Published November 13, 2008

SingTel sees job cuts as a last resort

Q2 net profit down 12%; group looking to redeployment to cut operating costs

By WINSTON CHAI

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(SINGAPORE) Singapore Telecommunications' quarterly profit may have skidded to a three-year low, but it will look to redeployment instead of retrenchment to cut operating costs.

Waiting for profits: SingTel's net income from Singapore operations fell as a result of higher marketing costs and subsidies associated with the Apple iPhone 3G

'Certainly, job cuts will be something that we see as a last resort,' said SingTel CEO Chua Sock Koong.

The group yesterday reported a 12.1 per cent fall in net profit to $868 million for its second quarter ended Sept 30, from $988 million a year earlier. Basic earnings per share slipped 12.2 per cent to 5.45 cents, while revenue eased 5.3 per cent to $3.89 billion.

With its second-quarter earnings having been dented by plunging regional currencies and higher handset subsidies, SingTel has already frozen hiring and is also cutting down on discretionary spending such as advertising expenditure in Singapore and Australia. But instead of cutting manpower, it could use reassignments to glean more savings.

Related links: Click here for SingTel's news release Financial statements Appendix

'As a business, we continue to review the operating efficiencies of each of our businesses to ensure we deliver a high quality of service to our customers. As part of this efficiency drive, there could be redeployment of headcount across the different businesses,' Ms Chua told reporters at the group's Q2 results briefing yesterday.

Her assurance of job security should provide some welcome relief for SingTel's pool of 11,130 employees here following its recent profit warnings and the announcement of 900 jobs cut by another local corporate titan, DBS Group Holdings, last week.

Reiterating its guidance last week, SingTel said its profitability took a hit in Q2 as the Sing dollar's sustained appreciation against major regional currencies crimped contributions from all its foreign units.

The company derives nearly 60 per cent of its earnings from overseas through wholly-owned Australian operator Optus, as well as regional associates in India, Bangladesh, Indonesia, Pakistan, the Philippines and Thailand.

Contribution from Optus shrank with the Australian dollar dropping against the Singapore dollar this year. Other currencies such as the Indian rupee, Thai baht and Philippine peso also fell, lowering earnings from associated companies such as India's Bharti, AIS in Thailand, and Globe in the Philippines.

During the quarter, profitability was further dampened by losses from Warid Telecom. SingTel's Pakistani investment suffered a wider-than-expected pre- tax loss of $41 million, with the group's share of pre-tax operating losses at $24 million, but this was mitigated by a one-time foreign exchange gain of $67 million following a capital reduction in SingTel's Australian unit.

'We're still in the phase of rolling out networks (in Pakistan). There has also been a reduction in consumer spending (there) as a result of the financial crisis,' Ms Chua explained.

As a result, pre-tax profit contributions from the firm's six regional associates plunged 26 per cent during the quarter.

Profits from Optus remained flat in Q2 while net income from Singapore operations fell 4.8 per cent as a result of higher marketing costs and subsidies associated with the iPhone 3G.

The Republic's largest operator was given first dibs at selling Apple's second-generation touchscreen handset in Singapore on Aug 22. Optus launched it a month earlier as part of a non-exclusive arrangement. Hefty subsidies for the iPhone 3G slashed Ebitda (earnings before interest, tax, depreciation and amortisation) in both countries by nearly $71 million, according to SingTel.

'We are confident that iPhone customers will deliver growth and value,' Ms Chua reiterated, adding that the Arpu (average revenue per user) from iPhone owners is 1.5 times higher than other post-paid mobile customers.

SingTel has collectively sold more than 170,000 units of iPhone 3G to date in Singapore, Australia, India and the Philippines.

In Singapore, the much- hyped device lifted SingTel's post-paid subscriber base by 45,000 from July to September - twice as many as rivals StarHub and MobileOne. Revenue also grew across all its local business lines, with its cellular and Internet units both chalking up double-digit gains.

'Overall, Singapore and Optus delivered good numbers. Associates' contribution was weak mainly due to currencies, and the extent of losses at Pakistan investment Warid took us by surprise,' Macquarie Research said in a research note.

