Published November 8, 2008
Sector In Focus
S-shares not out of the woods yet
All eyes are on how the Chinese economy pans out and whether fiscal policies will offer buffer. By Lynette Khoo
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THE rebound by S-shares this week may well turn out to be a dead cat bounce, as negative surprises in third-quarter results could trigger fresh selling, analysts say.
Many Chinese stocks listed here regained some of their losses earlier in the year. Their biggest jump came on Tuesday on the back of a recovery in world markets, which dealers termed a pre-election rally, one day before the US presidential vote on Wednesday.
Investors started picking up S-shares last week when reassurances from the Chinese premier on the stability of the country's markets helped bolster mainland Chinese stocks.
At yesterday's close, the Prime Partners China Index (PPCI) had put on 29.7 per cent to 59.06 points from its all-time low on Oct 29.
The FTSE ST China Index (FSTC) had added 29 per cent to 181.88 points from its all-time low on Oct 29.
Should investors with a longer-term view think of venturing into S-shares, they could look at those trading at two to three times price-earnings ratios or half their book values, a local analyst says.
But the recovery could prove to be short-lived, as more quarterly earnings results are due in the weeks ahead.
Not trough yet
Citi analyst Tan Han Meng says S-shares have yet to reach trough valuations. 'At 0.6 times price to book (P/B), the FSTC index is trending closer to the potential low of 0.5-0.3 times P/B for mid-small caps reached during the 1998/99 downturn.'
Analysts expect more earnings downgrades after the Q3 results, projecting earnings growth in the S-share universe to range from negative to a marginal increase.
DMG & Partners Securities analyst Heng Tong Jin expects S-share companies to post flat to marginal earnings growth on a year-on-year basis due to weak demand. 'It's not time for bottom-fishing,' he says, citing potential share price weakness towards the end of the year.
A local S-share analyst expects overall earnings to decline among the companies he follows, as they could have been hit indirectly by plant closures in Beijing and surrounding cities during the August Olympics, which caused clients to withhold stocking up on inventory.
Some S-share companies have joined the chorus of companies here issuing profit warnings in the past two weeks.
Among them, China New Town Development and Pan Hong Property Group guided for a Q3 loss. Steelmaker Delong Holdings reported a net loss in Q3 due to eroding margins.
But there have been bright spots. Sports apparel firm China Hongxing and backpack maker China Zaino, for instance, reported earnings growth from a year ago.
China Zaino, whose net profit grew 8.2 per cent to 92.64 million yuan (S$20.27 million), also managed to improve its gross margin to 33.2 per cent from 32.6 per cent in Q3 last year.
Its executive chairman Chen Xizhong told BT the current economic outlook will not derail plans for expansion, and the company will use 255 million yuan from its IPO proceeds raised in April for these plans over the next two years.
But analysts say investors can no longer bank on the past super-normal growth of the Chinese economy that has bolstered many S-share companies that feed on domestic demand.
'Recent data has shown that when the world slows down, China slows down as well,' says DMG's Mr Heng. 'Investors who think 2009 will still be a good year run the risk of over-estimating China's strength in this financial turmoil.'
Concern over China's economy has overriden stock-specific or sectoral views when it comes to stock picking, analysts say. All eyes are on how the economy pans out and if fiscal policies will offer any buffer.
The challenge is the lag effect of fiscal stimulus and its impact being potentially confined to specific sectors such as the recently announced investments in railway infrastructure.
'Historical evidence shows that growth supported by government spending tends to be lower-quality growth and may not benefit corporate earnings as witnessed in the period of 1998-2001,' says Citi's Mr Tan. 'We continue to remain cautious on cyclical commodities amid current global downturn and China housing slowdown.'
China's once-roaring economy expanded 9 per cent in the third quarter - the slowest rate since 2003.
Based on the purchasing managers index (PMI), China's manufacturing sector contracted sharply in October.
The slower economic growth outlook and weaker consumption have already prompted DBS Vickers to cut its fiscal 2008 and 2009 forecasts for S-chips.
Based on latest reports, economists at Citi and Credit Suisse believe a soft landing is still the more likely scenario for China, with GDP coming in at high single-digits for 2008 and 2009.
'The key now is demand. Many companies have expanded aggressively over the past few years and if demand does not pick up, there will be excess capacity,' says CIMB-GK analyst Ho Choon Seng. 'The outlook is going to be challenging.'
Also dampening the mood are credibility issues surrounding S-shares, with some touted to have poor corporate governance amid recent scandals.
But Mr Heng points out that everything is measured in risk and reward. 'We can't assume that all Chinese companies are poorly run,' he says. 'If you get it right, you can get about four times the money you put in. Blue chips can't give you that.'
Should investors with a longer-term view think about venturing into the S-shares space, they could look at those trading at two to three times price-earnings ratios or half their book values, one local analyst says.
Saturday, 8 November 2008
Published November 8, 2008
Sembcorp boosts Q3 net profit by 24.8% to $144.9m
By VINCENT WEE
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SEMBCORP Industries has boosted third-quarter profit 24.8 per cent to $144.9 million on an 11.7 per cent increase in revenue to $2.5 billion.
Related link:
Click here for Sembcorp's financial results
For the first nine months, the main profit contributors continued to be marine and utilities, which accounted for 96 per cent of group profit. Overall, turnover rose 18.8 per cent to $7.2 billion, while profit increased 8.5 per cent to $406.2 million.
General and administrative expenses rose 20 per cent to $70.4 million in Q3 and diluted earnings per share rose from 6.45 cents to 8.08 cents. The utilities business continues to do well. Turnover increased 30 per cent to $1.3 billion in Q3 and by 33 per cent to $3.5 billion in the first nine months.
Nine-month profit fell to $170.4 million from $179.4 million previously, although in the previous corresponding period the UK's performance was boosted by a profit on the sale of land. Singapore and UK operations contributed $118.6 million and $52.9 million respectively. Q3 profit rose by a third to $66.3 million, but this was primarily due to gains from the transfer of transmission and distribution pipeline assets to PowerGas.
Turnover for the marine business increased 8 per cent to $3.4 billion in the first nine months on better performance by Sembcorp's rig-building, offshore, conversion and repair businesses. But Q3 revenue was flat at $1.1 billion.
Profit, however, continued to be strong, rising 68 per cent in Q3 to $86.1 million and 48 per cent for the first nine months to $220.5 million. This was due to higher operating margins from rig-building and shiprepair work and better contributions from associates.
While contributing only a small part to Sembcorp's overall profit, the environment, industrial parks and others/corporate businesses performed badly. Industrial parks profit fell 37 per cent to $7.2 million, mainly due to lower contributions from parks in Indonesia and Vietnam, which was partly offset by a higher contribution from an industrial park in China.
The environment and others/corporate businesses turned in losses of $4.1 million and $10.6 million respectively. The environment's loss ballooned from $460,000 in the previous Q3 as business was hit by impairment charges for plant and machinery. The others/corporate segment turned to a loss from a $3.9 million profit previously, mainly due to the weak performance of an offshore engineering associate in China.
Sembcorp shares closed flat at $2.50 yesterday.
Sembcorp boosts Q3 net profit by 24.8% to $144.9m
By VINCENT WEE
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SEMBCORP Industries has boosted third-quarter profit 24.8 per cent to $144.9 million on an 11.7 per cent increase in revenue to $2.5 billion.
Related link:
Click here for Sembcorp's financial results
For the first nine months, the main profit contributors continued to be marine and utilities, which accounted for 96 per cent of group profit. Overall, turnover rose 18.8 per cent to $7.2 billion, while profit increased 8.5 per cent to $406.2 million.
General and administrative expenses rose 20 per cent to $70.4 million in Q3 and diluted earnings per share rose from 6.45 cents to 8.08 cents. The utilities business continues to do well. Turnover increased 30 per cent to $1.3 billion in Q3 and by 33 per cent to $3.5 billion in the first nine months.
Nine-month profit fell to $170.4 million from $179.4 million previously, although in the previous corresponding period the UK's performance was boosted by a profit on the sale of land. Singapore and UK operations contributed $118.6 million and $52.9 million respectively. Q3 profit rose by a third to $66.3 million, but this was primarily due to gains from the transfer of transmission and distribution pipeline assets to PowerGas.
Turnover for the marine business increased 8 per cent to $3.4 billion in the first nine months on better performance by Sembcorp's rig-building, offshore, conversion and repair businesses. But Q3 revenue was flat at $1.1 billion.
Profit, however, continued to be strong, rising 68 per cent in Q3 to $86.1 million and 48 per cent for the first nine months to $220.5 million. This was due to higher operating margins from rig-building and shiprepair work and better contributions from associates.
While contributing only a small part to Sembcorp's overall profit, the environment, industrial parks and others/corporate businesses performed badly. Industrial parks profit fell 37 per cent to $7.2 million, mainly due to lower contributions from parks in Indonesia and Vietnam, which was partly offset by a higher contribution from an industrial park in China.
The environment and others/corporate businesses turned in losses of $4.1 million and $10.6 million respectively. The environment's loss ballooned from $460,000 in the previous Q3 as business was hit by impairment charges for plant and machinery. The others/corporate segment turned to a loss from a $3.9 million profit previously, mainly due to the weak performance of an offshore engineering associate in China.
Sembcorp shares closed flat at $2.50 yesterday.
Published November 8, 2008
Casino boss turns tables his way
Under-fire Marina Bay IR can increase gaming tables while its boss says project remains on track
By ARTHUR SIM
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A SHADOW may have been cast over the prospects of the Marina Bay Sands (MBS) but Las Vegas Sands (LVS) chairman Sheldon Adelson still expects to open on time, and with possibly even more gaming tables than its mega casino at the Venetian Macao.
EARNEST
Mr Adelson said he felt the need to personally reaffirm his commitment to the success of Marina Bay Sands
In response to reports that LVS could be on the brink of bankruptcy, Mr Adelson, who was till recently labelled one of the world's richest men with an estimated net worth of US$11 billion, said: 'In light of recent turmoil in the global markets, I felt the need to personally reaffirm our commitment to the success of Marina Bay Sands.'
Mr Sheldon said he had met with Singapore government officials, covering a range of subjects, such as the pace of construction and marketing efforts with the Singapore Tourism Board (STB). But he did not comment on reports that MBS was seeking financial assistance from the Singapore government.
STB assistant chief executive (leisure) and director (integrated resorts) Margaret Teo added: 'We remain in dialogue with Marina Bay Sands and will continue to work closely with them to facilitate the completion of the integrated resort project.'
The government appears to have made some concessions to MBS already. Mr Adelson said the Casino Regulatory Authority of Singapore (CRA) had accepted the layout for the casino floor plan which will in essence allow for more gaming tables. He added: 'The acceptance of our proposed casino layout by the Casino Regulatory Authority gives us the flexibility to increase our original table count of 600 to as much as 1,000 to meet demand. This represents a significant milestone as we move aggressively towards our opening.'
CRA head of communications Cheryl Foo confirmed that the proposed number of tables, which was submitted in August, had been accepted and 'comply with our requirements'.
The casino floor plan is still subject to final approval from CRA when the company applies for a casino license next year. Perhaps more significant is that if MBS does eventually provide 1,000 gaming tables, it will more than rival the Venetian Macao casino, dubbed the world's largest casino with 750 gaming tables.
A shift in focus would be interesting.
Jonathan Galaviz, a partner at Globalysis, a Nevada-based travel and leisure sector strategy consultancy, notes that the outbound visa restrictions placed on mainland Chinese tourists to Macau, 'continues to put unnatural pressure on the Asia- based industry'.
He added: 'The integrated resort (IR) site at Marina Bay has always been seen by the industry as a strong real estate position for the building of a multi-billion-dollar mixed-use tourism facility.'
LVS has said it is working to implement a capital raising programme but in a filing to the New York Stock Exchange on Thursday, it added: 'If the capital raising programme is unsuccessful and the company does not have access to the available borrowings under the US senior secured credit facility, the company would need to immediately suspend portions, if not all, of its ongoing global development projects and consider other alternatives.'
LVS shares fell US$3.81 on Thursday to US$7.85 per share, a decline of 32.68 per cent.
According to a Bloomberg report, it has a long-term debt of US$8.8 billion.
LVS has also said that its Singapore IR is expected to cost in excess of US$4.5 billion while its Cotai Strip developments in Macau, which includes the Venetian Macao, has a price tag of US$12 billion.
LVS added: 'If the lenders were to exercise their right to accelerate the indebtedness outstanding, there can be no assurance that the company would be able to refinance any amounts that may become accelerated under such agreements.'
In Singapore, DBS, UOB and OCBC are said to have an exposure to MBS of around $2.2 billion. DBS CEO Richard Stanley said that, so far, there has been no indication of default and that all equity commitments have been made.
A spokesman for UOB said: 'We are always mindful of concentration risks and are constantly reviewing and rebalancing our portfolio to prevent overexposure to any single project or industry.'
Interestingly, Nomura notes in a recent report that the MBS loans are collateralised on the project itself, with repayment of principal and interest to begin only when construction is completed.
In a report released yesterday, CIMB said: 'If LVS cannot cough up its share of equity, it is likely that the Singapore government will step in.' This could be through a GLC, it added.
Casino boss turns tables his way
Under-fire Marina Bay IR can increase gaming tables while its boss says project remains on track
By ARTHUR SIM
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A SHADOW may have been cast over the prospects of the Marina Bay Sands (MBS) but Las Vegas Sands (LVS) chairman Sheldon Adelson still expects to open on time, and with possibly even more gaming tables than its mega casino at the Venetian Macao.
EARNEST
Mr Adelson said he felt the need to personally reaffirm his commitment to the success of Marina Bay Sands
In response to reports that LVS could be on the brink of bankruptcy, Mr Adelson, who was till recently labelled one of the world's richest men with an estimated net worth of US$11 billion, said: 'In light of recent turmoil in the global markets, I felt the need to personally reaffirm our commitment to the success of Marina Bay Sands.'
Mr Sheldon said he had met with Singapore government officials, covering a range of subjects, such as the pace of construction and marketing efforts with the Singapore Tourism Board (STB). But he did not comment on reports that MBS was seeking financial assistance from the Singapore government.
STB assistant chief executive (leisure) and director (integrated resorts) Margaret Teo added: 'We remain in dialogue with Marina Bay Sands and will continue to work closely with them to facilitate the completion of the integrated resort project.'
The government appears to have made some concessions to MBS already. Mr Adelson said the Casino Regulatory Authority of Singapore (CRA) had accepted the layout for the casino floor plan which will in essence allow for more gaming tables. He added: 'The acceptance of our proposed casino layout by the Casino Regulatory Authority gives us the flexibility to increase our original table count of 600 to as much as 1,000 to meet demand. This represents a significant milestone as we move aggressively towards our opening.'
CRA head of communications Cheryl Foo confirmed that the proposed number of tables, which was submitted in August, had been accepted and 'comply with our requirements'.
The casino floor plan is still subject to final approval from CRA when the company applies for a casino license next year. Perhaps more significant is that if MBS does eventually provide 1,000 gaming tables, it will more than rival the Venetian Macao casino, dubbed the world's largest casino with 750 gaming tables.
A shift in focus would be interesting.
Jonathan Galaviz, a partner at Globalysis, a Nevada-based travel and leisure sector strategy consultancy, notes that the outbound visa restrictions placed on mainland Chinese tourists to Macau, 'continues to put unnatural pressure on the Asia- based industry'.
He added: 'The integrated resort (IR) site at Marina Bay has always been seen by the industry as a strong real estate position for the building of a multi-billion-dollar mixed-use tourism facility.'
LVS has said it is working to implement a capital raising programme but in a filing to the New York Stock Exchange on Thursday, it added: 'If the capital raising programme is unsuccessful and the company does not have access to the available borrowings under the US senior secured credit facility, the company would need to immediately suspend portions, if not all, of its ongoing global development projects and consider other alternatives.'
LVS shares fell US$3.81 on Thursday to US$7.85 per share, a decline of 32.68 per cent.
According to a Bloomberg report, it has a long-term debt of US$8.8 billion.
LVS has also said that its Singapore IR is expected to cost in excess of US$4.5 billion while its Cotai Strip developments in Macau, which includes the Venetian Macao, has a price tag of US$12 billion.
LVS added: 'If the lenders were to exercise their right to accelerate the indebtedness outstanding, there can be no assurance that the company would be able to refinance any amounts that may become accelerated under such agreements.'
In Singapore, DBS, UOB and OCBC are said to have an exposure to MBS of around $2.2 billion. DBS CEO Richard Stanley said that, so far, there has been no indication of default and that all equity commitments have been made.
A spokesman for UOB said: 'We are always mindful of concentration risks and are constantly reviewing and rebalancing our portfolio to prevent overexposure to any single project or industry.'
Interestingly, Nomura notes in a recent report that the MBS loans are collateralised on the project itself, with repayment of principal and interest to begin only when construction is completed.
In a report released yesterday, CIMB said: 'If LVS cannot cough up its share of equity, it is likely that the Singapore government will step in.' This could be through a GLC, it added.
Published November 8, 2008
SIA and its pilots hammer out pay deal
By VEN SREENIVASAN
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AFTER a year of tough negotiations and hard bargaining, Singapore Airlines (SIA) and its pilots have sewn up their long overdue Collective Agreement (CA), thereby narrowly avoiding landing in the Industrial Arbitration Court.
BT has learnt that the two sides reached an agreement yesterday evening, ending a year-long battle over pay, benefits and job re-scoping.
Under the new CA, which is backdated to November 2007 and runs for three years, the annual (AVC) and monthly variable components (MVC) of the salaries of pilots and first officers will be built back into their salaries.
In short, captains will have their 16.5 per cent total MVC and AVC built into their salaries, while first officers will get their 11 per cent variable component.
They will now get a standard MVC of 10 per cent just like all other SIA staffers.
