well as Ted Wong - the company's consultant who was said to be 'close to the management' - could not be reached. Their mobile phones were turned off.

Temasek Holdings is one of the two limited partners in a Cayman Islands-incorporated private equity fund, New Horizon, that has an 8 per cent stake in China Printing. The other limited partner in this fund is SBI Holdings Inc.

A Temasek spokesman declined to comment, saying that they are a passive investor in the fund.

China Printing had asked the SGX on Wednesday to halt trading of its shares that afternoon after the news broke out in China.

Jianglong Holdings brought China Printing to list in Singapore in September 2006. Its shares were last traded at 2.5 cents, almost a tenth of the value on their listing debut at 27 cents. Although there was no word from the company, the trading volume of its shares spiked on Tuesday and Wednesday morning.

Published October 11, 2008

SPH profit slips 12.4% on lower investment gains

Earnings from group's media and property businesses up 17.5% at $501.7m

By CHOW PENN NEE
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SINGAPORE Press Holdings (SPH) has reported a 12.4 per cent drop in net profit to $437.4 million for its full year ended Aug 31, 2008 as investment income tumbled.

RESULTS BRIEFING
SPH CEO Alan Chan (left) and chairman Tony Tan at yesterday's briefing for the group's latest full-year results

Net income from investments sank 67.3 per cent to $47.7 million amid global financial turbulence. It was also affected by a downward fair valuation. And there was a $26.7 million impairment charge to write down the carrying amount of investments in associates - mainly Chinese billboard company TOM Outdoor Media Group - to the estimated recoverable amount.

Fully diluted earnings per share fell to 27 cents from 31 cents.

The previous year's higher investment income stemmed largely from profits on the sale of investments and gains from capital reduction exercises by MobileOne and StarHub.

Excluding the drop in investment income this time around, net profit from SPH's media and property businesses rose 17.5 per cent to $501.7 million, driven by the better performance of its print media and a higher contribution from its Sky@eleven condo project.

Full-year operating revenue rose 12.1 per cent to a record $1.3 billion. Revenue from the core newspaper and magazine division rose 5.7 per cent to $1 billion, with print advertisement revenue jumping 7.6 per cent to $780.1 million.

On the immediate prospects for advertising revenue, SPH senior executive vice-president of marketing Leslie Fong said: 'There is no doubt that the past two or three weeks have been pretty testing times and there is a general lack of confidence in the market, so it stands to reason that advertisers would be cautious.'

But Mr Fong is not too downbeat. 'I think the impact will be quite contained,' he said.

In the property segment, revenue jumped 43.6 per cent to $255.3 million, boosted by a $138.1 million contribution from Sky@eleven and a $10.1 million increase in income from rental and related services at Paragon retail complex.

Total operating expenses rose 9.3 per cent to $814.5 million. Property development costs for Sky@eleven accounted for $15.8 million of the increase, while staff costs grew 10.4 per cent as a result of increased headcount and annual salary increments. Headcount in August 2008 came to 3,918, up from 3,735 a year ago, as SPH continued to develop its new media and magazine businesses.

Fielding questions on what SPH management will do to bolster the company in these trying times, chief executive Alan Chan said: 'There's a whole slew of activities one has to do, from ensuring organisational efficiency to coming out with contingency modelling.'

Mr Chan downplayed the coming challenges. 'Frankly, it's nothing new to SPH,' he said. 'We've seen through the times of the Asian financial crisis, we've seen through the times of Sars. The senior management will have to sit down and be prepared to take measures to meet economic challenges.'

Asked if job cuts or hiring freezes are in the offing, Mr Chan said that it is 'premature' to talk about such things.

On the positive side, he stressed that merger and acquisition (M&A) activities are attractive in economic downturns. 'In fact, in difficult times, it is one of the best times for M&A as assets will become cheaper,' he said. 'We're always on the lookout for companies or activities that can add to our shareholder value.'

For the year ahead, Mr Chan said: 'The outlook for the global economy has deteriorated, given the heightened concerns over the financial turmoil and slowdown in the major economies.'

With Singapore's GDP growth forecast for this year revised down to about 3 per cent, SPH's advertising revenue is expected to move in tandem, he said. But the property segment 'is expected to contribute significantly to the group's performance, through the progressively recognised profit from Sky@eleven'. And recurrent earnings in the current financial year are expected to be 'satisfactory'.

SPH chairman Tony Tan said: 'The coming months will be difficult. We have to brace ourselves for trying times.'

But he noted that 'SPH is resilient, has a well-diversified earnings base and this will stand us in good stead'.

SPH has proposed a final tax-exempt dividend of 19 cents a share for FY2008, comprising a normal dividend of nine cents per share and a special dividend of 10 cents per share. Together with an interim dividend paid out during the year, the total dividend for the year will be 27 cents.

SPH's share price fell 33 cents or 8.6 per cent to end at $3.50 yesterday amid a broad market downturn.

Published October 11, 2008

NOL pulls out of race for Hapag-Lloyd

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(Frankfurt)

SINGAPORE'S Neptune Orient Lines (NOL) dropped out of the race to acquire German TUI AG's container shipping unit Hapag-Lloyd, NOL said in a statement yesterday.

'NOL will now put all its energy into managing through the current container shipping down cycle and providing our customers with the service they have come to expect of our organisation,' NOL chief executive officer Ron Widdows said.

This means that a group of Hamburg-based investors led by Klaus-Michael Kuehne, head of Swiss logistics company Kuehne & Nagel, and M M Warburg partner Christian Olearius is the only remaining bidder for Hapag-Lloyd, the world's fifth largest container shipping group.

Major TUI shareholder John Fredriksen said earlier yesterday that the German tourism and shipping group's supervisory board would discuss a possible sale of Hapag-Lloyd at a meeting at the weekend.

German media reports said that NOL made a bid worth about 3.5 billion euros (S$7 billion) and that the Hamburg group had offered more than four billion euros.



Mr Fredriksen, who holds about 15 per cent in TUI, was a major force that led TUI CEO Michael Frenzel to drop his twin-pillar strategy and decide to separate its tourism business, TUI Travel from its Hapag-Lloyd container shipping unit. -- Reuters

Published October 11, 2008

S'pore slips into recession, risks skewed on downside

Official 2008 growth estimate cut to 3%, but market economists already shaving 2009 forecasts

By ANNA TEO
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EVEN with the market primed for recession, the Q3 flash GDP estimates still fell below expectations. And, with no quick rebound in sight, economists are looking ahead at a lean 2009 as well.

The early estimates produced yesterday by the Ministry of Trade and Industry (MTI) show a broad-based sharp slowdown, with the economy contracting not only sequentially as widely expected, but in year-on-year terms too. MTI now expects the economy to grow 'around 3 per cent' in 2008, down from its August forecast of 4-5 per cent.

Based only on July and August data, GDP fell 6.3 per cent in Q3 from Q2 in adjusted, annualised terms. Coming straight after a 5.7 per cent decline in the preceding quarter, this spells a technical recession - Singapore's first since the second half of 2002.

But, against expectations, GDP has also fallen from a year ago in Q3, by 0.5 per cent. The last time the economy went into the red in year-ago terms was in Q2 2003 when GDP fell 1.8 per cent during the Sars outbreak.

Both MTI and the Monetary Authority of Singapore (MAS) - which yesterday eased monetary policy by moving to a neutral stance, from the 'modest and gradual' currency appreciation policy it had maintained since April 2004 - yesterday described the Singapore economy's near-term prospects in plain stark terms.

The external risks remain on the downside as the ongoing financial turmoil has presented 'new uncertainties' for the Singapore economy, MAS says. A more severe global downturn cannot be discounted, and Singapore's economic growth will 'likely remain below its potential rate over the next few quarters', the central bank adds.

A slip into technical recession here had been widely flagged, following months of sluggish manufacturing output due to pharmaceutical peculiarities. But now the precision engineering and chemicals clusters have also slowed because of weaker external demand, MTI says.

