Published May 7, 2009

ITS, Scomi to form joint venture

	Email this article
	Print article
	Feedback

(KUALA LUMPUR) ITS Group, a supplier of oilfield products and services, has teamed up with Scomi Group Bhd to form a joint-venture company, ITS Scomi Pte Ltd, to accelerate expansion in Asia-Pacific.

In a joint statement here yesterday, they said that the new company, which would be based in Singapore, would provide a wide range of oilfield equipment and associated services to oil and gas companies in the region.

The joint venture would offer operators the full complement of ITS equipment and a comprehensive service including drill pipe, drill collars, stabilisers, drilling jars, casing running equipment, fishing tools and pressure control equipment, available on a sale or rental basis.

'ITS Scomi will also offer fishing and tubular running services and will cover Singapore, Malaysia, Indonesia, Thailand, Vietnam, Myanmar, Brunei, Cambodia, Australia, New Zealand and East Timor,' the statement said. -- Bernama

Published May 7, 2009

Port Klang Free Zone may cost RM12b: report

PwC audit reveals mismanagement, clandestine deals, conflict of interest

By S JAYASANKARAN
IN KUALA LUMPUR

	Email this article
	Print article
	Feedback

THE cost of Malaysia's Port Klang Free Zone (PKFZ) project could balloon to more than RM12 billion (S$5 billion) by 2012 if occupancy does not rise or debt is not re-financed, according to sources familiar with an audit commissioned by the Transport Ministry.

This would make the PKFZ debacle the second-largest financial scandal ever in Malaysia - dwarfed only by the RM18 billion Perwaja Steel fiasco in the 1990s.

The findings of an independent audit by PriceWaterhouseCoopers (PwC) could be released by Transport Minister Ong Tee Kiat as early as today. Mr Ong, who was appointed minister in March last year, has promised to reveal all in the interests of transparency.

The Sun newspaper, citing sources, said yesterday that the PwC report is 'a damning disclosure of mismanagement, clandestine deals, conflicts of interest and total disregard for transparency and accountability'.

It would have to be. Originally budgeted at RM1.845 billion, the project's cost has - by Mr Ong's own estimate - escalated to RM4.6 billion. But The Edge weekly said that interest costs may even have pushed it up to RM8-10 billion now. It is not clear how these costs will affect the viability of the state-owned Port Klang Authority, PKFZ's owner-operator.

The PKFZ episode will be a test of sorts for new prime minister Najib Razak - whether he has the political will to push the PwC report to its logical conclusion. Many of the project's protagonists are either politicians in Malaysia's ruling Barisan Nasional coalition or people linked to them.

According to The Sun, PwC found that no proper feasibility study was done before the project and that major decisions were made without approval being sought from the port authority's board.

The PwC report is also said to say that the port authority's manager and chairman - both appointees of the Malaysian Chinese Association - struck agreements without seeking the advice of relevant government agencies.

The PwC is further said to disclose glaring conflict-of-interest situations. The report is said to have noted that Abdul Rahman Palil, a Selangor state assemblyman, was chairman of a fisherman's cooperative and a board member of the port authority at a time when land that once belonged to the cooperative was sold to PKFZ.

The land was first sold to private company Kuala Dimensi for RM3 per sq ft, then on-sold to PKFZ for RM25 psf. Kuala Dimensi paid a total of RM95 million, while PKFZ paid a huge RM1.1 billion.

The report is said to point out that the port authority's board was not advised that the authority's chairman was at one time also deputy chairman of listed Wijoya Baru Global, a company related to Kuala Dimensi that was appointed as the main sub-contractor to develop PKFZ.

The report is further said to list three other conflict-of-interest situations.

All sorts of ironies still abound. Despite the huge investment, occupancy at PKFZ is under 16 per cent.

Tiong King Sing, chairman of the Parliament's Backbenchers' Club chairman and a lawmaker from Bintulu, is the controlling shareholder of Kuala Dimensi. Azim Zabidi, former treasurer of the politically dominant United Malays National Organisation, is also a director of Kuala Dimensi.

All told, the PwC report paints a troubling picture of seeming disregard for governance or government regulations and procedures. It is not clear, however, whether it will be turned over to the Anti-Corruption Agency for investigation. Mr Ong has only said that he is 'contemplating' such a move.

