Published November 1, 2008
Chartered posts Q3 net loss of US$24.4m
'Temporary salary reduction' of 5-20% for staff of Singapore foundry
By ONG BOON KIAT
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CHARTERED Semiconductor Manufacturing, which is facing slowing demand, reported a third-quarter net loss of US$24.4 million yesterday, falling from a net profit of US$114.8 million in the year-ago quarter. This translates to a net loss of one US cent per share for the three months ended Sept 30, compared with a net profit of four US cents per share previously.
FEELING THE HEATThe negative macroeconomic environment that has been prevailing for several months and the resulting difficult market conditions are finally impacting the foundry industry, says Mr Chia
The contract chip maker added that, starting November, it is implementing a 5-20 per cent 'temporary salary reduction' for its employees. This company-wide exercise will include the senior management team.
'The challenge that we face is the slowing down of demand coming into Q4 2008,' Chartered president and CEO Chia Song Hwee told BT in an interview.
The salary-trimming exercise, together with other expected payroll reductions, will help Chartered save between US$25 million and US$30 million on an annual basis, Mr Chia said.
Chartered's Q3 revenue rose 30.7 per cent to US$463.7 million, from US$354.8 million for the year-ago period.
Related link:
Click here for Chartered's news release
Taking into account its share of the minority-owned joint-venture fab SMP, Q3 revenue was US$487.2 million, up 27.6 per cent from US$381.8 million in the year-ago quarter.
The company incurred higher expenses year on year on several fronts. R&D expenses rose 13.5 per cent to US$44.2 million; general and administrative expenses rose 19.8 per cent to US$11.2 million, due primarily to higher payroll-related expenses; while sales and marketing expenses climbed 33.4 per cent to US$19.5 million.
In the company's earlier guidance, a reduction in wafer starts and higher depreciation of a plant were listed as adverse factors that would crimp margins in Q3. Yesterday, Chartered said that orders have been declining since mid-August, and that some of its customers have requested to push their deliveries forward.
'The negative macroeconomic environment that has been prevailing for several months and the resulting difficult market conditions are finally impacting the foundry industry,' Mr Chia said.
To tackle the looming challenges, the company has laid out three near-term priorities.
The first is to - through optimising product mix, improving efficiency and reducing cost - lower the company's breakeven utilisation rate, to around 75 per cent by year-end.
This means Chartered can be expected to break even operationally when it hits this mark, and earn operating income if it exceeds it. The company's utilisation rate for its Q3 period is at around 85 per cent.
The company also intends to focus on 'positioning for early phase of demand recovery' and 'preserving our cash and liquidity position'.
For Q4, the company expects to see revenue of between US$362 million and US$374 million, and a net loss of between US$52 million and US$62 million.
Chartered has had two profitable quarters to start its year - with net income of US$43.4 million and US$2.4 million for Q2 and Q1 respectively.
Chartered shares closed half a cent lower at 22.5 Singapore cents yesterday.
Saturday, 1 November 2008
Published November 1, 2008
Deal In Focus
Grabbing opportunities in uncertain times
YTL may step up its overseas forays and add to assets. By Pauline Ng
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(Kuala Lumpur)
BARGAIN HUNTERMr Yeoh only shops during crisis times, says an analyst of the YTL CEO's fail-safe recipe of buying prime properties at bargain prices
FOLLOWERS of YTL Corporation must have felt a sense of deja vu earlier this week when the Malaysian conglomerate said it had acquired a slice of prime Orchard Road real estate in Singapore at a hefty discount.
Demonstrating that he hasn't lost his penchant for spotting a good bargain during a major economic upheaval, group managing director Francis Yeoh Sock Ping said YTL had shelled out $285 million for 26 per cent of Macquarie Prime Reit (MP Reit) and a half-share of the holding company that manages it.
The purchase, from Australia's Macquarie Group at a 49 per cent discount to the Reit's net asset value, gives YTL ownership of $2.2 billion of prime retail and office space in Singapore, Japan and China, and comes a decade after it struck pay dirt buying fire-sale prime real estate in Kuala Lumpur.
'He only shops during crisis times,' an analyst who tracks the company said of Mr Yeoh's fail-safe recipe of taking over prime properties at bargain prices.
In 1997 during the Asian financial crisis, the opportunistic Mr Yeoh was quick to jump into the then-distressed Taiping Consolidated (now YTL Land), in the process landing himself three prime properties in the Kuala Lumpur city centre - shopping malls Starhill and Lot 10, plus the JW Marriot Hotel, and a valuable land bank on the outskirts of the city since developed to the tune of billions. At that time, YTL paid RM323 million (S$134.8 million).
Then, as now, the Yeoh family-controlled YTL demonstrated that having ready fire-power meant it could quickly ring up a sale when the 'Marked Down' sign went up.
Cash hoard
By way of its war chest, however, its MP Reit buy is small. The group has an RM11 billion cash hoard, having raised billions in the past few years, which it has yet to utilise.
Indeed, its MP Reit purchase is less than the $435 million the company paid towards the end of last year for the 30-year-old Westwood Apartments on Orchard Boulevard - the $2,525 per square foot per plot ratio (psf ppr) mark established in an uncertain property market raising eyebrows.
YTL's readiness earlier this year to fork out RM2,000 psf or almost a third more for a site in the Kuala Lumpur city centre area, on which it plans to build luxury apartments, also set tongues wagging.
'At certain times you have to pay market prices,' said Previndran Singhe, chief executive of Zerin Properties, noting Taiping Con and MP Reit buys 'don't come easy'.
When YTL has paid a premium for real estate, Mr Yeoh has shrugged it off by saying there will always be demand for good-quality homes.
In the MP Reit purchase, proceeds from YTL's US$300 million five-year guaranteed exchangeable bonds issued by a subsidiary in May last year will be used to fund the acquisition. Given bondholders receive 2.8 per cent yield to maturity, while MP Reit is expected to yield over 9 per cent next year, the deal will be yield-positive.
But the listed conglomerate, which has a group market cap in excess of RM15 billion, is more than property. Its diverse businesses include cement, utilities, technology and a stake in the Express Rail Link - a high-speed railway connecting Kuala Lumpur to the Kuala Lumpur International Airport.
It had hoped to use its rail expertise on a proposed RM11 billion bullet train linking Kuala Lumpur with Singapore, but that idea was canned by the Malaysian government on grounds the economic conditions were not right.
Many consider Mahathir Mohamad as giving YTL its biggest break in the early 1990s when, after repeated national power outages, the former prime minister roped in the private sector and awarded YTL a licence to build, operate and manage two gas-fired plants in Malaysia on terms critics still contend were overly generous.
The company was awarded the construction of the 7.2km suburban railway line between Sentul and Batu Caves for about half a billion ringgit in 2006. But major projects have since been harder to come by, though it certainly hasn't been for want of trying.
An attempt last year at a river-cleaning project for the government - reportedly to the tune of RM1 billion - came to naught, after YTL had hoped to use the expertise of its UK unit Wessex Water to showcase its abilities. YTL acquired Wessex on the cheap from Enron Corporation for US$1.8 billion in 2002 after the US company went bankrupt.
On the lookout
YTL's preference for regulated assets in developed countries is well known, and despite failures to secure tendered assets such as Senoko Power, it is expected to remain on the lookout for similar investment opportunities. In fact, RM9.4 billion - the bulk of the group's cash pile - is with subsidiary YTL Power International.
With local opportunities shrinking, YTL is expected to step up its overseas forays and add to existing assets in Australia, the UK - and now Singapore.
'In any event, they were one of the first public-listed companies to buy chunks of assets outside of Malaysia,' an analyst noted, adding it is a natural progression given foreign markets could be easier to penetrate insofar as deals are usually based on price and track record. In Malaysia, bumiputra equity requirements can sometimes play spoiler, she pointed out.
In view of the impending global recession and falling asset prices, YTL is likely not done for the year. In an interview last month, Mr Yeoh said he was looking forward to clinching a few deals this calendar year. 'I hope this is my opportunity to pick up a few prime properties around the world,' he said.
For now, given his intention to strengthen the Starhill franchise, MP Reit will be re-branded Starhill Global Reit once the deal is completed. A future merger of the Reit with YTL's Malaysian-listed Starhill Reit, which owns four prime properties in Kuala Lumpur's Golden Triangle, has not been ruled out.
What will be of further interest is what YTL does with the Reits. The merged entity could go for a dual listing on the Malaysian and Singapore exchanges, but then again it could opt for a sole listing on either.
Deal In Focus
Grabbing opportunities in uncertain times
YTL may step up its overseas forays and add to assets. By Pauline Ng
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(Kuala Lumpur)
BARGAIN HUNTERMr Yeoh only shops during crisis times, says an analyst of the YTL CEO's fail-safe recipe of buying prime properties at bargain prices
FOLLOWERS of YTL Corporation must have felt a sense of deja vu earlier this week when the Malaysian conglomerate said it had acquired a slice of prime Orchard Road real estate in Singapore at a hefty discount.
Demonstrating that he hasn't lost his penchant for spotting a good bargain during a major economic upheaval, group managing director Francis Yeoh Sock Ping said YTL had shelled out $285 million for 26 per cent of Macquarie Prime Reit (MP Reit) and a half-share of the holding company that manages it.
The purchase, from Australia's Macquarie Group at a 49 per cent discount to the Reit's net asset value, gives YTL ownership of $2.2 billion of prime retail and office space in Singapore, Japan and China, and comes a decade after it struck pay dirt buying fire-sale prime real estate in Kuala Lumpur.
'He only shops during crisis times,' an analyst who tracks the company said of Mr Yeoh's fail-safe recipe of taking over prime properties at bargain prices.
In 1997 during the Asian financial crisis, the opportunistic Mr Yeoh was quick to jump into the then-distressed Taiping Consolidated (now YTL Land), in the process landing himself three prime properties in the Kuala Lumpur city centre - shopping malls Starhill and Lot 10, plus the JW Marriot Hotel, and a valuable land bank on the outskirts of the city since developed to the tune of billions. At that time, YTL paid RM323 million (S$134.8 million).
Then, as now, the Yeoh family-controlled YTL demonstrated that having ready fire-power meant it could quickly ring up a sale when the 'Marked Down' sign went up.
Cash hoard
By way of its war chest, however, its MP Reit buy is small. The group has an RM11 billion cash hoard, having raised billions in the past few years, which it has yet to utilise.
Indeed, its MP Reit purchase is less than the $435 million the company paid towards the end of last year for the 30-year-old Westwood Apartments on Orchard Boulevard - the $2,525 per square foot per plot ratio (psf ppr) mark established in an uncertain property market raising eyebrows.
YTL's readiness earlier this year to fork out RM2,000 psf or almost a third more for a site in the Kuala Lumpur city centre area, on which it plans to build luxury apartments, also set tongues wagging.
'At certain times you have to pay market prices,' said Previndran Singhe, chief executive of Zerin Properties, noting Taiping Con and MP Reit buys 'don't come easy'.
When YTL has paid a premium for real estate, Mr Yeoh has shrugged it off by saying there will always be demand for good-quality homes.
In the MP Reit purchase, proceeds from YTL's US$300 million five-year guaranteed exchangeable bonds issued by a subsidiary in May last year will be used to fund the acquisition. Given bondholders receive 2.8 per cent yield to maturity, while MP Reit is expected to yield over 9 per cent next year, the deal will be yield-positive.
But the listed conglomerate, which has a group market cap in excess of RM15 billion, is more than property. Its diverse businesses include cement, utilities, technology and a stake in the Express Rail Link - a high-speed railway connecting Kuala Lumpur to the Kuala Lumpur International Airport.
It had hoped to use its rail expertise on a proposed RM11 billion bullet train linking Kuala Lumpur with Singapore, but that idea was canned by the Malaysian government on grounds the economic conditions were not right.
Many consider Mahathir Mohamad as giving YTL its biggest break in the early 1990s when, after repeated national power outages, the former prime minister roped in the private sector and awarded YTL a licence to build, operate and manage two gas-fired plants in Malaysia on terms critics still contend were overly generous.
The company was awarded the construction of the 7.2km suburban railway line between Sentul and Batu Caves for about half a billion ringgit in 2006. But major projects have since been harder to come by, though it certainly hasn't been for want of trying.
An attempt last year at a river-cleaning project for the government - reportedly to the tune of RM1 billion - came to naught, after YTL had hoped to use the expertise of its UK unit Wessex Water to showcase its abilities. YTL acquired Wessex on the cheap from Enron Corporation for US$1.8 billion in 2002 after the US company went bankrupt.
On the lookout
YTL's preference for regulated assets in developed countries is well known, and despite failures to secure tendered assets such as Senoko Power, it is expected to remain on the lookout for similar investment opportunities. In fact, RM9.4 billion - the bulk of the group's cash pile - is with subsidiary YTL Power International.
With local opportunities shrinking, YTL is expected to step up its overseas forays and add to existing assets in Australia, the UK - and now Singapore.
'In any event, they were one of the first public-listed companies to buy chunks of assets outside of Malaysia,' an analyst noted, adding it is a natural progression given foreign markets could be easier to penetrate insofar as deals are usually based on price and track record. In Malaysia, bumiputra equity requirements can sometimes play spoiler, she pointed out.
In view of the impending global recession and falling asset prices, YTL is likely not done for the year. In an interview last month, Mr Yeoh said he was looking forward to clinching a few deals this calendar year. 'I hope this is my opportunity to pick up a few prime properties around the world,' he said.
For now, given his intention to strengthen the Starhill franchise, MP Reit will be re-branded Starhill Global Reit once the deal is completed. A future merger of the Reit with YTL's Malaysian-listed Starhill Reit, which owns four prime properties in Kuala Lumpur's Golden Triangle, has not been ruled out.
What will be of further interest is what YTL does with the Reits. The merged entity could go for a dual listing on the Malaysian and Singapore exchanges, but then again it could opt for a sole listing on either.
Published November 1, 2008
SMRT's Q2 net rises 7.7% to $42.6m
By SAMUEL EE
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HIGHER train ridership, as well as its rental and advertising business, helped propel SMRT Corp's net profit forward by 7.7 per cent to $42.56 million for the second quarter ended Sept 30, 2008, compared with the same period a year ago.
Group revenue in Q2 grew 15.1 per cent to $227.03 million as total operating expenses also rose 17.9 per cent to $181.14 million due mainly to increased diesel and staff costs.
'SMRT has continued to grow its profits in this quarter,' said president and CEO Saw Phaik Hwa. 'However, volatile energy costs, inflation and higher operational costs will have an impact on our performance.'
Earnings per share in the second quarter rose to 2.8 cents from 2.6 cents year-on-year.
SMRT operates Singapore's biggest rail network, along with a smaller fleet of buses and taxis. In Q2, the average daily ridership on the MRT jumped 13 per cent to 1.435 million. During this period, revenue grew 13.7 per cent to $122.8 million, with operating profit increasing 10.5 per cent to $37.1 million.
The company added that LRT daily ridership had also increased - it grew 8.8 per cent to 45,300 in Q2, with revenue 10 per cent higher at $2.3 million. More significantly, it was in the black for the first time since operations started almost nine years ago - Q2 operating profit was $0.2 million compared with a loss of $0.1 million in the previous corresponding period.
But SMRT's buses and taxis remained in the red in Q2 due mainly to diesel. Higher diesel costs dragged buses to an operating loss of $0.9 million despite improved ridership, while substantial diesel subsidies caused taxis to post a loss of $0.5 million amid declining revenue.
In Q2, diesel costs rose 54.1 per cent to $15.2 million for the group. Together with electricity, total energy costs were up 31.1 per cent at $29.3 million for Q2.
But the biggest component of operating expenses remained its staff and related costs. These were 13.5 per cent higher at $71.8 million. This is because SMRT has been ramping up recruitment since Q1 for the Circle Line, which will become operational in mid-2009.
Rental and advertising revenue in Q2 fared better, rising 44.7 per cent to $14.2 million and 25.6 per cent to $6.0 million respectively. Rental operating profits spiked up 39.3 per cent to $10.7 million, while advertising profit rose 19.9 per cent to $3.7 million.
Revenue from engineering and other services soared 97 per cent to $9.7 million in Q2 due mostly to higher diesel sales and consultancy revenue - derived from the Palm Jumeirah monorail project in Dubai - resulting in an operating profit of $0.9 million.
For the first half ended Sept 30, 2008, SMRT's net profit rose 7 per cent to $82.87 million. Interim group revenue was 13.1 per cent higher at $442.97 million.
Earnings per share for the first half was 5.5 cents, up from 5.1 cents in the corresponding period. An interim ordinary dividend of 1.75 cents per share has been declared.
Looking ahead, the group expects the operating environment to be difficult in the next 12 months due to the global economic slowdown.
SMRT's Q2 net rises 7.7% to $42.6m
By SAMUEL EE
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HIGHER train ridership, as well as its rental and advertising business, helped propel SMRT Corp's net profit forward by 7.7 per cent to $42.56 million for the second quarter ended Sept 30, 2008, compared with the same period a year ago.
Group revenue in Q2 grew 15.1 per cent to $227.03 million as total operating expenses also rose 17.9 per cent to $181.14 million due mainly to increased diesel and staff costs.
'SMRT has continued to grow its profits in this quarter,' said president and CEO Saw Phaik Hwa. 'However, volatile energy costs, inflation and higher operational costs will have an impact on our performance.'
Earnings per share in the second quarter rose to 2.8 cents from 2.6 cents year-on-year.
SMRT operates Singapore's biggest rail network, along with a smaller fleet of buses and taxis. In Q2, the average daily ridership on the MRT jumped 13 per cent to 1.435 million. During this period, revenue grew 13.7 per cent to $122.8 million, with operating profit increasing 10.5 per cent to $37.1 million.
