Published June 18, 2009

New KL index to lift bank, betting, power stocks

These sectors will see biggest jump in industry weightings

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(KUALA LUMPUR) Malaysia's finance stocks, along with betting and power companies, will benefit most when the Kuala Lumpur Composite Index is replaced by a new benchmark gauge next month, CIMB Investment Bank Bhd said in a report.

The three sectors will be the biggest winners in terms of the jump in industry weightings in the FTSE Bursa Malaysia KLCI, which will be known as the FBM KLCI, the report said yesterday.

'As investors have less than three weeks to adjust their portfolios before the FBM KLCI takes effect, the impact on the market should be significant,' Terence Wong, an analyst at CIMB, said in the report. 'The concentration on quality could push up' the new gauge, 'especially if foreign funds return to Malaysia in a big way,' he said.

Bursa Malaysia Bhd, the country's stock exchange manager, will cut the number of companies in its Kuala Lumpur Composite Index to 30 from 102 on July 6, in the measure's biggest overhaul aimed at removing the smallest and most tightly held companies to attract investors.

The Composite Index has climbed 22 per cent this year, the worst performer among South-east Asian benchmark indexes even after Prime Minister Najib Razak, who took office on April 3, announced stimulus plans valued at RM67 billion (S$27.6 billion).

While studies by the stock exchange indicate the direct impact on indexed funds will be minimal, the 'psychological impact could be substantial,' Mr Wong said. 'In our ongoing global road-show, investors show interest in the new index and want to know which companies stand to gain.'

The FTSE Bursa Malaysia KLCI will comprise the largest companies by market value with at least a 15 per cent free float, which is based on the number of shares publicly available for trading.

In 'rejigging' the index, the weightings in finance will increase to 34 per cent from 25 per cent while gaming will rise to 10 per cent from 6 per cent and power 11 per cent from 8 per cent, Mr Wong said. Bank and plantation stocks will have a combined weighting of 55 per cent in the revamped index.

The three biggest stocks on the new gauge will be Bumiputra-Commerce Holdings Bhd and Malayan Banking Bhd, the country's two biggest banks, and Sime Darby Bhd, the No 1 palm oil producer, the report said.

Casino operator Resorts World Bhd, energy company YTL Power International Bhd and Parkson Holdings Bhd - three stocks that are not in the Composite Index - will gain from the inclusion in the FBM KLCI, he said.

Investor 'favourites' such as IJM Corp, Gamuda Bhd and SP Setia Bhd will not be included in the new index, according to the report. Stocks in seven industries - building materials, construction, hotels, insurance, property and technology - will 'disappear from the radar screen altogether,' he added. -- Bloomberg

Published June 18, 2009

Scepticism over KL's bid to cut budget deficit

Economist says the deficit will remain sticky upwards for a couple of years

By S JAYASANKARAN
IN KUALA LUMPUR

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A GOVERNMENT plan to narrow the budget deficit by 2010 through a reduction in operating expenditure has met with some scepticism from at least one economist.

On Tuesday, Second Finance Minister Ahmad Husni Hanadziah told Bloomberg that Kuala Lumpur would narrow a yawning budget gap by cutting expenses to counter falling revenues. Mr Husni said that the government could do that by looking to cut operating costs while keeping development spending untouched.

Mr Husni's pledge underscores the perilous financial position of the federal government. This year's budget deficit is expected to top 7.6 per cent of gross domestic product (GDP), the largest such figure in 22 years.

The hole in Malaysia's books comes at a cost. On June 9, international rating agency Fitch lowered the country's long-term local currency rating to A from A+, the first time it had reviewed Malaysian debt since 1998. The agency said the budget deficit was the main reason behind the downgrade.

The steep spike in the deficit is largely due to the increased spending embarked upon by Kuala Lumpur to mitigate the effects of the global financial crisis. Malaysia has so far announced RM57 billion (S$23.5 billion) in additional spending, but even that will not prevent the economy from contracting.

Prime Minister Najib Razak, who is also Finance Minister, said recently that the economy would shrink by between 4 and 5 per cent in 2009. The economy contracted by a larger-than-expected 6.2 per cent in the first quarter of the year, underscoring the seeming optimism of Mr Najib's prediction.

It could also be why Manokaran Mottain, an economist with the Arab-Malaysian Banking Group, thinks Mr Husni's idea might be easier said than done.

'In our opinion, this could be rather challenging with the economy in crisis,' Mr Manokaran wrote in a research report yesterday.

He said that operating expenses for the federal government would amount to RM154.2 billion in 2009 while development spending would, after the stimulus package, rise to RM51.7 billion. Meanwhile, revenue would remain at a 'steady' RM168.7 billion.

Mr Manokaran noted that oil revenue alone would account for almost 17 per cent of the government's total funds.

'In our view, the deficit would remain sticky upwards for a couple of years, before easing after 2010,' the economist noted. 'Besides, revenues would remain weak with no significant improvement in collection.'

