Published April 23, 2009

AGM WATCH
CapitaLand CEO bonus likely a hot topic

Shareholders may also want clarity on company's plans for $5.7b cash hoard

By UMA SHANKARI
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CAPITALAND heads into its annual general meeting (AGM) today in the awkward position of having to justify the $20.52 million bonus paid to chief executive Liew Mun Leong in 2007.

Mr Liew: His total bonuses from 2006 to 2008 comes to almost $30 million

The huge payout, which is thought to be the largest bonus ever awarded to a chief executive here in a single year, has quickly become the talk of the town.

The amount came to light only when CapitaLand published its summary report for 2008 on March 24. CapitaLand justified the figure by pointing to the group's record profit of $2.76 billion that year.

In the summary report, it was also revealed that Mr Liew was paid $6.36 million for 2006, when CapitaLand recorded a net profit of some $1.01 billion. When the three years from 2006 to 2008 are taken together, Mr Liew's total bonuses came to almost $30 million.

The company said that it uses the economic value added (EVA) indicator to calculate performance-based bonuses for its top management. So Mr Liew's 2007 bonus was based on an EVA of $2.3 billion.

The EVA figure for 2007 included revaluation gains. During that year, CapitaLand recognised revaluation gains of about $1.1 billion from its investment portfolio. Strike them out and the underlying profit will be lower. Following a commentary by this paper, CapitaLand clarified that it discounted revaluation gains from the EVA when computing bonuses.

But that still leaves a question mark. If revaluation gains were indeed discounted from the EVA, then the resultant figure for computing bonuses should be significantly lower. So why is Mr Liew's 2007 bonus still more than three times what he received in 2006?

Performance bonuses do have a place in attracting and retaining talent. CapitaLand can point to the part played by management - including Mr Liew - in transforming the property group from a debt-leaden company into Southeast Asia's largest developer. But that doesn't mean such large payouts shouldn't be put under scrutiny. Investors should ask: how exactly was the bonus arrived at? Is the amount, reasonable?

The other thing that shareholders might want clarity on is CapitaLand's plans for its cash hoard. The developer recently completed a $1.84 billion rights issue, bringing its total war chest to some $6 billion.

'Upon the completion of its rights issue and its subscription for CapitaMall Trust's rights shares, CapitaLand now has a cash hoard of about $5.698 billion and its net gearing has fallen from 0.46 times to 0.3 times,' noted OCBC Investment Research analyst Foo Sze Ming in a recent note. 'Focus will now be on the deployment of the funds raised, which could be a potential catalyst to the re-rating of CapitaLand's shares.'

Lots of cash sounds good in times like these, but, if not put to the right use, may not necessarily be a good thing.