Published April 9, 2009

Najib still finalising his ministerial line-up

Smaller Cabinet, fewer coalition seats likely

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(KUALA LUMPUR) Malaysia's new premier Najib Razak is still finalising his new Cabinet and there was no announcement yesterday as expected, reports and officials said.

Mr Najib, who is tipped to unveil a streamlined Cabinet aimed at helping him push through promised reforms, may make the announcement today before travelling to Thailand for a regional summit.

'There is no Cabinet reshuffle announcement today. The earliest will be tomorrow,' a senior government official told AFP on condition of anonymity.

The convention is for Mr Najib, who was sworn in last week, to seek the consent of Malaysia's king before announcing the new Cabinet.

The New Straits Times yesterday reported that the premier, who leads the ruling United Malays National Organisation (Umno), has yet to meet with all its partners in the Barisan Nasional coalition on the formation of his new line-up.

Local media have speculated that Mr Najib is likely to reveal a slimmed-down Cabinet from the current 27 ministries with 32 ministers, and that coalition parties have been told they may get fewer seats.

Insiders said that Mr Najib is likely to retain the finance portfolio - seen as critical during the global economic crisis - and that Umno deputy leader Muhyiddin Yassin is tipped to be deputy prime minister and defence minister.

Mr Najib has unveiled an ambitious agenda to overhaul Umno, which was humbled in elections last year by voters who see it as corrupt and out of touch. -- AFP

Published April 9, 2009

M'sia to speed up reforms pace: analysts

By PAULINE NG
IN KUALA LUMPUR

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TUESDAY'S triple by-election results have done Malaysia's ruling Barisan Nasional (BN) coalition few favours, but analysts view the outcome as positive for the economy because it will likely force the government to accelerate the pace of planned economic and political reforms.

Mr Najib: Most voters paid little attention to his early goodwill measures

Local newspapers said yesterday the poll results maintained the 'status quo' - with BN holding its Batang Ai state seat in Sarawak and the opposition coalition Pakatan Keadilan Rakyat (PKR) keeping the Parliamentary seat of Bukit Gantang in Perak and state seat of Bukit Selembau in Kedah.

The fact is, BN's fortunes took a turn for the worse. Despite BN pitting its entire machine against PKR, and despite the new and energetic leadership of Prime Minister Najib Razak, PKR not only retained two seats in what were previously BN bastions, but with bigger majorities. Consequently, the loose PKR coalition is now up 4-0 in West Malaysia, having inflicted convincing defeats on BN in four by-elections since August.

To claw back support that has been badly eroded since the general election last year - in which BN lost five states and its customary two-thirds Parliamentary majority - analysts expect Mr Najib to deliver faster on promises or risk his coalition, which has ruled since Independence, being booted out of office at the next general election due in 2013.

RAM Holdings chief economist Yeah Kim Leng expects an immediate focus on greater equality and more inclusive policies, rather than race-based ones, following the thumping support given by non-Malays to PKR on Tuesday.

Their further swing away from BN ensured opposition victory except in the remote district of Batang Ai, which is dominated by the Iban community and was always likely to go to BN because of its superior resources.

Most voters paid little attention to Mr Najib's early goodwill measures and gave greater weight to the PKR vision, which promises to uphold the rights and interests of all Malaysians.

'PKR's vision is gelling, and what's being implemented in PR-held states is visible to the public,' said Mr Yeah, which is why Mr Najib should urgently articulate and implement his 'One Malaysia' vision to render the ageing New Economic Policy less relevant in today's context.

To be fair, Mr Najib has been in office less than a week and fairer policies are being instituted. Whether mooted by him or his predecessor Abdullah Badawi, it was announced this week that government scholarships will be extended more fairly - the first 20 per cent going to the best, regardless of race.

To Maybank analyst Vincent Khoo, the 'feelgood' factor in the leadership transition and the usual rhetoric were simply not enough to help BN at the ballot box, and the by-election outcome now forces the new administration to deliver on the economic and social grounds, starting with effective implementation of a RM67 billion (S$28 billion) stimulus package. The question is: Will Mr Najib's party members, happy with the status quo, allow him to move as swiftly as he needs to?

