Published December 25, 2008
Haw Par stock deeply undervalued: Kim Eng Research
Research analyst believes a general offer for the firm by UOB chairman is not forthcoming
By JAMIE LEE
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HAW Par Corporation's investment portfolio is worth an estimated $1.1 billion - or about $5.36 per share - making it 'deeply undervalued', said Kim Eng Research analyst Gregory Yap in a report this week.
The portfolio - which is Haw Par's main asset - comprises shares in United Overseas Bank (UOB), United Industrial Corporation and UOL Group.
The number of UOB shares alone that Haw Par is estimated to own are worth $4.50 per Haw Par share.
Mr Yap had no rating or target price on the stock.
Haw Par Corp closed trading unchanged at $3.59 yesterday.
The Kim Eng Research report follows a media report speculating that UOB chairman Wee Cho Yaw would take over the company when he raised his direct and deemed holding to 30.38 per cent through Wee Investments in early December - a report which Mr Yap dismissed.
'The Straits Times speculated last week that Wee Cho Yaw will have to make a mandatory general offer for Haw Par as he had acquired more than 30 per cent of its shares on 5 Dec,' said Mr Yap in his research note on Dec 22.
'However, we believe a general offer is not forthcoming based on this assumption, as Wee & his concerted parties already owned more than 30 per cent prior to the 5 Dec transaction.'
'Regardless of whether Wee actually takes over Haw Par, we reckon the stock is deeply undervalued,' Mr Yap said.
Mr Yap calculated that the Wee family's total personal interest stands at about 60.6 million shares, or 30.6 per cent.
Four investment companies hold Mr Wee's deemed interests of 59.1 million shares, or 29.9 per cent, said Mr Yap.
These include Wee Investments with 43.9 million shares or 22.2 per cent, Supreme Island with 11 million shares, Kheng Leong at an estimated 2.7 million shares and CY Wee & Co with 1.5 million shares.
Mr Wee and his sons also own another 1.5 million shares.
About a third of Haw Par is held by UOB and two institutional players.
UOB holds 10 per cent, while Arnhold & Bleichroeder Advisors and Mackenzie Cundill Investments hold 25 per cent.
Thursday, 25 December 2008
Published December 25, 2008
M&As seen for tech, oil and S-chip sectors
Distressed valuation levels provide such opportunities: DBSV
By JAMIE LEE
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GIVEN the current 'distressed valuation levels', the new year could see some mergers and acquisitions (M&As) in the technology, oil-and-gas and S-chip sectors, said a DBS Vickers (DBSV) report.
Going private? Creative will be a prime candidate for privatisation to extract cash, says DBS Vickers
Titled Fire Sale, the report by head of research Janice Chua said that stronger companies could swallow competitors in a bid to ramp up market share while major shareholders could take undervalued companies private.
'Large takeovers running to the tunes of billions are less likely given tighter credits but smaller deals are still possible,' she said.
In the technology sector, DBSV's equity research team picked Chartered Semiconductor Manufacturing, Hi-P and Creative Technology as potential M&A targets. Chartered has a record-low valuation of 0.2 times price-to-book (P/B) and both (Taiwan's) TSMC and UMC are rumoured to be interested buyers, she said, while Hi-P would be a strategic fit for electronic manufacturing companies such as US-based Jabil Circuit and Singapore's Flextronics or Venture Corporation.
'Creative would be a prime candidate for privatisation to extract cash,' she said, noting that the stock is trading below cash of US$3.14 per share as at end-September 2008.
'The bears will prevail in 2009, and we expect the STI to trade within a band of 1,250 to 2,100 (points) as it base-builds towards a more convincing recovery in 2010.'
- Janice Chua,
DBS Vickers
Looking at M&A candidates among marine players, she tossed up Swissco International (for its sweet valuation at 0.4 times forward P/B) and KS Energy as its substantial shareholder - UAE-based conglomerate Dutco Group - has been raising its shareholding recently to about 13 per cent.
Moving to S-chips (stocks of China firms listed in Singapore), China Sports could be eyed for an acquisition, given its net cash position of $127.5 million against the current free float of about $38.6 million.
'However, the operating environment remains tough, amidst falling demand and rising competition from listed players,' Ms Chua cautioned.
She put a 'sell' on asset plays, including property and shipping counters, as valuations are set to head further south.
'Property stocks have been sold down to distressed levels, trading at prices close to 1998 valuation levels,' she said.
'The sector, while cheap, provides no catalyst for re-rating as yet, as we expect more downside to prices of properties', which may have gone down 20 per cent from its peak, half of what DBSV had expected it to go down by.
'Shipping stocks are hit by a plunge in freight rates, overcapacity issues and aggressive expansion plans which will stress balance sheets,' she said.
DBSV also recommends stocks such as SMRT and ComfortDelGro for their earnings resilience against the recession, as well as SIA Engineering for its strong balance sheet.
The market is poised for a near-term rebound and will see fiscal stimuli and earnings downgrades - to be predominant among property and banks - weighing in, said Ms Chua.
'The bears will prevail in 2009, and we expect the STI to trade within a band of 1,250 to 2,100 (points) as it base-builds towards a more convincing recovery in 2010,' she said.
M&As seen for tech, oil and S-chip sectors
Distressed valuation levels provide such opportunities: DBSV
By JAMIE LEE
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GIVEN the current 'distressed valuation levels', the new year could see some mergers and acquisitions (M&As) in the technology, oil-and-gas and S-chip sectors, said a DBS Vickers (DBSV) report.
Going private? Creative will be a prime candidate for privatisation to extract cash, says DBS Vickers
Titled Fire Sale, the report by head of research Janice Chua said that stronger companies could swallow competitors in a bid to ramp up market share while major shareholders could take undervalued companies private.
'Large takeovers running to the tunes of billions are less likely given tighter credits but smaller deals are still possible,' she said.
In the technology sector, DBSV's equity research team picked Chartered Semiconductor Manufacturing, Hi-P and Creative Technology as potential M&A targets. Chartered has a record-low valuation of 0.2 times price-to-book (P/B) and both (Taiwan's) TSMC and UMC are rumoured to be interested buyers, she said, while Hi-P would be a strategic fit for electronic manufacturing companies such as US-based Jabil Circuit and Singapore's Flextronics or Venture Corporation.
'Creative would be a prime candidate for privatisation to extract cash,' she said, noting that the stock is trading below cash of US$3.14 per share as at end-September 2008.
'The bears will prevail in 2009, and we expect the STI to trade within a band of 1,250 to 2,100 (points) as it base-builds towards a more convincing recovery in 2010.'
- Janice Chua,
DBS Vickers
Looking at M&A candidates among marine players, she tossed up Swissco International (for its sweet valuation at 0.4 times forward P/B) and KS Energy as its substantial shareholder - UAE-based conglomerate Dutco Group - has been raising its shareholding recently to about 13 per cent.
Moving to S-chips (stocks of China firms listed in Singapore), China Sports could be eyed for an acquisition, given its net cash position of $127.5 million against the current free float of about $38.6 million.
'However, the operating environment remains tough, amidst falling demand and rising competition from listed players,' Ms Chua cautioned.
She put a 'sell' on asset plays, including property and shipping counters, as valuations are set to head further south.
'Property stocks have been sold down to distressed levels, trading at prices close to 1998 valuation levels,' she said.
'The sector, while cheap, provides no catalyst for re-rating as yet, as we expect more downside to prices of properties', which may have gone down 20 per cent from its peak, half of what DBSV had expected it to go down by.
'Shipping stocks are hit by a plunge in freight rates, overcapacity issues and aggressive expansion plans which will stress balance sheets,' she said.
DBSV also recommends stocks such as SMRT and ComfortDelGro for their earnings resilience against the recession, as well as SIA Engineering for its strong balance sheet.
The market is poised for a near-term rebound and will see fiscal stimuli and earnings downgrades - to be predominant among property and banks - weighing in, said Ms Chua.
'The bears will prevail in 2009, and we expect the STI to trade within a band of 1,250 to 2,100 (points) as it base-builds towards a more convincing recovery in 2010,' she said.
Published December 25, 2008
Sembcorp, BNPP settle forex claim
By JAMIE LEE
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SEMBCORP Marine has agreed to settle a US$50.7 million claim with BNP Paribas over a forex trading case involving Sembcorp's subsidiary Jurong Shipyard Pte Ltd (JSPL).
The world's second-largest builder of oil rigs said yesterday that it would book a US$30 million charge in the fourth quarter of 2008 as result of the settlement.
This puts an end to the legal tussle between Sembcorp and the French bank that was unveiled more than a year ago, when JSPL revealed potential losses of up to US$303 million.
The losses stemmed from allegedly unauthorised currency transactions carried out by ex-finance chief Wee Sing Guan.
BNP Paribas, which was one of the 11 banks involved in the forex trading, had agreed with JSPL to close out the forex contracts, which amounted to a loss of US$50.7 million.
Late November last year, JSPL offered to place in escrow enough funds to cover that amount to meet any judgment obtained by BNP Paribas, but only if the bank began legal proceedings to recover the alleged debt. BNP Paribas rejected the escrow offer and served a statutory demand on JSPL.
The latter responded by successfully applying for an injunction to prevent BNP Paribas from applying to wind up the company. An appeal that BNP Paribas filed against that judgment was subsequently rejected last month.
Sembcorp, BNPP settle forex claim
By JAMIE LEE
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SEMBCORP Marine has agreed to settle a US$50.7 million claim with BNP Paribas over a forex trading case involving Sembcorp's subsidiary Jurong Shipyard Pte Ltd (JSPL).
The world's second-largest builder of oil rigs said yesterday that it would book a US$30 million charge in the fourth quarter of 2008 as result of the settlement.
This puts an end to the legal tussle between Sembcorp and the French bank that was unveiled more than a year ago, when JSPL revealed potential losses of up to US$303 million.
The losses stemmed from allegedly unauthorised currency transactions carried out by ex-finance chief Wee Sing Guan.
BNP Paribas, which was one of the 11 banks involved in the forex trading, had agreed with JSPL to close out the forex contracts, which amounted to a loss of US$50.7 million.
Late November last year, JSPL offered to place in escrow enough funds to cover that amount to meet any judgment obtained by BNP Paribas, but only if the bank began legal proceedings to recover the alleged debt. BNP Paribas rejected the escrow offer and served a statutory demand on JSPL.
The latter responded by successfully applying for an injunction to prevent BNP Paribas from applying to wind up the company. An appeal that BNP Paribas filed against that judgment was subsequently rejected last month.
Published December 25, 2008
TNB seeks to buy back Kapar stake: sources
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(KUALA LUMPUR) Tenaga Nasional Bhd is in talks to buy back 40 per cent of the country's biggest coal plant in Kapar, Selangor, from independent power producer (IPP) Malakoff Bhd, says a report in Malaysia's Business Times, citing sources.
The plant has a capacity of 2,420 megawatts (MW) and was initially fully owned by TNB. In 2004, TNB completed the sale of its 40 per cent stake in Kapar to Malakoff for some RM1.68 billion (S$701 million).
'The discussions are preliminary,' a source told the daily.
Malakoff had written to the Ministry of Finance about its plans to sell the stake back to TNB and the ministry had asked TNB to consider it, the source added.
Other sources said that the talks started when Malakoff approached TNB and made a bid to buy the rest of the plant as it sought to expand its business.
However, TNB countered and offered to buy Malakoff's stake in the plant. Malakoff felt that such a deal would make sense since it did not have management control over the plant.
As for TNB, having Kapar as a wholly-owned unit would help it save on paying for electricity from the plant.
Since the sale to Malakoff, Kapar has been treated like a normal IPP with its own power purchase agreement (PPA), sources said. If TNB takes full control of the plant, it could revise the PPA and this would mean lower power prices for the national utility.
However, the price is likely to be the sticky point again. This was among the main issues which was a drag on the deal that was initiated in 2000.
A new coal plant would cost about RM3 million per MW to build now, an executive working for a power plant builder said.
This means that TNB could pay up to RM2.9 billion for the 40 per cent stake based on this assumption. However, the Kapar plant is not new and Malakoff had paid a much lower price four years ago.
The sale of the Kapar plant to Malakoff, which started in 2000, took about four years to be concluded as the parties wrangled about the price and the terms of the deal.
At the time, TNB went on a drive to reduce its debt and, apart from the Kapar plant, it also sold its minor stakes in other power plants.
Eventually, the price of its stake in Kapar was also cut by a third to RM1.68 billion from RM2.5 billion before, in return for TNB paying a lower price for power from the plant.
It was reported that TNB cut the price it would pay for electricity from the Kapar plant to 10.62 sen per kilowatt-hour (kWh) from 11.9 sen per kWh.
TNB seeks to buy back Kapar stake: sources
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(KUALA LUMPUR) Tenaga Nasional Bhd is in talks to buy back 40 per cent of the country's biggest coal plant in Kapar, Selangor, from independent power producer (IPP) Malakoff Bhd, says a report in Malaysia's Business Times, citing sources.
The plant has a capacity of 2,420 megawatts (MW) and was initially fully owned by TNB. In 2004, TNB completed the sale of its 40 per cent stake in Kapar to Malakoff for some RM1.68 billion (S$701 million).
'The discussions are preliminary,' a source told the daily.
Malakoff had written to the Ministry of Finance about its plans to sell the stake back to TNB and the ministry had asked TNB to consider it, the source added.
Other sources said that the talks started when Malakoff approached TNB and made a bid to buy the rest of the plant as it sought to expand its business.
However, TNB countered and offered to buy Malakoff's stake in the plant. Malakoff felt that such a deal would make sense since it did not have management control over the plant.
As for TNB, having Kapar as a wholly-owned unit would help it save on paying for electricity from the plant.
Since the sale to Malakoff, Kapar has been treated like a normal IPP with its own power purchase agreement (PPA), sources said. If TNB takes full control of the plant, it could revise the PPA and this would mean lower power prices for the national utility.
However, the price is likely to be the sticky point again. This was among the main issues which was a drag on the deal that was initiated in 2000.
A new coal plant would cost about RM3 million per MW to build now, an executive working for a power plant builder said.
This means that TNB could pay up to RM2.9 billion for the 40 per cent stake based on this assumption. However, the Kapar plant is not new and Malakoff had paid a much lower price four years ago.
The sale of the Kapar plant to Malakoff, which started in 2000, took about four years to be concluded as the parties wrangled about the price and the terms of the deal.
At the time, TNB went on a drive to reduce its debt and, apart from the Kapar plant, it also sold its minor stakes in other power plants.
Eventually, the price of its stake in Kapar was also cut by a third to RM1.68 billion from RM2.5 billion before, in return for TNB paying a lower price for power from the plant.
It was reported that TNB cut the price it would pay for electricity from the Kapar plant to 10.62 sen per kilowatt-hour (kWh) from 11.9 sen per kWh.
Published December 25, 2008
YEAR-END FOCUS
A tumultuous year for Malaysia
Political turmoil and commodities slump took their toll on country's economy
By PAULINE NG
IN KUALA LUMPUR
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A DOUBLE whammy of domestic political uncertainty coupled with the US-engineered global financial meltdown characterised the tumultuous year that was 2008 for Malaysia.
