Published December 6, 2008
Shocking job numbers rattle Wall St
Sympathetic noises from Congress on rescue for Detroit Three carmakers temper fears
By ANDREW MARKS
NEW YORK CORRESPONDENT
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FOR the whole of this week, Wall Street had been trying hard to hold on to the little optimism eked out from the most recent wave of government capital injections.
GLOOMY START
Investors reacted to the job data in predictable fashion, with stocks sliding soon after the opening bell
That effort seemingly came to an abrupt end yesterday.
In the face of a shockingly bad November jobs report, the mood of stockmarket investors nosedived as news that the US economy shed 533,000 jobs, the worst single month since 1974, filtered through.
On average, forecasts had expected a loss of about 400,000 jobs. The unemployment rate rose to 6.7 per cent from 6.5 per cent in October. The government added that it was revising its jobs data for September and October, loading on 199,000 more layoffs than previously thought. That brings the total reduction in US non-farm payrolls for the last three months to 1.256 million, with almost two million shed in the year so far.
Investors reacted to the data in predictable fashion. Stocks slid shortly after the opening bell, with the Dow falling 80 points, or one per cent, in the first minutes of trading. That widened to a loss of 220 points by 11.30 in the morning as the blue chip index hit 8,155.
But there is a glimmer of hope. Wall Street seemed encouraged by remarks at the opening to yesterday's Congressional hearings for a bailout for the Big Three carmakers.
Barney Frank, chairman of the House financial services committee, said: 'In the midst of the worst economic situation since the Great Depression, letting the Big Three fail is simply unacceptable. Any effort to resist a rescue of the auto industry in the face of such a massive jobs crisis must fall by the wayside,' he said.
On Thursday afternoon, stocks took a hit in the final hour of trading, as investors pulled money off the table before yesterday's jobs report, not wanting to risk losing all their profits of recent days.
Economist Joel Naroff, president of Naroff Economic Advisors, had anticipated a record layoff number following the Wednesday release of the Institute for Supply Management's Non-Manufacturing index November numbers, which recorded it's largest monthly decline since the survey was begun in 1997.
'This is obviously a bad number, showing how hard a hit the economy is taking. But you have to remember this is a lagging indicator and it appears that businesses are adjusting extremely rapidly to the real time information about the problems. That may be compressing the time it takes to downsize when a recession hits. As a consequence, the data is deteriorating more sharply than we are used to seeing,' he said.
As shocking as the number is, Mr Naroff thinks that the economy could also see an end to the huge losses in jobs and demand sooner than would typically be the case in a severe recession.
'It's like being hit by a hurricane. We have to ride out the intense storm, but the silver lining is we might get good weather sooner than history would indicate,' he said.
It will probably be weeks, if not months before the stock market will agree with Mr Naroff's positive analysis of the collapse in all the data.
Said Joe Battipaglia, investment strategist at Ryan, Beck, 'These awful numbers we're getting could be taken as indicating that the bottom is coming, but at this point, they could also be taken as a sign that we're in even worse shape than we believed.'
'That means stock market sentiment will continue to be highly volatile and subject to change with every new piece of significant data,' he said.
The severity of the jobs report has also raised expectations on Wall Street that Congress and the Treasury will keep GM and Chrysler in business while the debate over how to restructure the car industry gets aired.
'Everybody knows now that the automakers will get their loan - there's no choice, and this report also raises the certainty we'll get a huge stimulus programme, probably north of US$500 billion, once Mr Obama is inaugurated in January,' said Jim Awad, managing director of Zephyr Capital Management.
Saturday, 6 December 2008
Published December 6, 2008
Singapore faces its longest recession: analysts
By ANG AN SHING
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THE current recession here will last till at least the middle of 2009, making it Singapore's longest recession ever, according to Chua Hak Bin, Head of Equity Research, Citigroup. Speaking at a forum organised by the Singapore Press Club yesterday, he added however that there could be a few silver linings for Singapore.
At the same forum, Manu Bhaskaran, CEO of economic consulting and advisory firm Centennial Asia Advisors, painted a gloomy outlook for the economy, noting that trade financing has been badly affected, with shipping rates falling over 90 per cent from their peak. This would have a significant impact on Singapore's trade-dependent economy, he noted. Monetary and fiscal easing by governments around the world, while appropriate, would take around 12 months to start having positive effects, he said. 'But we need more demand right now,' he added.
In the local context, Mr Bhaskaran pointed out that banks are being extremely cautious about approving loans, and thus foreign investors - even if they are interested in coming into Singapore - might have problems getting the funding they need for projects here. Many large projects have already been postponed, and more are likely to suffer the same fate, which would put further downward pressure on growth. He added that the IMF's forecast of 2 per cent growth for Singapore next year was 'highly optimistic'.
Mr Chua pointed out that up to 60 per cent of the world - China and India being the exceptions - is now in recession, which points to the slowest global growth since the global recession of 1981. He pointed out that in the US, asset values are still dropping, with housing prices set to fall about 33 per cent from their peak before bottoming out. He estimated this would happen by around the end of 2009.
With the sharp cutbacks in spending by Americans as well as Europeans, Asia would inevitably be affected. There would also be downward pressure on some Asian currencies, including the Singapore dollar, he said, which could go to 1.60-1.65 to the US dollar next year.
However, not all is gloomy for the Singapore economy, according to Mr Chua. The dramatic fall in the price of oil - from a high of over US$147 a barrel in July to less than US$50 at present - has benefited Singapore, which is a net importer of oil. Cheaper oil has led, for instance, to lower electricity prices, a trend which Mr Chua projected would continue next year.
Furthermore, Singapore is in a much better fiscal position than many countries to respond to the crisis, he felt.
Mr Bhaskaran called for greater global co-ordination in dealing with the crisis. Asian countries also need to coordinate more, he said, adding that Asean is the best platform for this. 'That is why China, Japan and Korea come to Asean, because they cannot do it themselves,' he pointed out.
Mr Chua and Mr Bhaskaran were guest speakers at the forum on 'The Global Financial Crisis: How Will It Play Out?' held at the SPH auditorium. The forum was moderated by BT's Associate Editor Vikram Khanna.
Singapore faces its longest recession: analysts
By ANG AN SHING
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THE current recession here will last till at least the middle of 2009, making it Singapore's longest recession ever, according to Chua Hak Bin, Head of Equity Research, Citigroup. Speaking at a forum organised by the Singapore Press Club yesterday, he added however that there could be a few silver linings for Singapore.
At the same forum, Manu Bhaskaran, CEO of economic consulting and advisory firm Centennial Asia Advisors, painted a gloomy outlook for the economy, noting that trade financing has been badly affected, with shipping rates falling over 90 per cent from their peak. This would have a significant impact on Singapore's trade-dependent economy, he noted. Monetary and fiscal easing by governments around the world, while appropriate, would take around 12 months to start having positive effects, he said. 'But we need more demand right now,' he added.
In the local context, Mr Bhaskaran pointed out that banks are being extremely cautious about approving loans, and thus foreign investors - even if they are interested in coming into Singapore - might have problems getting the funding they need for projects here. Many large projects have already been postponed, and more are likely to suffer the same fate, which would put further downward pressure on growth. He added that the IMF's forecast of 2 per cent growth for Singapore next year was 'highly optimistic'.
Mr Chua pointed out that up to 60 per cent of the world - China and India being the exceptions - is now in recession, which points to the slowest global growth since the global recession of 1981. He pointed out that in the US, asset values are still dropping, with housing prices set to fall about 33 per cent from their peak before bottoming out. He estimated this would happen by around the end of 2009.
With the sharp cutbacks in spending by Americans as well as Europeans, Asia would inevitably be affected. There would also be downward pressure on some Asian currencies, including the Singapore dollar, he said, which could go to 1.60-1.65 to the US dollar next year.
However, not all is gloomy for the Singapore economy, according to Mr Chua. The dramatic fall in the price of oil - from a high of over US$147 a barrel in July to less than US$50 at present - has benefited Singapore, which is a net importer of oil. Cheaper oil has led, for instance, to lower electricity prices, a trend which Mr Chua projected would continue next year.
Furthermore, Singapore is in a much better fiscal position than many countries to respond to the crisis, he felt.
Mr Bhaskaran called for greater global co-ordination in dealing with the crisis. Asian countries also need to coordinate more, he said, adding that Asean is the best platform for this. 'That is why China, Japan and Korea come to Asean, because they cannot do it themselves,' he pointed out.
Mr Chua and Mr Bhaskaran were guest speakers at the forum on 'The Global Financial Crisis: How Will It Play Out?' held at the SPH auditorium. The forum was moderated by BT's Associate Editor Vikram Khanna.
Published December 6, 2008
Sector In Focus
Yards in rough waters...
Contrary to optimism, cancellations and order reviews begin to surface as downturn bites. By Vincent Wee
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SOMETHING'S gotta give - and it did, despite the constant refrain from many shipyards that they saw no order cancellations on the horizon. Keppel Corporation got the ball rolling last week by announcing some $1.2 billion worth of orders worth 9.6 per cent of its order book was 'under review'.
BULK CARRIER
While some bigger China yards are trying to move into the higher value added offshore and marine sector, most are still involved in the dry bulk carrier market
China-based yards JES International and Cosco Corp (Singapore) followed in quick succession earlier this week. JES on Monday said it had written to South Korean customer Parkroad Corp to check on the status of deals signed to build four dry bulk vessels after news reports on the Korean company's financial position. On Wednesday, Cosco reported that its Cosco Dalian unit had received order cancellations for two out of an original order for five bulkers signed last July.
The two other major listed yards that have maintained an ominous silence are Sembcorp Marine (SembMarine) and Yangzijiang. Sentiment was hit not so much by the announcements themselves but by the fact that after so many months of denials by shipyards, it now appears their position is not as secure as they made it out to be.
Right up to the last round of third-quarter results briefings, companies were staunchly defending their order books, chiming the familiar refrain of 'good clients' in some shape or form.
All this against the backdrop of what analysts and other industry watchers knew was happening on the ground was an exceptional blow to shipyards' confidence when something really did give as it had to ultimately. For example, with SembMarine sharing a massive Sea Drill order tranche with Keppel in June, it must be plausible that if Keppel's orders with this client are hit, SembMarine's should shortly follow.
The market's reaction was swift. Last Friday, Keppel shares lost 60 cents or 12.5 per cent in the wake of the news and by yesterday it had lost a further 39 cents or about 9 per cent more from that level to close at $3.81. SembMarine fell 17 cents or nearly 10 per cent last Friday and closed 14 per cent lower from that level again at $1.37 yesterday.
Before analysing the likelihood of any actual cancellations and the future impact on the companies, it is important to differentiate between the sectors they are involved in. A distinction must be drawn between predominantly oil and gas industry-linked Keppel and SembMarine and the rest.
Although they have recourse to other revenue streams, the market perception is that the former two's fortunes are expected to mainly rise and fall with that of the oil industry because the headline numbers of the contracts are so large. This being so, the sliding oil price and the prospect of the loss of these potential revenues are especially worrying to investors.
Citigroup yesterday cut its rating for Keppel to a 'hold' from a 'buy' and lowered SembMarine to 'sell' from 'hold'. Citi said a 10 per cent drop in orders will lead to a decline of between 4 and 6 per cent in 2010 earnings. 'A sharp decline in oil prices, higher funding costs, difficulties in obtaining financing, and the influx of additional supply from the recent rig building boom will continue to result in sharper-than-expected exploration and production cuts,' Citi's analysts said.
DBS Research meanwhile in a report released last Friday has a slightly more optimistic view of the market and makes a distinction between the two big rig builders. 'We see the re-scheduling of payment structure or vessel delivery dates as more likely scenarios, as they address the cash flow issues faced by clients,' DBS said.
Diversified customer base
In addition, it sees Keppel as having a more diversified customer base, with 44 per cent of total secured orders for delivery after year-end exposed to its top three customers while the corresponding figure for SembMarine is 55 per cent. The order portfolio is also seen making a difference, with DBS seeing 34 per cent of Keppel's secured orders being exposed to delivery delays with SembMarine's probable delays being around 43 per cent. This is based on DBS' view that jackup rig deliveries from the second half of 2010 and semi-submersible rig deliveries from the first half of 2011 have a higher probability of being delayed, with an estimated less than 30 per cent of cash flow per contract collected by end-2008.
DBS has downgraded Keppel to 'fully valued' with a fair value of $3.58 and SembMarine to 'hold' with a fair value of $1.90.
The picture with the China yards is somewhat different though not particularly bright either. While some of the bigger ones such as Cosco are trying to move into the higher value added offshore and marine market, the majority of them are still plugging away at the entry-level dry bulk carrier market.
With dry bulk freight rates already down more than 90 per cent from their highs earlier this year and forecast to stay at current low levels last seen during the Asian Crisis, Cosco's order cancellations are unlikely to be the first or the last seen in the months ahead. The tremendous oversupply caused by imprudent over-ordering of ships during the dry bulk boom earlier this year combined with the deepening credit crunch which has all but frozen the flow of commodities will inevitably cause the closure or restructuring of many dry bulk players.
This will continue to weigh on the yards as the shipping downturn bites. But because negative sentiment on S-chips (stocks of China companies listed in Singapore) has already taken its toll on the valuations of these counters, the impact on the yards' stock prices seems to be limited for now. In fact, Cosco rose nine cents to 85 cents after releasing its cancellation announcement and yesterday ended the day at 87 cents.
Sector In Focus
Yards in rough waters...
Contrary to optimism, cancellations and order reviews begin to surface as downturn bites. By Vincent Wee
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SOMETHING'S gotta give - and it did, despite the constant refrain from many shipyards that they saw no order cancellations on the horizon. Keppel Corporation got the ball rolling last week by announcing some $1.2 billion worth of orders worth 9.6 per cent of its order book was 'under review'.
BULK CARRIER
While some bigger China yards are trying to move into the higher value added offshore and marine sector, most are still involved in the dry bulk carrier market
China-based yards JES International and Cosco Corp (Singapore) followed in quick succession earlier this week. JES on Monday said it had written to South Korean customer Parkroad Corp to check on the status of deals signed to build four dry bulk vessels after news reports on the Korean company's financial position. On Wednesday, Cosco reported that its Cosco Dalian unit had received order cancellations for two out of an original order for five bulkers signed last July.
The two other major listed yards that have maintained an ominous silence are Sembcorp Marine (SembMarine) and Yangzijiang. Sentiment was hit not so much by the announcements themselves but by the fact that after so many months of denials by shipyards, it now appears their position is not as secure as they made it out to be.
Right up to the last round of third-quarter results briefings, companies were staunchly defending their order books, chiming the familiar refrain of 'good clients' in some shape or form.
All this against the backdrop of what analysts and other industry watchers knew was happening on the ground was an exceptional blow to shipyards' confidence when something really did give as it had to ultimately. For example, with SembMarine sharing a massive Sea Drill order tranche with Keppel in June, it must be plausible that if Keppel's orders with this client are hit, SembMarine's should shortly follow.
The market's reaction was swift. Last Friday, Keppel shares lost 60 cents or 12.5 per cent in the wake of the news and by yesterday it had lost a further 39 cents or about 9 per cent more from that level to close at $3.81. SembMarine fell 17 cents or nearly 10 per cent last Friday and closed 14 per cent lower from that level again at $1.37 yesterday.
Before analysing the likelihood of any actual cancellations and the future impact on the companies, it is important to differentiate between the sectors they are involved in. A distinction must be drawn between predominantly oil and gas industry-linked Keppel and SembMarine and the rest.
Although they have recourse to other revenue streams, the market perception is that the former two's fortunes are expected to mainly rise and fall with that of the oil industry because the headline numbers of the contracts are so large. This being so, the sliding oil price and the prospect of the loss of these potential revenues are especially worrying to investors.
Citigroup yesterday cut its rating for Keppel to a 'hold' from a 'buy' and lowered SembMarine to 'sell' from 'hold'. Citi said a 10 per cent drop in orders will lead to a decline of between 4 and 6 per cent in 2010 earnings. 'A sharp decline in oil prices, higher funding costs, difficulties in obtaining financing, and the influx of additional supply from the recent rig building boom will continue to result in sharper-than-expected exploration and production cuts,' Citi's analysts said.
DBS Research meanwhile in a report released last Friday has a slightly more optimistic view of the market and makes a distinction between the two big rig builders. 'We see the re-scheduling of payment structure or vessel delivery dates as more likely scenarios, as they address the cash flow issues faced by clients,' DBS said.