The ministry also expects the global financial crisis to take its toll in the months ahead on Singapore's financial services sector, particularly 'sentiment-sensitive' activities such as stocks trading and fund management.

MAS also sees services industries such as the transport-hub and tourism being hit by the global downturn.

As for the construction sector, 'despite a strong pipeline of projects, a shortage of contractors, a tight labour market for engineers and project managers, and longer waiting times for equipment' have delayed the projects, MTI notes.

Market economists share the official concerns - just more bearishly. Most had pared their forecasts of Singapore's 2008 GDP growth well before the latest official revision, and some now cite the risks of the growth falling below 3 per cent - probably between 2.5 and 3.0 per cent, they reckon.

Indeed, OCBC Bank's economists have belatedly cut their 2008 forecast to 2 per cent, and see the economic weakness extending into the first half of 2009.

UBS Investment Bank strategist Nizam Idris said the latest data show the economy to be in 'deep recession', with all the key figures 'well below expectations'.

The Q3 flash figures - which will eventually be updated with the September data - imply that industrial production probably grew modestly by 1-2.5 per cent last month, economists estimate. Any lower and the final Q3 GDP figure could well be worse than the already weak flash figures, United Overseas Bank's economists note. And, short of a strong pharma rebound soon, the manufacturing slump could extend into Q1 2009, they add.

Nanyang Technological University economist Choy Keen Meng notes wryly that his 'worse-case scenario' forecasts issued in March - of US recession and Singapore growing 3 per cent in 2008 - are coming true.

But he expects some recovery in year-on-year GDP growth to 3-4 per cent in Q4, partly on account of a low base in Q4 2007.

'Sluggish growth of 2-3 per cent is expected in the first half of next year. If the financial turmoil can be brought under control by then, we might be lucky to see a gradual recovery beginning in the second half. All in all, the economic outlook for 2009 is not looking good. GDP growth is likely to come in at about 4 per cent or even lower, barring a protracted global economic slump.'

Others such as Standard Chartered Bank economist Alvin Liew recently halved his 2009 growth forecast for Singapore to 2 per cent.

One silver lining, perhaps, amid the gloom and doom: Inflationary pressures will ease. MAS sees Singapore's headline inflation rate falling to 2.5-3.5 per cent in 2009, from 6-7 per cent this year. Not fast enough, says Stanchart's Mr Liew, pointing out that Singapore's 'historical comfort zone' for inflation is just 1-2 per cent.

Published October 11, 2008
Facing up to recession
Government should intervene to keep credit flowing to corporate sector
By VIKRAM KHANNA

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THIS time last year, with the stock market near its all-time high, the property market booming and the Singapore economy cantering towards a growth rate of 7.5 per cent for 2007, who would have thought we were, in fact, on the cusp of a recession?

A PASSING PHASEStorms don't last forever and Singapore's recession, like so many before it, will pass
But here we are, entering our first technical recession - two consecutive quarters of negative growth - since 2001; the flash estimate for Q3 growth was a worse-than-expected minus 6.3 per cent. We're also in the first quarterly contraction on a year-on- year basis (minus 0.5 per cent) since the time of Sars, in the second quarter of 2003.
It's a sobering reminder of how vulnerable even a fundamentally sound and well-run economy like Singapore can be to global economic headwinds; except that what we're facing now is no mere headwind, but a gale-force storm.
There is nothing Singapore could have done to prevent this. There is not much that any Asian country could have done. And the financial market turbulence we are seeing is only the beginning of a long spell - at least a couple of years - of pain for any economy that depends heavily on doing business with the United States and Europe.
After the current phase of the financial storm subsides - which depends on what the G-7 finance ministers decide to do at their meetings in Washington - the theatre of action will shift to the real economy. The US, Europe and Japan will experience a marked slowdown, if not outright recession, and rising unemployment. The great American consumption machine, in particular, which accounts for more than two-thirds of US GDP, will be reduced to a shadow of its former self.
While the International Monetary Fund still resists calling a global recession - it forecasts 3 per cent global growth next year - that view could change.
But global recession or not, few Asian countries - certainly not those with export-oriented economies - will be spared from the backwash of slowing growth in the major economies. Not even China; while its growth rate will probably still be respectable at around 7-8 per cent, the economy of the coastal provinces, where hundreds of thousands of factories have to depend for their livelihoods on the American consumer, will be devastated. Thousands of SMEs in China have gone bust already this year.
India, for its part, has seen its financial markets ravaged as a result of selloffs by foreign institutional investors; but the real economy - which is still overwhelmingly domestically focused - will be relatively resilient.
But even if China and India boom, they cannot come close to compensating for a US slowdown: a mere 20 per cent reduction in consumption in the US wipes out the equivalent of all of the consumption of China and India combined. Add in a European slowdown as well and the problem is multiplied.
So in the circumstances, what are the policy options for a small open economy like Singapore? The focus would have to be on, first, ensuring that banking functions as normally as possible and businesses keep running.
Right now, banking is not functioning normally; the credit crunch and fear of counterparty risk has spread here too. Despite liquidity injections by the Monetary Authority of Singapore, interbank rates remain elevated. Banks have pulled in their credit lines to even well-run companies. If this continues, layoffs will inevitably rise.
There could well be more financial accidents, or at least strains, in the US and Europe in the months ahead, which suggests local banks will remain unusually risk averse. There is a strong case here for temporary government intervention to keep credit flowing to the corporate sector - whether through direct loans by government agencies such as SPRING (via their several loan schemes, which can be enhanced) or through credit guarantees.
There is a case, too, for an off-budget package of fiscal measures - particularly increases in public spending, as well as help to businesses and vulnerable groups - to cushion the impact of the slowdown. The last budget did not, and could not, see it coming, but it is here. And help can't wait till the next budget. A philosophy of prudent economic management practised over decades has yielded a legacy of fiscal surpluses. It's now time to put them to work.
This crisis is also an opportunity - for example, to ramp up infrastructure, to develop new capabilities through higher outlays on training and retraining, and promote new technologies.
Storms don't last forever and Singapore's recession, like so many before it, will pass. What matters now is how productively and creatively we handle it, and what shape we will be in when the global economy comes back.

Published October 10, 2008

More regulatory oversight needed for cash companies

By LYNETTE KHOO

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WITHIN three weeks, two cash companies have fallen off the trading board without a reasonable exit offer for their minority shareholders.

One wonders if this statistic is fast becoming a norm among the remaining handful of cash companies that are left without a core business and their shares suspended from trading until they inject a new business.

In the latest episode, Iconic Global (the former China Food Industries) was delisted on Wednesday after its proposed reverse takeover (RTO) that promised a 'new life' for the company fell through.

Iconic is unable to provide a reasonable exit offer to its shareholders as it is in a net liability position and even if it could complete a voluntary liquidation, there is no residual cash to distribute to shareholders.

It becomes baffling at this point. Should a cash company be allowed to delist on short notice without an exit offer, leaving minority shareholders in limbo? Shouldn't shareholders whose shares are locked in a delisted company be better informed?

This has happened despite the Singapore Exchange's (SGX) revised listing rules since last December that require all cash companies to place 90 per cent of their cash and short-dated securities in an account operated by an escrow agent. These companies are also supposed to provide updates on monthly assets valuation and use of cash and quarterly progress updates in injecting a new business.

SGX has declined to put cash companies on a watchlist - a suggestion made by this writer in this column one year ago. But shareholders still have little clue as to these companies' real progress from the briefly worded updates issued. Also, public updates on the use of cash are also not evenly implemented across existing cash companies.

In the case of Iconic, even up till May, four months before the deadline, there were no hints that the RTO proposed by Iconic would not go through, or of the possibility of SGX turning down the transaction. In fact, a name change of the firm that month was perceived to usher in a new business totally unrelated to food.

The RTO inked last December involved Iconic buying 75 per cent of Pyramid Manufacturing Industries (PMI) from Bursa-listed Sitt Tatt Berhad for $18.75 million through the issue of new Iconic shares at 1.6 cents each.

