Published January 9, 2009

Bargain hunting starts in tepid property market

Four recent sub-sales have been transacted at 20% below launch prices

By ARTHUR SIM

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THE hunting season seems have begun in the property market, with at least four buyers making a killing.

A UBS report says that according to URA data, four recent sub-sales have been transacted at 20 per cent below launch prices.

Two units at Ardmore II were sub-sold for $2,000 per sq ft, compared with the last-transacted price of $2,400 psf. One unit at Scotts Square was sold at $3,050 psf, compared with the last-transacted price of $3,850 psf in the second quarter of last year.

And one unit at Sky @ Eleven was sold at $880 psf, compared with the last transacted price of $1,270 psf in Q2 2007.

'Prior to this, we believe there has not been a single sub-sale transaction more than 11 per cent below the new sale price for the same unit,' said UBS analyst Regina Lim.

UBS believes that the sharply lower sub-sale prices signal a major change in buyers' risk appetite and the outlook for Singapore residential property.

It noted that some projects sold in 2006 and expected to be completed by Q4 this year could be the subject of defaults by buyers if sub-sale prices fall 30 per cent below launch prices.

'This is especially as 40 per cent of buyers of new apartments above $1.5 million were foreigners or companies in 2006 and 2007, and it may be difficult not to repudiate the sale-and-purchase agreements for these buyers if they default,' UBS said.

Cushman and Wakefield managing director Donald Han said that he does not expect many sub-sales to be transacted at big losses because developments that will receive their temporary occupation permit (TOP) this year - and hence, requiring loan draw-downs - are likely to have been launched in 2006 before prices peaked.

But he added: 'People that bought in 2007 and 2008 will want to get out of the market.'

Knight Frank director (research and consultancy) Nicholas Mak said that 'not all sub-sales lose money'. Some recent sub-sales showed price increases, he noted.

Still, prime properties are likely see the biggest drop in prices, as these rose the most in the past few years, he said.

In its report, UBS says that prices in the primary market have also been cut.

Among new launches, the 104-unit Newton Edge, priced at $1,201 psf, is some 23 per cent cheaper than Viva, where 15 units were sold in Q3 last year for around $1,550 psf. And at RV Suites in River Valley Road, 19 units have been sold at $1,350 psf, which is 15 per cent below Wharf Residences at $1,600 psf and 38 per cent below Martin 38.

Published January 9, 2009

Analysts differ in views on outlook for stock of Singapore Exchange

By LYNETTE KHOO

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GIVEN the opposing views on the direction of the stock market, analysts have issued different recommendations on the Singapore Exchange (SGX) stock, which is a proxy to trading activities.

CIMB-GK research head Kenneth Ng, who issued an 'outperform' call on SGX this week, said he is positive on the counter in view of available liquidity sitting on the sidelines.

'In such an environment, we do not subscribe to the view that stockmarket trading volumes will grind lower and lower consistently,' Mr Ng said.

'Instead, we believe that 2009 could be a year of stop-start rallies, where several bouts of short-lived rallies prove to be false starts before a final bottom and recovery takes shape in late 2009,' he added. 'This could be positive for stockmarket turnover.'

Mr Ng noted that the turnover velocity in December, which was at an all-time low with average daily volume (ADV) at $1.09 billion, provides an entry point. The last time such a level was seen was in 2005. He is predicting ADV for FY09 ending June 30 to be as low as $1.05 billion.

But the expected 'Capricorn effect' - where there is a general rise in stock prices during January - is expected to benefit SGX, Mr Ng said. At the same time, SGX's derivatives segment could stay buoyed by a pipeline of new products.

The next key product - extended settlement contracts, or commonly known as single-stock derivatives (SSDs) - will be launched on Jan 23.

But Mr Ng trimmed his target price on SGX to $6.39 from $6.51 after cutting his earnings forecast for the group on lower securities turnover assumptions.

On the other side of the pendulum, DMG & Partners Securities and Kim Eng Research are keeping their 'sell' recommendations on the stock in light of weak stockmarket volumes.

Kim Eng Research believes that the stock's appeal is limited by a lacklustre earnings outlook due to continuing weakness in trading volumes, as well as its premium valuations of 20 times FY09 price-to- earnings ratio (PE) and 6 times price-to-book value (PB) compared with the Straits Times Index's 10.9 times PE.