Published April 9, 2009

KL light rail on track for upgrade

HSS Integrated, Minconsult to come up with designs to extend network by August

By S JAYASANKARAN
IN KUALA LUMPUR

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THE first upgrade of Kuala Lumpur's urban transport network is set to take off, with two firms hired to come up with designs to extend the city's two light rail systems by 16 km.

The government has set the firms an August deadline, after which construction work is expected to begin.

Sources said that two months ago, Syarikat Prasarana Negara, a government agency that oversees national urban transport, awarded design contracts to HSS Integrated and Minconsult, two of Malaysia's largest civil engineering consultancies.

The management side of the project is said to have been awarded to Opus, a state-owned company in the United Engineers group.

The contracts will kick-start Malaysia's largest infrastructure project in recent years - a RM6 billion (S$2.5 billion) job that should help reflate the country's shrinking economy.

In addition, another RM1 billion will be needed to buy additional rolling stock from Bombardier of France.

The funds are not part of the recently announced stimulus package - they are expected to be raised through a bond offer by Syarikat Prasarana.

The project stops short of an original plan that called for a new 40 km line connecting the new suburb of Kota Damansara with Cheras, one of KL's oldest and most populated suburbs.

Sources said that this was probably due to budget constraints, as the new line was estimated to cost RM11-12 billion. Each extension will, instead, cost about RM3 billion.

HSS Integrated will do the design work on extending the Star line, which runs from Sentul in downturn KL to Desa Petaling to the south.

The extension will enlarge the network almost to Puchong, west of the city, where it will meet the Putra line, the extension of which is being designed by Minconsult.

Putra runs from Ampang in KL to Petaling Jaya to the west. The extension will take it to Subang Jaya and then around to Puchong. Each extension is expected to benefit more than a million people.

Published April 9, 2009

Ezra Holdings Q2 profits up 21%

For H1 though, earnings are down 84% due to a lack of exceptional gains

By VINCENT WEE

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OFFSHORE support and marine services provider Ezra Holdings saw second quarter net profit rise 21 per cent to US$14.9 million - from US$12.4 million for the previous corresponding period - on a steady 30 per cent increase in revenue to US$63.0 million.

For the first half to Feb 28 though, net earnings plunged 84 per cent to US$24.2 million from US$151.3 million in H108, the reason being that the comparative period included an exceptional net gain of US$136.3 million from the partial divestment of Ezra's production and construction arm EOC. Excluding exceptional items, H1 net profit rose 61 per cent to US$24.2 million from US$15 million.

First half revenue rose 87 per cent to US$176.1 million on greater recognition of revenue from offshore support services as more vessels entered service. Turnover from this division rose by US$17.0 million with the full six-month contribution from two anchor handling tugs (AHT) and three anchor handling, towing and supply vessels (AHTS), as well as four months of operation of the AHTS Lewek Plover.

Revenue from the marine services division rose by US$22.4 million mainly due to an increase in procurement and equipment supply and engineering activities in Vietnam as Ezra moved more yard work to the lower cost country. The new energy services division also added a healthy US$46.3 million to revenue.

Separately, Ezra also yesterday announced new and renewal contracts from various parties for operations in South-east Asia for three AHTS vessels for charter periods of two years worth US$47 million while its 48.9 per cent-owned unit EOC said the Lewek Chancellor accommodation crane barge had secured a six-month contract extension after she completes her current contract in end April 2009. The latest contract, which will see it continue its current job till October, is worth up to US$8.8 million including the extension option.

For the six months under review, trade receivables rose to US$132.6 million from US$87 million. Net cash from operating activities plunged to US$259,000 from US$6.9 million. Finance director Ta Chin Kwang explained that this was due to the changing nature of the group's business where an increasing proportion of revenue is coming from the marine services and energy services divisions where revenue is more lumpy.

Ezra shares closed 2.5 cents lower at 79.5 cents yesterday.

Published April 9, 2009

Silence at S-chips disconcerting

By LYNETTE KHOO

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SEVERAL companies have started to default on their loans as they find themselves sandwiched between dwindling profits and the increasing difficulty of securing refinancing.

