Published January 23, 2009

KL bans foreign hiring for manufacturing, services sectors

Firms told to lay off foreigners first if they must slash jobs

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(KUALA LUMPUR) Malaysia has banned the hiring of foreign workers in factories, stores and restaurants to protect its citizens from mass unemployment amid the global economic downturn, a government official said yesterday.

Mobile labour: The manufacturing and services sectors currently employ nearly half of the 2.1 million legal foreign workers in Malaysia

The government has also ordered companies to lay off foreign employees first if they must slash their workforce, a Human Resources Ministry official said.

The Cabinet has approved an indefinite hiring ban for the key manufacturing and services sectors, which currently employ nearly half of the 2.1 million legal foreign workers in Malaysia, the official said on condition of anonymity because he was not authorised to make public statements.

The official was confirming a decision announced late on Wednesday by Human Resources Minister S Subramaniam.

Local media reported the minister as saying Malaysia 'can put a stop to hiring' foreign workers if they are not needed.

Foreigners currently working in both sectors can continue until their contracts expire or until they are laid off, but no new non-Malaysian workers will be approved, the official said.

'We want to make sure that all locals who have been (laid off) can get a new job,' he said.

The official said that exemptions may be given to skilled foreign workers who are needed for some of the country's service industries and factories, most of which produce electronic and electrical goods, textiles and furniture.

More than 10,000 Malaysians and 3,000 foreigners lost their jobs between October and January because of a slowdown in Malaysia's export-dependent economy.

The government has predicted another 45,000 Malaysians could be out of work by the end of the year.

Foreigners can still be employed in sectors such as plantations and construction, where it is tough to find Malaysians to hire because of the low salaries and arduous work, the official said.

Eka Suripto, an official at the Indonesian Embassy in Kuala Lumpur, said that `Indonesia expects one-third of its 300,000 nationals working in Malaysia's manufacturing industry to lose their jobs this year.

'Certainly what they will sacrifice first are the foreign migrants,' he said.

Adding to the number of legal foreign workers, there are an estimated one million illegal migrants employed mainly at plantations, construction sites and restaurants.

Most come from poorer Asian nations such as Indonesia and the Philippines.

Malaysia's government has struggled to assure the public that the country won't slip into recession.

The authorities have forecast that Malaysia's economy will expand by 3.5 per cent in 2009, but some economists have warned that growth could fall below 2 per cent. -- AP

Published January 23, 2009

Analysts predict more rate cuts in Malaysia

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(KUALA LUMPUR) A second, bigger-than-expected interest rate cut by Malaysia's central bank highlights a rapidly weakening economy, analysts said yesterday, predicting further rate reductions to avert a recession this year.

Bank Negara Malaysia late Wednesday slashed its key overnight policy rate - used by banks to set lending rates - by 75 basis points to 2.5 per cent. The cut was the biggest in a decade and came just two months after the policy rate was lowered by a quarter-point to 3.25 per cent.

'The move was certainly unexpected, with market expectations of a 25-50 basis points cut, andj could possibly point to a rapidly weakening economic environment,' ECM Libra investment research said in a report.

The government expects 2009 growth to drop to 3.5 per cent, from 5 per cent last year. But most analysts said this forecast was too ambitious. AmResearch said the rate cut was the sharpest reduction since 1998 and would boost lending. It will also help prevent a sharp slowdown in private consumption as it raises the disposable income of consumers by lowering their monthly loan repayments, it said.

However, it predicted the economy to grow only by 0-0.5 per cent this year, with downside risks including a slower US recovery, volatile commodity prices and any geopolitical crisis.

'We think there will be a further cut in interest rates of another 50 basis points before the year-end because the macro-economic numbers are quite weak,' said AmResearch chief Benny Chew.

Kenanga Investment Bank and AmResearch expect the government to introduce a second stimulus package worth up to RM10 billion (S$4.17 billion) to spur growth. The government had earlier said it would inject RM7 billion into the economy this year.