But the short-term weakness aside, Kim Eng said it believes SGX is a good investment in the long term as it offers high beta to ride a market recovery and is committed to a stable dividend payout. SGX's derivative income stream is also likely to stay robust on the back of more product launches. The research house is keeping its target price of $4.90.

In a note this week, DMG & Partners Securities analyst Leng Seng Choon maintained his 'sell' call on SGX with a $3.95 price target based on the assumption that ADV will decline by 47 per cent in FY09.

Mr Leng noted that the recent surge in market activity is not sustainable once the optimism arising from the new US president and the upcoming Jan 22 Singapore Budget wanes off.

'The current SGX share price is factoring a doubling of stockmarket turnover over the next few months,' he said. 'We believe the market is overbullish in this respect.'

Yesterday, along with the broad market decline, SGX slipped 1.8 per cent or 10 cents to close at $5.55.

Published January 9, 2009

Profit warnings ring in the reports season

City e-Solutions, Interra Resources and Japan Land are some of them

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A CHORUS of profit warnings has preceded the start of the corporate reporting season next week.

Several companies yesterday cautioned the market of lower earnings, due to a variety of factors. A City Developments subsidiary said that HK$105 million (S$20 million) in net unrealised forex and trading securities losses will result in 'significant loss' for the financial year ended Dec 31, 2008.

City e-Solutions, which is listed in Hong Kong, said this was due to 'unrealised losses arising from the fair value readjustments of the group's trading securities, and unrealised exchange loss on revaluation of foreign currency cash deposits'. The loss compares with a profit of HK$16 million achieved in 2007, the company said.

City e-Solutions, formerly known as CDL Hotels International, is the designated vehicle to spearhead e-business initiatives for the Hong Leong Group and its Singapore-based parent company, City Developments, according to the company's website.

Another company, Interra Resources, also warned that it expects to incur a net loss for the fourth quarter of 2008 due to the sharp fall in oil prices. However, the company, which has generated profits in the first three quarters of the year, expects to be profitable for the year ended Dec 31, 2008.

'As an unhedged producer of oil, Interra's profitability is significantly affected by the recent severe decline in oil prices,' the company explained.

Since the decline in oil prices, Interra said it has been working to minimise operating costs and planned capital expenditure for the coming year. 'Interra has sufficient cash on hand to meet its operating costs for the foreseeable future,' it said, adding that the company is well placed in the current environment and will continue to strive to add shareholder value in a disciplined manner.

Meanwhile, Japan Land yesterday warned that it is expecting to report a loss for the first half of the financial year ending May 31, 2009. This is due to share of losses from associated companies, higher taxation from gain in partial disposal of subsidiary, higher expenses incurred in general takeover and other corporate action exercises, it said.

Earlier this week, Delong Holdings, which put hundreds of workers on unpaid leave last October and shut several furnaces in China, said it will be reporting a loss for the full year ended Dec 31, 2008.

The profit warning came as the global financial crisis hit China's steel demand in the latter half of 2008.

The biggest company to make a profit warning recently was Cosco Corporation (Singapore), which warned that the group will post lower profits for the year ended Dec 31, 2008, compared with the previous year, due to doubtful debts and higher costs for shipbuilding and offshore marine contracts.

Published January 9, 2009

Chartered soars as sale talk resurfaces

Early stake sale by Temasek seen unlikely given poor market conditions

By JAMIE LEE

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CHARTERED Semiconductor Manufacturing shares surged as much as 43 per cent yesterday as old rumours of Temasek Holdings selling the company resurfaced, brokers said.

Price lure: Analysts say that Chartered is an attractive takeover target, given its record low valuations in terms of price-to-book ratios

An industry watcher said that Temasek - the Singapore investment company which has, as at March 31, 2008, a 59 per cent interest in the foundry chipmaker - has had early talks with suitors but poor market conditions stand in the way of a sale.

'If there's a sale, it wouldn't be so soon,' a source familiar with the situation said, adding that a sale now is unlikely to fetch a good price.

The rumours that swirled in the market were also said to have turned into a 'self-fulfilling prophesy' as offers started to come through on the belief that Temasek is willing to sell its stake.

The source told BT that there are also concerns, such as the level of job cuts, that need evaluating before more intense talks can proceed. 'It's not so simple. There are things to consider,' the source said.