Published May 7, 2009

Bank Negara sees H2 recovery for Malaysia

	Email this article
	Print article
	Feedback

(KUALA LUMPUR) Malaysia's central bank governor yesterday predicted that the economy will start to recover in the second half of this year and said that cutting interest rates further would not be constructive in shoring up growth.

Ms Zeti: Current interest rates are at an appropriate level

Bank Negara governor Zeti Akhtar Aziz said that exports remained weak, contracting by about 15 per cent in both February and March after a 27 per cent plunge in January. But this was offset by steady domestic demand, robust tourist arrivals and strong loans growth.

Ms Zeti said that second-quarter economic data was 'very much the same as in the first quarter' but expects growth to rebound in the second half with the government's planned stimulus measures totalling RM67 billion (S$28 billion).

'The first half of this year will see a contraction. In the second half, we expect the impact of the fiscal stimulus to take effect, therefore it will support an improvement in the domestic economy,' she told reporters.

Global appetite for Asian exports have plunged, and the government now expects the economy to shrink one per cent this year in a worst-case scenario. Most economists however, expect the country to fall into a deeper recession.

Ms Zeti said that current interest rates, which are already at historic lows, were at an 'appropriate' level to boost growth. 'Continuously lowering interest rates is not constructive as there are limitations to its impact in terms of promoting growth,' she said, reiterating that Bank Negara's focus was to improve access to financing - not lowering cost of financing.

Bank Negara last week kept its overnight policy rate - used by commercial banks to set lending rates - unchanged at 2 per cent after slashing the rate three times since November.

Malaysian government bond yields rose after her comments, which follow the bank's surprise decision last week to hold interest rates unchanged at 2 per cent rather than cut them as most analysts had expected. The yield on the benchmark five-year bond rose six basis points to 3.78 per cent.

Analysts said that the decision signalled a pause in a rate cutting cycle after reductions since last November totalling 150 basis points to support the weakening economy.

'Investors keep on selling bonds and cutting their losses. The market is already speculating that there will be no more rate cuts this year,' a trader said.

The central bank sees the economy this year shrinking as much as one per cent or growing one per cent, although most private sector forecasters say that Asia's third-most trade- dependent economy will decline more than that in the face of the global downturn. -- AP, Reuters

Published May 7, 2009

SGX should show its hand on China Sun

By TEH SHI NING

	Email this article
	Print article
	Feedback

GIVEN the troubling developments at China Sun Bio-chem, it is now time for the Singapore Exchange (SGX) to stand up and be counted.

So far, the Exchange has stuck to its often repeated position to 'not disclose its dealings with individual listed companies unless there is cause for public censure'. This, despite the shocking issues raised by China Sun's independent directors (IDs) on Monday.

But there are strong reasons why SGX needs to be seen to be taking action on this case.

First, what the IDs revealed suggests that the external audit of the company by KPMG may now be meaningless due to the disappearance of crucial accounting records.

This compromises the very process by which the regulator typically deals with accounting irregularities: having the independent directors or audit committee commission an independent audit.

China Sun's stocks have been suspended since March, when it was unable to release its FY2008 financial results because its auditors PricewaterhouseCoopers (PwC) could not verify 929 million yuan (S$201 million) worth of bank and trade receivable balances. Hence the audit committee's appointment of KPMG to conduct an independent review.

Now, it seems that the company's management is doing its best to block the audit.

And if that audit fails, as it looks likely, what will happen next? The market, and the investors stuck in the stock, need SGX as regulator to say something.

Second, the announcement on Monday was made by just three of the board's seven directors - its executive directors (EDs), including China Sun's CEO, had opposed the release, decrying it as inaccurate and inappropriate - and its contents were startling.

The announcement told of attempts to hamper the auditor's independent review of the company's China offices, including how a truck containing accounting records was stolen, and a mysterious blackout during computer forensic procedures, after which a disk drive could not be detected.

Taken together with the 'grave concerns' the IDs expressed over the CEO's refusal to provide details on certain issues, all these suggest a major lapse in corporate governance and processes, going way beyond a mere board conflict.

Just as troubling is the report by the IDs that the EDs allegedly threatened to hold the IDs liable for all losses resulting from Monday's announcement.

Surely, the Exchange cannot stand by and say nothing when IDs are being threatened for trying to do their job - which is what SGX has been pushing them to do in the first place?