Meanwhile, bourse operator Bursa Malaysia said late Wednesday it would sharply cut the number of companies in its main share index - to be renamed FTSE Bursa Malaysia KLCI from July 6 - to 30 from 100 as part of efforts to boost flagging trade. The market plunged 39 per cent last year. -- AP

Published January 23, 2009

KL speeds up disbursement of special funds

By PAULINE NG
IN KUALA LUMPUR

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GALVANISED by alarming news on jobs - the latest chip maker Intel Corporation's plan to shut two plants in Penang - the Malaysian government has moved to accelerate the disbursement of special funds announced more than two months ago.

Mr Najib: RM5 billion has been transferred to ministries and agencies

Deputy Prime Minister Najib Razak said yesterday federal ministries and agencies have been ordered to immediately implement the RM7 billion (S$3 billion) special economic package, amid mounting criticism it has been slow off the mark.

Mr Najib, who is also finance minister, said that RM5 billion has been transferred to ministries and agencies and the remaining RM2 billion will be allocated next week.

The order comes after Intel decided to close two assembly and test facilities in Penang as part of a plan 'to restructure some of its manufacturing operations and align its manufacturing capacity to current market conditions'.

Market conditions have quickly turned sour following the global financial implosion, and electrical and electronics manufacturers have been among the worst hit.

Intel warned recently that it could suffer its first loss in 21 years this quarter. Besides Penang, it plans to halt operations at Cavite in the Philippines, Hillsboro, Oregon, and Santa Clara, California.

Intel has six plants in Malaysia - three each in Penang and Kulim. They employ a total of 10,000 staff who undertake manufacturing, test assembly and research and development. The two facilities to be shut by the end of this year are older ones. The move will affect more than 1,000 workers, though Intel has said that it intends to offer them 'comparable jobs' at its other local plants.

Last month, the American Malaysian Chamber of Commerce said that it did not know of any other company that planned to retrench staff or cease operations, after Western Digital said a Sarawak plant that employs 1,500 people would be closed.

'We will certainly see more of these things because the global scenario is so bad,' said an economist who believes Malaysia's unemployment rate this year could reach 4.5 per cent or over half a million people, not including retrenched, low-skilled foreign workers.

Intel Malaysia spokesman Loo Cheng Cheng told BT the decision to shut the Penang facilities was made 'in the past few days' after the blow of sharply lower fourth-quarter earnings.

Malaysia's central bank this week slashed its key lending rate 75 basis points to 2.5 per cent in an attempt to lower borrowing costs and stimulate demand.

The economist said that the deeper-than-expected cut shows the authorities now realise that Malaysia will not be as immune to the global financial downturn as they had thought, and could even veer into recession. The disbursement of federal funds to ease the pain could take another month or two. And even then, there are concerns the benefits may not amount to much.

'Spending is easy, but ensuring commensurate returns ought to be the most crucial aspect of the stimulus package,' said an executive, adding that the lack of open tenders will invariably lead to huge leakages. 'About RM46 billion was said to have been spent last year under the Ninth Malaysia Plan, yet people say they don't notice or feel it,' the executive said. 'I would be more confident if it was done through an open tender system.'

Published January 23, 2009

Headwind for AirAsia plan for low-cost carrier terminal

Spat is likely to be resolved after the parties meet DPM Najib next week

By S JAYASANKARAN
IN KUALA LUMPUR

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THE mounting controversy over plans by budget carrier AirAsia to build a RM1.5 billion (S$622.23 million) low cost carrier terminal (LCCT) in Negri Sembilan state is likely to be resolved after the warring parties in the dispute meet up with Deputy Prime Minister Najib Razak and senior government officials on Friday next week.

Will it take off? AirAsia X's first leased Airbus A330 long-haul aircraft. Financial executives close to the government said that Labu was likely to be scrapped with MAHB getting the go-ahead for its own LCCT on condition that it meets AirAsia's needs

The dispute has pulled AirAsia into a public squabble with investment agency Khazanah Holdings and Malaysian Airports Holdings, the current owner-operator of the Kuala Lumpur International Airport, which would lose revenue if one of its biggest clients pulled out of using the airport. For its part, Khazanah has controlling stakes in both MAHB and Malaysia Airlines which is a rival of AirAsia in the region.

The dispute has taken a different dimension, with former premier Mahathir Mohamad coming out in opposition to AirAsia. Socio-political blogs supportive of Dr Mahathir have also taken up the cudgels against AirAsia, and its maverick owner Tony Fernandes, with some even deriding the businessman through snide personal attacks.