It is unclear who the potential buyers are, but analysts and media reports had earlier cited Taiwanese firms Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corp (UMC) as possible suitors.

Analysts said that Chartered is an attractive takeover target, given its record low valuations in terms of price-to-book ratios. Chartered trades at about 0.24 times its book value.

'With an enterprise value of $2 billion, a potential buyer would be getting Chartered's wafer fabs at a price far below replacement cost,' wrote DBS Vickers analysts Tan Ai Teng and Suvro Sarkar in a December report.

Most of Chartered's borrowings are due in 2010, though short-term borrowings of the company are manageable for now, analyst Jonathan Ng from CIMB-GK told BT.

He added that one of the rumoured buyers, TSMC, may not be looking to buy a strategic partner, given its top position in the contract chip-making business globally. Instead, it is likely to be looking to absorb a competitor so as to streamline operations and save on costs.

But one analyst from a foreign bank dismissed the market talk, saying that investors are merely chasing this laggard stock. He added that shares of sector peers TSMC and UMC had rallied last month as fears of bankruptcy among technology firms started easing.

Amid falling demand, Chartered has warned that it would report a net loss of between US$76 million and US$84 million for the fourth quarter ended Dec 31, 2008. It registered a net loss of US$24.4 million in its previous quarter.

The stock gained nine cents to end at 30 cents yesterday against a broad market decline. The Straits Times Index ended down 2.82 per cent. Chartered was the second most heavily traded stock, with 89.8 million shares changing hands. Brokers said that the rumours are circulating again because investors have observed Temasek's recent M&A activities and speculate that a deal for Chartered is on the table.

Recent deals done by the Singapore investment company include the sale of its majority stake in Singapore Food Industries to Singapore Airport Terminal Services at the end of last year.

Investors are also taking this old talk for a spin because the market is lacking catalysts, said a broker with a local bank.

When queried by the Singapore Exchange on the stock's price and trading volume surge, Chartered said that it was unaware of the reason behind the rise.

TSMC and UMC did not respond to queries by press time. Temasek itself does not normally comment on market speculation.

Published January 9, 2009

SATYAM SCANDAL
Satyam scandal rattles confidence in accounting Big Four

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(HONG KONG) A US$1 billion fraud at outsourcing firm Satyam Computer Services, dubbed 'India's Enron', has shaken investor confidence in the world's Big Four accounting firms, which have expanded rapidly in Asia despite a general shortage of qualified accountants.

Ramalinga Raju, founder and chairman of India's fourth-biggest software services exporter, resigned on Wednesday saying profits were falsely inflated for years.

'This is shocking. I can't even let my thoughts go in the direction that there is another Satyam somewhere,' said Shailesh Haribhakti, executive chairman of BDO Haribhakti, a consulting and management services firm based in Mumbai.

'I have very high respect for PricewaterhouseCoopers (PwC) who are their auditors, but it's incredible that such gross things existed and were not discovered,' he said.

PwC said it was examining Mr Raju's five-page resignation letter and declined further comment, though one insider said the accountant was as shocked as anyone at the admission of years of financial deception at Satyam.

PwC staff in Asia said they had received internal e-mails yesterday telling them not to discuss Satyam publicly.

'We are also shocked by the Satyam news and many of our colleagues and managers describe it as India's Enron, so you can imagine how big the impact will be to us,' one PwC employee told Reuters on condition of anonymity.



PwC accelerated its Asia expansion in 2002 when it took over offices and staff from Arthur Andersen, which was auditor for Enron and once one of the 'Big Five' global accounting firms, along with PwC, Ernst & Young, Deloitte & Touche and KPMG.

Like its three big rivals, PwC has grown rapidly across Asia, particularly in China and India, recruiting thousands amid fierce competition for talent.

Frank Lyn, PwC's Beijing-based China markets leader, told Reuters in November that a shortage of talent was the firm's top challenge in China.

It can take three to five years to groom a fresh graduate at a major firm like PwC to the level of senior associate, who can meet clients directly for accounting services.

But firms in busy markets have sometimes fast- tracked new hires in services that can be beyond their professional level.

Sharmila Gopinath, research director at the Asian Corporate Governance Association here, said accounting firms face a lack of qualified people at all levels in Asia.