Recession fears growing: Unless global markets recover, the Kuala Lumpur stock exchange - which has fallen 40 per cent since the beginning of the year - isn't likely to go anywhere
If investors were on wait-and-see mode even prior to the 12th general election, they were content to remain on the sidelines in the shocking aftermath of the National Front coalition losing its customary two-thirds parliamentary majority - and, worse, control of five states, including two of the country's most industrialised.
Months on end of political bickering, coupled with threats by opposition leader Anwar Ibrahim to take over the federal government by Sept 16 merely confirmed the wisdom of sitting out the market.
Although the date passed without incident, Malaysia's biggest political party, the United Malays National Organisation (Umno), extracted a transition plan for Prime Minister Abdullah Ahmad Badawi to step down and be replaced by his deputy Najib Razak in March next year.
As an immediate concession, Mr Najib was given charge of the finance portfolio in September - a promotion which might not be entirely enviable given the raging global financial maelstrom which has already sunk numerous economies into recession.
The government maintains Malaysia can avert a recession next year, with economic growth projected at 3.5 per cent; independent economists are less sanguine as the worst is yet to hit home.
Weaker electrical & electronics exports aside, the collapse in crude and palm oil prices is expected to play havoc with government revenue given that some 40 per cent of the Treasury's revenue is derived from the oil and gas sector. Moreover, next year's budget was predicated on oil prices of US$100 per barrel; they are less than US$40 now.
Whether the RM7 billion (S$2.9 billion) economic stimulus package will be sufficient to cushion the impact of slower manufacturing output and slumping commodity prices, which will hit the rural sector the hardest, remains to be seen.
One of the earliest measures was the injection of an additional RM5 billion into Valuecap, a special quasi-government fund established in 2002 to acquire 'sound but undervalued stocks'.
Critics have charged that it is a move to prop up the stock market, when the funds could be better utilised to retrain retrenched workers or channelled as soft loans to help small and medium-sized enterprises ride out the tough times.
In any event, the internal and external uncertainties rendered 2008 a year of volatility for many equity investors.
It was also a year market regulators would rather forget after a major glitch in the trading system of the exchange led to a shutdown and the loss of a day's trade, and questions as to the integrity of the trading system.
The exchange is hoping to put the episode behind it with a new trading system which was launched in the last quarter. But unless global markets recover, the Kuala Lumpur stock exchange - which has fallen 40 per cent since the beginning of the year - isn't likely to go anywhere.
At this juncture, prospects for the coming year are not bright, as reflected in analysts' continuous revisions of corporate earnings - the first after hefty fuel, power and gas hikes in June and July led to higher operating costs and inflation hitting 8.5 per cent in August. This was a 26-year high.
Prices have since come off but the global slowdown now poses a greater threat to corporate earnings, as evident in the bottom line of even bellwether firms.
Palm oil prices, which are nearly a third of their March peak, as well as lower property and auto sales have exacted a toll on the world's largest planter and Bursa Malaysia's biggest company, Sime Darby.
Meanwhile, the country's biggest banking group, Malayan Banking, not only has to put up with a tougher operating climate but is also under pressure to make good its controversial purchase of Bank Internasional Indonesia after paying over 4 times book in a credit crunch.
Applying a 12 times price-earnings ratio to the benchmark Kuala Lumpur Composite Index, OSK Investment Bank Research pegs the index to hit 1,020 points by the end of next year. The KLCI is currently around the 865 mark.
Obviously, much hinges on the US economy regaining its feet. But with foreign direct investment likely to be greatly reduced next year, many are banking on Mr Najib, who enjoys greater support within his party, to start taking the bull by the horns and to address some of the long-standing issues which hinder the economy.
Mr Najib is expected to set the tone, starting with the further liberalisation of certain industries within the services sector - a decision which could help draw much needed investments to the country's five multi- billion economic corridors launched over the past two years.
Significantly, Mr Najib's banker brother Nazir has repeatedly stressed the need to review the country's affirmative-action New Economic Policy so that Malaysia can more ably compete in the global economy. 'Since the NEP was introduced, the competitive landscape of nations has changed dramatically, the complexion of our economy has transformed and Malaysians are quite different too,' Mr Nazir has observed.
A proposal to build a bullet train linking Kuala Lumpur to Singapore was indefinitely put on ice by the government. However, KL is likely to give the green light to the building of a new low-cost carrier terminal (LCCT) in Labu, Seremban, to be completed in 2011.
YEAR-END FOCUS
A tumultuous year for Malaysia
Political turmoil and commodities slump took their toll on country's economy
By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
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A DOUBLE whammy of domestic political uncertainty coupled with the US-engineered global financial meltdown characterised the tumultuous year that was 2008 for Malaysia.
Recession fears growing: Unless global markets recover, the Kuala Lumpur stock exchange - which has fallen 40 per cent since the beginning of the year - isn't likely to go anywhere
If investors were on wait-and-see mode even prior to the 12th general election, they were content to remain on the sidelines in the shocking aftermath of the National Front coalition losing its customary two-thirds parliamentary majority - and, worse, control of five states, including two of the country's most industrialised.
Months on end of political bickering, coupled with threats by opposition leader Anwar Ibrahim to take over the federal government by Sept 16 merely confirmed the wisdom of sitting out the market.
Although the date passed without incident, Malaysia's biggest political party, the United Malays National Organisation (Umno), extracted a transition plan for Prime Minister Abdullah Ahmad Badawi to step down and be replaced by his deputy Najib Razak in March next year.
As an immediate concession, Mr Najib was given charge of the finance portfolio in September - a promotion which might not be entirely enviable given the raging global financial maelstrom which has already sunk numerous economies into recession.
The government maintains Malaysia can avert a recession next year, with economic growth projected at 3.5 per cent; independent economists are less sanguine as the worst is yet to hit home.
Weaker electrical & electronics exports aside, the collapse in crude and palm oil prices is expected to play havoc with government revenue given that some 40 per cent of the Treasury's revenue is derived from the oil and gas sector. Moreover, next year's budget was predicated on oil prices of US$100 per barrel; they are less than US$40 now.
Whether the RM7 billion (S$2.9 billion) economic stimulus package will be sufficient to cushion the impact of slower manufacturing output and slumping commodity prices, which will hit the rural sector the hardest, remains to be seen.
One of the earliest measures was the injection of an additional RM5 billion into Valuecap, a special quasi-government fund established in 2002 to acquire 'sound but undervalued stocks'.
Critics have charged that it is a move to prop up the stock market, when the funds could be better utilised to retrain retrenched workers or channelled as soft loans to help small and medium-sized enterprises ride out the tough times.
In any event, the internal and external uncertainties rendered 2008 a year of volatility for many equity investors.
It was also a year market regulators would rather forget after a major glitch in the trading system of the exchange led to a shutdown and the loss of a day's trade, and questions as to the integrity of the trading system.
The exchange is hoping to put the episode behind it with a new trading system which was launched in the last quarter. But unless global markets recover, the Kuala Lumpur stock exchange - which has fallen 40 per cent since the beginning of the year - isn't likely to go anywhere.
At this juncture, prospects for the coming year are not bright, as reflected in analysts' continuous revisions of corporate earnings - the first after hefty fuel, power and gas hikes in June and July led to higher operating costs and inflation hitting 8.5 per cent in August. This was a 26-year high.
Prices have since come off but the global slowdown now poses a greater threat to corporate earnings, as evident in the bottom line of even bellwether firms.
Palm oil prices, which are nearly a third of their March peak, as well as lower property and auto sales have exacted a toll on the world's largest planter and Bursa Malaysia's biggest company, Sime Darby.
Meanwhile, the country's biggest banking group, Malayan Banking, not only has to put up with a tougher operating climate but is also under pressure to make good its controversial purchase of Bank Internasional Indonesia after paying over 4 times book in a credit crunch.
Applying a 12 times price-earnings ratio to the benchmark Kuala Lumpur Composite Index, OSK Investment Bank Research pegs the index to hit 1,020 points by the end of next year. The KLCI is currently around the 865 mark.
Obviously, much hinges on the US economy regaining its feet. But with foreign direct investment likely to be greatly reduced next year, many are banking on Mr Najib, who enjoys greater support within his party, to start taking the bull by the horns and to address some of the long-standing issues which hinder the economy.
Mr Najib is expected to set the tone, starting with the further liberalisation of certain industries within the services sector - a decision which could help draw much needed investments to the country's five multi- billion economic corridors launched over the past two years.
Significantly, Mr Najib's banker brother Nazir has repeatedly stressed the need to review the country's affirmative-action New Economic Policy so that Malaysia can more ably compete in the global economy. 'Since the NEP was introduced, the competitive landscape of nations has changed dramatically, the complexion of our economy has transformed and Malaysians are quite different too,' Mr Nazir has observed.
A proposal to build a bullet train linking Kuala Lumpur to Singapore was indefinitely put on ice by the government. However, KL is likely to give the green light to the building of a new low-cost carrier terminal (LCCT) in Labu, Seremban, to be completed in 2011.
Published December 25, 2008
SGX should set governance benchmark
By OH BOON PING
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THE unfolding economic crisis has already thrown up some lapses in corporate governance at several listed companies. However, one silver lining is that independent directors seem more prepared and willing to take action to help put things right and address the issues at hand - in one instance, even travelling overseas to obtain more information on what went wrong.
Hitting home: If the SGX is truly seeking to uphold high standards of corporate governance for the market, it has some issues of its own to address
So while the lapses in corporate governance is regrettable, what's detectable is also a greater appreciation of the duties and responsibilities of independent directors, and with that, a generally higher awareness of corporate governance demands.
Some of the credit for this has to go to the Singapore Exchange (SGX), for its various efforts to raise the level of corporate governance as well as to push for more director education. But if corporate governance advocates are allowed to have one wish for the new year, it is that the SGX itself would be more mindful of the position it occupies in setting the tone for the rest of the market.
Two issues come to mind, and they are ones that surface frequently in corporate governance discussions. The first is cross directorships. A look at the SGX's 2008 annual report shows that its board of directors include a number of independent non-executive members who are holding concurrent board appointments at other listed companies or market players. These include SIA chief executive Chew Choon Seng, Fraser & Neave director Ho Tian Yee, independent director Low Check Kian, who also serves on the board of Fibrechem Technologies, and Robert Owen, chairman of Crosby Capital Partners and IB Daiwa Corp.
Now cross directorships are fairly common in Asia, as most corporate personalities move in similar circles. But because SGX is also a regulator, this raises some concerns. The SGX regulates listed companies, sets policies and rules for them, and in general construct the framework for them to exist as quoted entities. Yet, some directors of these companies also sit on the board of the SGX. To some, this introduces a potential conflict of interest. Indeed, industry best practices dictate that such relationships should not exist at all.
Granted, there are various safeguards. The SGX and its appointments come under the scrutiny of the Monetary Authority of Singapore, and there are rules to ensure board independence. Also, a case can also be made for the SGX's board having representation from listed companies - so that the regulator remains in touch with the market.
However, weighed against this is the appearance of a potential conflict of interest. And this should be an important consideration, since listed companies here may look to SGX as an example to follow.
A second issue concerns the exchange's remuneration package. For example, chief executive Hsieh Fu Hua's annual bonus appears to be highly correlated with SGX's operating profit, as the two moved almost one-for-one, based on the previous three years' data.
This could be a result of SGX pegging its CEO's bonus to financial benchmarks - not surprising given that its performance share grants are vested based on average return on equity (ROE), absolute total shareholder return (TSR) and its TSR relative to the Straits Times Index's TSR.
But because SGX is also the market regulator, this again presents the appearance of a potential conflict of interest. Some say that this could lead to the temptation to relax regulatory effectiveness in favour of more listings on the local bourse, for instance.
Added to this is the size of the pay packet that SGX gave to its CEO, compared with other developed bourses.
Last year, the stock exchange gave out a total of $7.18 million to its chief executive - compared with A$3 million (S$2.96 million) at ASX and £pounds;1.66 million (S$3.6 million) at the London Stock Exchange. This is perhaps not surprising if the CEO's annual bonus is indeed pegged to SGX's strong performance in the past few years. But while this speaks well of the exchange as a pay master, it makes one wonder if SGX could be overpaying its management. This is especially so given that the stock markets in London and Australia are far deeper than the Singapore market.
While the pay of the CEOs of other stock exchanges are also pegged to financial performance such as earnings per share and TSR, it is also clear that a number of these exchanges such as the Australia Stock Exchange (ASX) are no longer playing the regulatory role that SGX still does.
To promote greater market integrity, ASX has gone a step further by surrendering its supervisory function to a markets supervision board that operates under its own charter and in line with its own principles-based approach to supervisory operations. So, in such cases, the issues pertaining to a conflict of interest do not apply.
In many areas, appearances do not matter. But it does in corporate governance. If the SGX is truly seeking to uphold high standards of corporate governance for the whole market, it has some issues of its own to address.
SGX should set governance benchmark
By OH BOON PING
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THE unfolding economic crisis has already thrown up some lapses in corporate governance at several listed companies. However, one silver lining is that independent directors seem more prepared and willing to take action to help put things right and address the issues at hand - in one instance, even travelling overseas to obtain more information on what went wrong.
Hitting home: If the SGX is truly seeking to uphold high standards of corporate governance for the market, it has some issues of its own to address
So while the lapses in corporate governance is regrettable, what's detectable is also a greater appreciation of the duties and responsibilities of independent directors, and with that, a generally higher awareness of corporate governance demands.
Some of the credit for this has to go to the Singapore Exchange (SGX), for its various efforts to raise the level of corporate governance as well as to push for more director education. But if corporate governance advocates are allowed to have one wish for the new year, it is that the SGX itself would be more mindful of the position it occupies in setting the tone for the rest of the market.
Two issues come to mind, and they are ones that surface frequently in corporate governance discussions. The first is cross directorships. A look at the SGX's 2008 annual report shows that its board of directors include a number of independent non-executive members who are holding concurrent board appointments at other listed companies or market players. These include SIA chief executive Chew Choon Seng, Fraser & Neave director Ho Tian Yee, independent director Low Check Kian, who also serves on the board of Fibrechem Technologies, and Robert Owen, chairman of Crosby Capital Partners and IB Daiwa Corp.
Now cross directorships are fairly common in Asia, as most corporate personalities move in similar circles. But because SGX is also a regulator, this raises some concerns. The SGX regulates listed companies, sets policies and rules for them, and in general construct the framework for them to exist as quoted entities. Yet, some directors of these companies also sit on the board of the SGX. To some, this introduces a potential conflict of interest. Indeed, industry best practices dictate that such relationships should not exist at all.
Granted, there are various safeguards. The SGX and its appointments come under the scrutiny of the Monetary Authority of Singapore, and there are rules to ensure board independence. Also, a case can also be made for the SGX's board having representation from listed companies - so that the regulator remains in touch with the market.
However, weighed against this is the appearance of a potential conflict of interest. And this should be an important consideration, since listed companies here may look to SGX as an example to follow.
