Published December 12, 2008

Malaysian industrial output down in October

Data shows growth in fourth quarter will be much softer, say economists

By PAULINE NG
IN KUALA LUMPUR

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in Kuala Lumpur MALAYSIA'S industrial production declined 3.1 per cent in October as manufacturing output shrank, the second consecutive monthly drop, which indicates that growth in the fourth quarter would be much softer, economists said.

Crisis fallout: The slide in industrial production is yet another sign Malaysia is already feeling the pinch of a global slowdown. But senior officials say the country's more diversified economy and stronger fundamentals would help avert a recession next year

Coming on the heels of September's 1.7 per cent month-on-month drop, the slide in production is yet another sign the country is already feeling the pinch of a global slowdown.

October's industrial production index reading of 132.7 was the same for February - traditionally lower because there are fewer working days owing to the festive Chinese New Year holidays.

Significantly, all the three indices of mining, manufacturing and electricity contracted in the month, the electricity index shrinking 1.6 per cent year on year, according to data from the Statistics Department.

Mining output showed the biggest decline of 5.4 per cent year on year after contracting 4.8 per cent in September as global oil prices tanked to less than a third of July's peak on weaker demand. Crude oil and natural gas production decreased 6.8 per cent and 3.1 per cent, respectively, over the same period last year.

But the decline was most keenly felt in the manufacturing sector as production declined 2.5 per cent year on year following a contraction of one per cent in September.

The exports of electrical and electronic components account for some 40 per cent of total exports, and a slump in global demand has already led to fewer production shifts and in some cases the laying-off of workers.

Economists said the decline in industrial output was not unexpected given that October exports had fallen by 14.2 per cent from September.

'It's a sign fourth-quarter growth will slow down more significantly,' said an economist whose latest forecast for the last quarter has been revised to between 3 and 3.5 per cent from 3.8 per cent.

The economy expanded 4.7 per cent in the third quarter and because first and second-quarter growth came in over 7 per cent, is likely to meet the government's revised target of a minimum 5 per cent expansion this year. Growth is expected to moderate to 3.5 per cent next year.

For the first 10 months of the year, industrial production registered an expansion of 2.7 per cent; manufacturing output grew 3.3 per cent for the period.

A number of senior officials continue to maintain Malaysia's more diversified economy and stronger fundamentals would help avert a recession next year.

Kuala Lumpur has thus far announced a modest RM7 billion (S$2.92 billion) economic stimulus package but economists said the health of Malaysia's main trading partners would be key to its economic health.

China - one of its bigger export markets - saw its own exports falling worse than expected in November.

Published December 12, 2008

More clarity needed at Zhonghui

By LYNETTE KHOO

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ZHONGHUI Holdings investors are on tenterhooks - and for good reasons. First was news last week that United Overseas Bank (UOB) has demanded repayment of two outstanding loans totalling about $19.6 million. And second, there is worry over whether the company's proposed solution to meet the debt repayment will work.

The deadline for Zhonghui to repay UOB two outstanding sums - S$1.02 million and US$12.5 million (S$18.6 million) - is over and, to help address investors' concerns, the company needs to give an urgent update on its negotiations with the bank. In its letter of demand last week, which sought repayment within seven days, UOB said it is also seeking payment of interest accrued.

Zhonghui appears to have a solution at hand - which is to partially divest its 42.06 per cent stake in associate Baoji ZhongCheng Machine Tooling Co to repay the debt. But as shareholders are also clueless about the progress of this divestment, they will appreciate an equally urgent update on this issue. When contacted by BT, a Zhonghui executive declined to comment. The consolation is that the executive said an announcement would be made next week.

Shareholders are keeping their fingers crossed pending answers to this debt repayment issue and, hopefully, the company would also shed some light on the impact of the partial divestment on Zhonghui's profitability as well.

For fiscal 2007 and the first nine months of this year, Zhonghui would have been in the red had it not recognised profits from its stake in Baoji, due to a lack of secured contracts for its core business in solid waste treatment.