But merely two weeks before the final deadline, Iconic announced on Sept 17 that SGX could not approve the proposed RTO nor extend the deadline beyond Sept 30. The group's appeal to SGX to reconsider its decision was rejected.

This begs the question: why the long time lapse from announcing the RTO to informing shareholders on the failure of the RTO attempt? Was such a hitch known earlier? If so, why the inaction to revive the deal or seek alternatives?

In the case of 1st Software, which was delisted last month after failing to complete the RTO to acquire construction firm Teambuild, it ended up with only $30,000-$40,000 in its kitty, even though it had net cash of $2.5 million at end-2007 and additional funds of $2 million from a convertible loan.

For both Iconic and 1st Software, no adequate explanation was given for the failure of their proposed RTOs even though the delisting of both companies left shareholders without a public market to cash in their investments.

In most cases, the directors of cash companies still receive their pay during the interim as they seek out new businesses for the cash companies. This being the case, the fairness of their remuneration should be assessed as to the efforts and progress made in finding a new business to retain the listing status.

Obviously, some instances have fallen through the cracks of existing listing rules. More regulatory oversight is crucial to ensure that a cash company that eventually can't find a core business will still have enough cash balances to allow some recovery for shareholders. And those who champion minority rights could play a part by stepping in when public eyes aren't looking.

At this point, it is a caveat emptor market, which makes it less than ideal for minority shareholders.

Published October 10, 2008

City Gas to retain monopoly for some years

Full liberalisation of market comes only after major changes to infrastructure

By RONNIE LIM

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A DECISION to liberalise Singapore's town gas market - worth up to $300 million annually - is not expected until 2009/2010.

Following that, it will need another six to seven years - to convert the existing town gas supply network into natural gas use - before the market is fully open to competition.

City Gas president and CEO Ng Yong Hwee said this when asked about the implications of last month's gas market liberalisation - starting with the freeing of natural gas supplies here - on the monopoly town gas supplier.

But it will take a while before competition filters down to the town gas market where City Gas - owned by listed CitySpring Infrastructure Trust - directly pipes town gas to some 560,000 households, as well as to commercial and industrial establishments.

Its only (non-pipeline) competition right now comes from suppliers of bottled liquefied petroleum gas, or LPG.

To produce its town gas, City Gas buys Indonesian natural gas from importer Gas Supply Pte Ltd to use as feedstock for its Senoko Gasworks plants.

There, the gas is reformed and then piped to customers for heating, cooking and use for other gas-fired appliances.

As part of market liberalisation, the Energy Market Authority (EMA) is evaluating the conversion of this town gas pipeline network to carry natural gas which can be piped directly to customers without requiring production plants, like City Gas's.

But to do this, modifications, including to the gas nozzles or burner heads of the various domestic and industrial gas appliances, will be needed.

As such, both City Gas and PowerGas (owner and operator of the islandwide gas pipeline grid) in September 2004 asked the EMA for a five-year deferment of this town gas network conversion - due to its high cost of an estimated $200 million and also its long cost-recovery period of up to 15 years.

Even after the market regulator's approval, preparation of the conversion project alone is expected to take one-and-a-half years, followed by a further five years for project implementation.

Still, despite the lead time it has, City Gas is not sitting still but is preparing for any eventual competition - whether from generating companies or bottled gas companies which may want to enter the town gas market, Mr Ng stressed.

But one challenge the latter may face will be their lack of economies of scale in buying natural gas.

City Gas's retail strength also comes from the diversity of customers it has built up, Mr Ng said, adding that it also has 'a strong pipeline of new ones coming onstream'.

Apart from supplying to HDB towns and new private condominiums, its commercial customers range from hospitals to crematoriums.

City Gas has also been promoting gas use for companies with central kitchens, such as Singapore Airport Terminal Services, and central laundries serving hotels.

It has also been developing and selling new gas-fired appliances such as water heaters and clothes dryers.

Mr Ng said that the town gas market here has been growing by 6-7 per cent annually, with CityGas selling 1.57 billion kilowatt hours of gas in FY07/08, up 15 per cent from 1.36 billion kWh in FY04/05.

Among the macro drivers will be population growth; tourism growth, which means more hotels and restaurants; the start- up of the integrated resorts; and new applications for gas-use, including for lifestyle/beauty products, he added.

Published October 10, 2008

High interest costs force First Ship Lease to lower DPU

Lending banks invoke 'market disruption clause' in loan terms, allowing them to increase rates

By CHOW PENN NEE

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COMPANIES are coming out to reveal the impact of the tight credit conditions on their operations and their bottom line. Provider of bareboat leasing services, First Ship Lease Trust (FSL Trust), yesterday said that higher interest cost levied by FSL Trust's lending banks in the fourth quarter of 2008, has led the trust to revise the distribution per unit (DPU) guidance for the fourth quarter of this year (from 3.11 US cents) to 3.08 US cents.

Banks that lend to FSL Trust include German banks Bayerische Hypo-und Vereinsbank AG, Singapore and Landesbank Hessen-Thuringen Girozentrale, Singapore's OCBC Bank, and Japanese lender Sumitomo Mitsui Banking Corporation, Singapore.

In a statement to the Singapore Exchange yesterday, FSL trust said: 'Due to the turmoil in the global financial markets, the lenders have been unable to obtain interbank fundings at or close to the quoted London Interbank Offer Rate (Libor). As such, the Libor is no longer accurate in reflecting the lenders' actual funding cost, which has increased significantly.'

Because of this, the lenders have invoked a 'market disruption clause' in the loan terms during the recent interest rate resets. This allows the lenders to levy higher interest rates on FSL Trust based on their actual cost of funds rather than on the lower three-month Libor, plus margin, FSL Trust said.

The incremental increase in interest expense for the fourth quarter is about US$680,000, the trust said. 'The invocation of the market disruption clause by the lenders reflects the state of the current credit market and is not connected to the credit quality of FSL Trust,' Cheong Chee Tham, senior vice-president and chief financial officer of FSL Trust Management, said in a statement.

'The credit margins on our facilities at 100 basis points and 120 basis points remain unchanged,' he added. 'Unfortunately, the invocation of the market disruption clause has rendered our floating-to-fixed interest rate swaps ineffective as we are receiving three-month Libor under these swaps, whilst paying the higher cost of funds of the lenders during this interest period.'

And the invocation of the market disruption clause is likely to remain for at least three months. According to FSL trust, the clause will remain in effect until the next interest reset dates between mid-December and early January next year.

The manager of the trust is providing DPU guidance of 3.17 US cents for the first quarter of 2009 - provided the market disruption clause is not invoked for the next interest rate resets.

Other local shipping trusts said that their DPU has not been affected yet. Thomas Hansen, chief executive of Rickmers Maritime, told BT: 'As Rickmers Maritime retains a portion of its distributable cashflow, its DPU would not be immediately impacted should any of its loans be subjected to market disruption clauses.'

He added that, in the past, circumstances that led to market disruption clauses being invoked have been 'rare'. 'However, in the current market turmoil, one must be prepared for it,' he said.

Alvin Cheng, CEO of Pacific Shipping Trust Management said: 'We would like to assure unitholders that PST has not received any formal notice on the market disruption clause from its lending banks and as such, there will be no impact on our distributions to unitholders for the third quarter 2008.'

He added: 'We have enjoyed a very strong and supportive relationship with all our banks and the majority of our lenders have indicated that they have no plans to invoke such a clause at this point.'

For FSL Trust, the previously announced DPU guidance of 3.05 US cents for third quarter 2008 remains unchanged, while the first quarter 2009 DPU guidance of 3.17 US cents is 0.09 of a US cent higher than the revised fourth quarter 2008 DPU guidance of 3.08 US cents, it said.

Separately yesterday, FSL Trust also announced that American International Assurance Company has increased its stake in the trust from 8.995 per cent to 9.293 per cent.

The stake is held by the life insurance funds of American International Assurance Company Ltd, Singapore branch (AIA Singapore) and American International Assurance Company Ltd, Brunei branch (AIA Brunei) as well as the two Singapore-domiciled unit trusts and other investment funds managed by AIG Global Investment Corporation (Singapore) Ltd. An FSL spokesman said: 'It is inappropriate for us to comment on a substantial stakeholder's interest.'