A second issue concerns the exchange's remuneration package. For example, chief executive Hsieh Fu Hua's annual bonus appears to be highly correlated with SGX's operating profit, as the two moved almost one-for-one, based on the previous three years' data.
This could be a result of SGX pegging its CEO's bonus to financial benchmarks - not surprising given that its performance share grants are vested based on average return on equity (ROE), absolute total shareholder return (TSR) and its TSR relative to the Straits Times Index's TSR.
But because SGX is also the market regulator, this again presents the appearance of a potential conflict of interest. Some say that this could lead to the temptation to relax regulatory effectiveness in favour of more listings on the local bourse, for instance.
Added to this is the size of the pay packet that SGX gave to its CEO, compared with other developed bourses.
Last year, the stock exchange gave out a total of $7.18 million to its chief executive - compared with A$3 million (S$2.96 million) at ASX and £pounds;1.66 million (S$3.6 million) at the London Stock Exchange. This is perhaps not surprising if the CEO's annual bonus is indeed pegged to SGX's strong performance in the past few years. But while this speaks well of the exchange as a pay master, it makes one wonder if SGX could be overpaying its management. This is especially so given that the stock markets in London and Australia are far deeper than the Singapore market.
While the pay of the CEOs of other stock exchanges are also pegged to financial performance such as earnings per share and TSR, it is also clear that a number of these exchanges such as the Australia Stock Exchange (ASX) are no longer playing the regulatory role that SGX still does.
To promote greater market integrity, ASX has gone a step further by surrendering its supervisory function to a markets supervision board that operates under its own charter and in line with its own principles-based approach to supervisory operations. So, in such cases, the issues pertaining to a conflict of interest do not apply.
In many areas, appearances do not matter. But it does in corporate governance. If the SGX is truly seeking to uphold high standards of corporate governance for the whole market, it has some issues of its own to address.
Wednesday, 24 December 2008
Published December 24, 2008
Sime would be happy with CPO at RM1,800
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(KUALA LUMPUR) Malaysia's largest palm oil producer Sime Darby expects the price of crude palm oil (CPO) to stay between RM1,800 and RM2,000 (S$747-830) a tonne next year, the Edge business weekly reported.
'I'm happy with RM1,800, provided fertiliser prices come down,' said Ahmad Zubir Murshid, Sime Darby's group chief executive officer.
Sime's current production cost is about RM1,133 per tonne and Mr Ahmad hopes it will drop to below RM700 per tonne.
Sime courted controversy last week with its proposal to privatise the country's top heart hospital.
Its bid to acquire a 51 per cent stake in IJN Holdings Sdn Bhd, the operator of the National Heart Institute, has effectively been rejected by the government following widespread criticisms that the poor will no longer be able to afford seeking treatment there.
The company is in the process of setting up a refinery in Port Klang and another in Kalimantan. 'The current capacity expansion only caters for our own consumption,' Mr Ahmad said. The refineries will be capable of producing 600,000 to 800,000 tonnes of CPO per year.
Sime, the world's biggest listed plantation company, owns 600,000 acres of oil palm plantations in Malaysia and Indonesia.
It has the biggest property landbank in Malaysia, with the bulk of the land located on the fringes of Kuala Lumpur. -- Reuters
Sime would be happy with CPO at RM1,800
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(KUALA LUMPUR) Malaysia's largest palm oil producer Sime Darby expects the price of crude palm oil (CPO) to stay between RM1,800 and RM2,000 (S$747-830) a tonne next year, the Edge business weekly reported.
'I'm happy with RM1,800, provided fertiliser prices come down,' said Ahmad Zubir Murshid, Sime Darby's group chief executive officer.
Sime's current production cost is about RM1,133 per tonne and Mr Ahmad hopes it will drop to below RM700 per tonne.
Sime courted controversy last week with its proposal to privatise the country's top heart hospital.
Its bid to acquire a 51 per cent stake in IJN Holdings Sdn Bhd, the operator of the National Heart Institute, has effectively been rejected by the government following widespread criticisms that the poor will no longer be able to afford seeking treatment there.
The company is in the process of setting up a refinery in Port Klang and another in Kalimantan. 'The current capacity expansion only caters for our own consumption,' Mr Ahmad said. The refineries will be capable of producing 600,000 to 800,000 tonnes of CPO per year.
Sime, the world's biggest listed plantation company, owns 600,000 acres of oil palm plantations in Malaysia and Indonesia.
It has the biggest property landbank in Malaysia, with the bulk of the land located on the fringes of Kuala Lumpur. -- Reuters
Published December 24, 2008
M'sia expects 4,700 job cuts over next 3 months
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(KUALA LUMPUR) More than 4,700 Malaysians will lose their jobs in the next three months as the electronics sector is hit by the global economic downturn, the country's human resources minister has warned.
S Subramaniam told state news agency Bernama that 102 companies had informed the Labour Department that 4,749 workers would be put out of a job between January and March, with most coming from the electronics sector.
'We cannot stop companies which are making losses from retrenching their workers. But we will do all we can to aid these workers to receive their compensation,' he told Bernama on Monday.
'I am very thankful that the workers' unions here have not been violent, unlike in other countries, that they have been quite calm about all of this,' he added.
Mr Subramaniam said his ministry had set up an action centre at every district to monitor companies or employers who might be facing financial difficulties.
'Our officers will visit these companies and compile a weekly report which would be sent to the state and finally be compiled at central level. This would enable our ground force to ensure that the employers will meet their obligations towards their workers,' he added.
He said the workers included 1,500 at hard-drive manufacturer Western Digital, which announced the losses last week at its plant in the eastern state of Sarawak on Borneo island.
Malaysia's electronics sector has been hit hard by a drop in global demand for electrical and electronics goods, with the government announcing a RM7 billion (S$2.9 billion) stimulus package to reinforce the economy and maintain growth momentum. -- AFP
M'sia expects 4,700 job cuts over next 3 months
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(KUALA LUMPUR) More than 4,700 Malaysians will lose their jobs in the next three months as the electronics sector is hit by the global economic downturn, the country's human resources minister has warned.
S Subramaniam told state news agency Bernama that 102 companies had informed the Labour Department that 4,749 workers would be put out of a job between January and March, with most coming from the electronics sector.
'We cannot stop companies which are making losses from retrenching their workers. But we will do all we can to aid these workers to receive their compensation,' he told Bernama on Monday.
'I am very thankful that the workers' unions here have not been violent, unlike in other countries, that they have been quite calm about all of this,' he added.
Mr Subramaniam said his ministry had set up an action centre at every district to monitor companies or employers who might be facing financial difficulties.
'Our officers will visit these companies and compile a weekly report which would be sent to the state and finally be compiled at central level. This would enable our ground force to ensure that the employers will meet their obligations towards their workers,' he added.
He said the workers included 1,500 at hard-drive manufacturer Western Digital, which announced the losses last week at its plant in the eastern state of Sarawak on Borneo island.
Malaysia's electronics sector has been hit hard by a drop in global demand for electrical and electronics goods, with the government announcing a RM7 billion (S$2.9 billion) stimulus package to reinforce the economy and maintain growth momentum. -- AFP
Published December 24, 2008
YEAR IN MALAYSIAN POLITICS
Opposition makes inroads but Umno is digging in
Minorities' grouses, Anwar's message may push Malays to unite behind Umno
By S JAYASANKARAN
IN KUALA LUMPUR
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THE ruling National Front coalition faces a crucial electoral test next month in Malaysia's north-eastern state of Terengganu where the dominant United Malays National Organisation, or Umno, will square off against the opposition Parti Islam SeMalaysia, or PAS.
Pump politics: One of the main grouses against Mr Abdullah's administration was the rising cost of living catalysed primarily by soaring oil prices
The by-election is a result of the death of Kuala Terengganu's lawmaker, a deputy minister from Umno. In the March 8 general election, he'd narrowly fended off his PAS opponent by a slim majority of over 600 votes. Thus, the outcome is crucial to the National Front's credibility and its claims to be undisputed master of Malaysia's destiny.
The claim, almost taken for granted following the Front's continued hegemony since independence in 1957, became doubtful after the March 8 general elections and the Front's worst ever electoral outing in the nation's history. The ruling coalition lost five state governments to a unified opposition coalition as well as its two-thirds majority in Parliament.
The results have had calamitous consequences for Prime Minister Abdullah Ahmad Badawi who is also Umno president. Faced with incessant demands from critics - most notably former premier Mahathir Mohamad - that he take responsibility for the election results and step aside, Mr Abdullah, 68, caved in to the pressure and announced that he would not seek re-election in Umno polls slated for early next year. He will be succeeded by his deputy, Najib Razak, who will take over as Malaysia's sixth premier in March.
No one, however, thinks that Mr Najib, 55, will have an easy time of it, electorally speaking. The public disquiet that almost undid Mr Abdullah has not gone away and, for the first time in years, the Opposition is headed by a charismatic leader in the form of former deputy premier Anwar Ibrahim.
Indeed, Mr Anwar, 63, was crucial to the Opposition's performance last March. He wielded a disparate - and some would suggest, still unworkable - coalition of opposition parties with his National Justice Party mediating between the religiously conservative PAS on one side and the left-leaning Democratic Action Party on the other. But Mr Anwar's force of will prevailed and the coalition still survives.
Still, Mr Najib is under no immediate threat. Mr Anwar had promised to engineer enough defections from the Front to form the next government but that possibility is now remote. Reason: so long as the unpopular Mr Abdullah was premier, the possibility of defections was real but with a new premier waiting in the wings, the threat of mass crossovers has all but evaporated.
And Mr Najib has some things going for him. One of the main grouses against Mr Abdullah's administration was the rising cost of living catalysed primarily by soaring oil prices. But that's come off now and could have taken some of the edge off public anger.
Even so, other problems remain.
Malaysian Indians, who form 8 per cent of the country's 27 million people, remain largely disgruntled with the government over accusations that the vast majority of the community is economically marginalised.
Indeed, political analysts agree that the discontent is manifest among the Indian masses, 85 per cent of whom are largely disenfranchised Tamils and who, paradoxically, form the core constituency of the Malaysian Indian Congress, a Front component party. The Indians do not form the majority in any parliamentary constituency but, as they showed in the last election, an emphatic swing either way could make a difference.
The Chinese, who form 26 per cent of the population, aren't happy either. They weren't happy by Umno demands in 2007 that affirmative action policies favouring ethnic Malays be reinforced. More recently, the community was angered by a statement by Mukhriz Mahathir, the youngest son of Dr Mahathir and an aspirant for the post of Umno Youth head, that 'perhaps' vernacular schools should have been merged with the national schools to ensure one system.
Mr Najib's best bet is the possibility that he could get the Malays, who form 64 per cent of the population, to unite behind Umno. In the last election, they were split evenly between the various parties. Given Mr Najib's lineage - he is the son of Malaysia's second, and highly respected, premier Razak Hussein, there are those who suggest he could pull it off.
Indeed, political scientists agree that ethnic Malays could swing behind Umno and the Front precisely because of non-Malay anger against the government coupled with Mr Anwar's frequent statements that Malay dominance is a thing of the past. Historically, anything that can threaten Malay political dominance of the country has been resisted by the Malays and it isn't at all clear if Mr Anwar's exhortation resonate among the Malay masses. The Kuala Terengganu by-election could be the first litmus test for Mr Anwar's multi-racial appeal.
Looking ahead, the main interest in Umno's March elections revolves around the deputy presidency, a position that carries with it the post of deputy premier. Although it is a three cornered fight, the battle is likely to coalesce into a fight between International Trade Minister Muhyiddin Yassin and Malacca Chief Minister Ali Rustam. Right now, some pundits are favouring Mr Ali but it's a long way till March.
YEAR IN MALAYSIAN POLITICS
Opposition makes inroads but Umno is digging in
Minorities' grouses, Anwar's message may push Malays to unite behind Umno
By S JAYASANKARAN
IN KUALA LUMPUR
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THE ruling National Front coalition faces a crucial electoral test next month in Malaysia's north-eastern state of Terengganu where the dominant United Malays National Organisation, or Umno, will square off against the opposition Parti Islam SeMalaysia, or PAS.
Pump politics: One of the main grouses against Mr Abdullah's administration was the rising cost of living catalysed primarily by soaring oil prices
The by-election is a result of the death of Kuala Terengganu's lawmaker, a deputy minister from Umno. In the March 8 general election, he'd narrowly fended off his PAS opponent by a slim majority of over 600 votes. Thus, the outcome is crucial to the National Front's credibility and its claims to be undisputed master of Malaysia's destiny.
The claim, almost taken for granted following the Front's continued hegemony since independence in 1957, became doubtful after the March 8 general elections and the Front's worst ever electoral outing in the nation's history. The ruling coalition lost five state governments to a unified opposition coalition as well as its two-thirds majority in Parliament.
The results have had calamitous consequences for Prime Minister Abdullah Ahmad Badawi who is also Umno president. Faced with incessant demands from critics - most notably former premier Mahathir Mohamad - that he take responsibility for the election results and step aside, Mr Abdullah, 68, caved in to the pressure and announced that he would not seek re-election in Umno polls slated for early next year. He will be succeeded by his deputy, Najib Razak, who will take over as Malaysia's sixth premier in March.
No one, however, thinks that Mr Najib, 55, will have an easy time of it, electorally speaking. The public disquiet that almost undid Mr Abdullah has not gone away and, for the first time in years, the Opposition is headed by a charismatic leader in the form of former deputy premier Anwar Ibrahim.
Indeed, Mr Anwar, 63, was crucial to the Opposition's performance last March. He wielded a disparate - and some would suggest, still unworkable - coalition of opposition parties with his National Justice Party mediating between the religiously conservative PAS on one side and the left-leaning Democratic Action Party on the other. But Mr Anwar's force of will prevailed and the coalition still survives.
Still, Mr Najib is under no immediate threat. Mr Anwar had promised to engineer enough defections from the Front to form the next government but that possibility is now remote. Reason: so long as the unpopular Mr Abdullah was premier, the possibility of defections was real but with a new premier waiting in the wings, the threat of mass crossovers has all but evaporated.
And Mr Najib has some things going for him. One of the main grouses against Mr Abdullah's administration was the rising cost of living catalysed primarily by soaring oil prices. But that's come off now and could have taken some of the edge off public anger.
Even so, other problems remain.
Malaysian Indians, who form 8 per cent of the country's 27 million people, remain largely disgruntled with the government over accusations that the vast majority of the community is economically marginalised.
Indeed, political analysts agree that the discontent is manifest among the Indian masses, 85 per cent of whom are largely disenfranchised Tamils and who, paradoxically, form the core constituency of the Malaysian Indian Congress, a Front component party. The Indians do not form the majority in any parliamentary constituency but, as they showed in the last election, an emphatic swing either way could make a difference.
The Chinese, who form 26 per cent of the population, aren't happy either. They weren't happy by Umno demands in 2007 that affirmative action policies favouring ethnic Malays be reinforced. More recently, the community was angered by a statement by Mukhriz Mahathir, the youngest son of Dr Mahathir and an aspirant for the post of Umno Youth head, that 'perhaps' vernacular schools should have been merged with the national schools to ensure one system.