The MVC and AVC of the flight crew were set up after the Sars crisis in 2003 - which sent SIA into the red during its July-September quarter. The objective was to bring salaries more in line with the fortunes of the company.
Since then, SIA's profit and performance have soared, prompting calls for these variable components to be built back into monthly salaries.
Several other contentious issues which had prevented earlier resolution of the CA - such as the company's 'cruise captain' proposal for first officers and multi-fleet piloting - were set aside.
Capt P James, the head of the Airline Pilots Association - Singapore (Alpa-S), who headed the pilots' negotiating team, said that both management and pilots decided that there was little point in dragging out the negotiations at a time when the aviation operating environment was getting increasingly challenging.
'We decided that the well-being and the financial health of the company comes first,' Capt James said. 'We can revisit the more challenging issues when we get over this turbulence.'
BT also understands that the Ministry of Manpower played a critical role in facilitating the meeting of minds between the two sides.
SIA and its pilots have a chequered history of differences over remuneration and working conditions that goes back more than two decades. The most recent showdown was in 2003/04 when proposed wage restructuring by the airline, in the face of a massive business slowdown, resulted in such wide differences that Minister Mentor Lee Kuan Yew had to finally step in to mediate.
SIA and its pilots hammer out pay deal
By VEN SREENIVASAN
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AFTER a year of tough negotiations and hard bargaining, Singapore Airlines (SIA) and its pilots have sewn up their long overdue Collective Agreement (CA), thereby narrowly avoiding landing in the Industrial Arbitration Court.
BT has learnt that the two sides reached an agreement yesterday evening, ending a year-long battle over pay, benefits and job re-scoping.
Under the new CA, which is backdated to November 2007 and runs for three years, the annual (AVC) and monthly variable components (MVC) of the salaries of pilots and first officers will be built back into their salaries.
In short, captains will have their 16.5 per cent total MVC and AVC built into their salaries, while first officers will get their 11 per cent variable component.
They will now get a standard MVC of 10 per cent just like all other SIA staffers.
The MVC and AVC of the flight crew were set up after the Sars crisis in 2003 - which sent SIA into the red during its July-September quarter. The objective was to bring salaries more in line with the fortunes of the company.
Since then, SIA's profit and performance have soared, prompting calls for these variable components to be built back into monthly salaries.
Several other contentious issues which had prevented earlier resolution of the CA - such as the company's 'cruise captain' proposal for first officers and multi-fleet piloting - were set aside.
Capt P James, the head of the Airline Pilots Association - Singapore (Alpa-S), who headed the pilots' negotiating team, said that both management and pilots decided that there was little point in dragging out the negotiations at a time when the aviation operating environment was getting increasingly challenging.
'We decided that the well-being and the financial health of the company comes first,' Capt James said. 'We can revisit the more challenging issues when we get over this turbulence.'
BT also understands that the Ministry of Manpower played a critical role in facilitating the meeting of minds between the two sides.
SIA and its pilots have a chequered history of differences over remuneration and working conditions that goes back more than two decades. The most recent showdown was in 2003/04 when proposed wage restructuring by the airline, in the face of a massive business slowdown, resulted in such wide differences that Minister Mentor Lee Kuan Yew had to finally step in to mediate.
Friday, 7 November 2008
Published November 7, 2008
Decision on rates left to central bank, says Najib
Unclear if FTA with US possible under Obama, he says
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(KUALA LUMPUR) Malaysia's Finance Minister and soon-to-be prime minister Najib Razak backed the independence of the country's central bank in an interview late on Wednesday, saying it alone set interest rates.
'I feel the leader of the Opposition is still trapped in the era of 1997. Which is the old IMF way of thinking.'
- Mr Najib
'The question of interest rate I will leave it to Bank Negara (the central bank) to decide as I want to defend the credibility of Bank Negara in the issue of ascertaining the interest rate,' Mr Najib said, according to the transcript of an interview published by state news agency Bernama.
Malaysia's central bank has left interest rates unchanged at 3.5 per cent since April 2006 through a boom, a recent surge in inflation to near 27-year highs and now amid signs Malaysian growth is slowing.
At its last monetary policy meeting on Oct 24, it said that it would 'take swift monetary policy action to provide support to the economy'.
The government this week cut its 2009 growth forecast to 3.5 per cent from 5.4 per cent on expectations that exports would be hit by the global economic slowdown.
'Bank Negara as at this point sees no reason to change the interest rate. Therefore it is good that we have specific options that we can exercise should the situation change,' Mr Najib said, according to the transcript, when asked whether there was room for rate cuts due to declining inflation.
He also told reporters that while Malaysia still hopes to achieve a free-trade agreement with the United States, it was unclear as to whether it will be possible under Democrat President-elect Barack Obama.
'We will have to see the policy direction of the new US administration,' he said. 'Usually, the Democrats are more protectionist than the Republicans.'
Malaysian and US negotiators, seeking to bolster US$52 billion of two-way trade, missed a deadline to sign an agreement in 2007. Malaysia's reluctance to open up its rice market, change policies that benefit ethnic Malays and increase access to government contracts were among issues that derailed talks.
The world needs 'not just help, but a fair and just trade', he added.
Mr Najib, an economist by training, is set to take over the premiership in March next year from Prime Minister Abdullah Ahmad Badawi, whose lacklustre leadership saw the coalition that has ruled Malaysia for 51 years stumble to its worst election result earlier this year.
As well as a tough economic environment, Mr Najib will have to face a resurgent Opposition led by Anwar Ibrahim who was deputy prime minister and finance minister until he was sacked during the Asian financial crisis a decade ago.
Mr Najib said that Mr Anwar had shown during the Asian crisis that he had no answers to problems, adding that he had none now.
'I feel the leader of the Opposition is still trapped in the era of 1997. Which is the old IMF way of thinking,' Mr Najib said.
Mr Anwar was sacked after he backed tough IMF remedies to help Malaysia recover from the financial crisis.
'The leftovers are still in their thinking today and that is why when in the midst of facing the global crisis where the whole world should be advocating intervention measures in the form of stimulus package or an expansionary budget, the Opposition is still putting forward a contractionary budget,' Mr Najib was quoted as saying. -- Reuters, Bloomberg
Decision on rates left to central bank, says Najib
Unclear if FTA with US possible under Obama, he says
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(KUALA LUMPUR) Malaysia's Finance Minister and soon-to-be prime minister Najib Razak backed the independence of the country's central bank in an interview late on Wednesday, saying it alone set interest rates.
'I feel the leader of the Opposition is still trapped in the era of 1997. Which is the old IMF way of thinking.'
- Mr Najib
'The question of interest rate I will leave it to Bank Negara (the central bank) to decide as I want to defend the credibility of Bank Negara in the issue of ascertaining the interest rate,' Mr Najib said, according to the transcript of an interview published by state news agency Bernama.
Malaysia's central bank has left interest rates unchanged at 3.5 per cent since April 2006 through a boom, a recent surge in inflation to near 27-year highs and now amid signs Malaysian growth is slowing.
At its last monetary policy meeting on Oct 24, it said that it would 'take swift monetary policy action to provide support to the economy'.
The government this week cut its 2009 growth forecast to 3.5 per cent from 5.4 per cent on expectations that exports would be hit by the global economic slowdown.
'Bank Negara as at this point sees no reason to change the interest rate. Therefore it is good that we have specific options that we can exercise should the situation change,' Mr Najib said, according to the transcript, when asked whether there was room for rate cuts due to declining inflation.
He also told reporters that while Malaysia still hopes to achieve a free-trade agreement with the United States, it was unclear as to whether it will be possible under Democrat President-elect Barack Obama.
'We will have to see the policy direction of the new US administration,' he said. 'Usually, the Democrats are more protectionist than the Republicans.'
Malaysian and US negotiators, seeking to bolster US$52 billion of two-way trade, missed a deadline to sign an agreement in 2007. Malaysia's reluctance to open up its rice market, change policies that benefit ethnic Malays and increase access to government contracts were among issues that derailed talks.
The world needs 'not just help, but a fair and just trade', he added.
Mr Najib, an economist by training, is set to take over the premiership in March next year from Prime Minister Abdullah Ahmad Badawi, whose lacklustre leadership saw the coalition that has ruled Malaysia for 51 years stumble to its worst election result earlier this year.
As well as a tough economic environment, Mr Najib will have to face a resurgent Opposition led by Anwar Ibrahim who was deputy prime minister and finance minister until he was sacked during the Asian financial crisis a decade ago.
Mr Najib said that Mr Anwar had shown during the Asian crisis that he had no answers to problems, adding that he had none now.
'I feel the leader of the Opposition is still trapped in the era of 1997. Which is the old IMF way of thinking,' Mr Najib said.
Mr Anwar was sacked after he backed tough IMF remedies to help Malaysia recover from the financial crisis.
'The leftovers are still in their thinking today and that is why when in the midst of facing the global crisis where the whole world should be advocating intervention measures in the form of stimulus package or an expansionary budget, the Opposition is still putting forward a contractionary budget,' Mr Najib was quoted as saying. -- Reuters, Bloomberg
Published November 7, 2008
KL luxury condo sector in for tough times
Analyst sees severe drop in rental yields from 5-7% now
By PAULINE NG
IN KUALA LUMPUR
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A DELUGE of supply combined with a slump in demand could make 2009 'a year of reckoning' for Malaysia's luxury condominium sector, an analyst report warns.
Still building: Even without the spectre of an economic slowdown and softer demand, the flood of projects in the pipeline has the potential to drag prices down
More than 5,000 high-end units are expected to come onstream in the Klang Valley alone by the end of this year, followed by a similar number in 2009. As a result, rental yields, which now average 5-6 per cent gross in the Kuala Lumpur city area and about one percentage point more in the Mont Kiara area, are expected to be severely depressed by the end of next year.
Even without the spectre of an economic slowdown and softer demand, the flood of condo units in the pipeline - particularly in the Klang Valley and Penang - has the potential to drag prices down, OSK property analyst Mervin Chow says in a report.
Luxury condos benefited from the last property upswing, with prices generally doubling from 2006. In the KL city centre, for example, prices have risen to more than RM1,400 per square foot, from RM700 psf then. In the other popular area of Mont Kiara, average prices have gone as high as RM900 psf, from RM450 psf.
Projects seen as most likely to be hit if the axe falls are those launched in the past 12 months - at record prices.
Property consultants say that a slowdown in launches and softer demand is to be expected, given fears of lower economic growth of 3-plus per cent next year, down from 5-plus this year.
But not everyone sees a condo bubble about to burst. 'The market will be down but we won't have a crash,' says Zerin Properties chief executive Previndran Singhe. At worst, prices could come off 10-20 per cent, according to him.
A commercial sale he helped close recently was transacted at RM580-RM600 psf in the tech city of Cyberjaya - an indication that prices are holding up so far, he says.
In his 30-plus page report, OSK's Mr Chow sees one bright spot on the property scene. Mid to higher-end landed real estate will be next in line for a price boom, he reckons.
In economic downturns since 2000, higher-end landed property has shown resilience amid tough economic conditions.
But first, the current pall over property has to pass, says Mr Chow, who does not see a recovery until the second half of 2009 at the earliest. Going by previous trends, he expects the next up-cycle to kick in in early 2010, or 2011 if the downturn is worse than expected.
Why - barring a recession - is higher-end landed property a likely safer bet? Factors include a tendency for affluent investors to hedge their wealth in prime real estate when there is a flight to quality, and these investors having strong holding power, Mr Chow says.
Capital appreciation in Kuala Lumpur has also been decent on average, plus incoming housing supply is 'still manageable'.
KL luxury condo sector in for tough times
Analyst sees severe drop in rental yields from 5-7% now
By PAULINE NG
IN KUALA LUMPUR
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A DELUGE of supply combined with a slump in demand could make 2009 'a year of reckoning' for Malaysia's luxury condominium sector, an analyst report warns.
Still building: Even without the spectre of an economic slowdown and softer demand, the flood of projects in the pipeline has the potential to drag prices down
More than 5,000 high-end units are expected to come onstream in the Klang Valley alone by the end of this year, followed by a similar number in 2009. As a result, rental yields, which now average 5-6 per cent gross in the Kuala Lumpur city area and about one percentage point more in the Mont Kiara area, are expected to be severely depressed by the end of next year.
Even without the spectre of an economic slowdown and softer demand, the flood of condo units in the pipeline - particularly in the Klang Valley and Penang - has the potential to drag prices down, OSK property analyst Mervin Chow says in a report.
Luxury condos benefited from the last property upswing, with prices generally doubling from 2006. In the KL city centre, for example, prices have risen to more than RM1,400 per square foot, from RM700 psf then. In the other popular area of Mont Kiara, average prices have gone as high as RM900 psf, from RM450 psf.
Projects seen as most likely to be hit if the axe falls are those launched in the past 12 months - at record prices.
Property consultants say that a slowdown in launches and softer demand is to be expected, given fears of lower economic growth of 3-plus per cent next year, down from 5-plus this year.
But not everyone sees a condo bubble about to burst. 'The market will be down but we won't have a crash,' says Zerin Properties chief executive Previndran Singhe. At worst, prices could come off 10-20 per cent, according to him.
A commercial sale he helped close recently was transacted at RM580-RM600 psf in the tech city of Cyberjaya - an indication that prices are holding up so far, he says.
In his 30-plus page report, OSK's Mr Chow sees one bright spot on the property scene. Mid to higher-end landed real estate will be next in line for a price boom, he reckons.
In economic downturns since 2000, higher-end landed property has shown resilience amid tough economic conditions.
But first, the current pall over property has to pass, says Mr Chow, who does not see a recovery until the second half of 2009 at the earliest. Going by previous trends, he expects the next up-cycle to kick in in early 2010, or 2011 if the downturn is worse than expected.
Why - barring a recession - is higher-end landed property a likely safer bet? Factors include a tendency for affluent investors to hedge their wealth in prime real estate when there is a flight to quality, and these investors having strong holding power, Mr Chow says.
Capital appreciation in Kuala Lumpur has also been decent on average, plus incoming housing supply is 'still manageable'.
Published November 7, 2008
Downsizing at online finance firm Tune Money
'Budget' company's move comes amid losses and after CEO's resignation
By S JAYASANKARAN
IN KUALA LUMPUR
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TUNE Money, Malaysia's first online 'budget' finance house, is downsizing amid losses and shareholder disagreement that led to the resignation of its chief executive last week.
On Oct 31, Tune's CEO and 10 per cent shareholder Tengku Zafrul Tengku Abdul Aziz quit abruptly and without explanation. No successor has been named yet.
Tune is a spin-off from AirAsia, Asia's largest budget airline. Inspired by Air-Asia's success, its founder and driving force Tony Fernandes moved to create a host of other budget services including Tune Money and Tune Hotels.
Its business model was simple. Mr Fernandes reckoned financial services such as insurance, for example, were more expensive than they need be because they involved middlemen who took commissions and racked up costs.
He thought the way around this was the Internet, so Tune began by selling insurance online at cheaper rates by cutting out the middleman.
The insurance cover and debit cards offered by Tune came from CIMB, Malaysia's largest investment bank, which took a 25 per cent interest in Tune Money, initially capitalised at RM26.6 million (S$11 million) back in 2006.
Executives familiar with the boutique finance house said CIMB boss Nazir Razak and Mr Fernandes persuaded Tengku Zafrul to head the outfit.
Tune's other shareholders are Lim Kean Onn (8 per cent), Kallimullah Hassan (8 per cent) and Mr Fernandes's various private companies (49 per cent).
Mr Lim and Mr Kallimullah are partners in ECM-Libra, one of Malaysia's smaller investment banks. Tengku Zafrul used to head Avenue Assets, a broking house bought by ECM-Libra almost three years ago.
The executives said disagreement between Tengku Zafrul and his other partners, notably Mr Lim and Mr Kallimullah, began surfacing after he sought to grow the business faster than either of them thought he should.
A particular grievance was Tengku Zafrul's idea to start a unit trust business and hire heavy hitters at relatively high salaries.
Resentment began building because shareholders were asked to support cash calls fairly regularly at a time when Tune was making losses, according to the executives.
According to documents lodged with the Companies Commission, Tune made a net loss of RM8.6 million for the year to end-December 2007 after a loss of slightly over RM1 million the previous year.
Matters came to a head last month during a meeting to consider another cash call of over RM5 million from shareholders, according to the executives. Mr Kallimullah and Mr Lim flatly refused to subscribe to the call and, in subsequent discussions, the unit trust scheme was jettisoned.
Tengku Zafrul handed in his resignation soon after the meeting and, given that the unit trust plan had been abandoned, the resignations of the more recent hires are likely to follow, the executives added.
Downsizing at online finance firm Tune Money
'Budget' company's move comes amid losses and after CEO's resignation
By S JAYASANKARAN
IN KUALA LUMPUR
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TUNE Money, Malaysia's first online 'budget' finance house, is downsizing amid losses and shareholder disagreement that led to the resignation of its chief executive last week.
On Oct 31, Tune's CEO and 10 per cent shareholder Tengku Zafrul Tengku Abdul Aziz quit abruptly and without explanation. No successor has been named yet.
Tune is a spin-off from AirAsia, Asia's largest budget airline. Inspired by Air-Asia's success, its founder and driving force Tony Fernandes moved to create a host of other budget services including Tune Money and Tune Hotels.
Its business model was simple. Mr Fernandes reckoned financial services such as insurance, for example, were more expensive than they need be because they involved middlemen who took commissions and racked up costs.
He thought the way around this was the Internet, so Tune began by selling insurance online at cheaper rates by cutting out the middleman.
The insurance cover and debit cards offered by Tune came from CIMB, Malaysia's largest investment bank, which took a 25 per cent interest in Tune Money, initially capitalised at RM26.6 million (S$11 million) back in 2006.
Executives familiar with the boutique finance house said CIMB boss Nazir Razak and Mr Fernandes persuaded Tengku Zafrul to head the outfit.
