Published March 18, 2009

Non-TLCs may make cash calls soon: DMG

It cites UOB, Suntec Reit, and Parkway

By TEH SHI NING

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AFTER recent cash calls by Temasek-linked companies DBS Group, CapitaLand and Chartered Semiconductor, non-Temasek names such as United Overseas Bank (UOB), Suntec Reit and possibly Parkway Holdings could follow suit, according to DMG & Partners Securities.

There has been market talk of a potential cash call by UOB. But UOB remains DMG's sole 'buy' call among local bank stocks.

'Temasek-linked companies have started the ball rolling, but we believe non-Temasek-linked companies may soon be coming out more aggressively to raise capital as well,' DMG analysts say in a report.

There has been market talk of a potential cash call by UOB to beef up its capital, which DMG believes 'contributed to recent share price weakness versus its peers'.

Banks, it says, will aim for higher capital ratios to 'help cushion them in the midst of deteriorating asset quality'.

UOB's Tier 1 capital adequacy ratio of 10.9 per cent in December 2008 was lower than OCBC's 14.9 per cent and DBS's pro forma 12.2 per cent after factoring in its recent rights issue, DMG notes.

But UOB remains DMG's sole 'buy' call among local banking stocks.

Its analysts are 'optimistic that UOB will be able to ride through the recession well', with its conservative lending policies helping to keep non-performing loans low.

Suntec Reit is also likely to make a cash call, DMG reckons.

Its gearing is 0.34 times, which is above the sector average of 0.29 times, DMG points out.

The Reit booked a revaluation loss of $330 million in its latest financial quarter.

And DMG's analysts 'believe capital values of its assets, especially office, are not immune from more downside risks', implying that its leverage may rise further.

Suntec Reit also has a $700 million commercial mortgage-backed security due in December this year.

In today's conditions, DMG believes that gearing of 30 per cent or less is most favourable for Singapore Reits.

It says that a 17.9 per cent drop in the value of Suntec Reit's properties would push its gearing beyond 40 per cent, while a 53.5 per cent drop would push gearing beyond 60 per cent.

DMG therefore reckons that Suntec Reit is more likely to make a cash call than its peers, either 'in the form of a share placement or rights issue' or 'a hybrid issue of debt and equity' to 'mitigate the already present dilutive effect from its remaining instalments of deferred units'.

Other companies that DMG deems likely to raise cash are offshore services company Swiber Holdings and industrial fishing company China Fishery.

DMG is concerned over Swiber's ability to repay a $109 million bond maturing in late FY09 or early FY10, and believes a cash call would help strengthen its balance sheet.

As for China Fishery, which has already issued scrip dividends to conserve cash, DMG believes its gearing ratio remains relatively high, despite falling from 0.93 in September 2008 to 0.87 in December that year.

DMG thinks more scrip dividends or capital injection moves are possible.

Other non-Temasek companies that DMG feels could make a cash call - though this is not likely in the short-term - include Parkway Holdings and Indofood Agri Resources.

DMG says that even if Parkway fails to sell its medical suites in the next quarter, it is still unlikely to raise cash any time soon.

And Indofood has said that it may explore the debt market if it needs funds.