Mr Najib's best bet is the possibility that he could get the Malays, who form 64 per cent of the population, to unite behind Umno. In the last election, they were split evenly between the various parties. Given Mr Najib's lineage - he is the son of Malaysia's second, and highly respected, premier Razak Hussein, there are those who suggest he could pull it off.
Indeed, political scientists agree that ethnic Malays could swing behind Umno and the Front precisely because of non-Malay anger against the government coupled with Mr Anwar's frequent statements that Malay dominance is a thing of the past. Historically, anything that can threaten Malay political dominance of the country has been resisted by the Malays and it isn't at all clear if Mr Anwar's exhortation resonate among the Malay masses. The Kuala Terengganu by-election could be the first litmus test for Mr Anwar's multi-racial appeal.
Looking ahead, the main interest in Umno's March elections revolves around the deputy presidency, a position that carries with it the post of deputy premier. Although it is a three cornered fight, the battle is likely to coalesce into a fight between International Trade Minister Muhyiddin Yassin and Malacca Chief Minister Ali Rustam. Right now, some pundits are favouring Mr Ali but it's a long way till March.
Published December 24, 2008
DBS takes another hit as analysts lower targets
Shares fall despite S&P keeping stable outlook rating after news of rights issue
By EMILYN YAP
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DBS Group shares shed a further 33 cents or 3.5 per cent yesterday to close at $9.04, as plans for a $4 billion rights issue prompted several research houses to cut their target price for the stock.
Focusing on growth: DBS has said funds raised would strengthen its balance sheet and help the bank grow organically
The slide happened even though Standard & Poor's maintained its stable outlook for the Singapore banking group after the news. The one-for-two rights issue, priced at a 45 per cent discount to the stock's $9.85 closing on Dec 19, would raise funds for the bank to strengthen its balance sheet and grow organically, said DBS on Monday. It also warned of lower fourth-quarter earnings.
Following the announcement, Citi, CIMB, Kim Eng Securities and JP Morgan revised their target price for the counter.
The rights issue could dilute DBS' earnings per share by 33 per cent and reduce its diluted book value per share, said Kim Eng analyst Pauline Lee in a note yesterday.
'Lack of earnings catalysts, coupled with the dilution from the rights issue, will likely depress the share price in the near-term,' she added, and lowered her target price for DBS shares from $13.10 to $10.60 under a 'hold' call.
CIMB analyst Kenneth Ng continued to rate DBS as 'underperform' and dropped the target price from $11.36 to $10.60. 'While the rights issue and DBS' underperformance have made us more positive on its share price in the short term, we believe that credit-cycle concerns make it difficult to sustain any outperformance.'
Among the four houses, Citi set the lowest target price of $8.00, down from $9.50.
Rights issues, especially discounted ones in a weak market, tend to be unpopular with shareholders. Share prices could fall because of the discount and also because shareholders wishing to maintain their stake would have to fork out more money.
On Monday itself, news of the rights issue caused DBS shares to sink to an intraday low of $8.81 before ending 48 cents down at $9.37.
But DBS' move won support from Credit Suisse, which upgraded the counter from 'underperform' to 'neutral'. 'DBS has been our least preferred among the three Singapore banks. However, the fresh equity would allay market concerns, lift pressure off DBS stock and help narrow the price-to-book discount vis-a-vis UOB/OCBC,' said its analysts in a note on Monday.
Standard & Poor's Ratings Services also said yesterday that the proposed rights issue would not affect its ratings on DBS Bank (AA-/Stable/A-1+). It recognised that the new funds would boost the bank's capitalisation, and help mitigate higher asset provisions that could arise from recessionary conditions in Singapore and Hong Kong.
DBS takes another hit as analysts lower targets
Shares fall despite S&P keeping stable outlook rating after news of rights issue
By EMILYN YAP
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DBS Group shares shed a further 33 cents or 3.5 per cent yesterday to close at $9.04, as plans for a $4 billion rights issue prompted several research houses to cut their target price for the stock.
Focusing on growth: DBS has said funds raised would strengthen its balance sheet and help the bank grow organically
The slide happened even though Standard & Poor's maintained its stable outlook for the Singapore banking group after the news. The one-for-two rights issue, priced at a 45 per cent discount to the stock's $9.85 closing on Dec 19, would raise funds for the bank to strengthen its balance sheet and grow organically, said DBS on Monday. It also warned of lower fourth-quarter earnings.
Following the announcement, Citi, CIMB, Kim Eng Securities and JP Morgan revised their target price for the counter.
The rights issue could dilute DBS' earnings per share by 33 per cent and reduce its diluted book value per share, said Kim Eng analyst Pauline Lee in a note yesterday.
'Lack of earnings catalysts, coupled with the dilution from the rights issue, will likely depress the share price in the near-term,' she added, and lowered her target price for DBS shares from $13.10 to $10.60 under a 'hold' call.
CIMB analyst Kenneth Ng continued to rate DBS as 'underperform' and dropped the target price from $11.36 to $10.60. 'While the rights issue and DBS' underperformance have made us more positive on its share price in the short term, we believe that credit-cycle concerns make it difficult to sustain any outperformance.'
Among the four houses, Citi set the lowest target price of $8.00, down from $9.50.
Rights issues, especially discounted ones in a weak market, tend to be unpopular with shareholders. Share prices could fall because of the discount and also because shareholders wishing to maintain their stake would have to fork out more money.
On Monday itself, news of the rights issue caused DBS shares to sink to an intraday low of $8.81 before ending 48 cents down at $9.37.
But DBS' move won support from Credit Suisse, which upgraded the counter from 'underperform' to 'neutral'. 'DBS has been our least preferred among the three Singapore banks. However, the fresh equity would allay market concerns, lift pressure off DBS stock and help narrow the price-to-book discount vis-a-vis UOB/OCBC,' said its analysts in a note on Monday.
Standard & Poor's Ratings Services also said yesterday that the proposed rights issue would not affect its ratings on DBS Bank (AA-/Stable/A-1+). It recognised that the new funds would boost the bank's capitalisation, and help mitigate higher asset provisions that could arise from recessionary conditions in Singapore and Hong Kong.
Published December 24, 2008
Parkway doing a Ritz-Carlton in hospital world?
By CHEN HUIFEN
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PARKWAY Holdings' announcement to manage a new hospital in Abu Dhabi may come across as unexciting to some. After all, it is only natural for a seasoned health care operator to export its expertise. It is already doing so in other countries such as Malaysia and Brunei. Other listed medical services providers such as Pacific Healthcare and Thomson Medical Centre are doing it as well.
What makes Parkway's latest move momentous is that . . . it is not taking any equity interest in the property.
What makes Parkway's latest move momentous is the fact that, for the first time, the group is not taking any equity interest in the property. In all its previous expansion overseas, the group had always formed partnerships to own the hospital assets.
In Malaysia, for instance, Parkway manages eight hospitals held under Pantai Holdings Berhad, in which it has a 40 per cent stake. It also holds equity interests in two other medical centres operating under the Gleneagles name in Kuala Lumpur and Penang.
In Brunei, it manages and operates the Gleneagles JPMC Cardiac Centre, of which it owns a 75 per cent interest. In India, it operates the 50 per cent owned joint venture, Apollo Gleneagles Hospital. Over in China, the Shanghai Gleneagles International Medical and Surgical Center is 70 per cent owned.
With the tried and tested model reaping success, why the shift to an asset-light strategy then?
Capital access could be a reason. In view of the credit tightening conditions, it would be tough to get the go-ahead for any major infrastructure investments. Not to mention that the group is already committed to a new hospital in Novena and a greenfield project with India's Koncentric Investments to build a 500-bed hospital in Mumbai.
And with declining medical tourists, management contracts provide an added source of revenue by making use of existing resources. Besides, the health care sector is usually a protected segment in various jurisdictions, with a cap on foreign ownership. The asset-light approach provides a meaningful way to expand the group's brand overseas without the need for any capital expenditure.
Which brings to mind the way hotels are managed. Many hotel groups such as Ritz-Carlton and Hilton manage properties that they do not own. They usually receive a management fee that could amount to a certain percentage of the revenue received, depending on the contractual agreements inked with individual hotel owners. With this model, hotel guests and owners are assured of the quality associated with the respective brand, and the hotel chains get to expand its name without the high cost of property development.
On hindsight, Parkway could have planned for that kind of positioning. It has already spun off its Singapore hospital properties into a real estate investment trust (Reit) last year, kick-starting its asset-light approach.
In the past 12 months or so, the group embarked on a corporate rebranding exercise that stressed on what it calls 'value-based integrated health care', with 'ParkwayHealth' becoming its master brand. The group then launched its new logo and brand name through an extensive marketing campaign in the local media as well as in major inflight magazines.
Sealing the deal on Monday to manage the new US$200 million Danat Al Emarat Women's & Children's Hospital is significant. It signals recognition of its name as a brand model. As the hospital owner United Eastern Medical Services revealed at a press conference, there were initially eight to 10 international names shortlisted. But Parkway was the top choice because of its quality clinical outcomes, and of course, its experience in dealing with global patients, which the new hospital wants to attract.
Now that Parkway has got the job, the question is how it intends to preserve its brand name in the new outfit. Key to that will be consistency in clinical and service quality. And perhaps it should also think about implanting its 'ParkwayHealth' name into the project - just like major hotel chains do when they manage hotels for the owners.
Parkway doing a Ritz-Carlton in hospital world?
By CHEN HUIFEN
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PARKWAY Holdings' announcement to manage a new hospital in Abu Dhabi may come across as unexciting to some. After all, it is only natural for a seasoned health care operator to export its expertise. It is already doing so in other countries such as Malaysia and Brunei. Other listed medical services providers such as Pacific Healthcare and Thomson Medical Centre are doing it as well.
What makes Parkway's latest move momentous is that . . . it is not taking any equity interest in the property.
What makes Parkway's latest move momentous is the fact that, for the first time, the group is not taking any equity interest in the property. In all its previous expansion overseas, the group had always formed partnerships to own the hospital assets.
In Malaysia, for instance, Parkway manages eight hospitals held under Pantai Holdings Berhad, in which it has a 40 per cent stake. It also holds equity interests in two other medical centres operating under the Gleneagles name in Kuala Lumpur and Penang.
In Brunei, it manages and operates the Gleneagles JPMC Cardiac Centre, of which it owns a 75 per cent interest. In India, it operates the 50 per cent owned joint venture, Apollo Gleneagles Hospital. Over in China, the Shanghai Gleneagles International Medical and Surgical Center is 70 per cent owned.
With the tried and tested model reaping success, why the shift to an asset-light strategy then?
Capital access could be a reason. In view of the credit tightening conditions, it would be tough to get the go-ahead for any major infrastructure investments. Not to mention that the group is already committed to a new hospital in Novena and a greenfield project with India's Koncentric Investments to build a 500-bed hospital in Mumbai.
And with declining medical tourists, management contracts provide an added source of revenue by making use of existing resources. Besides, the health care sector is usually a protected segment in various jurisdictions, with a cap on foreign ownership. The asset-light approach provides a meaningful way to expand the group's brand overseas without the need for any capital expenditure.
Which brings to mind the way hotels are managed. Many hotel groups such as Ritz-Carlton and Hilton manage properties that they do not own. They usually receive a management fee that could amount to a certain percentage of the revenue received, depending on the contractual agreements inked with individual hotel owners. With this model, hotel guests and owners are assured of the quality associated with the respective brand, and the hotel chains get to expand its name without the high cost of property development.
On hindsight, Parkway could have planned for that kind of positioning. It has already spun off its Singapore hospital properties into a real estate investment trust (Reit) last year, kick-starting its asset-light approach.
In the past 12 months or so, the group embarked on a corporate rebranding exercise that stressed on what it calls 'value-based integrated health care', with 'ParkwayHealth' becoming its master brand. The group then launched its new logo and brand name through an extensive marketing campaign in the local media as well as in major inflight magazines.
Sealing the deal on Monday to manage the new US$200 million Danat Al Emarat Women's & Children's Hospital is significant. It signals recognition of its name as a brand model. As the hospital owner United Eastern Medical Services revealed at a press conference, there were initially eight to 10 international names shortlisted. But Parkway was the top choice because of its quality clinical outcomes, and of course, its experience in dealing with global patients, which the new hospital wants to attract.
Now that Parkway has got the job, the question is how it intends to preserve its brand name in the new outfit. Key to that will be consistency in clinical and service quality. And perhaps it should also think about implanting its 'ParkwayHealth' name into the project - just like major hotel chains do when they manage hotels for the owners.
Published December 24, 2008
Roots of Madoff scam reach back to the 1970s
Combing through the biggest Ponzi scheme in history, the SEC has its work cut out
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(NEW YORK) US regulators, trying to unravel the breadth of Bernard Madoff's alleged US$50 billion fraud, have found evidence of his misconduct stretching back to at least the 1970s, sources said.
Bernard Madoff: (above) His alleged Ponzi scheme is now estimated to have had more than 4,000 customers. On the left is the London Evening Standard newspaper's front page denouncing him
Madoff's investment advisory business, where he allegedly operated the biggest Ponzi scheme in history, is now estimated to have had more than 4,000 customers, they people said.
An advisory unit Madoff registered with the Securities and Exchange Commission claimed in a January filing to have no more than 25 clients.
Earlier this month it was reported quoting sources that he also ran a secret unregistered business.
The SEC, combing through records from Bernard L Madoff Investment Securities LLC in New York, has not made a complete assessment of the earlier misconduct or determined how the alleged Ponzi scheme evolved, one of the people familiar with the case said.
They also haven't uncovered whether the scheme intertwined with sales of unregistered securities targeted in a 1992 SEC lawsuit. Proceeds from those sales were invested with Madoff, who gave documents to an auditor in that case and was not accused of wrongdoing, court records show.
In its 1992 lawsuit, the SEC claimed that accountants Frank Avellino and Michael Bienes began raising money in 1962 and placing it with Madoff while promising investors returns of 13.5 per cent to 20 per cent, court documents say.
As of October 1992, their firm, Avellino & Bienes, had issued US$441 million in unregistered notes to 3,200 people and entities, according to court papers. They invested solely with Madoff, who opened his business in 1960. Avellino and Bienes, who were represented by Sorkin, agreed in November 1992 to shut down their business and reimburse clients. Lee Richards, the court-appointed trustee over Avellino & Bienes, hired auditors Price Waterhouse to scrutinise the books of the firm, which operated as an unregistered investment company, according to the SEC.
Price Waterhouse said that Avellino & Bienes kept few records and asked Madoff to provide copies of account statements issued to the firm, which he did, court records show. Mr Richards, who was named receiver for Madoff's foreign units on Dec 12, didn't investigate Madoff while overseeing Avellino & Bienes, according to the records.
Madoff's case will be at the centre of planned congressional hearings on reforming the SEC, a senior Senate official said this week. President-elect Barack Obama said the scandal 'has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets'.