The company added that LRT daily ridership had also increased - it grew 8.8 per cent to 45,300 in Q2, with revenue 10 per cent higher at $2.3 million. More significantly, it was in the black for the first time since operations started almost nine years ago - Q2 operating profit was $0.2 million compared with a loss of $0.1 million in the previous corresponding period.
But SMRT's buses and taxis remained in the red in Q2 due mainly to diesel. Higher diesel costs dragged buses to an operating loss of $0.9 million despite improved ridership, while substantial diesel subsidies caused taxis to post a loss of $0.5 million amid declining revenue.
In Q2, diesel costs rose 54.1 per cent to $15.2 million for the group. Together with electricity, total energy costs were up 31.1 per cent at $29.3 million for Q2.
But the biggest component of operating expenses remained its staff and related costs. These were 13.5 per cent higher at $71.8 million. This is because SMRT has been ramping up recruitment since Q1 for the Circle Line, which will become operational in mid-2009.
Rental and advertising revenue in Q2 fared better, rising 44.7 per cent to $14.2 million and 25.6 per cent to $6.0 million respectively. Rental operating profits spiked up 39.3 per cent to $10.7 million, while advertising profit rose 19.9 per cent to $3.7 million.
Revenue from engineering and other services soared 97 per cent to $9.7 million in Q2 due mostly to higher diesel sales and consultancy revenue - derived from the Palm Jumeirah monorail project in Dubai - resulting in an operating profit of $0.9 million.
For the first half ended Sept 30, 2008, SMRT's net profit rose 7 per cent to $82.87 million. Interim group revenue was 13.1 per cent higher at $442.97 million.
Earnings per share for the first half was 5.5 cents, up from 5.1 cents in the corresponding period. An interim ordinary dividend of 1.75 cents per share has been declared.
Looking ahead, the group expects the operating environment to be difficult in the next 12 months due to the global economic slowdown.
Published November 1, 2008
Analyst walks free over model's murder
Prosecution failed to establish case: Court
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(Shah Alam)
SMILE OF RELIEFMr Abdul Razak was released from custody yesterday, almost two years after being arrested
A COURT acquitted a close friend of Malaysia's deputy prime minister yesterday of abetting the murder of a Mongolian woman in a ruling that revived opposition claims of political interference in the judiciary.
High Court judge Mohamad Zaki Yasin ruled that the prosecution failed to establish a case against political analyst Abdul Razak Baginda, an associate of Deputy Prime Minister Najib Razak.
The court ordered two police officers to remain on trial for allegedly carrying out the slaying.
The case, which captured national attention because of the gruesome nature of the killing and the personalities involved, has not directly implicated the government.
Mr Abdul Razak had been charged with abetting the October 2006 slaying of Altantuya Shaariibuu, a Mongolian interpreter and former model who was blown up with military-grade explosives in a jungle clearing near Shah Alam, the capital of Selangor state. Only fragmented remains of her body were found.
Judge Mohamad Zaki ruled that there was a sufficiently strong case against the two elite police officers who are accused of carrying out the killing and ordered them to enter their defence.
Soon after the ruling, Mr Abdul Razak walked out of custody a free man, almost two years after he was arrested from his office in Kuala Lumpur on Nov 7, 2006. 'I just want to go home; get out of my way,' he said on the way to his car after he was greeted with hugs and tears from waiting relatives.
The prosecution alleged that he ordered the killing after the 28-year-old Ms Shaariibuu started pestering him for money.
Prosecutor Abdul Majid Hamzah said he would consider filing an appeal against the court's decision. 'The fight is not over yet,' he told reporters.
The slain woman's father, Shaariibuu Setev, who has launched a RM100 million (S$41.8 million) civil suit against the Malaysian government, said the handling of the case had damaged Malaysia's international standing. 'I am not satisfied. My daughter knows only one Malaysian and it is Razak Baginda. Now my daughter is dead and (Razak) Baginda is freed,' he said. -- AP, Reuters, Bloomberg
Analyst walks free over model's murder
Prosecution failed to establish case: Court
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(Shah Alam)
SMILE OF RELIEFMr Abdul Razak was released from custody yesterday, almost two years after being arrested
A COURT acquitted a close friend of Malaysia's deputy prime minister yesterday of abetting the murder of a Mongolian woman in a ruling that revived opposition claims of political interference in the judiciary.
High Court judge Mohamad Zaki Yasin ruled that the prosecution failed to establish a case against political analyst Abdul Razak Baginda, an associate of Deputy Prime Minister Najib Razak.
The court ordered two police officers to remain on trial for allegedly carrying out the slaying.
The case, which captured national attention because of the gruesome nature of the killing and the personalities involved, has not directly implicated the government.
Mr Abdul Razak had been charged with abetting the October 2006 slaying of Altantuya Shaariibuu, a Mongolian interpreter and former model who was blown up with military-grade explosives in a jungle clearing near Shah Alam, the capital of Selangor state. Only fragmented remains of her body were found.
Judge Mohamad Zaki ruled that there was a sufficiently strong case against the two elite police officers who are accused of carrying out the killing and ordered them to enter their defence.
Soon after the ruling, Mr Abdul Razak walked out of custody a free man, almost two years after he was arrested from his office in Kuala Lumpur on Nov 7, 2006. 'I just want to go home; get out of my way,' he said on the way to his car after he was greeted with hugs and tears from waiting relatives.
The prosecution alleged that he ordered the killing after the 28-year-old Ms Shaariibuu started pestering him for money.
Prosecutor Abdul Majid Hamzah said he would consider filing an appeal against the court's decision. 'The fight is not over yet,' he told reporters.
The slain woman's father, Shaariibuu Setev, who has launched a RM100 million (S$41.8 million) civil suit against the Malaysian government, said the handling of the case had damaged Malaysia's international standing. 'I am not satisfied. My daughter knows only one Malaysian and it is Razak Baginda. Now my daughter is dead and (Razak) Baginda is freed,' he said. -- AP, Reuters, Bloomberg
Published November 1, 2008
Japan disappoints with grudging cut
BOJ slashes policy lending rate to 0.3%, its first in 7 years in bid to fend off recession
By ANTHONY ROWLEY IN TOKYO
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THE Bank of Japan's policy board made a grudging gesture towards concerted global monetary easing yesterday by agreeing to lower its policy lending rate by just 200 basis points to 0.3 per cent, and then only after BOJ governor Masaaki Shirakawa used his casting vote to break a deadlock over how big the cut should be. The yen resumed its rise and Tokyo stocks fell again as markets signalled apparent disappointment with the move.
MR SHIRAKAWAThe Japanese central bank governor used his casting vote in helping to push through a smaller-than-expected interest rate cut. Tokyo stocks fell again as markets showed apparent dismay with the move
Central banks in the Eurozone, Britain and Australia are all expected to cut rates further next week but a more positive gesture from Japan would have been welcome, some analysts said, especially as the BOJ painted a gloomy picture of global economic prospects after its policy board meeting.
'Particularly close attention should be paid to the risk of downward deviation in economic activity due to developments in the US and European financial systems and global financial markets as well as their subsequent impact on the real economy,' said the BOJ.
'If strains in financial markets intensify further, the risk-taking capacity of financial institutions and investors may decline and this could result in even tighter financial conditions and a worsening negative feedback loop between financial markets and the real economy, causing lower economic growth in the United States and Europe.'
Japanese Prime Minister Taro Aso's emergency fiscal package announced on Thursday, which included 5 trillion yen (S$75.7 billion) in new spending, provoked disappointed reactions yesterday. He was criticised for announcing tax cuts while warning that Japan's consumption tax would be raised in three years time thus discouraging consumers from spending.
Meanwhile, renewed gloom gripped Asian stock markets as they closed what is set to be their worst overall month ever, as the financial and economic crisis continues to unfold. News that the US economy contracted by 0.3 per cent in the third quarter of this year, joining Japan's on a road to recession that European economies also appear set to go down, weighed heavily.
Although the BOJ's 0.5 per cent overnight lending rate left the Japanese central bank with little room to make a cut on anything like the scale that other leading banks are being forced to implement, markets had hoped for a bolder gesture from Tokyo. A cut to at least 0.25 per cent and perhaps beyond had been assumed, to stem the unwinding of yen carry trades on recent surges in the currency.
Japan's former vice-finance minister for international affairs Eisuke Sakakibara said yesterday that he 'would not be surprised to see the unwinding of carry trades (which he estimated at up to US$1 trillion in value) resuming' and that the yen was likely to see a fresh bout of strength in the short term.
Analysts speculated after yesterday's widely watched BOJ meeting that the bank could be forced to cut rates again, perhaps to zero, if conditions worsen. 'The world economy will face the most severe situation towards March and lean to further credit easing,' said Nomura Securities chief economist Takahide Kiuchi. 'The BOJ will need to take a further step towards monetary easing to prevent the yen's rise and stock falls.'
Tokyo's benchmark Nikkei 225 stock average fell by 5 per cent or 452.78 points to 8,576.98 yesterday while the yen rose to 97.38 yen after falling to 99.13 yen on Thursday. The yen also strengthened against the euro, with both moves adding to market concerns that Japan's export led growth cannot be resumed until either the yen drops or external demand improves.
Compounding market gloom, Mizuho Financial Group yesterday became the second major Japanese bank this week to cut its full-year net profit forecast by more than half because of bad loans and losses in its equity portfolio.
Mr Sakakibara, speaking at the Foreign Correspondents club of Japan in Tokyo warned that many of Japan's smaller banks could face problems if the Nikkei moved below 7,000 again, as it did recently, because of their use of equity gains in their capital base. He predicted that the global economic slowdown could persist for up to three to five years, and added that there is 'no panacea' to turn the situation around.
Japan disappoints with grudging cut
BOJ slashes policy lending rate to 0.3%, its first in 7 years in bid to fend off recession
By ANTHONY ROWLEY IN TOKYO
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THE Bank of Japan's policy board made a grudging gesture towards concerted global monetary easing yesterday by agreeing to lower its policy lending rate by just 200 basis points to 0.3 per cent, and then only after BOJ governor Masaaki Shirakawa used his casting vote to break a deadlock over how big the cut should be. The yen resumed its rise and Tokyo stocks fell again as markets signalled apparent disappointment with the move.
MR SHIRAKAWAThe Japanese central bank governor used his casting vote in helping to push through a smaller-than-expected interest rate cut. Tokyo stocks fell again as markets showed apparent dismay with the move
Central banks in the Eurozone, Britain and Australia are all expected to cut rates further next week but a more positive gesture from Japan would have been welcome, some analysts said, especially as the BOJ painted a gloomy picture of global economic prospects after its policy board meeting.
'Particularly close attention should be paid to the risk of downward deviation in economic activity due to developments in the US and European financial systems and global financial markets as well as their subsequent impact on the real economy,' said the BOJ.
'If strains in financial markets intensify further, the risk-taking capacity of financial institutions and investors may decline and this could result in even tighter financial conditions and a worsening negative feedback loop between financial markets and the real economy, causing lower economic growth in the United States and Europe.'
Japanese Prime Minister Taro Aso's emergency fiscal package announced on Thursday, which included 5 trillion yen (S$75.7 billion) in new spending, provoked disappointed reactions yesterday. He was criticised for announcing tax cuts while warning that Japan's consumption tax would be raised in three years time thus discouraging consumers from spending.
Meanwhile, renewed gloom gripped Asian stock markets as they closed what is set to be their worst overall month ever, as the financial and economic crisis continues to unfold. News that the US economy contracted by 0.3 per cent in the third quarter of this year, joining Japan's on a road to recession that European economies also appear set to go down, weighed heavily.
Although the BOJ's 0.5 per cent overnight lending rate left the Japanese central bank with little room to make a cut on anything like the scale that other leading banks are being forced to implement, markets had hoped for a bolder gesture from Tokyo. A cut to at least 0.25 per cent and perhaps beyond had been assumed, to stem the unwinding of yen carry trades on recent surges in the currency.
Japan's former vice-finance minister for international affairs Eisuke Sakakibara said yesterday that he 'would not be surprised to see the unwinding of carry trades (which he estimated at up to US$1 trillion in value) resuming' and that the yen was likely to see a fresh bout of strength in the short term.
Analysts speculated after yesterday's widely watched BOJ meeting that the bank could be forced to cut rates again, perhaps to zero, if conditions worsen. 'The world economy will face the most severe situation towards March and lean to further credit easing,' said Nomura Securities chief economist Takahide Kiuchi. 'The BOJ will need to take a further step towards monetary easing to prevent the yen's rise and stock falls.'
Tokyo's benchmark Nikkei 225 stock average fell by 5 per cent or 452.78 points to 8,576.98 yesterday while the yen rose to 97.38 yen after falling to 99.13 yen on Thursday. The yen also strengthened against the euro, with both moves adding to market concerns that Japan's export led growth cannot be resumed until either the yen drops or external demand improves.
Compounding market gloom, Mizuho Financial Group yesterday became the second major Japanese bank this week to cut its full-year net profit forecast by more than half because of bad loans and losses in its equity portfolio.
Mr Sakakibara, speaking at the Foreign Correspondents club of Japan in Tokyo warned that many of Japan's smaller banks could face problems if the Nikkei moved below 7,000 again, as it did recently, because of their use of equity gains in their capital base. He predicted that the global economic slowdown could persist for up to three to five years, and added that there is 'no panacea' to turn the situation around.
Published November 1, 2008
Black October
Listed companies get that shrinking feeling as market cap falls to 3-year low
By TEH SHI NING
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IT has been more than three years since the companies listed on the Singapore Exchange felt so small - and they can blame October's massive sell-offs for this. The month just gone by saw $123.5 billion slashed off Singapore's stock market capitalisation as global jitters persisted and recession fears came true. The gloom will hover for some time as market observers say the worst is yet to come.
Market value has not plunged this low since end-May 2005's market capitalisation of $387.5 billion.
As the Q3 earnings season peaks only in November and more fund redemption can be expected with two months to go till year-end, analysts say that unpredictability is still the name of the game. The combined value of the 781 companies on the SGX stood at a three-year low of $391.5 billion yesterday evening, 24 per cent lower than the $514.9 billion recorded end-September.
Thus far this year, Singapore's stock market has shed over $200 billion, or 35 per cent of its capitalisation. Market value has not plunged this low since end-May 2005's market cap of $387.5 billion. After a roller-coaster month, the Straits Times Index ended yesterday at 1794.20 points, 23.94 per cent down from the 2358.91 points recorded after September's last trading session and a 48.23-per cent fall from the start of the year.
The number of billion-dollar stocks on Singapore's bourse shrank to 60 in October from 74 in September, while the number of stocks with a market value below $200 million rose to 610 in October from September's 584.
Related link:
Click here for the market cap of all SGX-listed companies
Just 102 listed counters, including those which had suspended trading, escaped having their market cap cut last month.
The three local banks' share prices have slumped on news of earnings downgrades, and all three ended October with market values slipping under $20 billion.
DBS Group was the worst hit as shares plunged to a five-year low earlier this week. Its market cap has tumbled 34.3 per cent to $16.7 billion in the past month. Oversea Chinese Banking Corporation's market cap fell 31.7 per cent to $15.3 billion while United Overseas Bank, which reported bleak Q3 earnings yesterday, saw its market value drop 22.5 per cent to $19.8 billion.
Property developers felt the heat too. Keppel Land, which recently reported a fall in Q3 profit, slid out of the top 50 rankings as its market cap fell 34.6 per cent to $1.3 billion. CapitaLand and City Developments, too, saw market value diminish by 6.9 per cent and 28.3 per cent to $8 billion and $5.7 billion respectively.
Volatile commodity prices meant the commodity stocks continued to suffer. Noble Group lost up to half its market value in the course of October. Its share price has since rebounded on forecasts of record profits, so it closed October 21.8 per cent down with a market cap of $3.4 billion.
Palm oil player Golden Agri-Resources fell 39.7 per cent to $1.9 billion and Olam fell 30 per cent to $2.2 billion. Wilmar International, the sixth largest stock on the exchange, slid a comparatively slight 1.6 per cent to finish with a market cap of $15.7 billion.
Shipping and offshore players Keppel Corp and SembCorp Marine also fell 42.9 per cent and 40.5 per cent, to $7.1 billion and $3.7 billion respectively. SIA fell 22.1 per cent to $13.1 billion.
Goh Mou Lih, head of research at Westcomb Securities, said: 'I think the turbulence isn't over yet; we're headed towards more volatility.'
Stephanie Wong, head of research at Kim Eng said: 'I'm hopeful for a gradual restoration of order in the financial markets. With interest rates trending south, corporates should breathe a little easier.'
According to a Citi equity strategy report released last week, 'bear markets typically do not hit bottom until the economy is at or past the worst quarter of a recession'. Citi economists expect the sharpest contraction in Singapore's economy in year-on-year terms to come only in the first quarter of next year.
In which case, the bear market has some way to go yet.
Black October
Listed companies get that shrinking feeling as market cap falls to 3-year low
By TEH SHI NING
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IT has been more than three years since the companies listed on the Singapore Exchange felt so small - and they can blame October's massive sell-offs for this. The month just gone by saw $123.5 billion slashed off Singapore's stock market capitalisation as global jitters persisted and recession fears came true. The gloom will hover for some time as market observers say the worst is yet to come.
Market value has not plunged this low since end-May 2005's market capitalisation of $387.5 billion.
As the Q3 earnings season peaks only in November and more fund redemption can be expected with two months to go till year-end, analysts say that unpredictability is still the name of the game. The combined value of the 781 companies on the SGX stood at a three-year low of $391.5 billion yesterday evening, 24 per cent lower than the $514.9 billion recorded end-September.
Thus far this year, Singapore's stock market has shed over $200 billion, or 35 per cent of its capitalisation. Market value has not plunged this low since end-May 2005's market cap of $387.5 billion. After a roller-coaster month, the Straits Times Index ended yesterday at 1794.20 points, 23.94 per cent down from the 2358.91 points recorded after September's last trading session and a 48.23-per cent fall from the start of the year.