It is ironic that should the regulators choose to take action against the board for 'breach of duties', it might be the case that the only action which can be taken will be against the IDs, who are based in Singapore, and not the non-IDs, who are in China.

Of course, SGX could be quietly intervening in the background; it may well have queried the company. But if it has, it should say so. There is already enough disquiet about Chinese companies listed here, including the fact that companies based overseas lie outside the jurisdiction of Singapore regulators and law enforcers.

The China Sun issue isn't going to go away. The IDs called a board meeting yesterday, and will release an announcement today on what transpired.

It's still not too late for SGX to show its hand. Investor confidence has already been rocked by a slew of corporate scandals here. If SGX chooses to stay silent, it will add further to the damage.

Published May 7, 2009

Buy Noble, SingTel; sell SIA, Cosco: CIMB-GK

Rise in Cosco shares due to investors' bigger risk appetite

By NISHA RAMCHANDANI

	Email this article
	Print article
	Feedback

CIMB-GK Research recommends going long on Noble Group and Singapore Telecommunications, and short on stocks such as Singapore Airlines and Cosco Corp which still appear to have a rough ride ahead.

'We expect Noble to be one of the first stocks to rebound from this recession on any hint of economic stability or recovery,' CIMB's Lawrence Lye says in a research note dated May 5, pointing out that Noble's share price has risen over 40 per cent from $1 since March 11 and its CY10 P/E valuation of 7.7x remains attractive.

CIMB believes that the 55 per cent jump in Cosco shares from 70 cents in March was due to the 'improvement in investors' risk appetite', which led to the overall rise in global bourses. 'Cosco's CY10 P/E of 10x appears excessive in relation to its uncertain prospects. We believe there are downside risks for investors,' it said.

With a cloudy outlook and the Cosco management being unable to provide a clear delivery schedule beyond 2009, there could be deferment of projects or cancellations, Mr Lye says.

And while Cosco recently landed a contract to convert a very large crude carrier (VLCC) tanker to a floating production storage and offloading (FPSO) vessel from Mitsui Ocean Development & Engineering Co, Cosco still faces the risk of potential re-negotiations and possible delivery delays from clients given the credit crunch, says Kim Eng analyst Rohan Suppiah.

Kim Eng has called a 'sell' on Cosco with a target price of 81 cents, while CIMB has a target price of 36 cents.

Meanwhile, the recent outbreak of Influenza A (H1N1) means more bad news for SIA, which has already been seeing falling passenger and cargo loads due to the economic slowdown.

In contrast, SingTel is likely to see a rise in the use of teleconferencing and international calls as the pandemic alert discourages both business and leisure travel, Mr Lye reckons.

CIMB has recommended going long on SingTel and short on SIA, with target prices of $3.05 and $7.60 respectively.

Noble gained 12 cents yesterday to close at $1.58, exceeding CIMB's target price of $1.50.

Cosco was up eight cents at $1.20 while SIA surged 64 cents to $12.34. SingTel closed 18 cents higher at $2.75.

Published May 7, 2009

BANK EARNINGS
OCBC beats forecasts with Q1 net profit of $545m

12% profit fall lower than expected but CEO stays cautious

By CONRAD TAN
Email this article
Print article
Feedback

OCBC Bank's net profit fell 12 per cent to $545 million in the first quarter compared to a year earlier, a smaller drop than analysts had expected, as the group received a one-time boost to its net profit of $175 million from insurance subsidiary Great Eastern Holdings.

Rosier: Compared to the preceding fourth quarter, OCBC's Q1 net profit rose 81%.

OCBC also benefited from higher net interest income from its main lending business, trading gains, and a reduction in operating expenses.

Compared to the preceding fourth quarter, OCBC's net profit for the three months to end-March rose 81 per cent.

But chief executive David Conner warned that 'the economic outlook remains difficult and uncertain'.

'I think it's going to be a fairly long and slow climb out of the situation that we're in,' he told reporters at a media briefing.

OCBC's share price closed 4.6 per cent higher at $6.80 yesterday, after surging as much as 7.5 per cent after the results were announced at lunchtime.

Analysts surveyed by Reuters had forecast an average of $293 million in Q1 net profit for OCBC, while those polled by Bloomberg had expected $297 million.