Tune's other shareholders are Lim Kean Onn (8 per cent), Kallimullah Hassan (8 per cent) and Mr Fernandes's various private companies (49 per cent).
Mr Lim and Mr Kallimullah are partners in ECM-Libra, one of Malaysia's smaller investment banks. Tengku Zafrul used to head Avenue Assets, a broking house bought by ECM-Libra almost three years ago.
The executives said disagreement between Tengku Zafrul and his other partners, notably Mr Lim and Mr Kallimullah, began surfacing after he sought to grow the business faster than either of them thought he should.
A particular grievance was Tengku Zafrul's idea to start a unit trust business and hire heavy hitters at relatively high salaries.
Resentment began building because shareholders were asked to support cash calls fairly regularly at a time when Tune was making losses, according to the executives.
According to documents lodged with the Companies Commission, Tune made a net loss of RM8.6 million for the year to end-December 2007 after a loss of slightly over RM1 million the previous year.
Matters came to a head last month during a meeting to consider another cash call of over RM5 million from shareholders, according to the executives. Mr Kallimullah and Mr Lim flatly refused to subscribe to the call and, in subsequent discussions, the unit trust scheme was jettisoned.
Tengku Zafrul handed in his resignation soon after the meeting and, given that the unit trust plan had been abandoned, the resignations of the more recent hires are likely to follow, the executives added.
Published November 7, 2008
Stock market rout benefits 'dark pool' operators
Funds struggling to meet redemptions turn to them to exit less liquid stocks
By CHEW XIANG
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LAST month's equity market rout was good for at least one group - operators of 'dark pools' that facilitate big trades by institutional investors.
Mr Klinger: 'Funds that face redemption tend to get rid of the most liquid stocks first, so the liquidity of portfolios is getting quite bad.' Liquidnet saw the most trading in Oct since its debut here last November
They work by electronically connecting fund managers' order books, privately marrying large trades without moving the market.
As funds struggle to meet redemptions, many have turned to dark pools to sell out of less liquid stocks, said David Klinger, managing director of Liquidnet Asia.
Liquidnet, the largest independent operator of dark pools in the US, is one of three that have operations in Asia.
It began trading Hong Kong, Singapore, Korean and Japanese equities in November last year, adding Australian stocks in February this year.
According to Mr Klinger, there has been a surge of interest in dark pools since Asian equities started heading south this year.
'Last month we saw the most trading in Singapore since we started (last November),' he said.
'There has been a lot of interest since the market started going badly. Funds that face redemption tend to get rid of the most liquid stocks first, so the liquidity of portfolios is getting quite bad.'
This is where dark pools can help - by sourcing buyers or sellers without alerting the rest of the market that a big deal is impending.
The average spread in Singapore is about 30 basis points, Mr Klinger said.
And '92 per cent of our trades are at or within the spread, and about 50 per cent at the midpoint', saving clients money as they do not have to cross the spread to trade. Fees are also cheaper than if the trades are conducted through brokers.
'It augments the way exchanges work,' he said.
'Exchanges are great for price discovery - it's the best way to say what is a fair price. Where exchanges don't do such a good job is for volume discovery.'
As well, 'orders can stay on (clients') trade desk (instead of with brokers).
This means that they have more control so there is less volatile trade,' said Greg Henry, who will manage Liquidnet's Singapore office when it opens this month.
Clients now can trade Singapore-listed stocks on Liquidnet's proprietary network - mostly small and mid cap stocks, where liquidity on the Singapore Exchange may be hard to come by, said Mr Henry.
Mr Klinger said the average trade size of Singapore equities last month was $1.7 million, though volume is 'a little spotty'.
'Sometimes we go a couple of days without a trade, and so far there is no consistent flow,' he said.
The Singapore office aims to get more clients - 'about 10 right now, maybe seven more we're bringing in,' Mr Klinger said.
Trading in dark pools and other forms of electronic markets has taken off in developed Western economies, as funds seek to minimise spreads and information leakage.
More than 10 per cent of trade in New York and London takes place in such off-exchange arenas, according to reports.
Stock market rout benefits 'dark pool' operators
Funds struggling to meet redemptions turn to them to exit less liquid stocks
By CHEW XIANG
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LAST month's equity market rout was good for at least one group - operators of 'dark pools' that facilitate big trades by institutional investors.
Mr Klinger: 'Funds that face redemption tend to get rid of the most liquid stocks first, so the liquidity of portfolios is getting quite bad.' Liquidnet saw the most trading in Oct since its debut here last November
They work by electronically connecting fund managers' order books, privately marrying large trades without moving the market.
As funds struggle to meet redemptions, many have turned to dark pools to sell out of less liquid stocks, said David Klinger, managing director of Liquidnet Asia.
Liquidnet, the largest independent operator of dark pools in the US, is one of three that have operations in Asia.
It began trading Hong Kong, Singapore, Korean and Japanese equities in November last year, adding Australian stocks in February this year.
According to Mr Klinger, there has been a surge of interest in dark pools since Asian equities started heading south this year.
'Last month we saw the most trading in Singapore since we started (last November),' he said.
'There has been a lot of interest since the market started going badly. Funds that face redemption tend to get rid of the most liquid stocks first, so the liquidity of portfolios is getting quite bad.'
This is where dark pools can help - by sourcing buyers or sellers without alerting the rest of the market that a big deal is impending.
The average spread in Singapore is about 30 basis points, Mr Klinger said.
And '92 per cent of our trades are at or within the spread, and about 50 per cent at the midpoint', saving clients money as they do not have to cross the spread to trade. Fees are also cheaper than if the trades are conducted through brokers.
'It augments the way exchanges work,' he said.
'Exchanges are great for price discovery - it's the best way to say what is a fair price. Where exchanges don't do such a good job is for volume discovery.'
As well, 'orders can stay on (clients') trade desk (instead of with brokers).
This means that they have more control so there is less volatile trade,' said Greg Henry, who will manage Liquidnet's Singapore office when it opens this month.
Clients now can trade Singapore-listed stocks on Liquidnet's proprietary network - mostly small and mid cap stocks, where liquidity on the Singapore Exchange may be hard to come by, said Mr Henry.
Mr Klinger said the average trade size of Singapore equities last month was $1.7 million, though volume is 'a little spotty'.
'Sometimes we go a couple of days without a trade, and so far there is no consistent flow,' he said.
The Singapore office aims to get more clients - 'about 10 right now, maybe seven more we're bringing in,' Mr Klinger said.
Trading in dark pools and other forms of electronic markets has taken off in developed Western economies, as funds seek to minimise spreads and information leakage.
More than 10 per cent of trade in New York and London takes place in such off-exchange arenas, according to reports.
Published November 7, 2008
Obama gets down to team building
He offers Chief of Staff post to Rahm Emanuel; is also expected to quickly name members of economic team
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(WASHINGTON) President-elect Barack Obama barely had time to savour his victory before he began filling out his new administration and getting a sobering look at some of the daunting problems he will inherit when he takes office in just 10 weeks.
As president-elect, he began receiving highly classified briefings from top intelligence officials from yesterday.
Already, Russia was threatening to put missiles alongside US-ally Poland if President George Bush's plan for a missile defence shield in Europe is not repealed. In Afghanistan, US-backed President Hamid Karzai demanded that Mr Obama 'put an end to civilian casualties' by changing US tactics to avoid airstrikes in the hunt for militants.
Mr Obama on Tuesday night made history by being elected the first black US president. But times are bleak: the country is in the grips of its worst economic crisis since the Great Depression of the 1930s and is fighting wars in Iraq and Afghanistan.
He got a quick start with the transition on Wednesday, calling on Rahm Emanuel, a fellow Illinois politician, to serve as White House Chief of Staff.
While several Democrats confirmed that Mr Emanuel had been offered the job, it was not clear if he had accepted. But rejection would amount to an unlikely public snub of the new president-elect swept towards power in an electoral college landslide.
Mr Obama's staff said that he would address the media by the end of the week, but Cabinet announcements were not planned that soon.
With hundreds of jobs to fill before his Jan 20 inauguration, Mr Obama and his transition team confronted a formidable task complicated by his anti-lobbyist campaign rhetoric.
In offering the post of White House Chief of Staff to Mr Emanuel, he turned to a fellow Chicago politician with a far different style from his own, a man known for his bluntness as well as his single-minded determination.
Mr Emanuel was a political and policy aide in Bill Clinton's White House. Leaving that, he turned to investment banking, then won a Chicago-area House seat six years ago. In Congress, he moved quickly into the Democratic leadership. As chairman of the Democratic campaign committee in 2006, he played an instrumental role in restoring his party to power after 12 years in the minority.
In light of the financial crisis, Mr Obama is expected to quickly name members of his economic team. Former Treasury secretary Lawrence Summers, who served in the Clinton administration, and Timothy Geithner, president of the New York Federal Reserve Bank, are among the names being mentioned for Treasury Secretary.
Treasury Secretary Henry Paulson has pledged to work with Mr Obama to ensure a smooth transition. He has already set up desks and phone lines at the department where Mr Obama's incoming Treasury team can work between now and the inauguration.
Mr Obama's transition team is headed by John Podesta, who served as chief of staff under former president Bill Clinton; Pete Rouse, who has been Mr Obama's Chief of Staff in the Senate, and Valerie Jarrett, a friend of the president-elect and campaign adviser. -- AP
Obama gets down to team building
He offers Chief of Staff post to Rahm Emanuel; is also expected to quickly name members of economic team
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(WASHINGTON) President-elect Barack Obama barely had time to savour his victory before he began filling out his new administration and getting a sobering look at some of the daunting problems he will inherit when he takes office in just 10 weeks.
As president-elect, he began receiving highly classified briefings from top intelligence officials from yesterday.
Already, Russia was threatening to put missiles alongside US-ally Poland if President George Bush's plan for a missile defence shield in Europe is not repealed. In Afghanistan, US-backed President Hamid Karzai demanded that Mr Obama 'put an end to civilian casualties' by changing US tactics to avoid airstrikes in the hunt for militants.
Mr Obama on Tuesday night made history by being elected the first black US president. But times are bleak: the country is in the grips of its worst economic crisis since the Great Depression of the 1930s and is fighting wars in Iraq and Afghanistan.
He got a quick start with the transition on Wednesday, calling on Rahm Emanuel, a fellow Illinois politician, to serve as White House Chief of Staff.
While several Democrats confirmed that Mr Emanuel had been offered the job, it was not clear if he had accepted. But rejection would amount to an unlikely public snub of the new president-elect swept towards power in an electoral college landslide.
Mr Obama's staff said that he would address the media by the end of the week, but Cabinet announcements were not planned that soon.
With hundreds of jobs to fill before his Jan 20 inauguration, Mr Obama and his transition team confronted a formidable task complicated by his anti-lobbyist campaign rhetoric.
In offering the post of White House Chief of Staff to Mr Emanuel, he turned to a fellow Chicago politician with a far different style from his own, a man known for his bluntness as well as his single-minded determination.
Mr Emanuel was a political and policy aide in Bill Clinton's White House. Leaving that, he turned to investment banking, then won a Chicago-area House seat six years ago. In Congress, he moved quickly into the Democratic leadership. As chairman of the Democratic campaign committee in 2006, he played an instrumental role in restoring his party to power after 12 years in the minority.
In light of the financial crisis, Mr Obama is expected to quickly name members of his economic team. Former Treasury secretary Lawrence Summers, who served in the Clinton administration, and Timothy Geithner, president of the New York Federal Reserve Bank, are among the names being mentioned for Treasury Secretary.
Treasury Secretary Henry Paulson has pledged to work with Mr Obama to ensure a smooth transition. He has already set up desks and phone lines at the department where Mr Obama's incoming Treasury team can work between now and the inauguration.
Mr Obama's transition team is headed by John Podesta, who served as chief of staff under former president Bill Clinton; Pete Rouse, who has been Mr Obama's Chief of Staff in the Senate, and Valerie Jarrett, a friend of the president-elect and campaign adviser. -- AP
Published November 7, 2008
Las Vegas Sands in peril
Ability to continue as going concern in doubt, says auditor
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(NEW YORK) Shares of Las Vegas Sands Corp fell 29 per cent yesterday after the casino operator's auditor said in a regulatory filing that there are doubts about the company's ability to continue as a going concern.
Based on current estimates, Las Vegas Sands expects it will not be in compliance with its maximum leverage ratio covenant for the quarter ending Dec 31, 2008 and at subsequent quarters, accounting firm PricewaterhouseCoopers LLP said in the filing. The auditor said that non-compliance would result in defaults which raises substantial doubt about the company's ability to continue as a going concern.
The company said in a filing that it is working with a financial adviser on a capital-raising programme but that no assurances can be given that the programme will be successful. Sagging US consumer confidence and spending power has hurt business in Las Vegas, where Sands operates the Palazzo and Venetian resorts, among others. Sands is also building almost US$17 billion worth of resorts in Singapore, Macau and Bethlehem in Pennsylvania.
Last month, Sands said Sheldon Adelson, its chief executive and principal stockholder, and his family intend to take part in the capital raising. Sands also said Mr Adelson and his family recently completed an investment in the company of US$475 million in convertible senior notes.
Shares of Las Vegas Sands fell US$3.39 to US$8.27 yesterday morning. -- Reuters
Las Vegas Sands in peril
Ability to continue as going concern in doubt, says auditor
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(NEW YORK) Shares of Las Vegas Sands Corp fell 29 per cent yesterday after the casino operator's auditor said in a regulatory filing that there are doubts about the company's ability to continue as a going concern.
Based on current estimates, Las Vegas Sands expects it will not be in compliance with its maximum leverage ratio covenant for the quarter ending Dec 31, 2008 and at subsequent quarters, accounting firm PricewaterhouseCoopers LLP said in the filing. The auditor said that non-compliance would result in defaults which raises substantial doubt about the company's ability to continue as a going concern.
The company said in a filing that it is working with a financial adviser on a capital-raising programme but that no assurances can be given that the programme will be successful. Sagging US consumer confidence and spending power has hurt business in Las Vegas, where Sands operates the Palazzo and Venetian resorts, among others. Sands is also building almost US$17 billion worth of resorts in Singapore, Macau and Bethlehem in Pennsylvania.
Last month, Sands said Sheldon Adelson, its chief executive and principal stockholder, and his family intend to take part in the capital raising. Sands also said Mr Adelson and his family recently completed an investment in the company of US$475 million in convertible senior notes.
Shares of Las Vegas Sands fell US$3.39 to US$8.27 yesterday morning. -- Reuters
Published November 7, 2008
SIA lurches from oil slick to demand skid
Q2 profit down 36% as fuel costs soar; now it faces slowdown threat
By VEN SREENIVASAN
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(SINGAPORE) The world's most profitable airline chalked up one of its worst quarterly performances in five years as it was hobbled by soaring fuel costs.
Worse still, things will not get any easier as the industry plunges headlong into a demand squeeze.
Singapore Airlines' net profit for the July-September quarter fell some 36 per cent to $323.8 million, from $507.8 million a year earlier.
And the blame for this lay largely on a 54 per cent surge in the airline's fuel bill to $1.92 billion, from $1.25 billion a year earlier.
But the easing fuel prices will provide little solace, going forward, as the demand for air travel is likely to be badly hit by the global slowdown and many carriers will struggle to survive.
SIA is relatively well- placed. But the immediate outlook for the industry is bleak. For the first time since the Sars outbreak in 2003, global airline passenger traffic shrank in September, falling 2.9 per cent as the slump in demand outstripped capacity cuts.
Asia-Pacific carriers posted a 6.8 per cent drop in demand - the second-biggest after African carriers.
SIA's own Q2 bottom line would have looked even worse had not topline revenue continued to grow, albeit by a somewhat modest 11 per cent to $4.38 billion.
The results translated into a first-half profit of $682 million, a 26.8 per cent fall from the $931.9 million the group raked in during the April-September 2007 period.
Revenue for the first half grew 12 per cent to $8.5 billion, from $7.6 billion a year earlier.
With fuel price almost doubling during the six months - and hitting highs of around US$175 per barrel in June - the airline's fuel bill soared 43 per cent to some $3.45 billion at half-time. Fuel was its single biggest expense item during the half-year, accounting for 44.5 per cent of total costs.
No fuel hedging details were provided, but SIA is known to have a rigorous, but simple, 'swap' fuel hedging programme that protects half its fuel requirements for the year.
The company's sagging bottom line was also weighed down by deteriorating profit performances of its main subsidiaries.
Singapore Airport Terminal Services' earlier posted net quarterly profit of $32.4 million for its July-September second quarter, down 33.5 per cent from $48.7 million a year earlier. Half-year profit came to $66.9 million at end-September, from $96.4 million a year earlier.
SIA Engineering's second-quarter profit slipped 1.5 per cent to $73.4 million, resulting in an 8.9 per cent dip in first-half profit to $132.1 million, from $145 million a year earlier.
Meanwhile, SilkAir's operating profit for the first half fell 44.6 per cent to $5 million, while SIA Cargo dived into the red to the count of $76 million for the first half, from an operating profit of $19 million for April-September 2007.
Despite the challenging first-half operating conditions, SIA retained its rock-solid balance sheet, with total equity attributable to shareholders at $14.53 billion, no gearing, total cash holdings of some $5.1 billion, and a modern fleet whose average age is barely six years.
The company's NTA per share stood at $12.26, above its closing price of $11.40 (down 88 cents) yesterday.
SIA declared an interim dividend of 20 cents per share, or a payout of some $237 million.
Looking ahead, SIA is bracing for an increasingly challenging operating environment where travel demand is being impacted by the global economic slowdown caused by the widening credit crunch.
Instead of celebrating a nearly 50 per cent fall in fuel price, the global aviation industry now finds itself facing the prospect of parking planes as seat sales fall.
According to the International Air Transport Association, at least 30 airlines have gone belly-up in the first nine months of this year, and another 20 are on its watchlist.
