Published February 21, 2009

Fare cut to cost SBST $42.7m, SMRT $37.3m

By SAMUEL EE

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THE 4.6 per cent cut in bus and train fares will cost SBS Transit $42.7 million over 15 months, while the corresponding figure for SMRT Corp is $37.3 million, the two companies said yesterday.

IT ALL ADDS UP Adult commuters can save two to 14 cents for a direct bus journey

On Thursday, the Public Transport Council announced that the fare reduction package would cost the two public transport operators about $80 million from April 1, 2009, to June 30, 2010. But both SBST, the dominant bus operator, and SMRT, which runs Singapore's biggest rail network, said that they would only reveal the impact to their fare revenues the following day.

The fare rebate, starting on April 1, 2009, will allow adult commuters to save from two to 14 cents for a direct journey or a journey with one transfer.

In a statement, SBST said that the temporary relief measures will cost it '$42.7 million for the 15-month period' - more than the $21.5 million it is expected to receive from last month's Budget.

SBST chief operating officer Gan Juay Kiat said: 'We hope that by reducing fares by an average of 5.1 per cent during these tough times, commuters will be able to get some relief from cost pressures.'

The 5.1 per cent figure is obtained after averaging the reductions in fares for SBST's basic bus and train services, as well as its non-basic or premium bus services.

SMRT also said that it would give commuters further rebates on its premium and express bus services. It said that together with the discounts on these non-basic bus services and a $300,000 donation announced in January to help needy commuters, 'these measures by SMRT to help commuters reduce their transport costs and cope with the economic downturn amount to $37.3 million in the next 15 months'.

'This amount exceeds the savings SMRT will receive from the government budget,' said SMRT in a statement.

'We have reduced train and bus fares to help commuters of basic services cope with the downturn,' said SMRT Corp president and CEO Saw Phaik Hwa. 

Published February 21, 2009

SingTel, M1 square off with new mobile plans
By WINSTON CHAI

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TO SUSTAIN customers' insatiable appetite for mobile phones during the downturn, Singapore Telecom is dishing out three new subscription packages with all-you-can-eat data buffets. And rival MobileOne is giving free phones and will let you swap your handset for a new model after just nine months.


HTC DREAM
SingTel has signed an exclusive deal with HTC to retail the 'Google phone'
SingTel's new plans - 3G Flexi Lite, 3G Flexi and 3G Flexi Plus - aim to get handset users to gobble up more data on the go through Web surfing and e-mailing.

By paying $39-$95 a month you can surf to your heart's content as the packages come with an unlimited six-month data bundle on top of the usual outgoing voice minutes and SMS combo.

However, the data buffet is only available if you take up the new HTC Dream - the handset dubbed the Google phone because it is powered by the search giant's mobile operating system.

You will have to fork out $38-$238 for a Dream if you opt for one of the new 3G Flexi plans - provided you trade in a phone with a value of $200.

As previously reported by BT, SingTel has signed an exclusive deal with Taiwanese phonemaker HTC to retail the Dream, much like its agreement with Apple for the iPhone.

But SingTel's rivals aim to make sure it does not have the edge for too long. StarHub and M1 are already in talks with HTC to bring in newer versions of the Google device.

The data bundle offered with the Dream is more generous than that offered with SingTel's iPhone when it was launched last August. At that time the company only threw in a time-limited 1GB (gigabyte) mobile data bundle with the touch-screen handset, which is said to be its best-selling phone ever.

Not to be outdone, rival M1 took the wraps off a new mobile plan yesterday that allows you to exchange your phone much earlier than usual.

Usually you are locked into a 24-month contract and can only upgrade your phone or get a new one free at the tail end of the contract.

Under M1's new Take3 programme - extended to all its subscription packages that cost more than $19.26 a month - you can choose from a range of free handsets to go with your plan. And instead of having to see out your contract, you can swap your phone from the ninth month on.