Despite his success and his firm's obvious contributions to the economy, Mr Fernandes draws an overachiever's share of animus. It isn't clear why but, in part, it could be due to his close friendships with people such as Khairy Jamaluddin and Kallimullah Hassan, who are close to Prime Minister Abdullah Ahmad Badawi and who have been singled out for special criticism by Dr Mahathir.

Missing in all the action is the government, the same entity that approved the Labu project in the first place. Indeed, not a single government minister has come out in defence of the project since the furore started. Multinational Sime Darby, AirAsia's partner in Labu, has also maintained a prudent silence, leaving Mr Fernandes as the sole voice to argue his case.

The government's reticence flags the political overtones of the controversy - Dr Mahathir still casts a long shadow over the country - and indicates that the government is likely to reverse its decision on Labu and force a settlement between the warring parties.

The controversy began two weeks ago after Kuala Lumpur gave plantation-based Sime Darby and AirAsia the nod to build a RM1.6 billion low-cost carrier facility in Labu, Negri Sembilan. The Cabinet approved the proposal on the basis that it would be a private finance initiative without any government funding. AirAsia has since maintained that it would fund the project completely if need be.

The budget carrier estimates that it would carry 15 million passengers by end-2009 and as many as 27 million by 2013 through the LCCT. So it wants to build its own no-frills airport at the lowest cost in Labu that can handle 50 million passengers. The current LCCT which is managed by MAHB will be able to handle 15 million by March but is overcrowded now and can only be described as deplorable.

For its part, MAHB says that a new airport would be a duplication of resources because it has its own plans to build an LCCT by 2013 at the KLIA but it could cost twice as much because the land there is peaty - that means it will be funded by taxpayers as MAHB is government owned. The higher cost alarms AirAsia which fears higher service costs by the airport operator. The spat between the two has since escalated to an online war with both companies rebutting one another's arguments on their websites.

Financial executives close to the government said that Labu was likely to be scrapped with MAHB getting the go-ahead for its own LCCT on condition that it meets AirAsia's needs.

Don't write off Mr Fernandes though. According to one of his allies, he has sought, and won, an audience with Dr Mahathir to explain his position. Things could still be fluid.

Published January 23, 2009

CapitaMall Trust DPU dips in Q4

Trust exploring options to refinance $876.2m of debt

By UMA SHANKARI

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CAPITAMALL Trust (CMT), Singapore's biggest property trust, said that distributable income for the fourth quarter fell 2.1 per cent as it faced higher finance costs.

Distributable income for the three months ended Dec 31, 2008, was $61 million, down from $62.3 million in 2007. Distribution per unit (DPU) fell to 3.65 cents, from 3.82 cents in 2007.

The trust is a unit of Singapore's largest property group, CapitaLand. Q4 net property income rose 11.1 per cent to $85.9 million, from $77.3 million in Q4 2007.

Turnover was boosted by Atrium@Orchard, which CMT bought in August 2008, as well as higher revenue from new and renewed leases and from the completion of asset enhancement works.

But finance costs rose 61.4 per cent to $30 million, causing a year-on- year drop in Q4 net income. The increased finance costs were partly due to the convertible bonds CMT issued to fund the Atrium acquisition.

For the full 2008 financial year, distributable income rose 12.9 per cent to $238.4 million, up from $211.2 million in 2007. DPU rose to 14.29 cents from 13.34 cents.

'The majority of the retail trades across CMT's portfolio of malls are still faring well for full year 2008, although there were some signs of weakening in discretionary spending towards end-2008,' said Lim Beng Chee, chief executive of the trust's manager.

Last year, CMT signed 363 new and renewed leases at average rents 9.3 per cent higher than preceding rentals, which were typically committed some three years ago.

Gross rental revenue locked-in for 2009 already exceeds 87 per cent of 2008's total gross revenue. 'This will underpin the net property income for 2009,' said the trust.

Mr Lim remains confident that CMT's tenants will continue to stay on in its malls, even as retail sales are expected to drop this year.

The trust will take a pro-active approach to engage its tenants and meet up with them more often, he said.