The problem appears to be more acute at some S-chips (China-based companies listed in Singapore) whose ability to continue as going concerns hinges on whether they can obtain refinancing or reach an agreement with lenders to reschedule loan repayments.

Among them, Beauty China has been slapped with a statutory demand from its syndicated lenders to repay an outstanding loan of HK$134 million (S$26.1 million). Zhonghui faces a demand from United Overseas Bank (UOB) for repayment of two outstanding loans totalling about $19.6 million. Bio-Treat's default on convertible bonds triggered a default on its HK$360 million loan from a former substantial shareholder.

Anxious investors are eager to know the outcome of the companies' negotiations with the lenders. But weeks and even months have passed without any updates on these issues, leaving shareholders clueless about the state of affairs at these companies.

Often, their disclosures follow a similar pattern: a notice of default made public is followed by a period of silence. Then comes the bad news.

A case in point is Guangzhao Industrial Forest Biotechnology, whose external auditors could not give it a clean bill of health last week. Its going-concern status rests on various factors such as talks over a convertible note covenant breach, about which it has stayed mum since January.

Last week, the external auditors at Zhonghui Holdings, Paul Wan & Co, also drew attention to uncertainties clouding the company's ability to continue as a going concern. Zhonghui's survival now depends on a successful conclusion of its proposed divestment of a 42.06 per cent associate, Baoji Zhongcheng Machine Tooling Co, to repay the debt.

But four months have passed without any updates from Zhonghui on its talks with UOB.

Could the discussions be taking so long? If so, investors should know what are the issues hindering a solution. Even if it is status quo since the last announcement, an update would signal to the market that the management and the board are still diligently working on the matter.

But it has emerged this week that at least two payments totalling 90 million yuan (S$20 million) were made by the company without board approval, and findings by financial adviser PricewaterhouseCoopers (PwC) confirmed the fact that shares of Baoji bought and paid for have yet to be transferred.

Though PwC's assessment of Zhonghui's corporate governance was broadly worded, the observations pointed to a lack of internal controls and weakness in the board's oversight.

Another assertion yesterday by the one and only independent director of Zhonghui - that the executive directors could not be reached for a response to the PwC report - raises even more questions over the state of affairs at Zhonghui.

To allay investors' worry, it is time that the executive directors at Zhonghui break their silence and provide some updates on what they have been doing all this while to clear the debt issue.

It is sad that this story of silence applies to other companies too.

Bio-Treat had disclosed last December that its entire assets had been pledged to former substantial shareholder Precious Wise Group after it defaulted on a HK$360 million loan facility it obtained from Precious Wise.

Four months have passed and there's still no word from the company on how it intends to repay the debt and stall any forced sale of its assets.

Then, there was Beauty China, which was said to be in talks with a potential financial investor who would bring in a cosmetics industry player as strategic investor and expected the proposed cash injection to be enough to meet its immediate obligations to lenders.

Investors are wondering how this plan is panning out now. Just a month ago, Beauty China was still laying out its grandiose expansion plans for this year, seemingly unfazed by its fourth-quarter losses and mounting debts. Considering the sudden twist of circumstances, some updates on its plans would be necessary.

No doubt, it is tricky to make a call on disclosure when it comes to sensitive issues such as loan repayment, and some may perceive that since most of these companies have suspended trading of their shares, there is less urgency and need for speedy disclosures.

But this is not true, and certainly not in the spirit of the Singapore Exchange (SGX) disclosure policy. Shareholders need to know what's going on with these companies even as their investments are haplessly strapped in the suspended shares. And they want to know if directors - who keep getting paid in the interim - are doing everything they can to turn the ship around.

Hopefully, companies will not subscribe to the 'no news is good news' axiom that has proven wrong so often in the past.

Published April 9, 2009

Microsoft, S'pore firm in US$558m fight

Uniloc claims sum in security patent dispute

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(NEW YORK) Microsoft Corp, the world's largest software maker, stole a Singapore company's patented invention used to deter piracy and should pay more than US$558 million in royalties, a lawyer told a federal court jury.

Uniloc Singapore Private Ltd and Uniloc USA Inc, based in Irvine, California, claim that Microsoft used Uniloc security technology to earn billions of dollars. Microsoft saw Uniloc's patent and used it without permission, the lawyer, Paul Hayes, told jurors on Tuesday during closing arguments in Providence, Rhode Island.