The tit-for-tat battle between SingTel and M1 is a further sign of Singapore's increasingly cutthroat mobile market. Since the start of mobile number portability (MNP) last year, operators have been using exclusive handset deals and creative subscription bundles to entice people to defect, now that they are free to carry over their phone number.

According to the Infocomm Development Authority of Singapore, about 6,000 subscribers a month are making use of MNP to port their mobile numbers between operators.

Published February 21, 2009

Wheelock Prop takes $200m investment hit

This drove FY2008 net profit down 63% to $101 million

By JOYCE HOOI

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WHEELOCK Properties, which has changed its financial year-end from March 31 to Dec 31, recorded a 63.1 per cent fall in net profit to $100.95 million for the 12 months ended Dec 31, 2008, from $273.49 million for the nine months ended Dec 31, 2007.

EARNINGS BOOST Wheelock started recognising in FY2008 revenue from units sold in its upcoming Scotts Square, which also produced higher profit margins

The profit fall was driven by an investment impairment loss.

Explaining the use of a shorter nine-month period in FY2007 for comparison, Wheelock said: 'The group changed its financial year-end from March 31 to Dec 31. The group's businesses are not affected significantly by seasonal factors. Therefore, the results for the 12 months ended Dec 31, 2008 are compared against those of the nine months ended Dec 31, 2007.'

Of the $200 impairment loss, $120 million was attributed to its investment in SC Global Developments and $80 million to its investment in Hotel Properties.

Over the course of 2008, the share prices for Hotel Properties and SC Global Developments have fallen 72 per cent and 77 per cent, respectively.

During FY2008, Wheelock had invested an additional $16 million in SC Global.

Revenue for FY2008 rose 19.4 per cent to $454.64 million from $380.89 million.

This increase was due to both the comparison of a 12-month period against a nine-month one as well as the start of revenue recognition of units sold in its Scotts Square development during its 2008 financial year.

Scotts Square also drove higher profit margins for Wheelock in 2008, with 13 units sold at an average price of $4,028 per square foot.

'Gross profit margin was 48 per cent compared to 38 per cent for the nine-month period ended Dec 31, 2007,' the group said.

While revenue from property investment increased from $24.62 million for the nine months ended Dec 31, 2007 to $37.66 million for FY2008 primarily due to improved rental rates, property investment profits actually dropped from $218.07 million to $116.04 million for the same periods.

'The decrease in profit for property investment was mainly due to lower valuation surplus of $90 million in 2008 compared to $200 million in 2007 on Wheelock Place,' the group said.

Wheelock has also proposed a first and final cash dividend of 6 cents per share, which will total $71.79 million - the same as the year before.

Its earnings per share for FY2008 stood at 8.44 cents against 22.86 cents for the nine-month period ended Dec 31, 2007.

The period saw a tax credit of $2.86 million against a tax expense of $59.62 million for the nine-month comparative period. This was mainly due to a writeback of prior-year tax provision on gain from the sale of Hamptons Group. IRAS has ruled the gain as capital in nature.

The company also announced yesterday the appointment of David Lim as an independent director.

'Presently, Mr Lim is chairman of Jurong International Holdings and director of Ascendas India Trust,' the company said in a statement yesterday.

His appointment comes as part of Wheelock's 'rejuvenation of the board members'. Last year, Greg Seow and Colm McCarthy joined Wheelock's board as independent directors as well.

Wheelock's share price closed at 90 cents yesterday, down 2.5 cents.

Published February 21, 2009

Go 'soft', go Asian, go for gold

Tips from Dr Doom and investment guru at BT-Julius Baer dialogue

By JAMIE LEE

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BUY Asian equities, gold and soft commodities.

DR FABER He has hit out against the US Federal Reserve for cutting interest rates and pumping 'easy money' into the economy

Those were the investment tips from V Anantha-Nageswaran, chief investment officer at Julius Baer, Asia-Pacific, and fund manager Marc Faber at yesterday's Business Times dialogue that was held in partnership with the Swiss bank.

Analysts have expected dismal export numbers for export-heavy economies in Asia and were quick in bringing down earnings estimates, said Dr Anantha-Nageswaran, adding that this means 'pessimism has taken root' in regional equities.