Mr Lim also pointed out that turnover rent (where CMT takes a cut of tenants' sales) contributed just 2-4 per cent of CMT's total gross revenue in 2008.

The trust is also exploring options to refinance $876.2 million of debt before it matures in the second half of 2009.

CMT hopes to refinance all debt in one go and is already in talks with banks. Analysts said that refinancing should not be a problem as another one of CapitaLand's Reits, CapitaCommercial Trust, was able to refinance at attractive rates recently.

CMT, which owns 14 retail malls in Singapore, last quarter said that it will put some upgrading plans for its properties on hold. The trust in May 2008 also raised its target asset size to $9 billion by 2010 from an earlier forecast of $8 billion.

Yesterday, CMT said that total assets rose 1.9 per cent to $7.2 billion on the latest revaluation.

'CMT remains one of our top picks in the S-Reit (Singapore real estate investment trust) space,' said Macquarie Research analysts Tuck Yin Soong and Elaine Cheong yesterday as they issued an 'outperform' call on the stock. CMT shares lost two cents to close at $1.48 yesterday.

Published January 23, 2009

Creative posts Q2 net loss of US$32.4m

By ONG BOON KIAT

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THE troubled start to Creative Technology's financial year dragged into its second quarter, with the company yesterday announcing its biggest loss in 11 quarters.

Tough times: Creative expects the difficult market environment to continue to deteriorate and is evaluating the structure of its field organisations to cut expenses

Net loss for the three months to Dec 31, 2008, was US$32.4 million, with loss per share of US$0.44.

This compares with net income of US$7.6 million with earnings per share of US$0.09 for the year-ago period.

Sales plunged 41 per cent to US$155.7 million, the tech group's lowest quarterly revenue showings over the Christmas shopping period since its FY1993.

Half-year loss came to US$64.6 million, on sales of US$296.9 million. The previous corresponding period saw net income of US$8.9 million on sales of US$447 million.

The sobering Q2 sales were within Creative's earlier projection of a revenue range of between US$140 million and US$160 million.

Creative said that deteriorating market conditions led it to cut inventory in the second quarter to US$57.3 million, or 45 per cent lower than its previous quarter, which hit gross margins.

The company said that it incurred 'significant' currency exchange losses due to the depreciation of a number of currencies against the US dollar. It also suffered an investment loss of US$3.5 million.

Creative's personal digital entertainment products continue to garner the lion's share of sales, accounting for 54 per cent of total revenue in Q2.

Creative president and chief operating officer Craig McHugh said in a statement that the company expects the 'difficult' market environment to continue to deteriorate.

Creative is 'evaluating' the structure of its field organisations to cut operating expenses, he added.

The company recently revealed that it had slashed head count by 47 per cent - or 2,700 employees - in the 12-month period to June 30, 2008.

It attributed the bulk of the job cuts to the sale of its Malaysian manufacturing subsidiary in July 2007.

One bright spot for the maker of portable music players, computer sound cards and Apple iPod accessories is its foray this month into a new computer chip technology targeted at electronics device and PC manufacturers, dubbed Zii.

Creative shares closed five cents lower yesterday at S$4.

Published January 23, 2009

Keppel profit dips in absence of one-time gains

Net earnings fall 2.9% to about $1.1b but rises 18% at operating level

By VINCENT WEE

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KEPPEL Corp saw a 2.9 per cent dip in full-year 2008 net profit to about $1.1 billion - from about $1.13 billion in 2007.

Including minority interests, net profit dropped 20 per cent to $1.32 billion from 2007's $1.65 billion. 2007 recorded exceptional gains of $565 million, contributed by fair value gains on investment properties. The attributable exceptional gain was $105 million after taxation and minority interests.

Before exceptionals and minority interests, net profit rose 6.9 per cent to $1.096 billion.

At the operating level, net profit rose 17.9 per cent to $1.24 billion. Full-year revenue remained strong, growing 13.2 per cent to $11.81 billion and fourth-quarter revenue rose 11 per cent year-on-year to $3.73 billion. Earnings per share for 2008 were 69 cents and the group proposed a final dividend of 21 cents per share. The group also took prudent steps to ensure a net cash position of 0.04 times. Free cash flow for the year came up to $1.88 billion.