Any new rules may stir privacy concerns among clients of broker-dealers and money managers, said David Becker, a former SEC general counsel. 'It's very easy to detect Ponzi schemes once we suspect that a Ponzi scheme exists. It requires confirming account balances with customers,' said Mr Becker, who is now in private practice at Cleary Gottlieb Steen & Hamilton in Washington. 'However, customers don't really like it when the federal government calls them up and asks them what's in their account.' - Bloomberg
Roots of Madoff scam reach back to the 1970s
Combing through the biggest Ponzi scheme in history, the SEC has its work cut out
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(NEW YORK) US regulators, trying to unravel the breadth of Bernard Madoff's alleged US$50 billion fraud, have found evidence of his misconduct stretching back to at least the 1970s, sources said.
Bernard Madoff: (above) His alleged Ponzi scheme is now estimated to have had more than 4,000 customers. On the left is the London Evening Standard newspaper's front page denouncing him
Madoff's investment advisory business, where he allegedly operated the biggest Ponzi scheme in history, is now estimated to have had more than 4,000 customers, they people said.
An advisory unit Madoff registered with the Securities and Exchange Commission claimed in a January filing to have no more than 25 clients.
Earlier this month it was reported quoting sources that he also ran a secret unregistered business.
The SEC, combing through records from Bernard L Madoff Investment Securities LLC in New York, has not made a complete assessment of the earlier misconduct or determined how the alleged Ponzi scheme evolved, one of the people familiar with the case said.
They also haven't uncovered whether the scheme intertwined with sales of unregistered securities targeted in a 1992 SEC lawsuit. Proceeds from those sales were invested with Madoff, who gave documents to an auditor in that case and was not accused of wrongdoing, court records show.
In its 1992 lawsuit, the SEC claimed that accountants Frank Avellino and Michael Bienes began raising money in 1962 and placing it with Madoff while promising investors returns of 13.5 per cent to 20 per cent, court documents say.
As of October 1992, their firm, Avellino & Bienes, had issued US$441 million in unregistered notes to 3,200 people and entities, according to court papers. They invested solely with Madoff, who opened his business in 1960. Avellino and Bienes, who were represented by Sorkin, agreed in November 1992 to shut down their business and reimburse clients. Lee Richards, the court-appointed trustee over Avellino & Bienes, hired auditors Price Waterhouse to scrutinise the books of the firm, which operated as an unregistered investment company, according to the SEC.
Price Waterhouse said that Avellino & Bienes kept few records and asked Madoff to provide copies of account statements issued to the firm, which he did, court records show. Mr Richards, who was named receiver for Madoff's foreign units on Dec 12, didn't investigate Madoff while overseeing Avellino & Bienes, according to the records.
Madoff's case will be at the centre of planned congressional hearings on reforming the SEC, a senior Senate official said this week. President-elect Barack Obama said the scandal 'has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets'.
Any new rules may stir privacy concerns among clients of broker-dealers and money managers, said David Becker, a former SEC general counsel. 'It's very easy to detect Ponzi schemes once we suspect that a Ponzi scheme exists. It requires confirming account balances with customers,' said Mr Becker, who is now in private practice at Cleary Gottlieb Steen & Hamilton in Washington. 'However, customers don't really like it when the federal government calls them up and asks them what's in their account.' - Bloomberg
Published December 23, 2008
Malaysia may up stake in govt-linked firms: report
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(KUALA LUMPUR) Malaysia may raise its stake in government- linked firms as falling share prices make it cheaper to buy up stock of companies with long-term value, Deputy Prime Minister Najib Razak was quoted yesterday as saying.
The government would not cut its holdings in state-linked companies until market conditions improve, Mr Najib, who is also the finance minister, was reported as saying by The Malaysian Reserve.
Malaysia had earlier promised a gradual sale of state equity once it reforms state-linked firms to boost market liquidity. But progress has been modest, leading foreign investors to complain about market illiquidity.
'It's not a good time to sell down anything. We will not get a good value yet,' Mr Najib said.
'But it's a good time to increase your stake in companies that have long-term value. EPF (Employees Provident Fund) is in a position to increase its stakes and is looking at some good long-term investment potential.'
The government holds stakes in some of Malaysia's largest companies such as top lender Malayan Banking and power firm Tenaga Nasional.
The Malaysian stock market has lost about 40 per cent this year, roughly in line with the performance of most regional markets.
Mr Najib also said that the government would work with neighbouring Indonesia to stabilise the price of crude palm oil. The two countries control about 90 per cent of the palm oil output, he said. - Reuters
Malaysia may up stake in govt-linked firms: report
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(KUALA LUMPUR) Malaysia may raise its stake in government- linked firms as falling share prices make it cheaper to buy up stock of companies with long-term value, Deputy Prime Minister Najib Razak was quoted yesterday as saying.
The government would not cut its holdings in state-linked companies until market conditions improve, Mr Najib, who is also the finance minister, was reported as saying by The Malaysian Reserve.
Malaysia had earlier promised a gradual sale of state equity once it reforms state-linked firms to boost market liquidity. But progress has been modest, leading foreign investors to complain about market illiquidity.
'It's not a good time to sell down anything. We will not get a good value yet,' Mr Najib said.
'But it's a good time to increase your stake in companies that have long-term value. EPF (Employees Provident Fund) is in a position to increase its stakes and is looking at some good long-term investment potential.'
The government holds stakes in some of Malaysia's largest companies such as top lender Malayan Banking and power firm Tenaga Nasional.
The Malaysian stock market has lost about 40 per cent this year, roughly in line with the performance of most regional markets.
Mr Najib also said that the government would work with neighbouring Indonesia to stabilise the price of crude palm oil. The two countries control about 90 per cent of the palm oil output, he said. - Reuters
Published December 23, 2008
More stimulus action from KL in February
News website says govt ready with another multi-billion ringgit package
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(KUALA LUMPUR) Malaysia will announce more measures in February to boost its economy, as falling tech sales and an expected rise in jobless numbers raise the spectre of a recession next year, an influential news website reported yesterday.
Mr Najib: Malaysia is not expected to slip into a recession
Malaysia has banked on strong Asian and domestic demand to shore up its economy but a deepening global slowdown is triggering doubts about how well it will weather the US-led economic crisis.
The South-east Asian economy will unveil a series of measures next year and is ready to announce another multi-billion ringgit stimulus package if necessary, the Malaysian Insider said without citing sources.
The government has already announced a RM7 billion (S$3 billion) package to stabilise its economy.
Government data shows that 30,000 Malaysians have lost their jobs so far and the Human Resources Ministry - which expects a jump in unemployment in the first quarter of next year - has asked the Cabinet for RM100 million to retrain laid-off workers, the report said.
Government officials have been asked to come up with initiatives to help middle-level management, who could lose their jobs by next year, and find work for 120,000 new graduates, it said.
Asked to comment on the report, Deputy Prime Minister Najib Razak said that the government was watching global economic developments.
'We do not know yet. It all depends on the global economic situation,' Mr Najib, who is also Finance Minister, said. 'Our concern is that we want to protect the rakyat (people) as much as possible and to ensure there is some growth in the real economy.' He said that Malaysia was not expected to slip into a recession although much would depend on the global economy.
Falling demand for the country's key tech exports is hitting the economy. Western Digital, the world's second-largest maker of computer disk drives, has shut its operations in Malaysia's Sarawak state on Borneo island and laid off all its 1,500 employees.
Malaysia has forecast economic growth of 3.5 per cent next year, the lowest in eight years.
'We still think that Malaysia will avoid going into a recession next year but nothing is being discounted,' the report said quoting an unnamed government official. 'Much will depend on whether our trading partners sink further and the level of confidence in Malaysia.' - Reuters
More stimulus action from KL in February
News website says govt ready with another multi-billion ringgit package
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(KUALA LUMPUR) Malaysia will announce more measures in February to boost its economy, as falling tech sales and an expected rise in jobless numbers raise the spectre of a recession next year, an influential news website reported yesterday.
Mr Najib: Malaysia is not expected to slip into a recession
Malaysia has banked on strong Asian and domestic demand to shore up its economy but a deepening global slowdown is triggering doubts about how well it will weather the US-led economic crisis.
The South-east Asian economy will unveil a series of measures next year and is ready to announce another multi-billion ringgit stimulus package if necessary, the Malaysian Insider said without citing sources.
The government has already announced a RM7 billion (S$3 billion) package to stabilise its economy.
Government data shows that 30,000 Malaysians have lost their jobs so far and the Human Resources Ministry - which expects a jump in unemployment in the first quarter of next year - has asked the Cabinet for RM100 million to retrain laid-off workers, the report said.
Government officials have been asked to come up with initiatives to help middle-level management, who could lose their jobs by next year, and find work for 120,000 new graduates, it said.
Asked to comment on the report, Deputy Prime Minister Najib Razak said that the government was watching global economic developments.
'We do not know yet. It all depends on the global economic situation,' Mr Najib, who is also Finance Minister, said. 'Our concern is that we want to protect the rakyat (people) as much as possible and to ensure there is some growth in the real economy.' He said that Malaysia was not expected to slip into a recession although much would depend on the global economy.
Falling demand for the country's key tech exports is hitting the economy. Western Digital, the world's second-largest maker of computer disk drives, has shut its operations in Malaysia's Sarawak state on Borneo island and laid off all its 1,500 employees.
Malaysia has forecast economic growth of 3.5 per cent next year, the lowest in eight years.
'We still think that Malaysia will avoid going into a recession next year but nothing is being discounted,' the report said quoting an unnamed government official. 'Much will depend on whether our trading partners sink further and the level of confidence in Malaysia.' - Reuters
Published December 23, 2008
DBS warns of lower Q4 net earnings
Net profit before one-time charges could be moderately lower than in Q3
By CONRAD TAN
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DBS Group Holdings' net profit is expected to slide further in the fourth quarter, the bank warned yesterday as it announced plans to raise some $4 billion in new capital from a rights issue.
'Our fourth-quarter net profit could end up moderately lower than in the third quarter, prior to one-time charges,' said DBS chief financial officer Chng Sok Hui.
That would make it the group's worst quarter since at least the end of 2005, when it reported a profit of $384 million, excluding goodwill charges and one-time gains.
As for dividend payment, DBS said it 'intends to declare and pay a final dividend for the quarter ending Dec 31, amounting to the same absolute cash amount as it would have done had there been no rights issue'.
In future, 'DBS' dividend policy will reflect its long-term sustainable earnings growth and capital requirements, as well as general prevailing financial and business conditions', it said.
'2009 will be a challenging year. We do expect our provisions and NPLs to be up but we don't expect a major spike.'
- DBS chief executive Richard Stanley
Including one-time charges, the Q4 results could be much worse. DBS is expected to take a charge of $45 million to pay compensation to the 900 staff it fired last month. It also expects a further impairment of its investment in Thailand's TMB Bank.
The bank is also reviewing the carrying value of its investment in Indian joint venture Cholamandalam DBS Finance - currently valued at $103 million - 'in view of the liquidity stress experienced by non-bank financial companies in India', it said.
'We will be reviewing the joint venture for possible impairment, but that has not been completed,' said DBS chief executive Richard Stanley in a conference call.
But Ms Chng said that DBS' total income has been 'relatively stable' compared with the third quarter. Net interest income increased, but fee income fell.
Pauline Lee, an analyst at Kim Eng Securities, said that the update by DBS was largely within her expectations. 'The earnings outlook is pretty gloomy for the next six to 12 months.'
Mr Stanley said that DBS doesn't expect a surge in bad loans despite the bleak economic outlook.
'2009 we all know will be a challenging year. We do expect our provisions and NPLs (non-performing loans) to be up somewhat but we don't expect there to be a major spike in these two measures.'
Ms Chng said NPLs have risen 'moderately' since the third quarter, while specific allowances for bad loans have increased 'largely from SME (small and medium enterprise) loans in Hong Kong and Greater China as well as private-banking loans'.
The bank does not expect any material charges for collateralised debt obligations or CDOs in the fourth quarter, she added.
As a result, 'overall allowance charges are expected to be modestly below the third quarter'.
In Q3, DBS's profit - excluding one-time charges - fell 38 per cent from a year earlier to $402 million, hit by a sharp rise in allowances for bad loans and a steep drop in fee income.
DBS warns of lower Q4 net earnings
Net profit before one-time charges could be moderately lower than in Q3
By CONRAD TAN
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DBS Group Holdings' net profit is expected to slide further in the fourth quarter, the bank warned yesterday as it announced plans to raise some $4 billion in new capital from a rights issue.
'Our fourth-quarter net profit could end up moderately lower than in the third quarter, prior to one-time charges,' said DBS chief financial officer Chng Sok Hui.
That would make it the group's worst quarter since at least the end of 2005, when it reported a profit of $384 million, excluding goodwill charges and one-time gains.
As for dividend payment, DBS said it 'intends to declare and pay a final dividend for the quarter ending Dec 31, amounting to the same absolute cash amount as it would have done had there been no rights issue'.
In future, 'DBS' dividend policy will reflect its long-term sustainable earnings growth and capital requirements, as well as general prevailing financial and business conditions', it said.
'2009 will be a challenging year. We do expect our provisions and NPLs to be up but we don't expect a major spike.'
- DBS chief executive Richard Stanley
Including one-time charges, the Q4 results could be much worse. DBS is expected to take a charge of $45 million to pay compensation to the 900 staff it fired last month. It also expects a further impairment of its investment in Thailand's TMB Bank.
The bank is also reviewing the carrying value of its investment in Indian joint venture Cholamandalam DBS Finance - currently valued at $103 million - 'in view of the liquidity stress experienced by non-bank financial companies in India', it said.
'We will be reviewing the joint venture for possible impairment, but that has not been completed,' said DBS chief executive Richard Stanley in a conference call.
But Ms Chng said that DBS' total income has been 'relatively stable' compared with the third quarter. Net interest income increased, but fee income fell.
Pauline Lee, an analyst at Kim Eng Securities, said that the update by DBS was largely within her expectations. 'The earnings outlook is pretty gloomy for the next six to 12 months.'
Mr Stanley said that DBS doesn't expect a surge in bad loans despite the bleak economic outlook.
'2009 we all know will be a challenging year. We do expect our provisions and NPLs (non-performing loans) to be up somewhat but we don't expect there to be a major spike in these two measures.'
Ms Chng said NPLs have risen 'moderately' since the third quarter, while specific allowances for bad loans have increased 'largely from SME (small and medium enterprise) loans in Hong Kong and Greater China as well as private-banking loans'.
The bank does not expect any material charges for collateralised debt obligations or CDOs in the fourth quarter, she added.
As a result, 'overall allowance charges are expected to be modestly below the third quarter'.
In Q3, DBS's profit - excluding one-time charges - fell 38 per cent from a year earlier to $402 million, hit by a sharp rise in allowances for bad loans and a steep drop in fee income.
Published December 23, 2008
DBS move may well spark industry fund-raising
By CONRAD TAN
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DBS's plan to raise some $4 billion in new capital through a rights issue should have been welcomed by the market.