The number of billion-dollar stocks on Singapore's bourse shrank to 60 in October from 74 in September, while the number of stocks with a market value below $200 million rose to 610 in October from September's 584.
Related link:
Click here for the market cap of all SGX-listed companies
Just 102 listed counters, including those which had suspended trading, escaped having their market cap cut last month.
The three local banks' share prices have slumped on news of earnings downgrades, and all three ended October with market values slipping under $20 billion.
DBS Group was the worst hit as shares plunged to a five-year low earlier this week. Its market cap has tumbled 34.3 per cent to $16.7 billion in the past month. Oversea Chinese Banking Corporation's market cap fell 31.7 per cent to $15.3 billion while United Overseas Bank, which reported bleak Q3 earnings yesterday, saw its market value drop 22.5 per cent to $19.8 billion.
Property developers felt the heat too. Keppel Land, which recently reported a fall in Q3 profit, slid out of the top 50 rankings as its market cap fell 34.6 per cent to $1.3 billion. CapitaLand and City Developments, too, saw market value diminish by 6.9 per cent and 28.3 per cent to $8 billion and $5.7 billion respectively.
Volatile commodity prices meant the commodity stocks continued to suffer. Noble Group lost up to half its market value in the course of October. Its share price has since rebounded on forecasts of record profits, so it closed October 21.8 per cent down with a market cap of $3.4 billion.
Palm oil player Golden Agri-Resources fell 39.7 per cent to $1.9 billion and Olam fell 30 per cent to $2.2 billion. Wilmar International, the sixth largest stock on the exchange, slid a comparatively slight 1.6 per cent to finish with a market cap of $15.7 billion.
Shipping and offshore players Keppel Corp and SembCorp Marine also fell 42.9 per cent and 40.5 per cent, to $7.1 billion and $3.7 billion respectively. SIA fell 22.1 per cent to $13.1 billion.
Goh Mou Lih, head of research at Westcomb Securities, said: 'I think the turbulence isn't over yet; we're headed towards more volatility.'
Stephanie Wong, head of research at Kim Eng said: 'I'm hopeful for a gradual restoration of order in the financial markets. With interest rates trending south, corporates should breathe a little easier.'
According to a Citi equity strategy report released last week, 'bear markets typically do not hit bottom until the economy is at or past the worst quarter of a recession'. Citi economists expect the sharpest contraction in Singapore's economy in year-on-year terms to come only in the first quarter of next year.
In which case, the bear market has some way to go yet.
Friday, 31 October 2008
Published October 31, 2008
Proton back in the black with RM162m profit
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(KUALA LUMPUR) Proton recorded RM162.2 million (S$68 million) profit for the financial year ended March 31, 2008, a sharp reversal from the previous year's massive losses, the Dewan Rakyat (Parliament) was told yesterday.
Deputy Prime Minister Najib Tun Razak said the profit was the result of the more effective internal management changes and business initiatives taken that would yield long-term positive impact.
'Proton's real loss in the financial year ended March 31, 2007 was RM618.1 million, primarily caused by a 40 per cent drop in car sales to 110,358 units in the 2006/2007 financial year from 183,824 units in the previous financial year.
'The drop was due to the very competitive market environment, and low value for used cars affected prospects of buying new cars,' said Mr Najib, who is also finance minister, in his written reply to opposition MP Wee Choo Keong.
He said the special subsidy or incentives received by Proton were not something exclusive for the national car manufacturer alone.
Similar incentives were also given to all assemblers or manufacturers of completely-knocked-down cars, he said. -- Bernama
Proton back in the black with RM162m profit
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(KUALA LUMPUR) Proton recorded RM162.2 million (S$68 million) profit for the financial year ended March 31, 2008, a sharp reversal from the previous year's massive losses, the Dewan Rakyat (Parliament) was told yesterday.
Deputy Prime Minister Najib Tun Razak said the profit was the result of the more effective internal management changes and business initiatives taken that would yield long-term positive impact.
'Proton's real loss in the financial year ended March 31, 2007 was RM618.1 million, primarily caused by a 40 per cent drop in car sales to 110,358 units in the 2006/2007 financial year from 183,824 units in the previous financial year.
'The drop was due to the very competitive market environment, and low value for used cars affected prospects of buying new cars,' said Mr Najib, who is also finance minister, in his written reply to opposition MP Wee Choo Keong.
He said the special subsidy or incentives received by Proton were not something exclusive for the national car manufacturer alone.
Similar incentives were also given to all assemblers or manufacturers of completely-knocked-down cars, he said. -- Bernama
Published October 31, 2008
KL spending US$50m to replant oil palm
Move will cut output by 4% temporarily as govt aims to boost biodiesel use
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(KUALA LUMPUR) Malaysia, the No 2 palm oil producer, said yesterday that it will spend more than US$50 million to encourage companies to replant palm oil trees, causing a temporary 4 per cent cut in output, and will boost biodiesel usage. The government will replant 200,000 hectares with saplings, cutting the nation's annual output by 700,000 tonnes, Minister of Plantation Industries and Commodities Peter Chin said.
Roller-coaster fortunes: Demand for palm oil has been hit by overproduction, the end of a speculative bubble, and by slowing global growth
Malaysia's total palm exports last year was 13.7 million tonnes. The price of palm oil has plunged 45 per cent in the past year on concern that the global financial crisis will trigger an economic slump that will cut demand for commodities.
The measures come hot on the heels of an announcement this week from Indonesia, the world's largest producer, that it would cut its export tax to zero to help support the price of palm oil, which has fallen more than 60 per cent from highs earlier this year.
'We are taking steps to replant palm oil trees which are 25 years or older with high yielding varieties,' Prime Minister Abdullah Ahmad Badawi said.
He also announced plans to turn 500,000 tonnes of palm oil into biodiesel, reviving a long-stalled push to use it as a fuel. Government vehicles will start using biodiesel in February, he said.
The industry welcomed the measures, although alone, they will not be solve the problems of weakening demand.Demand for palm oil, which is used in a range of products from foods to cosmetics, has been hit by overproduction, the end of a speculative bubble which popped as Wall Street imploded, and by slowing global growth.
The price of crude palm oil is now RM1,560 (S$654.50) per tonne, 65 per cent less than its peak earlier this year and close to what analysts estimate is the RM1,500 per tonne break-even for mid-sized plantation companies. In 2006, Malaysia took the lead in developing Asia's biodiesel industry and granted licences to more than 90 firms to set up plants with visions of introducing palm biodiesel into the domestic market.
But until recently, sky-high prices and a preference to divert palm oil into the more lucrative food industry saw the government dragging its feet.
Now palm biofuel would have to compete with cheap domestic diesel, one of the lowest priced in Asia as the government still pays out subsidies from oil and gas export revenues. Malaysia consumes 10 million tonnes of diesel a year.
Malaysia's October palm oil stocks are expected to climb 4.6 per cent to a record level of 2.04 million tonnes as output still rose despite the holiday season amid a marked slowdown in shipments, a Reuters poll showed. Palm oil is a key export earner for Malaysia, accounting for more than RM35 billion, or 8 per cent of total shipments. Analysts say that for every RM100 drop in price, Malaysia stands to lose RM1.7 billion in export earnings. -- Reuters, Bloomberg
KL spending US$50m to replant oil palm
Move will cut output by 4% temporarily as govt aims to boost biodiesel use
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(KUALA LUMPUR) Malaysia, the No 2 palm oil producer, said yesterday that it will spend more than US$50 million to encourage companies to replant palm oil trees, causing a temporary 4 per cent cut in output, and will boost biodiesel usage. The government will replant 200,000 hectares with saplings, cutting the nation's annual output by 700,000 tonnes, Minister of Plantation Industries and Commodities Peter Chin said.
Roller-coaster fortunes: Demand for palm oil has been hit by overproduction, the end of a speculative bubble, and by slowing global growth
Malaysia's total palm exports last year was 13.7 million tonnes. The price of palm oil has plunged 45 per cent in the past year on concern that the global financial crisis will trigger an economic slump that will cut demand for commodities.
The measures come hot on the heels of an announcement this week from Indonesia, the world's largest producer, that it would cut its export tax to zero to help support the price of palm oil, which has fallen more than 60 per cent from highs earlier this year.
'We are taking steps to replant palm oil trees which are 25 years or older with high yielding varieties,' Prime Minister Abdullah Ahmad Badawi said.
He also announced plans to turn 500,000 tonnes of palm oil into biodiesel, reviving a long-stalled push to use it as a fuel. Government vehicles will start using biodiesel in February, he said.
The industry welcomed the measures, although alone, they will not be solve the problems of weakening demand.Demand for palm oil, which is used in a range of products from foods to cosmetics, has been hit by overproduction, the end of a speculative bubble which popped as Wall Street imploded, and by slowing global growth.
The price of crude palm oil is now RM1,560 (S$654.50) per tonne, 65 per cent less than its peak earlier this year and close to what analysts estimate is the RM1,500 per tonne break-even for mid-sized plantation companies. In 2006, Malaysia took the lead in developing Asia's biodiesel industry and granted licences to more than 90 firms to set up plants with visions of introducing palm biodiesel into the domestic market.
But until recently, sky-high prices and a preference to divert palm oil into the more lucrative food industry saw the government dragging its feet.
Now palm biofuel would have to compete with cheap domestic diesel, one of the lowest priced in Asia as the government still pays out subsidies from oil and gas export revenues. Malaysia consumes 10 million tonnes of diesel a year.
Malaysia's October palm oil stocks are expected to climb 4.6 per cent to a record level of 2.04 million tonnes as output still rose despite the holiday season amid a marked slowdown in shipments, a Reuters poll showed. Palm oil is a key export earner for Malaysia, accounting for more than RM35 billion, or 8 per cent of total shipments. Analysts say that for every RM100 drop in price, Malaysia stands to lose RM1.7 billion in export earnings. -- Reuters, Bloomberg
Published October 31, 2008
Cosco Corp's Q3 net up 17% as sales surge 81%
Gross profit margins fall; factors cited include higher material costs
By VINCENT WEE
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COSCO Corp (Singapore) posted a 17 per cent year-on-year rise in third-quarter net profit to $113.9 million as turnover surged 81 per cent to $987.7 million.
Boost: Third quarter turnover was buoyed by the ship repair, ship building and marine engineering segments
Q3 turnover was boosted by the ship repair, ship building and marine engineering sectors in particular, with this segment growing 86.5 per cent to $909.9 million.
The quarter's bottom line - which translated to earnings per share of 5.09 cents, up from 4.37 cents - was also helped by net 'other gains', which rose to $56.45 million from $21.42 million, with a large chunk coming from sale of scrap metals, interest income and foreign exchange gain.
Despite the 81 per cent revenue surge, the group's Q3 gross profit rose just 10 per cent to $201.9 million as higher material costs and lower margin from the new ship building business eroded its gross profit margin to 20.4 per cent from 33.5 per cent.
Related link:
Click here for Cosco's financial results
Dry bulk shipping turnover rose 36 per cent to $72.5 million for the third quarter, lifted by more favourable charter rates renewed earlier in the year. The 'shipping agency and others' segment saw turnover fall 10.2 per cent to $5.3 million due mainly to lower agency commission.
Turnover for the first nine months surged to $2.75 billion, outstripping the $2.3 billion seen for the whole of FY2007.
Nine-month net profit rose 48 per cent $326.5 million year-on-year, boosted by growth across the group's major business segments. The bottom line was also helped by a 64 per cent jump in net 'other gains' to $124.9 million, with the bulk coming from the sale of scrap metals and interest income.
Cosco said initial advance payments have been received for all its its respective customers for its current order book of US$8.1 billion for progressive delivery up to 2011, and 'save as previously announced on April 9, there has so far been no cancellation of order by any customer'. The China-based ship and rig-builder also reiterated that it has collected the first three of four instalments for a floating, production, drilling, storage and off-loading (FPDSO) vessel contracted by MPF Corp, which has sought bankruptcy protection in the United States and Bermuda.
'As the group has to date not received any indication from MPF that it is unwilling or unable to make payment of the last instalment, the group will continue to perform its obligations under the contract. Should MPF not make its final payment, the group has the right under the contract to sell the vessel at a public or private sale. Based on current market prices, proceeds from the sale of the vessel would be more than sufficient to cover the sum of the outstanding instalment,' Cosco said.
Cosco said 'the group expects operating environment to be challenging in the near to medium term given the uncertain global economic climate'.
Separately, the company announced yesterday that its 51 per cent owned Cosco Shipyard Group has won new shipbuilding and offshore contracts worth one billion yuan (S$220.2 million).
Cosco shares closed 9.5 cents higher at 75.5 cents yesterday.
Cosco Corp's Q3 net up 17% as sales surge 81%
Gross profit margins fall; factors cited include higher material costs
By VINCENT WEE
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COSCO Corp (Singapore) posted a 17 per cent year-on-year rise in third-quarter net profit to $113.9 million as turnover surged 81 per cent to $987.7 million.
Boost: Third quarter turnover was buoyed by the ship repair, ship building and marine engineering segments
Q3 turnover was boosted by the ship repair, ship building and marine engineering sectors in particular, with this segment growing 86.5 per cent to $909.9 million.
The quarter's bottom line - which translated to earnings per share of 5.09 cents, up from 4.37 cents - was also helped by net 'other gains', which rose to $56.45 million from $21.42 million, with a large chunk coming from sale of scrap metals, interest income and foreign exchange gain.
Despite the 81 per cent revenue surge, the group's Q3 gross profit rose just 10 per cent to $201.9 million as higher material costs and lower margin from the new ship building business eroded its gross profit margin to 20.4 per cent from 33.5 per cent.
Related link:
Click here for Cosco's financial results
Dry bulk shipping turnover rose 36 per cent to $72.5 million for the third quarter, lifted by more favourable charter rates renewed earlier in the year. The 'shipping agency and others' segment saw turnover fall 10.2 per cent to $5.3 million due mainly to lower agency commission.
Turnover for the first nine months surged to $2.75 billion, outstripping the $2.3 billion seen for the whole of FY2007.
Nine-month net profit rose 48 per cent $326.5 million year-on-year, boosted by growth across the group's major business segments. The bottom line was also helped by a 64 per cent jump in net 'other gains' to $124.9 million, with the bulk coming from the sale of scrap metals and interest income.
Cosco said initial advance payments have been received for all its its respective customers for its current order book of US$8.1 billion for progressive delivery up to 2011, and 'save as previously announced on April 9, there has so far been no cancellation of order by any customer'. The China-based ship and rig-builder also reiterated that it has collected the first three of four instalments for a floating, production, drilling, storage and off-loading (FPDSO) vessel contracted by MPF Corp, which has sought bankruptcy protection in the United States and Bermuda.
'As the group has to date not received any indication from MPF that it is unwilling or unable to make payment of the last instalment, the group will continue to perform its obligations under the contract. Should MPF not make its final payment, the group has the right under the contract to sell the vessel at a public or private sale. Based on current market prices, proceeds from the sale of the vessel would be more than sufficient to cover the sum of the outstanding instalment,' Cosco said.
Cosco said 'the group expects operating environment to be challenging in the near to medium term given the uncertain global economic climate'.
Separately, the company announced yesterday that its 51 per cent owned Cosco Shipyard Group has won new shipbuilding and offshore contracts worth one billion yuan (S$220.2 million).
Cosco shares closed 9.5 cents higher at 75.5 cents yesterday.
Published October 31, 2008
Reit sponsors and their lucrative exit strategies
By UMA SHANKARI
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MACQUARIE Group, which on Tuesday said it would sell its entire stake in Macquarie Prime Reit and the Reit's manager to Malaysia's YTL Corporation for $285 million, is certainly making a neat exit from its investment. However, the interests of minority shareholders, some of whom were waiting for a similar offer for their units, have not been as well served.
When the real estate investment trust (Reit) announced a strategic review in February, the management said it would sponsor the review with the specific objective of enhancing value for all unitholders. 'The review will consider both corporate and asset-level strategies, including the potential to provide unitholders with a proposal to acquire 100 per cent of (the Reit's) units,' management said then.
On Tuesday, Macquarie qualified that, while the review considered the potential to provide unitholders with a proposal to acquire 100 per cent of units, 'no firm offer was received in the current challenging capital markets environment'.
Having failed to find a buyer for all the units in the Reit, Macquarie decided to sell just its 26 per cent stake in the Reit as well as its 50 per cent interest in the Reit's manager. The bank wants to redeploy capital in new growth areas. But the deal sells other unitholders - who could have been waiting for a general offer since the February announcement - short.
It is debatable whether Macquarie could have got an offer for all the units in the Reit if it had been willing to accept a much lower price. Some unitholders BT spoke to, at least, are convinced that the bank could have. YTL is paying 82 cents a unit for 247.1 million shares in the Reit. The price is a 52 per cent premium over the last traded price of 54 cents last Friday, the last day of trading before the deal was announced on Tuesday.
The sale has also resulted in a change of sponsor and a fundamental change in terms of strategy and expertise. This should also have been an incentive for management to obtain the same terms for all the unitholders.
YTL's managing director Francis Yeoh has said that Macquarie Prime will be rebranded as Starhill Global Reit and will be YTL's main vehicle for acquiring prime retail space in Asia and the West. The YTL group also controls Bursa Malaysia-listed Starhill Reit, the country's largest Reit with four properties in Kuala Lumpur worth about US$430 million in all. Mr Yeoh has not ruled out the merger of the two Reits - which could change the profile of Macquarie Prime Reit, which currently owns $2.2 billion of retail and office properties in Singapore, China and Japan.