'We look at small export-driven markets in Asia to start accumulating,' he told the dialogue participants, referring mainly to Singapore, Hong Kong, South Korea and Taiwan.

He added that stocks in bigger markets such as China, India and Indonesia could get cheaper as investors remain hopeful that the size of the domestic markets would act as a buffer.

'There is still a bit of denial in these markets,' he said.

Dr Faber, otherwise known as the Dr Doom for his bearish and contrarian calls, noted that the dividend yields for Asian stocks in countries such as Singapore and Thailand are about three times higher than government bond yields.

'Now, I'm sure dividend yields will be cut, say by 50 per cent, maybe even more, but at least you pay to wait at these levels,' he said.

'I'm not very optimistic that there will be a bull market in the future, but I think there is also risk to hold cash with banks (in terms of getting no yield),' he said.

Both speakers also saw value in Asian financial stocks, due to their stronger balance sheets, compared with their Western counterparts.

'They also never understood CDOs,' said Dr Faber.

As for gold, it has kept its value over the last seven years when measured against most currencies such as the euro and the dollar as well as some stock indices, said Dr Anantha-Nageswaran, adding that the value of gold can at least double over the next 12 to 24 months.

Soft commodities can also be a good hedge against inflation as well as against climate change, he said, and recommended that investors hold them for the medium-term.

Dr Anantha-Nageswaran was bearish on the UK pound because of the high leverage that the economy is bearing. He noted that the size of financial assets in the UK was eight times that of its GDP, compared with the US at four times.

'Some people have started referring to the UK pound as the British peso,' he said, noting falling wages, investments and manufacturing at the same time.

'I think that's a fair description of what's going on there,' he said, adding that investors holding the pound should sell on strength.

Dr Faber also hit out against the US Federal Reserve for cutting interest rates and pumping 'easy money' into the economy.

'Mr Bernanke and Mr Greenspan - they have achieved something that nobody else has ever achieved before, that is to create a bubble in everything,' he said.

When asked by BT's associate editor Vikram Khanna whether a moderate inflation could help to ease leverage by reducing the real value of debt, Dr Anantha-Nageswaran said that the asset bubbles now suggest that moderate inflation has not been used.

One participant also asked Dr Faber if it was fair to blame the US government for not calling a property bubble when some states of America were unaffected. In response, Dr Faber said that though this was true, bubbles tend to have certain sectors of the market surging faster than others. 'In the US, there are 373 people per one medical doctor, but in California, there were 52 people per one real estate broker,' he said. 'That tells you the extreme that we had in the housing industry in some areas of the United States.'

Published February 21, 2009

Wide support for Reits to hold AGMs

By KALPANA RASHIWALA

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MARKET participants welcomed the idea of real estate investment trusts (Reits) being required to hold annual general meetings (AGMs), saying that it would be good for corporate governance and transparency. It would also be long overdue.

JP Morgan analyst Chris Gee said that it was actually 'kind of perverse' that Reits currently do not have to hold AGMs.

Instead, Reit trustees may convene extraordinary general meetings (EGMs) to discuss matters such as major acquisitions and fund raising. Reit unitholders may also request the trustee to convene meetings.

Currently, at least one Singapore Reit, Ascendas Reit, holds annual meetings with its unitholders although this is not required.

A pioneer of the Singapore Reit industry explained that the reason S-Reits are not required to hold AGMs has to do with their origin. 'S-Reits were created based on existing unit trust guidelines, and unit trusts are not required to hold AGMs. In Hong Kong, however, Reits are governed by a distinct Reit code, which requires Reits to hold AGMs,' he added.

Securities Investors Association of Singapore (SIAS) president and CEO David Gerald said that the group has not received any complaints about Reits here not holding AGMs. 'This may be due to the fact that Reits are generally very transparent and there is a trustee to take care of the interests of the unitholders,' he said.