Diversified customer base
In addition, it sees Keppel as having a more diversified customer base, with 44 per cent of total secured orders for delivery after year-end exposed to its top three customers while the corresponding figure for SembMarine is 55 per cent. The order portfolio is also seen making a difference, with DBS seeing 34 per cent of Keppel's secured orders being exposed to delivery delays with SembMarine's probable delays being around 43 per cent. This is based on DBS' view that jackup rig deliveries from the second half of 2010 and semi-submersible rig deliveries from the first half of 2011 have a higher probability of being delayed, with an estimated less than 30 per cent of cash flow per contract collected by end-2008.
DBS has downgraded Keppel to 'fully valued' with a fair value of $3.58 and SembMarine to 'hold' with a fair value of $1.90.
The picture with the China yards is somewhat different though not particularly bright either. While some of the bigger ones such as Cosco are trying to move into the higher value added offshore and marine market, the majority of them are still plugging away at the entry-level dry bulk carrier market.
With dry bulk freight rates already down more than 90 per cent from their highs earlier this year and forecast to stay at current low levels last seen during the Asian Crisis, Cosco's order cancellations are unlikely to be the first or the last seen in the months ahead. The tremendous oversupply caused by imprudent over-ordering of ships during the dry bulk boom earlier this year combined with the deepening credit crunch which has all but frozen the flow of commodities will inevitably cause the closure or restructuring of many dry bulk players.
This will continue to weigh on the yards as the shipping downturn bites. But because negative sentiment on S-chips (stocks of China companies listed in Singapore) has already taken its toll on the valuations of these counters, the impact on the yards' stock prices seems to be limited for now. In fact, Cosco rose nine cents to 85 cents after releasing its cancellation announcement and yesterday ended the day at 87 cents.
Published December 6, 2008
SingTel has leeway on payout
By SIOW LI SEN
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A FALL in earnings at Singapore Telecommunications does not necessarily mean a lower dividend payout for investors. Analysts say although SingTel's guidance is to pay 45-60 per cent of underlying net profit as dividends, the telco has the flexibility to go beyond this ratio to maintain its dividend payout.
SingTel chief executive Chua Sock Koong is understood to have told analysts earlier this week that the board has the flexibility on the final dividend payout. 'In general, the board has the flexibility to recommend to the shareholders the final dividend payout,' spokesman Peter Heng said yesterday.
SingTel's payout ratio was raised from 40-50 per cent to 45-60 per cent only in May this year.
The issue of SingTel's dividend payout was raised during its annual Investor Day event on Dec 3 as analysts wondered if current forex volatility would affect its payout per share.
For its first half ended Sept 30, 2008, even as underlying net profit fell 6.5 per cent to $1.666 billion, SingTel approved an interim dividend of 5.6 cents a share, unchanged from the previous corresponding period, amounting to $892 million.
SingTel said the lower earnings were due to several factors including weaker regional currencies and the depreciation of the Australian dollar. Some 73 per cent of SingTel's earnings come from its regional associates and its Australian unit.
On the outlook for the second half, SingTel said it expects the overall pre-tax earnings contributions of its regional mobile associates for the year ending March 31, 2009, to be lower than for the previous year. It also expects earnings of the group to be negatively impacted by the depreciation in the Australian dollar.
If the company decides to approve for the final dividend a similar 6.9 cents a share, it would amount to a total of $2 billion for the full year. And if underlying net earnings in the second half are, say, the same or lower than the $1.666 billion of the first half, maintaining the same dividend payout per share would exceed the 45-60 per cent payout ratio guidance.
SingTel is careful about maintaining its cash dividend in order not to worry the market, analysts say. In addition, it can alter capital expenditure to protect cash flows.
Given that the current forex volatility is an exceptional circumstance pressuring profits, SingTel could potentially provide better than the 45-60 per cent payout guidance, said JPMorgan, in a note after the event. 'We believe that management is cognizant that the market is wary of risks to cash dividends and will act accordingly to stem such worries,' said JPMorgan.
'No tangible signs of slowdown are as yet seen but almost all businesses emphasised that they retain very good flexibility to alter capex to protect cash flows,' said Marquarie Research.
SingTel has leeway on payout
By SIOW LI SEN
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A FALL in earnings at Singapore Telecommunications does not necessarily mean a lower dividend payout for investors. Analysts say although SingTel's guidance is to pay 45-60 per cent of underlying net profit as dividends, the telco has the flexibility to go beyond this ratio to maintain its dividend payout.
SingTel chief executive Chua Sock Koong is understood to have told analysts earlier this week that the board has the flexibility on the final dividend payout. 'In general, the board has the flexibility to recommend to the shareholders the final dividend payout,' spokesman Peter Heng said yesterday.
SingTel's payout ratio was raised from 40-50 per cent to 45-60 per cent only in May this year.
The issue of SingTel's dividend payout was raised during its annual Investor Day event on Dec 3 as analysts wondered if current forex volatility would affect its payout per share.
For its first half ended Sept 30, 2008, even as underlying net profit fell 6.5 per cent to $1.666 billion, SingTel approved an interim dividend of 5.6 cents a share, unchanged from the previous corresponding period, amounting to $892 million.
SingTel said the lower earnings were due to several factors including weaker regional currencies and the depreciation of the Australian dollar. Some 73 per cent of SingTel's earnings come from its regional associates and its Australian unit.
On the outlook for the second half, SingTel said it expects the overall pre-tax earnings contributions of its regional mobile associates for the year ending March 31, 2009, to be lower than for the previous year. It also expects earnings of the group to be negatively impacted by the depreciation in the Australian dollar.
If the company decides to approve for the final dividend a similar 6.9 cents a share, it would amount to a total of $2 billion for the full year. And if underlying net earnings in the second half are, say, the same or lower than the $1.666 billion of the first half, maintaining the same dividend payout per share would exceed the 45-60 per cent payout ratio guidance.
SingTel is careful about maintaining its cash dividend in order not to worry the market, analysts say. In addition, it can alter capital expenditure to protect cash flows.
Given that the current forex volatility is an exceptional circumstance pressuring profits, SingTel could potentially provide better than the 45-60 per cent payout guidance, said JPMorgan, in a note after the event. 'We believe that management is cognizant that the market is wary of risks to cash dividends and will act accordingly to stem such worries,' said JPMorgan.
'No tangible signs of slowdown are as yet seen but almost all businesses emphasised that they retain very good flexibility to alter capex to protect cash flows,' said Marquarie Research.
Published December 6, 2008
China Milk to make dairy products
By LYNETTE KHOO
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CHINA Milk has expanded downstream. The producer of pedigree bull semen, pedigree dairy cow embryos and raw milk said yesterday that it has begun raw milk processing to churn out dairy products under its own proprietary brand, Yinluo.
PRODUCTION PLAN
China Milk's new dairy-processing plant will initially process about 50 to 80 tonnes of raw milk per day and produce a range of flavoured milk beverages and yogurt drinks before expanding into other products such as ice-cream
With a total processing capacity of 100,000 tonnes annually, the group's new dairy-processing plant will initially process about 50 to 80 tonnes of raw milk per day and produce a range of flavoured milk beverages and yogurt drinks before expanding into other products such as ice-cream.
The group was recently nominated by Heilongjiang as its sole supplier of milk products for the government and its affiliates.
Besides selling its products to the Heilongjiang government departments, the group plans to market its Yinluo products in north-eastern provinces Liaoning and Jilin, and the major cities of Beijing and Shanghai.
The group is also currently negotiating a milk-processing contract with an OEM customer and will make an announcement in due course.
China Milk chief executive Liu Hailong said this marks an important milestone for the company in becoming a fully integrated dairy company with expertise in cattle genetics, dairy farming to manufacturing and marketing of dairy products.
'Moving ahead, we will continue to focus on increasing the sales of our Canadian Holstein bull semen and embryos as there remains a robust demand for herd improvement in China,' Mr Liu added.
For the second quarter ended Sept 30, China Milk's net profit grew 8.38 per cent to 108.3 million yuan (S$24 million) while revenue jumped 25.11 per cent to 165.9 million yuan. Raw materials and consumables used also increased by 25.1 per cent in line as its herd size grew to 21,626 as at Sept 30 from 16,543 a year ago.
China Milk to make dairy products
By LYNETTE KHOO
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CHINA Milk has expanded downstream. The producer of pedigree bull semen, pedigree dairy cow embryos and raw milk said yesterday that it has begun raw milk processing to churn out dairy products under its own proprietary brand, Yinluo.
PRODUCTION PLAN
China Milk's new dairy-processing plant will initially process about 50 to 80 tonnes of raw milk per day and produce a range of flavoured milk beverages and yogurt drinks before expanding into other products such as ice-cream
With a total processing capacity of 100,000 tonnes annually, the group's new dairy-processing plant will initially process about 50 to 80 tonnes of raw milk per day and produce a range of flavoured milk beverages and yogurt drinks before expanding into other products such as ice-cream.
The group was recently nominated by Heilongjiang as its sole supplier of milk products for the government and its affiliates.
Besides selling its products to the Heilongjiang government departments, the group plans to market its Yinluo products in north-eastern provinces Liaoning and Jilin, and the major cities of Beijing and Shanghai.
The group is also currently negotiating a milk-processing contract with an OEM customer and will make an announcement in due course.
China Milk chief executive Liu Hailong said this marks an important milestone for the company in becoming a fully integrated dairy company with expertise in cattle genetics, dairy farming to manufacturing and marketing of dairy products.
'Moving ahead, we will continue to focus on increasing the sales of our Canadian Holstein bull semen and embryos as there remains a robust demand for herd improvement in China,' Mr Liu added.
For the second quarter ended Sept 30, China Milk's net profit grew 8.38 per cent to 108.3 million yuan (S$24 million) while revenue jumped 25.11 per cent to 165.9 million yuan. Raw materials and consumables used also increased by 25.1 per cent in line as its herd size grew to 21,626 as at Sept 30 from 16,543 a year ago.
Published December 6, 2008
Asian firms repurchase debt as bonds sink
They are in a better position to buy back debt as the region has not been hit as hard by the credit crisis
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(Hong Kong)
CASH BENEFIT
Companies with cash to repurchase their bonds may avoid the need to refinance at a time when investors are avoiding all but the safest government securities
ASIAN companies are stepping up the pace of debt repurchases as prices fall to record lows.
Galaxy Entertainment Group Ltd, Olam International Ltd and Flextronics International Ltd lead borrowers that bought back US$61.7 billion of debt since June, up from US$39.6 billion in the same period a year earlier, data compiled by Bloomberg shows.
The price of high-yield, high-risk Asian corporate dollar-denominated bonds plunged more than 45 per cent this year to 53.4 cents on the dollar, pushing yields to a record 28 percentage points above benchmark rates on Dec 1, Merrill Lynch & Co indexes show.
'For many issuers with distressed bond prices, buying back their securities will be one of the easiest investment decisions they'll ever make,' said Damien Wood, head of Asian credit research at Credit Suisse Group AG in Singapore. 'Buying back debt at a discount to par value and cancelling it guarantees them a windfall.'
Companies with cash to repurchase their bonds may avoid the need to refinance at a time when investors are avoiding all but the safest government securities.
About US$368 billion of Asia-Pacific corporate bonds rated by Standard & Poor's are scheduled to come due between the fourth quarter of this year and 2011, the New York-based credit assessment company said on Dec 2.
China High Speed Transmission Equipment Group Co, the nation's largest maker of gears for wind turbines, said on Oct 30 it would buy back as much as two billion yuan (S$442 million) of zero coupon bonds due 2011.
It told Hong Kong's stock exchange on Dec 3 that it acquired bonds with a face value of 427 million yuan for between 62 per cent and 63 per cent of par.
'It's in the best interests of the company and the shareholders to repurchase the bonds under such conditions,' chairman Hu Yueming said in an interview.
Singapore-based electronics maker Flextronics offered on Dec 2 to pay bondholders between 78 cents and 87 cents on the dollar for half its outstanding one per cent convertible notes due 2010.
Galaxy, the Macau casino operator controlled by billionaire Lui Che-woo, said it will pay 53 cents on the dollar for its US$250 million of floating-rate notes maturing in 2010 after the price of the securities fell from 100 cents in May.
'The bonds were out there in the market and we are in a position to say we'd like to take them off investors' hands,' said Peter Caveny, Galaxy's principal of investor relations. 'We have the cash.'
As recently as June, corporate dollar-denominated bonds in Asia rated below investment grade were trading for an average of about 90 cents on the dollar to yield 7.45 percentage points more than benchmark rates, according to Merrill data. Speculative grade, or junk, bonds are rated below Baa3 by Moody's Investors Service and BBB- at S&P.
Much of the decline in bond prices stems from forced selling by money- losing hedge funds that need to repay investors, resulting in 'really ridiculously low prices' for corporate debt, said Sean Darby, head of regional strategy at Nomura Holdings Inc in Hong Kong.
Investors withdrew a net US$62.7 billion from hedge funds in October, according to Eurekahedge Pte, a Singapore-based research firm, shrinking assets under management by US$110 billion to US$1.65 trillion.
The seizure in credit markets may destroy as many as 700 hedge funds this year, according to Hedge Fund Research Inc.
Asian companies may be in a better position to buy back debt than borrowers in other parts of the world because the region hasn't been hit as hard by the seizure. Of US$972 billion in losses and writedowns taken by financial companies since the US mortgage market collapsed last year, 3 per cent were in Asia, Bloomberg data show.
The emerging markets of Asia, Brazil and Russia will account for all global economic growth in 2009, the International Monetary Fund in Washington forecast last month.
'The balance sheet management instilled after the 1997 financial crisis in Asia meant that companies learned very difficult lessons and worked to maintain strong balance sheets,' said James Grandolfo, international capital markets partner at Allen & Overy LLP in Hong Kong. 'Not a lot of companies have toxic asset exposure.'
Olam, a Singapore- based farm commodity supplier, said on Thursday it will buy back as much as US$150 million of its convertible bonds as part of a 'commitment to the active management of its balance sheet'. Olam may spend S$114.8 million to purchase its debt at 50 cents on the dollar, Ben Santoso, an analyst at DBSVickers Securities Singapore, wrote in a research note to clients. Olam may book gains of S$114.8 million, he said.
For those with outstanding debt that they can't or won't cancel, refinancing risk is becoming a 'growing concern' in the Asia-Pacific region, S&P said in its Dec 2 report.
Financing options for companies with 'weaker fundamentals' have diminished 'considerably', said Diane Vazza, head of S&P's global fixed income research group in New York.
For those that can, now is 'a good opportunity to buy back debt the spreads are so attractive', according to Kazuaki Oh'e, a debt salesman in Tokyo at CIBC World Markets Japan Inc, part of the investment unit at Canada's fifth-biggest bank. 'The centre of the problem is in the US and Europe.' -- Bloomberg
Asian firms repurchase debt as bonds sink
They are in a better position to buy back debt as the region has not been hit as hard by the credit crisis
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(Hong Kong)
CASH BENEFIT
Companies with cash to repurchase their bonds may avoid the need to refinance at a time when investors are avoiding all but the safest government securities
ASIAN companies are stepping up the pace of debt repurchases as prices fall to record lows.
Galaxy Entertainment Group Ltd, Olam International Ltd and Flextronics International Ltd lead borrowers that bought back US$61.7 billion of debt since June, up from US$39.6 billion in the same period a year earlier, data compiled by Bloomberg shows.
The price of high-yield, high-risk Asian corporate dollar-denominated bonds plunged more than 45 per cent this year to 53.4 cents on the dollar, pushing yields to a record 28 percentage points above benchmark rates on Dec 1, Merrill Lynch & Co indexes show.
'For many issuers with distressed bond prices, buying back their securities will be one of the easiest investment decisions they'll ever make,' said Damien Wood, head of Asian credit research at Credit Suisse Group AG in Singapore. 'Buying back debt at a discount to par value and cancelling it guarantees them a windfall.'
Companies with cash to repurchase their bonds may avoid the need to refinance at a time when investors are avoiding all but the safest government securities.
About US$368 billion of Asia-Pacific corporate bonds rated by Standard & Poor's are scheduled to come due between the fourth quarter of this year and 2011, the New York-based credit assessment company said on Dec 2.
China High Speed Transmission Equipment Group Co, the nation's largest maker of gears for wind turbines, said on Oct 30 it would buy back as much as two billion yuan (S$442 million) of zero coupon bonds due 2011.