The deal is not the first such transaction this year. In July, Frasers Centrepoint purchased Allco Finance's 17.7 per cent stake in the then-Allco Commercial Trust (now Frasers Commercial Trust) at a 17 per cent premium to the last traded price - also bringing about a change of sponsor. But the difference between that deal and the Macquarie- YTL deal is that in the case of the latter, there was an implication that a proposal to acquire 100 per cent of the Reit's units could be forthcoming. A statement between February and October to the effect that no offer for 100 per cent of the units was likely and that Macquarie was now looking to sell its own stake could have avoided this mix-up.
Taking a wider view, there also appears to be a flaw in Singapore's Reit structure, which allows sponsors to charge high management fees for running the Reit and then obtain superior terms should they decide to exit their investments. Unitholders, who could have bought into a Reit because of the sponsor's brand name and pipeline, are then left holding a slightly different product. Perhaps there should be a moratorium of several years for sponsors before they can exit the Reit they promoted in the first place.
Reit sponsors and their lucrative exit strategies
By UMA SHANKARI
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MACQUARIE Group, which on Tuesday said it would sell its entire stake in Macquarie Prime Reit and the Reit's manager to Malaysia's YTL Corporation for $285 million, is certainly making a neat exit from its investment. However, the interests of minority shareholders, some of whom were waiting for a similar offer for their units, have not been as well served.
When the real estate investment trust (Reit) announced a strategic review in February, the management said it would sponsor the review with the specific objective of enhancing value for all unitholders. 'The review will consider both corporate and asset-level strategies, including the potential to provide unitholders with a proposal to acquire 100 per cent of (the Reit's) units,' management said then.
On Tuesday, Macquarie qualified that, while the review considered the potential to provide unitholders with a proposal to acquire 100 per cent of units, 'no firm offer was received in the current challenging capital markets environment'.
Having failed to find a buyer for all the units in the Reit, Macquarie decided to sell just its 26 per cent stake in the Reit as well as its 50 per cent interest in the Reit's manager. The bank wants to redeploy capital in new growth areas. But the deal sells other unitholders - who could have been waiting for a general offer since the February announcement - short.
It is debatable whether Macquarie could have got an offer for all the units in the Reit if it had been willing to accept a much lower price. Some unitholders BT spoke to, at least, are convinced that the bank could have. YTL is paying 82 cents a unit for 247.1 million shares in the Reit. The price is a 52 per cent premium over the last traded price of 54 cents last Friday, the last day of trading before the deal was announced on Tuesday.
The sale has also resulted in a change of sponsor and a fundamental change in terms of strategy and expertise. This should also have been an incentive for management to obtain the same terms for all the unitholders.
YTL's managing director Francis Yeoh has said that Macquarie Prime will be rebranded as Starhill Global Reit and will be YTL's main vehicle for acquiring prime retail space in Asia and the West. The YTL group also controls Bursa Malaysia-listed Starhill Reit, the country's largest Reit with four properties in Kuala Lumpur worth about US$430 million in all. Mr Yeoh has not ruled out the merger of the two Reits - which could change the profile of Macquarie Prime Reit, which currently owns $2.2 billion of retail and office properties in Singapore, China and Japan.
The deal is not the first such transaction this year. In July, Frasers Centrepoint purchased Allco Finance's 17.7 per cent stake in the then-Allco Commercial Trust (now Frasers Commercial Trust) at a 17 per cent premium to the last traded price - also bringing about a change of sponsor. But the difference between that deal and the Macquarie- YTL deal is that in the case of the latter, there was an implication that a proposal to acquire 100 per cent of the Reit's units could be forthcoming. A statement between February and October to the effect that no offer for 100 per cent of the units was likely and that Macquarie was now looking to sell its own stake could have avoided this mix-up.
Taking a wider view, there also appears to be a flaw in Singapore's Reit structure, which allows sponsors to charge high management fees for running the Reit and then obtain superior terms should they decide to exit their investments. Unitholders, who could have bought into a Reit because of the sponsor's brand name and pipeline, are then left holding a slightly different product. Perhaps there should be a moratorium of several years for sponsors before they can exit the Reit they promoted in the first place.
Published October 31, 2008
Stocks soar, analysts preach caution
Rate cuts boost markets but the worst may not be over yet
By CONRAD TAN
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(SINGAPORE) Markets in Asia and Europe surged yesterday after the US Federal Reserve slashed its benchmark interest-rate target to the lowest since 2004.
But analysts here warned that the market has not yet bottomed out, despite major indices in Asia and Europe extending gains into a third day since Tuesday.
'The market might have gotten overly panicked and the rebound might last for a few days, but I don't think this is it,' said Kenneth Ng, an analyst at CIMB.
'We have to live with reality, and that reality will come when earnings start falling.'
The Straits Times Index ended 130.71 points or 7.8 per cent higher at 1,801.91, after rising as much as 9.9 per cent earlier in the day.
Overnight, the US central bank cut its main interest-rate benchmark to just one per cent from 1.5 per cent. It also said it would provide up to US$30 billion in US-dollar liquidity to each of four countries - Singapore, Korea, Mexico and Brazil - through swap arrangements to ensure that the banking systems in each country had enough dollars to meet heavy demand for the US currency.
Separately, the International Monetary Fund on Wednesday offered up to US$100 billion in short- term loans to developing countries that have been hit badly by the financial crisis but are otherwise sound, with none of its usual conditions attached.
Still, major US indices ended Wednesday lower.
Elsewhere in Asia yesterday, Hong Kong and Taiwan also cut interest rates, sending shares soaring.
Hong Kong's Hang Seng Index ended 12.8 per cent higher, while Taiwan's Taiex index rose 6.3 per cent. In Korea, the Kospi stock benchmark gained 11.9 per cent.
'What's happening is a bit of relief because both the Fed and IMF have provided support with liquidity programmes,' said Citigroup economist Sim Moh Siong. 'That helps to lower the risk of contagion in the emerging markets.'
With the flood of new liquidity, 'countries are in a better position to cope with the deleveraging process that's contributed to money pulling out of emerging- market countries', he added.
'But this does not mean that the deleveraging process will end any time soon - it probably still has some way to go.'
A senior private banker here said that it was not yet time for investors to plunge back into stocks. 'If you look at the level of volatility in the market, that's a classic sign of a bear market.'
Tai Hui, regional head of economic research in South-east Asia at Standard Chartered Bank, said that investor sentiment 'remains highly fickle'.
'We have seen some degree of normalisation in the interbank markets - it seems that the liquidity shortage that we've seen in the past several weeks is easing somewhat.
'But the truth is the economic outlook for the US, Europe and even Asia remains very challenging.'
CIMB's Mr Ng said that banks and property firms here especially still have 'a lot of headwinds to fight'.
For the banks, 'you're likely to see big writedowns' on investment securities, he said.
'This Q3 earnings will be the most unpredictable earnings season ever.'
Stocks soar, analysts preach caution
Rate cuts boost markets but the worst may not be over yet
By CONRAD TAN
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(SINGAPORE) Markets in Asia and Europe surged yesterday after the US Federal Reserve slashed its benchmark interest-rate target to the lowest since 2004.
But analysts here warned that the market has not yet bottomed out, despite major indices in Asia and Europe extending gains into a third day since Tuesday.
'The market might have gotten overly panicked and the rebound might last for a few days, but I don't think this is it,' said Kenneth Ng, an analyst at CIMB.
'We have to live with reality, and that reality will come when earnings start falling.'
The Straits Times Index ended 130.71 points or 7.8 per cent higher at 1,801.91, after rising as much as 9.9 per cent earlier in the day.
Overnight, the US central bank cut its main interest-rate benchmark to just one per cent from 1.5 per cent. It also said it would provide up to US$30 billion in US-dollar liquidity to each of four countries - Singapore, Korea, Mexico and Brazil - through swap arrangements to ensure that the banking systems in each country had enough dollars to meet heavy demand for the US currency.
Separately, the International Monetary Fund on Wednesday offered up to US$100 billion in short- term loans to developing countries that have been hit badly by the financial crisis but are otherwise sound, with none of its usual conditions attached.
Still, major US indices ended Wednesday lower.
Elsewhere in Asia yesterday, Hong Kong and Taiwan also cut interest rates, sending shares soaring.
Hong Kong's Hang Seng Index ended 12.8 per cent higher, while Taiwan's Taiex index rose 6.3 per cent. In Korea, the Kospi stock benchmark gained 11.9 per cent.
'What's happening is a bit of relief because both the Fed and IMF have provided support with liquidity programmes,' said Citigroup economist Sim Moh Siong. 'That helps to lower the risk of contagion in the emerging markets.'
With the flood of new liquidity, 'countries are in a better position to cope with the deleveraging process that's contributed to money pulling out of emerging- market countries', he added.
'But this does not mean that the deleveraging process will end any time soon - it probably still has some way to go.'
A senior private banker here said that it was not yet time for investors to plunge back into stocks. 'If you look at the level of volatility in the market, that's a classic sign of a bear market.'
Tai Hui, regional head of economic research in South-east Asia at Standard Chartered Bank, said that investor sentiment 'remains highly fickle'.
'We have seen some degree of normalisation in the interbank markets - it seems that the liquidity shortage that we've seen in the past several weeks is easing somewhat.
'But the truth is the economic outlook for the US, Europe and even Asia remains very challenging.'
CIMB's Mr Ng said that banks and property firms here especially still have 'a lot of headwinds to fight'.
For the banks, 'you're likely to see big writedowns' on investment securities, he said.
'This Q3 earnings will be the most unpredictable earnings season ever.'
Published October 31, 2008
IMF opens purse without strings attached
Offers short-term loans to countries hit by crisis as more expect trouble
By CONRAD TAN
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(SINGAPORE) Once again, the International Monetary Fund finds itself defined by crisis.
Mr Strauss-Kahn: 'Exceptional times call for an exceptional response.'
In the space of just five days, the IMF has approved some US$35 billion in emergency loans to three countries - Iceland, Ukraine and Hungary - and several others, including Pakistan and Belarus, have asked it for help.
And on Wednesday, the IMF said that it would extend up to US$100 billion more in short-term loans to developing countries that have been hit hard by the financial crisis but are sound economically, with no conditions attached.
Under its traditional lending programmes, the IMF usually imposes strict conditions on the borrowing country, including limits on government spending and forced interest rate hikes, to ensure that the loan is repaid. Critics say such policies caused unnecessarily painful economic upheavals in countries such as Indonesia.
'Exceptional times call for an exceptional response,' IMF managing director Dominique Strauss-Kahn said in a statement.
'Even countries that have excellent track records of implementing strong macroeconomic policies have been caught up in the global financial market crisis. They need support, and the IMF is ready to give it,' he added.
Countries such as South Korea, Brazil and Mexico have seen liquidity dry up and their currencies weaken though measures of their broad economic health looked sound before the last few weeks, said Citigroup analysts Donald Hanna and Tania Reif in a report.
With the new facility, qualifying countries can borrow up to five times their quota - the amount each country contributes to the IMF - for three months.
One country close to home that could benefit from the new IMF facility is Indonesia, said Citigroup economist Sim Moh Siong. Under the IMF's terms, Indonesia could borrow about US$15.5 billion. 'That would be useful in coping with the level of money that's flowing out of Indonesia right now,' he said.
Suddenly, the IMF is again being seen as a source of relief for countries in distress.
'This represents a shift - less than a year ago, the IMF was looking to downsize its operations,' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. 'Their whole role is going to be looked at in a new light.'
But the speed at which the IMF's war chest of some US$250 billion is being depleted is already raising worries that it may need to raise more cash soon.
Some analysts say that the IMF has too little firepower to save all nations that could face trouble, with many of its richest members such as the US and the UK also the worst-hit by the financial crisis.
'The IMF does have substantial total lending capacity, but given the size of major emerging markets such as Brazil, India, Turkey and Indonesia, that may be insufficient should, improbably, some of the major emerging economies require assistance,' said Thomas Oliver, a credit analyst for London-based asset management firm Schroders, in a note.
The massive global deleveraging is now threatening entire economies, prompting the IMF to act.
'This is more trying to steady the currencies as opposed to propping up the banking systems,' said Mr Cohen.
The costs of seeking the fund's help for truly distressed countries - which would not qualify for loans under the latest facility - is already apparent in Iceland. On Tuesday, Iceland's central bank raised its main interest rate benchmark to 18 per cent - the highest in Europe - from 12 per cent.
The move, a condition of a US$2.1 billion IMF loan announced last Saturday, reversed a 3.5 per cent cut in interest rates announced by the central bank just two weeks earlier, and is likely to force Iceland's economy into a deep, painful recession, say economists.
Until this month, the IMF had made emergency loans just six times before - to the Philippines, Thailand, Indonesia and Korea in 1997 during the Asian financial crisis, to Turkey in 2001, and to Georgia earlier this year.
As at end-August, the IMF had US$201 billion in funds available for lending to its 185 member countries. It can also call on some US$53 billion in additional funds from selected members under existing borrowing arrangements.
The IMF's funds are contributed by its members mainly through quota payments, which are based broadly on each country's economic size.
'US$250 billion does seem a relatively modest amount, but for many of the Asian economies, we don't see them running into difficulties or requiring help from the IMF,' said Tai Hui, an economist at Standard Chartered Bank.
'So the facilities are at this point very much a reassurance - a gesture to show that there will be support if needed - but I don't think there's a need right now.'
IMF opens purse without strings attached
Offers short-term loans to countries hit by crisis as more expect trouble
By CONRAD TAN
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(SINGAPORE) Once again, the International Monetary Fund finds itself defined by crisis.
Mr Strauss-Kahn: 'Exceptional times call for an exceptional response.'
In the space of just five days, the IMF has approved some US$35 billion in emergency loans to three countries - Iceland, Ukraine and Hungary - and several others, including Pakistan and Belarus, have asked it for help.
And on Wednesday, the IMF said that it would extend up to US$100 billion more in short-term loans to developing countries that have been hit hard by the financial crisis but are sound economically, with no conditions attached.
Under its traditional lending programmes, the IMF usually imposes strict conditions on the borrowing country, including limits on government spending and forced interest rate hikes, to ensure that the loan is repaid. Critics say such policies caused unnecessarily painful economic upheavals in countries such as Indonesia.
'Exceptional times call for an exceptional response,' IMF managing director Dominique Strauss-Kahn said in a statement.
'Even countries that have excellent track records of implementing strong macroeconomic policies have been caught up in the global financial market crisis. They need support, and the IMF is ready to give it,' he added.
Countries such as South Korea, Brazil and Mexico have seen liquidity dry up and their currencies weaken though measures of their broad economic health looked sound before the last few weeks, said Citigroup analysts Donald Hanna and Tania Reif in a report.
With the new facility, qualifying countries can borrow up to five times their quota - the amount each country contributes to the IMF - for three months.
One country close to home that could benefit from the new IMF facility is Indonesia, said Citigroup economist Sim Moh Siong. Under the IMF's terms, Indonesia could borrow about US$15.5 billion. 'That would be useful in coping with the level of money that's flowing out of Indonesia right now,' he said.
Suddenly, the IMF is again being seen as a source of relief for countries in distress.
'This represents a shift - less than a year ago, the IMF was looking to downsize its operations,' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. 'Their whole role is going to be looked at in a new light.'
But the speed at which the IMF's war chest of some US$250 billion is being depleted is already raising worries that it may need to raise more cash soon.
Some analysts say that the IMF has too little firepower to save all nations that could face trouble, with many of its richest members such as the US and the UK also the worst-hit by the financial crisis.
'The IMF does have substantial total lending capacity, but given the size of major emerging markets such as Brazil, India, Turkey and Indonesia, that may be insufficient should, improbably, some of the major emerging economies require assistance,' said Thomas Oliver, a credit analyst for London-based asset management firm Schroders, in a note.
The massive global deleveraging is now threatening entire economies, prompting the IMF to act.
'This is more trying to steady the currencies as opposed to propping up the banking systems,' said Mr Cohen.
The costs of seeking the fund's help for truly distressed countries - which would not qualify for loans under the latest facility - is already apparent in Iceland. On Tuesday, Iceland's central bank raised its main interest rate benchmark to 18 per cent - the highest in Europe - from 12 per cent.
The move, a condition of a US$2.1 billion IMF loan announced last Saturday, reversed a 3.5 per cent cut in interest rates announced by the central bank just two weeks earlier, and is likely to force Iceland's economy into a deep, painful recession, say economists.
Until this month, the IMF had made emergency loans just six times before - to the Philippines, Thailand, Indonesia and Korea in 1997 during the Asian financial crisis, to Turkey in 2001, and to Georgia earlier this year.
As at end-August, the IMF had US$201 billion in funds available for lending to its 185 member countries. It can also call on some US$53 billion in additional funds from selected members under existing borrowing arrangements.
The IMF's funds are contributed by its members mainly through quota payments, which are based broadly on each country's economic size.
'US$250 billion does seem a relatively modest amount, but for many of the Asian economies, we don't see them running into difficulties or requiring help from the IMF,' said Tai Hui, an economist at Standard Chartered Bank.
'So the facilities are at this point very much a reassurance - a gesture to show that there will be support if needed - but I don't think there's a need right now.'
Published October 31, 2008
Relief worldwide as galloping yen stumbles
Hope stirs that messy unwinding of carry trades can still be avoided
By LARRY WEE
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(SINGAPORE) Asian currencies rallied yesterday on news of more rate cuts overnight, but the biggest relief came from the cut that Tokyo is expected to unveil today. The possibility that Japan will trim its already rock-bottom 0.5 per cent interest rate halted the relentless march of the yen in its tracks. It also revived hopes that a disorderly unwinding of the carry trade can be avoided.
Currencies that had suffered the worst effects of carry trade reversals over the past week recovered sharply versus the Japanese unit in Asian trading yesterday.
In recent days, the razor-sharp yen has touched multi-year peaks against several currencies. This trend screeched to a halt yesterday as the yen slipped between 13 and 19 per cent versus currencies like the euro, pound and Australian dollar - compared to its recent highs.