SIA has cut capacity on some routes and pulled out of others, such as Singapore-Bangkok-Osaka, Singapore-Taipei-Los Angeles, and Singapore-Amritsar.
In the first half, its passenger load factor came to 77.9 per cent, versus a breakeven load factor of 72.2 per cent.
But its cargo side remains in relatively poor shape, with a breakeven load factor of 63.5 per cent, against loads which have barely gone above 62 per cent recently.
Another challenge which the airline has been grappling with recently is currency volatility, including the wild gyrations of the greenback and the Australian dollar.
SIA lurches from oil slick to demand skid
Q2 profit down 36% as fuel costs soar; now it faces slowdown threat
By VEN SREENIVASAN
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(SINGAPORE) The world's most profitable airline chalked up one of its worst quarterly performances in five years as it was hobbled by soaring fuel costs.
Worse still, things will not get any easier as the industry plunges headlong into a demand squeeze.
Singapore Airlines' net profit for the July-September quarter fell some 36 per cent to $323.8 million, from $507.8 million a year earlier.
And the blame for this lay largely on a 54 per cent surge in the airline's fuel bill to $1.92 billion, from $1.25 billion a year earlier.
But the easing fuel prices will provide little solace, going forward, as the demand for air travel is likely to be badly hit by the global slowdown and many carriers will struggle to survive.
SIA is relatively well- placed. But the immediate outlook for the industry is bleak. For the first time since the Sars outbreak in 2003, global airline passenger traffic shrank in September, falling 2.9 per cent as the slump in demand outstripped capacity cuts.
Asia-Pacific carriers posted a 6.8 per cent drop in demand - the second-biggest after African carriers.
SIA's own Q2 bottom line would have looked even worse had not topline revenue continued to grow, albeit by a somewhat modest 11 per cent to $4.38 billion.
The results translated into a first-half profit of $682 million, a 26.8 per cent fall from the $931.9 million the group raked in during the April-September 2007 period.
Revenue for the first half grew 12 per cent to $8.5 billion, from $7.6 billion a year earlier.
With fuel price almost doubling during the six months - and hitting highs of around US$175 per barrel in June - the airline's fuel bill soared 43 per cent to some $3.45 billion at half-time. Fuel was its single biggest expense item during the half-year, accounting for 44.5 per cent of total costs.
No fuel hedging details were provided, but SIA is known to have a rigorous, but simple, 'swap' fuel hedging programme that protects half its fuel requirements for the year.
The company's sagging bottom line was also weighed down by deteriorating profit performances of its main subsidiaries.
Singapore Airport Terminal Services' earlier posted net quarterly profit of $32.4 million for its July-September second quarter, down 33.5 per cent from $48.7 million a year earlier. Half-year profit came to $66.9 million at end-September, from $96.4 million a year earlier.
SIA Engineering's second-quarter profit slipped 1.5 per cent to $73.4 million, resulting in an 8.9 per cent dip in first-half profit to $132.1 million, from $145 million a year earlier.
Meanwhile, SilkAir's operating profit for the first half fell 44.6 per cent to $5 million, while SIA Cargo dived into the red to the count of $76 million for the first half, from an operating profit of $19 million for April-September 2007.
Despite the challenging first-half operating conditions, SIA retained its rock-solid balance sheet, with total equity attributable to shareholders at $14.53 billion, no gearing, total cash holdings of some $5.1 billion, and a modern fleet whose average age is barely six years.
The company's NTA per share stood at $12.26, above its closing price of $11.40 (down 88 cents) yesterday.
SIA declared an interim dividend of 20 cents per share, or a payout of some $237 million.
Looking ahead, SIA is bracing for an increasingly challenging operating environment where travel demand is being impacted by the global economic slowdown caused by the widening credit crunch.
Instead of celebrating a nearly 50 per cent fall in fuel price, the global aviation industry now finds itself facing the prospect of parking planes as seat sales fall.
According to the International Air Transport Association, at least 30 airlines have gone belly-up in the first nine months of this year, and another 20 are on its watchlist.
SIA has cut capacity on some routes and pulled out of others, such as Singapore-Bangkok-Osaka, Singapore-Taipei-Los Angeles, and Singapore-Amritsar.
In the first half, its passenger load factor came to 77.9 per cent, versus a breakeven load factor of 72.2 per cent.
But its cargo side remains in relatively poor shape, with a breakeven load factor of 63.5 per cent, against loads which have barely gone above 62 per cent recently.
Another challenge which the airline has been grappling with recently is currency volatility, including the wild gyrations of the greenback and the Australian dollar.
Thursday, 6 November 2008
Published November 6, 2008
Property ventures: Popular has to watch its books
By EMILYN YAP
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THE financial mayhem has affected almost every part of the economy but the pain has certainly been felt most strongly in the equity and property markets. Share values have plunged, real estate prices have dipped and most investors are keeping their feet dry from both fields.
It was therefore surprising to see Popular Holdings launch a rights issue last week. Not only is it trying to raise up to $22.2 million in a bearish stock market, most or even all of the net proceeds would go into property development.
While Popular is a household name when it comes to bookstores and education materials, it is a relatively new real estate player, having joined the scene in 2006 when the market was just beginning to pick up.
Popular's fundraising attempt at this juncture is likely to fuel speculation about its ability to support its property investments. The company has put up more than $71 million in four land purchases so far.
The tightening credit situation is certainly not working in Popular's favour. Banks have reportedly become more selective in extending loans, especially when the cooling property sector is involved. For small developers with no track record, loans are likely to come with more or tougher conditions.
Project financing
In fact, Popular's move reinforces concerns that emerged as early as a year ago - that non-core developers which jumped onto the property bandwagon might have trouble financing their projects should the market head south.
It does not help that Popular has two construction projects eating into its resources - One Robin and 18 Shelford. One Robin is already open for sale and could bring in cash as development progresses. This in turn would help fund the construction.
Unfortunately, 18 Shelford will not afford Popular such a breather. Construction is underway but the development has not been launched for sale and will not be receiving any proceeds. This is where funding could get a little tight and some extra cash may come in handy.
Few details
Popular's statement last week revealed few details on how proceeds from the rights issue would be used, save that they would 'strengthen the capital base', keep its property development business 'properly funded', and allow it to be 'selective in timing its property marketing and sales activities'.
For now, Popular's financials look sound. With cash and fixed deposits amounting to $45.3 million as at July 31, the group is more than able to settle the $13.7 million debt due within a year or on demand. Its net gearing ratio also rests at a comfortable 0.14 times.
Besides, Popular's investments in One Robin and 18 Shelford are far from dire. At the very least, both are situated in Districts 10 and 11, locations which tend to be fairly sought after by both locals and foreigners.
On the whole, Popular is nowhere near a solvency crisis. But the rights issue does still send out a warning signal on the short-term liquidity of its property business.
While the foray may bring huge returns, it is also exposing the latecomer to large risks, forcing it to shore up its cash position. Popular will need to watch its books closely to make sure that such risks do not spill over and affect its core retail and publishing business.
Property ventures: Popular has to watch its books
By EMILYN YAP
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THE financial mayhem has affected almost every part of the economy but the pain has certainly been felt most strongly in the equity and property markets. Share values have plunged, real estate prices have dipped and most investors are keeping their feet dry from both fields.
It was therefore surprising to see Popular Holdings launch a rights issue last week. Not only is it trying to raise up to $22.2 million in a bearish stock market, most or even all of the net proceeds would go into property development.
While Popular is a household name when it comes to bookstores and education materials, it is a relatively new real estate player, having joined the scene in 2006 when the market was just beginning to pick up.
Popular's fundraising attempt at this juncture is likely to fuel speculation about its ability to support its property investments. The company has put up more than $71 million in four land purchases so far.
The tightening credit situation is certainly not working in Popular's favour. Banks have reportedly become more selective in extending loans, especially when the cooling property sector is involved. For small developers with no track record, loans are likely to come with more or tougher conditions.
Project financing
In fact, Popular's move reinforces concerns that emerged as early as a year ago - that non-core developers which jumped onto the property bandwagon might have trouble financing their projects should the market head south.
It does not help that Popular has two construction projects eating into its resources - One Robin and 18 Shelford. One Robin is already open for sale and could bring in cash as development progresses. This in turn would help fund the construction.
Unfortunately, 18 Shelford will not afford Popular such a breather. Construction is underway but the development has not been launched for sale and will not be receiving any proceeds. This is where funding could get a little tight and some extra cash may come in handy.
Few details
Popular's statement last week revealed few details on how proceeds from the rights issue would be used, save that they would 'strengthen the capital base', keep its property development business 'properly funded', and allow it to be 'selective in timing its property marketing and sales activities'.
For now, Popular's financials look sound. With cash and fixed deposits amounting to $45.3 million as at July 31, the group is more than able to settle the $13.7 million debt due within a year or on demand. Its net gearing ratio also rests at a comfortable 0.14 times.
Besides, Popular's investments in One Robin and 18 Shelford are far from dire. At the very least, both are situated in Districts 10 and 11, locations which tend to be fairly sought after by both locals and foreigners.
On the whole, Popular is nowhere near a solvency crisis. But the rights issue does still send out a warning signal on the short-term liquidity of its property business.
While the foray may bring huge returns, it is also exposing the latecomer to large risks, forcing it to shore up its cash position. Popular will need to watch its books closely to make sure that such risks do not spill over and affect its core retail and publishing business.
Published November 6, 2008
Kim Eng Thailand Q3 profit dives 56%
But it expects to maintain full-year results at 2007 level
By GREG LOWE
IN BANGKOK
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KIM Eng Securities (Thailand) said yesterday that despite reporting declining third-quarter profits in the face of the global financial crisis, the firm would maintain annual performance at last year's levels.
The company posted Q308 profits of 88.61 million baht (S$3.73 million), down 55.89 per cent, or 112.28 million baht, from a net profit of 200.88 million baht for the same period last year.
'The bottom line is we're expecting performance similar to last year. It will be quite a good year with around 500 million baht profit,' Montree Sornpaisarn, CEO Kim Eng Securities (Thailand), told The Business Times. 'Our performance in the first-half 2008 was very strong compared with last year, but the second-half of 2007 was a much stronger base.'
Brokerage fees for Q308 securities trading fell by 52.94 per cent YOY to 261.41 million baht, in response to the market slowdown. The company's market share also contracted to 7.32 per cent from 8.48 per cent as its average daily securities trading dropped from 3.77 billion baht to 1.80 billion baht.
Fees for derivatives trading increased by 49.71 per cent to 46.42 million baht, in response to the market increase in trading volume in the same period.
Company profits were hit by across-the-board market devaluation, rather than a downturn in any particular sector on the Stock Exchange of Thailand (SET), according to Mr Sornpaisarn.
He said the current market volatility made it too early to predict profits for 2009, or when there would be an economic turnaround in Thailand, as the local situation is heavily reliant on global conditions. The possibility of more shocks was never far away in a financial system where banks are leveraged up to 30 times their equity, and with complex debt instruments such as sub-prime mortgages, he added.
SET has recovered more than 20 per cent this week, from its low of 384 points at the end of last month. But while the recovery was in line with other regional markets, Mr Sornpaisarn said it may only be temporary and that investors should remain cautious.
The company's strategy is to attract local investors from outside of the market by alerting them to the investment opportunities available.
'We like those outside of the market to know that this crisis is a golden opportunity for them,' he said, adding that a bigger proportion of local investors can create more stability in the market by reducing the influence of foreign investor panic.
Thailand has one million accounts on SET, but only 200,000 to 300,000 are active, for a country of 65 million, according to Kim Eng Securities (Thailand). This is in stark contrast to Taiwan, where a 23 million population has 8 million investors.
Kim Eng also supports moves by SET to develop an 8.25 billion baht-matching fund to invest in the market.
'SET has talked about this fund since before the financial crisis. It has substantial money, which it needs to invest for returns, but now SET is also thinking about how to create more gearing and momentum in the market. The crisis provides more opportunity.'
Kim Eng Thailand Q3 profit dives 56%
But it expects to maintain full-year results at 2007 level
By GREG LOWE
IN BANGKOK
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KIM Eng Securities (Thailand) said yesterday that despite reporting declining third-quarter profits in the face of the global financial crisis, the firm would maintain annual performance at last year's levels.
The company posted Q308 profits of 88.61 million baht (S$3.73 million), down 55.89 per cent, or 112.28 million baht, from a net profit of 200.88 million baht for the same period last year.
'The bottom line is we're expecting performance similar to last year. It will be quite a good year with around 500 million baht profit,' Montree Sornpaisarn, CEO Kim Eng Securities (Thailand), told The Business Times. 'Our performance in the first-half 2008 was very strong compared with last year, but the second-half of 2007 was a much stronger base.'
Brokerage fees for Q308 securities trading fell by 52.94 per cent YOY to 261.41 million baht, in response to the market slowdown. The company's market share also contracted to 7.32 per cent from 8.48 per cent as its average daily securities trading dropped from 3.77 billion baht to 1.80 billion baht.
Fees for derivatives trading increased by 49.71 per cent to 46.42 million baht, in response to the market increase in trading volume in the same period.
Company profits were hit by across-the-board market devaluation, rather than a downturn in any particular sector on the Stock Exchange of Thailand (SET), according to Mr Sornpaisarn.
He said the current market volatility made it too early to predict profits for 2009, or when there would be an economic turnaround in Thailand, as the local situation is heavily reliant on global conditions. The possibility of more shocks was never far away in a financial system where banks are leveraged up to 30 times their equity, and with complex debt instruments such as sub-prime mortgages, he added.
SET has recovered more than 20 per cent this week, from its low of 384 points at the end of last month. But while the recovery was in line with other regional markets, Mr Sornpaisarn said it may only be temporary and that investors should remain cautious.
The company's strategy is to attract local investors from outside of the market by alerting them to the investment opportunities available.
'We like those outside of the market to know that this crisis is a golden opportunity for them,' he said, adding that a bigger proportion of local investors can create more stability in the market by reducing the influence of foreign investor panic.
Thailand has one million accounts on SET, but only 200,000 to 300,000 are active, for a country of 65 million, according to Kim Eng Securities (Thailand). This is in stark contrast to Taiwan, where a 23 million population has 8 million investors.
Kim Eng also supports moves by SET to develop an 8.25 billion baht-matching fund to invest in the market.
'SET has talked about this fund since before the financial crisis. It has substantial money, which it needs to invest for returns, but now SET is also thinking about how to create more gearing and momentum in the market. The crisis provides more opportunity.'
Published November 6, 2008
More profit warnings issued
By LYNETTE KHOO
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MORE companies have issued profit warnings amid the global economic slowdown.
Of at least five companies that issued warnings yesterday, three were Chinese firms hurt by depressed margins, higher costs and slower demand in China.
In a filing with Singapore Exchange, China Auto Electronics Group said it may not be profitable for the third quarter ended Sept 30. It cited a slowdown of growth in China's auto industry and continued losses in newly acquired US subsidiaries, 'although the losses were substantially reduced as the working capital issue was resolved in the third quarter'.
Chinese property developer Pan Hong Property Group warned of an operating loss for the third quarter caused by a substantial decline in revenue, as well as in other income and gains amid the current slowdown in the property market in China.
China Powerplus guided for lower earnings for its third quarter ended Sept 30 from a year ago, citing pressures from several fronts. During the quarter, it saw higher production costs triggered by higher inflation and R&D activities. Adding to the costs was power supply disruption during the Beijing Olympic Games due to power supply rationing in Shandong province and the resulting repair and maintenance work. Demand was dampened by cautious spending among its customers while its margins from export sales were hit by the stronger yuan against the US dollar.
Singapore firm San Teh warned of a loss for the third quarter due mainly to weaker performance of its cement operation in China. In its second quarter results, the group had said it expected the slowing Chinese economy and measures to fight inflation to adversely affect construction activities there and hence the demand for its products. The group had also expected escalating cost pressures to persist.
Citing 'very challenging business conditions', Giant Wireless Technology said it is expecting to record a signficant loss for the first six months ended Sept 30 due to a substantial decline in revenues. It has headquarters in Hong Kong, manufacturing facilities in China and counts global names such as Motorola, Plantronics and Olympia among its clients.
This spate of negative news came as no surprise to analysts, who note that problems of high production costs, slowing demand and depressed margins have been persistent issues before the start of the third quarter.
'Q3 earnings could be bad, but going forward, I foresee more downgrades for the full-year and next year,' said Westcomb Securities research head Goh Mou Lih. Export-oriented companies would be worst hit, he added.
More profit warnings issued
By LYNETTE KHOO
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MORE companies have issued profit warnings amid the global economic slowdown.
Of at least five companies that issued warnings yesterday, three were Chinese firms hurt by depressed margins, higher costs and slower demand in China.
In a filing with Singapore Exchange, China Auto Electronics Group said it may not be profitable for the third quarter ended Sept 30. It cited a slowdown of growth in China's auto industry and continued losses in newly acquired US subsidiaries, 'although the losses were substantially reduced as the working capital issue was resolved in the third quarter'.
Chinese property developer Pan Hong Property Group warned of an operating loss for the third quarter caused by a substantial decline in revenue, as well as in other income and gains amid the current slowdown in the property market in China.
China Powerplus guided for lower earnings for its third quarter ended Sept 30 from a year ago, citing pressures from several fronts. During the quarter, it saw higher production costs triggered by higher inflation and R&D activities. Adding to the costs was power supply disruption during the Beijing Olympic Games due to power supply rationing in Shandong province and the resulting repair and maintenance work. Demand was dampened by cautious spending among its customers while its margins from export sales were hit by the stronger yuan against the US dollar.
Singapore firm San Teh warned of a loss for the third quarter due mainly to weaker performance of its cement operation in China. In its second quarter results, the group had said it expected the slowing Chinese economy and measures to fight inflation to adversely affect construction activities there and hence the demand for its products. The group had also expected escalating cost pressures to persist.