Even so, the economist was considerably more optimistic than Mr Najib. He estimates that GDP growth for the whole year would come in at minus 2 per cent because of positive growth in the final quarter of 2009.

Published June 18, 2009

Midas shares surge 8.4% on 603m yuan order

Latest deals double order book to $248m as firm taps China's rail sector

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MIDAS Holdings' shares soared yesterday on news that it has won its single largest project order of 603 million yuan (S$128 million) since its listing and on hopes that more contracts could be coming its way.

The counter, in which trading was halted from mid-afternoon on Tuesday pending the contract announcement, surged as much as 10.7 per cent before closing the day 8.4 per cent higher at 71 cents.

The latest order for a high-speed train project - consisting of two supply contracts for two repeat customers - has more than doubled Midas' current order book from $120 million to $248 million.

The group expects the two contracts to have a positive impact on its 2009-2011 financial years.

Investors are also buying the stock on the likelihood of Midas winning more contracts, given China's pledge to build 7,000 km of dedicated high-speed rail lines over 10 years, a local analyst said.

Midas is increasingly shifting its business focus to aluminium alloy business to tap the booming Chinese rail infrastructure industry.

It is building a third production line for aluminium alloys, which will be ready by 2010.

This will increase its annual production capacity from 20,000 to 30,000 tonnes.

Midas chief executive Patrick Chew told BT yesterday that it will consider a fourth production line should the volume of incoming orders warrants the additional capacity.

'However, there are no concrete plans for a fourth production line at the moment,' he said.

But to facilitate further expansion in the longer term, the group is completing the final phase of its acquisition of a 240,000 sq m plot of land and related fixed assets located at the Liaoyuan City Economic Development Zone near its existing production facilities in Jilin Province.

Its 32.5 per cent associate company, Nanjing SR Puzhen Rail Transport Co Ltd (NPRT), currently has total backlog orders of 768 train cars for four metro train projects in China, which are expected to be delivered from the second half of fiscal 2009.

'Many cities in the PRC, such as Beijing, Shanghai, Hangzhou, Suzhou, Wuhan, Guangzhou, Shenzhen, Xi-an are expected to roll out new metro train projects,' Mr Chew added.

'NPRT is currently in the midst of expanding its capacity to meet market demand. We are therefore positive on the future outlook for NPRT.'

Published June 18, 2009

Yanlord aiming to raise at least $491m: report

Proceeds to come from a sale of primary shares and 5-year convertible bonds

By LYNETTE KHOO

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YANLORD Land Group is looking to raise at least $491 million through the sale of primary shares and convertible bonds, according to sources quoted by Reuters.

JP Morgan and RBS are said to be handling the deal, which could be upsized if demand is strong.

The Singapore-listed China-based property group halted trading of its shares yesterday afternoon pending an announcement.

Yanlord is said to be offering 100 million primary shares at between $2.08 and $2.16 a share. It will also offer five-year convertible bonds worth $275 million with a coupon range of 4.85 to 5.85 per cent, the source was quoted as saying. There will be a put option at the end of the third year.

JP Morgan and RBS are said to be handling the deal, which could be upsized if demand is strong.

Yanlord is part of the Singapore consortium, which includes Sembcorp Industrial Parks and Surbana Land, that is developing the Sino-Singapore Nanjing Eco High-Tech Island in Nanjing, China. The development will be completed in three phases and will include about six million square metres of gross floor area in prime commercial, industrial and residential complexes in Jiangxinzhou, 6.5 km from Nanjing's city centre. It is Nanjing's largest foreign collaborative development.

Yanlord has a 40 per cent shareholding in the consortium, Singapore Intelligent Eco Island Development Pte Ltd.

The company had bucked the earnings trend in the first quarter ended March 31, with net profit soaring to $24.27 million from $9.31 million a year ago - thanks to higher selling prices for the company's high-end projects.

Gross profit margin rose to 64.1 per cent from 37.5 per cent a year ago. The company said that it maintained a strong financial position as cash and bank balances rose 54.2 per cent to $579.6 million.

The Yanlord counter rose to a 52-week high of $2.37 on June 2. Its last traded price before the trading halt yesterday was $2.31, which represents a 158 per cent jump for the year to date.

Published June 18, 2009

OCBC's issued share capital up 2.1%

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OVERSEA-CHINESE Banking Corporation's (OCBC) issued capital has increased by 2.1 per cent to 3.19 billion shares following the allotment of 67.3 million new units under its scrip dividend scheme.

The scheme grants shareholders the option of receiving the final dividend of 14 cents a share for financial year 2008 in the form of shares instead of cash.

The new shares were issued at $4.83 - a 10 per cent discount to the average last dealt trading prices between April 24 and April 28.

The banking group declined to reveal how much cash it has conserved as a result of the scheme, but a spokesman said: 'We received a very strong response.'

OCBC has received in-principle approval from Singapore Exchange for the listing and quotation of the new shares with effect from today.