Paring down its stake in Baoji would translate to a smaller share of its profits, possibly hurting its profitability.

Zhonghui had said in April that it planned to divest a stake of up to 20 per cent in Baoji. But based on Q3 results, its investment in Baoji was 252.11 million yuan (S$54.7 million) as at Sept 30, so divesting a 20 per cent stake may not be sufficient to fully pay off the debt. And given current market conditions, it is unclear if Zhonghui could derive a fair value from the stake sale. The group may have to dispose of a larger stake.

Understandably, this divestment may be necessary for Zhonghui to stay afloat, but some disclosure on its impact is still warranted.

At this point, Zhonghui's share of profits from Baoji and its investment value have not been audited under IFRS accounting standards (prompting an audit qualification on Zhonghui's share of Baoji's results), which may complicate the pricing of its stake. Neither has the ownership of the shares been transferred from the vendor to Zhonghui yet, based on a filing with the Singapore Exchange (SGX) in April, so its entitlement to rights and benefits in Baoji shares appears to come under Chinese laws.

One wonders whether a Singapore-incorporated firm should be subject to Chinese laws when it comes to equity accounting. And given the significance of Baoji in Zhonghui's profitability, Zhonghui's auditors should perhaps carry out an audit on Baoji to verify if its numbers reflect a true and fair view.

Prompted by a query from SGX in April, Zhonghui explained that the request by its auditors to carry out an audit on Baoji was turned down because of 'confidentiality issues' as Baoji was in the process of preparing for its initial public offering. Baoji was slated to be listed this quarter or the first quarter of 2009, but there is still no news of it.

Coupled with this lack of clarity, the recent spate of sudden departures by Zhonghui's senior officers and external auditors also cast a pall over the group.

The group financial controller, Emily Ang, and two independent directors resigned in May. External auditors Horwath First Trust also notified the company in July of their wish to resign as auditors of the company.

Shortly after joining the board in May, new lead independent director Lim Lian Soon stepped down in October, citing unsatisfactory information flow from the executive directors, which makes it difficult for him to properly discharge his duties.

He said then that the audit committee could not obtain the support of the CEO to appoint a special accountant to help resolve certain issues, which included the default in paying the UOB loan, the issue of profit sharing in Baoji and the search for a buyer for the partial divestment in Baoji.

Such comments certainly raised eyebrows over a perceived lack of disclosure and urgency of management to resolve those issues.

Zhonghui has since appointed PricewaterhouseCoopers (PwC) as special accountants to conduct a limited review on its financial position and other issues in question. Hopefully, the PwC findings will soon shed light on these matters.

At this juncture, silence from the management now would do little to assure shareholders of its continued diligence in making sure the company can continue as a going concern.

While these uncertainties persist, shares of Zhonghui remain traded and investors have little information to rely on. Hopefully, it would not have to take another query from SGX to trigger a disclosure.

Published December 12, 2008

Olam buys back US$118m convertible bonds

With clearing price at 65%, firm paying US$76.44m, funded by new 3-year loan

By EMILYN YAP

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AGRICULTURE supply chain manager Olam International is buying back US$117.6 million of convertible bonds at a discount, booking gains and shaving its gearing in the process.

For US$0.65 on the dollar, Olam is paying US$76.44 million in cash for the convertible bonds. It will take up a new three-year term loan to fund the deal.

'Current market conditions afforded us an opportunity to reduce outstanding debt, reduce refinancing risk, strengthen our balance sheet and deliver value to our shareholders,' said group managing director and CEO Sunny Verghese yesterday.

Olam's repurchase offer attracted over 60 bids from global investors. Prices of the convertible bonds have fallen since US$300 million of them were issued in July. They last closed at US$0.6275 on the dollar on Dec 10, according to Bloomberg data.