Royal Bank of Scotland analyst Trevor Kalcic said in a note that it was a 'very solid set of numbers'.

OCBC's annualised 'core' earnings per share - or what the group would have earned for the whole year if its earnings continued at the same pace - rose to 68.4 cents, from 30.1 cents in the preceding quarter and 58.7 cents a year earlier.

The bank took a $197 million charge for bad loans and other assets for the quarter, compared to a net writeback of $8 million a year earlier and allowances of $243 million in the fourth quarter of 2008.

The $197 million in allowances included a $94 million write-down on the remaining value of its investments in collateralised debt obligations or CDOs.

The proportion of non-performing loans (NPLs) rose slightly to 1.8 per cent, from 1.6 per cent a year earlier and 1.5 per cent in the fourth quarter.

Total NPLs rose 20 per cent over the first three months of the year to $1.42 billion at March 31. Most of the increase was from OCBC's businesses in Greater China, Indonesia and Malaysia. The new NPLs comprised mainly loans to the manufacturing, building and construction, and general commerce sectors, OCBC said.

Mr Conner said that he expected the proportion of NPLs to rise as the recession drags on. 'Things are likely to get worse before they get better.'

But he added that OCBC's overall loan portfolio was still performing well: 'We don't see any nasty trends that are likely to lead to very substantial provisioning at this stage.'

Its net customer loans - which include deductions of allowances for bad loans - fell 1.2 per cent over the quarter to $78.8 billion at the end of March, though the figure was still 6.5 per cent higher than the $74 billion a year earlier.

'Loan growth is probably going to be soft' for the rest of the year - 'mid single-digits at best', Mr Conner said.

Net interest income rose 16 per cent from a year earlier to $740 million, as the group benefitted from a wider gap between the interest that it earned on loans and the cost of funding those loans. Compared to the previous quarter, net interest income fell 6 per cent, as interest margins narrowed slightly.

Non-interest income, excluding divestment gains, grew 61 per cent from a year earlier to $607 million, including a one-time gain of $201 million from Great Eastern's business in Malaysia.

Malaysia's plan to open up its financial services sector further to foreign players also introduces new opportunities for OCBC and its subsidiaries there, Mr Conner said. Great Eastern plans to apply for a takaful or Islamic insurance licence in Malaysia, while OCBC is keen to add to the 29 bank branches it already has there, he added.

Published May 7, 2009

BANK EARNINGS
UOB Q1 profit of $409m better than expected

Shares soar 13% to $14.88; NPL only marginally up from Q4 last year

By SIOW LI SEN
Email this article
Print article
Feedback

UNITED Overseas Bank (UOB) shares soared 13.1 per cent yesterday to $14.88 after it posted better than expected first-quarter net profits.

Mr Wee: Bank benefited from the industry's 'back to basics' move

The non-performing loan ratio was up just marginally from the preceding quarter.

'There are no major signs of deterioration and the group remains comfortable with its overall portfolio,' UOB said in a press statement.

UOB was the top stock performer in the 30-stock Straits Times Index yesterday after it reported net profit of $409 million for the three months ended March 31, down 22.7 per cent from the year-ago comparative period as loan impairment charges quadrupled to $378 million from Q108's $89 million.

Bloomberg said that six analysts had a mean estimate net profit of $384 million.

UOB shares are now up 84 per cent from its year-low of $8.07 recorded in March.

OCBC Bank, which reported a 12 per cent fall in first-quarter net profit to $545 million, saw its stock rise 4.6 per cent to $6.80. DBS Group Holdings, which releases results tomorrow, gained 8.1 per cent to $11.74.

More significant, against the preceding quarter, UOB's net profit was up 23.3 per cent, mainly due to higher investment income and fee and commission income.

Closely watched non-performing loans (NPL) rose marginally, to 2.1 per cent from 2 per cent at end-2008. UOB had worried investors when its NPL ratio rose the fastest among the three local banks in the preceding quarter when it went to 2 per cent from 1.5 per cent.

The NPL ratio at both DBS and OCBC in Q4 rose to 1.5 per cent, from 1.3 per cent previously. In the fourth quarter of last year, all three local banks reported more bad loans and warned that the situation would get worse.

UOB chief executive Wee Ee Cheong said that the bank 'achieved a decent set of results for the first quarter, benefiting from the industry's move towards 'back to basics'.'