Citing 'very challenging business conditions', Giant Wireless Technology said it is expecting to record a signficant loss for the first six months ended Sept 30 due to a substantial decline in revenues. It has headquarters in Hong Kong, manufacturing facilities in China and counts global names such as Motorola, Plantronics and Olympia among its clients.
This spate of negative news came as no surprise to analysts, who note that problems of high production costs, slowing demand and depressed margins have been persistent issues before the start of the third quarter.
'Q3 earnings could be bad, but going forward, I foresee more downgrades for the full-year and next year,' said Westcomb Securities research head Goh Mou Lih. Export-oriented companies would be worst hit, he added.
Published November 6, 2008
StarHub Q3 net profit dips 2.1% to $79.5m
Growth strongest for pay-TV business, flat for mobile and broadband units
By WINSTON CHAI
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STARHUB'S third-quarter net profit fell 2.1 per cent to $79.5 million due to higher content costs for its pay-TV business and a flat showing by its mobile and broadband units.
Related link:
Click here for Starhub's financial results
Revenue for the three months ended Sept 30 was 2.3 per cent higher year on year at $524.6 million, but earnings per share slipped to 4.65 cents from 4.78 cents.
StarHub yesterday declared a quarterly dividend of 4.5 cents, unchanged from Q2, and reaffirmed its commitment to pay at least 18 cents in 2008. This translates to a minimum dividend payout of 4.5 cents for the final quarter.
Singapore's second-largest teleco continues to bear the brunt of soaring content prices for pay-TV, with the cost of services rising 21 per cent year on year to $73.1 million in Q3, which raised operating expenses 3 per cent to $417.6 million.
On the mobile phone front, the promotional frenzy sparked by the introduction of True Mobile Number Portability in the second quarter is easing, according to StarHub CEO Terry Clontz. This led to lower handset subsidies, which consequently reduced the cost of equipment sold by 19 per cent sequentially to $51.7 million.
The pay-TV business registered the strongest growth in Q3, with sales rising 14.7 per cent to $98.4 million. This was largely helped by an increase in subscription prices for basic and sports packages which kicked in late last year. StarHub added 9,000 pay-TV subscribers in Q3 to bring its customer base to 520,000.
Revenue from the mobile phone business slipped 0.7 per cent to $264.4 million during the quarter, with the arrival of the iPhone 3G triggering some customer defections in September, Mr Clontz said. Despite the migration and lower handset subsidies, StarHub added 17,000 post-paid subscribers in the quarter.
It now has 1.74 million mobile customers and a market share of 28.9 per cent, down from 31.9 per cent a year earlier.
StarHub's broadband revenue rose one per cent in Q3 to $62.6 million, while its fixed network service sales edged up 2.4 per cent to $75.1 million.
The company's bid for the right to build Singapore's future Internet highway fell through during the quarter, as the consortium it was spearheading lost out to a rival group involving SingTel.
StarHub's closing cash and cash equivalents balance at end-September was $126.9 million. After netting this cash balance, the company's debt was 4 per cent lower at $786.8 million. Its gearing as a ratio of 2007 Ebitda - earnings before interest, tax, depreciation and amortisation - has improved from 1.3 times last year to 1.2 times.
For the first nine months of this year, StarHub recorded a 3.5 per cent drop in net income to $223.9 million, although revenue increased 7.9 per cent to $1.59 billion.
The company is keeping to its full-year sales growth projection of 7 per cent and expects Ebitda to be 31 per cent of revenue.
Despite economic headwinds, StarHub has no plans to introduce new cost-cutting measures. 'If you look at the past six years, we've not increased headcount at all. We're pretty lean as it is,' Mr Clontz said.
StarHub shares climbed 3.2 per cent to close at $2.29 yesterday.
StarHub Q3 net profit dips 2.1% to $79.5m
Growth strongest for pay-TV business, flat for mobile and broadband units
By WINSTON CHAI
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STARHUB'S third-quarter net profit fell 2.1 per cent to $79.5 million due to higher content costs for its pay-TV business and a flat showing by its mobile and broadband units.
Related link:
Click here for Starhub's financial results
Revenue for the three months ended Sept 30 was 2.3 per cent higher year on year at $524.6 million, but earnings per share slipped to 4.65 cents from 4.78 cents.
StarHub yesterday declared a quarterly dividend of 4.5 cents, unchanged from Q2, and reaffirmed its commitment to pay at least 18 cents in 2008. This translates to a minimum dividend payout of 4.5 cents for the final quarter.
Singapore's second-largest teleco continues to bear the brunt of soaring content prices for pay-TV, with the cost of services rising 21 per cent year on year to $73.1 million in Q3, which raised operating expenses 3 per cent to $417.6 million.
On the mobile phone front, the promotional frenzy sparked by the introduction of True Mobile Number Portability in the second quarter is easing, according to StarHub CEO Terry Clontz. This led to lower handset subsidies, which consequently reduced the cost of equipment sold by 19 per cent sequentially to $51.7 million.
The pay-TV business registered the strongest growth in Q3, with sales rising 14.7 per cent to $98.4 million. This was largely helped by an increase in subscription prices for basic and sports packages which kicked in late last year. StarHub added 9,000 pay-TV subscribers in Q3 to bring its customer base to 520,000.
Revenue from the mobile phone business slipped 0.7 per cent to $264.4 million during the quarter, with the arrival of the iPhone 3G triggering some customer defections in September, Mr Clontz said. Despite the migration and lower handset subsidies, StarHub added 17,000 post-paid subscribers in the quarter.
It now has 1.74 million mobile customers and a market share of 28.9 per cent, down from 31.9 per cent a year earlier.
StarHub's broadband revenue rose one per cent in Q3 to $62.6 million, while its fixed network service sales edged up 2.4 per cent to $75.1 million.
The company's bid for the right to build Singapore's future Internet highway fell through during the quarter, as the consortium it was spearheading lost out to a rival group involving SingTel.
StarHub's closing cash and cash equivalents balance at end-September was $126.9 million. After netting this cash balance, the company's debt was 4 per cent lower at $786.8 million. Its gearing as a ratio of 2007 Ebitda - earnings before interest, tax, depreciation and amortisation - has improved from 1.3 times last year to 1.2 times.
For the first nine months of this year, StarHub recorded a 3.5 per cent drop in net income to $223.9 million, although revenue increased 7.9 per cent to $1.59 billion.
The company is keeping to its full-year sales growth projection of 7 per cent and expects Ebitda to be 31 per cent of revenue.
Despite economic headwinds, StarHub has no plans to introduce new cost-cutting measures. 'If you look at the past six years, we've not increased headcount at all. We're pretty lean as it is,' Mr Clontz said.
StarHub shares climbed 3.2 per cent to close at $2.29 yesterday.
Published November 6, 2008
OCBC's Q3 profit falls 13% to $402m
Bank maintaining strong capital position, warns of rough times ahead
By SIOW LI SEN
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OCBC Bank yesterday posted a 13 per cent drop in third-quarter net profit to $402 million as provisions or allowances for bad loans surged. Against the second quarter, net profit was down 6 per cent.
Mr Conner: Marina Bay Sands project is quite sound and won't be affected by Las Vegas Sands's problems
The second local bank to post sombre results, it warned of rough times ahead. Chief executive David Conner said that given the current global financial crisis, OCBC is maintaining its strong capital position.
The bank has not done any share buybacks for several quarters and 'frankly we're maintaining our capital; one, in previous quarters, because we've seen significant loan growth and two, now, frankly because it's wise to hang on to the capital given the potential for a difficult period going forward'.
Last week, UOB said that third-quarter 2008 net profit fell 5.1 per cent to $475 million from a year ago on volatile financial markets and higher impairment charges.
DBS will report its earnings tomorrow.
Speaking at a press conference, Mr Conner also said that he did not think that the hammering that OCBC has taken in its stock price will result in it being acquired.
Related article:
Click here for OCBC's news release
'The reality is the Lee family have a pretty sizeable controlling position in OCBC and they have said repeatedly it's not for sale,' he said.
OCBC said that annualised earnings per share was down to 48.8 cents from 53.4 cents.
Allowances for the quarter amounted to $156 million, substantially higher than $39 million a year ago and $55 million in 2Q08 as the bank took hits from turmoil in the financial markets.
Mr Conner noted that OCBC has yet to see major loan losses. Non-performing loans ratio improved to 1.3 per cent from 1.4 per cent in June 2008 and 2.1 per cent in September last year.
Asked if banks' NPLs might worsen to what they were during the 1997/98 Asian financial crisis, he noted that when he joined as OCBC chief executive in 2002, the NPL was in the 8 per cent range. 'I don't think we'll go on to 8-9 per cent, I expect we will manage the bank better than that, but then again banks reflect the economies in which they operate. We can't go and turn everybody off in terms of loans, in order just to avoid losses.'
As for OCBC's property exposure, and also its exposure to the integrated resort, Marina Bay Sands, he said that the bank is in good shape.
OCBC's current loan-to-value for the bank's residential loan portfolio is an average 50 per cent.
Its total real estate exposure is way below the 35 per cent limit to overall loans, he said.
Of the property loans committed over the last two years, some are still being drawn down. 'Some later projects are potential concerns . . . we don't see great big problems but again time will tell,' he said.
As for OCBC's exposure to Marina Bay Sands, he said 'the project is quite sound, it won't be contaminated by Las Vegas Sands's problems or Macao's problems'.
Mr Conner added that if Las Vegas Sands, the parent company, does not complete the project - but he thinks it will complete the project - 'new partners will come in'.
The three local banks are lending almost $2.2 billion to Marina Bay Sands. United Overseas Bank (UOB) has committed to lend almost $890 million to the project. DBS Group Holdings's exposure is in the range of $740 million while that of OCBC Bank is around $570 million.
Loans to the building and construction industry made up 20 per cent of OCBC's total lending by the end of September, compared with 12 per cent at UOB. DBS has 13 per cent of its total loans to the industry.
For the quarter under review, OCBC customer loans grew 20 per cent from a year ago and 4 per cent from the previous quarter to $79.9 billion.
The bank also took in more deposits which rose 9 per cent to $108 billion from a year ago. Since mid-September following the collapse of Lehman Brothers, the bank had significantly higher net inflows but that has since tapered off after the government guaranteed deposits.
OCBC's net interest income grew 21 per cent to $684 million helped by improved margins. Net interest margin rose 11 basis points to 2.18 per cent from a year ago but was down from 2.24 in the previous quarter, largely due to lower average yields on investment securities, in particular Singapore government bonds.
Non-interest income fell only 4 per cent to $462 million from a year ago as bigger profits from the bank's insurance unit helped offset declines in stock-broking and wealth management income, as well as losses in dealing of investment securities.
Profit from Great Eastern Holdings' (GEH's) life assurance business increased by 35 per cent year-on-year to $145 million as it benefited from the decline in long term interest rates and higher government bond prices.
But GEH has warned that the financial crisis intensified after mid-September. Impairment provisions may be made over the next few quarters, it said.
OCBC said that expenses rose 15 per cent to $492 million from a year ago and were up 4 per cent from Q2. Group headcount rose 10 per cent to 19,891 from year ago.
OCBC shares ended at $5.28, up 21 cents, while GEH shares ended unchanged at $9.48.
OCBC's Q3 profit falls 13% to $402m
Bank maintaining strong capital position, warns of rough times ahead
By SIOW LI SEN
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OCBC Bank yesterday posted a 13 per cent drop in third-quarter net profit to $402 million as provisions or allowances for bad loans surged. Against the second quarter, net profit was down 6 per cent.
Mr Conner: Marina Bay Sands project is quite sound and won't be affected by Las Vegas Sands's problems
The second local bank to post sombre results, it warned of rough times ahead. Chief executive David Conner said that given the current global financial crisis, OCBC is maintaining its strong capital position.
The bank has not done any share buybacks for several quarters and 'frankly we're maintaining our capital; one, in previous quarters, because we've seen significant loan growth and two, now, frankly because it's wise to hang on to the capital given the potential for a difficult period going forward'.
Last week, UOB said that third-quarter 2008 net profit fell 5.1 per cent to $475 million from a year ago on volatile financial markets and higher impairment charges.
DBS will report its earnings tomorrow.
Speaking at a press conference, Mr Conner also said that he did not think that the hammering that OCBC has taken in its stock price will result in it being acquired.
Related article:
Click here for OCBC's news release
'The reality is the Lee family have a pretty sizeable controlling position in OCBC and they have said repeatedly it's not for sale,' he said.
OCBC said that annualised earnings per share was down to 48.8 cents from 53.4 cents.
Allowances for the quarter amounted to $156 million, substantially higher than $39 million a year ago and $55 million in 2Q08 as the bank took hits from turmoil in the financial markets.
Mr Conner noted that OCBC has yet to see major loan losses. Non-performing loans ratio improved to 1.3 per cent from 1.4 per cent in June 2008 and 2.1 per cent in September last year.
Asked if banks' NPLs might worsen to what they were during the 1997/98 Asian financial crisis, he noted that when he joined as OCBC chief executive in 2002, the NPL was in the 8 per cent range. 'I don't think we'll go on to 8-9 per cent, I expect we will manage the bank better than that, but then again banks reflect the economies in which they operate. We can't go and turn everybody off in terms of loans, in order just to avoid losses.'
As for OCBC's property exposure, and also its exposure to the integrated resort, Marina Bay Sands, he said that the bank is in good shape.
OCBC's current loan-to-value for the bank's residential loan portfolio is an average 50 per cent.
Its total real estate exposure is way below the 35 per cent limit to overall loans, he said.
Of the property loans committed over the last two years, some are still being drawn down. 'Some later projects are potential concerns . . . we don't see great big problems but again time will tell,' he said.
As for OCBC's exposure to Marina Bay Sands, he said 'the project is quite sound, it won't be contaminated by Las Vegas Sands's problems or Macao's problems'.
Mr Conner added that if Las Vegas Sands, the parent company, does not complete the project - but he thinks it will complete the project - 'new partners will come in'.
The three local banks are lending almost $2.2 billion to Marina Bay Sands. United Overseas Bank (UOB) has committed to lend almost $890 million to the project. DBS Group Holdings's exposure is in the range of $740 million while that of OCBC Bank is around $570 million.
Loans to the building and construction industry made up 20 per cent of OCBC's total lending by the end of September, compared with 12 per cent at UOB. DBS has 13 per cent of its total loans to the industry.
For the quarter under review, OCBC customer loans grew 20 per cent from a year ago and 4 per cent from the previous quarter to $79.9 billion.
The bank also took in more deposits which rose 9 per cent to $108 billion from a year ago. Since mid-September following the collapse of Lehman Brothers, the bank had significantly higher net inflows but that has since tapered off after the government guaranteed deposits.
OCBC's net interest income grew 21 per cent to $684 million helped by improved margins. Net interest margin rose 11 basis points to 2.18 per cent from a year ago but was down from 2.24 in the previous quarter, largely due to lower average yields on investment securities, in particular Singapore government bonds.
Non-interest income fell only 4 per cent to $462 million from a year ago as bigger profits from the bank's insurance unit helped offset declines in stock-broking and wealth management income, as well as losses in dealing of investment securities.
Profit from Great Eastern Holdings' (GEH's) life assurance business increased by 35 per cent year-on-year to $145 million as it benefited from the decline in long term interest rates and higher government bond prices.
But GEH has warned that the financial crisis intensified after mid-September. Impairment provisions may be made over the next few quarters, it said.
OCBC said that expenses rose 15 per cent to $492 million from a year ago and were up 4 per cent from Q2. Group headcount rose 10 per cent to 19,891 from year ago.
OCBC shares ended at $5.28, up 21 cents, while GEH shares ended unchanged at $9.48.
Published November 6, 2008
Sales of US tech firms in M'sia set to fall
Global demand for consumer electronics products faltering
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(KUALA LUMPUR) Sales by US tech firms with factories in Malaysia are expected to fall this year as the global financial crisis hits demand for consumer electronics. A recovery is unlikely until the second half of 2009.
Slow day: Malaysia-based tech companies are cutting down spending on equipment and conserving resources as they brace themselves for what could be the industry's worst period in history, says industry group
A severe slowdown will have big repercussions for the economy because electronics is Malaysia's biggest export industry and accounted for almost 40 per cent of overseas sales in September, figures yesterday showed.
Global demand for consumer electronics products such as cellphones, MP3 players and personal computers, is faltering, said Wong Siew Hai, chairman of Malaysian American Electronics Industry (MAEI). '(Sales) are likely to fall below last year,' Mr Wong said yesterday.
Sales by MAEI's 17 members, which include Motorola, Dell, and Intel, totalled RM73.8 billion (S$30.9 billion) in 2007. The organisation had previously forecast sales might grow a thin 0.4 per cent.
Reflecting a global downturn, the government on Tuesday cut its 2009 growth forecast to 3.5 per cent, which would be the slowest pace since 2001, from 5.4 per cent.
Malaysia-based tech companies are cutting down spending on equipment and conserving resources as they brace themselves for what Mr Wong said could be the industry's worst period in history.
'The outlook for 2009 is very unclear and uncertain. People that I spoke to, they can't even tell me what's happening due to uncertainty on the demand side. They can only see weeks, they can't even see months to forecast,' said Mr Wong.
'I think it's not clear that things are going to come back up yet, definitely not in the first half of next year,' he added.
The International Monetary Fund last month slashed its global economic growth forecast to 3 per cent from 3.9 per cent, the slowest pace in seven years, although investment bank UBS sees just 1.3 per cent global growth, the slowest in 27 years.
All G-7 countries, except Japan, will see their economies shrink next year, UBS said. The US economy, a big buyer of Malaysian made electronics good, is expected to contract by 0.6 per cent in 2009, it said.
Weakening demand for consumer electronics will also hit local contract manufacturers such as Unisem and Malaysian Pacific Industries , Mr Wong said.