The convertible bond buyback and new loan leaves Olam with a net decrease in debt of US$41.16 million. The company will also book a non-taxable gain of about the same amount when the repurchase is completed.

Assuming that Olam had repurchased the convertible bonds on Sept 30, the net debt to equity ratio for its first quarter would be a lower 2.46 instead of 2.71.

UBS Investment Research said in a note yesterday: 'This is further down from 3.2x earlier in the year, and thus we remain confident in management's focus and ability to further reduce gearing levels.'

Olam has also cut its potential refinancing obligations with the repurchase. It can avoid buying back up to US$130.67 million of bonds (because bondholders have the right to sell them back to the firm in July 2011). It also avoids future coupon payments and accretion on the bonds repurchased of up to US$13.64 million.

Across Asia, other companies such as Galaxy Entertainment and Flextronics International have been repurchasing debt at lower prices. 'Buying back debt at a discount to par value and cancelling it guarantees (companies) a windfall,' said Damien Wood, head of Asian credit research at Credit Suisse Group in Singapore to Bloomberg.

The same report mentioned that much of the fall in corporate debt prices could have been driven by hedge funds selling their holdings to repay investors.

But not all bondholders are taking up the offers. Olam, for instance, still has US$182.4 million of the convertible bonds outstanding after the repurchase. A fund manager told Bloomberg last week that she wants at least US$0.79 on the dollar before selling.

'We believe that . . . bondholders who have chosen to hold the remaining outstanding bonds see value in the bonds and the future prospects of Olam,' said Mr Verghese.

Olam shares closed one cent lower at $1.17 yesterday.

Published December 12, 2008

Remisiers push for alternative to buying-in market

Remisiers' body also calls on SGX to consider scrapping short-selling fines

By R SIVANITHY

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(SINGAPORE) The Society of Remisiers (SOR) has proposed that the Singapore Exchange (SGX) introduce an immediate delivery, or ID, market that would complement current measures against short-selling.

SOR president Albert Fong, in a Dec 3 letter to the exchange, also requested that SGX consider scrapping fines of at least $1,000 for 'naked' shorts and $50,000 for failed delivery in the buying-in market.

In his letter, Mr Fong said that the ID market would function as a secondary market similar to the now-defunct cash market where shares can be bought and sold for immediate delivery.

'We envisage that SGX will impose a surcharge on transactions done in this ID market to deter rampant abuse of such a market and to compensate for loss of revenue by the exchange with the exclusion of the buying-in market . . . the mechanics of this ID market can be meticulously drawn up and fine-tuned gradually . . . we are fully convinced that this secondary market will enhance transparency and offer a systematic and logical extension to our financial system,' said Mr Fong.

Referring to the fines for naked shorting, Mr Fong said that they are punitive and disproportionate and, as a result, could deter investors by adding to already-high costs and risks. Mr Fong said the SOR believes that these measures, although possibly needed when markets are volatile, should be rescinded when the market stabilises and reintroduced if needed later.

Under the present settlement system of T+3, shares that have been short sold at the end of each day and thus cannot be delivered on the due date will be forcibly bought in by the exchange on the next trading day, that is T+4. This is conducted in SGX's buying-in market, a segment of the market that is visible only to dealers and remisiers and where prices are progressively raised by the exchange until all short positions are filled.

This arrangement had previously come under some criticism for being relatively opaque and on Sept 25, SGX announced that it would publish the list of stocks to be bought in every day half an hour before the scheduled commencement time of 11.30am, as well as impose the fines outlined above. It did, however, add that it would allow appeals for genuine mistakes.

Earlier this month, the exchange supplemented those measures with a consultation paper which proposed full disclosure of daily short-sold positions. Public feedback for this paper closes on Dec 22.

When contacted by BT yesterday, Mr Fong said that the SOR supports the disclosure measures as they would improve transparency and provide useful information to investors.

'Our main problem is with the heavy fines for short-selling which all our members are very upset about,' he said. 'Also, with the ID market, shares can be bought by the public, member companies and SGX itself, thus eliminating the need for a buying-in market altogether.'