In a third announcement yesterday, FSL Trust also said that it bought a 4,250 TEU containership, YM Enhancer, from a subsidiary of Taiwan-based and listed Yang Ming Marine Transport Corporation (YML). YM Enhancer has been concurrently leased back to YML for 12 years with a purchase option for YML at the end of the lease term.

The YM Enhancer was part of a three container vessel transaction that FSL Trust had entered into for a total amount of US$210 million.

The trust said that the acquisition of YM Enhancer is fully funded by FSL Trust's recently announced US$65 million revolving credit facility and the existing US$200 million revolving credit facility. FSL Trust has hedged its interest rate risk through interest rate swaps to fix the interest rate until the maturity of the facilities.

The acquisition of YM Enhancer will be accretive to FSL Trust's DPU from Q408 onwards, the trust said.

Published October 10, 2008


CREDIT SQUEEZE
Mounting debt drives FerroChina to halt ops
It says it's in talks with lenders but gives no firm assurance of success


By LYNETTE KHOO

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FERROCHINA says it has run into working capital debts amounting to 706 million yuan (S$152 million) which have become due and payable, plus 4.52 billion yuan of loans and notes that may become due and payable.


It'll maintain share trading suspension until it works out a scheme of arrangement.








The group is in negotiations with lenders to explore various options, including refinancing, to repay the debts. 'There is, however, no assurance that such negotiations or discussions will be successful, in which event the group will not have sufficient cash to satisfy its financial obligations,' it said yesterday in a filing to the Singapore Exchange (SGX).

In view of the liquidity issues it faces, FerroChina has halted manufacturing at its factories in Changshu City and Changshu Riverside Industrial Park in Jiangsu, China.

It has also sought - and the Changshu City government has offered to provide - any assistance it may require to help preserve or safeguard its assets in China.

'The company would like to assure shareholders that management is actively seeking new equity and loan funding to resolve the group's current situation,' FerroChina said. 'But given the weak capital market and poor economic conditions, there is no assurance that we can be successful in securing such funding.'

The company said on Sept 16 that it was in serious discussions with a potential strategic investor.

It is is now engaged in discussions with other potential investors who have expressed an interest in investing.

No term sheet or definitive agreement has been signed yet.

Trading of FerroChina shares was halted on Wednesday. The counter closed 0.9 per cent lower at 0.545 cents on Tuesday.

The group said it intends to maintain the share trading suspension until it works out a scheme of arrangement for consideration by creditors and shareholders.

It has appointed Rajah & Tann its legal adviser, and will appoint a financial adviser to assist it with restructuring.

In response to media queries, an SGX spokesperson said the exchange has contacted some directors and the management of FerroChina and is 'closely monitoring the situation'.

Published October 10, 2008

No easy path ahead for M'sian PM-in-waiting

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(KUALA LUMPUR) Malaysia's deputy premier Najib Razak looks to have an easy path to the top job in ruling party elections in March, but an unseemly scramble for power around him could damage his efforts to rebuild the government.

Mr Najib was effectively handed the premiership of Malaysia when Prime Minister Ahmad Abdullah Badawi said on Wednesday that he would stand down in March as the leader of the main ruling coalition party, the United Malays National Organisation (Umno).

Despite one declared challenger, the party presidency looks to be settled but the battle for deputy and other posts will be messier. Horse trading and 'money politics' as officials lobby to get closer to power could further taint the image of the party that has ruled Malaysia for 51 years.

'The realignment of backers and allies, and the race for power and positions, has begun,' said Zainal Aznam Yusof, a respected Malaysian economist and a member of a government council set up recently to deal with economic problems. 'One dreads to hear the sound of money greasing the wheels of Umno,' Mr Zainal wrote in an editorial in the New Straits Times. That could damage Malaysia's chances of attracting new investment and fending off the fallout from the global financial crisis, which is set to cut demand for its exports.

After decades in power, corruption and nepotism have grown to plague Umno and the entire Barisan Nasional governing coalition, alienating core Malay voters who feel they have gained little while party leaders and the elite have prospered. It was a pledge to stamp out corruption that won Mr Abdullah a landslide victory in elections in 2004, and the failure to do so saw the government slump to its worst ever election result in March 2008 and eventually forced him out of office. Malaysia's ranking in the Transparency International corruption index fell to 43rd from 37th during his tenure.

Mr Najib's possible challenger, former finance minister Tengku Razaleigh Hamzah, said corruption was on the rise in Umno. 'I have received numerous complaints of money politics, and I hope the Anti-Corruption Agency will take action against the culprits,' Mr Razaleigh was quoted as saying in the Star paper.

While Mr Najib is viewed as a stronger leader than Mr Abdullah, he is still vulnerable to attack by the opposition, which is riding a wave of popularity under new leader Anwar Ibrahim. Mr Anwar, himself a former deputy prime minister, used arms procurement contracts undertaken while Mr Najib was defence minister to attack the government in the election campaign. When he formed his new government after the March elections, Mr Abdullah was forced to defend Mr Najib, saying there was no proof he was involved in any corrupt activities. -- Reuters

Published October 10, 2008

US dollar seen losing status as single reserve currency

JPMorgan Chase expects commodity currencies to remain highly volatile

By LYNETTE KHOO

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THE weakening greenback is changing the way countries hold their foreign reserves as they move away from holding US-denominated foreign reserves to a mix of reserve currencies, audience at the Discover Europe 2008 panel discussion was told.

Over the next two decades, foreign reserves would no longer be dominated by one single reserve currency but three to four foreign reserve currencies, of which two would be Asian currencies, Klaus Regling, senior adviser with the European Commission, said at the event yesterday, held at the National University of Singapore.

But that does not mean that these countries will totally decouple from the US economy, he added.

'It means that other economies will be less dependent on the United States but it does not mean they will be immune or decouple from the US,' Mr Regling said. 'The US, which now has a share of one-quarter of the world's GDP, will continue to have a very high share.'

The US financial and economic fallout is eroding the dollar as a store of value.

JPMorgan Chase head of Asia forex research Claudio Piron noted that China and India have been trimming their US dollar-peg link.

The US dollar peg, which stood at 100 per cent in 2000 for both Chinese yuan and Indian rupee, now stands at 90 per cent as a proportion of currency basket peg, he said.

Though euro has achieved much monetary stability and grown in its role as a reserve currency, it is unlikely to become the next single dominant reserve currency, Mr Regling said, citing incumbency advantages and inertia that favour the continued use of the US dollar.

According to Deutsche Bank Research, the euro/US dollar segment was the most frequently traded currency pair accounting for 28 per cent of the global forex turnover in 2007. Over 47 per cent of initial offerings of international bonds were issued in euro compared with just 35 per cent in US dollar in 2007.

But so far, the euro and Asian currencies have weakened as the financial crisis brewed in the US and Europe, threatening to deepen further.

Mr Piron said he expects the US dollar to remain firm for the next three to six months until the financial crisis is over. He is 'neutral' to 'slightly underweight' on Asian currencies in the short term.

'At the moment, cyclically Asian currencies will probably be weak for the next two quarters but we certainly expect currencies to appreciate a bit in the second half of next year,' he added.

He also expects commodity currencies to remain highly volatile as commodity prices stay corrected during the economic downturn, and advises that investors stay on the sidelines.

Published October 10, 2008

Q3 property investment sales plunge 79% to $1.1b

Activity set to stay low for rest of '08; asset pricing now more 'realistic': DTZ

By ARTHUR SIM

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INVESTMENT sales in the third quarter totalled just $1.1 billion, a dizzy 79 per cent slide from the second quarter, according to DTZ. And most deals in Q3 were small, at less than $100 million each, due to 'credit tightening'.

Investment activity is expected to stay low for at least the rest of this year. But DTZ senior director (investment advisory services and auction) Shaun Poh said: 'Assets are now priced more realistically and there are funds looking for opportunistic purchases, in particular distress sales.'