'Sometimes people, especially at the top, find themselves stretched at certain levels, especially when it comes to supervision of work,' she said.

'While the Big Four work in places like India, China and Malaysia within the local context, they have a global standard which they must adhere to. Yet, the local rules can be vastly different and time-consuming to comply with,' she added.

David Legg, managing director at Gerson Lehrman, a consulting firm specialising in private equity investments, said the Satyam case was a warning that investors should not rely exclusively on financial due diligence by accountants for deal-making decisions.

Gerson Lehrman says it provides 'double-check' and in-depth research services for many private equity investors who also hire the Big Four for regular due diligence.

When markets turn bad and corporate frauds are more easily exposed, private equity firms like Blackstone and Carlyle seek additional channels to verify their investment portfolio or deal targets, Mr Legg noted.

'For clients engaged in higher risk activity, we put in experienced staff. If we don't have experts at home, we have a system in which we have support and back- up from overseas offices of KPMG,' said Park Young Jin, risk management partner of KPMG Samjong Accounting Corp in Seoul.

'If we are unable to make or handle a normal audit because of high auditing risks, we stress our principle of rejecting such auditing work, or expressing 'no comment',' he added. -- Reuters

Published January 9, 2009

M'sia preparing second stimulus package

Govt has capacity to lend some more as budget deficit has been cut: minister

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(KUALA LUMPUR) Malaysia plans to announce another economic stimulus package this year after last year's US$2 billion package, the country's Second Finance Minister said, according to a newspaper report yesterday.

Time for a refill: The collapse in crude and palm oil prices is expected to play havoc with government revenue

'The Prime Minister has given the directive to begin preparing another package,' Nor Mohamed Yakcop said in a television interview, according to the Star newspaper.

'We have the capacity to lend some more due to the fact that we have managed to reduce the budget deficit from 5.5 per cent of GDP (gross domestic product) in 2000 to 3.2 per cent in 2007,' he said.

Mr Nor Mohamed said the impact from the first stimulus programme unveiled last November would be felt around the first quarter of this year.

The government has said the first RM7 billion (S$3 billion) spending package, reaped from savings on reduced oil subsidies, is to be spent on 'high-impact' projects including roads, schools and low-cost housing.

Whether the RM7 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.

Deputy Prime Minister Najib Razak, who is also finance minister, has said that the government has the capacity to introduce more stimulus packages but that it would not allow the budget deficit to expand further. 'My priority is that I really want to save the people from having to go through hardships if the real economy is impacted,' he said last month.

The government raised its 2009 fiscal deficit forecast in November to 4.8 per cent of GDP from 3.6 per cent. At that time, it also announced its first package to boost the economy, which it expects to grow 3.5 per cent this year. It maintained that Malaysia can avert a recession this year.

However, even with 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 which has dived since then.

As such, private forecasts for the country's economic growth in 2009 are more pessimistic, with UBS expecting no growth and CLSA forecasting a 1.2 per cent contraction. -- Reuters, AFP

Published January 9, 2009

This time, it's different? Yup, it goes both ways

By R SIVANITHY

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DURING the dotcom boom at the turn of the millennium, the now-infamous investment mantra that everyone bought into was 'this time, it's different'.

The source was, of course, an investment community that needed to get its clientele to buy into companies with no earnings, assets and, in many cases, no viable business models and so had to devise a slogan that sounded fresh and exciting.

It worked - because it sounded good at the time and people believed that the more cash an Internet company burned, the better its shares would perform because of a perverse logic that a high burn rate probably meant extensive research and development efforts, which in turn suggested the possible invention of some new-fangled techno- model that would tap into limitless cyberspace and reap untold riches for its inventors.

(You'd have to wonder: whatever happened to those 'b-to-b' and 'b-to-c' portals that were supposed to revolutionise the way business was done?)

'This time, it's different' was again the chant throughout the bull market of 2004-2007, at least as far as getting investors to buy Asia was concerned.

This time the brave 'new' investment paradigm rested on an emergent but nevertheless vigorous China and India which supposedly would buttress global growth if the US and Western economies were to falter.

There was an added dimension as a sweetener: because Asia had just undergone the 1998 regional crisis, its companies were supposedly stronger and better governed, thus making them great investments.