In response to a BT query, SGX yesterday said: 'SGX's public consultation on the proposed revised penalty framework for the non-delivery of securities was closed on Dec 4, 2008. SGX is currently assessing the feedback received from various market participants, including comments received from the Society of Remisiers.'

In an Aug 30, 2007 letter to BT in response to a call to reintroduce the cash market, which was a segment of the market where cash was paid for immediate delivery of shares and was thus similar to the SOR's proposed ID market, SGX executive vice-president and head of operations Chew Hong Gian said that the cash market was a feature of scrip-based trading that was introduced for the sole purpose of allowing shareholders to sell physical share certificates to stockbrokers if they needed payment on the same day.

'When trading went fully scripless in 1994, the cash market was abolished to protect shareholders from shares being sold without their knowledge, as physical certificates no longer had to be produced.'

Published December 12, 2008

Race against time to rescue US car giants

House sends bailout Bill to Senate as GM and Chrysler face vanishing cash

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(WASHINGTON) The debate over the automaker bailout in Congress has become a race against the clock.

The US House of Representatives voted 237-170 on Wednesday night to approve emergency loans for General Motors Corp (GM) and Chrysler LLC, shifting the focus to the Senate, where Republican opposition threatens to delay or kill the legislation.

Democratic leaders and the Bush administration are trying to beat a deadline to save the companies and the millions of jobs dependent on the industry before GM and Chrysler burn through their remaining cash. For GM, that could be in three weeks.

'Without this bridge, we're going to fall into the biggest calamity this country has known since the Great Depression,' said Representative John Dingell, a Democrat from Michigan, the carmakers' home state. 'A terrible disaster looms.'

House Speaker Nancy Pelosi tossed a challenge to senators, saying on Bloomberg Television that she wouldn't bring her chamber back for further action if the Senate passed a different version of the plan.

The legislation would let GM and Chrysler draw on US$14 billion of loans to keep operating while they develop restructuring plans required by March 31 next year. Without the aid, the two companies would likely have to declare bankruptcy by the end of the year.

'The House vote brings us closer to saving jobs and to creating a more competitive US auto industry,' GM said in a statement that urged the Senate to act on the measure soon. The company's value has fallen 89 per cent since the last peak in October 2007.

The automakers could still be forced into bankruptcy under the legislation if the so-called 'car czar' - an official to be appointed by President George W Bush to oversee the loan programme - decides that their restructuring plans are insufficient.

Republicans said on Wednesday that the House measure wouldn't give the czar enough authority to order cost cuts and other changes. They argued that only a restructuring under bankruptcy protection can make the companies more competitive.

'The car czar doesn't have as much authority as he really needs,' said Senator Robert Bennett, a Utah Republican. 'He needs the capacity of the master in bankruptcy to force things to happen.'

The czar would have the power to veto automaker expenditures over US$100 million. Car companies that take loans would have to limit pay and ban bonuses for their 25 most highly paid executives. They also would be barred from owning or leasing passenger aircraft or paying dividends to shareholders.

Taxpayers would receive stock warrants equal to 20 per cent of the aid. The US may end up holding a large stake in the automakers based on that provision. GM, with a market value of about US$2.8 billion, is seeking US$10 billion to survive until March 31.

Senate Republicans emerged from a meeting on Wednesday with Vice-President Dick Cheney and White House chief of staff Josh Bolten and said the measure doesn't have enough support to clear a 60-vote legislative hurdle. Democrats control the chamber 50-49.

'It has minimal, very little support in our caucus,' Tennessee Republican Bob Corker said after the meeting. He said Mr Cheney and Mr Bolten gave a 'non-compelling' presentation in favour of the plan.

Senate Majority Leader Harry Reid, a Nevada Democrat, is trying to work with Republicans on an agreement that might allow a Senate vote scheduled for yesterday related to the bailout, said his spokesman Jim Manley.