A prolonged economic slowdown worldwide could lead to an industry-wide consolidation and there is a risk of layoffs here as companies downsize and cut workers, Mr Wong said.
'If they say this one is going to continue for long- term, then they will have to let people go. We will have to watch it carefully, I would not rule this out, because I expect the impact of the economic crisis to be great,' he said. -- Reuters
Sales of US tech firms in M'sia set to fall
Global demand for consumer electronics products faltering
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(KUALA LUMPUR) Sales by US tech firms with factories in Malaysia are expected to fall this year as the global financial crisis hits demand for consumer electronics. A recovery is unlikely until the second half of 2009.
Slow day: Malaysia-based tech companies are cutting down spending on equipment and conserving resources as they brace themselves for what could be the industry's worst period in history, says industry group
A severe slowdown will have big repercussions for the economy because electronics is Malaysia's biggest export industry and accounted for almost 40 per cent of overseas sales in September, figures yesterday showed.
Global demand for consumer electronics products such as cellphones, MP3 players and personal computers, is faltering, said Wong Siew Hai, chairman of Malaysian American Electronics Industry (MAEI). '(Sales) are likely to fall below last year,' Mr Wong said yesterday.
Sales by MAEI's 17 members, which include Motorola, Dell, and Intel, totalled RM73.8 billion (S$30.9 billion) in 2007. The organisation had previously forecast sales might grow a thin 0.4 per cent.
Reflecting a global downturn, the government on Tuesday cut its 2009 growth forecast to 3.5 per cent, which would be the slowest pace since 2001, from 5.4 per cent.
Malaysia-based tech companies are cutting down spending on equipment and conserving resources as they brace themselves for what Mr Wong said could be the industry's worst period in history.
'The outlook for 2009 is very unclear and uncertain. People that I spoke to, they can't even tell me what's happening due to uncertainty on the demand side. They can only see weeks, they can't even see months to forecast,' said Mr Wong.
'I think it's not clear that things are going to come back up yet, definitely not in the first half of next year,' he added.
The International Monetary Fund last month slashed its global economic growth forecast to 3 per cent from 3.9 per cent, the slowest pace in seven years, although investment bank UBS sees just 1.3 per cent global growth, the slowest in 27 years.
All G-7 countries, except Japan, will see their economies shrink next year, UBS said. The US economy, a big buyer of Malaysian made electronics good, is expected to contract by 0.6 per cent in 2009, it said.
Weakening demand for consumer electronics will also hit local contract manufacturers such as Unisem and Malaysian Pacific Industries , Mr Wong said.
A prolonged economic slowdown worldwide could lead to an industry-wide consolidation and there is a risk of layoffs here as companies downsize and cut workers, Mr Wong said.
'If they say this one is going to continue for long- term, then they will have to let people go. We will have to watch it carefully, I would not rule this out, because I expect the impact of the economic crisis to be great,' he said. -- Reuters
Published November 6, 2008
KL heads for hat-trick in external trade
Value set to top RM1 trillion again, but target could be a struggle next year
By PAULINE NG
IN KUALA LUMPUR
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MALAYSIA'S total trade for the year looks set to surpass RM1 trillion (S$419 billion) - its third in a row - but could struggle to hit the target next year should the decline in exports of electrical & electronic (E&E) products persist.
At the three-quarter point, total trade had reached RM915.4 billion, up by nearly 13 per cent compared with the RM811.4 billion in the same period last year. Exports grew at a faster 16 per cent to RM512.2 billion, while imports rose 9 per cent to RM403.2 billion.
The international trade ministry said the E&E sector should see marginal growth in the last quarter on forward orders already secured to meet the year-end holiday season. However, that reprieve is expected to end in the first quarter, on anticipation of weaker demand from the developed markets of the US and European Union.
Given that E&E products contribute nearly 40 per cent of Malaysia's total exports, the sector's performance is closely monitored for signs of weakness. In September, E&E exports rose marginally to RM24.8 billion from RM23.7 billion in August. Demand from the US and EU had noticeably dipped in August and with financial and stockmarkets heavily jolted in October, is expected to soften in the coming year as economies shrink.
On Tuesday the government revised its economic data forecast. Exports are now expected to contract 1.5 per cent in 2009 instead of expanding 4.6 per cent. Economic growth is now pegged at 3.4 per cent, down from 5.4 per cent previously.
Steeply lower palm oil and crude petroleum prices are also expected to put a dent in Malaysia's export value next year. Palm oil and petroleum contribute 7.6 and 6.7 per cent of total exports, respectively, but the former has plunged to about a third, while petroleum is down to half from earlier peaks.
International Trade Minister Muhyiddin Yassin who announced the latest trade figures yesterday could not say how much Malaysia's total export value would be hit next year should prices remain at these levels.
He suggested exporters look at new markets, pointing out there were 'vast trade opportunities' in the BRIC countries of Brazil, Russia, India and China which account for half the world's population.
Currently, Singapore, US, China, Japan and India receive 51 per cent or slightly more than half of Malaysia's total exports.
KL heads for hat-trick in external trade
Value set to top RM1 trillion again, but target could be a struggle next year
By PAULINE NG
IN KUALA LUMPUR
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MALAYSIA'S total trade for the year looks set to surpass RM1 trillion (S$419 billion) - its third in a row - but could struggle to hit the target next year should the decline in exports of electrical & electronic (E&E) products persist.
At the three-quarter point, total trade had reached RM915.4 billion, up by nearly 13 per cent compared with the RM811.4 billion in the same period last year. Exports grew at a faster 16 per cent to RM512.2 billion, while imports rose 9 per cent to RM403.2 billion.
The international trade ministry said the E&E sector should see marginal growth in the last quarter on forward orders already secured to meet the year-end holiday season. However, that reprieve is expected to end in the first quarter, on anticipation of weaker demand from the developed markets of the US and European Union.
Given that E&E products contribute nearly 40 per cent of Malaysia's total exports, the sector's performance is closely monitored for signs of weakness. In September, E&E exports rose marginally to RM24.8 billion from RM23.7 billion in August. Demand from the US and EU had noticeably dipped in August and with financial and stockmarkets heavily jolted in October, is expected to soften in the coming year as economies shrink.
On Tuesday the government revised its economic data forecast. Exports are now expected to contract 1.5 per cent in 2009 instead of expanding 4.6 per cent. Economic growth is now pegged at 3.4 per cent, down from 5.4 per cent previously.
Steeply lower palm oil and crude petroleum prices are also expected to put a dent in Malaysia's export value next year. Palm oil and petroleum contribute 7.6 and 6.7 per cent of total exports, respectively, but the former has plunged to about a third, while petroleum is down to half from earlier peaks.
International Trade Minister Muhyiddin Yassin who announced the latest trade figures yesterday could not say how much Malaysia's total export value would be hit next year should prices remain at these levels.
He suggested exporters look at new markets, pointing out there were 'vast trade opportunities' in the BRIC countries of Brazil, Russia, India and China which account for half the world's population.
Currently, Singapore, US, China, Japan and India receive 51 per cent or slightly more than half of Malaysia's total exports.
Published November 6, 2008
NEWS ANALYSIS
Credit checks cut risks if deferred payments return
DPS has potential to create local version of sub-prime crisis, analysts caution
By KALPANA RASHIWALA
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(SINGAPORE) When Ministry of National Development announced last week that it was suspending sales of state land through the confirmed list till June next year, jubilant developers lauded the swiftness of the government action that will hopefully stem the poor sentiment in the property market.
The head of a big property consulting group estimated that in some instances, up to 70 per cent of foreign buyers in luxury residential projects bought on deferred payment schemes in 2006-2007.
Some developers were also hopeful that the government will reintroduce the Deferred Payment Scheme (DPS), which was scrapped in October last year to deter speculation.
Under DPS, home buyers had to pay only 10 per cent, or more typically 20 per cent, of the price of the residential property they bought from developers.
The next payment would be made when the project was completed, perhaps two to three years down the road. Very often, buyers could make the 10-20 per cent initial downpayment using cash and CPF savings, without having to commit to a bank loan, which could be delayed till the project was closer to completion, when the bulk of the purchase price had to be paid to the developer.
Under a normal progress payment scheme, buyers have to secure a housing loan much sooner, as they are billed by the developer in stages, according to the progress of the project's construction.
When DPS was scrapped in October 2007, many industry watchers said it had come too late as sentiment in the Singapore property market had already started to soften with the onset of the US sub-prime crisis.
And now, most property agents agree that restoring the scheme will help bring some buyers back into the market, especially foreign buyers - although not in as great a number as during the height of property fever in early 2007.
The head of a big property consulting group estimated that in some instances, up to 70 per cent of foreign buyers in luxury residential projects bought on deferred payment schemes in 2006-2007.
Buyers have to pay up to 5 per cent more under the DPS compared with the normal progress payment scheme. Yet the ease of making a small initial downpayment made buying attractive for speculators eyeing huge gains from disposing of their properties before the projects were completed.
However, other market watchers and analysts say a restoration of DPS could potentially create Singapore's own version of a sub-prime crisis.
When home buyers purchase a property on DPS, without committing to any bank loan, there is no credit assessment done to see if they have the means to complete the purchase. So this scheme could draw less credit-worthy buyers who may have difficulty securing housing loans later when it is time to pay up.
If substantial numbers of buyers default and return their units to the developer, the banks that had extended loans to the developers may not be too happy.
'The land loan and construction loan may be required to be priced differently because the risk has increased,' as Savills Singapore's director of marketing and business development Ku Swee Yong puts it.
Agreeing, the head of the major property consulting group said: 'There will be implications for banks' exposure to property loans extended to developers, and that was probably a major reason the authorities considered in scrapping DPS in the first instance.'
To be sure, DPS is helpful to genuine home buyers. For instance, an HDB upgrader who buys a private home under construction would prefer to sell his existing HDB flat only when the private condo he's moving into has been completed; so DPS helps him to tide over until then, says Mr Ku.
But market watchers point out that DPS - because it does not entail credit checks - also has a tendency to draw speculators. 'There's a penchant for optimism, especially among the young. Whereas if you take a housing loan, you will be psychologically more aware of your financial obligations and tend to be more careful,' says a property veteran.
To cut this risk of fuelling speculation, the DPS could be reincarnated but with modifications, suggests Savills' Mr Ku. For one, home buyers making a purchase under the DPS could be required to sign up for a housing loan first, even if they need to make a drawdown only a few years later. 'That way, the credit assessment is done upfront. And secondly, such home buyers will have to pay a penalty to the bank in the form of an admin charge of $3,000 to $6,000 if they decide to sell their property before the project is completed and not use the home loan or if they make an early repayment,' Mr Ku says.
Another way to reduce the negative effects of DPS is to raise the initial payment from 10-20 per cent previously to 30 per cent, Mr Ku suggests. 'That way, the developer would have collected more equity and that will provide a bigger cushion to protect the developer as well as its banks in the event of a default by buyers not able to hold on to their units,' he adds.
Then there's another view. The government should continue to keep DPS at bay and instead leave banks to offer innovative housing loans to home buyers that replicate the benefits of DPS - if it makes commercial sense to them. The interest absorption and zero instalment schemes offered by some banks highlighted in a BT article in September allow buyers to make a 20 per cent downpayment and then nothing until the project is completed.
Under such schemes, buyers have to sign up for a bank loan for the property, thus entailing a credit-worthiness check to ensure they are not dabbling in properties beyond their means. Afterall, nobody wants a sub-prime crisis here.
NEWS ANALYSIS
Credit checks cut risks if deferred payments return
DPS has potential to create local version of sub-prime crisis, analysts caution
By KALPANA RASHIWALA
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(SINGAPORE) When Ministry of National Development announced last week that it was suspending sales of state land through the confirmed list till June next year, jubilant developers lauded the swiftness of the government action that will hopefully stem the poor sentiment in the property market.
The head of a big property consulting group estimated that in some instances, up to 70 per cent of foreign buyers in luxury residential projects bought on deferred payment schemes in 2006-2007.
Some developers were also hopeful that the government will reintroduce the Deferred Payment Scheme (DPS), which was scrapped in October last year to deter speculation.
Under DPS, home buyers had to pay only 10 per cent, or more typically 20 per cent, of the price of the residential property they bought from developers.
The next payment would be made when the project was completed, perhaps two to three years down the road. Very often, buyers could make the 10-20 per cent initial downpayment using cash and CPF savings, without having to commit to a bank loan, which could be delayed till the project was closer to completion, when the bulk of the purchase price had to be paid to the developer.
Under a normal progress payment scheme, buyers have to secure a housing loan much sooner, as they are billed by the developer in stages, according to the progress of the project's construction.
When DPS was scrapped in October 2007, many industry watchers said it had come too late as sentiment in the Singapore property market had already started to soften with the onset of the US sub-prime crisis.
And now, most property agents agree that restoring the scheme will help bring some buyers back into the market, especially foreign buyers - although not in as great a number as during the height of property fever in early 2007.
The head of a big property consulting group estimated that in some instances, up to 70 per cent of foreign buyers in luxury residential projects bought on deferred payment schemes in 2006-2007.
Buyers have to pay up to 5 per cent more under the DPS compared with the normal progress payment scheme. Yet the ease of making a small initial downpayment made buying attractive for speculators eyeing huge gains from disposing of their properties before the projects were completed.
However, other market watchers and analysts say a restoration of DPS could potentially create Singapore's own version of a sub-prime crisis.
When home buyers purchase a property on DPS, without committing to any bank loan, there is no credit assessment done to see if they have the means to complete the purchase. So this scheme could draw less credit-worthy buyers who may have difficulty securing housing loans later when it is time to pay up.
If substantial numbers of buyers default and return their units to the developer, the banks that had extended loans to the developers may not be too happy.
'The land loan and construction loan may be required to be priced differently because the risk has increased,' as Savills Singapore's director of marketing and business development Ku Swee Yong puts it.
Agreeing, the head of the major property consulting group said: 'There will be implications for banks' exposure to property loans extended to developers, and that was probably a major reason the authorities considered in scrapping DPS in the first instance.'
To be sure, DPS is helpful to genuine home buyers. For instance, an HDB upgrader who buys a private home under construction would prefer to sell his existing HDB flat only when the private condo he's moving into has been completed; so DPS helps him to tide over until then, says Mr Ku.
But market watchers point out that DPS - because it does not entail credit checks - also has a tendency to draw speculators. 'There's a penchant for optimism, especially among the young. Whereas if you take a housing loan, you will be psychologically more aware of your financial obligations and tend to be more careful,' says a property veteran.
To cut this risk of fuelling speculation, the DPS could be reincarnated but with modifications, suggests Savills' Mr Ku. For one, home buyers making a purchase under the DPS could be required to sign up for a housing loan first, even if they need to make a drawdown only a few years later. 'That way, the credit assessment is done upfront. And secondly, such home buyers will have to pay a penalty to the bank in the form of an admin charge of $3,000 to $6,000 if they decide to sell their property before the project is completed and not use the home loan or if they make an early repayment,' Mr Ku says.
Another way to reduce the negative effects of DPS is to raise the initial payment from 10-20 per cent previously to 30 per cent, Mr Ku suggests. 'That way, the developer would have collected more equity and that will provide a bigger cushion to protect the developer as well as its banks in the event of a default by buyers not able to hold on to their units,' he adds.
Then there's another view. The government should continue to keep DPS at bay and instead leave banks to offer innovative housing loans to home buyers that replicate the benefits of DPS - if it makes commercial sense to them. The interest absorption and zero instalment schemes offered by some banks highlighted in a BT article in September allow buyers to make a 20 per cent downpayment and then nothing until the project is completed.
Under such schemes, buyers have to sign up for a bank loan for the property, thus entailing a credit-worthiness check to ensure they are not dabbling in properties beyond their means. Afterall, nobody wants a sub-prime crisis here.
Published November 6, 2008
Local hedge funds battered, but two thrive amid the wreckage
Interest from US institutions not hit by crisis offers hope
By SIOW LI SEN
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(SINGAPORE) While two hedge funds among the handful of Singapore's homegrown fund managers playing in the big league stand out for their astounding successes, the others have been badly hit by the mauling of the stock markets and redemptions from anxious investors.
But there is a glimmer of hope, say fund industry insiders - interest from US institutions not burnt by the financial crisis is stirring again as values emerge from Asia's battered markets.
The current situation is a far cry from last year when the independent fund managers here - bursting to capacity - had to turn away fresh money from institutions in the West clamouring to invest in high-growth Asia.
Artradis and Aisling hedge funds are the only local fund houses in the big league to have gone against the tide because of their unique strategy - trading arbitrage and Asian derivatives.
But others in the billionaire dollar stable like APS Asset Management are said to have been hit hard.
Founded by fund veteran Wong Kok Hoi in 1995, APS used to be the big daddy of the local managers.
In 2006, APS was managing over US$3 billion. Its assets under management have shrunk sharply, one source told BT.
Mr Wong is travelling and could not be reached for comment.
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Target Asset Management as at end-October saw its total assets under management fall some 48 per cent to US$1.6 billion from US$3 billion at the end of last year.
Arisaig Partners at end-September has assets under management of US$1.2 billion, down from US$2 billion in February, according to its website.
Teng Ngiek Lian, Target fund manager, said the financial markets meltdown has been brutal on the industry though he is getting some comfort from his institutional clients who are not only staying put but also giving him fresh money to manage.
'We believe this is a good time to increase equity investment in Asia as the long-term risk/reward ratio is favourable. After being soft closed for the past 11/2 years, the fund is now open for investment,' said Mr Teng.
'My family has added US$10 million investment in the fund last month,' he said. Total family money in the fund is about US$30 million, down from US$50 million.
From the sub-prime crisis in August 2007 until end-October 2008, Target has seen a net inflow of US$59 million (inflows of US$647 million and outflows of US$588 million).
Industry insiders say it is not surprising to hear of funds which used to manage more than US$1 billion but now have US$250 million.