On Thursday, the Singapore Exchange revealed that the Monetary Authority of Singapore will be consulting on a proposed requirement for Reits to hold AGMs to promote good corporate governance and to be in line with the practices for listed companies and business trusts.

The SGX statement was in a release on further measures to speed up and ease listed issuers' fund-raising efforts. This includes allowing issuers to seek a general mandate from shareholders to issue up to 100 per cent of the share capital via a pro-rata renounceable rights issue - up from a 50 per cent limit currently.

Since Reits do not hold AGMs, they do not have a forum for seeking such general mandates. 'Instead, they convene EGMs when they need to issue new units to raise funds for acquisitions, and this lengthens exposure time, and the volatility in the unit price could affect the success of the capital raising,' said a market observer.

'So if Reits have the forum during which they can seek and obtain this general mandate for rights issues, then they will be in a more flexible position to raise equity,' he added.

February 21, 2009, 7.04 am (Singapore time)

Soros sees no bottom for world financial 'collapse'

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NEW YORK - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

Mr Volcker: 'I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world'

Mr Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

'We witnessed the collapse of the financial system,' Mr Soros said at a Columbia University dinner. 'It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom.'

His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.

Mr Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

'I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world,' Mr Volcker told a luncheon of economists and investors at Columbia University.

Given the extent of the damage, financial regulations must be improved and enhanced to prevent future debacles, although policy-makers must be cautious not disrupt things further while the turmoil is ongoing.

Mr Volcker, a former chairman of the Federal Reserve famed for breaking the back of inflation in the early 1980s, mocked the argument that 'financial innovation,' a code word for risky securities, brought any great benefits to society. For most people, he said, the advent of the ATM machine was more crucial than any asset-backed bond.

'There is little correlation between sophistication of a banking system and productivity growth,' he said.

He stressed the importance of preventing financial institutions large enough to pose a threat to the entire system from engaging in risky behavior such as running hedge funds or trading for its own accounts.

The current crisis had its beginning in global imbalances like a lack of savings in the United States, but policy-makers around the world were too reticent to take action until it was too late, Mr Volcker said.

Now that the crisis had erupted, it was important to take decisive actions, including a more effective regulatory structure and some movement toward uniform accounting systems, Mr Volcker said.

He said all financial institutions that are deemed too large to fail should be subject to increased scrutiny, echoing the findings of the Group of 30, a panel of policy-makers and influential economists, which he leads. -- REUTERS

Published February 21, 2009

It's status quo for Reits on payout ratio

Government's stand is to preserve the stable, high-payout characteristics of the trusts, says minister

By KALPANA RASHIWALA

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IT'S official. The authorities will not be lowering the minimum payout ratio that real estate investment trusts (Reits) must meet to qualify for tax transparency treatment.

MRS LIM 'It is unrealistic for S-Reits to expect to have continued access to cheap and easy credit during this recession.'

Spelling out the government's stand, Senior Minister of State for Finance and Transport Lim Hwee Hua said at a Reits seminar yesterday: 'The key characteristics of Reits as a stable, high-payout, pass-through vehicle are important considerations for investors, and hence, must be preserved.'

'Ministry of Finance and Monetary Authority of Singapore have deliberated this issue and have decided that the minimum payout ratio would not be changed,' she added.

Yesterday's official pronouncement on the topic confirms earlier BT reports.

Under current guidelines, Reits have to distribute to unitholders at least 90 per cent of their distributable income, in order to enjoy tax transparency, which means exemption from paying corporate tax at the Reit/vehicle, on the portion of income they distribute.

'While we appreciate the refinancing difficulties faced by Reits, there are, at present, no strong grounds to justify a special tax treatment for Reits that is not made available to other entities,' Mrs Lim said at a seminar organised by the Asian Public Real Estate Association (Aprea).

She noted that a few Singapore Reits have already managed to secure refinancing either through bank loans, loans from sponsors or recapitalisation, albeit at a higher cost. 'It is unrealistic for S-Reits to expect to have continued access to cheap and easy credit during this recession,' Mrs Lim commented.