Microsoft had 'nothing unique going in' to create its anti-piracy software, said Mr Hayes, of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo in Boston.

Microsoft, based in Redmond, Washington, contends that it uses a different method to prevent the use of unauthorised copies of its software. It also challenged whether Uniloc's patent covers a new invention.

'There is no infringement in this case,' Frank Scherkenbach, an attorney representing Microsoft who is with Boston's Fish & Richardson, said on Tuesday in his closing argument. 'The technology is fundamentally different.'

Microsoft claims that Uniloc's patent is obvious and should be deemed invalid. In addition, Mr Scherkenbach said that the request for more than half a billion dollars in damages was 'extreme and out of whack'. Between US$3 million and US$7 million would be 'generous', if the jury were to find infringement, he said.

The jury began deliberations on Tuesday afternoon. The trial began on March 23.

The case is directed at Microsoft's Windows XP operating system and some Office programs.

Windows Vista, the newest Microsoft system used to run personal computers, is not part of the case. Microsoft still sells XP in some cases, such as in inexpensive laptop computers. Windows runs about 95 per cent of the world's PCs.

Uniloc claims that it is entitled to US$2.50 for each of the 223 million activations of a product that has Windows XP, Office XP, Windows Server 2003 and Office 2003 sold since October 2003, when the suit was filed. Microsoft, while challenging the patent and infringement claims, said that if it lost, the most Uniloc would be entitled to is about five US cents for each US activation.

The dispute is over programs to deter piracy.

The patent - first issued to Australian Ric Richardson, based on work he did in the early 1990s - covers a software registration system. According to court filings in the case, Mr Richardson was working to eliminate 'casual copying', in which a person installs a single program on more computers than permitted.

Uniloc claims that Mr Richardson showed the software program to Microsoft in 1993 under a pledge that Microsoft would not try to break down the code to duplicate it. Uniloc claims that Microsoft did that and, in 1997 or 1998, began pilot programs with a similar software program.

Microsoft countered that it developed its own system that works differently from Uniloc's, and that the Uniloc patent does not cover a new inventions.

The company also said that it first learned of Uniloc's patent and infringement claims when the suit was filed.

Mr Scherkenbach said Microsoft engineers had evaluated Mr Richardson's software and later decided that it was of no use to them.

Microsoft had won the case in 2006, when US District Judge William Smith ruled that the software maker used a different type of encryption technology from that covered by Uniloc's patent. An appeals court overturned the judge, saying that there was a 'genuine issue of material fact'. -- Bloomberg

Published April 9, 2009

Citic Pacific head quits in wake of forex fiasco

Beijing-backed group ran up forex losses of US$1.9b last year

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(HONG KONG) Citic Pacific chairman Larry Yung, once China's richest man, and managing director Henry Fan have quit, the company said.

Resigned: Both Mr Yung (above) and Mr Fan (next) are founders of Citic Pacific; it has been speculated that there would be a management reshuffle after the company warned of potential losses

The Beijing-backed steel to property conglomerate was rocked by foreign exchange losses of US$1.9 billion last year.

Citic Group's deputy chairman and president Chang Zhenming was appointed chairman and managing director, the Hong Kong-listed group said in a statement yesterday.

Both Mr Yung and Mr Fan are founders of Citic Pacific, which was established in 1990.

It has been widely speculated that the Beijing parent, Citic Group, was keen to reshuffle management after its Hong Kong-listed arm warned investors of huge potential losses from unauthorised foreign exchange trading.

'The management change could help lift investor confidence but people would like to know more about whether the company will take further steps to improve its risk management,' said Jaseper Tsang, research director at Capital Securities.

Hong Kong's securities watchdog, the Securities and Futures Commission, has been investigating Citic Pacific in relation to the foreign exchange contracts.

Shares of Citic Pacific, a constituent of the Hang Seng Index, plunged nearly 75 per cent to a 19-year low of HK$3.66 in October after the profit warning and last traded at HK$9.47 last Friday before the stock was suspended.

The shares are up 13 per cent so far this year, beating a 0.6 per cent rise in the index. The company said that trading in the shares will resume today.