For the first half of its financial year, SingTel's net profit dropped 8.8 per cent to $1.74 billion while operating revenue rose 5.6 per cent to $7.67 billion. Stable free cash flow for the group - defined as operating cash including associate dividends less cash capex - stayed at about $1.7 billion for H1 FY09. Net debt gearing ratio increased 1.6 percentage points to 25.8 per cent on the back of additional bank borrowings.

SingTel has declared an interim dividend of 5.6 cents for the six months ended Sept 30, unchanged from 2007.

Looking ahead to the full year, SingTel still expects its operating revenue and Ebitda in its two core markets - Singapore and Australia - to grow but pre-tax earnings from its regional associates are set to be lower compared to last year.

'The weaker Australian dollar will have an adverse impact on the earnings for the group. What will hit it further is the lacklustre performance of its regional associates. Telekomsel, in particular, saw pre-tax profit slump 40 per cent to S$113 million (in Q2),' noted Terence Wong, co-head of research at DMG & Partners.

SingTel shares closed 1.3 per cent higher at $2.38 yesterday.

Published November 13, 2008

KL tweaks long-standing 30% bumi equity rule

Move intended to keep capital market competitive and progressive: Najib

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(KUALA LUMPUR) The government yesterday relaxed the 30 per cent bumiputra equity ownership for companies wanting to be listed but have yet to fulfil the quota.

Deputy Prime Minister Najib Razak said the relaxation, which would take effect immediately, was to ensure that the Malaysian capital investment market stays progressive and competitive.

He said that the companies concerned had to take specific steps and, under the reorganisation, needed to heed the conditions of the National Development Policy while continuing to offer the shares to institutions and bumiputra investors approved by the Ministry of International Trade and Industry.

He said, however, that the shares that were not subscribed could be offered to other bumiputras as part of the share voting process.

'I wish to stress that the 30 per cent bumiputra equity participation at the point of listing will continue to be enforced. However, there will be a slight change in terms of the methodology,' he told reporters after visiting the Securities Commission.

'This means that more individual bumiputras could apply for the shares concerned. If the shares offered to individual bumiputras are still not fully subscribed, then the company concerned is deemed to have fulfilled the 30 per cent bumiputra equity,' he said.

Asked whether this move would jeopardise the 30 per cent bumiputra equity, he said the action would allow other bumiputra individuals to participate and take up the public balloting.

'There are two tiers. After the two cuts, if the shares are still not taken up, it is only fair to allow the companies to be listed. Otherwise there will be a huge uncertainty for them,' he said.

Meanwhile, Securities Commission chairman Zarinah Anwar said to date, seven companies had not fulfilled the share ownership conditions.

She said the companies concerned had met the Securities Commission and had been given time to fulfil the condition.

'The share prices of these companies today have gone below their IPO pricing. Of course, it does not make sense then to compel bumiputras to subscribe as they will be able to buy the shares cheaper from the market,' she said. -- Bernama

Published November 13, 2008

Paulson backs away from buying bad assets

He now favours a second round of capital injection

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(WASHINGTON) US Treasury Secretary Henry Paulson yesterday said he was backing away from buying troubled mortgage assets using a US$700 billion bailout fund, instead favouring a second round of capital injections into financial institutions that would match private funds.

Mr Paulson: Considering a second plan to provide government investments that will match private investments in capital raising

'Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,' Mr Paulson said. 'This is creating a heavy burden on the American people and reducing the number of jobs in our economy.'

Mr Paulson, in an update on the Treasury's financial rescue efforts, said his staff has continued to examine the benefits of purchasing illiquid mortgage assets under the so-called Troubled Asset Relief Program.

'Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources,' Mr Paulson told a news conference.

When Treasury was selling the US$700 billion bailout plan to Congress, it initially promoted it as a vehicle that would purchase illiquid mortgage assets from banks and other institutions to cushion potential losses.

But it became quickly apparent that setting up such purchases would take time, and Treasury opted for the faster method of injecting capital directly into banks by buying preferred stock. The Treasury has allocated US$250 billion of the fund to such purchases so far.