'That's absolutely possible,' said Yingwen Chin, head of research at GFIA, a hedge fund consultant.
'The indices are down an average 50 per cent - so that's just down organically - and there will also be investors taking their money back,' said Ms Chin.
As for hedge funds based here, while many are also suffering like their long only fund peers, two stand out for their astounding success - Artradis and Aisling.
Artradis is managing over US$4 billion, doubled from a year ago, while Aisling is managing US$2 billion, up from US$1.4 billion at December, said Ms Chin.
Ms Chin said Artradis is only one of four hedge fund managers in the region that she can think of with a strategy which works on arbitrage and so is not dependent on market directions, and Asian derivatives.
'They have very unique skill sets which require understanding of Asian derivatives which is not well developed,' said Ms Chin.
Local hedge funds battered, but two thrive amid the wreckage
Interest from US institutions not hit by crisis offers hope
By SIOW LI SEN
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(SINGAPORE) While two hedge funds among the handful of Singapore's homegrown fund managers playing in the big league stand out for their astounding successes, the others have been badly hit by the mauling of the stock markets and redemptions from anxious investors.
But there is a glimmer of hope, say fund industry insiders - interest from US institutions not burnt by the financial crisis is stirring again as values emerge from Asia's battered markets.
The current situation is a far cry from last year when the independent fund managers here - bursting to capacity - had to turn away fresh money from institutions in the West clamouring to invest in high-growth Asia.
Artradis and Aisling hedge funds are the only local fund houses in the big league to have gone against the tide because of their unique strategy - trading arbitrage and Asian derivatives.
But others in the billionaire dollar stable like APS Asset Management are said to have been hit hard.
Founded by fund veteran Wong Kok Hoi in 1995, APS used to be the big daddy of the local managers.
In 2006, APS was managing over US$3 billion. Its assets under management have shrunk sharply, one source told BT.
Mr Wong is travelling and could not be reached for comment.
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Target Asset Management as at end-October saw its total assets under management fall some 48 per cent to US$1.6 billion from US$3 billion at the end of last year.
Arisaig Partners at end-September has assets under management of US$1.2 billion, down from US$2 billion in February, according to its website.
Teng Ngiek Lian, Target fund manager, said the financial markets meltdown has been brutal on the industry though he is getting some comfort from his institutional clients who are not only staying put but also giving him fresh money to manage.
'We believe this is a good time to increase equity investment in Asia as the long-term risk/reward ratio is favourable. After being soft closed for the past 11/2 years, the fund is now open for investment,' said Mr Teng.
'My family has added US$10 million investment in the fund last month,' he said. Total family money in the fund is about US$30 million, down from US$50 million.
From the sub-prime crisis in August 2007 until end-October 2008, Target has seen a net inflow of US$59 million (inflows of US$647 million and outflows of US$588 million).
Industry insiders say it is not surprising to hear of funds which used to manage more than US$1 billion but now have US$250 million.
'That's absolutely possible,' said Yingwen Chin, head of research at GFIA, a hedge fund consultant.
'The indices are down an average 50 per cent - so that's just down organically - and there will also be investors taking their money back,' said Ms Chin.
As for hedge funds based here, while many are also suffering like their long only fund peers, two stand out for their astounding success - Artradis and Aisling.
Artradis is managing over US$4 billion, doubled from a year ago, while Aisling is managing US$2 billion, up from US$1.4 billion at December, said Ms Chin.
Ms Chin said Artradis is only one of four hedge fund managers in the region that she can think of with a strategy which works on arbitrage and so is not dependent on market directions, and Asian derivatives.
'They have very unique skill sets which require understanding of Asian derivatives which is not well developed,' said Ms Chin.
Published November 6, 2008
FLASHPOINT: UNITED KINGDOM
UK fights back - but has it left it too late?
Trade with S'pore could suffer as sharp recession looms despite rate cuts
By NEIL BEHRMANN IN LONDON
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THE UK Treasury and Bank of England are desperately trying to counter a deepening downturn in the British economy.
Outlook dims: Critics contend that the central bank has been far too slow in slashing rates and that they should fall to 2% in 2009 to counter a sharp decline in spending
As the UK threatens to slide into its worst recession since the early eighties, Singapore will not remain untouched. The UK imports more from Singapore than from any other South-East Asian country. In 2007 its imports amounted to more than £4.1 billion (S$9.7 billion), according to UK trade data. The UK is also Singapore's second largest trading partner from Europe, after Germany - apart from being one of its biggest investors.
The cumulative stock of UK investment in Singapore amounted to £17 billion in 2005. The compliment is repaid as around two-thirds of all Singaporean investment into the EU comes to the UK. Then, there is the small matter of more than 700 UK companies being represented in Singapore.
The downturn has already started to hurt. According to Singapore's latest statistics, total trade with the UK fell by 18 per cent to S$12.32 billion in the first nine months of 2008 from S$14.95 billion in the same period in 2007. That follows growth of 6 per cent to S$19.49 billion in the whole of 2007 from S$18.36 billion in 2006.
The UK economy shrank for the first time in 16 years between July and September, confirming that the UK has begun its recession.
Starting today, BT will run a series of stories on how some other countries - especially Singapore's major trade and business partners - are coping with the financial crisis
Output fell by 0.5 per cent, according to the Office for National Statistics, a bigger-than-expected drop following zero growth in the second quarter. The unemployment rate has surged to 5.7 per cent, the fastest rise in 17 years. The news knocked UK shares and weakened the pound.
Eclectic reflationary economic policies comprising both monetary and Keynesian fiscal measures have thus become vitally important. The Bank of England has already begun to slash interest rates and a further 0.5 per cent decline to 4 per cent is expected this week.
The bank has purchased toxic debt from weak banks to ease the money market to encourage banks to lend. The government has also bailed out several leading banks by partially nationalising them.
Bank of England governor Mervyn King has warned about impending recession. The combination of lower interest rates and fears about the economy have caused sterling to tumble by 25 per cent against the US and Singapore dollars and slide against other Asian, European and other currencies.
This devaluation from exceedingly overvalued levels, will help UK exporters and will hopefully boost depressed parts of the economy.
The slump in imported energy, food, raw materials and shipping rates are expected to counter higher import costs and inflation that normally result from devaluation. Indeed inflation is expected to decline from August peak annual level of around 5 per cent to around 2 per cent or lower in 2009.
Chancellor of the Exchequer Alistair Darling describes himself as a Keynesian. He says that the government intends pursuing the policies of John Maynard Keynes who in the deflationary Great Depression in the 1930s advised governments to increase public spending. The aim is to create jobs, which in turn generates consumer spending thus improving the profitability of businesses.
The big question is whether the policies will work. Critics of the government and Bank of England say that they were in denial for far too long. The Bank of England feared inflation, which was mainly caused by commodity speculation, a bubble that was bound to burst.
Critics contend that the bank has been far too slow in slashing rates and that they should fall to 2 per cent in 2009 to counter the deflationary consequences of a housing price crash and a sharp decline in consumer and business spending.
David Blanchflower, an external member of the Bank of England monetary policy committee, went against the majority and voted for an interest rate cut on every occasion since October 2007. He expects the numbers of jobless to reach two million by Christmas.
'The UK is especially exposed to the financial turmoil because of our dependency on the financial sector, and because the run-up in house prices and debt levels was even greater here than in the United States,' he says. 'Interest rates need to come down significantly - and quickly.'
Recent events in financial markets will likely reduce lending further to both households and firms in the near term, he says. If rates are not cut aggressively the UK faces the prospect of a relatively deep and long-lasting recession, he fears.
Critics of the government, especially the Conservative opposition complain that when he was Chancellor, Premier Gordon Brown went on a borrowing and spending spree. Mr Brown and his successor as chancellor, Mr Darling have already overborrowed, they contend.
In the March budget Mr Darling said that public borrowing would amount to £43 billion in the 2008-09 fiscal year. But Ernst & Young ITEM Club think tank forecasts the deficit will surge to £60 billion this year and £92 billion in 2009-10.
The debt-to-national income ratio is likely to surge through 50 per cent in the near future.
Critics contend that a far better fiscal route is to follow US policies and cut taxes. This will put immediate money in people's pockets. Heavy borrowing will lead to big tax rises in years to come they say.
FLASHPOINT: UNITED KINGDOM
UK fights back - but has it left it too late?
Trade with S'pore could suffer as sharp recession looms despite rate cuts
By NEIL BEHRMANN IN LONDON
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THE UK Treasury and Bank of England are desperately trying to counter a deepening downturn in the British economy.
Outlook dims: Critics contend that the central bank has been far too slow in slashing rates and that they should fall to 2% in 2009 to counter a sharp decline in spending
As the UK threatens to slide into its worst recession since the early eighties, Singapore will not remain untouched. The UK imports more from Singapore than from any other South-East Asian country. In 2007 its imports amounted to more than £4.1 billion (S$9.7 billion), according to UK trade data. The UK is also Singapore's second largest trading partner from Europe, after Germany - apart from being one of its biggest investors.
The cumulative stock of UK investment in Singapore amounted to £17 billion in 2005. The compliment is repaid as around two-thirds of all Singaporean investment into the EU comes to the UK. Then, there is the small matter of more than 700 UK companies being represented in Singapore.
The downturn has already started to hurt. According to Singapore's latest statistics, total trade with the UK fell by 18 per cent to S$12.32 billion in the first nine months of 2008 from S$14.95 billion in the same period in 2007. That follows growth of 6 per cent to S$19.49 billion in the whole of 2007 from S$18.36 billion in 2006.
The UK economy shrank for the first time in 16 years between July and September, confirming that the UK has begun its recession.
Starting today, BT will run a series of stories on how some other countries - especially Singapore's major trade and business partners - are coping with the financial crisis
Output fell by 0.5 per cent, according to the Office for National Statistics, a bigger-than-expected drop following zero growth in the second quarter. The unemployment rate has surged to 5.7 per cent, the fastest rise in 17 years. The news knocked UK shares and weakened the pound.
Eclectic reflationary economic policies comprising both monetary and Keynesian fiscal measures have thus become vitally important. The Bank of England has already begun to slash interest rates and a further 0.5 per cent decline to 4 per cent is expected this week.
The bank has purchased toxic debt from weak banks to ease the money market to encourage banks to lend. The government has also bailed out several leading banks by partially nationalising them.
Bank of England governor Mervyn King has warned about impending recession. The combination of lower interest rates and fears about the economy have caused sterling to tumble by 25 per cent against the US and Singapore dollars and slide against other Asian, European and other currencies.
This devaluation from exceedingly overvalued levels, will help UK exporters and will hopefully boost depressed parts of the economy.
The slump in imported energy, food, raw materials and shipping rates are expected to counter higher import costs and inflation that normally result from devaluation. Indeed inflation is expected to decline from August peak annual level of around 5 per cent to around 2 per cent or lower in 2009.
Chancellor of the Exchequer Alistair Darling describes himself as a Keynesian. He says that the government intends pursuing the policies of John Maynard Keynes who in the deflationary Great Depression in the 1930s advised governments to increase public spending. The aim is to create jobs, which in turn generates consumer spending thus improving the profitability of businesses.
The big question is whether the policies will work. Critics of the government and Bank of England say that they were in denial for far too long. The Bank of England feared inflation, which was mainly caused by commodity speculation, a bubble that was bound to burst.
Critics contend that the bank has been far too slow in slashing rates and that they should fall to 2 per cent in 2009 to counter the deflationary consequences of a housing price crash and a sharp decline in consumer and business spending.
David Blanchflower, an external member of the Bank of England monetary policy committee, went against the majority and voted for an interest rate cut on every occasion since October 2007. He expects the numbers of jobless to reach two million by Christmas.
'The UK is especially exposed to the financial turmoil because of our dependency on the financial sector, and because the run-up in house prices and debt levels was even greater here than in the United States,' he says. 'Interest rates need to come down significantly - and quickly.'
Recent events in financial markets will likely reduce lending further to both households and firms in the near term, he says. If rates are not cut aggressively the UK faces the prospect of a relatively deep and long-lasting recession, he fears.
Critics of the government, especially the Conservative opposition complain that when he was Chancellor, Premier Gordon Brown went on a borrowing and spending spree. Mr Brown and his successor as chancellor, Mr Darling have already overborrowed, they contend.
In the March budget Mr Darling said that public borrowing would amount to £43 billion in the 2008-09 fiscal year. But Ernst & Young ITEM Club think tank forecasts the deficit will surge to £60 billion this year and £92 billion in 2009-10.
The debt-to-national income ratio is likely to surge through 50 per cent in the near future.
Critics contend that a far better fiscal route is to follow US policies and cut taxes. This will put immediate money in people's pockets. Heavy borrowing will lead to big tax rises in years to come they say.
Wednesday, 5 November 2008
Published November 5, 2008
Five SGX-listed ETFs take off today
ETF based on MSCI Asia Apex 50 index making international debut in Singapore
By JAMIE LEE
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FIVE exchange-traded funds (ETFs) start trading on the Singapore Exchange (SGX) today, taking the number here to 24 and putting the exchange on par with its Hong Kong counterpart.
The latest ETFs are based on the MSCI Asia Apex 50, the MSCI Thailand, MSCI Malaysia, MSCI India and Reuters Jefferies CRB Non-Energy.
The ETF based on the MSCI Asia Apex 50 index is making its international debut in Singapore. It will be traded in Frankfurt, Milan and Paris when European markets open later today.
The MSCI Asia Apex 50 index comprises 50 stocks listed in China, Hong Kong, South Korea, Singapore and Taiwan, giving the index a market capitalisation of US$681 billion.
China firms now make up the biggest component of the index at 33.8 per cent, though some of the companies are listed in Hong Kong via H-shares. Korean stocks follow with 21.5 per cent.
Singapore stocks have the smallest contribution at 9.6 per cent. The composition is reviewed quarterly.
The stocks include China's ICBC and CNOOC, Korean technology giants Samsung and LG, Hong Kong property heavyweights Cheung Kong and Sun Hung Kai, Taiwan's HTC Corp and Formosa Plastics Corp and Singapore's three banks - DBS, UOB and OCBC.
The average weighted liquidity - which measures the average turnover of the index - is 352 per cent, while the top 10 index weight is 43.6 per cent.
In comparison, the MSCI AC Asia ex-Japan index has a 32 per cent average weighted liquidity and a top 10 index weight of 19.2 per cent.
The ETF market in Singapore is growing. In September, the trading value of SGX-listed ETFs was up 4 per cent from March at a record of almost $323 million. ETF trading volume hit an all-time high of 38.2 million shares in September, up 7 per cent from March.
About 1,500 ETFs are listed in the world, according to Joseph Ho, head of ETF sales and marketing at Lyxor Investment.
Most of them are based in Europe. The biggest market in Asia is Japan, which has about 30 ETFs listed, Mr Ho said.
Five SGX-listed ETFs take off today
ETF based on MSCI Asia Apex 50 index making international debut in Singapore
By JAMIE LEE
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FIVE exchange-traded funds (ETFs) start trading on the Singapore Exchange (SGX) today, taking the number here to 24 and putting the exchange on par with its Hong Kong counterpart.
The latest ETFs are based on the MSCI Asia Apex 50, the MSCI Thailand, MSCI Malaysia, MSCI India and Reuters Jefferies CRB Non-Energy.
The ETF based on the MSCI Asia Apex 50 index is making its international debut in Singapore. It will be traded in Frankfurt, Milan and Paris when European markets open later today.
The MSCI Asia Apex 50 index comprises 50 stocks listed in China, Hong Kong, South Korea, Singapore and Taiwan, giving the index a market capitalisation of US$681 billion.
China firms now make up the biggest component of the index at 33.8 per cent, though some of the companies are listed in Hong Kong via H-shares. Korean stocks follow with 21.5 per cent.
Singapore stocks have the smallest contribution at 9.6 per cent. The composition is reviewed quarterly.
The stocks include China's ICBC and CNOOC, Korean technology giants Samsung and LG, Hong Kong property heavyweights Cheung Kong and Sun Hung Kai, Taiwan's HTC Corp and Formosa Plastics Corp and Singapore's three banks - DBS, UOB and OCBC.
The average weighted liquidity - which measures the average turnover of the index - is 352 per cent, while the top 10 index weight is 43.6 per cent.
In comparison, the MSCI AC Asia ex-Japan index has a 32 per cent average weighted liquidity and a top 10 index weight of 19.2 per cent.
The ETF market in Singapore is growing. In September, the trading value of SGX-listed ETFs was up 4 per cent from March at a record of almost $323 million. ETF trading volume hit an all-time high of 38.2 million shares in September, up 7 per cent from March.
About 1,500 ETFs are listed in the world, according to Joseph Ho, head of ETF sales and marketing at Lyxor Investment.
Most of them are based in Europe. The biggest market in Asia is Japan, which has about 30 ETFs listed, Mr Ho said.
Published November 5, 2008
Kudos to CIMB-GK and UOB-Kay Hian
By SIOW LI SEN
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CIMB-GK and UOB-Kay Hian have broken ranks with the industry by offering to buy back in full the original Minibond investments from vulnerable investors, without deducting interest already earned.
By doing so, the two firms - one, Malaysian-owned, and the other, the broker arm of United Overseas Bank (UOB) - have done what just about every player in the financial services industry typically pays only lip service to and doesn't carry through: differentiating itself from the pack. CIMB-GK is owned by CIMB Group, Malaysia's second largest financial services group.
To recap, 10 distributors here sold failed Lehman Brothers-linked products worth a total of $639 million. They were ABN Amro Bank, DBS Bank, Maybank, Hong Leong Finance, CIMB-GK, DMG & Partners, Kim Eng, OCBC Securities, Phillip Securities and UOB-Kay Kian.
After some prodding from the regulator, DBS Bank, Maybank, Hong Leong Finance and four brokers said they would compensate vulnerable elderly investors (defined as those with not much education and little investment experience) the cost of their investments, minus the interest or coupons already paid. As for other investors, compensation would be decided on a case-by-case basis.