Still, he said that deals are likely to be small, at less than $200 million, and mostly from private equity.

In Q3, Kuwait Finance House acquired 36 apartments at Goodwood Residences for about $2,800 per square foot.

The retail property market also slowed in Q3. 'Gross fixed rents remained unchanged for three consecutive quarters, a sign of a peaking market,' DTZ said.

Average prime first-storey monthly rents came to $42.40 psf in Orchard/ Scotts Road, $27.10 psf in other city areas and $33.70 psf in suburban areas.

DTZ associate director Anna Lee said that retail property prices and rents would come under pressure in 2009 when there is a spike in potential supply. 'For the rest of 2008, rents are expected to hold firm with little new supply and Christmas around the corner.'

Separately, CB Richard Ellis (CBRE) said that rents for factories and warehouses edged up or stayed flat in Q3.

'The bright spot was the high-tech sector, which showed a strong 9.5 per cent quarter-on-quarter increase in monthly rent,' it said.

Monthly rent for high-tech space increased 9.5 per cent from Q2 to $3.45 psf in Q3, driven by rising numbers of qualifying office tenants.

'An active pre-letting market for business park space was observed, especially among financial institutions,' said CBRE.

The average monthly rent for factory space rose 3.2 per cent from Q2 to $1.60 psf for ground-floor units and 3.8 per cent to $1.35 psf for upper-floor units. The average monthly rent for warehouses stayed flat at $1.55 psf and $1.25 psf respectively for ground and upper-floor units.

The average capital value of 60-year leasehold strata-title factory units edged up about 2.3 per cent from Q2 to $309 psf and $225 psf respectively for ground and upper-floor units. The average capital value of freehold warehouses held firm during at $458 psf for ground-floor units and $401 psf for upper-floor units.

CBRE director for industrial and logistics services Bernard Goh said: 'While rents for factories and warehouses are not expected to show significant movements, high-tech and business park space is expected to continue on a moderate upward trend.'

Published October 9, 2008

Merrill reduces Singapore to underweight

Move follows downgrades in property and banking sectors

By OH BOON PING
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US bank Merrill Lynch has reduced Singapore to underweight following downgrades in the property and banking sectors here.

Building trap: Merrill expects residential prices to fall by 10% this year and 25% in 2009

Based on forecast valuations next year, its favourite stocks are SingTel, Sembcorp Marine and Singapore Petroleum Company.

In a report, the investment house said it has cut the portfolio weighting for Singapore to 4.27 per cent - below the benchmark weighting of 5.14 per cent.

'Although Singapore initially scores well in our model, our Singapore property and banking analysts have downgraded their respective sectors. As these two sectors account for around half of market cap, we are overriding the model to bring Singapore to a heavy underweight.'

For example, its banking analyst Andrew Maule believes a protracted slowdown in the property market will impact profits in 2009.

Specifically, loan growth is expected to slow to mid-single digits from the current 26 per cent year-on-year, while weaker capital markets and reduced appetite for wealth management products will likely hurt market-sensitive revenues.

As for real estate, the research house thinks any chance for a recovery in the second half of this year has disappeared with the deterioration in the economy. For example, it expects residential prices to fall by 10 per cent this year and 25 per cent in 2009.

With demand weak and high inventories, it does not see property stabilising before 2010. Meanwhile, office capital values have peaked due to rising debt cost and lower rentals ahead.

Furthermore, Singapore is exposed to the global slowdown more than other countries, as its exports-to- GDP ratio is the highest in the region, the report adds.

In August, non-oil domestic exports from the city state worsened - sinking 14 per cent from a year ago - the fourth straight monthly drop and the biggest decline since December 2006.

Similarly, factory output shrank 12.2 per cent year-on-year in August on a 35.7 per cent contraction in the pharmaceuticals segment.

The analysts felt that Singapore stocks are not backed by earnings, where 12-month forward earnings from June are up just 4 per cent year-on-year and valuations are not especially cheap either. Least preferred stocks are Singapore Exchange, CapitaLand and Keppel Land.

Elsewhere in the region, Merrill issued mild underweights on India, Taiwan and the Philippines, but has a heavy overweight on China, Hong Kong and Australia.

Published October 9, 2008

SGX has the right approach to short-selling

By R SIVANITHY
SENIOR CORRESPONDENT
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NEWS that the ban on naked short-selling in the US stock market will be lifted with effect from yesterday will surely be greeted with relief by many quarters of the financial community, and the move should, hopefully, be followed by all other markets which were too overly eager to follow the United States' example over a fortnight ago.

This is because the Sept 19 ban was ill-conceived in the first place, serving little purpose other than to tell the market that regulators had run out of ideas of how to prop up sagging markets and were in panic mode.

Instead of having the desired effect of halting the bleeding, it ended up robbing markets of liquidity, efficient price discovery and possibly even support that the ban was intended to achieve.

Take for example the fate of Wall Street. The ban kicked in when the Dow Jones Industrial Average stood at 11,388 and the S&P 500 was at 1,255. After Tuesday's collapse and after 11 trading days with the ban in place, the Dow was at 9,447 for a loss of 1,941 points or 17 per cent, while the S&P at 996 has suffered a loss of 259 points or 20 per cent.

The story is the same elsewhere - the UK market, for example, has lost more than 15 per cent since banning shorting while similar losses have been encountered across Europe.

Here's a thought: Could banning shorting actually have worsened the downside?

Possibly - observers have noted a spike-up in volume in futures markets worldwide since Sept 19 because short-sellers, unable to trade in the underlying markets, probably turned their energies to the futures markets instead. And, as most market watchers know, steep falls in futures contracts could, in turn, have placed undue pressure on the spot markets, thus driving prices in the latter down.

Whatever the case, it is illogical to temporarily interfere with the workings in any market or, as some have described it, to shift the goalposts after the game has started, especially if there is an associated derivatives market.

Both depend on each other to properly reflect prevailing sentiment and expectations, so to artificially obstruct arbitrageurs and free trading in one and not the other introduces undue distortions that lead to sub-optimal investment decisions.

To be fair, the selling of something not originally owned has always raised ethical issues, while the sight of crashing prices stirs many negative emotions, often leading to fingers being pointed at short-sellers and a clamour for some sort of official intervention.

Faced with tremendous public pressure to stem the bleeding, it is perhaps understandable - and possibly forgivable - for regulators to cave in and impose poorly thought out measures as was the case a fortnight ago.

Furthermore, US officialdom often finds itself burdened with the expectations not just of its own market, but also the world. For this reason it has a whole host of circuit-breakers in place which are not found in most other markets, measures aimed at preventing a full-scale crash that if left unchecked could wreak havoc around the globe.

However, as many have pointed out, short-sellers did not cause the sub-prime meltdown, nor were they in any way responsible for the inflation of the massive US housing bubble between 2001-2007 and the simultaneous enormous expansion of credit that lay behind it. (The real culprit may have been previous Federal Reserve chairman Alan Greenspan and the Bush administration, but we'll leave the blame game aside for now).

Furthermore, academic studies have shown that short-sellers do not earn abnormal profits by artificially driving prices down and instead provide liquidity and stability by buying into down markets.

So there is no real evidence that short-selling causes, aggravates or leads to stock market crashes; in fact, under rigorous scrutiny, all accusations levelled at the activity can be found to be mainly anecdotal.

Fortunately for local investors, officials here recognise that the less interference there is with the market mechanism, the better. Moreover, all the naked short-selling data provided by the Singapore Exchange (SGX) in the past week or so clearly shows that naked short-selling is not a major factor and SGX has sensibly adopted a disclosure-based approach to addressing short-selling concerns. If only other regulators were similarly predisposed, the selloff of the past fortnight might well have been less severe.

Published October 9, 2008

Abdullah to hand over power to Najib next March

Decision comes after feedback he may not get enough Umno nominations

By S JAYASANKARAN
IN KUALA LUMPUR
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MALAYSIAN Prime Minister Abdullah Badawi formally declared yesterday that he would not contest the Umno presidency in next March's party polls - effectively stepping down after that.