Police raided offices of Citic Pacific last Friday, asking the company and its directors to provide certain information regarding the forex contracts. Citic Pacific said that the search was related to an investigation of alleged false statements by company directors and conspiracy to defraud. No charges or arrests were made, it said.

Last October, group finance director Leslie Chang and financial controller Chi Yui Chau resigned after the losses were discovered. Citic Pacific had said that the transactions were not approved by the company and the chairman was not notified of the unusual hedging transactions.

But the company was criticised for a two-week gap between management discovering the losses and reporting them to investors. Citic Group has sent a team to further investigate the foreign exchange loss and other possible irregularities, local media reported.

The parent agreed in November to buy US$1.5 billion worth of convertible bonds from Citic Pacific and assume responsibility for some of its toxic foreign exchange contracts in a bid to bolster investor confidence.

Last month, Citic Pacific reported a record loss of HK$12.7 billion (S$2.5 billion) for 2008, mainly due to a HK$14.6 billion deficit from foreign exchange contracts. -- Reuters

Published April 9, 2009

Banking on an interest rate play

By offering higher interest rates, foreign banks are drawing in deposits

By SIOW LI SEN

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(SINGAPORE) There was a time when people were almost embarrassed to admit that they were earning only 1.5 per cent on their money.

Not any more. In the present economic climate, savers are chasing after every sliver of interest, making a beeline for foreign banks which offer higher rates, and ignoring the blemished reputations of institutions caught in the financial debacle.

Observers say this is because of the blanket guarantee that the Singapore government has given to deposits until end-2010, a stand that has given comfort to savers.

'Lots of people do that - move money from bank to bank - for people who don't want to invest any more because they're shell-shocked,' said one high net worth former client of Royal Bank of Scotland (RBS).

She had closed all her accounts at troubled RBS last October and moved to a local bank, but said in hindsight that there was no need to have done that especially with the government's deposit guarantee.

RBS, now 68 per cent owned by the UK government and selling its retail and commercial banking business in Singapore, in the meantime continues to garner funds with its promotions.

In February, RBS posted the biggest loss in British corporate history at a staggering £pounds;24.1 billion (S$53.6 billion).

Ajay Mathur, RBS head of retail banking Singapore, said the bank has 'seen a strong inflow of funds to the tune of hundreds of millions in the last one month from depositors and investors since we launched the promotional interest rates on RBS Millenium account'.

'The attractive returns compared very well to other offers in the marketplace. Indeed, we have acquired funds not only from existing clients but also from a significant number of new clients, whose contribution amounted to approximately 20 per cent of the total inflow,' said Mr Mathur.

RBS Millenium's promotional interest rates, which offer interest rates as high as 1.54 per cent for top-up or new funds of $500,000 and above, ends on May 31. The promotion began in February. The attraction here is that RBS Millenium account operates as a regular current account where funds are not locked in to enjoy the high interest rate.

Usually, current accounts pay nothing or next to zero on outstanding balances.

'The man in the street is pretty hard-nosed about that quarter per cent,' said Lim Jit Soon, Nomura Securities' head of Asean equity research.

Not to be outdone, Standard Chartered used its 150th anniversary to offer a short promotion lasting not quite two and a half months of 1.50 per cent on its e$aver Account if clients put in additional funds. And if customers open a current account called XtraSaver Account, they get 2 per cent interest on their e$aver Account. The promotion ends this month.

Dennis Khoo, StanChart Singapore's general manager, retail banking, said the bank's latest promotion, which bundles the e$aver and XtraSaver accounts, gives customers one of the best interest rates in the market and greater transactional convenience.

'This campaign has resulted in double-digit growth in outstanding balances for e$aver accounts to date,' said Mr Khoo.

StanChart's customer deposits grew 60 per cent in 2008 to US$32.16 billion.

CIMB Singapore, in less than three years, has grown its loan portfolio to more than $1 billion, while its deposit base is slightly higher, thanks to aggressive savings rates, BT reported earlier this month. Its 1.8 per cent per annum Sing-dollar promotional fixed-deposit savings plan has attracted substantial deposits - so much so that the rate has been cut to 1.7 per cent.