It was not. DBS's share price plunged nearly 11 per cent as soon as trading resumed after the announcement, before recovering slightly to end the day 4.9 per cent lower at $9.37.
One possible reason was that the steep discount at which the shares were being offered - 45 per cent below DBS's closing price last Friday - might have given an impression that the bank is anxious for cash to plug a hole in its balance sheet.
DBS chief executive Richard Stanley dismissed that notion in a conference call yesterday. The bank was raising capital 'from a position of strength', he said, emphasising that the money was not meant to fund any 'extraordinary provisions' or an impending acquisition.
Precautionary measure
Kenneth Ng, an analyst at CIMB, agreed. 'It's more of a precautionary measure,' he told BT.
At 9.7 per cent, DBS's Tier-1 capital ratio - the size of its buffer against losses - before the rights issue was comfortably above the minimum 6 per cent required of banks here, he and other analysts pointed out.
But where some see strength, others found cause for concern. Kevin Scully, who heads independent equity research firm NetResearch Asia, thinks that DBS is moving to shore up its balance sheet ahead of impending charges for bad loans or other exposures.
'The extent of the fund-raising, given that theoretically their Tier-1 ratio is quite high already, probably means that they hadn't provided enough in the last quarter,' he said.
In his view, that explains why DBS's share price has fallen to less than its book value per share - what the bank's assets, less its liabilities, are worth on its books - while shares of its peers, OCBC Bank and UOB, have been trading at roughly book value.
'The market perceived that its asset quality was poorer,' said Mr Scully. 'This fund-raising probably confirms that because the asset quality is poorer, the potential for provisions is higher. The large discount and the quantum is probably required given that the equity market sentiment is very bad.'
The sheer size of the rights issue will also dilute the stakes of shareholders who choose not to take up the offer, or can't afford to.
'The dilution is pretty massive - about 33 per cent,' said Pauline Lee, an analyst at Kim Eng Securities. The book value per share is likely to fall as a result of the enlarged share capital, she added. That could put further pressure on its share price in the short term.
But DBS has got it right in at least one respect. Unlike UK bank Barclays, which turned to foreign institutional investors for funds without first offering existing shareholders a chance to buy new paper, DBS has given all its shareholders a fair bite.
And at a 45 per cent discount, 'it's really a very good deal for the existing shareholders', said Ms Lee.
Compared with other recent rights offers, the discount seems less alarming too. Standard Chartered Bank's recent rights offer, which raised £pounds;1.8 billion (S$3.9 billion), was priced at a 49 per cent discount.
Spotlight on OCBC, UOB
The spotlight will now shift to OCBC and UOB. Neither have given any indication that they will raise new capital soon. Their Tier-1 and overall capital ratios at the end of September were higher than DBS's.
But as Morgan Stanley analysts Matthew Wilson and Anil Agarwal suggested last month, the unfolding financial crisis is likely to result in tighter regulation and greater capital adequacy requirements for banks everywhere.
Also, the existing Tier-1 ratios include funds raised from preference share issues earlier this year. As Mr Stanley admitted yesterday, investors now prefer banks with higher levels of common equity in their capital cushions.
Even as DBS strives to convince sceptics that it wasn't that its balance sheet needed repairing, its peers may well take its lead in raising fresh capital to head off future requirements.
DBS move may well spark industry fund-raising
By CONRAD TAN
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DBS's plan to raise some $4 billion in new capital through a rights issue should have been welcomed by the market.
It was not. DBS's share price plunged nearly 11 per cent as soon as trading resumed after the announcement, before recovering slightly to end the day 4.9 per cent lower at $9.37.
One possible reason was that the steep discount at which the shares were being offered - 45 per cent below DBS's closing price last Friday - might have given an impression that the bank is anxious for cash to plug a hole in its balance sheet.
DBS chief executive Richard Stanley dismissed that notion in a conference call yesterday. The bank was raising capital 'from a position of strength', he said, emphasising that the money was not meant to fund any 'extraordinary provisions' or an impending acquisition.
Precautionary measure
Kenneth Ng, an analyst at CIMB, agreed. 'It's more of a precautionary measure,' he told BT.
At 9.7 per cent, DBS's Tier-1 capital ratio - the size of its buffer against losses - before the rights issue was comfortably above the minimum 6 per cent required of banks here, he and other analysts pointed out.
But where some see strength, others found cause for concern. Kevin Scully, who heads independent equity research firm NetResearch Asia, thinks that DBS is moving to shore up its balance sheet ahead of impending charges for bad loans or other exposures.
'The extent of the fund-raising, given that theoretically their Tier-1 ratio is quite high already, probably means that they hadn't provided enough in the last quarter,' he said.
In his view, that explains why DBS's share price has fallen to less than its book value per share - what the bank's assets, less its liabilities, are worth on its books - while shares of its peers, OCBC Bank and UOB, have been trading at roughly book value.
'The market perceived that its asset quality was poorer,' said Mr Scully. 'This fund-raising probably confirms that because the asset quality is poorer, the potential for provisions is higher. The large discount and the quantum is probably required given that the equity market sentiment is very bad.'
The sheer size of the rights issue will also dilute the stakes of shareholders who choose not to take up the offer, or can't afford to.
'The dilution is pretty massive - about 33 per cent,' said Pauline Lee, an analyst at Kim Eng Securities. The book value per share is likely to fall as a result of the enlarged share capital, she added. That could put further pressure on its share price in the short term.
But DBS has got it right in at least one respect. Unlike UK bank Barclays, which turned to foreign institutional investors for funds without first offering existing shareholders a chance to buy new paper, DBS has given all its shareholders a fair bite.
And at a 45 per cent discount, 'it's really a very good deal for the existing shareholders', said Ms Lee.
Compared with other recent rights offers, the discount seems less alarming too. Standard Chartered Bank's recent rights offer, which raised £pounds;1.8 billion (S$3.9 billion), was priced at a 49 per cent discount.
Spotlight on OCBC, UOB
The spotlight will now shift to OCBC and UOB. Neither have given any indication that they will raise new capital soon. Their Tier-1 and overall capital ratios at the end of September were higher than DBS's.
But as Morgan Stanley analysts Matthew Wilson and Anil Agarwal suggested last month, the unfolding financial crisis is likely to result in tighter regulation and greater capital adequacy requirements for banks everywhere.
Also, the existing Tier-1 ratios include funds raised from preference share issues earlier this year. As Mr Stanley admitted yesterday, investors now prefer banks with higher levels of common equity in their capital cushions.
Even as DBS strives to convince sceptics that it wasn't that its balance sheet needed repairing, its peers may well take its lead in raising fresh capital to head off future requirements.
Published December 23, 2008
Boards must bear blame for the crisis, says man who's seen it all
S'pore will ride storm, says outgoing CapitaLand deputy chairman Owyang
By UMA SHANKARI
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(SINGAPORE) Outgoing CapitaLand deputy chairman Hsuan Owyang has been closely tracking Wall Street every day for the past 56 years, and so the current financial crisis came as no surprise to him.
'We have seen many recessions before, but the financial system has never been challenged this way before.'
- Mr Owyang
But he remains confident that corporate Singapore will survive the onslaught - although it cannot escape unscathed, he warned.
And while many have been pointing fingers at bankers, the regulators and the management teams at the various failed (and floundering) banks for causing the current downturn, Mr Owyang - who in his time in Singapore has sat on the boards of the Housing and Development Board, the Monetary Authority of Singapore and Temasek Holdings - holds the many boards of directors accountable as well.
'The entire crisis can be summed up in six words: greedy bankers, incompetent boards and complacent regulators,' he said in his final press interview before leaving Singapore to spend his retirement in the United States.
The 80-year-old Mr Owyang, who is a US citizen, should know. In addition to sitting on numerous boards during his more than four decades in Singapore, he has also helped to run Overseas Union Bank, POSBank and CapitaLand. He has also chalked up about 12 years of experience on Wall Street with a broking firm.
Mr Owyang has chaired the judging panel of the Singapore Business Awards for many years, and has been instrumental in building up the Awards' reputation over the years.
A director's job, he says, is to monitor and advise. It is with the monitoring role that directors fell short before the present crisis, he feels. 'The job is to check if the CEO (chief executive officer) is leading the company well. If not, something must be done.'
Mr Owyang also shared his belief that corporate Singapore will be able to survive the crisis, but only after taking many hits.
'We will all get through - America, Singapore and the world - but at a very high cost,' he predicted. 'We have seen many recessions before, but the financial system has never been challenged this way before.'
Mr Owyang has warned of the crisis in interviews before, as far back as 2000. The problem over the last few years, he explains, was that the bull market was running on ahead too quickly. It was only a matter of time before the pendulum swung the other way.
Right now, no one knows where the bottom will be, he said. 'But banks such as DBS are not going to collapse . . . CapitaLand, I think will come through this thing well. But when the storm is so big, everyone will be hit anyway.'
Smaller companies, on the other hand, are especially likely to suffer, with little reserves to call on. Singapore, he warns, has yet to feel the effects of the crisis as the wage cuts and layoffs have not fully kicked in.
'Eventually, when all the dust has settled, we will come out a better society,' Mr Owyang said. 'The new house we build will be free of all the handicaps of the past.'
But even after the dust settles, Mr Owyang expects the US to continue to lead the world on the financial stage: 'Asia's growth potential is there but it cannot lead the world. China cannot replace the US, at least not in the first 50 years of this century. And America has a tendency for self-renewal.'
Singapore's role, he said, is not expected to change that much. The country's strength is its political leadership's flexibility, which should allow it to recover fast.
Boards must bear blame for the crisis, says man who's seen it all
S'pore will ride storm, says outgoing CapitaLand deputy chairman Owyang
By UMA SHANKARI
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(SINGAPORE) Outgoing CapitaLand deputy chairman Hsuan Owyang has been closely tracking Wall Street every day for the past 56 years, and so the current financial crisis came as no surprise to him.
'We have seen many recessions before, but the financial system has never been challenged this way before.'
- Mr Owyang
But he remains confident that corporate Singapore will survive the onslaught - although it cannot escape unscathed, he warned.
And while many have been pointing fingers at bankers, the regulators and the management teams at the various failed (and floundering) banks for causing the current downturn, Mr Owyang - who in his time in Singapore has sat on the boards of the Housing and Development Board, the Monetary Authority of Singapore and Temasek Holdings - holds the many boards of directors accountable as well.
'The entire crisis can be summed up in six words: greedy bankers, incompetent boards and complacent regulators,' he said in his final press interview before leaving Singapore to spend his retirement in the United States.
The 80-year-old Mr Owyang, who is a US citizen, should know. In addition to sitting on numerous boards during his more than four decades in Singapore, he has also helped to run Overseas Union Bank, POSBank and CapitaLand. He has also chalked up about 12 years of experience on Wall Street with a broking firm.
Mr Owyang has chaired the judging panel of the Singapore Business Awards for many years, and has been instrumental in building up the Awards' reputation over the years.
A director's job, he says, is to monitor and advise. It is with the monitoring role that directors fell short before the present crisis, he feels. 'The job is to check if the CEO (chief executive officer) is leading the company well. If not, something must be done.'
Mr Owyang also shared his belief that corporate Singapore will be able to survive the crisis, but only after taking many hits.
'We will all get through - America, Singapore and the world - but at a very high cost,' he predicted. 'We have seen many recessions before, but the financial system has never been challenged this way before.'
Mr Owyang has warned of the crisis in interviews before, as far back as 2000. The problem over the last few years, he explains, was that the bull market was running on ahead too quickly. It was only a matter of time before the pendulum swung the other way.
Right now, no one knows where the bottom will be, he said. 'But banks such as DBS are not going to collapse . . . CapitaLand, I think will come through this thing well. But when the storm is so big, everyone will be hit anyway.'
Smaller companies, on the other hand, are especially likely to suffer, with little reserves to call on. Singapore, he warns, has yet to feel the effects of the crisis as the wage cuts and layoffs have not fully kicked in.
'Eventually, when all the dust has settled, we will come out a better society,' Mr Owyang said. 'The new house we build will be free of all the handicaps of the past.'
But even after the dust settles, Mr Owyang expects the US to continue to lead the world on the financial stage: 'Asia's growth potential is there but it cannot lead the world. China cannot replace the US, at least not in the first 50 years of this century. And America has a tendency for self-renewal.'
Singapore's role, he said, is not expected to change that much. The country's strength is its political leadership's flexibility, which should allow it to recover fast.
Published December 23, 2008
DBS grabs initiative with $4b cash call
Move not unexpected, but size and pricing come as surprise to some
By EMILYN YAP
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(SINGAPORE) Preparing for tougher times ahead, DBS Group yesterday launched a $4 billion rights issue priced at a steep discount to boost its balance sheet and pursue organic growth.
Already, the bank expects fourth-quarter net profit to drop from the previous quarter, and other one-time charges could hit the bottom line further.
While some analysts had expected several Asian banks to raise new capital as the financial crisis unfolds, the size and discount involved in DBS's rights issue seemed to have caught the market off guard.
Reacting to the news, DBS shares fell as much as 10.6 per cent to an intraday low of $8.81, before closing at $9.37 for a 4.9 per cent or 48-cent loss.
The rights issue comes 'at a time when investor preference globally has shifted in favour of banks with higher capital levels, especially core capital levels,' DBS said.
To raise around $4 billion in net proceeds, DBS is offering 760.48 million rights shares on the basis of one rights share for every two existing held. The rights shares are priced at $5.42 each, at a whopping 45 per cent discount to the counter's closing price of $9.85 last Friday.
Five banks - Citi, Goldman Sachs, JP Morgan, Morgan Stanley and UBS - are underwriting the rights issue in full. DBS's directors plan to take up their entitlements under the rights issue fully.
DBS's largest shareholder, Temasek Holdings, is also subscribing for up to 33.3 per cent of the rights issue through a sub-underwriting arrangement. This includes Temasek taking up its full rights entitlement of 27.6 per cent. Its aggregate shareholdings after the exercise will remain under 30 per cent.
The books closure date for the renounceable rights offering is Dec 31, 2008.
'It came (as quite a surprise), that they are raising so much money . . . and at such a huge discount,' said Phillip Securities analyst Brandon Ng.
Assuming that it raises $4 billion, DBS would have a pro forma consolidated core Tier 1 ratio of 9.9 per cent as of Sept 30, up from 7.8 per cent previously. According to DBS, this new ratio exceeds UOB's 9.3 per cent, but remains below OCBC's 10.6 per cent.
The new funds would also raise DBS's pro forma consolidated Tier 1 ratio from 9.7 per cent to 11.8 per cent. Again, this is more than UOB's 11.2 per cent but less than OCBC's 14.4 per cent.
'DBS's Tier 1 ratio is lower than the other two banks',' said CIMB analyst Kenneth Ng. 'It's safe to assume that $4 billion puts their Tier 1 just above UOB's, so they wouldn't be the last.'
DBS chief executive Richard Stanley emphasised in a teleconference yesterday afternoon: 'This rights issue is being initiated from a position of strength . . . It is not to support a kitchen-sinking or a clean-up of our balance sheet.'