Versus the Singapore dollar, the Japanese unit also fell as much as 11 per cent from last week's S$1.6645 highs per 100 yen, trading back to an intra-day low of below S$1.48 before finishing the day above S$1.49 again.
This reversal has huge implications. A popular currency strategy of the past two years has seen investors in Japan and elsewhere sell the low-yielding yen in favour of high-yielders such as the Antipodean pair, the British pound and the euro. Of late, the carry trade seemed to be unwinding with devastating effects as Japanese investors pulled their currency back home - strengthening the yen and sending other currencies plunging.
'The odds for stability to return to global financial markets should increase if market believes that the unwinding of yen carry trades may have run its course for now,' DBS researchers said yesterday.
'If so, look for the US dollar and yen to return their ill-gotten gains, allowing other currencies to recoup their recent losses.'
This is crucial because the surging yen has made an already bad global situation worse all round, by creating a vicious circle that threatens to send Japanese stocks ever lower: As the yen strengthens, Japanese exports suffer, the Nikkei tumbles, and Japanese investors rush more money home from overseas. This creates even more demand for the yen, making it stronger still while weakening other currencies - and pushing the Nikkei even lower.
Meanwhile, another vicious circle is created elsewhere: The more stocks and currencies in other countries tumble, the more nervous hedge fund investors rush to redeem what's left of their hedge fund holdings, and the more assets their hedge fund managers have to sell off to raise cash for such redemptions - which only makes matters worse for them again.
The hope that Japan will prevent a messy unwinding of the carry trade added to the general sense of relief yesterday.
On top of rate cuts by China, the US and Norway on Wednesday, both Taiwan and Hong Kong followed suit in Asia yesterday, and some believe that other European central banks may act by next week as well.
The US central bank also announced swap agreements of US$30 billion each with the central banks of Korea, Singapore, Brazil and Mexico.
South Korea's key Kospi stock index and the Korean won both soared more than 10 per cent yesterday, relieved that the Fed announcement offers a fresh supply of much-needed US dollars to Korean banks - which are believed to be heavily dependent on short-term US dollar borrowings to fund their assets.
Locally, yesterday's sharp rebound of almost 9 per cent for the local STI pressed the US dollar more than four Singapore cents lower from Wednesday's Asian close of S$1.5012 at one point, before it ended the day 2.2 per cent weaker at S$1.4689. Traders also suggested that a weaker Wall Street close - after early Wednesday gains of more than 3 per cent, may have also been a factor.
Relief worldwide as galloping yen stumbles
Hope stirs that messy unwinding of carry trades can still be avoided
By LARRY WEE
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(SINGAPORE) Asian currencies rallied yesterday on news of more rate cuts overnight, but the biggest relief came from the cut that Tokyo is expected to unveil today. The possibility that Japan will trim its already rock-bottom 0.5 per cent interest rate halted the relentless march of the yen in its tracks. It also revived hopes that a disorderly unwinding of the carry trade can be avoided.
Currencies that had suffered the worst effects of carry trade reversals over the past week recovered sharply versus the Japanese unit in Asian trading yesterday.
In recent days, the razor-sharp yen has touched multi-year peaks against several currencies. This trend screeched to a halt yesterday as the yen slipped between 13 and 19 per cent versus currencies like the euro, pound and Australian dollar - compared to its recent highs.
Versus the Singapore dollar, the Japanese unit also fell as much as 11 per cent from last week's S$1.6645 highs per 100 yen, trading back to an intra-day low of below S$1.48 before finishing the day above S$1.49 again.
This reversal has huge implications. A popular currency strategy of the past two years has seen investors in Japan and elsewhere sell the low-yielding yen in favour of high-yielders such as the Antipodean pair, the British pound and the euro. Of late, the carry trade seemed to be unwinding with devastating effects as Japanese investors pulled their currency back home - strengthening the yen and sending other currencies plunging.
'The odds for stability to return to global financial markets should increase if market believes that the unwinding of yen carry trades may have run its course for now,' DBS researchers said yesterday.
'If so, look for the US dollar and yen to return their ill-gotten gains, allowing other currencies to recoup their recent losses.'
This is crucial because the surging yen has made an already bad global situation worse all round, by creating a vicious circle that threatens to send Japanese stocks ever lower: As the yen strengthens, Japanese exports suffer, the Nikkei tumbles, and Japanese investors rush more money home from overseas. This creates even more demand for the yen, making it stronger still while weakening other currencies - and pushing the Nikkei even lower.
Meanwhile, another vicious circle is created elsewhere: The more stocks and currencies in other countries tumble, the more nervous hedge fund investors rush to redeem what's left of their hedge fund holdings, and the more assets their hedge fund managers have to sell off to raise cash for such redemptions - which only makes matters worse for them again.
The hope that Japan will prevent a messy unwinding of the carry trade added to the general sense of relief yesterday.
On top of rate cuts by China, the US and Norway on Wednesday, both Taiwan and Hong Kong followed suit in Asia yesterday, and some believe that other European central banks may act by next week as well.
The US central bank also announced swap agreements of US$30 billion each with the central banks of Korea, Singapore, Brazil and Mexico.
South Korea's key Kospi stock index and the Korean won both soared more than 10 per cent yesterday, relieved that the Fed announcement offers a fresh supply of much-needed US dollars to Korean banks - which are believed to be heavily dependent on short-term US dollar borrowings to fund their assets.
Locally, yesterday's sharp rebound of almost 9 per cent for the local STI pressed the US dollar more than four Singapore cents lower from Wednesday's Asian close of S$1.5012 at one point, before it ended the day 2.2 per cent weaker at S$1.4689. Traders also suggested that a weaker Wall Street close - after early Wednesday gains of more than 3 per cent, may have also been a factor.
Published October 30, 2008
Slower growth for mobile phones seen in Malaysia
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(KUALA LUMPUR) The Malaysian market for mobile and handheld phones this year is expected to record slower growth due to creeping inflation and the increase in petrol prices.
Research firm IDC said, based on its Asia/Pacific Quarterly Mobile Phone Tracker for the second quarter of this year, total mobile and handheld unit shipments, excluding parallel imports into Malaysia, would grow 2.3 per cent in 2008 to reach 4.8 million units, although the mobile subscriber base was forecast to expand 10.1 per cent.
'We are optimistic the compound annual growth rate (CAGR) for mobile phone and handheld unit shipments in Malaysia will reach 5.3 per cent over the next five years, reaching six million units by 2012 despite the slow growth forecast for this year,' it said in a statement here yesterday.
IDC's telecommunications research associate analyst for Malaysia, Chua Fong Yang, said the demand for traditional mobile phones slowed immediately after the government announced the 40 per cent increase in petrol prices.
'Phones with a lower price band are particularly impacted as people are prioritising their purchases due to the rising prices of necessity goods,' he said.
Mr Chua said IDC predicted that over the next five years, the growth of converged mobile phones in Malaysia would outpace the growth of traditional mobile phones.
'The 2008-2012 CAGR for converged mobile phones is anticipated to reach 10.1 per cent compared to 3.3 per cent for traditional mobile phones,' he said.
He said the declining average selling price of converged mobile phones would help drive their adoption rate among mobile subscribers.
'In addition, the implementation of mobile number portability services in Malaysia will provide mobile phone and handheld vendors with a new platform to market and sell their products,' Mr Chua said. -- Bernama
Slower growth for mobile phones seen in Malaysia
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(KUALA LUMPUR) The Malaysian market for mobile and handheld phones this year is expected to record slower growth due to creeping inflation and the increase in petrol prices.
Research firm IDC said, based on its Asia/Pacific Quarterly Mobile Phone Tracker for the second quarter of this year, total mobile and handheld unit shipments, excluding parallel imports into Malaysia, would grow 2.3 per cent in 2008 to reach 4.8 million units, although the mobile subscriber base was forecast to expand 10.1 per cent.
'We are optimistic the compound annual growth rate (CAGR) for mobile phone and handheld unit shipments in Malaysia will reach 5.3 per cent over the next five years, reaching six million units by 2012 despite the slow growth forecast for this year,' it said in a statement here yesterday.
IDC's telecommunications research associate analyst for Malaysia, Chua Fong Yang, said the demand for traditional mobile phones slowed immediately after the government announced the 40 per cent increase in petrol prices.
'Phones with a lower price band are particularly impacted as people are prioritising their purchases due to the rising prices of necessity goods,' he said.
Mr Chua said IDC predicted that over the next five years, the growth of converged mobile phones in Malaysia would outpace the growth of traditional mobile phones.
'The 2008-2012 CAGR for converged mobile phones is anticipated to reach 10.1 per cent compared to 3.3 per cent for traditional mobile phones,' he said.
He said the declining average selling price of converged mobile phones would help drive their adoption rate among mobile subscribers.
'In addition, the implementation of mobile number portability services in Malaysia will provide mobile phone and handheld vendors with a new platform to market and sell their products,' Mr Chua said. -- Bernama
Published October 30, 2008
PowerSeraya sale may be closed by early Dec
Company may start roadshows for bidders next week
By RONNIE LIM
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CONTRARY to some market speculation of delays given the financial turmoil, Temasek Holdings' sale of PowerSeraya - launched on Oct 7 - remains on track, sources said, with the first bids already in.
Vying for power: Some half a dozen bidders, including Sembcorp and Keppel Corp, are understood to be vying for PowerSeraya
Some half a dozen bidders, including local corporates Sembcorp and Keppel Corp, are understood to be vying for the generating company (genco), which is the last of the big three here being divested by the Singapore investment company - with the sale expected to be completed as soon as early December.
'The sale should take about as long as that of Senoko Power,' a source said, suggesting that given the earlier indicative interest of bidders and experience gained from the earlier two genco sales, PowerSeraya's sale should be sewn up in just a few months.
Despite the financial crisis, observers said that Temasek clearly had a certain level of confidence before proceeding with this last genco sale.
Besides, it is again offering 'staple financing', or a pre-arranged financing package, if needed by bidders.
Market talk of a likely delay surfaced after submission of bids - the first of a two-stage sales process - closed on Oct 20, with no word thereafter of when the second stage would start.
With the bids now in - other parties reportedly vying for PowerSeraya include India's Tata Power, Bahrain investment bank Arcapita and Hong Kong's CLP Holdings - PowerSeraya management is said to be already 'on standby' to start conducting individual 'roadshows' for the bidders from next week.
Bidders then make their final binding offers after a comprehensive inside look at the genco, including its books.
PowerSeraya with 3,100 megawatts capacity is the second largest genco here. It is planning to grow from just a plain-vanilla power company (with power generation currently accounting for 80 per cent of its net profits) to a fully integrated energy company.
Under its diversification plans, in five years' time, it expects oil trading, including that of natural gas and marine bunkers, plus the sale of utilities like steam and water to petrochemical plants, to account for half its profits.
Temasek first embarked on the sale of the three biggest gencos here a year ago - last October - starting with the 2,670 MW Tuas Power, the smallest but newest genco.
Tuas was sold to China Huaneng Group for S$4.235 billion in mid-March this year, while the 3,300 MW Senoko Power, the largest genco, went to Japanese/French group Lion Power for about S$4 billion last month.
With PowerSeraya now expected to be sold in early December, Temasek is half a year ahead of its targeted mid-2009 deadline to complete the entire genco divestment.
PowerSeraya sale may be closed by early Dec
Company may start roadshows for bidders next week
By RONNIE LIM
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CONTRARY to some market speculation of delays given the financial turmoil, Temasek Holdings' sale of PowerSeraya - launched on Oct 7 - remains on track, sources said, with the first bids already in.
Vying for power: Some half a dozen bidders, including Sembcorp and Keppel Corp, are understood to be vying for PowerSeraya
Some half a dozen bidders, including local corporates Sembcorp and Keppel Corp, are understood to be vying for the generating company (genco), which is the last of the big three here being divested by the Singapore investment company - with the sale expected to be completed as soon as early December.
'The sale should take about as long as that of Senoko Power,' a source said, suggesting that given the earlier indicative interest of bidders and experience gained from the earlier two genco sales, PowerSeraya's sale should be sewn up in just a few months.
Despite the financial crisis, observers said that Temasek clearly had a certain level of confidence before proceeding with this last genco sale.
Besides, it is again offering 'staple financing', or a pre-arranged financing package, if needed by bidders.
Market talk of a likely delay surfaced after submission of bids - the first of a two-stage sales process - closed on Oct 20, with no word thereafter of when the second stage would start.
With the bids now in - other parties reportedly vying for PowerSeraya include India's Tata Power, Bahrain investment bank Arcapita and Hong Kong's CLP Holdings - PowerSeraya management is said to be already 'on standby' to start conducting individual 'roadshows' for the bidders from next week.
Bidders then make their final binding offers after a comprehensive inside look at the genco, including its books.
PowerSeraya with 3,100 megawatts capacity is the second largest genco here. It is planning to grow from just a plain-vanilla power company (with power generation currently accounting for 80 per cent of its net profits) to a fully integrated energy company.
Under its diversification plans, in five years' time, it expects oil trading, including that of natural gas and marine bunkers, plus the sale of utilities like steam and water to petrochemical plants, to account for half its profits.
Temasek first embarked on the sale of the three biggest gencos here a year ago - last October - starting with the 2,670 MW Tuas Power, the smallest but newest genco.
Tuas was sold to China Huaneng Group for S$4.235 billion in mid-March this year, while the 3,300 MW Senoko Power, the largest genco, went to Japanese/French group Lion Power for about S$4 billion last month.
With PowerSeraya now expected to be sold in early December, Temasek is half a year ahead of its targeted mid-2009 deadline to complete the entire genco divestment.
Published October 30, 2008
What next for Creative?
By ONG BOON KIAT
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CREATIVE Technology has fought waning sales, slipping bottom lines and cut-throat competition for the past three years - but those could be mere skirmishes ahead of the real war. If recent developments are anything to go by, the company could be facing the toughest battle of its 27-year existence.
A first-quarter net loss of US$32.2 million, announced last Friday, signposted an alarming start to its new fiscal year. But what is more worrying is Creative's pessimistic forecast for its customarily strong holiday season - a Q2 revenue range of between US$140 million and US$160 million.
Why are alarm bells ringing? If its projections hold sway, the current quarter will be the company's worst Q2 performance in terms of revenue in the last 15 years. When it last posted lower Q2 sales, in its FY1993, the company was still a tech upstart fresh from a prestigious Nasdaq listing.
With the gloomy forecast, what does the future hold for Singapore's most famous high-tech poster child of the last two decades?
A return to profitability in the near future can be ruled out, according to several analysts who track Creative. This week, CIMB-GK Research revised its forecast on the company, predicting losses instead of gains for FY2010 and FY2011. It now expects full-year net loss of US$29.6 million and US$14.8 million respectively for those two upcoming fiscal years. The research firm also predicted a full-year net loss of US$45.4 million for Creative's current FY2009.
The research firm maintained a target share price of S$4.13 for Creative, but the latter is hovering way below the mark, closing at S$2.54 yesterday.
In its Q1 earnings statement, Creative blamed 'worsening global macroeconomic conditions' for its poor Q1 showings, and listed 'challenging market conditions' as reasons for its sombre Q2 revenue forecast.
It said it has reduced operating expenses in Q1 from the previous quarter and improved gross margins as a result.
But Creative will have to do more than just ride out the economic crisis and trim its operating expenses. It has to find a way to spark interest and re-ignite demand for its MP3 players, PC peripherals, sound cards and other accessories.
Since its FY2005, Creative's sales have been on a downward trend. Its latest Q1 sales fell to US$141.2 million from US$184.6 million from the year-ago quarter. And full-year revenue for FY2008, at US$736.8 million, only slightly bettered FY2003's mark of US$701.8 million.
If it fails to spark its existing product lines, the company will need to grow a new money tree. Creative's inPerson videoconferencing device launched early this year was touted as one such revenue-spinner, but this offering remains unproven.
Or perhaps Creative could consider diversification from its core business as a possible answer. This was what local tech neighbour and contract manufacturer Aztech did at the beginning of this year, when it ventured into the construction materials supply business. Lifted by this venture, Aztech's Q3 profits increased while the fortunes of its tech peers continue to head south.
Undoubtedly, such moves are likely to be opportunistic and risky - but opportunism could be exactly what Creative needs to boldly indulge in now, to jump-start its fortunes once again.
What next for Creative?
By ONG BOON KIAT
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CREATIVE Technology has fought waning sales, slipping bottom lines and cut-throat competition for the past three years - but those could be mere skirmishes ahead of the real war. If recent developments are anything to go by, the company could be facing the toughest battle of its 27-year existence.
A first-quarter net loss of US$32.2 million, announced last Friday, signposted an alarming start to its new fiscal year. But what is more worrying is Creative's pessimistic forecast for its customarily strong holiday season - a Q2 revenue range of between US$140 million and US$160 million.
Why are alarm bells ringing? If its projections hold sway, the current quarter will be the company's worst Q2 performance in terms of revenue in the last 15 years. When it last posted lower Q2 sales, in its FY1993, the company was still a tech upstart fresh from a prestigious Nasdaq listing.
With the gloomy forecast, what does the future hold for Singapore's most famous high-tech poster child of the last two decades?
A return to profitability in the near future can be ruled out, according to several analysts who track Creative. This week, CIMB-GK Research revised its forecast on the company, predicting losses instead of gains for FY2010 and FY2011. It now expects full-year net loss of US$29.6 million and US$14.8 million respectively for those two upcoming fiscal years. The research firm also predicted a full-year net loss of US$45.4 million for Creative's current FY2009.
The research firm maintained a target share price of S$4.13 for Creative, but the latter is hovering way below the mark, closing at S$2.54 yesterday.
In its Q1 earnings statement, Creative blamed 'worsening global macroeconomic conditions' for its poor Q1 showings, and listed 'challenging market conditions' as reasons for its sombre Q2 revenue forecast.