'We are very busy in 2009, we have 14 rigs to be delivered so the yards will be very busy,' said CEO Choo Chiau Beng. He warned, however, that further order cancellations and payment rescheduling negotiations will happen but the key would be to ensure that Keppel comes out of the situation better off than its customers.

'We have contracts in place (and) . . . such negotiations will carry on all the time and I think so far we have strong positions to negotiate,' said Mr Choo.

By segment, the offshore and marine division still accounted for the bulk of 2008 revenue and its contribution to overall revenue rose 18 per cent to $8.57 billion.

Net profit attributable to shareholders from the division rose to $698.5 million from $441.3 million, making up more than half of overall earnings. Looking ahead, new rig orders are expected to slow down, said Mr Choo but he expects some conversion and repair jobs to come in.

'The potential E&P activities in the deepwater and arctic regions will present opportunities for our yards in the construction of rigs and specialised vessels,' said group finance director Teo Soon Hoe.

Property continued to weigh on full-year revenue, coming in 48 per cent lower at $950 million.

The most significant improvement came from the infrastructure division where revenue nearly doubled to $2.23 billion mainly due to revenue from Keppel Energy on higher electricity prices.

Net profit from investments fell to $162.4 million from $269 million, with lower contribution from associate Singapore Petroleum Company and fair value losses of securities cited as factors.

Keppel shares closed unchanged at $4.04 yesterday.

Published January 23, 2009

SGX on right track with married deal tightening

By R SIVANITHY

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WHENEVER a large block of shares is crossed in the stock market, it inevitably draws attention to the stock concerned and often stirs excitement and speculation about what might be brewing.

Of course, in many instances, the crossing is routine - it could be simply be a large fund or investor rebalancing its portfolio or wanting to liquidate some of its holdings in a manner that doesn't unduly affect the share price, in which case the story ends there and nothing further is heard.

However, there are situations when a married deal is a precursor to something bigger - the entry of a new investor for example, or a takeover - in which case the crossing could be taken as a signal to either buy or sell.

Note also that advance knowledge of such a crossing can be construed as price-sensitive insider information and so is subject to the relevant laws regarding insider trading.

It is this signalling feature which manipulators sometimes use to their benefit when rigging stock prices - perform several crossings to push liquidity up and to give the impression that something is cooking, spread appropriate rumours and if the timing is right and if the market is receptive to those rumours, then sit back and let natural market momentum take over.

In proposals announced on Tuesday, the Singapore Exchange (SGX) is now looking to tighten its rules governing married deals, or 'direct business trades', implicit acknowledgement that transparency in this area can be improved.

Syndicates, manipulators or 'operators' as they are sometimes known would probably not welcome these proposals. And neither would house traders and momentum players who, when asked what they thought of SGX's proposals, said that they wondered if liquidity might be impaired with the new rules. But from a governance viewpoint, they are needed and probably overdue.

SGX's proposed approach is to raise the bar on what qualifies as married deals which, in essence, is correct because it makes it more expensive for manipulators to accomplish their objectives and send fake signals. This is probably the most practical approach; however, a few tweaks might be considered.

SGX proposes to raise the dollar value of a block deal from $150,000 to $500,000, or the unit volume from 50,000 to 500,000. The former is fine, but perhaps there should also be a minimum dollar amount for the latter - consider, for example, that a block of 500,000 units of a one-cent stock only costs $5,000, small change to anyone looking to create fictitious interest in the counter and fiddle with the price. Perhaps a minimum value of $50,000 or some other suitable figure to be determined later should complement the 500,000 unit limit.

As for price, the main criteria should be whether the deal is bona fide and at arm's length. If so, then as long as the transacted price is within a reasonable range - currently within 10 per cent of the latest closing - then further fine-tuning may not be needed.

Of course, if the price is beyond that range, then the appropriate disclosures should be made.

Published January 23, 2009

China's Q4 growth slumps to 6.8%

For the whole of 2008 growth was 9%, down sharply from 13% in 2007

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(BEIJING) China's economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.

Gross domestic product (GDP) grew 6.8 per cent in the fourth quarter from a year earlier, after a 9 per cent gain in the previous three months, the statistics bureau said. The figure matched the median estimate of economists.