It told Hong Kong's stock exchange on Dec 3 that it acquired bonds with a face value of 427 million yuan for between 62 per cent and 63 per cent of par.
'It's in the best interests of the company and the shareholders to repurchase the bonds under such conditions,' chairman Hu Yueming said in an interview.
Singapore-based electronics maker Flextronics offered on Dec 2 to pay bondholders between 78 cents and 87 cents on the dollar for half its outstanding one per cent convertible notes due 2010.
Galaxy, the Macau casino operator controlled by billionaire Lui Che-woo, said it will pay 53 cents on the dollar for its US$250 million of floating-rate notes maturing in 2010 after the price of the securities fell from 100 cents in May.
'The bonds were out there in the market and we are in a position to say we'd like to take them off investors' hands,' said Peter Caveny, Galaxy's principal of investor relations. 'We have the cash.'
As recently as June, corporate dollar-denominated bonds in Asia rated below investment grade were trading for an average of about 90 cents on the dollar to yield 7.45 percentage points more than benchmark rates, according to Merrill data. Speculative grade, or junk, bonds are rated below Baa3 by Moody's Investors Service and BBB- at S&P.
Much of the decline in bond prices stems from forced selling by money- losing hedge funds that need to repay investors, resulting in 'really ridiculously low prices' for corporate debt, said Sean Darby, head of regional strategy at Nomura Holdings Inc in Hong Kong.
Investors withdrew a net US$62.7 billion from hedge funds in October, according to Eurekahedge Pte, a Singapore-based research firm, shrinking assets under management by US$110 billion to US$1.65 trillion.
The seizure in credit markets may destroy as many as 700 hedge funds this year, according to Hedge Fund Research Inc.
Asian companies may be in a better position to buy back debt than borrowers in other parts of the world because the region hasn't been hit as hard by the seizure. Of US$972 billion in losses and writedowns taken by financial companies since the US mortgage market collapsed last year, 3 per cent were in Asia, Bloomberg data show.
The emerging markets of Asia, Brazil and Russia will account for all global economic growth in 2009, the International Monetary Fund in Washington forecast last month.
'The balance sheet management instilled after the 1997 financial crisis in Asia meant that companies learned very difficult lessons and worked to maintain strong balance sheets,' said James Grandolfo, international capital markets partner at Allen & Overy LLP in Hong Kong. 'Not a lot of companies have toxic asset exposure.'
Olam, a Singapore- based farm commodity supplier, said on Thursday it will buy back as much as US$150 million of its convertible bonds as part of a 'commitment to the active management of its balance sheet'. Olam may spend S$114.8 million to purchase its debt at 50 cents on the dollar, Ben Santoso, an analyst at DBSVickers Securities Singapore, wrote in a research note to clients. Olam may book gains of S$114.8 million, he said.
For those with outstanding debt that they can't or won't cancel, refinancing risk is becoming a 'growing concern' in the Asia-Pacific region, S&P said in its Dec 2 report.
Financing options for companies with 'weaker fundamentals' have diminished 'considerably', said Diane Vazza, head of S&P's global fixed income research group in New York.
For those that can, now is 'a good opportunity to buy back debt the spreads are so attractive', according to Kazuaki Oh'e, a debt salesman in Tokyo at CIBC World Markets Japan Inc, part of the investment unit at Canada's fifth-biggest bank. 'The centre of the problem is in the US and Europe.' -- Bloomberg
Published December 5, 2008
Shadow office space grabs the spotlight
Companies trying to sub-let excess space as they streamline operations
By KALPANA RASHIWALA
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(SINGAPORE) As banks and other organisations look at scaling back their operations, some are trying to sub-let office space that they no longer need.
While subleasing has 'negative connotations in the short term, it's a good strategy in the medium to long term as it builds flexibility into office space management, allowing businesses to expand fast when the current slowdown turns around'.
- Jones Lang
LaSalle's regional director and head of markets Chris Archibold
Some 200,000 sq ft of such space may already be on the market, although part of it may be available only next year. The phenomenon - which some call shadow space - started to emerge in October, industry players say.
Knight Frank director of business space (office) Agnes Tay forecasts that about 400,000 to 500,000 sq ft of shadow office space may be introduced between Q4 2008 and end-2009, or an average of 80,000 sq ft to 100,000 sq ft per quarter.
However, another office leasing veteran said: 'It may be far easier to assess the situation in about half a year. By then, the right-sizing, job attrition and the office cycle would be far more advanced.'
Shadow space also emerged during the last office slump. According to CB Richard Ellis research reports, it amounted to more than one million sq ft as at the end of 2002.
Another consultant, Jones Lang LaSalle's regional director and head of markets Chris Archibold, says that while subleasing has 'negative connotations in the short term, it's a good strategy in the medium to long term, as it builds flexibility into office space management, allowing businesses to expand fast when the current slowdown turns around'.
'Given that Singapore is positioned as a regional hub, our view is that Singapore will be less impacted than other cities in Asia. However, we do expect to see some subleasing activity over the next few quarters, but it is impossible to pinpoint exactly how much space will be released,' he added.
HL Bank, Citibank and DBS are among the tenants known in the market to be looking to sublet excess space. Their ranks are expected to grow in the coming quarters as restructuring efforts at banks take effect.
Citibank is said to be considering subletting at least 60,000 sq ft of office space. More than half of this is understood to be at Tampines Plaza and the rest in the Central Business District, including Millenia and Centennial towers in the Marina area.
DBS is said to be looking for tenants for space occupied by its HR department at PWC Building and apparently has smaller pockets of space available at Equity Plaza, Raffles City, 6 Raffles Quay and Haw Par Centre.
The attraction to potential sub-tenants keen on taking over such shadow space is that they may be able to secure space at attractive rentals below current market rates from tenants who inked headleases with the building owners last year or earlier at rents below current values. The space may also come pre-fitted, saving the subtenant such costs.
Of course, the shadow space situation is not following any fixed template. HL Bank, for instance, is believed to be keen to sublet two floors at UIC Building at a discount. The bank is said to have inked its lease with the Shenton Way property's landlord, United Industrial Corporation (UIC), for about 20,000 sq ft earlier this year, when it had planned to move out of Tung Centre at Collyer Quay.
Industry watchers reckon HL Bank could be prepared to shave off around $2 psf in the monthly rentals of $8 psf and $10 psf it is paying UIC for its two floors.
Besides tenants wanting to sublet excess space, another reason shadow space emerges is when companies try to pre-terminate their leases with landlords, perhaps because they are shutting down or moving their operations to cheaper locations. Because such tenants are still liable to pay the agreed rental for the remaining duration of their leases, they sometimes try to sublet their space.
Property agents say subletting deals are best done with the knowledge and support of the building's owner. 'Sometimes the residual lease on the excess space a tenant is willing to sublet may be pretty short, say a year or even less; so the new tenant will want to negotiate a fresh follow-up lease with the landlord to dovetail with the expiry of the residual lease on the shadow space,' a property consultant said.
Shadow office space grabs the spotlight
Companies trying to sub-let excess space as they streamline operations
By KALPANA RASHIWALA
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(SINGAPORE) As banks and other organisations look at scaling back their operations, some are trying to sub-let office space that they no longer need.
While subleasing has 'negative connotations in the short term, it's a good strategy in the medium to long term as it builds flexibility into office space management, allowing businesses to expand fast when the current slowdown turns around'.
- Jones Lang
LaSalle's regional director and head of markets Chris Archibold
Some 200,000 sq ft of such space may already be on the market, although part of it may be available only next year. The phenomenon - which some call shadow space - started to emerge in October, industry players say.
Knight Frank director of business space (office) Agnes Tay forecasts that about 400,000 to 500,000 sq ft of shadow office space may be introduced between Q4 2008 and end-2009, or an average of 80,000 sq ft to 100,000 sq ft per quarter.
However, another office leasing veteran said: 'It may be far easier to assess the situation in about half a year. By then, the right-sizing, job attrition and the office cycle would be far more advanced.'
Shadow space also emerged during the last office slump. According to CB Richard Ellis research reports, it amounted to more than one million sq ft as at the end of 2002.
Another consultant, Jones Lang LaSalle's regional director and head of markets Chris Archibold, says that while subleasing has 'negative connotations in the short term, it's a good strategy in the medium to long term, as it builds flexibility into office space management, allowing businesses to expand fast when the current slowdown turns around'.
'Given that Singapore is positioned as a regional hub, our view is that Singapore will be less impacted than other cities in Asia. However, we do expect to see some subleasing activity over the next few quarters, but it is impossible to pinpoint exactly how much space will be released,' he added.
HL Bank, Citibank and DBS are among the tenants known in the market to be looking to sublet excess space. Their ranks are expected to grow in the coming quarters as restructuring efforts at banks take effect.
Citibank is said to be considering subletting at least 60,000 sq ft of office space. More than half of this is understood to be at Tampines Plaza and the rest in the Central Business District, including Millenia and Centennial towers in the Marina area.
DBS is said to be looking for tenants for space occupied by its HR department at PWC Building and apparently has smaller pockets of space available at Equity Plaza, Raffles City, 6 Raffles Quay and Haw Par Centre.
The attraction to potential sub-tenants keen on taking over such shadow space is that they may be able to secure space at attractive rentals below current market rates from tenants who inked headleases with the building owners last year or earlier at rents below current values. The space may also come pre-fitted, saving the subtenant such costs.
Of course, the shadow space situation is not following any fixed template. HL Bank, for instance, is believed to be keen to sublet two floors at UIC Building at a discount. The bank is said to have inked its lease with the Shenton Way property's landlord, United Industrial Corporation (UIC), for about 20,000 sq ft earlier this year, when it had planned to move out of Tung Centre at Collyer Quay.
Industry watchers reckon HL Bank could be prepared to shave off around $2 psf in the monthly rentals of $8 psf and $10 psf it is paying UIC for its two floors.
Besides tenants wanting to sublet excess space, another reason shadow space emerges is when companies try to pre-terminate their leases with landlords, perhaps because they are shutting down or moving their operations to cheaper locations. Because such tenants are still liable to pay the agreed rental for the remaining duration of their leases, they sometimes try to sublet their space.
Property agents say subletting deals are best done with the knowledge and support of the building's owner. 'Sometimes the residual lease on the excess space a tenant is willing to sublet may be pretty short, say a year or even less; so the new tenant will want to negotiate a fresh follow-up lease with the landlord to dovetail with the expiry of the residual lease on the shadow space,' a property consultant said.
Published December 5, 2008
Eyes on demand as govt keeps land supply in check
Analysts hope for measures to boost buying, such as stamp duty rebates
By KALPANA RASHIWALA
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(SINGAPORE) The government yesterday kept the lid on the supply of state land for development. All eyes in the market now are on what measures the state will come up with to stimulate property demand.
Related link:
Click here for MND's news release
The Ministry of National Development (MND) has decided not to add any new sites to the Government Land Sales (GLS) Programme for first-half 2009.
The slate for the first six months of next year - comprising entirely reserve list sites, as previously announced - consists of a total 38 sites. These comprise 37 plots that are being carried over from the H2 2008 reserve list and the unsold executive condo site in Punggol that had been tendered out under the confirmed list of H2 2008.
These 38 land parcels can potentially yield about 7,920 private homes, 512,000 sq metres gross floor area (GFA) of commercial space and 5,160 hotel rooms.
In formulating its policy, the ministry took into account the current economic uncertainties and noted that the global economic outlook is likely to remain weak in 2009 and this would have an impact on Singapore's economy, including the property market.
Giving an update on land supply in January-June 2009 from government agencies, outside the GLS Programme, MND said there will be no new supply of private homes and a reduced supply of commercial space (this will only entail projects meant to achieve strategic economic or development goals).
The H1 2009 supply from this source will comprise about 40,000 sq metres GFA of commercial space and 240 hotel rooms - smaller than the land supply for 20 private homes, 143,000 sq m of commercial space and 240 hotel rooms outside the GLS Programme for H2 2008.
Welcoming the latest announcement from MND, a spokesman for the Real Estate Developers Association of Singapore said: 'This further confirms to the market the authorities are mindful of market conditions at the moment and (we) do not need to add further uncertainties.'
Knight Frank director Nicholas Mak says yesterday's announcement gives the market an opportunity to adjust to a new supply-demand equilibrium.
DTZ executive director Ong Choon Fah notes that most of the residential sites in the reserve list are in locations suitable for private housing developments catering to HDB upgraders. 'If developers' sales in these segments pick up, they have the choice of applying for such sites to be released from the reserve list for tender.'
Agreeing, CB Richard Ellis executive director Li Hiaw Ho said: 'As home prices are expected to decline further in 2009, developers may be able to pick up the better-located sites in the reserve list - such as the ones at Bishan Street 14 and Dakota Crescent - at attractive prices. It is likely that most residential activity will be focused on the lower-end of the market, where prices will be more affordable.'
However, analysts are more keen on some demand-side announcements from government.
JP Morgan analyst Chris Gee said: 'It's less of a supply side situation right now. The issue is what can be done to help stimulate demand. All eyes are turning to the Budget statement in January.' He reckons temporary exemptions on stamp duty and property taxes could be possible measures.
Credo Real Estate managing director Karamjit Singh too argues that 'the issues at hand relate to investment sentiments and fear of further downward slide in prices, which is why (home) buyers have been holding back and prices have declined'.
'It would help immensely if buyers could be incentivised to purchase, through measures such as a temporary suspension of stamp duty and the reintroduction of the deferred payment scheme, for example,' Mr Singh added.
Eyes on demand as govt keeps land supply in check
Analysts hope for measures to boost buying, such as stamp duty rebates
By KALPANA RASHIWALA
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(SINGAPORE) The government yesterday kept the lid on the supply of state land for development. All eyes in the market now are on what measures the state will come up with to stimulate property demand.
Related link:
Click here for MND's news release
The Ministry of National Development (MND) has decided not to add any new sites to the Government Land Sales (GLS) Programme for first-half 2009.
The slate for the first six months of next year - comprising entirely reserve list sites, as previously announced - consists of a total 38 sites. These comprise 37 plots that are being carried over from the H2 2008 reserve list and the unsold executive condo site in Punggol that had been tendered out under the confirmed list of H2 2008.
These 38 land parcels can potentially yield about 7,920 private homes, 512,000 sq metres gross floor area (GFA) of commercial space and 5,160 hotel rooms.
In formulating its policy, the ministry took into account the current economic uncertainties and noted that the global economic outlook is likely to remain weak in 2009 and this would have an impact on Singapore's economy, including the property market.
Giving an update on land supply in January-June 2009 from government agencies, outside the GLS Programme, MND said there will be no new supply of private homes and a reduced supply of commercial space (this will only entail projects meant to achieve strategic economic or development goals).
The H1 2009 supply from this source will comprise about 40,000 sq metres GFA of commercial space and 240 hotel rooms - smaller than the land supply for 20 private homes, 143,000 sq m of commercial space and 240 hotel rooms outside the GLS Programme for H2 2008.
Welcoming the latest announcement from MND, a spokesman for the Real Estate Developers Association of Singapore said: 'This further confirms to the market the authorities are mindful of market conditions at the moment and (we) do not need to add further uncertainties.'
Knight Frank director Nicholas Mak says yesterday's announcement gives the market an opportunity to adjust to a new supply-demand equilibrium.
DTZ executive director Ong Choon Fah notes that most of the residential sites in the reserve list are in locations suitable for private housing developments catering to HDB upgraders. 'If developers' sales in these segments pick up, they have the choice of applying for such sites to be released from the reserve list for tender.'
Agreeing, CB Richard Ellis executive director Li Hiaw Ho said: 'As home prices are expected to decline further in 2009, developers may be able to pick up the better-located sites in the reserve list - such as the ones at Bishan Street 14 and Dakota Crescent - at attractive prices. It is likely that most residential activity will be focused on the lower-end of the market, where prices will be more affordable.'
However, analysts are more keen on some demand-side announcements from government.
JP Morgan analyst Chris Gee said: 'It's less of a supply side situation right now. The issue is what can be done to help stimulate demand. All eyes are turning to the Budget statement in January.' He reckons temporary exemptions on stamp duty and property taxes could be possible measures.
Credo Real Estate managing director Karamjit Singh too argues that 'the issues at hand relate to investment sentiments and fear of further downward slide in prices, which is why (home) buyers have been holding back and prices have declined'.
'It would help immensely if buyers could be incentivised to purchase, through measures such as a temporary suspension of stamp duty and the reintroduction of the deferred payment scheme, for example,' Mr Singh added.