It said it has reduced operating expenses in Q1 from the previous quarter and improved gross margins as a result.
But Creative will have to do more than just ride out the economic crisis and trim its operating expenses. It has to find a way to spark interest and re-ignite demand for its MP3 players, PC peripherals, sound cards and other accessories.
Since its FY2005, Creative's sales have been on a downward trend. Its latest Q1 sales fell to US$141.2 million from US$184.6 million from the year-ago quarter. And full-year revenue for FY2008, at US$736.8 million, only slightly bettered FY2003's mark of US$701.8 million.
If it fails to spark its existing product lines, the company will need to grow a new money tree. Creative's inPerson videoconferencing device launched early this year was touted as one such revenue-spinner, but this offering remains unproven.
Or perhaps Creative could consider diversification from its core business as a possible answer. This was what local tech neighbour and contract manufacturer Aztech did at the beginning of this year, when it ventured into the construction materials supply business. Lifted by this venture, Aztech's Q3 profits increased while the fortunes of its tech peers continue to head south.
Undoubtedly, such moves are likely to be opportunistic and risky - but opportunism could be exactly what Creative needs to boldly indulge in now, to jump-start its fortunes once again.
Published October 30, 2008
Waiting for Bernanke: Wall St pauses after Tuesday's big rally
Investors hold fire as they wait for rate cut, market reaction
By ANDREW MARKS
NEW YORK CORRESPONDENT
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WALL Street opened lower yesterday after the huge rally that sent the major stock indexes surging on Tuesday. The Dow Jones Industrial Average was off 32 points or 0.35 per cent at 9,018 just after the opening bell, while the S&P 500 was down 7.3 points or 0.75 per cent at 933 and the Nasdaq Composite dropped 20 points to 1,630.
But by 10 am, the losses had eased. The Dow was off a mere seven points or 0.08 per cent at 9,057.95, while the S&P 500 was off just three points or 0.32 per cent and the Nasdaq was down about 0.5 per cent as players awaited word from US Federal Reserve chairman Ben Bernanke on a widely anticipated interest rate cut tipped to take the federal funds rate down 50 basis points to just one per cent.
Many Wall Street analysts are looking at yesterday's action as a major indicator for the market's direction for the next few weeks. 'The key to understanding the importance of Tuesday's rally is how the market closes on Wednesday, after the Fed's expected rate cut,' said veteran market strategist James Awad of Zephyr Management.
'We had a rally like this two weeks ago and it didn't hold,' he said. 'But if the major indexes close on Wednesday at or near the highs we reached on Tuesday, it would be a very good sign that the market's psychology is shifting from a short-term and fear-based mode to a longer-term and fundamentals-oriented approach. That's the shift we need to see before we can truly say that stocks have bottomed.'
Mr Awad reckons the market is likely to see another round of short-term selling that will test its lows, before starting a careful base-building rally around the end of the year.
On Tuesday, stocks in New York stormed on a huge wave of buying in the final hours of trading to close the day with near record gains. The Dow soared 889.35 points or 10.9 per cent to 9,065.12, the S&P 500 added 91.59 points or 10.8 per cent to 940.51 and the Nasdaq jumped 143.57 points or 9.5 per cent to 1,649.47.
The Dow's rise marked the second biggest single-day point gain in its history of the index, bettered only by its 936.42-point rise just two weeks ago on Oct 13.
The market's subsequent inability to sustain the Oct 13 rally has left many Wall Street analysts sceptical that the surge on Tuesday marked the end to the bear market.
'Just as it was important to understand the sky wasn't falling when stocks fell so hard and so fast these last few weeks, we can't assume based on one day of mostly short-covering buying that the worst is over,' said Tobias Levkovich, chief market strategist at Citigroup.
'We still have a great deal of uncertainty to work through on the depth and severity of the recession before investors will stop expecting another foot to drop in the form of another financial meltdown.'
Indeed, that combination of uncertainty on the economy and the strong likelihood of further deleveraging and redemption-led sell-offs by hedge funds and private equity firms makes many Wall Street market strategists doubt that Tuesday's thunderous rally marked the absolute bottom.
'I won't be surprised to see stocks make new lows from here,' said Zephyr's Mr Awad.
But while most money managers won't be surprised to see another short-term sell-off, many believe this second phase of the stock market's decline should end in coming weeks.
Waiting for Bernanke: Wall St pauses after Tuesday's big rally
Investors hold fire as they wait for rate cut, market reaction
By ANDREW MARKS
NEW YORK CORRESPONDENT
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WALL Street opened lower yesterday after the huge rally that sent the major stock indexes surging on Tuesday. The Dow Jones Industrial Average was off 32 points or 0.35 per cent at 9,018 just after the opening bell, while the S&P 500 was down 7.3 points or 0.75 per cent at 933 and the Nasdaq Composite dropped 20 points to 1,630.
But by 10 am, the losses had eased. The Dow was off a mere seven points or 0.08 per cent at 9,057.95, while the S&P 500 was off just three points or 0.32 per cent and the Nasdaq was down about 0.5 per cent as players awaited word from US Federal Reserve chairman Ben Bernanke on a widely anticipated interest rate cut tipped to take the federal funds rate down 50 basis points to just one per cent.
Many Wall Street analysts are looking at yesterday's action as a major indicator for the market's direction for the next few weeks. 'The key to understanding the importance of Tuesday's rally is how the market closes on Wednesday, after the Fed's expected rate cut,' said veteran market strategist James Awad of Zephyr Management.
'We had a rally like this two weeks ago and it didn't hold,' he said. 'But if the major indexes close on Wednesday at or near the highs we reached on Tuesday, it would be a very good sign that the market's psychology is shifting from a short-term and fear-based mode to a longer-term and fundamentals-oriented approach. That's the shift we need to see before we can truly say that stocks have bottomed.'
Mr Awad reckons the market is likely to see another round of short-term selling that will test its lows, before starting a careful base-building rally around the end of the year.
On Tuesday, stocks in New York stormed on a huge wave of buying in the final hours of trading to close the day with near record gains. The Dow soared 889.35 points or 10.9 per cent to 9,065.12, the S&P 500 added 91.59 points or 10.8 per cent to 940.51 and the Nasdaq jumped 143.57 points or 9.5 per cent to 1,649.47.
The Dow's rise marked the second biggest single-day point gain in its history of the index, bettered only by its 936.42-point rise just two weeks ago on Oct 13.
The market's subsequent inability to sustain the Oct 13 rally has left many Wall Street analysts sceptical that the surge on Tuesday marked the end to the bear market.
'Just as it was important to understand the sky wasn't falling when stocks fell so hard and so fast these last few weeks, we can't assume based on one day of mostly short-covering buying that the worst is over,' said Tobias Levkovich, chief market strategist at Citigroup.
'We still have a great deal of uncertainty to work through on the depth and severity of the recession before investors will stop expecting another foot to drop in the form of another financial meltdown.'
Indeed, that combination of uncertainty on the economy and the strong likelihood of further deleveraging and redemption-led sell-offs by hedge funds and private equity firms makes many Wall Street market strategists doubt that Tuesday's thunderous rally marked the absolute bottom.
'I won't be surprised to see stocks make new lows from here,' said Zephyr's Mr Awad.
But while most money managers won't be surprised to see another short-term sell-off, many believe this second phase of the stock market's decline should end in coming weeks.
Published October 30, 2008
EYE ON THE ECONOMY
Singapore firms are zen over the yen
Limited exposure in Japanese market; but car importers face higher costs
By JAMIE LEE AND TEH SHI NING
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(SINGAPORE) Volatility in the forex market has hit several Singapore firms recently, with bellwethers such as SingTel and CapitaLand likely to be hurt by the slide in the Australian dollar.
Recalculating: Dealers expect Japanese car demand to fall 10-20% with the higher yen, but some say the surge does not signal any long-term currency movement trend
The latest currency to bring mayhem to the markets is the Japanese yen, which scored a 13-year high of 90.87 yen to the US dollar last week amid the unwinding of yen 'carry trades'.
In a carry trade, traders exploit Japan's cheap credit by borrowing the low- yielding yen to pay for higher-yield investments in other currencies.
But the latest surge in the yen is likely to have a smaller impact on Singapore businesses, given the limited exposure that companies here have in the Japanese market.
The big victims are the Japanese car importers, who say they are reeling from higher import costs.
'The effect is snowballing and those importing from Japan have definitely been affected,' said Vincent Ng, product manager at Kah Motors, which imports Honda vehicles.
As imports are taxed on their value in yen, every 100 yen spent now costs around 65 cents more post-tax, he said. 'In the short term, all importers of Japanese goods will definitely be forced to reckon (with) higher costs.'
Champion Motors, which imports Suzuki vehicles, also reported a significant impact but said it is reviewing a price hike.
'It depends on how drastic currency fluctuations continue to be,' said general manager Victor Tan. 'It's only in recent weeks that we've seen this jump in the yen, so we'll have to watch the next few weeks.'
Demand for Japanese cars could fall between 10 and 20 per cent, said Speedo Motoring's company director Richard Lim, adding that the company has been 'affected tremendously' and has adjusted prices on new orders.
Cushioning the imminent spike in Japanese car prices will be the downward trend in COE prices, added Kah Motors' Mr Ng, but he expects Japanese cars to be priced higher, while Continental cars trading in euros will look more attractive.
It's not all bad news, though; Ascott Residence Trust (Ascott Reit) said it expects to benefit from the rise in yen as it collects rental income from its residential units in Japan in yen.
The firm has 143 serviced residence units in Somerset Roppongi and Somerset Azabu East, as well as 509 rental housing apartment units in Tokyo.
'The rising yen will be positive for Ascott Reit's operations, especially since the rental housing portfolio in Japan enjoys very high gross profit margins,' said Chong Kee Hiong, chief executive officer of Ascott Residence Trust Management.
Japan's contribution to the group's total revenue was 8.6 per cent for the first nine months of 2008, he added.
Conglomerate Fraser and Neave said the yen movement will not have a significant impact on the group because its purchases from Japan are negligible. It started operating its first service apartment building in Tokyo this year.
Although the rise in the yen has little macro impact, CIMB-GK economist Song Seng Wun said the current slowdown in consumption will make it tough for companies to pass off costs to customers.
'Demand has fallen off the cliff, so it's up to the companies to smooth out the volatility of currencies and the impact on their bottom line - whether they can take the hit or pass it on to consumers,' said Mr Song. 'It's difficult for them, though, given the pullback in global consumption.'
The surge in the yen does not indicate any long-term currency movement trend, said David Cohen, director of Asian Economic Forecasting at Action Economics.
'My feeling is not to make too much of it, because we've seen so many short-term swings in recent months. Attempts to see the long-term trends - especially with many changes and announcements expected this week - would be premature,' Mr Cohen said.
EYE ON THE ECONOMY
Singapore firms are zen over the yen
Limited exposure in Japanese market; but car importers face higher costs
By JAMIE LEE AND TEH SHI NING
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(SINGAPORE) Volatility in the forex market has hit several Singapore firms recently, with bellwethers such as SingTel and CapitaLand likely to be hurt by the slide in the Australian dollar.
Recalculating: Dealers expect Japanese car demand to fall 10-20% with the higher yen, but some say the surge does not signal any long-term currency movement trend
The latest currency to bring mayhem to the markets is the Japanese yen, which scored a 13-year high of 90.87 yen to the US dollar last week amid the unwinding of yen 'carry trades'.
In a carry trade, traders exploit Japan's cheap credit by borrowing the low- yielding yen to pay for higher-yield investments in other currencies.
But the latest surge in the yen is likely to have a smaller impact on Singapore businesses, given the limited exposure that companies here have in the Japanese market.
The big victims are the Japanese car importers, who say they are reeling from higher import costs.
'The effect is snowballing and those importing from Japan have definitely been affected,' said Vincent Ng, product manager at Kah Motors, which imports Honda vehicles.
As imports are taxed on their value in yen, every 100 yen spent now costs around 65 cents more post-tax, he said. 'In the short term, all importers of Japanese goods will definitely be forced to reckon (with) higher costs.'
Champion Motors, which imports Suzuki vehicles, also reported a significant impact but said it is reviewing a price hike.
'It depends on how drastic currency fluctuations continue to be,' said general manager Victor Tan. 'It's only in recent weeks that we've seen this jump in the yen, so we'll have to watch the next few weeks.'
Demand for Japanese cars could fall between 10 and 20 per cent, said Speedo Motoring's company director Richard Lim, adding that the company has been 'affected tremendously' and has adjusted prices on new orders.
Cushioning the imminent spike in Japanese car prices will be the downward trend in COE prices, added Kah Motors' Mr Ng, but he expects Japanese cars to be priced higher, while Continental cars trading in euros will look more attractive.
It's not all bad news, though; Ascott Residence Trust (Ascott Reit) said it expects to benefit from the rise in yen as it collects rental income from its residential units in Japan in yen.
The firm has 143 serviced residence units in Somerset Roppongi and Somerset Azabu East, as well as 509 rental housing apartment units in Tokyo.
'The rising yen will be positive for Ascott Reit's operations, especially since the rental housing portfolio in Japan enjoys very high gross profit margins,' said Chong Kee Hiong, chief executive officer of Ascott Residence Trust Management.
Japan's contribution to the group's total revenue was 8.6 per cent for the first nine months of 2008, he added.
Conglomerate Fraser and Neave said the yen movement will not have a significant impact on the group because its purchases from Japan are negligible. It started operating its first service apartment building in Tokyo this year.
Although the rise in the yen has little macro impact, CIMB-GK economist Song Seng Wun said the current slowdown in consumption will make it tough for companies to pass off costs to customers.
'Demand has fallen off the cliff, so it's up to the companies to smooth out the volatility of currencies and the impact on their bottom line - whether they can take the hit or pass it on to consumers,' said Mr Song. 'It's difficult for them, though, given the pullback in global consumption.'
The surge in the yen does not indicate any long-term currency movement trend, said David Cohen, director of Asian Economic Forecasting at Action Economics.
'My feeling is not to make too much of it, because we've seen so many short-term swings in recent months. Attempts to see the long-term trends - especially with many changes and announcements expected this week - would be premature,' Mr Cohen said.
Published October 30, 2008
NOL warns of losses as choppy seas loom
Q3 net profit falls 82% - but the real trouble starts now
By VINCENT WEE
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(SINGAPORE) The global shipping industry is headed for a situation 'never seen before' and the US$35 million profit that Neptune Orient Lines (NOL) still managed to turn in for the third quarter will likely turn into an operating loss in the current quarter, group president and CEO Ron Widdows warned yesterday.
Tougher sailing: Headhaul volumes in APL's key TransPacific trade shrank in Q3 and this may be compounded by the global financial crisis and economic slowdown Q3 net profit falls 82% - but the real trouble starts now
Net profit fell 82 per cent from US$191 million in the previous corresponding quarter while revenue rose 16 per cent to US$2.35 billion from US$2.03 billion previously.
'The group continued to generate a profit in the third quarter despite the deterioration of conditions in the container shipping market,' said Mr Widdows. 'Reduced demand in key trade lanes, combined with cost increases and worsening global economic conditions have adversely impacted our profit performance in the third quarter,' he added.
Related link:
Click here for NOL's unaudited financial information
Mr Widdows warned that more trouble lay ahead. 'Clearly, the pace of trade flows are going to diminish in the not too distant future and some of that has found its way into third-quarter results but it will only be towards the later part of this year and earlier into next year that you will really see the slowdown,' he said.
For the third quarter, NOL's container shipping business APL saw a 10 per cent rise in volumes to 622,000 forty foot-equivalent units (FEUs) and average revenue per FEU rose 8 per cent to US$3,127. Total revenue rose 22 per cent to US$2.04 billion but lower core freight rates in the Asia-Europe trade took a bite out of profit, with Ebit (earnings before interest and taxation) falling 95 per cent to US$9 million.
Core Asia-Europe headhaul freight rates (excluding bunker adjustment factors) came under severe downward pressure on softer demand and ahead of expected capacity overhang in 2009/2010, NOL said.
This trade will likely see negative volume growth on a full-year basis and it is reasonable to assume that it will turn further negative next year, Mr Widdows said.
Increasingly, the long-leg Intra-Asia trades have also been affected, as they are hit by capacity cascaded from other trades, principally Asia-Europe.
Average headhaul utilisation had already started to come down to 90 per cent in the third quarter from 99 per cent previously.
Significantly, headhaul volumes in APL's key TransPacific trade contracted during the quarter and this may be compounded by the global financial crisis and economic slowdown, NOL said. In addition, Japan's No 2 line Mitsui OSK Lines announced that it would resign from the Transpacific Stabilization Agreement.
'We are acting quickly and decisively to trim capacity and reconfigure our service networks, adjusting port calls and service loops and withdrawing a number of vessels from service. These actions will reduce our costs and better align APL's service networks to the lower demand levels currently being experienced,' said Mr Widdows.
He said APL's capacity in the Asia-Europe trade would be reduced by close to 25 per cent, with around 20 per cent of the company's TransPacific tonnage also to be removed from service.
Key changes are also underway in the Intra-Asia trades, he added. Together with APL's alliance partners, this translates into about 40 ships that will be taken out of service, Mr Widdows said.
APL Logistics delivered a 42 per cent increase in Ebit to US$17 million for the third quarter, although logistics revenues registered a slight one per cent decline to US$315 million. The terminals business saw Ebit rise 5 per cent to US$23 million on one per cent increase in revenue to US$146 million.
NOL shares closed 7 cents higher at $1.17 yesterday.
NOL warns of losses as choppy seas loom
Q3 net profit falls 82% - but the real trouble starts now
By VINCENT WEE
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(SINGAPORE) The global shipping industry is headed for a situation 'never seen before' and the US$35 million profit that Neptune Orient Lines (NOL) still managed to turn in for the third quarter will likely turn into an operating loss in the current quarter, group president and CEO Ron Widdows warned yesterday.