Mr Paulson said the Treasury is evaluating a second programme that would provide government investments that would match private investments in capital raisings.

'In developing a potential matching programme, we will also consider capital needs of non-bank financial institutions not eligible for the current capital programme,' Mr Paulson said.

He announced a new goal for the programme to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.

Mr Paulson said that 40 per cent of US consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets need support.

'This market, which is vital for lending and growth, has for all practical purposes ground to a halt,' Mr Paulson said.

'We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers' investment,' he said.

The government on Tuesday sought to address complaints that not enough was being done to help Americans deal with record levels of mortgage defaults.

The Federal Housing Finance Agency, which seized control of Fannie Mae and Freddie Mac in September, announced a plan designed to speed up the process for renegotiating hundreds of thousands of delinquent loans held by the two mortgage giants.

Officials hope the new approach, which goes into effect on Dec 15., will become a model for loan servicing companies, which collect mortgage payments and distribute them to investors. These companies have been roundly criticised for being slow to respond to a surge in defaults.

The plan could have tremendous importance because Fannie Mae and Freddie Mac own or guarantee nearly 31 million US mortgages, or nearly six of every 10 outstanding. Government officials, however, did not have an estimate of how many people would qualify for the new programme. -- Reuters, AP

Published November 13, 2008

Funds want voice for their buck at AGMs

Changes to voting rules sought, but funds allay concerns of listed companies

By UMA SHANKARI

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(SINGAPORE) An increasing number of funds that have money invested in Singapore-listed companies now want to have a say in how the company is run. And their participation, they feel, is increasingly important in light of the current economic crisis.

For a start, more fund managers would like to attend annual general meetings (AGMs) and extraordinary general meetings (EGMs). But right now, these funds, who hold their shares in companies through custodian banks, find themselves locked out of meetings as their names are not on shareholder registers.

To get over this obstacle, an industry-wide effort to get more seats at meetings is now gaining strength. And if they succeed, fund managers also want to change the way votes are counted at meetings.

Right now, voting at AGMs and EGMs is done by a show of hands - which means every attendee gets an equal say. Fund managers, on the other hand, think that a shareholder holding 10 per cent of a company's stock should get 10 times as many votes as a shareholder owning one per cent.

'More fund managers want to engage companies through AGMs and EGMs,' says Peter Taylor, head of corporate governance at Aberdeen Asset Management Asia. 'The financial crisis is making engagement more urgent.'

Says another fund manager: 'A lot of us want to attend meetings. But right now, there aren't enough spots for us. The way companies are run seems more important today than a year ago.'

As matter stands now, most fund managers and high net worth individuals who invest in companies listed here hold their shares through nominee companies of local custodian banks, such as Raffles Nominees and DBS Nominees. Because a fund manager's name is not on the shareholder register, it formally has no right to attend meetings.

To compound the issue, most Singapore companies (listed and unlisted) allow a shareholder who is entitled to attend and vote at a shareholder meeting to appoint no more than two proxies to attend and vote in his place. While companies have the option to allow a greater number of proxies, few do so.

Local custodian banks in Singapore often use both proxy cards to vote for their clients. Even if the custodian bank decides to aggregate all voting instructions on one proxy card, leaving one free to be given to a client, it still means that the bank must choose among clients if more than one wishes to attend a meeting. Typically, the biggest client or the first request wins.

Such dilemmas are increasing, industry players tell BT. What fund managers want now are amendments to the Companies Act and the Singapore Exchange's listing rules to allow nominee companies operated by custodian banks to appoint multiple proxies to shareholder meetings.

The Asian Corporate Governance Association (ACGA) - which represents about 80 members, including global and regional pension and investment funds - made a submission in October 2007 to the Monetary Authority of Singapore, the Accounting and Corporate Regulatory Authority and the Singapore Exchange to allow these changes. But the movement has now become more urgent with more fund managers than ever wanting to have their say.

'Multiple proxies would remove current obstacles to fund managers participating in such meetings and would strengthen Singapore's position and reputation as a leading financial centre in Asia,' says Jamie Allen, secretary general of Hong Kong-based ACGA.