BT reported last month that some Reit managers had urged the government to trim the minimum payout to unitholders to as low as 50 per cent of distributable income, while still allowing Reits to enjoy tax transparency.

The proposals were meant to help Reits - especially smaller ones - conserve cash. But they sparked concerns that Reit investors, especially institutional players like funds who count on the certainty of a regulated minimum distribution from their investments in the S-Reit sector, may pull out from this market if this rudimentary attraction of S-Reits disappears.

The issue of fairness also surfaced. It was asked why Reits enjoy special treatment when many other listed companies also return a chunk of their profits to shareholders but still have to pay corporate taxes.

Mapletree Logistics Trust's deputy CEO Richard Lai welcomed yesterday's official pronouncement. 'We have never agreed with any move to reduce the distribution payout ratio because it will destroy investors' confidence and consequently tarnish the S-Reit market. S-Reit is a special play for investors and reducing the payout ratio would definitely bring into question the very existence of Reits. Why do we need Reits if they don't have the discipline to maintain high payout ratios?'

However, Securities Investors Association of Singapore president and CEO David Gerald said: 'The 90 per cent rule means that a Reit is always geared. If there is a reserve, the Reit can face economic downturn or financial crisis confidently as banks may not be willing to lend. For this reason, I am not in favour of the authorities insisting that the 90 per cent level be maintained as that may affect the liquidity of a Reit, especially in these bad times.'

Mapletree's Mr Lai suggests that to conserve cash, Reits could give investors the option to receive their distributions in the form of new units issued, instead of cash. 'That could be dilutive but unitholders who support you would understand, whereas if you seek to reduce the payout ratio, you'd be destroying the very nature of having Reits,' he added.

In her speech, Mrs Lim said: 'With the credit crunch, many businesses across various sectors are faced with similar refinancing difficulties that S-Reits are facing.' She noted that the government has introduced measures in last month's Budget to stimulate businesses, including $5.8 billion of measures to stimulate bank lending such as the Special Risk-Sharing Initiative.

In addition, S-Reits can also tap measures announced recently by Singapore Exchange to facilitate listed issuers' secondary fund-raising efforts. 'SGX will continue to explore other initiatives to facilitate secondary fund raising, including the Australian accelerated rights issue structure, which requires a more detailed study,' Mrs Lim added.

Published February 21, 2009

Riding hot wheels up money mountain

By JOYCE HOOI

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AS FINANCIAL wizards watch their wealth dwindle and dreams of en-bloc windfalls crumble, a group of people have been steadily building up profits, not in bricks and mortar, but iron and steel.

MAN AND MACHINE Mr Chia sold his Kawasaki Ninja to his friend for $4,000 last October, who managed to sell it for a 10 per cent profit three months later

A growing number of motorcyclists in Singapore are not only enjoying their hobby but discovering that it can pay handsomely too.

Derek Han, 37, makes anything from a few hundred to a few thousand dollars each time he sells a used motorcycle that he has painstakingly restored.

The IT professional, who has been restoring motorcycles since 2003, fondly remembers buying a Moto Guzzi California motorcycle with a friend in 2004 for $5,000 and selling it less than a year later for slightly over $11,000. 'When we got the Moto Guzzi, she was in bad shape from years of neglect. Thankfully, her mechanics were sound and a full service and fluid changes brought her back to good running condition.'

'We didn't manage to do much restoration as someone approached us to buy her before that,' he said. Even after spending $1,500 on getting the motorcycle back to road-ready condition, the Moto Guzzi had fetched a tidy profit of $4,500, a 90 per cent return on investment.

'The rarer and more desirable a bike, the easier it will be for you to command the price you want.' Tim McIntyre, an enthusiast who currently owns five motorcycles

Singapore, it seems, has no shortage of people with a seemingly irrational love for a certain motorbike model and who are willing to part with a good sum of money for one.

Mr Han recently turned away a stranger who showed up on his doorstep with a cheque for $24,000 for a BMW K75S that he had acquired for $5,500 - even though he was not done with restoring it. 'I like it too much to sell it,' he said of the motorbike, of which he has posted photographs on his Facebook page.