A lack of delivery: While Mr Abdullah is likely to spend the next six months trying to push through his reform agenda, he will be hobbled by a lame-duck image

He will hand over power to his deputy Najib Razak, 55, and follow the transition plan hammered out two weeks ago by the United Malays National Organisation's Supreme Council.

On Tuesday, Mr Abdullah met up with officials from the intelligence unit of the Defence Ministry, where he is minister. According to insiders from Mr Abdullah's dominant Umno, the officials told the PM and Umno president that he might not receive the minimum nominations (58) needed for a candidate wishing to contest Umno's presidency.

Even so, a steady stream of supporters were at his office and residence beseeching Mr Abdullah not to throw in the towel, and to declare himself as a candidate. Declare your intent, their reasoning went, and the support will come because you are the incumbent. Mr Abdullah, 67, rejected their entreaties.

His departure reflects his realisation that continued resistance could split the party irrevocably. What is less clear is whether it will usher in a sterner government, given that Mr Abdullah's laidback, even benevolent, style of leadership was often misconstrued as weakness.

A decade ago, Abdullah Ahmad Badawi wouldn't have dreamed about ascending to Malaysia's top job. But the fates decreed otherwise. Then premier Mahathir Mohamad sacked his deputy Anwar Ibrahim for 'moral misconduct' and, when Umno demanded that he pick a deputy from among the party's three vice-presidents, settled on Mr Abdullah as the safest choice.

That was in 1999 and it seemed logical. Mr Abdullah was widely perceived as a nice guy, a decent family man with pious Islamic credentials to boot, always a plus in Muslim-majority Malaysia.

In fact, Mr Abdullah's five-year stint as deputy premier was largely forgettable save for a rousing, stentorian address to the Umno General Assembly in June 2002 after Dr Mahathir shocked the crowd by announcing his plans for retirement. In the end, he persuaded Dr Mahathir to stay on until October 2003.

Mr Abdullah took over the premiership in November and, almost immediately, seemed set to change things. He promised a transparent government where open bidding would be the norm, an end to mega- projects and cronyism, and set about tackling the budget deficit by shelving several big-ticket projects that Dr Mahathir had previously approved.

Four months later, he called a snap general election and won the biggest electoral mandate ever given by the Malaysian people to any government since Independence. It was the high point of his leadership.

Things then went downhill. 'Abdullah's story is one of missed opportunities,' says veteran journalist and socio-political blogger Abdul Kadir Jasin. 'He's a highly regarded, lovable fellow who, from his standing in 2004, turned out to be one of the most disliked persons in the country.'

But businessman Jaafar Ismail is less charitable. 'If you want the brutal truth, his tenure has been inconsequential,' he snaps.

Mr Abdullah's problem was delivery, or its lack thereof. He'd promised open bidding for government contracts; it almost never materialised. He said he would eschew mega- projects and yet launched five ambitious development 'corridors' that would entail hundreds of billions of ringgit, funds whose origins remain doubtful.

He had appeared reform-minded, claiming to want to do away with corruption and police abuse of power. He seemed to want to shake up institutions like the civil service and the judiciary. But substantive change was meagre.

It could have been due to what sociologist Farish A Noor calls 'institutional inertia' but it wasn't helped by Mr Abdullah's almost complete absence of follow- up action and his impatience with detail.

Indeed, the prime minister got hoist on his own petard: he built up the people's expectations only to so disillusion them that they almost removed him in the last general election. Then, in the words of Mr Farish, 'he became the leader who lost the most votes, seats and state assemblies in the history of Malaysia'.

Mr Abdullah's image was not helped by Dr Mahathir's savage attacks on him beginning in 2006 with the former premier accusing his handpicked successor of everything from incompetence to outright corruption.

Even in areas where he should have succeeded - Islam, for instance - he could not. Mr Abdullah had sought to promote Islam Hadhari, a progressive brand of religion that sought to bring Islam into keeping with modern life with gender equality and individual empowerment. But it was derided behind his back, and the state- sponsored religious bodies - largely conservative and doctrinaire, to say the least - simply ignored it.

For all that, however, Mr Abdullah increased the democratic space allotted to ordinary Malaysians - an irony, given that it rebounded on him. 'I suspect that many Malaysians will feel grateful to him at some point later on,' says writer and columnist Karim Raslan. 'He removed the fear factor.'

Manu Bhaskaran, the Singapore-based partner of US consulting firm Centennial, thinks history will be more forgiving of Mr Abdullah, who will become the shortest serving premier in Malaysian history. 'He brought in a much needed change of pace and raised key issues that should have been addressed years ago,' says Mr Bhaskaran. 'It's a great pity because he was a decent man who was overtaken by events.'

Mr Abdullah is likely to spend the next six months trying to push through his reform agenda. But he will be hobbled by a lame-duck image. Whether he will be allowed to push his programme through is the question.

Published October 9, 2008

breakingviews.com
UK bailout: taxpayers deserve better

By MICHAEL PREST
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IT'S a big swing but not a knockout blow. The UK government's plan to bolster its banks with extra liquidity and capital, plus a hefty guarantee for wholesale funding, is the decisive - if late - move that's needed.

But the government seems to have capitulated to the banks on the coupon on the preferred stock, board changes, government directors on bank boards and banker's pay. The UK taxpayer deserves better.

The critical new ingredient is the much-leaked boost to Tier 1 capital. Eligible banks - which include all the UK's biggest retail banks and the Nationwide building society - can issue preference shares to the government up to an initial aggregate total of £pounds;25 billion (S$63.8 billion). There's another £pounds;25 billion in the kitty, if it's required, for preference shares or ordinary equity.

The Bank of England will also make at least £pounds;200 billion of liquidity available, as three-month sterling and one-week dollars, under its Special Liquidity Scheme to oil the money market's wheels.

In addition, there will be a £pounds;250 billion government guarantee to help banks raise wholesale funding. This government-guaranteed debt will count as eligible collateral for Bank of England lending.



It all amounts to partial nationalisation. The taxpayer could end up owning the equivalent of as much as half of some banks. But what's the quid pro quo? The details are scandalously vague. What's clear is what he or she is not getting: government directors on the board, warrants over ordinary equity, and a common Tier 1 standard.

There's also the risk that the coupon on the preferred shares will be too low - certainly lower than the 10 per cent Warren Buffett extracted from Goldman Sachs - although Prime Minister Gordon Brown said that it would be a 'fully commercial fee'.

Moreover, there's no mention of whether the taxpayer earns an underwriting fee on equity raised. Top executives' heads stay firmly attached to their shoulders and restraints on their pay are left unspoken.

Judging by the sharp narrowing of credit default swap spreads, the market thinks the plan has a good chance of working. But the taxpayer may prefer the plan less than the banks. The government has pulled its punches.

Published October 9, 2008

THE BIG BRITISH BAILOUT
HSBC and Stanchart don't need the cash

Both banks welcome scheme but say they have enough capital of their own

By SIOW LI SEN
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(SINGAPORE) HSBC and Standard Chartered Bank - the two foreign banks most popular with Singaporeans - are well funded and do not need to access the emergency capital provided by the British government to the UK banking sector.

A statement from HSBC yesterday said it welcomed London's proposals to provide liquidity and inject capital into the British banking system, which are important and necessary steps in restoring confidence to the sector.

'Consistent with the objectives of the UK scheme announced today, HSBC will ensure that our principal UK subsidiary, HSBC Bank Plc, continues to be appropriately capitalised, funded from the group's internal resources.

'HSBC therefore has no current plans to utilise the UK recapitalisation initiative,' the bank said.

HSBC and Standard Chartered are among the eight largest UK banks and building societies offered £50 billion (S$128 billion) for recapitalisation by the government as part of a plan to inject liquidity into the banking system.

The eight are Abbey National Plc, Barclays Plc, HBOS Plc, HSBC Bank Plc, Lloyds TSB Bank Plc, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered Bank.



'This is a big event for the industry, more of a non-issue for us. We really don't need the capital, we are very strongly capitalised and highly liquid,' said Standard Chartered spokesman Arjit De yesterday.