Republicans who oppose the measure said Congress should stay in session next week to allow time for changes. Any revisions in the legislation by the Senate would require the House to reconvene.

During the debate, Massachusetts Democrat Barney Frank warned colleagues that further House action is unlikely. 'This is the last train out of the legislative station this year,' he said.

Ms Pelosi said on Bloomberg TV: 'You never say never, but the fact is, I think it's important for the Senate to know that this is a strong bipartisan Bill.'

In Sweden, the government yesterday announced a 28 billion kronor (S$5.16 billion) package to help the country's beleaguered automotive sector, including carmakers Volvo and Saab.

The measures 'will take the form of increased investment in research and development and state credit guarantees for raising loans (from) the European Investment Bank', the government said in a statement.

Volvo Cars is owned by struggling US automaker Ford while Saab Automobile is owned by General Motors.

The Swedish government, which had previously said it would await a US decision on a rescue package before announcing any measures, reiterated it would not take over the struggling Swedish carmakers. -- Bloomberg, AFP

Published December 11, 2008

Corruption reputation harms prospects: PM

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(KUALA LUMPUR) Malaysia's reputation for being ridden by corruption is harming the country's prospects, Prime Minister Abdullah Ahmad Badawi said yesterday as a new anti-graft body was tabled in parliament.

Mr Abdullah also tabled legislation that will appoint a nine-member panel to advise the premier on the selection of judges, in a bid to address criticism that the judiciary is corrupt and incompetent.

'It will give a level of confidence in these institutions, higher than before, and negative perceptions will hopefully be reduced as much as we can,' Mr Abdullah said of the two proposals. 'We have to deal with the perception by businesses and industry that corruption here is king, and the judiciary is unsatisfactory and is not credible as all of this will affect our competitiveness,' he told reporters.

The Anti-Corruption Agency which is being replaced has been criticised as toothless, and the new version is being promoted as having more independence and greater accountability. However, activists say that the new commission should be also given the power to prosecute corrupt activities, currently the responsibility of the government. - AFP

Published December 11, 2008

Gift of art book trumps S'pore acquisitions

By PAULINE NG
IN KUALA LUMPUR

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CHRISTMAS came early this year for Francis Yeoh Seok Ping, and it wasn't in the form of valuable Orchard Road real estate or a multi-billion dollar power plant.

Priceless: Mr Lazzari (right) presents 'La dotta mano' - a special art book depicting pictures of Michelangelo's famous sculptures - to Mr Yeoh, YTL's managing director

Instead, a gift of a limited edition art book of Michelangelo's La dotta mano by the Italian The Fondazione FMR-Marilena Ferrari group left the Malaysian tycoon momentarily tongue-tied before he declared it superior to the YTL Group's recently acquired Singapore assets.

'I am stunned by this gift because I do not know what I would want for a Christmas present other than this. People thought God gave me two Christmas presents already - Orchard Road and PowerSeraya - but this is better,' said Mr Yeoh, YTL's managing director.

The La dotta mano or The Learned Hand is set to become a favourite book - second only to the Gutenberg Bible - the born-again Christian who is not afraid to wear his religion on his sleeve, told the Italians at a presentation ceremony yesterday where he received one of 33 of the special creations which contain a volume of works by the Renaissance master.

Priced at RM500,000 (S$207,500), the cover of the 21 kg book features an exact replica of the Madonna della Scala (Madonna of the Steps) and is carved from the same marble from the Polvaccio quarries used by Michelangelo centuries ago.

Each book took about two years to produce - four months devoted to making the cover alone - and comes with a 500-year guarantee. Mr Yeoh's copy is the only La dotta mano in Malaysia, said Fondazione FMR vice-president Fabio Lazzari who observed that the group had initially heard of Mr Yeoh through the late tenor Luciano Pavarotti who had been a mutual friend. He indicated that the Malaysian had been selected because of his sponsorship of the arts and advocacy of a greener world.