Even motorcyclists who only ride and do not restore have seen their motorcycles appreciate in value, enabling them to flip the vehicles for a respectable premium.

Deyna Chia, a business developer in his mid-thirties, sold his 15-year-old Yamaha V-Max five months after he bought it in January last year for $5,000 - at a $1,000 premium.

According to Mr Chia, the upside value of a motorbike investment stems from many strategic factors. 'The old V-Max that I sold has actually appreciated even more now, because the new V-Max launched in late 2008 was more expensive than people had expected, at $42,000,' he said.

In fact, the V-Max that Yamaha launched last year is currently going for $10,000 higher at $52,000 due to the appreciation of the Japanese yen, said Mr Chia. 'There has also been an element of profiteering by dealers who have been able to use the strengthening yen as an excuse to jack up prices,' he added.

Not only does the element of timing apply to bikers when they take corners, it also comes into play for motorcycle purchases when demand spikes for certain motorbikes.

'Some people just get bikes for upcoming events - like touring bikes for Phuket Bike week - and then sell them when the festival is over,' said Mr Chia.

Apart from knowing when to look, it pays to know where to look.

Dealers looking to liquidate old stock or showroom models are a good source of underpriced motorcycles if you know the right people. 'Dealers are usually very hush-hush about selling at a discount. It's usually done through word-of-mouth,' said Tim McIntyre, an enthusiast who currently owns five motorcycles. Mr McIntyre, who bought an eight-year-old Kawasaki ZZ-R 1100 for $2,000 and saw its fair value rocket to $5,000 in three months, reckons that rarity is key to appreciation in value.

'The rarer and more desirable a bike, the easier it will be for you to command the price you want,' he said.

The bulk of such rare and valuable motorcycles are the ones on the high end of the engine-capacity spectrum.

According to the Land Transport Authority, motorcycles with an engine capacity of 501cc and above stood at about 11,496 units as of last year. While that figure has been steadily increasing over the years and is at an all-time high, it still represents only 7.9 per cent of Singapore's total scooter and motorcycle population.

In addition to knowing your motorcycles, it pays to know your bikers as well. 'The best deals are through friends, where you can get rock-bottom, fire-sale pricing,' said Mr Chia.

His biking buddy, Darren Peh, 36, can bear testimony to this. Mr Peh had bought a Kawasaki Ninja ZX-9R from Mr Chia at just $4,000 in October last year, and managed to flip it for $400 in profit three months later.

'That's a 10 per cent return in three months. Better odds than the stock market,' said Mr Chia. 

Published February 21, 2009

RBS plans Great Asian Sale

Bank seeks buyers for Asian divisions; Stanchart, HSBC may be interested: sources

By NEIL BEHRMANN
IN LONDON

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THE Royal Bank of Scotland has hired Morgan Stanley to seek potential bidders for its Asian banking divisions, according to sources close to the discussions.

Asked to confirm the information, a RBS spokeswoman refused to comment. Part of the deal following the UK government's part-nationalisation via a purchase of a 70 per cent stake in the bank is the instruction that RBS should raise capital by selling assets around the globe. Asia is a key area, as RBS bought Asian units at the high price of £10 billion (S$21.9 billion) from ABN Amro as part of the biggest takeover in UK banking history. Since that deal, RBS has been under acute pressure. The bank is believed to also want to sell its Mid-West US commercial banking business, which was purchased in 2004.

RBS is believed to have approached Standard Chartered and Australia's ANZ about possible purchases of its Asian operations. HSBC recently indicated that it was also interested. According to The Independent in the UK, RBS is considering selling its retail banking operations while keeping its licences and wholesale banking businesses in Hong Kong, Singapore, Japan and India.

A deal in India with Standard Chartered, which is already the biggest international bank in the market, would allow it to do this. RBS's Indian business, bought as part of the ABN deal, is expected to be wanted by potential bank bidders because of restrictions on opening branches in the country. Standard Chartered has about 90 branches and would gain 31 more in 21 cities if it bought RBS's operations.