Again, it all sounded well and good - but guess what? When it came to the crunch in 2008, Asian markets fared much worse than Wall Street despite the latter being the primary source of global woes. Truth is - and it's one which Asian investors have found out repeatedly and painfully over the past decade - that things are only different when it applies to the upside; that is, when the investment community wants its customers to buy.

At the first sign of trouble, things are very quickly no longer different. In fact, things will be and have always been the same; Asian stocks will get sold off first - and the quicker a larger number of local investors and analysts recognise this, the better the interests of the local market will be served.

Now, let's assume for argument's sake that the US sub-prime crisis really does morph into the worst slowdown since the Great Depression of the 1930s as some observers have predicted.

If so, should investors rely on urgings to buy now based on historical benchmark valuations, or would it not be better to throw out those comparisons as invalid because the current crisis is without meaningful historical precedent?

For example, does it make sense to say that a sector must be cheap because its book value or price-earnings valuations are at regional crisis levels (10 years ago) when conditions are wholly different today, perhaps even a lot worse?

In other words, if the only time the world witnessed an economic blowout as violent as 2008's was almost 80 years ago - and that period was too long ago to provide relevant guidance - things surely are different now, aren't they? Wouldn't it then be wrong to use numbers from only a decade or so ago to formulate an investment strategy?

In fact, we would take this further and assert that, this time being different, investors should not place too much faith in the assumption that markets can efficiently discount all the worst that the future holds - even after as long a period as an entire year has passed.

Instead, as 2008 has graphically proven with its innumerable and vicious bear rallies, there is a strong bias to always hope the worst is over when it isn't and to speak of 'V-shaped' recoveries when a very fat 'U' is much more likely.

(Of course, a big reason for bias are the bailout actions of the US government, which, if one thinks about it, amount to a repeated rewarding of failure - surely an unprecedented example of things being really different in a supposedly capitalist system.)

Probably the only investment house to have broached this subject, albeit peripherally, is JPMorgan, which in its Jan 2 Global Asset Allocation report said that one of the lessons to be learned from the disaster that was 2008 is 'to degrade expectations of mean reversion to normal and to think in terms of structural change instead'.

It highlighted the present situation where many asset prices are at historic means, thus presenting never-before-seen investment opportunities which would surely be tempting. 'We are wary of simple mean reversion, as the crisis is forcing changes in behaviour that are altering the structure of markets and prices,' said JPM.

Although it focused on leverage and what its absence means for markets, JPM nevertheless raised a very valid issue - namely, that investors should be wary of basing their investment decisions on historical norms, because those norms may not apply.

This idea, if rephrased, would be: as an investment rationale, 'this time, it's different' has some appeal, especially in its main use to depict potential upside - but savvy investors should recognise that the knife can cut both ways.

Published January 9, 2009

Unexpected fall in new US jobless claims

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(WASHINGTON) The number of US workers filing new claims for unemployment benefits fell unexpectedly by 24,000 last week, government data showed yesterday, but the number of people remaining on jobless rolls rose to a fresh 26-year high.

Analysts reckoned the decline was likely caused by people putting off filing their applications because of the holidays.

'It covers a holiday period, so people were delaying filing their claims. There is going to be a surge next week,' said David Watt, a senior currency strategist at RBC Capital Markets, in Toronto.

'So I don't think this is indicative of the trend, and if anything, I'm surprised the consensus call was so high.'

Initial claims for state unemployment insurance benefits fell to a seasonally adjusted 467,000 in the week ended Jan 3 from a slightly downwardly revised 491,000 the prior week, the Labor Department said.

It was the lowest reading for initial claims since the week ending Oct 11 last year, when the figure was at 463,000.

Analysts are saying that the job situation is likely to worsen with the US probably suffering a net loss of 2.4 million jobs last year. They predict that the pain is likely to stretch well into 2009 and possibly beyond.

Already the New Year has gotten off to a rough start, and more bad news is expected when the government releases data on December unemployment today.

Just days into 2009, data storage company EMC Corp, managed care provider Cigna Corp, aluminium producer Alcoa Inc and computer products designer Logitech International were among those announcing big layoffs as companies scramble to cut costs even deeper. The flurry of layoffs suggest the employment picture will remain grim this year.

'There is absolutely no reason to believe the economy is going to be creating jobs any time soon. There are just no reasons for companies to flick on the hiring switch,' said Richard Yamarone, economist at Argus Research.