The new funds will also be used for organic growth, but not mergers or acquisitions, he added. 'The current environment presents both opportunities and challenges.'
DBS said that it will continue to build its businesses in Singapore and Hong Kong. Among other strategies, 'we'll do this by increasing high-quality corporate lending . . . cross-selling a wide array of products including cash management and other fee-based products,' said Mr Stanley.
DBS will also continue to invest in China, Taiwan, India and Indonesia, he added.
The bank however, expects Q4 net profit to be moderately lower than the previous quarter's. This does not take into account one-time charges, which include $45 million from the recent staff restructuring and more impairment of its investment in TMB Bank.
The bank's rights issue comes on the back of fundraising exercises by other banks. Standard Chartered for instance, recently obtained £pounds;1.8 billion (S$3.9 billion) in a rights offer priced at a 49 per cent discount, reported Bloomberg.
Analysts from Morgan Stanley had said in a report last month that 39 banks in Asia may need to raise new share capital, cut dividends, or sell assets for cash in the next few months. DBS was among those that they thought were most likely to call for new capital, while OCBC and UOB were not on their list.
'The question we should be asking now is, for the other two banks (OCBC and UOB) which did preference share issues - will that be enough, and will we see further capital raising?' asked managing director of NetResearch Asia, Kevin Scully.
When asked by BT, a UOB spokesman said that its Tier 1 ratio as of Sept 30 is adequate, but 'we continue to review our capital position and needs'.
OCBC did not specify if further fundraising plans were in the works.
DBS grabs initiative with $4b cash call
Move not unexpected, but size and pricing come as surprise to some
By EMILYN YAP
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(SINGAPORE) Preparing for tougher times ahead, DBS Group yesterday launched a $4 billion rights issue priced at a steep discount to boost its balance sheet and pursue organic growth.
Already, the bank expects fourth-quarter net profit to drop from the previous quarter, and other one-time charges could hit the bottom line further.
While some analysts had expected several Asian banks to raise new capital as the financial crisis unfolds, the size and discount involved in DBS's rights issue seemed to have caught the market off guard.
Reacting to the news, DBS shares fell as much as 10.6 per cent to an intraday low of $8.81, before closing at $9.37 for a 4.9 per cent or 48-cent loss.
The rights issue comes 'at a time when investor preference globally has shifted in favour of banks with higher capital levels, especially core capital levels,' DBS said.
To raise around $4 billion in net proceeds, DBS is offering 760.48 million rights shares on the basis of one rights share for every two existing held. The rights shares are priced at $5.42 each, at a whopping 45 per cent discount to the counter's closing price of $9.85 last Friday.
Five banks - Citi, Goldman Sachs, JP Morgan, Morgan Stanley and UBS - are underwriting the rights issue in full. DBS's directors plan to take up their entitlements under the rights issue fully.
DBS's largest shareholder, Temasek Holdings, is also subscribing for up to 33.3 per cent of the rights issue through a sub-underwriting arrangement. This includes Temasek taking up its full rights entitlement of 27.6 per cent. Its aggregate shareholdings after the exercise will remain under 30 per cent.
The books closure date for the renounceable rights offering is Dec 31, 2008.
'It came (as quite a surprise), that they are raising so much money . . . and at such a huge discount,' said Phillip Securities analyst Brandon Ng.
Assuming that it raises $4 billion, DBS would have a pro forma consolidated core Tier 1 ratio of 9.9 per cent as of Sept 30, up from 7.8 per cent previously. According to DBS, this new ratio exceeds UOB's 9.3 per cent, but remains below OCBC's 10.6 per cent.
The new funds would also raise DBS's pro forma consolidated Tier 1 ratio from 9.7 per cent to 11.8 per cent. Again, this is more than UOB's 11.2 per cent but less than OCBC's 14.4 per cent.
'DBS's Tier 1 ratio is lower than the other two banks',' said CIMB analyst Kenneth Ng. 'It's safe to assume that $4 billion puts their Tier 1 just above UOB's, so they wouldn't be the last.'
DBS chief executive Richard Stanley emphasised in a teleconference yesterday afternoon: 'This rights issue is being initiated from a position of strength . . . It is not to support a kitchen-sinking or a clean-up of our balance sheet.'
The new funds will also be used for organic growth, but not mergers or acquisitions, he added. 'The current environment presents both opportunities and challenges.'
DBS said that it will continue to build its businesses in Singapore and Hong Kong. Among other strategies, 'we'll do this by increasing high-quality corporate lending . . . cross-selling a wide array of products including cash management and other fee-based products,' said Mr Stanley.
DBS will also continue to invest in China, Taiwan, India and Indonesia, he added.
The bank however, expects Q4 net profit to be moderately lower than the previous quarter's. This does not take into account one-time charges, which include $45 million from the recent staff restructuring and more impairment of its investment in TMB Bank.
The bank's rights issue comes on the back of fundraising exercises by other banks. Standard Chartered for instance, recently obtained £pounds;1.8 billion (S$3.9 billion) in a rights offer priced at a 49 per cent discount, reported Bloomberg.
Analysts from Morgan Stanley had said in a report last month that 39 banks in Asia may need to raise new share capital, cut dividends, or sell assets for cash in the next few months. DBS was among those that they thought were most likely to call for new capital, while OCBC and UOB were not on their list.
'The question we should be asking now is, for the other two banks (OCBC and UOB) which did preference share issues - will that be enough, and will we see further capital raising?' asked managing director of NetResearch Asia, Kevin Scully.
When asked by BT, a UOB spokesman said that its Tier 1 ratio as of Sept 30 is adequate, but 'we continue to review our capital position and needs'.
OCBC did not specify if further fundraising plans were in the works.
Monday, 22 December 2008
Published December 22, 2008
MALAYSIA INSIGHT
Sime Darby heart deal raises too many questions
The govt seems to have been stopped in its tracks on its way towards allowing it to proceed
By S JAYASANKARAN
KL CORRESPONDENT
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IT WOULD appear that Malaysian public outrage has become an effective tool to contain heavy handedness on the part of government.
Two weeks ago, a massive landslide that killed four people, crushed 14 houses and displaced over 3,000 people in a hilly area in Ampang in Selangor state raised such hackles that the authorities hastily ordered a review of all hillslope developments and stopped work on more than a few.
Indeed, it's prompted a rethink on all such developments - a belated, but much needed, outcome given that landslides have been occurring over the last 15 years causing much destruction to property and, sometimes, life without as much as an apologetic shrug from the authorities and its standard 'let the buyer beware' justification.
Now the government seems to have been stopped in its tracks on its way towards allowing the privatisation of the National Heart Institute (NHI) by multinational Sime Darby.
On Saturday, Deputy Prime Minister Najib Razak said the deal would be 'shelved' until after a thorough study on its consequences had been carried out.
Why do it in the first place given that the NHI, set up in 1992, has been also serving poor people and civil servants whilst also catering for paying patients?
Mr Najib had mentioned that it also had to do with the fact that the institute's medical staff had been demanding higher pay - they do not receive the equivalent of their peers in the private sector - and that they would leave if their demands weren't met.
Nope, said 35 of the institute's senior doctors in a signed statement late Friday, that was not true at all. The doctors said that the annual attrition rate in the institute was a mere 3 per cent and that 75 per cent of its staff had been there for more than 10 years.
Other reports have since said that the doctors, even the health ministry, had no clue about the Sime Darby proposal.
Sustained public pressure was maintained on the government through the press' widespread coverage and critics of the scheme which included prominent heart surgeon Yayha Awang - who performed the 1989 bypass on former prime minister Mahathir Mohamad - almost all prominent opposition figures and, yes, Dr Mahathir himself.
Dr Mahathir dismissed the assurances given by Sime and the government that the poor and the needy would not be disadvantaged. 'If the poor are going to be charged the same low fees, how does Sime Darby make money?' he asked in his blog yesterday.
'There are far too many questions about this privatisation which need to be answered,' wrote Dr Mahathir. 'Some I think cannot be answered.'
Dr Mahathir may have been too kind here. In fact, the whole scheme does not make sense at all. Companies privatise government entities to make a profit.
But the institute has become an institution in Malaysia, offering heart patients, even well- heeled ones, reasonable healthcare at affordable prices. Why tinker with something that isn't broke?
Still, the main reason why the government backtracked was explained by Dr Mahathir. 'The Barisan Nasional Government is not too popular today,' he noted. 'Why do something that may give the opposition another issue to belabour the government.' Why, indeed?
MALAYSIA INSIGHT
Sime Darby heart deal raises too many questions
The govt seems to have been stopped in its tracks on its way towards allowing it to proceed
By S JAYASANKARAN
KL CORRESPONDENT
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IT WOULD appear that Malaysian public outrage has become an effective tool to contain heavy handedness on the part of government.
Two weeks ago, a massive landslide that killed four people, crushed 14 houses and displaced over 3,000 people in a hilly area in Ampang in Selangor state raised such hackles that the authorities hastily ordered a review of all hillslope developments and stopped work on more than a few.
Indeed, it's prompted a rethink on all such developments - a belated, but much needed, outcome given that landslides have been occurring over the last 15 years causing much destruction to property and, sometimes, life without as much as an apologetic shrug from the authorities and its standard 'let the buyer beware' justification.
Now the government seems to have been stopped in its tracks on its way towards allowing the privatisation of the National Heart Institute (NHI) by multinational Sime Darby.
On Saturday, Deputy Prime Minister Najib Razak said the deal would be 'shelved' until after a thorough study on its consequences had been carried out.
Why do it in the first place given that the NHI, set up in 1992, has been also serving poor people and civil servants whilst also catering for paying patients?
Mr Najib had mentioned that it also had to do with the fact that the institute's medical staff had been demanding higher pay - they do not receive the equivalent of their peers in the private sector - and that they would leave if their demands weren't met.
Nope, said 35 of the institute's senior doctors in a signed statement late Friday, that was not true at all. The doctors said that the annual attrition rate in the institute was a mere 3 per cent and that 75 per cent of its staff had been there for more than 10 years.
Other reports have since said that the doctors, even the health ministry, had no clue about the Sime Darby proposal.
Sustained public pressure was maintained on the government through the press' widespread coverage and critics of the scheme which included prominent heart surgeon Yayha Awang - who performed the 1989 bypass on former prime minister Mahathir Mohamad - almost all prominent opposition figures and, yes, Dr Mahathir himself.
Dr Mahathir dismissed the assurances given by Sime and the government that the poor and the needy would not be disadvantaged. 'If the poor are going to be charged the same low fees, how does Sime Darby make money?' he asked in his blog yesterday.
'There are far too many questions about this privatisation which need to be answered,' wrote Dr Mahathir. 'Some I think cannot be answered.'
Dr Mahathir may have been too kind here. In fact, the whole scheme does not make sense at all. Companies privatise government entities to make a profit.
But the institute has become an institution in Malaysia, offering heart patients, even well- heeled ones, reasonable healthcare at affordable prices. Why tinker with something that isn't broke?
Still, the main reason why the government backtracked was explained by Dr Mahathir. 'The Barisan Nasional Government is not too popular today,' he noted. 'Why do something that may give the opposition another issue to belabour the government.' Why, indeed?
Published December 22, 2008
Treat longs and shorts equally
By R SIVANITHY
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WHEN asked what he thought of the recent proposal by the Singapore Exchange (SGX) to publish detailed short-selling information, a senior analyst said: 'Why single out short-sellers for special treatment? They have done no wrong. If you want to improve disclosure, then disclose everything, not just short positions. Why penalise only short sellers?'
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| It's SGX's call: The list of top 20 shareholders for Singapore-listed firms would usually be occupied by nominee names, essentially useless information |
Why indeed? Six months ago, we said in this column ('Why shareholding transparency is important', May 5) that perhaps the regulatory authorities here should follow the example of Hong Kong, which at the time announced an Online Shareholder Disclosure Service to allow anyone to check the identities of shareholders in any Hong Kong-listed company free of charge for periods up to one year in the past.
In other words, Hong Kong has taken the lead in realising that it's not just short positions that could do with improved disclosure, but also long ones.
The aim of the Hong Kong exchange's service is, according to its press statement, 'to give the public greater access to information on Hong Kong-listed companies' shareholders and further increase the transparency of Central Clearing and Settlement (CCAS, the Hong Kong-equivalent of Singapore's Central Depository or CDP) shareholdings'.
Users specify the name of the company and can search by substantial shareholder, date and even directors' interests.
Why is it equally important to know who is long as well as short? The simple answer is: Why not? If you were to glance through the annual reports of most companies, the list of top 20 shareholders for Singapore-listed firms would usually be occupied by nominee names, essentially useless information from the point of view of anyone wanting to know who the shareholders really are. Why not make it mandatory for these nominees to reveal who the names of the true beneficial owners? After all, if shareholders are a company's main customers, and if good management means knowing your customers well, then shouldn't companies know the identities of their shareholders and share this knowledge with the public?
If, for example, companies know who exactly their shareholders are, then surely a long-term relationship or dialogue between management and shareholders can ensue. Might this not then improve attendance at general meetings, or raise shareholder awareness and activism and, in so doing, act as a check against hostile or prejudicial activity?
We could take this several steps further and argue that company shareholding should be broken down into the proportion held by retail investors and professionals. For comparative purposes, why not also give the top 20 shareholders for the past five years instead of just the most recent year to show how the structure has shifted over time?
If the authorities are really committed to improving 'long' disclosure, then why not make it a rule that companies disclose quarterly shareholder statements showing details such as geographic distribution and proportion of votes held?
As noted in our earlier columns on the subject, there is a growing movement in developed markets such as the US and Europe to identify a company's shareholders. This is founded on the argument - quite correctly - that shareholders too should have duties and obligations, at least insofar as disclosing their identities is concerned.
The key to change, of course, is to recognise that the registered owner of a certain block of shares or even the legal owner may not necessarily be the ultimate investor and to address this via legislation or amending the rules - just as SGX is now considering for short positions. After all, is it not the case that in a true disclosure-based regime, both longs and shorts have to be treated equally?
Published December 22, 2008
Amcham does not expect layoffs in '09
By PAULINE NG
IN KUALA LUMPUR
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THE American Malaysian Chamber of Commerce (Amcham) does not expect the global recession to result in mass retrenchments at US firms next year, but has suggested power tariffs and corporate taxes be reduced to help the bottom line of companies.
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Even so, the chamber's electronics manufacturing arm has projected a drop 'in the order of about 20 per cent' next year in electrical and electronic (E&E) components demand.
'People are hoping by mid-year to have seen the worst of it,' Amcham president Karen Albertson said at a media briefing yesterday on US investments in the country during the current economic climate.
The chamber had been canvassing companies for feedback and was confident the level of investments in Malaysia would be sustained despite less than rosy forecasts for 2009.
For the first 10 months of the year, approved US investments in Malaysia amounted to US$1.8 billion.
'The response I get is that it (the downturn) feels different to the Asian financial crisis, but it will be as difficult,' she said.