Since Asian economies are in a downturn, analysts are reluctant to price the potential sale of RBS's Asian assets. There will have to be considerable due diligence, they say, as some loans and assets could be suspect.

Shares of Standard Chartered and HSBC have fallen in recent weeks, mainly because of fears about the Asian economy. Stanchart is in a strong position as it recently had a rights issue and relative to other global banks, has a strong capital base. HSBC, with problems in the US, is expected to have a rights issue when the timing is right.

RBS has already announced that it will have to write down up to £20 billion (S$43.98 billion) on the pricey acquisitions during the credit bubble. Chief executive Stephen Hester, who took over from Fred Goodwin, will announce the results of a strategic review next Thursday, when the bank is expected to post a 2008 loss of up to £28 billion including the goodwill write-downs.

RBS, following the acquisition of ABN Amro, has a presence in 15 Asia-Pacific markets serving corporate and institutional clients, the spokeswoman said. The bank provides investment and transaction banking capabilities, as well as wealth management, retail and commercial banking. The international wealth management arm offers private banking and investment services to clients in selected markets through the RBS Coutts brand. The RBS Group operates in Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

'Singapore is an important hub for the banking business in South-east Asia,' she said. RBS has an office at George Street and One Raffles Quay and also caters for European multinationals in Asia from its RBS Coutts office in Singapore Land Tower. 

Published February 20, 2009

F&N share price loses fizz in Malaysia

By PAULINE NG
IN KUALA LUMPUR

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SHARES of Fraser & Neave Holdings (F&N) tumbled 12 per cent to RM7.85 yesterday on news that its long-standing franchise agreements with The Coca- Cola Company Inc would not be extended.

F&N was the day's biggest loser following its announcement to the stock exchange on Wednesday that Coca-Cola does not intend to renew the agreements upon their expiry in January next year.

Coca-Cola's soft drinks, Coca-Cola and Sprite, contributed RM421 million (S$175 million) or slightly over a third of F&N group revenue of nearly RM1.2 billion in the fiscal year ended September 2008, and the impact to its profitability in 2010 would be significant.

F&N had said that it 'may be material', depending on the outcome of the post-termination transition plan.

Yesterday, group chief executive Tan Ang Meng chose to look on the positive side. 'I'm a bit disappointed, but we can't cry over spilt milk. Nothing is forever,' he said about the company's association of more than 70 years with Coca-Cola.

Without the many restrictions in the franchise agreements, or 'handcuffs' as he described it, F&N will be able to chart its own course and realise its potential faster, he told BT.

The food and beverage player will now be free to launch new products and venture into new territories and export markets that were previously off-limits to it because of the agreements, such as coffees and fruit teas, he said, pointing to its success with the homegrown 100Plus brand - now 'the single largest brand in Malaysia in the soft drink category'.

In a statement, F&N described its relationship with Coca-Cola as 'a dynamic one', adding that in the course of collaboration, there had been differing perspectives, viewpoints and expectations.

It revealed that the average gross profit margin of the soft drink business is 35 per cent and that the soft drink division was the single largest profit contributor, accounting for nearly half of its operating profits.

On the termination at a time of global meltdown, Mr Tan quipped: 'Anytime is a bad time.'

But he said that F&N's business would still be reasonably resilient given that 85 per cent of its products cost less than RM2.50.

Short-term pain was a given, he conceded, but it would become a long-term gain eventually. The company will overcome the setback, given its fiscal position and organisational strength, he said.

Even so, its consecutive eight years of record revenue and profit would be greatly challenged, if not in the current year, in 2010.

Maybank-IB has downgraded F&N to a 'sell' on the franchise termination.

Analyst Vincent Khoo estimated that F&N's net profit could be reduced by 8 per cent in fiscal year 2010 and 18 per cent in 2011, noting there could also be a risk to its dividend yield as well as a de-rating in valuations resulting from the loss in franchise value.