On Wall Street, investors worried about the jobs outlook contributed to a sharp decline in stocks. The Dow Jones Industrials lost 245 points to 8,769.70 on Wednesday. -- Reuters, AP

Published January 9, 2009

Satyam in turmoil as Raju ducks out of sight

Liquidity crunch looms, CFO resigns, lawsuits filed against company while founder drops off radar

By AMIT ROY CHOUDHURY

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(SINGAPORE) The scandal that has enveloped Satyam Computer Services now threatens to spiral out of control with a liquidity crisis looming and confusion spreading over the where- abouts of its disgraced founder and former chairman B Ramalinga Raju.

Taking flak: Interim CEO Ram Mynampati, at a stormy press conference yesterday, insisted that Satyam's other top officials had no knowledge of the scam

A day after confessing that books had been cooked as part of the US$1 billion fraud and that he was ready to face the law of the land, Mr Raju dropped out of sight. His lawyer claimed he was still in India but the Indian media variously quoted sources as saying that he had flown to Texas or even Dubai. The man who had been one of India's most high-profile tycoons was nowhere to be seen yesterday.

To the management stuck with keeping the day-to-day operations going, Mr Raju's whereabouts were the least of the problems. Apart from facing a slew of lawsuits trying to hold on to its customers (who include more than a third of all Fortune 500 companies), it confessed facing a liquidity crunch.

At a press conference in Hyderabad yesterday, interim CEO Ram Mynampati noted that even though money for December salaries as well as payment for vendors had been arranged, there was 'no clarity' at the moment on where the money would come from for January.

'As of today, I do not know but I will hopefully know within a few days,' Mr Mynampati told reporters at what was a very stormy press conference.

According to some analysts, the monthly wage bill for Satyam's 53,000 employees would amount to around 6-7 billion rupees (S$180-210 million). And taking other operating expenses into account, it would need a cash kitty of around 10 billion rupees to tide over operating expenses in January.

'It remains to be seen as to whether they have that kind of cash in hand, given their liquidity crisis,' analysts said.

Mr Mynampati noted that the company would take steps to ensure cash flow from its customers. However, analysts wondered whether, given the tight financial conditions across the globe, this would be feasible.

At the press conference, Mr Mynampati announced that the company's chief financial officer, Srinivas Vadlamani, had sent in his resignation yesterday morning. His resignation is yet to be accepted and will be considered at the Satyam board meeting slated for tomorrow though it was generally accepted that it would deal a further blow to the company's efforts to stagger back to its feet.

Mr Vadlamani joins Mr Raju and Satyam managing director Rama Raju in resigning from the company.

Mr Mynampati said that neither he nor any member of the committee now running Satyam had any idea about the whereabouts of Mr Ramalinga Raju.

The committee now in charge consists of the top 10 leaders of the company. It has launched an immediate action plan to ensure business continuity and leadership transition.

Among the leaders is Singapore-based Virendra Aggarwal, the company's senior VP in charge of Asia Pacific, Middle East, India and Africa (MEIA).

Speaking at the press conference, Mr Aggarwal noted that the moment the news broke Satyam reached out to its customers.

'Our customers have shown that they are willing to stand by us, as have our employees,' Mr Aggarwal said.

Mr Mynampati noted that the company will have to announce the third-quarter results by the end of this month. It is likely that the Q3 results could be finalised after the board meeting tomorrow .

He added that the company will relook the Q2 results and is likely to restate the accounts for that quarter.

Mr Ramalinga Raju in his letter on Wednesday had stated that the operating margin of the company in the quarter was 3 per cent instead of 24 per cent, as stated in the balance sheet.

Mr Mynampati said that the company was reaching out to all its customers (among others, it is the official IT partner to the FIFA 2010 football World Cup) as well as its employees to assure them that business would continue and that it would try to save jobs.

The company was also trying to ascertain its actual cash position - including a possible independent audit - and was also assessing the role of its auditor, PricewaterhouseCoopers (PwC), to find out how the irregularities in accounts went undetected for so long.

'We will also take a decision on whether we need to change auditors,' said Mr Mynampati.

Indian authorities, including the Securities and Exchange Board of India (Sebi), have meanwhile started their own probe. Some company officials were questioned yesterday while the company's stock was struck off the benchmark share index, Sensex.