'We will support the effort, being part of the system, but are likely to be limited and non-material users of the facility. We don't intend to issue capital under the recapitalisation scheme,' he added.

Both HSBC and Standard Chartered are so well funded that they are net lenders to the interbank system.

HSBC said it provided significant amounts of liquidity to the London Sterling interbank market on Tuesday, lending around £2 billion of three-month and six-month money to other banks.

The bank said: 'HSBC expects to be very active in the London interbank market again today (Wednesday). HSBC believes its actions will contribute to easing the strain in UK money markets, where the availability of three-month and six-month interbank loans has been very tight in recent weeks.'

And Mr De said: 'Standard Chartered is not dependent on wholesale funding markets.'

Published October 9, 2008

Yen effect batters A$ below Sing $

Aussie ends day at 96.17 S'pore cents; NZ dollar also hits six-year-low

By LARRY WEE
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(SINGAPORE) The currency clock was turned back several years yesterday as the Australian dollar traded below par against its Singapore counterpart - a situation not seen since January 2003.

In fact, by the Asian close, the Australian dollar traded at a six-year low of 96.17 Singapore cents. As recently as November 2007, the currency was riding high at S$1.36.

It was not the only higher-risk currency to be battered as the New Zealand dollar also fell 6 per cent in Singapore dollar terms, sliding to 86.76 Singapore cents by yesterday evening - another six-year low.

The yen on the other hand called the shots all through the Asian session, surging strongly as Japanese investors scrambled to unload their overseas investments in a hurry - especially with Japan's Nikkei stock index falling more than 9 per cent yesterday.

This forced the US dollar sharply back below 100 yen for the first time in six months, and once again inflicting bloody punishment on the Australian (Aussie) and New Zealand dollars (or Kiwi). In Singapore dollar terms, the Japanese currency jumped more than 2 per cent to finish the day at a three-year high of S$1.4884 per 100 yen.

Versus the yen, the Aussie and Kiwi plunged even more sharply to finish the day more than 12 and 9 per cent weaker respectively - for a cumulative loss of something like 25 per cent and 18 per cent against the yen in the space of just three short sessions this week.

Elsewhere, Asian stock markets tumbled as much as 10 per cent in response to another Wall Street slide of more than 5 per cent on Tuesday evening. And, as a result, the US dollar was also able to post fresh 2008 highs against Asian currencies like the South Korean won as well as the Singapore dollar, Malaysian ringgit, Indian rupee and Philippine peso.

While the US dollar closed the session a hefty 2.9 per cent worse off at 98.8 yen, it also surged almost 5 per cent to 1,394 South Korean won, 1.2 per cent to 48.69 rupees and 0.9 per cent to 47.76 pesos. Closer to home, the greenback ended a more modest 0.2 to 0.4 per cent higher at S$1.4705, RM3.4980, 34.55 baht and 9,600 rupiah.

Looking ahead, researchers at Standard Chartered Bank warned of no quick recovery before the second half of next year for Asian assets: 'At that time, foreign investors may begin to see good value in Asian markets - anticipating that although Asia ex-Japan is not decoupled from the global slowdown, it is certainty much better insulated than earlier due to stronger domestic demand and the presence of economic powerhouses such as China and India.'

US stocks tumbled on Tuesday despite supportive news from the US Federal Reserve, which announced a Commercial Paper Funding Facility or CPFF that will buy the commercial paper of US corporations through a special-purpose vehicle - and thus help them tide over any short- term liquidity shortfall caused by the unwillingness of US banks to lend.

The coordinated rate cuts by central banks from several countries were announced after the Asian closing.

By then, gold was regaining some shine as a refuge destination, and the euro, British pound and Swiss franc also managed to close with some gains versus the US dollar - at US$1.3629, US$1.7447 and 1.1321 francs per US dollar respectively.

Published October 9, 2008

Shock rate cuts to jolt markets back to life

Fed and other central banks join hands in unprecedented move to fight crisis

By ANDREW MARKS
NEW YORK CORRESPONDENT
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AS Europe bled and Asian markets licked their wounds, several central banks across the world, led by the US Federal Reserve, announced a coordinated interest rate cut in an effort to stem the global financial crisis.

Face of the market: A broker in London responding to yesterday's news, including the Bank of England rate cut

This is the latest of what has become an increasingly urgent series of measures to cure investors of the rampant fear of a worldwide systemic collapse of the financial markets.

The half percentage point global rate cut also represented the first time in the growing crisis in which several central banks, representing governments from around the world, have acted in unison to overcome frozen credit markets, combat swooning economies and prevent further bank failures.

The Fed cut its key lending rate to 1.5 per cent, the European Central Bank cut its rate to 3.75 per cent and the Bank of England to 4.5 per cent - each with a half-point slash. The central banks of Canada, Sweden and Switzerland also reduced rates, while the Bank of Japan expressed its strong support of these policy actions, the Fed said in a statement released in the midst of another dramatic decline in Asian and European markets before the US stock market began its trading day yesterday.

The coordinated policy action initially produced a turnaround in global stock markets, paring losses, which in some cases were approaching the 10 per cent level. But the gloom would not go away so easily. In London, for example, the FTSE swung wildly from a 6 per cent decline to move into positive territory before slipping back again, to close at 4,366.69 down 238.53 points or 5.18 per cent.

Wall Street reacted cautiously to the overnight moves at the opening bell yesterday morning. The Dow Jones Industrials, which ended on Tuesday with a late plunge that produced the blue-chip index's fourth decline of more than 5 per cent in just two weeks' time, climbed more than 100 points in the first few minutes of trading, reaching a 1.9 per cent advance before resuming its fall to 9,256.99 points by midday in New York on investor fears that the rate cuts would fail to unfreeze the credit markets and avert a global recession.

US investors' enthusiasm was being tempered by the latest sobering economic data released yesterday morning, signalling the rising likelihood that the financial market turmoil will make the US recession a more prolonged and severe one than economists were projecting just three weeks ago. Initial results from US retailers showed a dramatic slowdown in September sales, indicating that the upcoming holiday shopping season will be a gloomy one.

'I don't know that a rate cut in and of itself is going to do all that much to reverse the economic decline or stem the fear in the markets, but the fact that the Fed and all these other central banks are acting in concert to cut rates should reassure investors that at least the governments of the world's major economies are finally taking this crisis seriously enough to work together to prevent the chaos from further enveloping the global economy,' said Sam Stovall, chief investment strategist at Standard & Poor's. 'The psychological impact of these rate cuts, along with Britain's announcement of a massive bailout of its banks worth hundreds of billions of dollars, should at least calm the extreme levels of panic that we've witnessed the last couple of days.'

In England, Prime Minister Gordon Brown proclaimed 'the global financial market has ceased to function', in explaining the need for his country's rescue plan, which will amount to a minimum of US$350 billion.

The Fed had been resisting enacting further rate cuts since April, despite sagging equities and credit markets, but pressure for further monetary policy easing had been growing by the day. And in a speech on Tuesday, Fed chairman Ben Bernanke hinted that he was inclined to reduce the fed funds rate, the rate at which banks lend one another money, given the severe threat to the flagging US economy that the market chaos has entailed.

In its statement, the Fed, which also approved a 50 basis-point decrease in the discount rate to 1.75 per cent, said it reduced rates 'in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures', adding that 'incoming economic data suggest that the pace of economic activity has slowed markedly in recent months'.

'Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation,' the Fed's statement read.

Published October 8, 2008

Temasek goes ahead with sale of PowerSeraya

Strong interest from potential bidders; pre-arranged finance package expected

By RONNIE LIM
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DESPITE the latest shake- up in global financial markets, Temasek Holdings yesterday said it was launching the sale of PowerSeraya following strong interest from potential bidders.

Mr McGregor: PowerSeraya has plans to grow from just a plain-vanilla generating company to a fully integrated energy company

The generating company (genco) is the last of the three big power assets Temasek is divesting, as part of Singapore's move to liberalise the electricity and gas sectors.