Published December 5, 2008
Olam to buy back up to US$150m of bonds
Shares rise 10.8% to 97.5 cents as investors react positively
By EMILYN YAP
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AGRICULTURE supply chain manager Olam International plans to repurchase up to US$150 million of its convertible bonds after prices more than halved since July.
Quality check: Green coffee bean inspectors at work
Investors reacted positively to the news, pushing Olam shares up 9.5 cents or 10.8 per cent to close at 97.5 cents yesterday.
Olam had launched US$300 million of convertible bonds in July.
Due in 2013, the bonds bear an annual coupon of one per cent and a yield-to-maturity of 4.5 per cent per annum.
Bondholders can convert the instruments into ordinary Olam shares at an initial conversion price of $3.8464.
Unless redeemed, converted or purchased and cancelled, the bonds would be redeemed at 119.38 per cent of their principal amount on maturity.
In the past few months however, prices of the convertible bonds have fallen to US$0.46 on the dollar, according to Bloomberg data as at Dec 3.
There is now a 'profitable opportunity available due to the attractive yields offered by the market on our bonds,' Olam told BT.
Olam shares have also lost more than 50 per cent in value from over $2.00 at the start of July, suffering from massive sell-downs across the stock market and less than favourable calls from some research houses.
As part of the 'active management of its balance sheet', Olam said yesterday that it would buy back for cash up to US$150 million of the convertible bonds.
Not only would the move cut gearing, it would also 'reduce refinance obligations in FY2011, when the convertible bonds can be put back to the company for redemption through cash or shares', Olam told BT.
'This buy-back also reduces the potential dilution of equity in 2011.'
According to DBS Vickers, the cash outlay could be around S$114.75 million assuming that Olam makes the repurchase at US$0.50 to the dollar. The group should also book gains of a similar amount, said analyst Ben Santoso.
'The corporate action shows the group's ability to employ cash for maximum value and return excess cash, which would otherwise be unutilised due to lower acquisition opportunities.'
Olam said in a presentation last month that it would hold back on merger and acquisition activities until credit markets stabilise and capital availability improves.
Nonetheless, the convertible bond buyback would only cut Olam's borrowing cost by around $1.2 million for FY2009, said Mr Santoso. 'Olam's FY09 net gearing (non-adjusted) is expected to come down substantially to 275 per cent from 414 per cent calculated last year.'
Olam had cash, bank balances and fixed deposits of $428.6 million and total borrowings of $2.79 billion as at Sept 30.
Olam to buy back up to US$150m of bonds
Shares rise 10.8% to 97.5 cents as investors react positively
By EMILYN YAP
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AGRICULTURE supply chain manager Olam International plans to repurchase up to US$150 million of its convertible bonds after prices more than halved since July.
Quality check: Green coffee bean inspectors at work
Investors reacted positively to the news, pushing Olam shares up 9.5 cents or 10.8 per cent to close at 97.5 cents yesterday.
Olam had launched US$300 million of convertible bonds in July.
Due in 2013, the bonds bear an annual coupon of one per cent and a yield-to-maturity of 4.5 per cent per annum.
Bondholders can convert the instruments into ordinary Olam shares at an initial conversion price of $3.8464.
Unless redeemed, converted or purchased and cancelled, the bonds would be redeemed at 119.38 per cent of their principal amount on maturity.
In the past few months however, prices of the convertible bonds have fallen to US$0.46 on the dollar, according to Bloomberg data as at Dec 3.
There is now a 'profitable opportunity available due to the attractive yields offered by the market on our bonds,' Olam told BT.
Olam shares have also lost more than 50 per cent in value from over $2.00 at the start of July, suffering from massive sell-downs across the stock market and less than favourable calls from some research houses.
As part of the 'active management of its balance sheet', Olam said yesterday that it would buy back for cash up to US$150 million of the convertible bonds.
Not only would the move cut gearing, it would also 'reduce refinance obligations in FY2011, when the convertible bonds can be put back to the company for redemption through cash or shares', Olam told BT.
'This buy-back also reduces the potential dilution of equity in 2011.'
According to DBS Vickers, the cash outlay could be around S$114.75 million assuming that Olam makes the repurchase at US$0.50 to the dollar. The group should also book gains of a similar amount, said analyst Ben Santoso.
'The corporate action shows the group's ability to employ cash for maximum value and return excess cash, which would otherwise be unutilised due to lower acquisition opportunities.'
Olam said in a presentation last month that it would hold back on merger and acquisition activities until credit markets stabilise and capital availability improves.
Nonetheless, the convertible bond buyback would only cut Olam's borrowing cost by around $1.2 million for FY2009, said Mr Santoso. 'Olam's FY09 net gearing (non-adjusted) is expected to come down substantially to 275 per cent from 414 per cent calculated last year.'
Olam had cash, bank balances and fixed deposits of $428.6 million and total borrowings of $2.79 billion as at Sept 30.
Published December 5, 2008
Steer clear of 'wash trades' and 'marking the close': SGX
By CHEW XIANG
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THE Singapore Exchange (SGX) has cautioned in the latest Regulator's Column posted on its website that 'wash trades' and 'marking the close' are forms of market manipulation that breach Sections 197 and 198 of the Securities and Futures Act and are punishable by stiff fines or even jail.
The two sections prohibit manipulation and creating a false market in securities. Criminal proceedings over breaches can result in a fine, up to seven years' jail or both.
The Regulator's Column was introduced by the SGX as a way of raising awareness of listing and governance issues affecting market participants including investors, listing aspirants, listed companies, issue managers and professionals. It is not known if the decision in the latest column to touch on market manipulation was a response to any recent events.
Wash trades are trades in which there is no change in beneficial ownership of the securities. In effect, the buyer is also the seller or is associated with the seller.
'Wash trades and other prearranged trades may be executed for various reasons, including extending the settlement period of the transaction, artificially affecting the price of the counter or to give a false impression of investor interest in a security,' SGX said.
'Marking the close' involves trading in a stock near the end of daily business to influence its closing price. 'In a bearish market, this might be done to avoid margin calls, to reduce the size of the margin call or support a flagging share price,' SGX said.
One indication that such trades are taking place is when small parcels are traded just before the market closes, it said.
'The buyer typically would have large positions of the security in a margin account. This is most obviously seen in thinly traded stocks whose price is under pressure.'
SGX said trading members and their representatives should be alert to the possibility of manipulative conduct and should not assist their clients to effect such trades.
It also explained that it will refer any errant investors, trading representatives and trading members suspected of being involved in market manipulation to the relevant authorities such as the Monetary Authority of Singapore and the Commercial Affairs Department.
Last year, Vincent Tan, chairman and CEO of Advanced Integrated Manufacturing Corp, was arrested for an alleged breach of Section 197.
And in 2006, three Phillip Securities traders paid a $70,000 penalty and had their licences suspended by the MAS for rigging the share price of Olam International.
Steer clear of 'wash trades' and 'marking the close': SGX
By CHEW XIANG
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THE Singapore Exchange (SGX) has cautioned in the latest Regulator's Column posted on its website that 'wash trades' and 'marking the close' are forms of market manipulation that breach Sections 197 and 198 of the Securities and Futures Act and are punishable by stiff fines or even jail.
The two sections prohibit manipulation and creating a false market in securities. Criminal proceedings over breaches can result in a fine, up to seven years' jail or both.
The Regulator's Column was introduced by the SGX as a way of raising awareness of listing and governance issues affecting market participants including investors, listing aspirants, listed companies, issue managers and professionals. It is not known if the decision in the latest column to touch on market manipulation was a response to any recent events.
Wash trades are trades in which there is no change in beneficial ownership of the securities. In effect, the buyer is also the seller or is associated with the seller.
'Wash trades and other prearranged trades may be executed for various reasons, including extending the settlement period of the transaction, artificially affecting the price of the counter or to give a false impression of investor interest in a security,' SGX said.
'Marking the close' involves trading in a stock near the end of daily business to influence its closing price. 'In a bearish market, this might be done to avoid margin calls, to reduce the size of the margin call or support a flagging share price,' SGX said.
One indication that such trades are taking place is when small parcels are traded just before the market closes, it said.
'The buyer typically would have large positions of the security in a margin account. This is most obviously seen in thinly traded stocks whose price is under pressure.'
SGX said trading members and their representatives should be alert to the possibility of manipulative conduct and should not assist their clients to effect such trades.
It also explained that it will refer any errant investors, trading representatives and trading members suspected of being involved in market manipulation to the relevant authorities such as the Monetary Authority of Singapore and the Commercial Affairs Department.
Last year, Vincent Tan, chairman and CEO of Advanced Integrated Manufacturing Corp, was arrested for an alleged breach of Section 197.
And in 2006, three Phillip Securities traders paid a $70,000 penalty and had their licences suspended by the MAS for rigging the share price of Olam International.
Published December 5, 2008
Malaysian exports shrink a sharp 14.2% in October
Contributing to the decline were electronic products and commodities
By PAULINE NG
IN KUALA LUMPUR
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THE recession in the developed economies has hit Malaysia. The country's exports fell 14.2 per cent in October, marking the start of a trend that economists expect to continue into 2009.
Mr Ariff: Feels that the government should do more to retrain workers
The sharp month-on-month drop in October exports to RM53.5 billion (S$22.5 billion) was due to lower exports of electrical and electronic (E&E) products and commodities, mainly refined and crude petroleum and palm oil.
Major markets that registered declines were the US, Singapore, China, Hong Kong and Australia - all of which, except for China, are in a recession or hurting badly from the global financial crisis.
Malaysia's imports declined at 7.8 per cent in October to RM43.8 billion, resulting in a monthly trade surplus of about RM9.7 billion, down from RM14.7 billion in September.
Malaysia, which has registered monthly trade surpluses since November 1997, is likely to see these narrow until 2010. And trade deficits cannot be ruled out, said the executive director of Malaysian Institute of Economic Research (MIER), Mohamed Ariff Abdul Kareem.
Global demand for oil has shrunk drastically, with national oil company Petronas revealing this week that it has halted production at its petrochemical plant in Kertih, Terengganu because of lack of demand. MIER's Mr Ariff said that much will depend on the oil price, which hit US$147 a barrel in July but is now less than US$50 a barrel. Should oil continue to trade below US$60 a barrel, Malaysia's trade surpluses and revenue will shrivel.
One bright spot is the services sector, which made a positive contribution to the economy in October for the first time in years. Amid steep falls in commodity prices and E&E demand, the services sector - primarily tourism - is expected to be the main driver of the economy in the short term.
Malaysia's exports for the 10 months to October hit RM566 billion, an increase of almost 14 per cent year-on-year. Total trade this year has already surpassed RM1 trillion. But with the tide turning quickly - an estimated 12,000 jobs were lost in the third quarter - Mr Ariff said that the government should do more to retrain workers to take some of the burden off the private sector.
He described the government's proposed economic stimulus package of RM7 billion as 'just peanuts', and said that pouring most of it into construction and infrastructure owing to their so-called multiplier effect is questionable as construction workers are overwhelmingly foreigners.
Malaysian exports shrink a sharp 14.2% in October
Contributing to the decline were electronic products and commodities
By PAULINE NG
IN KUALA LUMPUR
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THE recession in the developed economies has hit Malaysia. The country's exports fell 14.2 per cent in October, marking the start of a trend that economists expect to continue into 2009.
Mr Ariff: Feels that the government should do more to retrain workers
The sharp month-on-month drop in October exports to RM53.5 billion (S$22.5 billion) was due to lower exports of electrical and electronic (E&E) products and commodities, mainly refined and crude petroleum and palm oil.
Major markets that registered declines were the US, Singapore, China, Hong Kong and Australia - all of which, except for China, are in a recession or hurting badly from the global financial crisis.
Malaysia's imports declined at 7.8 per cent in October to RM43.8 billion, resulting in a monthly trade surplus of about RM9.7 billion, down from RM14.7 billion in September.
Malaysia, which has registered monthly trade surpluses since November 1997, is likely to see these narrow until 2010. And trade deficits cannot be ruled out, said the executive director of Malaysian Institute of Economic Research (MIER), Mohamed Ariff Abdul Kareem.
Global demand for oil has shrunk drastically, with national oil company Petronas revealing this week that it has halted production at its petrochemical plant in Kertih, Terengganu because of lack of demand. MIER's Mr Ariff said that much will depend on the oil price, which hit US$147 a barrel in July but is now less than US$50 a barrel. Should oil continue to trade below US$60 a barrel, Malaysia's trade surpluses and revenue will shrivel.
One bright spot is the services sector, which made a positive contribution to the economy in October for the first time in years. Amid steep falls in commodity prices and E&E demand, the services sector - primarily tourism - is expected to be the main driver of the economy in the short term.
Malaysia's exports for the 10 months to October hit RM566 billion, an increase of almost 14 per cent year-on-year. Total trade this year has already surpassed RM1 trillion. But with the tide turning quickly - an estimated 12,000 jobs were lost in the third quarter - Mr Ariff said that the government should do more to retrain workers to take some of the burden off the private sector.
He described the government's proposed economic stimulus package of RM7 billion as 'just peanuts', and said that pouring most of it into construction and infrastructure owing to their so-called multiplier effect is questionable as construction workers are overwhelmingly foreigners.
Friday, 5 December 2008
Published December 4, 2008
SATS' move on SFI could prove the cynics wrong
By VEN SREENIVASAN
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IN TIMES like these, even the best of intentions can sometimes be brushed aside with cynicism.
The $334.5 million purchase of Singapore Food Industries (SFI) by Singapore Airport Terminal Services (SATS) - which could balloon to $509 million if the general offer is completed - has already attracted a good dose of scepticism. Some observers have dismissed it as being nothing more than an exercise by Temasek Holdings - which controls 69 per cent of SFI and has indirect control of SATS via its parent Singapore Airlines (SIA) - to dress up its books to offset paper losses on some of its other investments.
Shareholders of SATS should judge the deal on its own merits. The issue for them is whether this deal enhances the value of their asset. Is this a synergistic marriage where the enlarged entity will be much larger and more successful than the sum of its parts? Will the acquisition boost the airport ground services specialist's cash, ROE, revenue, earnings per share and, potentially, dividend payout? Finally, will the acquisition provide SATS' food services business the cushion it seeks from the volatility and vagaries of the aviation sector?
This 80 per cent SIA-owned company has been struggling with rising material costs, slowing aviation-side revenues, and lower contributions from associates. Its net earnings dropped a massive 31 per cent to $67 million for the half-year ended September. Going forward, there are few signs that the squeeze on both the top line and bottom line will ease up.
Soon after arriving to take over the helm last year, CEO and president Clement Woon realised that the company had to review its long-term business strategy to ensure sustainable growth.
SATS gets almost all its revenues from within Singapore, of which two-thirds comes from the parent SIA group. About 54 per cent comes from airport services.
During its so-named Capital Markets Day briefings for analysts and media in September, Mr Woon laid out his plans: while SATS will continue to be a key player at Changi Airport, where it controls about 80 per cent of the market, it will not be totally focused on aviation. It will expand into the more resilient and defensive non-aviation food business by working closely with hotels, hospitals and other such service providers, including the integrated resorts (IRs), the new Sports Hub and such.
Fortunately, sitting on some $740 million in cash (net cash of $528 million after debt) gave Mr Woon the necessary firepower to put his plans into action. The numbers suggest that SATS may indeed - at least on the face of it - have found the best target for its stated aims in the food business.
Incorporated in 1973, SFI is Singapore's largest integrated food company operating in food distribution, food preparation, catering, processing, and manufacturing, and abattoir and hog auctions. The company's key markets are Singapore, the UK/Ireland, Australia, New Zealand, and China. Its brands of frozen convenience foods are found on the supermarket shelves of Tesco and Sainsbury's in the UK. It sells some $200 million worth of meat and poultry every year. It also 'feeds' the Singapore Armed Forces.
Last year, Europe accounted for almost two-thirds of SFI's sales and 45 per cent of its profit, while Singapore accounted for a third of revenue and 47 per cent of profits.
The mainboard-listed company made a profit of $31.4 million last year - slightly higher than the FY06 figure of $30.2 million.
What SATS gets through SFI is immediate exposure to a resilient business with a strong global customer base. The deal will, on a pro forma basis, boost EPS by 11.3 per cent to 20.1 per cent; raise ROE by 11.5 per cent to 16.1 per cent, and hoist total revenue by 75 per cent to $1.7 billion. More importantly, SATS' footprint in the sizeable non-aviation food services segment will grow immediately, compared to years it would have taken the company to build up such a business. The takeover also instantly boosts SATS' offshore revenue to 28 per cent, and non-aviation-related food revenue to 43 per cent.