'The bank will stay disciplined and ensure our balance sheet and core franchise remains strong.'

UOB said that Q1 net interest income fell slightly from Q4 to $949 million due to a shorter quarter. It was up 11.4 per cent year-on-year on the back of loan growth and lower funding costs.

Net interest margin fell four basis points from Q4 to 2.41 per cent due to lower average loan spread from some overseas centres. From a year ago, net interest margin was up 21 basis points, largely due to lower funding costs.

'Singapore margins remain strong,' said a bank spokeswoman, adding that the bank still expects to see 'good net interest margin performance for 2009'.

Net customer loans came to $99.7 billion, marginally down from Q4 and up 5.6 per cent from Q1 2008, largely from higher housing loans and loans to professionals and individuals.

Non-interest income was up 11.1 per cent at $434 million from the preceding quarter.

UOB said that Q1 total expenses fell 7.7 per cent to $491 million from Q4 due to lower headcount and a grant from the Jobs Credit Scheme.

'The core trends were very good in the first quarter,' JPMorgan & Chase Co analyst Harsh Wardhan Modi said in a Bloomberg report.

'The fact that credit quality didn't deteriorate significantly during the quarter bodes well for 2009 credit cost and restores a degree of confidence in underwriting standards at the bank.'

Published May 7, 2009

Deals start cooking in slow office market

Three buildings in CBD may change hands as buyers shop again

By KALPANA RASHIWALA

	Email this article
	Print article
	Feedback

(SINGAPORE) After a nine-month lull, investment sales activity for office buildings could pick up soon.

Attracting buyers: VTB Building at Robinson Road, a 16-storey freehold office block that is more than 30 years old, is said to have drawn offers of around $60 million, which works out to around $900 per square foot

BT understands a deal is on the cards for Parakou Building at the corner of Robinson Road and McCallum Street. Due diligence by a potential buyer is also said to be going on for the 13-storey Anson House, while VTB Building (formerly known as Moscow Narodny Bank Building) at Robinson Road has also been generating interest.

The 16-storey freehold Parakou Building, which is about three years old, is expected to change hands at about $82 million or $1,300 per square foot (psf) of existing net lettable area, while a price of about $85 million or $1,100 psf-plus is being bandied about for Anson House. Prices of both properties are about 35 per cent lower than what the owners paid for them in 2007 during the property upcycle.

VTB Building, a 16-storey freehold office block that is more than 30 years old, is said to have drawn offers of around $60 million, which works out to around $900 psf.

'There's a sweet spot for office blocks priced at $1,100 to $1,300 psf or with a lump sum investment of between $70 million and $100 million,' says Knight Frank executive director (investment sales) Foo Suan Peng.

While prices for Parakou Building and Anson House are about 35 per cent below what their owners paid, bigger price discounts are expected for larger office towers costing several hundred million dollars or more because there is less equity around and because of tight bank financing, say property consultants.

Potential buyers keen on Singapore office blocks are said to be assuming at most 50 per cent bank financing for proposed acquisitions these days. Such investors are not institutional players like big-name property funds that dominated office investment sales deals a few years ago, but rather the likes of family concerns with 'old money', investors involved in businesses that are doing well such as renewable energy, as well as a few private equity funds, according to Mr Foo.

And these parties are largely from Singapore and the region (mainly Hong Kong and Indonesia), he added. 'Some of them may have wanted an office building as their flagship business premises or as investment but were priced out in the past two years. These are long-term investors, not short-term traders or speculators,' Mr Foo says.

Credo Real Estate managing director Karamjit Singh says 'there won't be too many office transactions likely to take place in the next six months because sellers that are in a position to hold, will hold'.

'Many owners are sitting on high costs; current values of their buildings will be below cost. If banks aren't chasing them and they are not in a distressed position, these owners are unwilling to take a haircut and are likely to wait it out rather than divest now,' Mr Singh added.

However, the hit on the foreign owners of these buildings from selling properties today below their purchase price may be mitigated by foreign currency movements. For instance, for Parakou Building's owner, UK fund manager New Star Asset Management Group (which was recently acquired by Henderson Group), its expected 35 per cent loss (in Singapore dollar terms) should be significantly offset by a 27 per cent appreciation in the Singapore dollar relative to the pound over its holding period for this investment, a property market watcher observed.