Tougher sailing: Headhaul volumes in APL's key TransPacific trade shrank in Q3 and this may be compounded by the global financial crisis and economic slowdown Q3 net profit falls 82% - but the real trouble starts now
Net profit fell 82 per cent from US$191 million in the previous corresponding quarter while revenue rose 16 per cent to US$2.35 billion from US$2.03 billion previously.
'The group continued to generate a profit in the third quarter despite the deterioration of conditions in the container shipping market,' said Mr Widdows. 'Reduced demand in key trade lanes, combined with cost increases and worsening global economic conditions have adversely impacted our profit performance in the third quarter,' he added.
Related link:
Click here for NOL's unaudited financial information
Mr Widdows warned that more trouble lay ahead. 'Clearly, the pace of trade flows are going to diminish in the not too distant future and some of that has found its way into third-quarter results but it will only be towards the later part of this year and earlier into next year that you will really see the slowdown,' he said.
For the third quarter, NOL's container shipping business APL saw a 10 per cent rise in volumes to 622,000 forty foot-equivalent units (FEUs) and average revenue per FEU rose 8 per cent to US$3,127. Total revenue rose 22 per cent to US$2.04 billion but lower core freight rates in the Asia-Europe trade took a bite out of profit, with Ebit (earnings before interest and taxation) falling 95 per cent to US$9 million.
Core Asia-Europe headhaul freight rates (excluding bunker adjustment factors) came under severe downward pressure on softer demand and ahead of expected capacity overhang in 2009/2010, NOL said.
This trade will likely see negative volume growth on a full-year basis and it is reasonable to assume that it will turn further negative next year, Mr Widdows said.
Increasingly, the long-leg Intra-Asia trades have also been affected, as they are hit by capacity cascaded from other trades, principally Asia-Europe.
Average headhaul utilisation had already started to come down to 90 per cent in the third quarter from 99 per cent previously.
Significantly, headhaul volumes in APL's key TransPacific trade contracted during the quarter and this may be compounded by the global financial crisis and economic slowdown, NOL said. In addition, Japan's No 2 line Mitsui OSK Lines announced that it would resign from the Transpacific Stabilization Agreement.
'We are acting quickly and decisively to trim capacity and reconfigure our service networks, adjusting port calls and service loops and withdrawing a number of vessels from service. These actions will reduce our costs and better align APL's service networks to the lower demand levels currently being experienced,' said Mr Widdows.
He said APL's capacity in the Asia-Europe trade would be reduced by close to 25 per cent, with around 20 per cent of the company's TransPacific tonnage also to be removed from service.
Key changes are also underway in the Intra-Asia trades, he added. Together with APL's alliance partners, this translates into about 40 ships that will be taken out of service, Mr Widdows said.
APL Logistics delivered a 42 per cent increase in Ebit to US$17 million for the third quarter, although logistics revenues registered a slight one per cent decline to US$315 million. The terminals business saw Ebit rise 5 per cent to US$23 million on one per cent increase in revenue to US$146 million.
NOL shares closed 7 cents higher at $1.17 yesterday.
Published October 29, 2008
IOI Corp dives 11% but analysts see opportunity
By S JAYASANKARAN
IN KUALA LUMPUR
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SHARES of IOI Corporation closed almost 11 per cent lower at RM2.19 yesterday in a sea of red on the Kuala Lumpur stock exchange as the overall market shed 3 per cent.
IOI was battered after news on Friday that it may have suffered what Citigroup estimates could have been RM165 million in translation losses on foreign exchange and futures contracts.
The company itself has made no such estimate, telling Bursa Malaysia last week that translation losses or gains are routine matters in the ordinary course of business.
Even so, some analysts have begun scenting unusual opportunity in the company's depressed share price.
IOI's capitalisation has dropped RM25 billion in the past three months, to RM16 billion last Friday.
Citigroup estimates the 'fair' valuation of IOI at RM7.45, for potential upside of 329 per cent.
There are strong reasons to justify such optimism.
IOI is the world's largest integrated oil palm company and the most efficient producer in Malaysia, with a yield per hectare of 28.65 tonnes - the highest in the business.
In addition, IOI has consistently delivered returns on equity of over 20 per cent - again, among the highest in the business.
Its share price slump illustrates some of the perils of being an institutional favourite.
Over 30 per cent of its shareholding has been foreign held, and overseas redemptions by mutual funds have seen foreigners cashing out of blue chip stocks like IOI to meet demand back home.
Citigroup's optimism is based on a couple of factors, not least of which is the price of crude palm oil (CPO), which it believes to be grossly undervalued at below RM1,350 a tonne.
'Since the early 1980s, the long term historical price of CPO has been RM1,444 per tonne,' it pointed out in a report.
Its price target is based on a long-term CPO price of RM2,475 per metric tonne.
Still, Citigroup's optimism may be a trifle overstated.
At its target price, IOI would be trading at 22 times 2009 earnings and 21 times 2010 earnings, which is steep given the current bear conditions worldwide.
But the bank argues that IOI deserves to be trading at the higher end of its historical price-earnings trading band 'given the underlying supply-demand fundamentals of the edible oil sector'.
IOI Corp dives 11% but analysts see opportunity
By S JAYASANKARAN
IN KUALA LUMPUR
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SHARES of IOI Corporation closed almost 11 per cent lower at RM2.19 yesterday in a sea of red on the Kuala Lumpur stock exchange as the overall market shed 3 per cent.
IOI was battered after news on Friday that it may have suffered what Citigroup estimates could have been RM165 million in translation losses on foreign exchange and futures contracts.
The company itself has made no such estimate, telling Bursa Malaysia last week that translation losses or gains are routine matters in the ordinary course of business.
Even so, some analysts have begun scenting unusual opportunity in the company's depressed share price.
IOI's capitalisation has dropped RM25 billion in the past three months, to RM16 billion last Friday.
Citigroup estimates the 'fair' valuation of IOI at RM7.45, for potential upside of 329 per cent.
There are strong reasons to justify such optimism.
IOI is the world's largest integrated oil palm company and the most efficient producer in Malaysia, with a yield per hectare of 28.65 tonnes - the highest in the business.
In addition, IOI has consistently delivered returns on equity of over 20 per cent - again, among the highest in the business.
Its share price slump illustrates some of the perils of being an institutional favourite.
Over 30 per cent of its shareholding has been foreign held, and overseas redemptions by mutual funds have seen foreigners cashing out of blue chip stocks like IOI to meet demand back home.
Citigroup's optimism is based on a couple of factors, not least of which is the price of crude palm oil (CPO), which it believes to be grossly undervalued at below RM1,350 a tonne.
'Since the early 1980s, the long term historical price of CPO has been RM1,444 per tonne,' it pointed out in a report.
Its price target is based on a long-term CPO price of RM2,475 per metric tonne.
Still, Citigroup's optimism may be a trifle overstated.
At its target price, IOI would be trading at 22 times 2009 earnings and 21 times 2010 earnings, which is steep given the current bear conditions worldwide.
But the bank argues that IOI deserves to be trading at the higher end of its historical price-earnings trading band 'given the underlying supply-demand fundamentals of the edible oil sector'.
Published October 29, 2008
KL's affirmative-action plan to be relaxed?
Umno paper plays up MCA proposal to end 30% company ownership by bumis
By PAULINE NG
IN KUALA LUMPUR
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SIGNS suggest Malaysia may now be more prepared to look at relaxing its controversial New Economic Policy (NEP) for ethnic Malays.
Originally set to expire in 1990, the New Economic Policy for ethnic Malays has been continued indefinitely under various names because the government maintains the targets have not been met.
Yesterday, the country's largest Malay daily newspaper gave front-page coverage to a proposal by the Malaysian Chinese Association (MCA) to scrap the 30 per cent bumiputra ownership requirement for companies listed on the local stock exchange.
The apparent highlighting of the proposal by Utusan Malaysia - which is controlled by the United Malays National Organisation (Umno) - comes after Deputy Prime Minister Najib Razak said on TV last week that the NEP will gradually be liberalised in the 'not too distant future'.
As it is one of the government's main media conduits, Utusan's views are perceived by readers as reflecting its owner's position.
So given Umno's consistent defence of the NEP - a position at odds with its fellow National Front coalition member MCA, which prefers a needs-based approach - the front-page report raised eyebrows.
MCA vice-president Liow Tiong Lai has asked that equity requirements be liberalised so companies can better compete, especially in the tougher economic climate, and so 'real' partnerships be formed between Malay, Chinese and Indian businessmen. The 30 per cent equity requirement is an obstacle to this, he said.
Started in the early 1970s after race riots, the affirmative-action NEP aimed to do away with poverty irrespective of race and to restructure society so race would not be identified with a specific economic function.
Bumiputras, mainly ethnic Malays, have been given preference and discounts in many areas - public employment, scholarships, house ownership and new public share offerings - so they would eventually own 30 per cent of corporate wealth.
Originally set to expire in 1990, the NEP has been continued indefinitely under various names because the government maintains the targets have not been met.
Over the years, the local bourse has become less and less attractive to major shareholders, who prefer listing overseas to avoid being tied down by what they see as unnecessary rules - which on Bursa Malaysia includes restoring the bumiputra portion during major corporate exercises to 30 per cent if it has been diluted or sold down.
Bursa officials recently proposed a rule change so that a listed entity which has met its 30 per cent bumiputra equity requirement should no further be made to top-up.
In the late 1990s during the Asian financial crisis, the rule was relaxed in the manufacturing sector for export-oriented companies, so as to encourage foreign investments.
RAM Holdings chief economist Yeah Kim Leng believes the equity conditions to be outmoded and because of the meltdown in the global financial systems, suggested 'it is more favourable now for the restrictive conditions to be removed'.
Mr Najib is expected to replace Prime Minister Abdullah Ahmad Badawi in March under a planned succession. In touching on the sensitive policy, he did not give details or a timeline, but his caveat of doing so 'when the Malays are ready' predictably drew scores of sceptical comments, especially on the Internet.
Making things less restrictive for listed firms would be a start, an anonymous commentator posted, noting: 'Professionally run firms get better multiples overseas, faster listing and are closer to more sophisticated capital markets. In the global economy, you don't care where the company is listed, only whether it is wanted and appreciated.'
KL's affirmative-action plan to be relaxed?
Umno paper plays up MCA proposal to end 30% company ownership by bumis
By PAULINE NG
IN KUALA LUMPUR
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SIGNS suggest Malaysia may now be more prepared to look at relaxing its controversial New Economic Policy (NEP) for ethnic Malays.
Originally set to expire in 1990, the New Economic Policy for ethnic Malays has been continued indefinitely under various names because the government maintains the targets have not been met.
Yesterday, the country's largest Malay daily newspaper gave front-page coverage to a proposal by the Malaysian Chinese Association (MCA) to scrap the 30 per cent bumiputra ownership requirement for companies listed on the local stock exchange.
The apparent highlighting of the proposal by Utusan Malaysia - which is controlled by the United Malays National Organisation (Umno) - comes after Deputy Prime Minister Najib Razak said on TV last week that the NEP will gradually be liberalised in the 'not too distant future'.
As it is one of the government's main media conduits, Utusan's views are perceived by readers as reflecting its owner's position.
So given Umno's consistent defence of the NEP - a position at odds with its fellow National Front coalition member MCA, which prefers a needs-based approach - the front-page report raised eyebrows.
MCA vice-president Liow Tiong Lai has asked that equity requirements be liberalised so companies can better compete, especially in the tougher economic climate, and so 'real' partnerships be formed between Malay, Chinese and Indian businessmen. The 30 per cent equity requirement is an obstacle to this, he said.
Started in the early 1970s after race riots, the affirmative-action NEP aimed to do away with poverty irrespective of race and to restructure society so race would not be identified with a specific economic function.
Bumiputras, mainly ethnic Malays, have been given preference and discounts in many areas - public employment, scholarships, house ownership and new public share offerings - so they would eventually own 30 per cent of corporate wealth.
Originally set to expire in 1990, the NEP has been continued indefinitely under various names because the government maintains the targets have not been met.
Over the years, the local bourse has become less and less attractive to major shareholders, who prefer listing overseas to avoid being tied down by what they see as unnecessary rules - which on Bursa Malaysia includes restoring the bumiputra portion during major corporate exercises to 30 per cent if it has been diluted or sold down.
Bursa officials recently proposed a rule change so that a listed entity which has met its 30 per cent bumiputra equity requirement should no further be made to top-up.
In the late 1990s during the Asian financial crisis, the rule was relaxed in the manufacturing sector for export-oriented companies, so as to encourage foreign investments.
RAM Holdings chief economist Yeah Kim Leng believes the equity conditions to be outmoded and because of the meltdown in the global financial systems, suggested 'it is more favourable now for the restrictive conditions to be removed'.
Mr Najib is expected to replace Prime Minister Abdullah Ahmad Badawi in March under a planned succession. In touching on the sensitive policy, he did not give details or a timeline, but his caveat of doing so 'when the Malays are ready' predictably drew scores of sceptical comments, especially on the Internet.
Making things less restrictive for listed firms would be a start, an anonymous commentator posted, noting: 'Professionally run firms get better multiples overseas, faster listing and are closer to more sophisticated capital markets. In the global economy, you don't care where the company is listed, only whether it is wanted and appreciated.'
Published October 29, 2008
A lot riding on UOB's Q3 results
By SIOW LI SEN
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BANK investors are probably approaching this Friday with some trepidation. United Overseas Bank (UOB) will be reporting third-quarter results, the first of the three local banks to do so. UOB is often regarded as the best managed bank here, so any surprises on Friday will lead to further hammering of prices for bank stocks - which have already been trading near or below book value.
Treading cautiously: UOB is likely to set aside more provisions, which will affect its bottom line
But even if there is nothing untoward in UOB's financials, it is probably too early to think the worst is over, in terms of price levels. 'I don't expect anything earth-shattering from UOB,' said Hugh Young, managing director of Aberdeen Asset Management. For sure, the results will be scrutinised to see if UOB has 'slipped on any banana skins, which we don't think they will have', he said.
Aberdeen Asset Management holds chunky amounts of UOB and OCBC Bank, which count among its larger holdings in Singapore, said Mr Young. Total assets under management are north of US$30 billion. Analyst Pauline Lee of Kim Eng Research too is not expecting surprises this Friday. Ms Lee has forecast UOB to post Q3 net profit of $576 million, up 15 per cent from a year ago and 4 per cent lower than the second quarter.
She said UOB has the least exposure to CDOs or collateralised debt obligations as it has provided for up to 100 per cent for its ABS (asset-backed securities) CDOs - which are regarded as the most toxic CDOs - and 50 per cent of its non-ABS CDOs.
Among the three local banks, UOB's total exposure to CDOs was also the lowest, according to Q2 reports. UOB's total CDO exposure was $264 million against DBS's $1.455 billion. OCBC said its CDO exposure was $589 million.
During the bank's Q2 results presentation in early August, UOB deputy chairman and CEO Wee Ee Cheong had already warned of difficult times ahead. He said loan growth would slow down but expected spreads on loans to widen.
'The past six months have been challenging, and it's not going to be any easier as global institutions seek ways to rebuild their balance sheet and economies cope with slowdown and inflation,' Mr Wee said. The outlook was 'conservative', with a moderation in loan growth expected, he said.
Observers say UOB's third-quarter performance will be pretty much intact as the economic slowdown would not have worked its way yet into the bank's earnings. While Singapore has already entered a technical recession, there have been no major layoffs yet or reports of many companies suffering big losses. In fact, UOB will likely show solid loan growth, healthy margins and a low non-performing loans ratio. But UOB is likely to set aside more provisions - to prepare for more losses as the recession gets into full swing next year - which will affect its bottom line.
Singapore's economy fell into a recession in the July-to-September period, the country's first since 2002, as manufacturing activity and exports slumped. The Monetary Authority of Singapore (MAS) said the economy is expected to grow about 3 per cent this year, with inflation hitting 6-7 per cent in 2008 before easing to between 2.5 and 3.5 per cent in 2009.
With such a prognosis, Q3 results might turn out to be the best showing before the real bad news comes in the next several quarters. As Matthew Wilson of Morgan Stanley said: 'While we believe UOB is the best placed of the Singapore banks to navigate the credit cycle, it cannot avoid it.' If there is some kind of relief from the Q3 results, and bank stocks rally, some shareholders may want to take the opportunity to sell, said Mr Wilson.
A lot riding on UOB's Q3 results
By SIOW LI SEN
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BANK investors are probably approaching this Friday with some trepidation. United Overseas Bank (UOB) will be reporting third-quarter results, the first of the three local banks to do so. UOB is often regarded as the best managed bank here, so any surprises on Friday will lead to further hammering of prices for bank stocks - which have already been trading near or below book value.
Treading cautiously: UOB is likely to set aside more provisions, which will affect its bottom line
But even if there is nothing untoward in UOB's financials, it is probably too early to think the worst is over, in terms of price levels. 'I don't expect anything earth-shattering from UOB,' said Hugh Young, managing director of Aberdeen Asset Management. For sure, the results will be scrutinised to see if UOB has 'slipped on any banana skins, which we don't think they will have', he said.
Aberdeen Asset Management holds chunky amounts of UOB and OCBC Bank, which count among its larger holdings in Singapore, said Mr Young. Total assets under management are north of US$30 billion. Analyst Pauline Lee of Kim Eng Research too is not expecting surprises this Friday. Ms Lee has forecast UOB to post Q3 net profit of $576 million, up 15 per cent from a year ago and 4 per cent lower than the second quarter.
She said UOB has the least exposure to CDOs or collateralised debt obligations as it has provided for up to 100 per cent for its ABS (asset-backed securities) CDOs - which are regarded as the most toxic CDOs - and 50 per cent of its non-ABS CDOs.