Although many sectors had been hit by weaker demand, Ms Albertson said there were also growth areas, specifically business process outsourcing which was going through a 'boom period' and looking to hire talents, as were companies in the green sector owing to Malaysia's recent success in attracting solar energy investments.
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But she acknowledged the depth and scale of retrenchments would affect industries and companies differently, depending on how they manage to adjust to various demands.
Amcham said it was unaware of US firms planning to reduce or shutter operations in Malaysia, other than Western Digital Corporation's announcement of 2,500 job cuts, including some 1,500 at its Kuching plant in Sarawak.
As part of moves to balance capacity with changing demand and cost improvement measures, many US firms were implementing planned year-end production shutdowns, shorter work weeks and other strategies to mitigate the possibility of retrenchments. 'US companies in Malaysia see retrenchments only as a last resort,' she said.
In Penang E&E firms, which produce about a third of Malaysia's exports in the sector, are already bracing for a tougher year ahead. Most have implemented a longer year-end holiday shutdown stretching from Dec 22 to Jan 5, according to a report.
Malaysian exports fell slightly over 14 per cent in October from September - the steep drop owing mainly to much weaker demand for E&E products which account for nearly 40 per cent of total exports.
Amcham, which has over 850 members representing over 400 US, Malaysian and other international companies, could not provide data on how many people are employed by chamber members.
But Ms Albertson said a further reduction of corporate taxes from the maximum rate of 25 per cent next year, plus lower power tariffs, which had risen by about 26 per cent in July, would have an immediate impact on the companies.
Amcham also stressed the need for faster action on the government's proposed RM7 billion (S$2.9 billion) economic stimulus package as well as greater investments in retraining schemes.
Published December 22, 2008
WALL STREET INSIGHT
Cheerless year-end for US as hopes of rally peter out
Market's failure to sustain rally on Fed moves fans bearish views on economy
By ANDREW MARKS
NEW YORK CORRESPONDENT
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IF a US$17 billion last- minute bailout for GM and Chrysler, a historic interest rate cut and virtual declaration of war on the severe recession facing the US economy by the Federal Reserve can't produce a sustainable rally, what are the chances that a jolly fat guy in red pajamas carrying a sack of toys and pulled around by a bunch of reindeer can do it?
Not much, according to the increasingly pessimistic consensus of Wall Street stock market strategists. Just two weeks ago, these gurus were speaking optimistically of the possibility of investors in the US equities markets being treated to the traditional year-end Santa Claus rally as a small gift of cheer after an awful and frightening year.
'The inability to hold onto the gains last week from the Federal Reserve-inspired bounce we had on Tuesday tells me that investors have pretty much shut down for the year,' observed Marc Pado, chief investment strategist at Cantor Fitzgerald, speaking of the reaction to the Fed's cutting short term rates to near-zero per cent.
'The rally you typically see at this time of the year, especially after a bad year that's been low on good news, comes from investors starting to look ahead with some relief and optimism to the coming year, loading up on beaten down stocks or the biggest market leaders in hope and anticipation of a strong start to a new year. But the way stocks have traded this week, you see a very different stock market psychology - investors are exhausted and the relentless bad news on the economy is keeping them from generating enthusiasm for 2009,' he said.
Indeed, pessimism about the economy and the financial sector prevailed all week. Traders said the fact that stocks posted only modest gains for the week - and blue chips ended with a loss - after Tuesday's surge that saw the Dow Jones Industrials soar by more than 4 per cent and the S&P 500 climb better than 5 per cent, indicates that the major indexes will do well to finish out 2008 flat from this point on.
'There's very little to look forward to in the way of market catalysts in these last two weeks of trading except for the Christmas and New Year's holidays,' said Joe Battipaglia, investment strategist at Ryan & Beck.
On Wall Street the only thing people are excited about is getting away for a few days of rest from the turmoil, uncertainty and anxiety surrounding prospects for next year. 'You might very well see a delayed version of the Santa rally right after the New Year,' said Mr Battipaglia.
'Congressional leaders want to have the spending package ready for President-elect Obama to sign the moment he's sworn in to office, and if it's as big as the numbers being thrown around, that should generate some bullish enthusiasm,' he said. He was referring to the new Congress which convenes on January 6 and will start working on a massive stimulus plan for which President-elect Obama is now rumoured to be asking for as much as US$1.3 trillion.
On Friday, stocks attempted to rally on the announcement of the long- awaited short term rescue plan for the carmakers, consisting of US$13.4 billion in short-term financing from the TARP, with another US$4 billion available in February. But after registering intra-day gains of as much as 2 per cent, the major indexes finished mixed, with blue chips losing 26 points, or 0.3 per cent, to close at 8,579.11, while the S&P 500 advanced 2.6 points, or 0.3 per cent, to 887.88, and the Nasdaq Composite gained 12 points, or 0.77 per cent, to finish at 1,564.32.
For the week, the Dow Jones Industrials dipped 50 points, or 0.6 per cent, while the S&P 500 was up 0.89 per cent, and the Nasdaq gained 1.5 per cent.
With so much of Wall Street shut down as the year draws to a close, the lone gift the market may offer investors is a respite from the extraordinary volatility that has been the signature characteristic of the past four months.
Trading volumes are expected to be thin, and any momentum is likely to be short-circuited by the abbreviated trading weeks, punctuated by two holidays and two shortened trading days.
The coming week will be light on new indications of the depth and severity of the recession, but there are a few economic data points to draw investors' attention before Wall Street shuts down for Christmas.
Tomorrow, the Commerce Department is scheduled to release the final reading on third quarter GDP, while existing-home sales and new-home sales for December are also due out.
Durable goods orders are due out on Wednesday's Christmas eve-shortened trading session, along with data on personal income and spending.
Retailers and retail analysts may also provide some indications of how much of a hit they have taken in what is traditionally their cash-cow quarter.
Trading will also take its cue from this week's trickle of fourth quarter earnings reports and warnings from corporate America.
Investors can probably expect a few more of the already-record 497 negative earnings pre-announcements issued thus far for the coming quarter, the highest since 2001, according to earnings tracker Thomson Reuters.
Earnings growth estimates for the S&P 500 continue to drop like a rock, plunging from 5.9 per cent a week ago, to 0.5 per cent, a number expected to be firmly in negative territory when the fourth quarter earnings season gets into gear a few weeks from now.
WALL STREET INSIGHT
Cheerless year-end for US as hopes of rally peter out
Market's failure to sustain rally on Fed moves fans bearish views on economy
By ANDREW MARKS
NEW YORK CORRESPONDENT
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IF a US$17 billion last- minute bailout for GM and Chrysler, a historic interest rate cut and virtual declaration of war on the severe recession facing the US economy by the Federal Reserve can't produce a sustainable rally, what are the chances that a jolly fat guy in red pajamas carrying a sack of toys and pulled around by a bunch of reindeer can do it?
Not much, according to the increasingly pessimistic consensus of Wall Street stock market strategists. Just two weeks ago, these gurus were speaking optimistically of the possibility of investors in the US equities markets being treated to the traditional year-end Santa Claus rally as a small gift of cheer after an awful and frightening year.
'The inability to hold onto the gains last week from the Federal Reserve-inspired bounce we had on Tuesday tells me that investors have pretty much shut down for the year,' observed Marc Pado, chief investment strategist at Cantor Fitzgerald, speaking of the reaction to the Fed's cutting short term rates to near-zero per cent.
'The rally you typically see at this time of the year, especially after a bad year that's been low on good news, comes from investors starting to look ahead with some relief and optimism to the coming year, loading up on beaten down stocks or the biggest market leaders in hope and anticipation of a strong start to a new year. But the way stocks have traded this week, you see a very different stock market psychology - investors are exhausted and the relentless bad news on the economy is keeping them from generating enthusiasm for 2009,' he said.
Indeed, pessimism about the economy and the financial sector prevailed all week. Traders said the fact that stocks posted only modest gains for the week - and blue chips ended with a loss - after Tuesday's surge that saw the Dow Jones Industrials soar by more than 4 per cent and the S&P 500 climb better than 5 per cent, indicates that the major indexes will do well to finish out 2008 flat from this point on.
'There's very little to look forward to in the way of market catalysts in these last two weeks of trading except for the Christmas and New Year's holidays,' said Joe Battipaglia, investment strategist at Ryan & Beck.
On Wall Street the only thing people are excited about is getting away for a few days of rest from the turmoil, uncertainty and anxiety surrounding prospects for next year. 'You might very well see a delayed version of the Santa rally right after the New Year,' said Mr Battipaglia.
'Congressional leaders want to have the spending package ready for President-elect Obama to sign the moment he's sworn in to office, and if it's as big as the numbers being thrown around, that should generate some bullish enthusiasm,' he said. He was referring to the new Congress which convenes on January 6 and will start working on a massive stimulus plan for which President-elect Obama is now rumoured to be asking for as much as US$1.3 trillion.
On Friday, stocks attempted to rally on the announcement of the long- awaited short term rescue plan for the carmakers, consisting of US$13.4 billion in short-term financing from the TARP, with another US$4 billion available in February. But after registering intra-day gains of as much as 2 per cent, the major indexes finished mixed, with blue chips losing 26 points, or 0.3 per cent, to close at 8,579.11, while the S&P 500 advanced 2.6 points, or 0.3 per cent, to 887.88, and the Nasdaq Composite gained 12 points, or 0.77 per cent, to finish at 1,564.32.
For the week, the Dow Jones Industrials dipped 50 points, or 0.6 per cent, while the S&P 500 was up 0.89 per cent, and the Nasdaq gained 1.5 per cent.
With so much of Wall Street shut down as the year draws to a close, the lone gift the market may offer investors is a respite from the extraordinary volatility that has been the signature characteristic of the past four months.
Trading volumes are expected to be thin, and any momentum is likely to be short-circuited by the abbreviated trading weeks, punctuated by two holidays and two shortened trading days.
The coming week will be light on new indications of the depth and severity of the recession, but there are a few economic data points to draw investors' attention before Wall Street shuts down for Christmas.
Tomorrow, the Commerce Department is scheduled to release the final reading on third quarter GDP, while existing-home sales and new-home sales for December are also due out.
Durable goods orders are due out on Wednesday's Christmas eve-shortened trading session, along with data on personal income and spending.
Retailers and retail analysts may also provide some indications of how much of a hit they have taken in what is traditionally their cash-cow quarter.
Trading will also take its cue from this week's trickle of fourth quarter earnings reports and warnings from corporate America.
Investors can probably expect a few more of the already-record 497 negative earnings pre-announcements issued thus far for the coming quarter, the highest since 2001, according to earnings tracker Thomson Reuters.
Earnings growth estimates for the S&P 500 continue to drop like a rock, plunging from 5.9 per cent a week ago, to 0.5 per cent, a number expected to be firmly in negative territory when the fourth quarter earnings season gets into gear a few weeks from now.
Published December 22, 2008
Firms shelve supply of 1,000 new apartments
Project development deferred; en bloc properties return to rental market
By ARTHUR SIM
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(SINGAPORE) At least 1,000 projected new apartment units can be expected to be withdrawn from immediate supply in Singapore's property market, as properties that were sold en bloc in recent years are put back on the market for rental.
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| Still standing: Lucky Tower has been leased to a master tenant that intends to sub-let the 91 units |
The latest of these is Lucky Tower at Grange Road which was bought by City Developments Ltd (CDL) in May 2006.
A CDL spokesman said that the entire development of 91 units has been leased to a master tenant that intends to sub-let the units.
According to data complied by Savills Singapore, Lucky Tower was expected to be redeveloped into a 178-unit condominium. However, with redevelopment pushed back, these units are not expected to come on to the market anytime soon.
Another development, the 192-unit The Grangeford at Leonie Hill, acquired by OUE in 2007, has also been put back on the rental market.
OUE is controlled by the Lippo Group and Malaysian tycoon Ananda Krishnan. Lippo Realty executive director Thio Gim Hock said that approximately 70 per cent of the units have already been leased, mainly to expatriates.
On why it decided to defer redevelopment, Mr Thio said: 'The market does not look good for this year or the next.'
It is understood that asking rents for The Grangeford start at about $3,500 for 1,110 square foot two-bedroom units and about $4,500 for a 1,700 sq ft three-bedroom unit.
The Pontiac Land Group has also started to lease out Pin Tjoe Court, which it acquired in September 2006. Senior vice-president (residential leasing) William Teh said that it expects to redevelop the site next year. 'Till then, we are offering very short-term leases, and this is not representative of typical rental in the market,' he added.
Frasers Centrepoint said that Flamingo Valley, which it acquired in early 2007, has been put on the rental market with close to 60 per cent of the 185 units leased out.
Other en bloc developments back on the rental market include Furama Towers, Fairways Condominium, Sophia Court, and Lincoln Lodge.
The increasing number of en bloc sites put back on the rental market is expected to further depress already weakening rentals.
Referring to this 'hidden leasing supply', Japanese investment house Nomura said: 'The move by developers to return en bloc units back to the leasing market to cover to a degree of the holding costs is not unanticipated.'
In the case of Grangeford, assuming a gross rent of $3.40 psf for the 396,483 sq ft apartment block, Nomura estimates that it could secure net income of $14.6 million, equating to a 2.3 per cent yield over its $625 million acquisition price, 'providing some relief to covering the site's holding costs'.
Regardless of 'hidden leasing supply', rentals are already expected to fall. Still, Knight Frank director (research and consultancy) Nicholas Mak believes that the 'hidden supply' of leasing units will not make much of a dent on the rental market. For starters, he notes, many of these en bloc developments have already reached a state of disrepair.
Pointing out that the 108-unit Fairways is about 10 per cent leased, he says that many of the units have been 'stripped bare'.
He also noted that these units have short leases and tenants may be given only one-month's notice to vacate.
Another consequence of deferred en bloc redevelopment is the impact this has on future supply.
Savills Singapore estimates that based on the en bloc deals between 2005 and 2007, over 23,000 new units could be added to the market.
But, as Nomura notes, supply has been increasingly pushed to 2012. As at the third quarter of this year, it found that some 16,762 units are scheduled for completion in 2012, versus the previous quarter's estimate of 14,179 units.
Based on an analysis of official data since Q499, it also found that actual completions lagged behind forecast completions.
The Urban Redevelopment Authority (URA) has also clarified that while developments are deemed 'under construction' in its database, this does not necessarily mean construction has begun.
A spokesman for URA said that it considers a project to be 'under construction' once the Building and Construction Authority records indicate that a project has been issued a permit to commence structural works.
As at Q308, there are 10,007 units under construction. URA said: 'As developers do not have to inform the government of actual ground-breaking after obtaining the permit to commence structural works, URA does not have information on the number of units, expected to be completed in 2009, which have actually broken ground.'
However, it added that it understands that actual construction for a project typically begins within 1-3 months after the developer obtains the permit to commence structural works for the project.
The number of developments that could be deferred will remain unknown. CB Richard Ellis executive director Jeremy Lake pointed out: 'Even if the property has been demolished, a meaningful number of projects will be delayed as construction costs are expected to fall over the next 18 months.'
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