Similarly, the fund managed by Australia's Macquarie Bank that bought Anson House in 2007 for $129.5 million should find its loss from selling the asset for about $85 million being cushioned by the depreciation of the Australian dollar against the Singapore dollar.

Anson House is on a site with a remaining lease of about 87 years.

Published May 7, 2009

Markets surge on liquidity tide

Straits Times Index hits 6-month high; OCBC, UOB results power bank stocks

By VEN SREENIVASAN

	Email this article
	Print article
	Feedback

(SINGAPORE) Sell in May and go away? That was the old refrain. But with the market confounding sceptics and powering its way to new 6-month highs, perhaps the new mantra should be 'stay in May to enjoy the play'.

A slew of encouraging data, soothing words from the world's most powerful central banker, increasing confidence in the survival prospects of US banks and a huge inflow of liquidity sent Asian markets surging for the third consecutive day to new half-year highs yesterday.

Singapore's Straits Times Index leapt another 104.7 points or some 5 per cent to a new six-month high at 2,179.03 points - its highest point since Oct 6 last year.

This brings total gains in the first three days of this week alone to a whopping 259 points or some 13.4 per cent.

While the rally was largely led by a wave of liquidity finding its way to banks and blue chips, the fact that 3.8 billion shares changed hands suggested plenty of breadth in the buying.

It was a similar story in Hong Kong - the key market which inspires the local bourse - where a wave of liquidity sent the Hang Seng surging some 2.5 per cent or 405 points to a six- month high of 16,834.

'This is just insane,' exclaimed a broker. 'This is money chasing stocks.'

This came despite an overnight slide on Wall Street and weakish futures indices yesterday.

Analysts attributed the rally to a huge inflow of funds, who had previously sat on the sidelines.

'There is a lot of catching up going on, especially in the Singapore market,' said Lim Jit Soon, strategist at Nomura.

Indeed, foreigners have poured some US$6 billion into six major Asian markets since early March, according to BNP Paribas, helping to boost China, Taiwan and South Korean stocks by more than a third and making them the world's best performers.

Free liquidity - broadly defined as money supply growth minus industrial production growth - has risen sharply, noted Mr Lim.

Indeed, excess free liquidity has been a key driver of the Singapore stock market in the past.

But this time, there is also a calculation that valuations - after a six-month decline - are looking extremely attractive.

RBS Asia Securities noted that the Singapore market was trading at a 25.7 per cent discount to its long-term price-book multiple of 1.9 times, and 17.6 per cent below its long- term price-earnings multiple of 15.5 times. Meanwhile, the market's yield is 310 bp above that of long- term government bonds.

On a broader level, the appetite for equities seems to have been also whetted by a growing consensus that the worst of the global economic crisis could be over.

As Barton Biggs of Traxis Partners pointed out, there is an emerging consensus that the US, German and Asian economies are not just on the verge of bottoming out, but rebounding.

'Leading indicators, including new orders and the purchasing managers survey, are rising. New home sales - the best leading indicator of the price of existing homes - seems to be stabilising. Historically, the steeper the GDP decline, the stronger the rebound,' Mr Biggs said.

He added that most of the bad news 'on television and the front pages' has been discounted. Meanwhile, there is unparalleled cash on the sidelines which will eventually have to be invested, he added.

Mr Biggs' views seem to dovetail with those of Federal Reserve chairman Ben Bernanke, who told the Joint Economic Committee of the US Congress on Tuesday that the American economy would bottom out and start to rebound later this year, but the recovery process would be slow and choppy. Even today's scheduled US banks' stress test results are not stressing the market, despite reports that at least half of the 19 big banks under review by the US Treasury may need to boost their capital.

Analysts note that Asian equities in general, and Singapore equities in particular, are also underpinned by favourable policy, strong liquidity conditions and improving fundamentals.

Still, yesterday's rally here was driven largely by the banks, whose stocks went ballistic after OCBC Bank and UOB reported better-than-expected quarterly results.

So how long can this rally last? That's the billion- dollar question.

RBS argued that there are three catalysts that will drive the Singapore market higher.