'Forever this joy would be sown in my heart until I meet my wife and Luciano,' Mr Yeoh declared.

Although the global financial crisis had led to thousands of jobs lost and turned the world on its head, he observed: 'We have bought many things at a very good price now. The world is going down but YTL is going up.'

Nonetheless, he said he did not want to be seen as boastful and had rejected interviews in the aftermath of major acquisitions made by the Malaysian conglomerate, which in two short months had invested slightly over S$4 billion in Singapore assets taking over PowerSeraya and a controlling stake in Macquarie Prime Reit.

Published December 11, 2008

Malaysian government pushes for palm oil biofuel

It will sell palm biodiesel at pumps, lobby IPPs to burn palm oil as fuel

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(KUALA LUMPUR) Malaysia yesterday said that it would aim to convince independent power producers (IPPs) to boost the use of palm oil as a fuel, but industry observers remained sceptical because of the government's overly high subsidies to support the sector.

The world's second- largest palm producer said that it will sell palm biodiesel at domestic pumps in 2010, as well as lure IPPs to burn palm oil as biodiesel - measures aimed at mopping up excess stocks of the vegetable oil.

The announcement comes as palm oil prices have tumbled nearly two-thirds from a peak of RM4,486 (S$1,869) on a mix of surging stocks and funds fleeing commodity plays while new estates find it difficult to stay afloat.

'By January 2010, palm biodiesel will be available at all the pumps nationwide, of course within reasonable delivery distance,' Plantation Industries and Commodities Minister Peter Chin told reporters, adding that the government was in talks with IPPs to burn the tropical oil as a fuel.

He declined to say how much palm oil will be channelled as biodiesel to the IPPs, which include YTL Power, Sime Darby, Tanjong plc and MRCB.

If biofuels are successfully implemented in the transport and industrial sectors, at least half a million tonnes of crude palm oil will be removed from the market in 2009, Mr Chin said.

Palm oil production in Malaysia for next year will stand at 18 million tonnes, the government has forecast, suggesting that less than 3 per cent of it will be removed, barely making a dent.

Malaysia has already put in place mandates for biodiesel use in government vehicles and will give aid to the industry to replant as part of the package of measures to boost demand for crude palm oil and curtail oversupply.

Industry watchers welcomed the measures but said that the government's reliance on a RM400 million fund drawn from taxing palm planters may not be enough to subsidise biodiesel for transport and power generation.

Of the amount, RM200 million was already earmarked for biodiesel and the rest for replanting.

'It's all a matter of cost,' said S Paramalingam, executive director of local brokerage Pelindung Bestari Sdn Bhd.

'The government has been talking about these measures for the longest time but with crude oil prices falling at a faster rate than palm oil, the subsidies may be much higher and there will be a reluctance to follow through.'

Now, palm biofuel would have to compete with cheap domestic petrol diesel, one of the lowest priced in Asia as the government still pays out subsidies from oil and gas export revenues.

In 2006, Malaysia took the lead in developing Asia's biodiesel industry and granted licences to more than 90 firms to set up plants with grandiose visions of introducing palm biodiesel into the domestic fuel market.

But until recently, sky-high prices and a preference to divert palm oil into the more lucrative food industry saw the government dragging its feet. -- Reuters

Published December 11, 2008

M1 seen maintaining dividend payout

This despite expecting a fall in its net income due to keen competition

By WINSTON CHAI

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A DECLINE in MobileOne's profits may not translate to a lower dividend payment for financial year 2008. Market analysts are, in fact, expecting the operator to maintain or even better its payout from last year.

M1, which registered a 4.4 per cent rise in net profit for FY2007, has said that it expects to register a 'single-digit' drop in net income for this year as it continues to reel from the impact of keen competition and higher customer acquisition costs.

OCBC Research, however, is projecting a more drastic drop of 14.4 per cent in M1's full-year net income to $147.1 million on the back on a sales tally of $796.5 million.