Both ACGA and several fund managers BT spoke to are hopeful that revisions to the Companies Act, which could come in mid-2009, will allow multiple proxies. The authorities have set up a working group to look at this issue, BT understands. If the much-wanted changes go through, then more equitable voting and electronic voting will be next on ACGA's agenda, Mr Allen says.

The two-proxy rule in Singapore differs from the legal norm or market practice in other major financial markets with which Singapore competes, such as Hong Kong and the UK, according to Mr Allen. It also appears to be incongruent with Singapore's policy of encouraging the active participation of institutional and other investors at shareholder meetings, he says.

While custodian banks here tell BT that they are in favour of allowing multiple proxies, there is some resistance from listed companies - which are concerned that shareholder meetings could get out of control, BT understands. But fund managers insist that there are likely to be just five to 10 fund managers attending each meeting at most, which companies listed here can easily accommodate.

Published November 13, 2008

Irrational pessimism holds sway

Valuations at record lows but investors expect larger drops in earnings: Morgan

By EMILYN YAP

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'IRRATIONAL pessimism' is ruling Asian equity markets even though valuations are at record lows and inflation is poised to fall, said Morgan Stanley's Asia-Pacific regional strategist Malcolm Wood yesterday.

Upbeat note: A US$50 decline in the per-barrel price of oil adds 5per cent to Asia's GDP, Mr Wood says

According to Mr Wood, 11 of 12 valuation metrics at Morgan Stanley have hit record depths but investors continue to expect larger drops in corporate earnings.

'The market seems to be assuming something like a 40 per cent-plus decline in earnings just to get to the trough in the prior downturns,' said Mr Wood at Morgan Stanley's Asia-Pacific Summit.

'The market's assuming something cataclysmic for Asia. We think (the situation's) bad, but nothing as near as that.'

As for Singapore's market, earnings expectations are still weak, said Mr Wood. But 'if you can take a (view that is longer than a couple of months, the market) looks quite attractive.' An imminent drop in inflation as commodity prices fall will also give central banks in Asia the flexibility to loosen monetary policy, providing some relief for markets.

'Commodity inflation in Asia drove the headline inflation up to 6 per cent plus. That's coming off sharply,' said Mr Wood. 'That means that central banks in Asia have room to aggressively cut rates further.'

China, for instance, has already cut interest rates three times since September. A Morgan Stanley report dated Nov 6 pointed out that other Asian countries such as Malaysia and Thailand could ease rates over the next year.

A fall in oil prices would bring particularly huge benefits to Asia. A US$50 decline in the per-barrel price of oil adds almost 5 per cent to Asia's GDP, Mr Wood estimated.

Morgan Stanley's head of global emerging markets equity strategy, Jonathan Garner, was also positive on the outlook for Asia.

'Asian companies' balance sheets are much healthier,' he said. According to the Morgan Stanley report, leverage in Asia's corporate sector is at a record low of 32 per cent, which is about half the levels seen 10 years ago.

Published November 13, 2008

Stocks slump after MSCI review

By LYNETTE KHOO

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(SINGAPORE) Shares of Keppel Land, Venture Corp, CapitaCommercial Trust (CCT) and Yanlord Land slumped on news that they will be dropped from the MSCI (Morgan Stanley Capital International) Singapore Index as of the close of Nov 25.

No new stocks will be added to the index, according to MSCI Barra, which provides the MSCI indices.

The market reacted negatively to the news yesterday. Shares of Keppel Land lost 4.9 per cent to $1.93, while Venture Corp shed 10 per cent to $5.03. CCT slipped 1.6 per cent to 94.5 cents.

As many fund managers track the MSCI Singapore index more than the benchmark Straits Times Index, their removal from the MSCI Singapore index may lift them off the radar screen of these fund managers, brokers said.

Securities in the MSCI country indices are free-float adjusted, and screened by size, liquidity and minimum free float.

MSCI Barra had also announced changes to the MSCI Global Investable Market Indices - including the MSCI Global Standard and MSCI Global Small Cap Indices as well as the MSCI Large Cap, MSCI Mid Cap, and MSCI Investable Market Indices - in its semi-annual index review on Tuesday.