Mr Mynampati insisted that the company's other top officials had no knowledge of the scam - a claim that came under fire from the Indian media.

Meanwhile, lawsuits have been filed against Satyam - which is also listed on the New York Stock Exchange (NYSE) - on behalf of American investors. The lawsuits charge the company with fooling investors, infringing securities laws and manipulating books of accounts.

As the company battles its fires, there is speculation that it could become a takeover target.

Meanwhile, the Asian unit of UK fund manager Aberdeen Asset Management - once Satyam Computer Services' largest shareholder with a 9.2 per cent stake - said yesterday it no longer held any shares in the beleaguered Indian IT outsourcing firm.

NYSE has, in the meantime, halted trading in Satyam shares.

Published January 8, 2009

First cracks appear in Sentosa Cove haven

Bungalow owner defaults on mortgage payments, sale may follow

By KALPANA RASHIWALA

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(SINGAPORE) The first mortgagee sale of a bungalow on Sentosa Cove - an upscale waterfront housing haunt that was all the rage among well-heeled investors during the bull run - could be in the works.

The tide turns: Mortgagees are weighing their options - to sell the upscale waterfront bungalow or to lease it out in the interim, if regulations permit

BT understands that a permanent resident who developed his bungalow on a 99-year leasehold plot on Ocean Drive has defaulted on his mortgage payments and the financial institutions involved are considering whether to sell the property or - if the regulations permit - to lease it out in the meantime.

The two-and-a-half-storey waterfronting property has a land area of about 8,300 sq ft. The first storey has a swimming pool, separate living and dining areas, wet and dry kitchens and a guest room. The second level has a total of five bedrooms, each with an attached bathroom. The attic has an entertainment room.

A couple of bungalows on Sentosa Cove were put on the auction block last year. One, which had been put up for sale by its owner, was offered at an October auction conducted by DTZ. There were no takers at the asking price of $18 million, which reflects about $2,300 per square foot based on the bungalow's land area of 7,800 sq ft. The Singaporean owner, who has lived in the unit, is now trying to sell the unit by private treaty, said Shaun Poh, DTZ senior director for investment advisory services and auction.

The asking price being sought is similar to the level that boutique developer Wah Khiaw is also said to be quietly seeking for a couple of completed and leased bungalows, which are also along Ocean Drive.

However, industry observers say that such asking prices are considered steep in today's market. A more realistic price level for bungalows on Sentosa Cove today would be around the $11-12 million range or about $1,300 to $1,700 psf of land - but even then they would get 'a good run for their money' from freehold Good Class Bungalows on mainland Singapore. 'For about $10-11 million, one could get a 'decent' GCB in a liveable condition in say, Yarwood Avenue in the Dunearn Road area,' a property agent pointed out.

'Sentosa Cove has lost its appeal in today's market. A couple of years ago, this kind of waterfront living was the in-thing, when people had money, credit was easy and foreigners were rushing to buy such properties, especially with the expedited approval channel for foreigners to buy landed homes on Sentosa Cove. In today's market, foreigners have suffered the most.

'As for Singaporeans, they may still not be used to the idea of waterfront living. If you drive at Sentosa Cove on weekdays, you can see many empty completed bungalows. Some families have lived in the units but find the location inconvenient, for example, ferrying children to and from school,' the agent said.

'They would much prefer the convenience of owning a freehold GCB on mainland. The way I look at it, selling bungalows on Sentosa Cove is going to be very difficult in the near future,' he added.

DTZ's Mr Poh also revealed he is working with a few other Singaporeans keen on selling their Sentosa Cove bungalows. 'In the past, many Singaporeans had bought sites for bungalow development with the intention of selling the completed properties to foreigners. But in the current climate, that's going to be tough. So these sellers will have to be realistic in their pricing as they'll face competition from both foreigners and Singaporeans trying to divest their bungalows on Sentosa Cove,' he said.

Mr Poh also reckons the market for landed waterfront housing on Sentosa Cove has yet to mature among Singaporeans, who might take some time to catch on to a lifestyle of having their own bungalows, with their own jetty to moor their yacht outside their garden. 'Even among valuers, there can be a wide variation of opinions on valuations of such homes, especially when there haven't been many transactions,' he said.