Among the three local banks, UOB's total exposure to CDOs was also the lowest, according to Q2 reports. UOB's total CDO exposure was $264 million against DBS's $1.455 billion. OCBC said its CDO exposure was $589 million.
During the bank's Q2 results presentation in early August, UOB deputy chairman and CEO Wee Ee Cheong had already warned of difficult times ahead. He said loan growth would slow down but expected spreads on loans to widen.
'The past six months have been challenging, and it's not going to be any easier as global institutions seek ways to rebuild their balance sheet and economies cope with slowdown and inflation,' Mr Wee said. The outlook was 'conservative', with a moderation in loan growth expected, he said.
Observers say UOB's third-quarter performance will be pretty much intact as the economic slowdown would not have worked its way yet into the bank's earnings. While Singapore has already entered a technical recession, there have been no major layoffs yet or reports of many companies suffering big losses. In fact, UOB will likely show solid loan growth, healthy margins and a low non-performing loans ratio. But UOB is likely to set aside more provisions - to prepare for more losses as the recession gets into full swing next year - which will affect its bottom line.
Singapore's economy fell into a recession in the July-to-September period, the country's first since 2002, as manufacturing activity and exports slumped. The Monetary Authority of Singapore (MAS) said the economy is expected to grow about 3 per cent this year, with inflation hitting 6-7 per cent in 2008 before easing to between 2.5 and 3.5 per cent in 2009.
With such a prognosis, Q3 results might turn out to be the best showing before the real bad news comes in the next several quarters. As Matthew Wilson of Morgan Stanley said: 'While we believe UOB is the best placed of the Singapore banks to navigate the credit cycle, it cannot avoid it.' If there is some kind of relief from the Q3 results, and bank stocks rally, some shareholders may want to take the opportunity to sell, said Mr Wilson.
Published October 29, 2008
Now, they're betting on oil hitting US$50
By RONNIE LIM
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(SINGAPORE) Over the last few weeks, more traders have reportedly been betting on options on the New York Mercantile Exchange (Nymex) to sell oil at US$50 a barrel by December. This is a complete U-turn from July - just four months back - when they were punting on options to buy the New York marker crude at above US$300 at the year-end.
And US$50 isn't that far-fetched, considering that crude oil fell to US$61.75 on Monday - almost 60 per cent off the peak of US$147.27 it touched on July 11.
Oil prices, in that respect, are clearly following the plunge in equity markets worldwide, as fears of a global recession arising from the financial crisis grow ever stronger.
Even a production cut of 1.5 million barrels per day starting November announced by the Organisation of Petroleum Exporting Countries last Friday failed to stem the bleeding.
Opec may follow last week's cut - its first in almost two years - with another if that fails to bolster prices, Iran's Opec representative, Mohammad Ali Khatibi, warned.
'There's basically oil demand erosion because of the slowdown in economies, so naturally oil prices are falling,' one trader with a national company said. 'And because oil prices rose so quickly, they're also overcorrecting on the way down.'
Another oil trader, contacted in Tokyo, said: 'Oil prices will continue to fall until they hit the floor.
'This is because the impact of the financial rescue package - whether in the US, Europe or Asia - hasn't filtered down yet. Credit is still not coming back, interest rates are still high and (investor) fear is still rampant.'
Asked what he thought the floor was, the trader said: 'US$50. I don't think it will break through that. It will be bad for the world. A more realistic price level will be somewhere between US$50 and US$70.'
The trader with the national company, however, said that, personally, he feels that oil could still fall through US$50. 'In this kind of market, there's a disconnect. Look at equities which are falling below their net asset values.'
Asked what the more immediate projection for November oil prices was, another oil broker said: 'People have essentially given up forecasting prices.
'Nobody expected oil prices to plunge US$40 in just the last one month,' he said, not counting the fall from US$147 to US$60 in the last three months.
Prices of oil products like petrol and diesel have, however, fallen less than crude oil, he said. 'International crude prices are usually the fastest moving, while prices of downstream, or end-user, oil products usually lag behind,' he said.
The lag is around a month, the trader said, given the fortnight it takes to ship crude oil to the refinery here, and another two weeks before the refined products reach the market.
Will we see oil prices rising again?
'Not unless the equities market also turns around,' he replied.
Now, they're betting on oil hitting US$50
By RONNIE LIM
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(SINGAPORE) Over the last few weeks, more traders have reportedly been betting on options on the New York Mercantile Exchange (Nymex) to sell oil at US$50 a barrel by December. This is a complete U-turn from July - just four months back - when they were punting on options to buy the New York marker crude at above US$300 at the year-end.
And US$50 isn't that far-fetched, considering that crude oil fell to US$61.75 on Monday - almost 60 per cent off the peak of US$147.27 it touched on July 11.
Oil prices, in that respect, are clearly following the plunge in equity markets worldwide, as fears of a global recession arising from the financial crisis grow ever stronger.
Even a production cut of 1.5 million barrels per day starting November announced by the Organisation of Petroleum Exporting Countries last Friday failed to stem the bleeding.
Opec may follow last week's cut - its first in almost two years - with another if that fails to bolster prices, Iran's Opec representative, Mohammad Ali Khatibi, warned.
'There's basically oil demand erosion because of the slowdown in economies, so naturally oil prices are falling,' one trader with a national company said. 'And because oil prices rose so quickly, they're also overcorrecting on the way down.'
Another oil trader, contacted in Tokyo, said: 'Oil prices will continue to fall until they hit the floor.
'This is because the impact of the financial rescue package - whether in the US, Europe or Asia - hasn't filtered down yet. Credit is still not coming back, interest rates are still high and (investor) fear is still rampant.'
Asked what he thought the floor was, the trader said: 'US$50. I don't think it will break through that. It will be bad for the world. A more realistic price level will be somewhere between US$50 and US$70.'
The trader with the national company, however, said that, personally, he feels that oil could still fall through US$50. 'In this kind of market, there's a disconnect. Look at equities which are falling below their net asset values.'
Asked what the more immediate projection for November oil prices was, another oil broker said: 'People have essentially given up forecasting prices.
'Nobody expected oil prices to plunge US$40 in just the last one month,' he said, not counting the fall from US$147 to US$60 in the last three months.
Prices of oil products like petrol and diesel have, however, fallen less than crude oil, he said. 'International crude prices are usually the fastest moving, while prices of downstream, or end-user, oil products usually lag behind,' he said.
The lag is around a month, the trader said, given the fortnight it takes to ship crude oil to the refinery here, and another two weeks before the refined products reach the market.
Will we see oil prices rising again?
'Not unless the equities market also turns around,' he replied.
Published October 29, 2008
YTL snaps up interest in Macquarie Reit for $285m
Price is 52% above its last traded price, but 49% discount to net asset value
By CHEW XIANG
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(SINGAPORE) Malaysian conglomerate YTL Corp yesterday took over the Macquarie Group's entire interest in Singapore-listed Macquarie Prime Reit in an all-cash deal worth $285 million.
YTL said it was paying 82 cents a unit for 247.1 million units in the Reit, about 26 per cent of the total, valuing the stake at $202.6 million.
The price is a 49 per cent discount to Macquarie Prime Reit's net asset value, and a 52 per cent premium over its last traded price on Friday of 54 cents. Trading in Macquarie Prime was halted yesterday for the announcement.
The remaining $80 million is for Macquarie's 50 per cent stake in the Reit manager, which will allow YTL to control the Reit, YTL Group managing director Francis Yeoh told reporters here yesterday.
Noting that the deal provides a 2009 yield of about 9.4 per cent, based on Bloomberg consensus estimates, Mr Yeoh said it offers 'very compelling returns in Singapore dollar terms' and illustrates his optimism about the Singapore property space.
The Reit currently owns $2.2 billion of retail and office properties in Singapore, Japan and China. It has stakes in Wisma Atria and Ngee Ann City along Orchard Road.
YTL is separately developing two luxury villas on Sentosa Island and last year bought the prime Westwood Apartments site at Orchard Boulevard for $435 million.
'I'm very confident Singapore will pull through this little turbulence... Even if they have a crisis they will always come out ahead of the curve,' he said. Mr Yeoh will be appointed the Reit manager's executive chairman once the deal is completed.
Mr Yeoh said Macquarie Prime will be rebranded Starhill Global Reit and will be YTL's main vehicle for strategically acquiring yield accretive prime retail space in Asia and the West. He added he will be working with principals in the fashion, food and watch and jewellery industries to boost yields in its luxury malls.
Keith Magnus, Merrill Lynch's head for Singapore and Malaysia investment banking and YTL's strategic adviser for the transaction, said: 'Challenging equity and debt conditions on account of the sub-prime crisis and tightening credit market conditions have led to attractive valuations.'
In February this year, Macquarie Prime, then known as Macquarie MEAG Prime Reit, said it was undergoing strategic review that could see the Macquarie Group selling its stake in the Reit. It is said to have received more than 20 expressions of interest from unnamed parties.
In May, MEAG Munich Ergo AssetManagement sold its 25 per cent stake in the Reit's manager to Singapore-based fund management company Pacific Star. The deal left Pacific Star and the Macquarie Group each with an equal share of the Reit manager. Macquarie's 50 per cent stake has now been bought by YTL.
The YTL Group already controls Bursa Malaysia-listed Starhill Reit, the country's largest Reit with four properties in Kuala Lumpur valued at about US$430 million. Mr Yeoh did not rule out any merger of the two Starhill Reits, saying that 'as long as there is equitable interest for all, we will do it.'
YTL snaps up interest in Macquarie Reit for $285m
Price is 52% above its last traded price, but 49% discount to net asset value
By CHEW XIANG
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(SINGAPORE) Malaysian conglomerate YTL Corp yesterday took over the Macquarie Group's entire interest in Singapore-listed Macquarie Prime Reit in an all-cash deal worth $285 million.
YTL said it was paying 82 cents a unit for 247.1 million units in the Reit, about 26 per cent of the total, valuing the stake at $202.6 million.
The price is a 49 per cent discount to Macquarie Prime Reit's net asset value, and a 52 per cent premium over its last traded price on Friday of 54 cents. Trading in Macquarie Prime was halted yesterday for the announcement.
The remaining $80 million is for Macquarie's 50 per cent stake in the Reit manager, which will allow YTL to control the Reit, YTL Group managing director Francis Yeoh told reporters here yesterday.
Noting that the deal provides a 2009 yield of about 9.4 per cent, based on Bloomberg consensus estimates, Mr Yeoh said it offers 'very compelling returns in Singapore dollar terms' and illustrates his optimism about the Singapore property space.
The Reit currently owns $2.2 billion of retail and office properties in Singapore, Japan and China. It has stakes in Wisma Atria and Ngee Ann City along Orchard Road.
YTL is separately developing two luxury villas on Sentosa Island and last year bought the prime Westwood Apartments site at Orchard Boulevard for $435 million.
'I'm very confident Singapore will pull through this little turbulence... Even if they have a crisis they will always come out ahead of the curve,' he said. Mr Yeoh will be appointed the Reit manager's executive chairman once the deal is completed.
Mr Yeoh said Macquarie Prime will be rebranded Starhill Global Reit and will be YTL's main vehicle for strategically acquiring yield accretive prime retail space in Asia and the West. He added he will be working with principals in the fashion, food and watch and jewellery industries to boost yields in its luxury malls.
Keith Magnus, Merrill Lynch's head for Singapore and Malaysia investment banking and YTL's strategic adviser for the transaction, said: 'Challenging equity and debt conditions on account of the sub-prime crisis and tightening credit market conditions have led to attractive valuations.'
In February this year, Macquarie Prime, then known as Macquarie MEAG Prime Reit, said it was undergoing strategic review that could see the Macquarie Group selling its stake in the Reit. It is said to have received more than 20 expressions of interest from unnamed parties.
In May, MEAG Munich Ergo AssetManagement sold its 25 per cent stake in the Reit's manager to Singapore-based fund management company Pacific Star. The deal left Pacific Star and the Macquarie Group each with an equal share of the Reit manager. Macquarie's 50 per cent stake has now been bought by YTL.
The YTL Group already controls Bursa Malaysia-listed Starhill Reit, the country's largest Reit with four properties in Kuala Lumpur valued at about US$430 million. Mr Yeoh did not rule out any merger of the two Starhill Reits, saying that 'as long as there is equitable interest for all, we will do it.'
Tuesday, 28 October 2008
Published October 28, 2008
Datuk title for Indian actor 'will boost tourism in M'sia'
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(KUALA LUMPUR) The 'knighting' of India's top Bollywood star Shah Rukh Khan will help boost tourism in Malaysia, an official from the Malacca government said yesterday.
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| Honour for star: Khan will receive the Governor of Malacca's award on Nov29, in a ceremony that will be aired live on India's top entertainment channel Zee TV |
Khan is to be given the Governor of Malacca's award, which carries the title 'Datuk', after his 2001 film boosted the profile of the western state as a destination for tourists.
The 42-year-old heartthrob will receive his award on Nov 29, in a ceremony that will be aired live on India's top entertainment channel, Zee TV.
'It is a boost for tourism in Malaysia. His movies are seen by people all over the world and this is cost-free advertisement for us,' local parliamentarian Mohammad Sirat Abu told AFP.
Malacca, a historic port town and a relic of Malaysia's colonial past, relies heavily on tourism for income.
Mr Mohammad said since the filming of Khan's 2001 movie One 2 Ka 4 at a popular resort in Malacca, the number of tourists coming from India has increased markedly. 'He is a worldwide icon and having him here will boost our country's tourism industry.'
However, the granting of the award has been controversial, with some questioning what Khan had done to merit the honour.
Opposition politician Lim Kit Siang said local artists and celebrities should have been recognised ahead of Khan. 'I don't think the reason that has been given for making Shah Rukh Khan a Malacca Datuk would impress or convince many,' he said earlier this month.
However, former Malaysian prime minister Mahathir Mohamad supported the move. 'I feel embarrassed when the award . . . to Shah Rukh Khan is being questioned. We confer such titles quite often on foreigners to appreciate their contribution to the country,' he wrote on his blog chedet.com. 'Some of these people have contributed even less than what Shah Rukh Khan has.'
Malaysia has become a popular location for Indian films, which have a huge following among ethnic Indians and the majority Muslim-Malays. Women of all ages - including the wife of Deputy Prime Minister Najib Razak, Rosmah Mansor - are huge fans of the charismatic Khan, dubbed the 'King of Bollywood' here.
Malaysian tourism chiefs are aiming to attract 22.5 million visitors this year, who they hope will spend RM50.5 billion (S$21.3 billion).
From January to September 2008, tourist arrivals increased 4.4 per cent on the year to 16.3 million, mainly from neighbouring Singapore, Indonesia and Thailand. -- AFP
Published October 27, 2008
Q3 earnings hit, with net profits down 6.3%
Out of 25 firms, only OSIM is in the red; 16 ramp up profits, 2 reverse losses
By CHEW XIANG
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THE recession is already biting. One week into the third quarter earnings season, the 25 listed companies that have posted results collectively made $617.2 million in net profit, down 6.3 per cent over the same period last year.
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All but one recorded profits, although six had lower net income this quarter, compared to a year ago. Two reversed losses, while 16 announced higher profits.
The sole company in the red, healthy lifestyle product maker OSIM, saw its loss for the period widen to almost $7 million after its revenue fell 16 per cent. This was due to a $12.4 million loss from associates and joint ventures.
Four of the six companies which saw their profits going south were Keppel-linked entities. Singapore Petroleum Co said that profit plunged 99.4 per cent to $619,000, with lower refining margins, inventory writedown and the weak US dollar resulting in lower gross earnings. The company is about 45 per cent owned by Keppel Corp.
Keppel Land too saw profits dropping 43.6 per cent to $46.2 million, as revenue too more than halved from $382 million to $186 million. The company attributed this to completion of several trading projects in Singapore and overseas in previous quarters and lower revenues reported by property services and the group's hotels.
Keppel Telecommunications and Transportation posted profits of $11.8 million, down 5.9 per cent, on revenues of $32.3 million. This was due to lower contributions from listed 20 per cent associate Mobile- One, which saw profits slump 21.1 per cent to $34.4 million.
The advent of full mobile number portability caused higher customer acquisition and retention costs, the company said, hurting profitability for the quarter. It is expecting a single-digit decline in full year earnings.
Blue chip Keppel Corp, the first of the conglomerates to report earnings, managed to maintain its growth momentum in Q3 with a 10.2 per cent rise in profit to $272.9 million on the back of a 24.1 per cent increase in revenue to $3.2 billion.
Meanwhile, trusts and Reits reported largely positive results, reinforcing their reputation as defensive plays despite concerns over debt refinancing and falling rentals and charter rates.
Keppel Land's office trust K-Reit saw distributable income jump 180 per cent to $15.2 million from $5.4 million on the back of contributions from new acquisition One Raffles Quay. Allaying some market worry, K-Reit said it had no need to refinance any debt until 2011.
CapitaLand's trusts that reported results showed strong growth. CapitaMall Trust posted distributable income for the quarter of $62.4 million, up 14 per cent, but said it will put back upgrading work at a number of its malls due to higher construction costs.
CapitaCommercial Trust meanwhile saw distributable income almost doubling to $43.2 million from 29.6 million a year ago. Ascott Residence Trust achieved unitholders' distribution of $15.9 million, up 31.8 per cent, with good growth in daily rates from its Beijing properties during the Olympic Games.
Mapletree Logistics Trust also reported a more than 30 per cent increase in distributable income to $25.4 million. First Reit, Singapore's first healthcare real estate investment trust comprising eight properties in Singapore and Indonesia, reported distributable income of $5.3 million, up 12.4 per cent from a year ago.
The two shipping trusts, First Ship Lease Trust and Pacific Shipping Trust saw double digit increases in distributable income. Both said they had committed to lock in customers to long term leases. They said credit lines were intact and there was no uncommitted capital expenditure.
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