Of course, there are execution risks.
But there are execution risks in any deal of this size, where one company buys another and takes over its entire business. Such risks have to be seen in the context of the capacity of the management to execute. Given Mr Woon and his team's capabilities, and the fact that SFI is a homegrown player - sharing the same basic business philosophy as that of other local companies like SATS - should provide some comfort.
Could SATS have bought something for less? Some analysts reckon that at three times book, 13 times earnings multiple and 7.4 times Ebitda, the price is a bit rich.
Perhaps. But Mr Woon is no novice. Having earned his stripes in international companies and on a global stage, he deserves the benefit of the doubt - for now. In any case, this new CEO and his team will face their critics come May next year, when SATS unveils its final numbers and provides preliminary guidance on how the new 'baby' is doing.
As they say, the proof of the pudding is in the eating.
SATS' move on SFI could prove the cynics wrong
By VEN SREENIVASAN
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IN TIMES like these, even the best of intentions can sometimes be brushed aside with cynicism.
The $334.5 million purchase of Singapore Food Industries (SFI) by Singapore Airport Terminal Services (SATS) - which could balloon to $509 million if the general offer is completed - has already attracted a good dose of scepticism. Some observers have dismissed it as being nothing more than an exercise by Temasek Holdings - which controls 69 per cent of SFI and has indirect control of SATS via its parent Singapore Airlines (SIA) - to dress up its books to offset paper losses on some of its other investments.
Shareholders of SATS should judge the deal on its own merits. The issue for them is whether this deal enhances the value of their asset. Is this a synergistic marriage where the enlarged entity will be much larger and more successful than the sum of its parts? Will the acquisition boost the airport ground services specialist's cash, ROE, revenue, earnings per share and, potentially, dividend payout? Finally, will the acquisition provide SATS' food services business the cushion it seeks from the volatility and vagaries of the aviation sector?
This 80 per cent SIA-owned company has been struggling with rising material costs, slowing aviation-side revenues, and lower contributions from associates. Its net earnings dropped a massive 31 per cent to $67 million for the half-year ended September. Going forward, there are few signs that the squeeze on both the top line and bottom line will ease up.
Soon after arriving to take over the helm last year, CEO and president Clement Woon realised that the company had to review its long-term business strategy to ensure sustainable growth.
SATS gets almost all its revenues from within Singapore, of which two-thirds comes from the parent SIA group. About 54 per cent comes from airport services.
During its so-named Capital Markets Day briefings for analysts and media in September, Mr Woon laid out his plans: while SATS will continue to be a key player at Changi Airport, where it controls about 80 per cent of the market, it will not be totally focused on aviation. It will expand into the more resilient and defensive non-aviation food business by working closely with hotels, hospitals and other such service providers, including the integrated resorts (IRs), the new Sports Hub and such.
Fortunately, sitting on some $740 million in cash (net cash of $528 million after debt) gave Mr Woon the necessary firepower to put his plans into action. The numbers suggest that SATS may indeed - at least on the face of it - have found the best target for its stated aims in the food business.
Incorporated in 1973, SFI is Singapore's largest integrated food company operating in food distribution, food preparation, catering, processing, and manufacturing, and abattoir and hog auctions. The company's key markets are Singapore, the UK/Ireland, Australia, New Zealand, and China. Its brands of frozen convenience foods are found on the supermarket shelves of Tesco and Sainsbury's in the UK. It sells some $200 million worth of meat and poultry every year. It also 'feeds' the Singapore Armed Forces.
Last year, Europe accounted for almost two-thirds of SFI's sales and 45 per cent of its profit, while Singapore accounted for a third of revenue and 47 per cent of profits.
The mainboard-listed company made a profit of $31.4 million last year - slightly higher than the FY06 figure of $30.2 million.
What SATS gets through SFI is immediate exposure to a resilient business with a strong global customer base. The deal will, on a pro forma basis, boost EPS by 11.3 per cent to 20.1 per cent; raise ROE by 11.5 per cent to 16.1 per cent, and hoist total revenue by 75 per cent to $1.7 billion. More importantly, SATS' footprint in the sizeable non-aviation food services segment will grow immediately, compared to years it would have taken the company to build up such a business. The takeover also instantly boosts SATS' offshore revenue to 28 per cent, and non-aviation-related food revenue to 43 per cent.
Of course, there are execution risks.
But there are execution risks in any deal of this size, where one company buys another and takes over its entire business. Such risks have to be seen in the context of the capacity of the management to execute. Given Mr Woon and his team's capabilities, and the fact that SFI is a homegrown player - sharing the same basic business philosophy as that of other local companies like SATS - should provide some comfort.
Could SATS have bought something for less? Some analysts reckon that at three times book, 13 times earnings multiple and 7.4 times Ebitda, the price is a bit rich.
Perhaps. But Mr Woon is no novice. Having earned his stripes in international companies and on a global stage, he deserves the benefit of the doubt - for now. In any case, this new CEO and his team will face their critics come May next year, when SATS unveils its final numbers and provides preliminary guidance on how the new 'baby' is doing.
As they say, the proof of the pudding is in the eating.
Published December 4, 2008
UOB among UBS' top picks in Asia
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(HONG KONG) Bharti Airtel, India's largest mobile-phone operator, and Hong Kong's Cathay Pacific Airways are among UBS AG's top 10 stock picks in Asia for 2009. The list, favouring telecom and financial companies, includes China Mobile and Singapore's United Overseas Bank. MSCI's Asia Pacific excluding Japan Index may surge 60 per cent next year, based on the region's previous two market recoveries, according to the report by Switzerland's largest bank dated yesterday.
'In Asia, we expect an equities rally to be led by better credit conditions, and thereafter by a bottoming in the global growth cycle,' analysts at UBS including Hong Kong-based Niall MacLeod wrote in the report. The MSCI Asia ex-Japan index has slumped 59 per cent this year as the collapse of the US mortgage market sparked financial turmoil that pushed the world's biggest economies into recession. Next year, the Swiss bank advised clients to focus on 'high-yielding stocks with good cash flow', given that a decline in lending rates is more likely than 'a sudden rebound in global growth'. UBS recommends investors buy more stocks in their portfolios than represented in the benchmark indexes for China, Hong Kong and Singapore, and fewer, or 'underweight,' for India, Malaysia and Taiwan.
Asian equities have slumped to 1.11 times book value, UBS said. In the last two recoveries in the region, stocks rebounded to an average price-to-book multiple of 1.6 within six to nine months of reaching the bottom. That multiple corresponds to 350 for the MSCI Asia ex-Japan index, UBS said, compared with 218.01 at 2:57 pm Hong Kong time. 'There is considerable upside to this target,' the report said.
Bharti Airtel and Cathay Pacific Airways are among the top picks partly because of their balance sheet strength. Bharti, which has plunged 32 per cent this year, is the best positioned mobile operator. While UBS recommends staying 'underweight' on technology and industrial stocks, Cathay Pacific is picked because lower oil prices 'should underpin' a recovery next year, coupled with its competitive position and 'attractive valuation' after sinking 62 per cent this year. -- Bloomberg
UOB among UBS' top picks in Asia
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(HONG KONG) Bharti Airtel, India's largest mobile-phone operator, and Hong Kong's Cathay Pacific Airways are among UBS AG's top 10 stock picks in Asia for 2009. The list, favouring telecom and financial companies, includes China Mobile and Singapore's United Overseas Bank. MSCI's Asia Pacific excluding Japan Index may surge 60 per cent next year, based on the region's previous two market recoveries, according to the report by Switzerland's largest bank dated yesterday.
'In Asia, we expect an equities rally to be led by better credit conditions, and thereafter by a bottoming in the global growth cycle,' analysts at UBS including Hong Kong-based Niall MacLeod wrote in the report. The MSCI Asia ex-Japan index has slumped 59 per cent this year as the collapse of the US mortgage market sparked financial turmoil that pushed the world's biggest economies into recession. Next year, the Swiss bank advised clients to focus on 'high-yielding stocks with good cash flow', given that a decline in lending rates is more likely than 'a sudden rebound in global growth'. UBS recommends investors buy more stocks in their portfolios than represented in the benchmark indexes for China, Hong Kong and Singapore, and fewer, or 'underweight,' for India, Malaysia and Taiwan.
Asian equities have slumped to 1.11 times book value, UBS said. In the last two recoveries in the region, stocks rebounded to an average price-to-book multiple of 1.6 within six to nine months of reaching the bottom. That multiple corresponds to 350 for the MSCI Asia ex-Japan index, UBS said, compared with 218.01 at 2:57 pm Hong Kong time. 'There is considerable upside to this target,' the report said.
Bharti Airtel and Cathay Pacific Airways are among the top picks partly because of their balance sheet strength. Bharti, which has plunged 32 per cent this year, is the best positioned mobile operator. While UBS recommends staying 'underweight' on technology and industrial stocks, Cathay Pacific is picked because lower oil prices 'should underpin' a recovery next year, coupled with its competitive position and 'attractive valuation' after sinking 62 per cent this year. -- Bloomberg
Published December 4, 2008
Life after DPS won't be crippling for developers
Study shows they can weather even 20% default rate by buyers under scheme
By UMA SHANKARI
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A NEW report, which looks at the potential impact if buyers who bought homes under the deferred payment scheme (DPS) choose to walk away from their deals, concludes that developers are not likely to be too badly hit even under a 20 per cent default scenario. The report by DBS Group Research captured the impact of defaults in projects expected to get their Temporary Occupation Permit (TOP) in 2009 on developers' earnings, operating cash flow, net gearing and interest cover. For this analysis, analyst Adrian Chua covered two default scenarios: 10 per cent and 20 per cent of all DPS units defaulting. Both scenarios assume the developers do not resell the default units within the year.
'Gearing ratios for the developers do not deteriorate significantly even under a 20 per cent default scenario,' Mr Chua concluded. 'Operating cash flow and earnings would come down (which is a given) but not to the extent where it leads to a negative operating cash flow or loss-making situation. Interest cover continues to be healthy.'
But among the developers, the smaller players would be more impacted in terms of proportional decline in earnings and interest cover, the report concludes. It investigated the impact of defaults on six developers - CapitaLand, City Developments, Ho Bee Investment, Keppel Land, UOL Group and Wing Tai. Allgreen Properties, SC Global Developments and United Industrial Corp were excluded as they have no projects currently expected to obtain TOP in 2009. Wheelock Properties, which did not offer the DPS, was also left out.
The DPS has been a sticking point between analysts and developers. Many analysts have predicted that large numbers of homebuyers could walk away from their purchases once projects obtain TOP, when the bulk of the purchase price is due under the DPS.
Developers dispute this view. Developers DBS Research spoke to have maintained the likelihood of default risk is low, given that speculation in 2006-07 did not reach the property bubble levels of 1995-96, the firm said in the note.
But part of the speculative intention could be masked under the DPS, which was not part of the property landscape back in 1995-96, noted Mr Chua. 'As such, the real speculative activity in the market could become completely apparent only upon TOP of these units,' he said.
In addition, the recent property upcycle also saw active participation by foreign buyers, which adds an additional unknown to the equation: whether these buyers will follow through on their payments upon TOP. The unwinding of global financial markets and the spectre of a prolonged economic downturn and asset devaluation could force these foreign buyers to default on their property purchases here, Mr Chua said.
The research note concluded that while a 20 per cent default is not likely to hurt developers too much, the effect of DPS defaults is just one of a few challenges facing the developers in 2009. Certainly, an asset devaluation scenario in line with declining capital values could potentially bring down developers' book value and correspondingly increase their gearing, the note said.
'We remain cautious over the short term for the residential developers, in light of a lack of catalysts from the physical market and poor economic sentiment,' said Mr Chua.
Life after DPS won't be crippling for developers
Study shows they can weather even 20% default rate by buyers under scheme
By UMA SHANKARI
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A NEW report, which looks at the potential impact if buyers who bought homes under the deferred payment scheme (DPS) choose to walk away from their deals, concludes that developers are not likely to be too badly hit even under a 20 per cent default scenario. The report by DBS Group Research captured the impact of defaults in projects expected to get their Temporary Occupation Permit (TOP) in 2009 on developers' earnings, operating cash flow, net gearing and interest cover. For this analysis, analyst Adrian Chua covered two default scenarios: 10 per cent and 20 per cent of all DPS units defaulting. Both scenarios assume the developers do not resell the default units within the year.
'Gearing ratios for the developers do not deteriorate significantly even under a 20 per cent default scenario,' Mr Chua concluded. 'Operating cash flow and earnings would come down (which is a given) but not to the extent where it leads to a negative operating cash flow or loss-making situation. Interest cover continues to be healthy.'
But among the developers, the smaller players would be more impacted in terms of proportional decline in earnings and interest cover, the report concludes. It investigated the impact of defaults on six developers - CapitaLand, City Developments, Ho Bee Investment, Keppel Land, UOL Group and Wing Tai. Allgreen Properties, SC Global Developments and United Industrial Corp were excluded as they have no projects currently expected to obtain TOP in 2009. Wheelock Properties, which did not offer the DPS, was also left out.
The DPS has been a sticking point between analysts and developers. Many analysts have predicted that large numbers of homebuyers could walk away from their purchases once projects obtain TOP, when the bulk of the purchase price is due under the DPS.
Developers dispute this view. Developers DBS Research spoke to have maintained the likelihood of default risk is low, given that speculation in 2006-07 did not reach the property bubble levels of 1995-96, the firm said in the note.
But part of the speculative intention could be masked under the DPS, which was not part of the property landscape back in 1995-96, noted Mr Chua. 'As such, the real speculative activity in the market could become completely apparent only upon TOP of these units,' he said.
In addition, the recent property upcycle also saw active participation by foreign buyers, which adds an additional unknown to the equation: whether these buyers will follow through on their payments upon TOP. The unwinding of global financial markets and the spectre of a prolonged economic downturn and asset devaluation could force these foreign buyers to default on their property purchases here, Mr Chua said.
The research note concluded that while a 20 per cent default is not likely to hurt developers too much, the effect of DPS defaults is just one of a few challenges facing the developers in 2009. Certainly, an asset devaluation scenario in line with declining capital values could potentially bring down developers' book value and correspondingly increase their gearing, the note said.
'We remain cautious over the short term for the residential developers, in light of a lack of catalysts from the physical market and poor economic sentiment,' said Mr Chua.
Published December 4, 2008
Cosco client cancels orders for 2 carriers
Shipowner paying 80% of contract price of 3 remaining vessels by December
By VINCENT WEE
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COSCO Corp (Singapore) became the latest shipyard to announce order cancellations with the cancelling of two 57,000 deadweight tonne (dwt) handymax size dry bulk carriers from a batch of contracts for a total of eight bulkers worth US$313 million announced last July.
Floating giant: The shipowner has agreed to compensate Cosco Dalian Cosco Dalian for all expenses incurred so far for the two cancelled orders
The two vessels were part of an order of five from one shipowner. Cosco declined to reveal the worth of the ships but market prices of similar ships contracted to be built at the time were around US$30 million to US$50 million each.
Cosco said that the cancellations were part of a variation agreement where it agreed to cancel the orders for the two vessel on the condition that the owner pays 80 per cent of the total contract price of the remaining three vessels by December, a significantly advanced payment schedule. The last 20 per cent instalment will be paid in accordance with the original schedule.
In addition, the shipowner has agreed to compensate Cosco Dalian, the Cosco unit that was to do the work, for all expenses incurred so far for the two cancelled orders although construction has not yet commenced. The two parties have also agreed to delay the delivery date of the third of the remaining vessels to June 30, 2010 instead of December 2009.
The owner had requested the cancellations and delivery delays due to prevailing unfavourable market conditions, Cosco said. Then company president Ji Hai Sheng had said, when the contracts were announced, that 'many of our contracts had been sealed with world renowned global industry players'. Cosco had insisted right up to its third quarter results briefing that it did not foresee any order cancellations.
On Monday, another large Chinese shipbuilder, JES International said that it was querying its Korean client Parkroad Corporation on the status of a US$166 million contract to build four panamax class dry bulk ships after news reports had highlighted its financial position.
The dry bulk carrier market has collapsed over the past two quarters with both spot charter rates and resale prices for the larger vessels like panamaxes and capesizes being especially hard hit. While brokers say that the smaller handysize and handymaxes are relatively better off, these latest cancellations suggest they are starting to be affected as well.