But CIMB-GK and UOB-Kay Hian said that, for vulnerable investors, they would buy back in full the original cost of their investment, irrespective of interest earned.
CIMB-GK chief executive Carol Fong explained the decision as 'appropriate, given the goodwill we have built among our customers'. A UOB-Kay Hian director told BT the company will also buy back the whole thing from the vulnerable group, with no deductions of interest already paid out.
Insiders said there had been quibbling among the distributors over the whole issue of compensation, such as who would qualify as vulnerable and the amount to be refunded.
The banks were said to have resisted going the full hog because they were the biggest parties in the whole affair.
But gouging back the interest paid seems rather petty, especially in view of the total amounts sold, and lost.
It is interesting that it is two brokers which are doing the right thing, rather than the big banks, which normally are seen as taking the lead.
Cynics will, of course, point to the fact that the amounts sold to vulnerable investors by these two brokers were small relative to the others. That could be because sales were done through their remisiers, who typically do have a more informed relationship with clients.
CIMB-GK disclosed that only less than 2 per cent of its total sales of $19 million of the Lehman-linked products or $380,000 were to vulnerable investors. UOB-KayHian said it sold less than $250,000 in value of these products to those considered vulnerable.
By contrast, DBS last month said that, based on the number of cases it reviewed, the bank estimates that total compensation in Singapore and Hong Kong is in the range of $70-80 million. This includes vulnerable customers and cases of mis-selling.
In all, DBS sold a total of $360 million of these failed products to 4,700 customers in Singapore and Hong Kong.
Matthew Wilson, a Morgan Stanley analyst, calculated that in basic financial terms, the amounts sold by DBS are immaterial to the bank's financials. Products sold amount to 13 per cent of its net profit for 2007, he said.
But the potential harm to the reputation of DBS is more serious and harder to calculate. As for Maybank and Hong Leong Finance - which are popular with locals here given that much of their branch networks are in the heartland areas - they too will have to work hard to rebuild trust.
On the other hand, CIMB-GK's gesture is not likely to be forgotten when its sister unit CIMB Islamic Bank launches Islamic banking in Singapore - targeting both the retail and business markets - over the next 12 months.
When the chips were down, and even though it may have been a small thing, CIMB-GK did it right. Ditto for UOB KayHian.
Kudos to CIMB-GK and UOB-Kay Hian
By SIOW LI SEN
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CIMB-GK and UOB-Kay Hian have broken ranks with the industry by offering to buy back in full the original Minibond investments from vulnerable investors, without deducting interest already earned.
By doing so, the two firms - one, Malaysian-owned, and the other, the broker arm of United Overseas Bank (UOB) - have done what just about every player in the financial services industry typically pays only lip service to and doesn't carry through: differentiating itself from the pack. CIMB-GK is owned by CIMB Group, Malaysia's second largest financial services group.
To recap, 10 distributors here sold failed Lehman Brothers-linked products worth a total of $639 million. They were ABN Amro Bank, DBS Bank, Maybank, Hong Leong Finance, CIMB-GK, DMG & Partners, Kim Eng, OCBC Securities, Phillip Securities and UOB-Kay Kian.
After some prodding from the regulator, DBS Bank, Maybank, Hong Leong Finance and four brokers said they would compensate vulnerable elderly investors (defined as those with not much education and little investment experience) the cost of their investments, minus the interest or coupons already paid. As for other investors, compensation would be decided on a case-by-case basis.
But CIMB-GK and UOB-Kay Hian said that, for vulnerable investors, they would buy back in full the original cost of their investment, irrespective of interest earned.
CIMB-GK chief executive Carol Fong explained the decision as 'appropriate, given the goodwill we have built among our customers'. A UOB-Kay Hian director told BT the company will also buy back the whole thing from the vulnerable group, with no deductions of interest already paid out.
Insiders said there had been quibbling among the distributors over the whole issue of compensation, such as who would qualify as vulnerable and the amount to be refunded.
The banks were said to have resisted going the full hog because they were the biggest parties in the whole affair.
But gouging back the interest paid seems rather petty, especially in view of the total amounts sold, and lost.
It is interesting that it is two brokers which are doing the right thing, rather than the big banks, which normally are seen as taking the lead.
Cynics will, of course, point to the fact that the amounts sold to vulnerable investors by these two brokers were small relative to the others. That could be because sales were done through their remisiers, who typically do have a more informed relationship with clients.
CIMB-GK disclosed that only less than 2 per cent of its total sales of $19 million of the Lehman-linked products or $380,000 were to vulnerable investors. UOB-KayHian said it sold less than $250,000 in value of these products to those considered vulnerable.
By contrast, DBS last month said that, based on the number of cases it reviewed, the bank estimates that total compensation in Singapore and Hong Kong is in the range of $70-80 million. This includes vulnerable customers and cases of mis-selling.
In all, DBS sold a total of $360 million of these failed products to 4,700 customers in Singapore and Hong Kong.
Matthew Wilson, a Morgan Stanley analyst, calculated that in basic financial terms, the amounts sold by DBS are immaterial to the bank's financials. Products sold amount to 13 per cent of its net profit for 2007, he said.
But the potential harm to the reputation of DBS is more serious and harder to calculate. As for Maybank and Hong Leong Finance - which are popular with locals here given that much of their branch networks are in the heartland areas - they too will have to work hard to rebuild trust.
On the other hand, CIMB-GK's gesture is not likely to be forgotten when its sister unit CIMB Islamic Bank launches Islamic banking in Singapore - targeting both the retail and business markets - over the next 12 months.
When the chips were down, and even though it may have been a small thing, CIMB-GK did it right. Ditto for UOB KayHian.
Published November 5, 2008
ST Engg posts 2.7% rise in Q3 earnings to $128.9m
Turnover up 11.8%, of which 66% were commercial sales
By NISHA RAMCHANDANI
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SINGAPORE Technologies Engineering has reported a 2.7 per cent increase in net profit to $128.9 million for its third quarter ended Sept 30, as turnover rose 11.8 per cent to $1.38 billion.
Commercial sales accounted for 66 per cent ($918 million) of turnover. Earnings per share were 4.31 cents, up from 4.24 cents a year earlier.
The group's order book grew to $9.54 billion from $9.29 billion at June 30, with $1.25 billion of orders to be delivered in the current Q4. At end-September, cash, cash equivalents and funds under management totalled $1 billion.
For the nine months to Sept 30, profit grew 4 per cent to $371.3 million on 6.5 per cent growth in turnover to $3.99 billion.
ST Aerospace, which contributed 48 per cent of group profit, saw net profit slide 10 per cent to $61.6 million, despite revenue rising 13 per cent to $501 million.
The drop in profit was due to foreign exchange losses arising from the US dollar, higher passenger-to-freighter aircraft prototyping costs and higher depreciation resulting from investments in new capabilities and capacity.
In addition, Sterling Airlines and Essential Aircraft Maintenance Services - customers of ST Aerospace subsidiary ST Aerospace Solutions (Europe) - filed for bankruptcy on Denmark. The contract to support
Sterling Airlines was worth about $45 million over three years from 2007. And the impact of the bankruptcy filings on pre-tax profit could be $10 million 'on a conservative basis'.
ST Aerospace president Tay Kok Khiang said the company is in a good position to weather a short-term slide in the aviation industry thanks to its strong customer base, diverse offerings and market position.
Q3 turnover for the ST Engineering's land systems sector was $333 million or about 25 per cent higher year-on-year, helped by stronger exports by its munitions and weapons group.
But net profit plunged 20 per cent to $13 million, dragged down partly by a poorer performance in the auto segment.
ST Electronics contributed revenue of $298 million, a jump of 26 per cent from Q3 2007, as its three business groups - large-scale systems, communication and sensor systems, and software systems - completed various projects. But net profit was 2 per cent lower at $21.7 million as margins fell.
Although net profit for the marine sector was 7 per cent higher at $16.5 million, revenue took a hit, dropping 20 per cent to $205 million in Q3 from $256 million a year earlier. The stronger profit reflected a favourable sales mix and lower expenses, while weaker demand for conversion services contributed to the fall in revenue.
'Barring unforeseen circumstances, under a weaker global economic environment, ST Engineering still expects to achieve modestly higher turnover, though a lower profit before tax and a marginally weaker Patmi (profit after tax, minorities and interest) in FY 2008 than FY 2007,' ST Engineering said in a statement.
ST Engg posts 2.7% rise in Q3 earnings to $128.9m
Turnover up 11.8%, of which 66% were commercial sales
By NISHA RAMCHANDANI
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SINGAPORE Technologies Engineering has reported a 2.7 per cent increase in net profit to $128.9 million for its third quarter ended Sept 30, as turnover rose 11.8 per cent to $1.38 billion.
Commercial sales accounted for 66 per cent ($918 million) of turnover. Earnings per share were 4.31 cents, up from 4.24 cents a year earlier.
The group's order book grew to $9.54 billion from $9.29 billion at June 30, with $1.25 billion of orders to be delivered in the current Q4. At end-September, cash, cash equivalents and funds under management totalled $1 billion.
For the nine months to Sept 30, profit grew 4 per cent to $371.3 million on 6.5 per cent growth in turnover to $3.99 billion.
ST Aerospace, which contributed 48 per cent of group profit, saw net profit slide 10 per cent to $61.6 million, despite revenue rising 13 per cent to $501 million.
The drop in profit was due to foreign exchange losses arising from the US dollar, higher passenger-to-freighter aircraft prototyping costs and higher depreciation resulting from investments in new capabilities and capacity.
In addition, Sterling Airlines and Essential Aircraft Maintenance Services - customers of ST Aerospace subsidiary ST Aerospace Solutions (Europe) - filed for bankruptcy on Denmark. The contract to support
Sterling Airlines was worth about $45 million over three years from 2007. And the impact of the bankruptcy filings on pre-tax profit could be $10 million 'on a conservative basis'.
ST Aerospace president Tay Kok Khiang said the company is in a good position to weather a short-term slide in the aviation industry thanks to its strong customer base, diverse offerings and market position.
Q3 turnover for the ST Engineering's land systems sector was $333 million or about 25 per cent higher year-on-year, helped by stronger exports by its munitions and weapons group.
But net profit plunged 20 per cent to $13 million, dragged down partly by a poorer performance in the auto segment.
ST Electronics contributed revenue of $298 million, a jump of 26 per cent from Q3 2007, as its three business groups - large-scale systems, communication and sensor systems, and software systems - completed various projects. But net profit was 2 per cent lower at $21.7 million as margins fell.
Although net profit for the marine sector was 7 per cent higher at $16.5 million, revenue took a hit, dropping 20 per cent to $205 million in Q3 from $256 million a year earlier. The stronger profit reflected a favourable sales mix and lower expenses, while weaker demand for conversion services contributed to the fall in revenue.
'Barring unforeseen circumstances, under a weaker global economic environment, ST Engineering still expects to achieve modestly higher turnover, though a lower profit before tax and a marginally weaker Patmi (profit after tax, minorities and interest) in FY 2008 than FY 2007,' ST Engineering said in a statement.
Published November 5, 2008
SembMarine Q3 profit jumps 73% to $141m
Revenue down slightly; operating profit nearly doubles to $142.1m
By VINCENT WEE
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RIG builder Sembcorp Marine continued to grow strongly in the third quarter with a 73 per cent rise in earnings to $140.9 million but turnover fell slightly to $1.14 billion from $1.17 billion a year ago.
Earnings boosters: Higher operating margins from rig building and shiprepair businesses and better contribution from associates nearly doubled operating profit
Operating profit nearly doubled to $142.1 million from $74.1 million previously due to higher operating margins from rig building and shiprepair businesses and better contribution from associated companies.
Gross profit margin improved from 8 per cent previously to 14 per cent. This was higher than the second quarter's 10 per cent and FY 2008's margin is expected to gradually trend upwards, SembMarine said.
General and administrative expenses, however, also rose 41.8 per cent from $21.5 million to $30.4 million mainly due to higher personnel-related costs as staff numbers rose due to more projects undertaken. Earnings per share rose from 3.92 cents to 6.8 cents in the third quarter.
By segment, rig-building revenue dipped 2.7 per cent to $631.4 million and offshore and conversion revenue fell 6.9 per cent to $285.2 million in the third quarter.
But repair revenue jumped 11.3 per cent to $210.7 million. For the first nine months, turnover rose 8.5 per cent to $3.45 billion from $3.18 billion previously. Profit rose 50.1 per cent to $360.5 million.
But the current global financial outlook and economic conditions are challenging, SembMarine warned.
The group, however, has a strong net order book of $9.9 billion extending out to 2012 comprising rig building, ship conversion and offshore projects. This includes new orders of $5.5 billion secured since January.
SembMarine expects shiprepair demand to remain strong amid global tightness in yard capacity while the fundamentals for the offshore sector remain intact.
'In the long term, exploration and production (E&P) activities will continue, in order to replace declining global oil and gas reserves and to increase production,' SembMarine said.
Although the current financial turmoil has a dampening impact on world economy and global demand for oil, SembMarine is confident that the long-term fundamentals and outlook for the marine and offshore industry remain positive.
SembMarine shares closed two cents lower at $1.93 yesterday.
SembMarine Q3 profit jumps 73% to $141m
Revenue down slightly; operating profit nearly doubles to $142.1m
By VINCENT WEE
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RIG builder Sembcorp Marine continued to grow strongly in the third quarter with a 73 per cent rise in earnings to $140.9 million but turnover fell slightly to $1.14 billion from $1.17 billion a year ago.
Earnings boosters: Higher operating margins from rig building and shiprepair businesses and better contribution from associates nearly doubled operating profit
Operating profit nearly doubled to $142.1 million from $74.1 million previously due to higher operating margins from rig building and shiprepair businesses and better contribution from associated companies.
Gross profit margin improved from 8 per cent previously to 14 per cent. This was higher than the second quarter's 10 per cent and FY 2008's margin is expected to gradually trend upwards, SembMarine said.
General and administrative expenses, however, also rose 41.8 per cent from $21.5 million to $30.4 million mainly due to higher personnel-related costs as staff numbers rose due to more projects undertaken. Earnings per share rose from 3.92 cents to 6.8 cents in the third quarter.
By segment, rig-building revenue dipped 2.7 per cent to $631.4 million and offshore and conversion revenue fell 6.9 per cent to $285.2 million in the third quarter.
But repair revenue jumped 11.3 per cent to $210.7 million. For the first nine months, turnover rose 8.5 per cent to $3.45 billion from $3.18 billion previously. Profit rose 50.1 per cent to $360.5 million.
But the current global financial outlook and economic conditions are challenging, SembMarine warned.
The group, however, has a strong net order book of $9.9 billion extending out to 2012 comprising rig building, ship conversion and offshore projects. This includes new orders of $5.5 billion secured since January.
SembMarine expects shiprepair demand to remain strong amid global tightness in yard capacity while the fundamentals for the offshore sector remain intact.
'In the long term, exploration and production (E&P) activities will continue, in order to replace declining global oil and gas reserves and to increase production,' SembMarine said.
Although the current financial turmoil has a dampening impact on world economy and global demand for oil, SembMarine is confident that the long-term fundamentals and outlook for the marine and offshore industry remain positive.
SembMarine shares closed two cents lower at $1.93 yesterday.
Published November 5, 2008
More downside risks to Malaysian earnings
Citi expects global financial crisis to exact a toll
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(KUALA LUMPUR) Malaysian corporate earnings may shrink more than expected next year as the global financial crisis takes a toll on the local economy, Citigroup Inc said.
Citigroup, which in September called the stock market a 'pariah' because of heightened political concerns amid the rising popularity of opposition parties, said that there are more 'downside risks' to earnings which are already set to shrink 3.9 per cent next year. It previously estimated profit would rise 6 per cent.
Feedback from investors during a marketing trip in Singapore and Hong Kong focused on 'whether Malaysia is heading into a sharper downturn', Mr Choong Wai Kee, an analyst at Citigroup said in a report yesterday.
'Economic data rarely take the driver's seat, at least not in the past six months when politics dominated most conversations.' Economic growth will probably stall next year at zero per cent, making it the worst performance in 11 years, as commodity prices drop and the global financial crisis hurts exports, UBS AG said on Monday.
While Malaysia's stock market has been the best performer in South-east Asia this year, falling 38 per cent, its price-to-book value, which is headed towards the 2001 level of 1.4, is 'hardly a clarion call when other markets have fallen a lot more and are trading at lower valuations', said Mr Choong.
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'From a regional perspective, Malaysia does not stand out on valuation,' he said. -- Bloomberg
More downside risks to Malaysian earnings
Citi expects global financial crisis to exact a toll
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(KUALA LUMPUR) Malaysian corporate earnings may shrink more than expected next year as the global financial crisis takes a toll on the local economy, Citigroup Inc said.
Citigroup, which in September called the stock market a 'pariah' because of heightened political concerns amid the rising popularity of opposition parties, said that there are more 'downside risks' to earnings which are already set to shrink 3.9 per cent next year. It previously estimated profit would rise 6 per cent.
Feedback from investors during a marketing trip in Singapore and Hong Kong focused on 'whether Malaysia is heading into a sharper downturn', Mr Choong Wai Kee, an analyst at Citigroup said in a report yesterday.
'Economic data rarely take the driver's seat, at least not in the past six months when politics dominated most conversations.' Economic growth will probably stall next year at zero per cent, making it the worst performance in 11 years, as commodity prices drop and the global financial crisis hurts exports, UBS AG said on Monday.
While Malaysia's stock market has been the best performer in South-east Asia this year, falling 38 per cent, its price-to-book value, which is headed towards the 2001 level of 1.4, is 'hardly a clarion call when other markets have fallen a lot more and are trading at lower valuations', said Mr Choong.
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'From a regional perspective, Malaysia does not stand out on valuation,' he said. -- Bloomberg
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