'First, RBS economists expect GDP growth to recover to 6.3 per cent in Q409, with signs of stabilisation already evident. Second, we see no further cuts in consensus numbers (which have declined 30 per cent over the past year versus a 40 per cent drop in the STI). Third, liquidity will likely be very supportive.'

In short, the party may not be quite over yet.

Published May 6, 2009

Sime Darby turns to palm, rubber estates in Liberia

	Email this article
	Print article
	Feedback

(KUALA LUMPUR) Malaysia's biggest company Sime Darby has struck a deal with the Liberian government to develop oil palm and rubber estates in the West African nation as land runs out at home and global demand for palm oil surges.

Big expansion: Sime will develop 220,000 hectares of land in Liberia, compared to 100,000 ha now available for plantations in Malaysia due to curbs on land use

Sime, a conglomerate that owns businesses from plantations to property, said on Monday that it would invest an initial US$20 million for 10,000 hectares of oil palm estates but an industry source said the investment for the 63-year concession would eventually be US$800 million.

'It is increasingly difficult to acquire arable plantation land in Asia and thus it is imperative that new frontiers be sought to meet increasing demand,' said Sime CEO Ahmad Zubir Murshid in a statement. 'Sime Darby will also have the first-mover advantage over future entrants into Liberia in terms of securing choice land.' Sime Darby's Liberian venture is the latest in a series of deals struck by foreign firms and nations with African nations to secure food supplies. The firm will develop 220,000 hectares of land, compared to 100,000 ha now available for plantations in Malaysia due to land use restrictions here.

Sime's rival, Singaporean oil palm giant Wilmar International, struck a deal in Africa last year, while Italian firm Fri-el Green is signing a pact with Congo to develop 40,000 ha of oil palm for biofuels.

Shares of Sime Darby, Malaysia's largest listed firm by market capitalisation, closed up 1.5 per cent on Monday, compared with a 1.9 per cent gain in the broader index.

Analysts say Sime's investment, expected to speed up agricultural growth in Liberia after years of a civil war that ended in 2003, may be risky.

Oil palm grows naturally in Africa and was imported during British rule to Malaysia, now the world's second largest producer after neighbouring Indonesia.

'We normally view expansion in palm oil positively, but palm oil expansion in Liberia is untested,' Alain Lai, an analyst with UBS, said in a research note. 'Sime Darby's management could have already done its studies, but we believe the quality of labour, infrastructure and stability of government policies would generally be the key issues.'

Interest in expanding palm estates, rehabilitating rubber plantations and securing grain supplies has been driving some of the acquisitions in Africa, where just 14 per cent of the 184 million ha of arable land is cultivated, according to Food and Agriculture Organisation (FAO) data.

Such ventures can be potentially risky in Africa, where land ownership is an emotive issue.

South Korean firm Daewoo Logistics' plans in Madagascar to lease a million hectares to grow corn and oil palms played a big part in the removal of ex-president Marc Ravalomanana in March and led his successor to cancel the deal. -- Reuters

Published May 6, 2009

Malaysian oil and gas stocks are on a roll

Sector now trades at 9 times forward earnings against 6 just two months ago

By S JAYASANKARAN
IN KUALA LUMPUR

	Email this article
	Print article
	Feedback

RISING oil prices, an improved global sentiment and slowly increasing orders have cumulatively caused Malaysian oil and gas stocks to rise across the board. Standout statistic: the whole sector currently trades at nine times forward earnings compared to six times two months ago.

The counter that seems to be generating the most excitement is service and equipment provider KNM Group, which has seen trading volumes of between 100 million and 200 million shares daily. Its share prices have almost doubled from its lows and it currently trades at around RM0.69 apiece. The price reflects the fact that there are almost four billion shares outstanding.

The excitement gripping the oil and gas sector in Malaysia underscores the wider euphoria in global equity markets as the signs of a recovery manifest themselves in places from China to the United States. 'No one's sure if it's a bear rally or a genuine bull,' a fund manager told BT. 'But nobody wants to miss out so they are all jumping back in.'

The benchmark index of the Kuala Lumpur stock market has jumped 25 per cent in the last two months.

Even so, it appears to be sound. For 2008, the firm posted a net profit of RM337 million (S$141 million).

According to Jon Oh, an analyst with CLSA Asia-Pacific, KNM has a RM3.85 billion order book that will last it 17 months and has bid for RM18 billion of contracts worldwide.