The cancellations and variations are not expected to have a significant impact on Cosco's net tangible assets and earnings per share for the year ending Dec 31, 2008.
Cosco shares closed nine cents higher at 85 cents yesterday.
Cosco client cancels orders for 2 carriers
Shipowner paying 80% of contract price of 3 remaining vessels by December
By VINCENT WEE
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COSCO Corp (Singapore) became the latest shipyard to announce order cancellations with the cancelling of two 57,000 deadweight tonne (dwt) handymax size dry bulk carriers from a batch of contracts for a total of eight bulkers worth US$313 million announced last July.
Floating giant: The shipowner has agreed to compensate Cosco Dalian Cosco Dalian for all expenses incurred so far for the two cancelled orders
The two vessels were part of an order of five from one shipowner. Cosco declined to reveal the worth of the ships but market prices of similar ships contracted to be built at the time were around US$30 million to US$50 million each.
Cosco said that the cancellations were part of a variation agreement where it agreed to cancel the orders for the two vessel on the condition that the owner pays 80 per cent of the total contract price of the remaining three vessels by December, a significantly advanced payment schedule. The last 20 per cent instalment will be paid in accordance with the original schedule.
In addition, the shipowner has agreed to compensate Cosco Dalian, the Cosco unit that was to do the work, for all expenses incurred so far for the two cancelled orders although construction has not yet commenced. The two parties have also agreed to delay the delivery date of the third of the remaining vessels to June 30, 2010 instead of December 2009.
The owner had requested the cancellations and delivery delays due to prevailing unfavourable market conditions, Cosco said. Then company president Ji Hai Sheng had said, when the contracts were announced, that 'many of our contracts had been sealed with world renowned global industry players'. Cosco had insisted right up to its third quarter results briefing that it did not foresee any order cancellations.
On Monday, another large Chinese shipbuilder, JES International said that it was querying its Korean client Parkroad Corporation on the status of a US$166 million contract to build four panamax class dry bulk ships after news reports had highlighted its financial position.
The dry bulk carrier market has collapsed over the past two quarters with both spot charter rates and resale prices for the larger vessels like panamaxes and capesizes being especially hard hit. While brokers say that the smaller handysize and handymaxes are relatively better off, these latest cancellations suggest they are starting to be affected as well.
The cancellations and variations are not expected to have a significant impact on Cosco's net tangible assets and earnings per share for the year ending Dec 31, 2008.
Cosco shares closed nine cents higher at 85 cents yesterday.
Published December 4, 2008
Petronas cuts output at Terengganu plants
It says economic crisis hitting polymer demand
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(KUALA LUMPUR) Malaysian state energy firm Petronas said yesterday that it has cut production at its petrochemical plants due to lack of demand as the global economic crisis hits.
Temporary closure: Petronas has brought its plants in Kertih in eastern Terengganu down due to a lack of demand for its polymer products
'A lot of petrochemical facilities (worldwide) are being shut down because of lack of demand,' Petronas president and chief executive Mohamad Hassan Marican told reporters.
'We have brought our plants down in Kertih (in eastern Terengganu state),' he said. 'When there is no market, there is no point to produce the polymers.'
Petrochemical plants produce polymers and resins that are used to manufacture plastic consumer items.
With crude oil prices below US$50 a barrel, he said that the industry would have to form alliances to weather the economic storm in 'this challenging environment'. 'We need to look at doing things together, like how we can share drilling rigs,' he said.
Mr Mohamad also said that Petronas, which has expanded abroad aggressively in recent years, would not reduce its current and planned investments because of the negative environment.
'We do not jump from one side to another. Oil is a commodity. There will be years of high prices and years of low prices. The economic viability of a project is not based on today's prices,' he said. 'We are very lowly geared. We have sufficient internal funds to fund the projects. We have both the funds and capacity to borrow.' - AFP
Petronas cuts output at Terengganu plants
It says economic crisis hitting polymer demand
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(KUALA LUMPUR) Malaysian state energy firm Petronas said yesterday that it has cut production at its petrochemical plants due to lack of demand as the global economic crisis hits.
Temporary closure: Petronas has brought its plants in Kertih in eastern Terengganu down due to a lack of demand for its polymer products
'A lot of petrochemical facilities (worldwide) are being shut down because of lack of demand,' Petronas president and chief executive Mohamad Hassan Marican told reporters.
'We have brought our plants down in Kertih (in eastern Terengganu state),' he said. 'When there is no market, there is no point to produce the polymers.'
Petrochemical plants produce polymers and resins that are used to manufacture plastic consumer items.
With crude oil prices below US$50 a barrel, he said that the industry would have to form alliances to weather the economic storm in 'this challenging environment'. 'We need to look at doing things together, like how we can share drilling rigs,' he said.
Mr Mohamad also said that Petronas, which has expanded abroad aggressively in recent years, would not reduce its current and planned investments because of the negative environment.
'We do not jump from one side to another. Oil is a commodity. There will be years of high prices and years of low prices. The economic viability of a project is not based on today's prices,' he said. 'We are very lowly geared. We have sufficient internal funds to fund the projects. We have both the funds and capacity to borrow.' - AFP
Published December 4, 2008
YTL deal shows cash-rich KL firms' potential
But weary market dulls share response to acquisition of PowerSeraya
By S JAYASANKARAN
IN KUALA LUMPUR
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SHARES in Malaysian infrastructure company YTL Corporation and its power company YTL Power International showed hardly any vigour yesterday in the wake of the latter's $3.8 billion acquisition of Singapore's second-biggest power producer.
The tepid response may suggest that it will take a lot to enthuse a market wearied by the financial turmoil that's roiled equities from Tokyo to Teheran. Even so, analysts generally agree that the acquisition is good for YTL Corp as the Singapore asset was not overpriced and will add a new profit stream from next year.
YTL Power ended yesterday's trading at RM1.86 (78 Singapore cents), down seven sen. YTL Corp ended the day unchanged at RM6.75.
On Tuesday, YTL Power bought PowerSeraya. The Singapore generator posted profits of $168 million and $218 million for FY2007 and FY2008 respectively, indicating a considerable bottomline boost for YTL.
The acquisition illustrates the potential that cash-rich Malaysian conglomerates such as YTL, Hong Leong Group and Ananda Krishnan's Usaha Tegas have for buying assets in mature markets that have lost value.
YTL group's tycoon owner Francis Yeoh has made buying distressed assets something of a science since the Asian financial crisis in 1998 when he snapped up sharply devalued hotels and property in downtown Kuala Lumpur.
He later shifted his focus to buying regulated assets in mature markets with low risks. For example, the internal rate of return on PowerSeraya is estimated at 8-9 per cent, versus 13-14 per cent for power plants in Malaysia.
YTL, which has water, property and power businesses from Asia to Europe, recently talked about its 'war chest' of RM11 billion and said that it is looking to buy as asset values decline. Last month, it agreed to pay $285 million for control of Macquarie Prime Reit, the owner of stakes in Singapore shopping malls Wisma Atria and Ngee Ann City.
Mr Yeoh said that he has been assessing businesses in the property, power-generation and water sectors, particularly in Singapore where rents are falling, and in the UK and Australia where currencies have weakened.
Other overseas assets owned by YTL group include 33.5 per cent of ElectraNet, which owns and operates the power transmission network in South Australia. It also owns Wessex Water, which treats water in parts of England and was bought at distressed prices from troubled US firm Enron in 2002. YTL also has a 35 per cent interest in Indonesia's Jawa Power, the only asset it holds in an emerging economy apart from Malaysia.
YTL deal shows cash-rich KL firms' potential
But weary market dulls share response to acquisition of PowerSeraya
By S JAYASANKARAN
IN KUALA LUMPUR
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SHARES in Malaysian infrastructure company YTL Corporation and its power company YTL Power International showed hardly any vigour yesterday in the wake of the latter's $3.8 billion acquisition of Singapore's second-biggest power producer.
The tepid response may suggest that it will take a lot to enthuse a market wearied by the financial turmoil that's roiled equities from Tokyo to Teheran. Even so, analysts generally agree that the acquisition is good for YTL Corp as the Singapore asset was not overpriced and will add a new profit stream from next year.
YTL Power ended yesterday's trading at RM1.86 (78 Singapore cents), down seven sen. YTL Corp ended the day unchanged at RM6.75.
On Tuesday, YTL Power bought PowerSeraya. The Singapore generator posted profits of $168 million and $218 million for FY2007 and FY2008 respectively, indicating a considerable bottomline boost for YTL.
The acquisition illustrates the potential that cash-rich Malaysian conglomerates such as YTL, Hong Leong Group and Ananda Krishnan's Usaha Tegas have for buying assets in mature markets that have lost value.
YTL group's tycoon owner Francis Yeoh has made buying distressed assets something of a science since the Asian financial crisis in 1998 when he snapped up sharply devalued hotels and property in downtown Kuala Lumpur.
He later shifted his focus to buying regulated assets in mature markets with low risks. For example, the internal rate of return on PowerSeraya is estimated at 8-9 per cent, versus 13-14 per cent for power plants in Malaysia.
YTL, which has water, property and power businesses from Asia to Europe, recently talked about its 'war chest' of RM11 billion and said that it is looking to buy as asset values decline. Last month, it agreed to pay $285 million for control of Macquarie Prime Reit, the owner of stakes in Singapore shopping malls Wisma Atria and Ngee Ann City.
Mr Yeoh said that he has been assessing businesses in the property, power-generation and water sectors, particularly in Singapore where rents are falling, and in the UK and Australia where currencies have weakened.
Other overseas assets owned by YTL group include 33.5 per cent of ElectraNet, which owns and operates the power transmission network in South Australia. It also owns Wessex Water, which treats water in parts of England and was bought at distressed prices from troubled US firm Enron in 2002. YTL also has a 35 per cent interest in Indonesia's Jawa Power, the only asset it holds in an emerging economy apart from Malaysia.
Published December 4, 2008
Malaysian royal quits Petra over Bruce Willis tiff
He says that movie star's lawsuit had humiliated him
By PAULINE NG IN KUALA LUMPUR
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A MALAYSIAN royal family member's abrupt resignation from a 'green rubber' company that was sued by Diehard movie star Bruce Willis could make for an awkward visit to Malaysia this week by former US president Bill Clinton.
Bruce Willis: Remains a shareholder in the venture
Negri Sembilan's Tuanku Imran Ja'afar said yesterday that he is quitting as a director of Petra Group companies and as group chairman. The lawsuit had humiliated him, he said.
Actor Willis invested US$900,000 in Petra subsidiary Elastomer Technologies, which owns the DeLink process to recycle rubber compounds from used tyres. He sued to get back his money after Elastomer failed to list on London's Alternative Investment Market as planned.
Tuanku Imran is co-founder of the Petra Group with local businessman Vinod Sekhar, whose father, the late BC Sekhar - a pioneer in the rubber industry and former chairman of Malaysian Rubber Research Development Board - invented the DeLink process.
The flamboyant Mr Sekhar counts megastar Mel Gibson - also a 'green rubber' investor - and Mr Clinton as friends. The former US president is scheduled to arrive in Malaysia today to present the inaugural Sekhar Memorial Lecture tomorrow.
Negative publicity surrounding the Petra Group could cast a pall over Mr Clinton's visit and cause some embarrassment, though Mr Sekhar told BT that he does not think this will happen because the problems are 'an internal issue'.
He said that the Willis suit was quickly dropped after the matter was resolved amicably, with the star's lawyer saying that there had been miscommunications. Willis remains a shareholder in the venture.
But some damage seems to have been done. Tuanku Imran told national news agency Bernama: 'I am resigning due to a number of reasons, the latest being the recent lawsuit brought against me and the Petra Group by Hollywood star Bruce Willis, alleging that I induced him to part with his money to invest in our green rubber project. I have never met Bruce Willis, let alone persuaded him to part with his money.'
The son of the current Yang DiPertuan Besar of Negri Sembilan, Tuanku Ja'afar Almarhum Tuanku Abdul Rahman, said that his Petra Group roles were non-executive and he was often not updated on developments, including the Willis suit. 'This incident has brought acute embarrassment to my family, particularly to my royal parents,' he said. 'I feel that the time has come to say enough is enough.'
Nevertheless, Tuanku Ja'afar remains a significant shareholder in the green rubber venture, which he reckons has global potential if properly handled.
Mr Sekhar told BT that the listing of Elastomer has had to be put on hold until global markets stabilise. 'We are gearing up production and already supplying a few hundred tonnes of green rubber' to companies such as Timberland, he said.
He also said that he understood the lawsuit and media focus had embarrassed Tuanku Imran. 'But he's still a shareholder, he's still my best friend.'
Malaysian royal quits Petra over Bruce Willis tiff
He says that movie star's lawsuit had humiliated him
By PAULINE NG IN KUALA LUMPUR
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A MALAYSIAN royal family member's abrupt resignation from a 'green rubber' company that was sued by Diehard movie star Bruce Willis could make for an awkward visit to Malaysia this week by former US president Bill Clinton.
Bruce Willis: Remains a shareholder in the venture
Negri Sembilan's Tuanku Imran Ja'afar said yesterday that he is quitting as a director of Petra Group companies and as group chairman. The lawsuit had humiliated him, he said.
Actor Willis invested US$900,000 in Petra subsidiary Elastomer Technologies, which owns the DeLink process to recycle rubber compounds from used tyres. He sued to get back his money after Elastomer failed to list on London's Alternative Investment Market as planned.
Tuanku Imran is co-founder of the Petra Group with local businessman Vinod Sekhar, whose father, the late BC Sekhar - a pioneer in the rubber industry and former chairman of Malaysian Rubber Research Development Board - invented the DeLink process.
The flamboyant Mr Sekhar counts megastar Mel Gibson - also a 'green rubber' investor - and Mr Clinton as friends. The former US president is scheduled to arrive in Malaysia today to present the inaugural Sekhar Memorial Lecture tomorrow.
Negative publicity surrounding the Petra Group could cast a pall over Mr Clinton's visit and cause some embarrassment, though Mr Sekhar told BT that he does not think this will happen because the problems are 'an internal issue'.
He said that the Willis suit was quickly dropped after the matter was resolved amicably, with the star's lawyer saying that there had been miscommunications. Willis remains a shareholder in the venture.
But some damage seems to have been done. Tuanku Imran told national news agency Bernama: 'I am resigning due to a number of reasons, the latest being the recent lawsuit brought against me and the Petra Group by Hollywood star Bruce Willis, alleging that I induced him to part with his money to invest in our green rubber project. I have never met Bruce Willis, let alone persuaded him to part with his money.'
The son of the current Yang DiPertuan Besar of Negri Sembilan, Tuanku Ja'afar Almarhum Tuanku Abdul Rahman, said that his Petra Group roles were non-executive and he was often not updated on developments, including the Willis suit. 'This incident has brought acute embarrassment to my family, particularly to my royal parents,' he said. 'I feel that the time has come to say enough is enough.'
Nevertheless, Tuanku Ja'afar remains a significant shareholder in the green rubber venture, which he reckons has global potential if properly handled.
Mr Sekhar told BT that the listing of Elastomer has had to be put on hold until global markets stabilise. 'We are gearing up production and already supplying a few hundred tonnes of green rubber' to companies such as Timberland, he said.
He also said that he understood the lawsuit and media focus had embarrassed Tuanku Imran. 'But he's still a shareholder, he's still my best friend.'
Published December 4, 2008
NEWS ANALYSIS
How YTL breathed life into dead deal
By RONNIE LIM
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(SINGAPORE) It boiled down to a good game plan. With its rival pulling out and the two-horse race called off, Malaysia's YTL Group decided to still dash towards the finish line instead of risking a tougher race in better times.
That's essentially how YTL managed to land Singapore's second largest generating company, the 3,100- megawatt PowerSeraya, for $3.8 billion this week, even though Temasek Holdings had earlier decided to put the sale on hold.
The prized Singapore plant will be YTL's single largest power business within its growing international stable.
BT understands that point men Francis Yeoh, managing director of YTL Power, and Yeoh Seok Hong, its CEO, capped two days of successful negotiations here, which started on Monday, with top Temasek Holdings brass, with a celebration dinner on Tuesday night.
Tuesday was coincidentally the day when Temasek originally wanted bidders to submit their final, binding offers.
As it turned out, Temasek, a week earlier on Nov 25, called off the PowerSeraya sale 'in the light of market conditions' - a statement that observers read as indicating 'lower than acceptable' bids.