Agreeing, CB Richard Ellis executive director (valuation) Li Hiaw Ho said there have hardly been any transactions of bungalows on Sentosa Cove. 'While we all know values have dropped, it is harder to pinpoint the extent of the drop until there is more evidence of transactions.'

Published January 8, 2009

Satyam boss confesses to cooking the books

Ramalinga Raju quits after dropping bombshell that rocks Bombay stock market

By AMIT ROY CHOUDHURY

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(SINGAPORE) In a stunning development, the founder- chairman of Satyam Computer Services, a superstar in Indian IT services, has resigned after admitting that he falsified accounts and assets.

'It was like riding a tiger, not knowing how to get off without being eaten.' - Ramalinga Raju describing his deception in his letter to Satyam's board of directors

The confession yesterday by Ramalinga Raju sent the shares of the Indian software services provider crashing by 78 per cent. The benchmark Sensex index on the Bombay Stock Exchange (BSE) tumbled 7.3 per cent as the iconic Indian company was brought low.

In a final attempt to plug 50.4 billion rupees (S$1.5 billion) of 'fictitious assets' in the balance sheet, Mr Raju, 54, said he had tried unsuccessfully to sell two companies to Satyam last month.

Profits from the main business have been inflated 'over a period of the last several years', Mr Raju said in his letter to the board, copies of which were also sent to the stock exchanges and the Securities and Exchange Board of India (SEBI), which is India's stockmarket regulator.

Satyam has a major presence in Singapore, which is its headquarters for a region that encompasses all its locations outside North America and Europe. Even the domestic Indian market is controlled out of Singapore.

Among its clients in Singapore are several leading statutory boards and government departments as well as publicly listed and private MNC companies having operations in Singapore.

Satyam (which means 'truth' in Sanskrit) came to Singapore in 2000. Apart from being its Asia Pacific, Middle East, India and Africa region (MEIA) headquarters, Singapore is home to Satyam's only global business continuity and disaster recovery centres outside India. The company has around 400 employees here.

The company also operates a global innovation hub at its Singapore facility in Changi where it conducts R&D with technology partners focusing on mobile applications and business processes in telecom, banking and supply-chain management.

In his letter, Mr Raju said the company's balance sheet as at Sept 30, 2008 carried inflated (non-existent) cash and bank balances of 50.4 billion rupees against 53.61 billion reflected in the books. There was also an accrued interest of 3.76 billion rupees which is non-existent.

For the September quarter (the company's second quarter), the company reported revenue of 27 billion rupees against actual revenue of 21.12 billion rupees. As a result, the operating margin was actually 3 per cent of revenue (610 million rupees), against the reported 24 per cent of revenue (6.49 billion rupees), he said.

This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in the second quarter alone.

Profits from the main business have also been inflated over a period of the last several years. The sham started to unravel after shareholders vetoed the sale of two construction companies, four directors quit the company and the World Bank barred Satyam from bidding for contracts.

Indian market regulator SEBI described the Satyam revelation as an event of 'horrifying magnitude'. It said it would take all steps under the law and that it has started discussions with the government and the country's stock exchanges.

The market regulator said that it was 'most surprising' that cash balance that was non-existent got certified. The case also raises the issue of 'authenticity of accounts' that have been audited. PricewaterhouseCoopers (PwC) is Satyam's auditors.

A Reuters report quoted India's company affairs minister as saying that anybody found guilty will be dealt with accordingly.

Indian media reports said that immediately following the news, DSP Merrill Lynch had terminated its engagement with the company.

In another setback, the company is likely to be stripped of its coveted Golden Peacock Award for corporate governance that it won last year.

In a statement to the Singapore media, Virender Aggarwal, the company's senior VP and director in charge of the Asia Pacific- MEIA region, said Satyam as an organisation remains committed to its customers in the Asia Pacific.

'Singapore, with over 400 Satyam associates (employees), is not only an important market for Satyam but also serves as its regional headquarters and a critical pillar of its global delivery model,' Mr Aggarwal said.

In an interview with BT last year, Mr Aggarwal had noted that in the second quarter which Mr Raju mentioned in his letter, the Asia Pacific-MEIA region contributed 17.37 per cent of Satyam's global revenues.

He added that the Asean region grew 30 per cent year-on-year, led by Singapore.