Sources said the Singapore investment company is obviously trying to capitalise on the strong investor momentum, as evidenced by its two earlier, successful sales of Tuas Power in March and Senoko Power just last month.

Amid keen competition from both overseas and local bidders, the 2,670 megawatt Tuas Power finally went to China Huaneng Group for $4.235 billion, while the 3,300 MW Senoko was sold to Lion Power, a Japanese/French consortium, for about $4 billion.

'The first two sales have proven that even in such testing financial circumstances, there are a number of keen buyers seeking good quality power assets here,' one industry observer noted.

Besides, Temasek is said to be again offering 'staple financing', or a pre-arranged financing package, if needed, for the 3,100 MW PowerSeraya sale. This will ensure more timely bids by bidders who otherwise might have to scramble for financing amid the credit crunch.

Announcing the sale, Gwendel Tung, Temasek's director of investment, said: 'PowerSeraya is a quality asset. The quality is reflected by its strong cashflow, its strategic location in Singapore and able management.'

'This, in turn, has attracted strong indications of interest from a number of potential bidders. As with the sale of the other two gencos, the sale of PowerSeraya will be subject to acceptable price and commercial terms,' she added.

Foreign bidders who had bid unsuccessfully for the earlier two Singapore gencos are likely to try again for PowerSeraya. They reportedly include groups like India's Tata Power and GMR Infrastructure, Bahrain investment bank Arcapita and Hong Kong's CLP Holdings.

A number of local corporations, including Semb- corp and Keppel Corp as well as CitySpring Infrastructure, are also said to be eyeing the genco.

PowerSeraya, as its managing director Neil McGregor told BT in an interview last month, has exciting plans to grow from just a plain-vanilla genco (with power generation currently accounting for 80 per cent of its net profits) to a fully integrated energy company.

Last month, it reported sterling FY07/08 financials, including a 30 per cent jump in net profit to $218 million on the back of a 6 per cent rise in revenue to $2.8 billion, compared with FY06/07. This gave it a return on equity of 19 per cent.

Under its diversification plans, Mr McGregor said that in five years' time, oil trading, including natural gas and marine bunkers, plus the sale of utilities like steam and water to petrochemical plants on Jurong Island, is expected to account for half the genco's net profit.

PowerSeraya earlier this year opened a 10,000 cu m reverse osmosis desalination plant - giving itself sufficiency in its own water and steam needs, and also enabling it to sell steam to investors on Jurong Island. It is also building an $800 million, 1,550 MW cogeneration plant which when ready in 2010 will allow it to sell even more utilities there.

Published October 8, 2008

Stocks not expected to bottom out in Q4

Credit Suisse picks defensive stocks like UOB, SIA, SPH, Olam

By CHOW PENN NEE
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HOW low can our stock market go? There is still some way before it reaches the bottom, said a Credit Suisse report. The Singapore market will not bottom out in the fourth quarter of this year, Credit Suisse analysts said. This is because, historically, an economic growth trough follows a Singapore stock market bottom after a period of less than three months.

The report said that looking at the last eight periods in which deceleration in Singapore's economic growth impacted market performance, the market typically bottomed out for no longer than three months before quarterly GDP growth bottomed.

'We currently expect GDP growth for Singapore to bottom in 1Q09. In turn, we take the view that the Singapore market is unlikely to bottom before 2009,' says the report.

Brokerage DMG & Partners, however, believe that the current Singapore slowdown is seen to be less severe than the 1997/98 period. In a report released yesterday, DMG analysts said the market expects a technical recession for Singapore, 'and we believe this is likely to take place'.

But the current Singapore economic slowdown is likely to be less severe than that in the 1997/98 because Singapore interbank rates, which are hovering at 1.8 per cent, have not spiked to levels seen in 1997/98 when it exceeded 12 per cent at one point.

DMG analysts also said that neighbouring countries, which account for 36 per cent of Singapore's visitor arrivals and more than 20 per cent of Singapore's non-oil domestic exports, now have much stronger fundamentals - evident from their current account surpluses (as opposed to deficits in 1996, before the Asian financial crisis); and lower ratio of external debt to GNP.

Credit Suisse's analysts are picking defensive stocks, choosing companies like United Overseas Bank, Singapore Press Holdings, Singapore Airlines, Raffles Education and Olam.

The Credit Suisse report also notes that a slowdown in domestic GDP growth will impact on sectors like real estate, banks and consumer plays. Credit Suisse analysts said they have recently downgraded their earnings forecasts and valuations for these sectors.

With GDP growth expected to slow substantially from 7.7 per cent last year, to 3.9 per cent this year, and 2.8 per cent next year, domestic demand, which has been resilient, is expected to moderate. 'Slower income and job growth, falling asset prices, and flat to negative export growth are likely to weigh on domestic demand, which has been the biggest contributor to GDP,' says the report.

DMG's analysts have recommended investors to 'start nibbling at companies that will outlast the slowdown'. Companies which have strong balance sheet, resilient earnings even in an economic downturn, ability to maintain high yield; and a low beta could give very significant returns for investors within 12 months and beyond, says DMG's report.

DMG analysts have recommended ComfortDelgro, Frasers Centrepoint Trust, SingTel, and SPH. The report added that they will avoid City Developments Ltd, DBS and Singapore Exchange.

According to Credit Suisse analysts, the finance and property sectors saw the most substantial earnings downgrades, especially for financial year 2009. 'Based on consensus estimates, Singapore has seen one of the most significant earnings downgrades across the region,' says the report. Year to date 2009 expected consensus earnings per share for Singapore has now been revised down by 15 per cent, versus Asia ex-Japan's revision of 18 per cent downwards. Regionally, Singapore is third in earnings downgrades after Taiwan and the Philippines.

'Looking ahead, we are now projecting earnings growth of negative 11.1 per cent for FY08 and 3.2 per cent for FY09. Post-revisions, the bulk of the FY08E earnings decline is driven by the finance and property sectors.'

The report added that property sector profits next year would be less than half of 2007's levels, following the sharp fall in 2008.

Published October 8, 2008

Better to cut losses as things can get much worse: Oei

By TEH SHI NING
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THE credit crisis is likely to worsen and Europe will have a harder time than the United States, tycoon Oei Hong Leong said yesterday.

'The US government has the capacity to bail out its banks, but Europe is in big, big trouble, with banks too big to be saved ... I think the situation is getting worse.'
- Mr Oei

Speaking at an event to honour his $7 million donation to the Lee Kuan Yew School of Public Policy, Mr Oei reiterated his earlier assessment of current financial turmoil as 'just the end of the beginning'.

While the $7 million was the handsome payoff on his gamble last month on one million American International Group (AIG) shares, Mr Oei said of the present situation: 'If there's any rally in the market at all, just get out. It's better to cut losses. I think things can get much worse.'

He bought AIG stock at US$1.80 apiece in the belief the company was too big to be allowed to fail. The US government intervened with an US$85 billion bailout on Sept 17 - and he sold the stock on Sept 22 for about US$5 a share.

'You've got $5 trillion in assets that are going to be deleveraged. $700 billion is far from enough,' he said yesterday, referring to the US government's bailout plan, which he reckons is insufficient to restore confidence in financial markets.

Mr Oei thinks the US government has the capacity to bail out its banks but reckons Europe is in 'big, big trouble', with banks too big to be saved.

'Deutsche Bank's exposure is about 80 per cent of Germany's GDP,' he said. 'The combined exposure of Credit Suisse and UBS is six times that of the Swiss GDP. I think the situation is getting worse.'

European governments this week pledged to defend the European banking system's stability, but no specific rescue plan has emerged yet.

Mr Oei's donation will go into an endowment fund awarding scholarships to students from China. The government will match his gift one-for-one. Of the 283 students currently enrolled at the LKY School of Public Policy, 42 are from China.

Mr Oei said: 'In China, they have learnt Western capitalism very quickly. But a lot of what has been learnt is bad capitalism - the greed and getting rich at all cost. What needs to be learnt are the good things about capitalism - proper governance, fairness, contribution to the community.'