The market talk is that the rival group (led by Hong Kong's CLP and including Japanese trader Itochu and Thailand Electricity Generating Public Company) in fact withdrew its bid 'a day or two before the close of the sale', sources said. That apparently triggered Temasek's move to call off the sale.
However, YTL - which was still very much interested in this third and last genco being divested by Temasek - decided to press on and (as the market now assumes) raised its earlier offer to clinch Power- Seraya.
The fact that Temasek's director of investment Gwendel Tung said late Tuesday that YTL had 'put forward an unsolicited proposal which met our requirements', without mentioning any further discussion with other bidders, clearly suggests that the CLP consortium was out of the picture altogether.
'CLP's seemed a hastily- put-together group, with partners which may not have been too familiar with each other, and the deteriorating economic conditions probably caused one or more to pull out,' one industry observer said.
On Temasek's abrupt turnaround to sell the genco, less than a week after calling off the sale, industry sources say that given the financial crisis, it was a choice 'between the devil and the deep blue sea' - closing the sale now, given a willing buyer, or postponing it indefinitely till the storm clouds pass.
The latter would have led to negative perceptions, including by the now foreign-owned Senoko Power and Tuas Power about a still Temasek-run Power- Seraya in the electricity market here.
Market sources feel that the $3.8 billion paid by YTL for PowerSeraya is 'reasonable, given the worsening financial circumstances'.
All the three big gencos have about comparable asset values, with the 2,670 MW Tuas Power the smallest but with the newest plant, the first to go and fetching $4.235 billion from China Huaneng in March.
Next was the 3,300 MW Senoko Power, the biggest but with the oldest plant, which went to Japanese/ French Lion Power for $4 billion in September, and on which Lion is now spending a further $750 million to 'repower' some older units.
PowerSeraya's 'multi- utility' strategy also sits well with YTL. The latter is getting a Singapore genco which has already embarked on an $800 million investment in 1,550 MW worth of cogeneration units that produce steam and cooling water, as well as electricity, to sell to petrochemical plants on Jurong Island.
PowerSeraya also has a $20 million desalination plant and is considering building a second.
Apart from being the gem in YTL's growing international stable of power/ water assets including in the UK, the Singapore genco will give YTL an understanding of the liberalised electricity market here, and 'will put it in a prime position to contribute to liberalisation of the Malaysian electricity market, currently under study by the Malaysian government', said YTL.
While one criticism of YTL is that it may not bring any new technology to the table, 'at the end of the day, it's the cost of fuel which gives an advantage', one official here said. And if YTL, which currently gets Malaysian gas, can persuade Petronas to sell it more gas, this can be easily piped to its Singapore genco.
With the genco divestment completed, the market will be watching how the power game here will eventually play out.
NEWS ANALYSIS
How YTL breathed life into dead deal
By RONNIE LIM
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(SINGAPORE) It boiled down to a good game plan. With its rival pulling out and the two-horse race called off, Malaysia's YTL Group decided to still dash towards the finish line instead of risking a tougher race in better times.
That's essentially how YTL managed to land Singapore's second largest generating company, the 3,100- megawatt PowerSeraya, for $3.8 billion this week, even though Temasek Holdings had earlier decided to put the sale on hold.
The prized Singapore plant will be YTL's single largest power business within its growing international stable.
BT understands that point men Francis Yeoh, managing director of YTL Power, and Yeoh Seok Hong, its CEO, capped two days of successful negotiations here, which started on Monday, with top Temasek Holdings brass, with a celebration dinner on Tuesday night.
Tuesday was coincidentally the day when Temasek originally wanted bidders to submit their final, binding offers.
As it turned out, Temasek, a week earlier on Nov 25, called off the PowerSeraya sale 'in the light of market conditions' - a statement that observers read as indicating 'lower than acceptable' bids.
The market talk is that the rival group (led by Hong Kong's CLP and including Japanese trader Itochu and Thailand Electricity Generating Public Company) in fact withdrew its bid 'a day or two before the close of the sale', sources said. That apparently triggered Temasek's move to call off the sale.
However, YTL - which was still very much interested in this third and last genco being divested by Temasek - decided to press on and (as the market now assumes) raised its earlier offer to clinch Power- Seraya.
The fact that Temasek's director of investment Gwendel Tung said late Tuesday that YTL had 'put forward an unsolicited proposal which met our requirements', without mentioning any further discussion with other bidders, clearly suggests that the CLP consortium was out of the picture altogether.
'CLP's seemed a hastily- put-together group, with partners which may not have been too familiar with each other, and the deteriorating economic conditions probably caused one or more to pull out,' one industry observer said.
On Temasek's abrupt turnaround to sell the genco, less than a week after calling off the sale, industry sources say that given the financial crisis, it was a choice 'between the devil and the deep blue sea' - closing the sale now, given a willing buyer, or postponing it indefinitely till the storm clouds pass.
The latter would have led to negative perceptions, including by the now foreign-owned Senoko Power and Tuas Power about a still Temasek-run Power- Seraya in the electricity market here.
Market sources feel that the $3.8 billion paid by YTL for PowerSeraya is 'reasonable, given the worsening financial circumstances'.
All the three big gencos have about comparable asset values, with the 2,670 MW Tuas Power the smallest but with the newest plant, the first to go and fetching $4.235 billion from China Huaneng in March.
Next was the 3,300 MW Senoko Power, the biggest but with the oldest plant, which went to Japanese/ French Lion Power for $4 billion in September, and on which Lion is now spending a further $750 million to 'repower' some older units.
PowerSeraya's 'multi- utility' strategy also sits well with YTL. The latter is getting a Singapore genco which has already embarked on an $800 million investment in 1,550 MW worth of cogeneration units that produce steam and cooling water, as well as electricity, to sell to petrochemical plants on Jurong Island.
PowerSeraya also has a $20 million desalination plant and is considering building a second.
Apart from being the gem in YTL's growing international stable of power/ water assets including in the UK, the Singapore genco will give YTL an understanding of the liberalised electricity market here, and 'will put it in a prime position to contribute to liberalisation of the Malaysian electricity market, currently under study by the Malaysian government', said YTL.
While one criticism of YTL is that it may not bring any new technology to the table, 'at the end of the day, it's the cost of fuel which gives an advantage', one official here said. And if YTL, which currently gets Malaysian gas, can persuade Petronas to sell it more gas, this can be easily piped to its Singapore genco.
With the genco divestment completed, the market will be watching how the power game here will eventually play out.
Published December 4, 2008
Car bosses dump jets, beg for US$34b
Three separate survival plans from Chrysler, GM, Ford under review
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(WASHINGTON) Detroit's Big Three auto executives have ditched their corporate jets for hybrid cars and replaced vague pleas for federal help with detailed requests for as much as US$34 billion in their second crack at persuading Congress to throw their struggling companies a lifeline.
Waiting for help: Ford trucks parked in a lot in Detroit before being shipped out. The mood in Congress is not supportive of the carmakers, although policymakers understand that the consequences of just one of them failing are cataclysmic
In their first round of pleas for a government rescue last month, the Big Three executives arrived in Washington on separate private jets and enraged lawmakers who said that they failed to take responsibility for their companies' troubles or justify a federal bailout.
'I think we learned a lot from that experience,' Ford chief executive Alan Mulally said. He, as well as GM CEO Rick Wagoner and Chrysler chief Bob Nardelli, are all driving the 840 km from Detroit to Washington in fuel-efficient hybrid cars for hearings today and tomorrow.
Mr Mulally and Mr Wagoner both said that they would work for US$1 a year - something Chrysler's plan said that Mr Nardelli already does - if their firms took any government loan money. Ford offered to cancel management bonuses and salaried employees' merit raises next year, and GM said that it would slash top executives' pay. Ford and GM both said that they would sell their corporate aircraft.
Congressional leaders are reviewing three separate survival plans from Chrysler LLC, General Motors Corp and Ford Motor Co as they weigh whether to call lawmakers back to Washington for a special session next week to vote on an auto bailout.
In blueprints delivered to Capitol Hill on Tuesday, GM and Chrysler said that they needed an immediate infusion of government cash to last until New Year's Day, and both said that they could drag the entire industry down if they fail. Ford is requesting a US$9 billion 'standby line of credit' that it says it does not expect to use unless one of the other Big Three goes belly up.
But Chrysler said that it needed US$7 billion by year's end just to keep running. And GM asked for an immediate US$4 billion as the first instalment of a US$12 billion loan, plus a US$6 billion line of credit it might need if economic conditions worsen. The two painted the direst portraits to date - including the prospects of shuttered factories and massive job losses - of what could happen if Congress does not step in quickly.
Democratic leaders voiced concern and a desire to do something to avert a carmaker collapse, but they made no commitments about helping an industry that has made few friends lately on Capitol Hill. 'It is my hope that we would' pass legislation to help the carmakers, House Speaker Nancy Pelosi said. Senate Majority Leader Harry Reid said that he would lay the groundwork next Monday for a possible vote on an auto bailout measure.
All three plans envision the government getting a stake in the car companies that would allow taxpayers to share in future gains if they recover.
Leaders of the United Auto Workers (UAW) labour union were also discussing further concessions at an emergency meeting in Detroit yesterday. Under consideration were the possibility of scrapping a much- maligned jobs bank in which laid-off workers keep receiving most of their pay and postponing the carmakers' payments into a multibillion-dollar union- administered health care fund. Still, an auto bailout remains a tough sell on Capitol Hill. Senator Arlen Specter, a Pennsylvania Republican, said that the mood in Congress 'candidly is not supportive' of the carmakers, although he called the consequences of just one of them failing 'cataclysmic'. 'Two of the Big Three say they cannot survive until the end of the year and if one or more goes down, all three go down,' Mr Specter said at a round-table discussion in Philadelphia.
Senator Chris Dodd of Connecticut, chairman of the Senate Banking Committee, said that the carmakers still need to prove that they can survive and be profitable. 'If these companies are asking for taxpayer dollars, they must convince Congress that they are going to shape up and change their ways,' he said in a statement.
His panel is to hear testimony today from the car executives, UAW chief Ron Gettelfinger, and the head of the Government Accountability Office on the companies' plans. The House Financial Services Committee is to hold a similar session tomorrow. -- AP
Car bosses dump jets, beg for US$34b
Three separate survival plans from Chrysler, GM, Ford under review
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(WASHINGTON) Detroit's Big Three auto executives have ditched their corporate jets for hybrid cars and replaced vague pleas for federal help with detailed requests for as much as US$34 billion in their second crack at persuading Congress to throw their struggling companies a lifeline.
Waiting for help: Ford trucks parked in a lot in Detroit before being shipped out. The mood in Congress is not supportive of the carmakers, although policymakers understand that the consequences of just one of them failing are cataclysmic
In their first round of pleas for a government rescue last month, the Big Three executives arrived in Washington on separate private jets and enraged lawmakers who said that they failed to take responsibility for their companies' troubles or justify a federal bailout.
'I think we learned a lot from that experience,' Ford chief executive Alan Mulally said. He, as well as GM CEO Rick Wagoner and Chrysler chief Bob Nardelli, are all driving the 840 km from Detroit to Washington in fuel-efficient hybrid cars for hearings today and tomorrow.
Mr Mulally and Mr Wagoner both said that they would work for US$1 a year - something Chrysler's plan said that Mr Nardelli already does - if their firms took any government loan money. Ford offered to cancel management bonuses and salaried employees' merit raises next year, and GM said that it would slash top executives' pay. Ford and GM both said that they would sell their corporate aircraft.
Congressional leaders are reviewing three separate survival plans from Chrysler LLC, General Motors Corp and Ford Motor Co as they weigh whether to call lawmakers back to Washington for a special session next week to vote on an auto bailout.
In blueprints delivered to Capitol Hill on Tuesday, GM and Chrysler said that they needed an immediate infusion of government cash to last until New Year's Day, and both said that they could drag the entire industry down if they fail. Ford is requesting a US$9 billion 'standby line of credit' that it says it does not expect to use unless one of the other Big Three goes belly up.
But Chrysler said that it needed US$7 billion by year's end just to keep running. And GM asked for an immediate US$4 billion as the first instalment of a US$12 billion loan, plus a US$6 billion line of credit it might need if economic conditions worsen. The two painted the direst portraits to date - including the prospects of shuttered factories and massive job losses - of what could happen if Congress does not step in quickly.
Democratic leaders voiced concern and a desire to do something to avert a carmaker collapse, but they made no commitments about helping an industry that has made few friends lately on Capitol Hill. 'It is my hope that we would' pass legislation to help the carmakers, House Speaker Nancy Pelosi said. Senate Majority Leader Harry Reid said that he would lay the groundwork next Monday for a possible vote on an auto bailout measure.
All three plans envision the government getting a stake in the car companies that would allow taxpayers to share in future gains if they recover.
Leaders of the United Auto Workers (UAW) labour union were also discussing further concessions at an emergency meeting in Detroit yesterday. Under consideration were the possibility of scrapping a much- maligned jobs bank in which laid-off workers keep receiving most of their pay and postponing the carmakers' payments into a multibillion-dollar union- administered health care fund. Still, an auto bailout remains a tough sell on Capitol Hill. Senator Arlen Specter, a Pennsylvania Republican, said that the mood in Congress 'candidly is not supportive' of the carmakers, although he called the consequences of just one of them failing 'cataclysmic'. 'Two of the Big Three say they cannot survive until the end of the year and if one or more goes down, all three go down,' Mr Specter said at a round-table discussion in Philadelphia.
Senator Chris Dodd of Connecticut, chairman of the Senate Banking Committee, said that the carmakers still need to prove that they can survive and be profitable. 'If these companies are asking for taxpayer dollars, they must convince Congress that they are going to shape up and change their ways,' he said in a statement.
His panel is to hear testimony today from the car executives, UAW chief Ron Gettelfinger, and the head of the Government Accountability Office on the companies' plans. The House Financial Services Committee is to hold a similar session tomorrow. -- AP
Published December 4, 2008
COE premium jumps after rash of orders
Lower prices did the trick but demand for new cars is expected to soften again
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(SINGAPORE) As expected, the COE premium for small cars rebounded sharply from its historic low of $2 a fortnight ago.
After poor demand had led to the premium for a certificate of entitlement (COE) in Category A - for cars below 1,600cc - crashing by more than $10,000, motor distributors slashed new car prices by up to $5,000 to $7,000 for popular models. This resulted in a rash of bookings, and prices subsequently went back up ahead of yesterday's bidding exercise.
In fact, business over the last two weeks was said to have been so good that the authorised distributors of Toyota and Honda - the top two brands here - garnered over 1,000 orders each, or more than double what they would normally expect during a two-week period.
'Sales have been brisk since the $2 COE result, and the market reacted accordingly with most people booking a Cat A car,' said the manager of a popular Japanese dealership.
The large number of bids - 3,149 - received for the 1,840 Cat A COEs available was a good indication of the interest level. Two weeks ago, there were only 1,852 bids for 1,841 COEs.
In yesterday's tender, Cat A jumped $7,719 to $7,721. Cat B - for cars above 1,600cc - rose $1,612 to $6,501, while Cat E - the open category - edged up $700 to $7,589.
Meanwhile, Cat C - for commercial vehicles - was the only category to register a fall. It shed $977 to end at $5,212. Cat D - for motorcycles - inched up $90 to $1,102.
Looking ahead though, most motor traders believe demand will soften again as car prices are hiked after this latest round of premium increases. The industry is expected to adjust list prices upwards by $3,000 to $4,000 for Cat A models, and $2,000 to $3,000 for Cat B models.
'Orders had been dwindling since distributors started raising prices a week ago,' said the manager. 'Now with the COE results, they should dwindle some more.'
Before last fortnight's $2 premium, the lowest for a Cat A COE had been $101 in June 2001. But the super-low premium was not a windfall for all 1,840 successful bidders. Some customers of parallel importers (PIs), for example, did not get a COE rebate.
'A PI's car price is usually quoted without a COE rebate, so some PIs refused to give any,' said a senior executive with a local dealership. 'But you can't say they are in the wrong because they are not required by law to give any rebates.'
He added that some PIs did relent and returned some cash to their customers out of goodwill. But there were others that did not.
Some off-peak car (OPC) buyers were also wrongfooted by the $2 COE. They could not qualify for the full $17,000 rebate because of their cars' low open market value (OMV).
The $17,000 rebate is made up of the 100 per cent ARF (additional registration fee) and COE.
Because of this, some OPC buyers were asked to top up the car price by a few thousand dollars.