Some 131 securities will be removed from the MSCI Global Standard Indices, while 67 securities will be added as of the close of Nov 25. For the MSCI AC Asia Pacific Index, a total 49 securites will be delected and only 18 added.

Changes will also be made to other MSCI indices. For instance, the MSCI All Country World Index (ACWI) Value Index, will see 435 additions or upward changes in Value Inclusion Factors (VIFs), and 351 deletions or downward changes in VIFs.

Such across-the-board changes were likely triggered by the drastic drop in market turnover and values in equities worldwide as no market was spared.

A dealer with a European brokerage said that these adjustments to index components could also be driven by the need to improve the performance of these indices by shedding off underperforming stocks.

Since MSCI Barra's previous review released on May 6, nervous trading has cost Keppel Land some 68 per cent of its market value, and shaved 55 per cent off Venture Corp's market cap.

CCT lost 59 per cent, while Yanlord's market value dived 70 per cent.

Published November 13, 2008

Wilmar Q3 net soars, says funding healthy

A bank said to have withdrawn credit line due to exit from commodity financing

By EMILYN YAP

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WILMAR International's funding situation remains healthy despite a bank having withdrawn its credit line, the palm-oil group said yesterday as it unveiled a more than doubling in third-quarter net profit.

Oiling the margins: For the nine months ended Sept 30, Wilmar's net profit more than trebled to US$1.2b, driven by a 134% surge in revenue to US$23.3b

According to Wilmar's chief financial officer Francis Heng, HSH Nordbank pulled its funding following a strategic decision to exit from commodity finance. The move was not a reflection of Wilmar's credit standing, he said at the results briefing.

'We are very happy that our bankers continue to support us strongly. As of today, we only have one bank that has cancelled our lines,' Mr Heng pointed out.

BT understands that HSH Nordbank's credit line withdrawal is unlikely to have significant impact on Wilmar. Its 2007 annual report lists 16 principal bankers which include DBS Bank and OCBC Bank.

As at Sept 30, when HSH Nordbank's funding was still available, the palm oil giant had access to credit facilities totalling US$11.4 billion. Around US$3.9 billion was unutilised.

'The group has minimal refinancing risk as most of its borrowings are short- term trade financing facilities which are backed by inventories and receivables,' said Wilmar.

But the company remains watchful about the financial turmoil today. 'A strong financial position is beneficial in a tight credit environment,' said chairman and chief executive Kuok Khoon Hong.

Wilmar had a net gearing ratio of 0.4x as of Sept 30. This was an improvement from Dec 31 last year because of improved cashflows and smaller working capital requirements as commodity prices fell.

News of the credit line pullback did little to dampen high spirits at the briefing, as Wilmar posted strong results for the third quarter ended Sept 30.

Net profit for the group more than doubled to US$482.6 million from the year-ago period's US$195 million as sales volume and margins rose. The merchandising and processing business alone accounted for 82 per cent of pre-tax profit and was the largest profit contributor among other segments.

Wilmar attributed the growth in net profit to 'timely purchases of raw materials and sales of products, prudent hedging of raw materials inventories as well as significant cost advantages from its integrated business model'.

Revenue for the group was US$8.3 billion, up 67 per cent from Q3 2007. The strong showing allowed Wilmar to declare an interim dividend of 2.8 Singapore cents per share for the quarter.

For the nine months ended Sept 30, Wilmar's net profit more than trebled to US$1.2 billion from US$346 million a year ago. This was driven by a 134 per cent surge in revenue to US$23.3 billion.

'We are confident that through the strengths of our balance sheet and integrated business model, as well as the relative resilience in the demand for staple food commodities, we will be able to weather this period of uncertainty to deliver credible performance,' said Mr Kuok.

Published November 13, 2008

Bumpy ride ahead for M'sian banking sector

Maybank hurt by impairment losses of RM242m at its Pakistan associate

By PAULINE NG
IN KUALA LUMPUR

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MARRED by its overseas investments, Malayan Banking's first-quarter earnings could presage a bumpy ride for the banking group in a slumping economy.