Published April 9, 2009

Investors warm to cooling condo prices

Sharp 40% drop in luxury Orchard Rd condo prices from peak in H2 2007 is making some investors sit up and take notice

By KALPANA RASHIWALA

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(SINGAPORE) The sharp slide in high-end residential property prices is beginning to show up on the radars of serious investors.

From their peaks in the second half of 2007 to the first quarter this year, transacted prices of luxury condos in the prime Orchard Road belt have fallen by about 40 per cent.

This is the steepest islandwide decline in condo prices and the potential buying opportunities that this is opening up are not lost on investors keen on buying multiple units.

Credo Real Estate's analysis of URA Realis' caveats shows the average price transacted at St Regis Residences has fallen 38 per cent from $3,411 per square foot in H2 2007 to $2,099 psf in Q1 this year.

At Ardmore II, the average transacted price has slipped 43 per cent, from $3,073 psf in H2 2007 to $1,761 psf in Q1 2009.

Over the same period, Cairnhill Crest's average price declined 36 per cent to $1,430 psf in Q1 2009.

'The projects we selected were those that we believed stood as good proxies for their respective locations, and ideally have some history (that is, not launched recently),' said Credo's managing director Karam- jit Singh.

'Transaction volumes were thin in Q1 this year; there were only three luxury projects in the Orchard Road belt with at least two transactions each in the first three months of this year. It's not an ideal situation, where we would want to pick from a larger basket of transactions. But this study still serves to point towards where the market has been heading,' he said.

Credo's analysis also showed that, on average, condo prices in Sentosa Cove in Q1 2009 were about 30 per cent below H2 2007. In the city centre, the average price decline in the same period ranged from 22 per cent (for Icon) to 34 per cent (for The Sail @ Marina Bay).

In what Credo dubs the 'mid-prime segment' - covering River Valley, Bukit Timah, Novena/Thomson and Katong - it said average price declines generally ranged from about 20 to 30 per cent. Suburban condo prices generally fell less than 10 per cent.

'The analysis shows the greater price volatility in the prime districts, which also presents opportunity for greater upside when recovery sets in, compared with suburban condo prices, which tend to move in a more subdued fashion,' said Mr Singh.

The bigger price drops in the Orchard area have led to a narrowing price gap between the high-end and low-end segments. 'At some point, not too far from now, buyers will start upgrading from one tier to the upper tier,' Mr Singh reckons.

'What the price convergence illustrates is the buying potential of prime properties. It will pay - whether at this point in time or not very far off from now - to bet on prime,' he added.

The price declines have surfaced on the radars of potential investors - individuals, families and some property funds - who are studying top-notch prime- district projects, with a medium-term investment horizon. 'Some have capacity to take about 10 units, some 20 units. Some have budgets of more than $100 million,' according to Mr Singh.

CB Richard Ellis executive director Jeremy Lake said high-net-worth individuals here as well as in a three-hour flight radius from Singapore are among the key players actively looking for property investments here. 'Some are keen on investing in offices; some in residential - most would go for the high-end, where prices have corrected the most,' he added.

Mr Singh said acquisitions would be funded largely with equity. 'Right now, they're monitoring the big picture - homing in on a good time to make a swoop, which projects, at which prices,' he added.

Mr Lake adds: 'Some investors are willing to commit sooner rather than later, compared with a few months ago when everybody wanted to wait and found pricing to be unattractive. Now, some investors think pricing is good enough to go.'

Market watchers say the likelihood of deals being struck will also depend on the threshold of sellers, who could include individuals who are stretched from holding multiple condo units as well as developers of projects with low-cost land or who just want to clear unsold units.

DTZ senior director Shaun Poh says some private bankers are trying to arrange consortiums for high-net-worth clients and are sourcing for property investments of about $20-50 million per consortium. 'Their main target would be high-end condos; some may also be interested in commercial properties. The banks will also provide financing for the acquisition.The mandate given to these private bankers is to look for opportunities priced 20-30 per cent below current values,' he said.

However, Mr Singh's advice is: 'It's close enough to the bottom that it makes sense to buy at this stage, rather than buy when it has turned the corner - by which time the number of competing buyers will be greater.'