COE premium jumps after rash of orders
Lower prices did the trick but demand for new cars is expected to soften again
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(SINGAPORE) As expected, the COE premium for small cars rebounded sharply from its historic low of $2 a fortnight ago.
After poor demand had led to the premium for a certificate of entitlement (COE) in Category A - for cars below 1,600cc - crashing by more than $10,000, motor distributors slashed new car prices by up to $5,000 to $7,000 for popular models. This resulted in a rash of bookings, and prices subsequently went back up ahead of yesterday's bidding exercise.
In fact, business over the last two weeks was said to have been so good that the authorised distributors of Toyota and Honda - the top two brands here - garnered over 1,000 orders each, or more than double what they would normally expect during a two-week period.
'Sales have been brisk since the $2 COE result, and the market reacted accordingly with most people booking a Cat A car,' said the manager of a popular Japanese dealership.
The large number of bids - 3,149 - received for the 1,840 Cat A COEs available was a good indication of the interest level. Two weeks ago, there were only 1,852 bids for 1,841 COEs.
In yesterday's tender, Cat A jumped $7,719 to $7,721. Cat B - for cars above 1,600cc - rose $1,612 to $6,501, while Cat E - the open category - edged up $700 to $7,589.
Meanwhile, Cat C - for commercial vehicles - was the only category to register a fall. It shed $977 to end at $5,212. Cat D - for motorcycles - inched up $90 to $1,102.
Looking ahead though, most motor traders believe demand will soften again as car prices are hiked after this latest round of premium increases. The industry is expected to adjust list prices upwards by $3,000 to $4,000 for Cat A models, and $2,000 to $3,000 for Cat B models.
'Orders had been dwindling since distributors started raising prices a week ago,' said the manager. 'Now with the COE results, they should dwindle some more.'
Before last fortnight's $2 premium, the lowest for a Cat A COE had been $101 in June 2001. But the super-low premium was not a windfall for all 1,840 successful bidders. Some customers of parallel importers (PIs), for example, did not get a COE rebate.
'A PI's car price is usually quoted without a COE rebate, so some PIs refused to give any,' said a senior executive with a local dealership. 'But you can't say they are in the wrong because they are not required by law to give any rebates.'
He added that some PIs did relent and returned some cash to their customers out of goodwill. But there were others that did not.
Some off-peak car (OPC) buyers were also wrongfooted by the $2 COE. They could not qualify for the full $17,000 rebate because of their cars' low open market value (OMV).
The $17,000 rebate is made up of the 100 per cent ARF (additional registration fee) and COE.
Because of this, some OPC buyers were asked to top up the car price by a few thousand dollars.
Published December 4, 2008
Developers head into crisis with more cash
Gearing improves as developers pare borrowings, increase cash held from divestments
By UMA SHANKARI
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(SINGAPORE) Developers have entered the latest slump in much better shape than they were in during the last property downturn in 2001, a comparison of their cash positions and debt-to-equity ratios then and now shows.
In fact, between the second and third quarters this year, some developers worked to better their gearing ratios. 'Among the larger-cap developers we track, most reported stronger balance sheets at end-Q3 2008,' said OCBC Investment Research analyst Foo Sze Ming.
'On average, the net debt-equity ratio had come down from 0.52 times in Q2 to 0.49 times in Q3. And the improvement was generally attributable to a stronger equity base, paring of borrowings and an increase in cash held from divestments.'
CapitaLand, City Developments and GuocoLand all cut their debt-to-equity ratios in Q3, OCBC's data shows.
The same trend holds true when comparing developers' financial positions at end-2001 and Q3 2008. Data gathered by DMG & Partners on selected developers shows most companies now have smaller debt-to- equity ratios. They also have more cash on hand. 'They are definitely stronger this time around,' said DMG & Partners analyst Brandon Lee.
Singapore's big three listed developers - CapitaLand, City Developments and Keppel Land - exemplify this trend. At end-2001, CapitaLand had $1.9 billion of cash and a gearing of 0.87 times. Now, it has a whopping $4.2 billion in cash and a gearing ratio of 0.51 times. Similarly, City- Dev has increased its cash holding from $701.8 million to $813.3 million and cut its gearing from 0.8 times to 0.46 times. KepLand has also increased its cash holding, from $120.9 million to $663.4 million, and cut its gearing from 1.33 times to 0.54 times.
Property companies are expected to continue to try to improve their cash balances and reduce gearing over the next few quarters. SC Global Developments, for example, recently drew $100 million from reserve facilities to boost cash on hand. But the pace of divestment is expected to slow as buyers get cold feet in the poor economic climate.
Analysts reckon things do not look as bad as feared for developers for another reason - in the Q3 earnings reporting season, much- feared provisions for landbanks acquired at high prices, which analysts had predicted, did not materialise.
Analysts have changed their tune and now expect developers to make provisions only in the second half of 2009, or even later. Some also reckon the provisions could be less than what the market has already priced in.
In 2001 and 2002, several developers, including CapitaLand, CityDev and Keppel Land, made massive write-downs on their Singapore residential landbanks, which hit their results badly. But this time around, the write-offs may be smaller, some analysts say.
Keppel Land was one of the first developers to make provisions in 2001, announcing $455 million of write-downs in the value of its residential landbank in November that year.
But the risk of a landbank write-down in the current downturn is lower for KepLand because the company did not buy any land in Singapore last year and its current landbank is carried in its books at relatively low cost, said OCBC's Mr Foo.
CIMB analyst Donald Chua said: 'We are not seeing provisions yet because prices have not fallen that much yet. Developers are probably waiting to see how the market pans out next year.' In light of this, provisions are unlikely for Q4 unless things take a turn for the worse, Mr Chua said.
In the 2000-2003 property downturn, the residential price index for private homes recorded a quarter-on-quarter drop in Q3 2000. However, the provisions and write-offs only came towards the end of 2001. This time around, the quarter-on-quarter dip in the price index appeared only in Q3 2008, so provisions are only expected around end-2009.
Downward revaluations of investment properties are still expected in Q4 2008 when developers do their yearly valuations. And for many developers, landbank write-downs will definitely take place at some point in time if 'things keep going this way', an analyst said.
Developers head into crisis with more cash
Gearing improves as developers pare borrowings, increase cash held from divestments
By UMA SHANKARI
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(SINGAPORE) Developers have entered the latest slump in much better shape than they were in during the last property downturn in 2001, a comparison of their cash positions and debt-to-equity ratios then and now shows.
In fact, between the second and third quarters this year, some developers worked to better their gearing ratios. 'Among the larger-cap developers we track, most reported stronger balance sheets at end-Q3 2008,' said OCBC Investment Research analyst Foo Sze Ming.
'On average, the net debt-equity ratio had come down from 0.52 times in Q2 to 0.49 times in Q3. And the improvement was generally attributable to a stronger equity base, paring of borrowings and an increase in cash held from divestments.'
CapitaLand, City Developments and GuocoLand all cut their debt-to-equity ratios in Q3, OCBC's data shows.
The same trend holds true when comparing developers' financial positions at end-2001 and Q3 2008. Data gathered by DMG & Partners on selected developers shows most companies now have smaller debt-to- equity ratios. They also have more cash on hand. 'They are definitely stronger this time around,' said DMG & Partners analyst Brandon Lee.
Singapore's big three listed developers - CapitaLand, City Developments and Keppel Land - exemplify this trend. At end-2001, CapitaLand had $1.9 billion of cash and a gearing of 0.87 times. Now, it has a whopping $4.2 billion in cash and a gearing ratio of 0.51 times. Similarly, City- Dev has increased its cash holding from $701.8 million to $813.3 million and cut its gearing from 0.8 times to 0.46 times. KepLand has also increased its cash holding, from $120.9 million to $663.4 million, and cut its gearing from 1.33 times to 0.54 times.
Property companies are expected to continue to try to improve their cash balances and reduce gearing over the next few quarters. SC Global Developments, for example, recently drew $100 million from reserve facilities to boost cash on hand. But the pace of divestment is expected to slow as buyers get cold feet in the poor economic climate.
Analysts reckon things do not look as bad as feared for developers for another reason - in the Q3 earnings reporting season, much- feared provisions for landbanks acquired at high prices, which analysts had predicted, did not materialise.
Analysts have changed their tune and now expect developers to make provisions only in the second half of 2009, or even later. Some also reckon the provisions could be less than what the market has already priced in.
In 2001 and 2002, several developers, including CapitaLand, CityDev and Keppel Land, made massive write-downs on their Singapore residential landbanks, which hit their results badly. But this time around, the write-offs may be smaller, some analysts say.
Keppel Land was one of the first developers to make provisions in 2001, announcing $455 million of write-downs in the value of its residential landbank in November that year.
But the risk of a landbank write-down in the current downturn is lower for KepLand because the company did not buy any land in Singapore last year and its current landbank is carried in its books at relatively low cost, said OCBC's Mr Foo.
CIMB analyst Donald Chua said: 'We are not seeing provisions yet because prices have not fallen that much yet. Developers are probably waiting to see how the market pans out next year.' In light of this, provisions are unlikely for Q4 unless things take a turn for the worse, Mr Chua said.
In the 2000-2003 property downturn, the residential price index for private homes recorded a quarter-on-quarter drop in Q3 2000. However, the provisions and write-offs only came towards the end of 2001. This time around, the quarter-on-quarter dip in the price index appeared only in Q3 2008, so provisions are only expected around end-2009.
Downward revaluations of investment properties are still expected in Q4 2008 when developers do their yearly valuations. And for many developers, landbank write-downs will definitely take place at some point in time if 'things keep going this way', an analyst said.
Wednesday, 3 December 2008
Published December 3, 2008
Malaysian firm, Iran seal US$14b gas deals
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(TEHERAN) Iran has signed gas deals worth US$14 billion with Malaysia, state television reported yesterday, the latest Asian investment in the Islamic Republic where Western firms have become increasingly cautious about their investments.
The deals involved a project to produce liquefied natural gas (LNG) and the development of two gas fields, the report said, without making clear if they were all new or related to contracts sealed late last year.
The Isna news agency said that they were signed on Monday with Malaysia's SKS group, which in December last year struck a multibillion-dollar gas development contract with Iran, which boasts the world's second-largest gas reserves after Russia. The National Iranian Oil Company and SKS, which is linked to tycoon Syed Mokhtar Al-Bukhary, reached a preliminary US$16 billion deal in January 2007 to develop the southern Golshan and Ferdows gas fields and build plants to produce LNG.
But a spokeswoman for the National Iranian Gas Exporting Company said that those contracts concerned upstream development of the fields, while the ones signed on Monday concerned 'midstream' development and an LNG plant. 'Three documents pertaining to the Golshan and Ferdows fields' midstream development were signed last night,' she told Reuters.
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Iran Oil Minister Gholamhossein Nozari said that exports of crude and 120,000 barrels of gas condensates were part of the agreements signed on Monday. 'The development of Golshan and Ferdows gas fields will be based on a buy-back contract, and (it was) also agreed for Malaysia to invest in and build an LNG plant,' Isna quoted him as saying. -- Reuters
Published December 3, 2008
MISC chief exec tipped to rejoin Petronas
By S JAYASANKARAN
IN KUALA LUMPUR
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SHAMSUL Azhar Abbas, the outgoing chief executive of MISC Bhd, Malaysia's and the region's largest shipping line, could move to national oil company Petronas to head its international operations, according to industry officials.
His successor at MISC, a listed subsidiary of Petronas, was named by the oil company earlier this year. Petronas has appointed Amir Hamzah Azizan president and chief executive officer of MISC, effective Jan 1, 2009. Mr Amir Hamzah, son of the late Petronas chairman Azizan Abdul Rahman, is currently president and chief executive of AET Tanker Holdings, a subsidiary of MISC and one of the largest operators of petroleum tankers in the Atlantic Basin.
For his part, Mr Shamsul is an old industry hand who has worked in almost every single department of Petronas. Indeed, he was seconded to MISC by the oil company four years ago and is widely credited for taking MISC out of the dry- bulk business and selling the company's ships when the business was at its peak several years ago. In hindsight, he has been proven prescient as global dry-bulk rates have all but collapsed.
The movement of senior executives among Malaysian government-linked companies like Mr Shamsul and Mr Amir Hamzah mirrors other movements in Kuala Lumpur as contracts expire and people move on. In most cases, however, top executives have seen their contracts being renewed.
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Last year, for example, Azman Mokhtar - who heads state investment agency Khazanah Holdings - saw his contract renewed for another three-year term. More recently, both the chairman and the chief executive of Malaysia Airlines - Munir Majid and Idris Jala, respectively - saw their contracts extended similarly. So was the contract of Syed Zainal Abidin Tahir, chief executive of national carmaker Proton Holdings.
The holdout remains Yusli Mohamad Yusoff, chief executive of Bursa Malaysia, whose contract expires early next year and from whom no word has been forthcoming. Notwithstanding the global financial crisis which roiled stock exchanges worldwide, however, most analysts credit Mr Yusli with doing a relatively good job, so his contract is expected to be renewed as well.
The choicest job, however, remains that of the chief executive of Petronas, Malaysia's largest and most profitable company by a wide margin.
Much to the chagrin of many highly connected personalities who have jostled for the job in vain, it remains firmly - and many would say thankfully - in the hands of the current incumbent Hassan Merican.
Published December 3, 2008
KL firms' weak Q3 earnings spark analyst downgrades
Sectors such as construction, telco, transport, banking underperform
By PAULINE NG
IN KUALA LUMPUR
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ANALYSTS have slashed their earnings growth forecasts after corporate Malaysia turned in a third quarter performance that revealed earnings to be souring faster than expected.
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| Patchy: Malaysian corporations posted a second consecutive quarter of earnings disappointment, with a bigger number slumping in their performance for Q3 |
Malaysian corporations posted a second consecutive quarter of earnings disappointment, with a bigger number of companies slumping in their performance.
While one in four companies covered by stockbroker HwangDBS-Vickers proved to be a letdown for the second quarter, 34 per cent did not live up to expectations for the third.
That the current global financial dislocations have already exacted a toll on Malaysia Inc was reflected in the aggregate fall in net profit. In HwangDBS's universe of companies, profit fell a steep 29 per cent year on year and 30 per cent quarter on quarter.
Transport, telco, banking, and construction were significant underperformers but a number of big caps across the board were off target: Maybank (with its impairment losses on its Pakistan unit MCB), Bumiputra-Commerce (weak capital markets), TMI (losses in Bangladesh and India), MAS (higher jet fuel costs), MISC (higher operating costs), Genting (significant investment write-offs), and Tenaga (higher coal costs).
Aseambankers observed that it was not a season to be jolly, its universe of companies posting a greater letdown with 43 per cent of the 88 stocks underperforming. The stockbroker has downgraded the earnings of virtually every sector - except for consumer - and reduced its 2008-2009 market forecasts by 4.3 and 7.6 per cent respectively.
In a strategy report, it said that market earnings this year would likely expand a mere 0.9 per cent before contracting 6.4 per cent next year, but acknowledged the potential for further downside to its forecasts through to 2010 where it anticipates a 7 per cent recovery.
The drop in third quarter profits is in line with the softer economy, which in the third quarter expanded 4.7 per cent, down from 6.3 per cent three months ago.
HwangDBS is more optimistic about this year's earnings growth, pegging it at 6.7 per cent, but has projected earnings to contract 8.8 per cent next year.
Its downgrades included two blue chips - Sime Darby and Resorts World. Sime was rated a 'sell' because of its high multiples relative to the sector, while Resorts' perceived pricey related-party purchase of a 10 per cent stake in Walker Digital Gaming earned it a 'hold' from a 'buy'.
Top on Aseambankers' list of unpleasant surprises in the third quarter was budget carrier AirAsia's RM428 million (S$180 million) derivatives-related losses. Fraser & Neave's unexpected consumer defaults at its non-core property division in spite of the buoyant outlook at its Fraser Business Park project raised alarm bells, as did IOI Corporation's scrapping of plans to buy Menara Citibank which led to the forfeiting of a RM73 million deposit.
Despite the challenging economic climate, 16-17 per cent of companies covered exceeded expectations for the third quarter. Auto player Tan Chong Motors emerged as one of the bigger surprises, its sharp 40 per cent rise in net profit achieved on the back of stronger new model sales. Other 'consensus beaters' were JT International and UMW.
Any relief rallies in the last quarter are likely to be limited by the rapid deterioration in the global economic scene, but window dressing activities at year-end could provide a bit of cheer.
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