Not bullish: Maybank's unfortunate aggressive foray overseas amid a global financial meltdown is expected to haunt the group in the coming quarters

The country's biggest banking group posted a net profit of RM572 million (S$240 million) for the quarter ended September, 22 per cent lower than a year ago, and 19 per cent less than the previous quarter.

In comparison, two other local banking groups, AmBank and Hong Leong, posted an increase in earnings for the same period. Hong Leong's earnings were 29 per cent up, while AmBank's second quarter was nearly double last year's.

Hong Leong's earnings received a boost mainly from higher forex gains and treasury activities, banking analysts said, while AmBank's better showing could be traced to its adoption of the central bank's revised guidelines for the reclassification of securities into a held-for-trading category.

Even so, Maybank's unfortunate aggressive foray overseas amid a global financial meltdown is expected to haunt the group in the coming quarters.

Its first-quarter bottom line was hurt by impairment losses of RM242 million at its associate Pakistan bank MCB, along with lower non-interest income, lower recoveries and higher overhead expenses.

Impairment losses arising from its controversial acquisition of Bank Internasional Indonesia (BII) are bound to add further weight.

'I don't think the market is surprised because Maybank had said it would be making impairment charges this year,' said AmResearch banking analyst Fiona Leong, who is more concerned about the bank's inability to translate its robust loans growth of about 13 per cent y-o-y into stronger net interest income. Year-on-year, net interest income dropped 4 per cent, and 6 per cent q-on-q.

Although non-interest income is also below par, nearly all banks are in the same boat given capital market-related activities have been hit by the financial meltdown.

The expansion in consumer loans is already flattish for the sector, and analysts expect overall loans growth to moderate next year.

Hong Leong's results show that lending to securities, construction and working capital have shrunk, observed Ms Leong. 'It's a given loans growth will moderate, but it's a question of how much.'

Many remain sceptical Maybank will see returns over the next few years on the RM7 billion-plus it agreed to pay for Indonesia's sixth largest bank. The price amounts to a still pricey 4.2 times book instead of the original 4.8 times, thanks to a discount thrown in by the vendors after convoluted negotiations.

Not only will financing costs for BII's acquisition be elevated by the current credit crunch, Maybank's tight-rope walk in an increasingly tougher operating environment would invariably include an increase in loan loss provisions for BII.

Published November 13, 2008

Zeti raps Fitch, upbeat on current account

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(KUALA LUMPUR) Malaysia's central bank governor Zeti Akhtar Aziz has criticised a decision by Fitch ratings agency to cut the country's credit outlook to 'stable', saying the current account surplus would remain strong.

Ms Zeti: Fitch overreacted, just like in 1998, when it was proven wrong too

Fitch this week cut Malaysia's outlook from 'positive' and maintained its 'A-minus' long-term rating due to slowing exports and lower commodity prices.

'We have stress-tested our current account and if commodity prices were to come down more, under extreme circumstances, the surplus that we have will still be about 10 per cent of GDP (gross domestic product),' Ms Zeti told the Star newspaper in an interview published yesterday.

Malaysia's government is forecasting a current account surplus of RM22.05 billion (S$9.23 billion) for 2009, according to a preliminary draft of the 2009 Budget.

In the first half of 2008, the surplus was RM37 billion as exports were buoyed by surging oil and commodity prices, although the price of crude oil and palm oil have fallen sharply since. In 2007, the country posted a current account surplus of 25.5 per cent of GDP and foreign exchange reserves are in excess of US$100 billion.

Ms Zeti told the newspaper that Malaysia's reserves are three times short-term debt and 1.5 times external debt, and said that Fitch was overreacting - just as it had done during the 1998 Asian financial crisis.

'They have done the same as they did in the previous crisis, and they were also proven wrong then,' Ms Zeti told the paper.

Malaysian policymakers frequently criticise free- market and International Monetary Fund (IMF) policies after their experience in the 1997-98 Asian financial crisis in which they ignored IMF advice and saw their economy rebound strongly. -- Reuters