Plummeting Chinese demand for parts and materials for exports is reverberating across Asia and the Pacific, driving Taiwan, South Korea and Australia closer to recessions and worsening Japan's slump.

'It's an astonishingly steep slowdown,' said Paul Cavey, an economist with Macquarie Securities in Hong Kong. 'We haven't yet seen all of the pain.'

The central bank may cut the key one-year lending rate by as much as 81 basis points to 4.5 per cent by the middle of the year, after 2.16 percentage points of reductions since September, Mr Cavey said. Bank reserve requirements will also decline, he said.

Industrial output grew 5.7 per cent in December from a year earlier, yesterday's data showed, close to the weakest pace in almost a decade. Inflation cooled to 1.2 per cent, the slowest in two years, giving more room for interest rate cuts. Producer prices fell 1.1 per cent.

Urban fixed-asset investment rose 26.1 per cent last year, the data showed, compared with a 26.8 per cent increase in the first 11 months.

China's economy grew 9 per cent for all of last year after a 13 per cent expansion in 2007 that pushed it past Germany to become the world's third-biggest.

Daiwa Institute of Research, JPMorgan Chase & Co and Citigroup yesterday reduced their estimates for China's growth this year. Daiwa cut its estimate to 6.3 per cent from 7.5 per cent; JPMorgan to 7.2 per cent from 7.8 per cent; and Citigroup to 7.6 per cent from 8.2 per cent.

'The international financial crisis is deepening and spreading with a continuing negative impact on the domestic economy,' said Ma Jiantang, head of the statistics bureau.

About 600,000 migrant workers flooded out of the manufacturing hub of Guangdong as work dried up last year, the local government estimated.

China's leaders 'will do anything' to maintain an economic expansion of about 8 per cent, the government's target for creating jobs, said Huang Yiping, chief Asia economist at Citigroup in Hong Kong.

China has pressured state-owned banks to increase lending, unveiled a four trillion yuan (S$880.8 billion) stimulus package, reduced export taxes and is adding support for 10 key industries. -- Bloomberg

Published January 23, 2009

AIG looks to sell chunk of AIA

Group aims to raise US$20b to repay govt loan: report

By GENEVIEVE CUA

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(SINGAPORE) Troubled insurer AIG has taken the first steps to sell off its Asian life insurance operations - which it has described as its 'crown jewels'.

The Financial Times reported that the group aims to raise US$20 billion through the sale to help repay a US$60 billion loan from the US government to save it from bankruptcy.

FT said sales memorandum for AIA with limited information has been sent to some potential bidders. First round bids are expected towards the end of next month. The prospective bidders reportedly include China Life, HSBC, Prudential plc, US-based Prudential Financial, and German insurer Allianz.

AIG will sell off a minority stake, which according to FT will be up to 49 per cent. An AIA spokesperson in Hong Kong said: 'AIG remains focused on inviting strategic investor(s) to take a minority interest in AIA. The divestment is being conducted in a smart, disciplined and competitive process.

'There is no intention to sell AIA on a piecemeal basis. We are tracking our timetable. AIG will choose investors with the best strategic fit for AIA as we anticipate working closely with future partners to continue to grow the business.'

FT's report, however, said AIG would be willing to look at offers for the entire business, and not just for a minority stake. It also said any interested bidder will have to prove it can finance the acquisition.

The sale is taking place in an extremely challenging environment when credit has almost dried up and potential bidders' balance sheets are also strained. The issue of valuation is a challenge as well, as life insurance is a long term business where interest rate and investment return assumptions are key.

AIG teetered on the brink of insolvency last September due to rising losses from guarantees it extended on mortgage derivatives. The news shocked scores of Singapore policyholders who thronged the office here to cancel policies.

AIG first secured a US$85 billion loan from US government in September. The rescue package was restructured in November to total about US$150 billion, giving AIG a lower interest rate and more time to repay a US$60 billion loan.

Hong Kong executives had earlier reassured policyholders here that the Asian life insurance business would not be sold. That was before the immensity of AIG's losses came to light.

The AIA group in Asia has over 20 million policyholders, 200,000 agents and about 20,000 employees in 15 markets. The group reported operating income of US$2 billion in 2007.