Mr Oh thinks that, going by track record, the firm has 'a good chance' of securing RM3.2 billion of new orders. Mr Oh has called a 'buy' on the stock because he thinks it's relatively cheap - it's trading at 5-7 times forward earnings compared to its three-year mean of 13 times.

But some oil executives wonder if it's all hype.

'Fundamentally, nothing has changed,' a chief executive of a listed oil and gas company told BT. 'The big boys are either cutting orders or squeezing our margins to cut their costs.'

To be sure, contract terminations have become the norm over the last year. In early May, Keppel Corporation announced that it had received a termination notice from GSP Titan on a S$181 million contract to build a ship. Early this year, Scorpion Offshore cancelled a S$405 million contract with Keppel to build a semi-submersible rig.

Even so, oil analysts are undiminished in their enthusiasm. 'There are signs that orders are beginning to trickle in,' AMMB Banking noted in a research report. 'Globally, stock market sentiments have risen against a backdrop of decreasing risk aversion.'

Mr Oh concurs. 'This is a long-term business and we think oil prices will only go up going forward,' he says. 'We see oil at US$55 this year and at US$76 next year. That can only be good for the players.'

Published May 6, 2009

CAOS all set to capitalise on new opportunities

By RONNIE LIM

	Email this article
	Print article
	Feedback

CHINA Aviation Oil Singapore (CAOS) has managed to carve out opportunities from challenges.

The company - whose jet fuel supply business to China's airports in Shanghai, Beijing and Guangzhou is encountering slowing demand growth - had cautioned that its exports there this year would be further hit by new Chinese refining capacity as well as domestic Chinese fuel policies.

In other words, more domestically- produced jet fuel will become available from new refineries and thus dampen CAOS sales there.

To counter this, jet fuel trader CAOS's strategy is clearly now a case of 'if you can't sell coal to Newcastle, then it's time to start buying from there instead'.

In that light, CAOS's deal struck last month with the upcoming Huizhou refinery owned by China National Offshore Oil Corporation (CNOOC) - one of China's largest state-owned oil companies and its biggest offshore oil and gas producer - is a 'win-win'. Under the deal - valid till end-2012 - CAOS will purchase a 'substantial portion' of the 'export quota' of the jet fuel produced by the new 240,000 barrels per day refinery in Guangdong which starts operations this month, to sell to markets outside China.

This comes under a move by Beijing to set refined fuel export quotas from this year under crude processing deals, a form of trade that allows Chinese refiners to import crude and export fuels, both free from a 17 per cent value-added tax.

Additionally, under the same CNOOC deal, CAOS's parent (China National Aviation Fuel Holding) will also purchase a portion of jet fuel produced by the Hui- zhou refinery for domestic airlines, Chinese reports said.

What seems surprising is that CNOOC is not marketing the 'export quota' jet fuel in overseas markets itself, although observers note that this is because it is more an upstream exploration and production player. In that context, its overseas marketing collaboration with CAOS for Huizhou - its first major downstream project - has given the Chinese oil giant a useful overseas conduit for its products, tapping on CAOS's established trading links.

Huizhou is expected to start producing jet fuel this month to the tune of about 2.11 million tonnes per annum (tpa) - which is quite substantial, as this represents about 40 per cent of the 5.2 million tpa which CAOS exported to Chinese airports last year.

For CAOS, the CNOOC deal also opens the door to 'more collaboration opportunities' to not only grow its own jet fuel supply business, but also to sell other oil and petrochemical products internationally.

This potentially includes other products from the Huizhou refinery, like liquefied petroleum gas, gasoline, diesel and fuel oil. Furthermore, CAOS apparently also hopes to clinch similar marketing deals with CNOOC's petrochemical ventures.

This is in line with CAOS's aim to start trading of other oil products this year - albeit with proper risk management procedures in place this time (with management clearly mindful of its derivatives trading scandal in 2004).

To help it kick-start the process, CAOS with the help of an experienced team inherited from its substantial (20 per cent) shareholder British Petroleum, had already embarked on some petrochemicals trading late last year.

And beyond its latest deal with CNOOC's Huizhou refinery, CAOS - given its parent's connections - could also well seek more such opportunities with other groups or refineries in China. In other words, despite hitting some headwind, this jet fuel supplier is set to take off in new directions.