And with the operator pledging to pay out at least 80 per cent of its net profit as dividends in 2008, the decrease in earnings should translate to a lower payout this year from the 16 cents that it allocated in 2007.

However, that may not be the case. 'We are still expecting M1 to pay out pretty decent dividends. It's likely to be higher than 80 per cent this year to at least match last year's absolute amount,' said OCBC analyst Carey Wong.

The operator has announced an interim dividend of 6.2 cents for the first six months this year and it will need to pay a final dividend of 9.8 cents in the second half for its track record to remain intact.

M1 did not confirm if this will be the case. 'All relevant factors will be reviewed and taken into consideration in determining the actual dividend payout and this will be announced together with the financial results for 2008 in January next year,' a company spokesman said.

Rival StarHub, however, yesterday reaffirmed its promise of paying investors 18 cents in dividends per share this year amid the worsening economic climate, up from 16 cents in 2007.

'There is no threat to that commitment,' StarHub spokeswoman Jeannie Ong stressed.

SingTel also said that it has the option of adjusting its guidance to maintain its dividend payout.

It has committed to paying 45- 60 per cent of underlying net profit as dividends but its full-year earnings could be hurt by continued foreign exchange losses and the underperformance of some of its overseas associates.

These concerns prompted shareholders to query SingTel on the impact to its payout per share for the current financial year at its Investor Day event last week.

'The telco industry's yield of 8.6 per cent compares favourably against the market's average of 5.9 per cent. Given healthy cash flows, the companies should have the capacity to continue with rich payouts, particularly M1 and StarHub,' noted Terence Wong, co-head of research at DMG & Partners, in his recent client note.

Published December 11, 2008

Right time to buy Thakral? Look for safer bargains

By EMILYN YAP

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SHAREHOLDERS who invested in Thakral Corporation during better times are losing sleep over the company's current state of affairs. Closing at 3.5 cents a share yesterday, many are fretting: how much lower will the counter fall?

The same question is keeping another group of people awake, but it holds promise rather than fear. For bargain-hunters, 100 Thakral shares now cost about the same as a plate of chicken rice.

They are asking: how much lower can the share price go anyway, and is this the right time to buy?

Well first, near-term catalysts needed to propel Thakral's share price appear nowhere in sight. The company has not even settled on a business focus - while it is planning to switch from consumer electronics distribution into real estate, a major shareholder, Hong Leong Asia, is still against the move.

Should Thakral shareholders eventually support the repositioning, there is also no clarity on how and when real estate investments would produce returns and stock gains.

According to a memorandum of understanding between Thakral and Australian-listed property firm Payce Consolidated, Thakral could commit up to A$117.5 million (S$116 million) in several transactions. The bulk of it, or A$77 million, will go into property-linked notes issued by Payce's special purpose vehicle.

While Thakral has said that the notes will pay out a running yield and deferred interest, the exact mechanisms, returns and risks of these notes have not been fleshed out.

Thakral also plans to invest directly in the Australian property market, but it is bottoming and a recovery may be some way off. Just last month, Australia's construction industry shrank for the ninth month as demand for new homes fell, said Bloomberg. Even if Thakral stays in consumer electronics distribution, its earnings potential remains in doubt.

The company has struggled to stay in the black in the last few quarters, and while Hong Leong Asia seems confident about its ability to strengthen the business, tough industry competition will pose challenges.

Looking at its books, Thakral is undervalued relative to its net asset value of 8.64 cents per share as at Sept 30. It also has $106.4 million in cash and cash equivalents. But how long can it maintain this stash? Even without the potential outflows into property investments, the firm's cash holding has shrunk by more than $17 million from two years ago.

With all these uncertainties on the horizon, investing in a company that even Hong Leong Asia has difficulty managing will take patience - and some nerves. With the mass selldown happening in today's markets, there will be safer bargains out there for those who wish to have a good night's sleep.