A concessionary brokerage fee of $15 (excluding GST) per contract for a period of one month from today is available for shareholders with OCBC odd lots - less than 1,000 shares - who trade them through OCBC Securities.

Shareholders who have elected to receive their dividend in cash were paid yesterday.

Published June 18, 2009

Jaya Holdings in talks over credit facilities

CEO says some lenders not keen to roll over or extend existing lines

By LEE U-WEN

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JUST hours after it requested a share-trading halt yesterday, offshore and shipbuilding group Jaya Holdings said that it was in talks with lenders that want to review credit facilities.

Jaya, which is listed on the Singapore Exchange (SGX), said that the move was 'due to the current global economic climate'.

Chief executive Chan Mun Lye said in a statement that Jaya's board has appointed nTan Corporate Advisory to help 'review and develop the group's strategic options with the objective of enhancing value for all stakeholders'.

nTan will also advise and assist the group on ways to rationalise and optimise its operations, financial arrangements and capital structure.

Additionally, Jaya has appointed law firm Baker & McKenzie.Wong & Leow to act for the group.

Jaya, with its advisers, will meet lenders to seek their support for a standstill on repayments, pending consensual restructuring of the group's operations and financial arrangements, Mr Chan said.

Jaya said at 12:35 pm yesterday that it had sought a halt in trading of its shares from 2pm. It gave no reason. At 5.44 pm, eight minutes after its statement was broadcast on the SGX website, the company requested the trading halt be lifted at 9am today.

Mr Chan said: 'The company wishes to assure all of its stakeholders, in particular trading partners, suppliers, customers, shareholders and employers, that the group is and will continue to undertake its day-to-day operations and activities as normal. There has been no break or cessation in the business activities of the group.

'The tight credit market conditions mean the group needs to ensure appropriate continued financing for its build programme. The conditions and the negative outlook in the shipping sector have caused some lenders to express reluctance to roll over and/or extend existing credit facilities granted to the group.'

Jaya posted a fall in net profit for its third quarter ended March 31, 2009 to $22.2 million, from $39.1 million a year ago, due to lower proceeds from vessel disposals and foreign exchange hedging losses.

Revenue dipped 9 per cent to $70.1 million, due to lower shipbuilding receipts, which were partly offset by higher chartering income.

Mr Chan said that the group has proved that its business model is a viable one - the dual approach to shipbuilding and chartering focused on the offshore oil and gas sector has resulted in a 'strong track record of profitability'.

Jaya's shares last traded at 57.5 cents yesterday. The counter hit a month-high of 67 cents on June 5, up from a low of 19 cents on March 12.

'The board would advise shareholders and the investing public to exercise extreme caution in the dealing of the shares of the company,' Mr Chan said yesterday.

Published June 18, 2009

Is there abuse of share suspension?

By LYNETTE KHOO

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TRADING suspensions normally stem from good intentions: to protect shareholders pending the outcome of some developments affecting a company. But there have to be safeguards to ensure against abuses.

As some of the suspensions are indefinite, leaving shareholders on tenterhooks, the motive for the suspension request has to be seriously looked into. It does not help when trading suspensions are not accompanied by constant updates from the company.

One instance is when a company calls for a trading suspension amid a volatile share market on the premise that it is protecting shareholders from further plunges in the stock price that may arise from margin calls on some major shareholders or from the forced sale of their pledged shares. The question to ask here is who the company is protecting: shareholders in general or the troubled major shareholders? The point to make is that an indefinite suspension deprives shareholders of the choice of making decisions on their shares.

Though a company has to submit a proposal to the exchange with a view to resuming trading of its shares within 12 months of the date of suspension, it can be argued that this is not a drop-dead deadline. There are currently some 21 stocks on the SGX whose trading has been suspended for various reasons ranging from judicial management, the need to reassess financial situations to going-concern issues.

These reasons are among the circumstances cited under the SGX listing manual for a trading suspension to be granted, but they are not exhaustive.

While some reasons are legitimate, some market watchers say the risk exists that some companies could hide conveniently behind trading suspensions to gain maximum flexibility in doing M&As or other transactions on the sidelines without timely disclosures. Some have been using trading suspensions to prevent forced-sale of pledged shares and margin calls.

Arguably, trading suspension provides the breathing space for the company to negotiate with its creditors and bondholders. In cases where forced-selling results in an effective change of controlling shareholder, which in turn jeopardises continuity of business or could trigger a breach of bank covenants or default of convertible bonds, it could pose a risk to the going-concern status.

But such trading suspensions have stoked angst among shareholders, who feel they have missed the opportunity to dispose of their shares in the recent market rally.

There is also the perception that some companies are timing the trading suspension and resumption to suit themselves but at the expense of shareholders.

There's no easy way out of this dilemma. There may be as many shareholders who want a trading resumption to exercise their free will as those who would rather be spared of the spiralling downward effect of forced-selling.

While some shareholders of Guangzhao Industrial Forest Biotechnology Group lament about the trading suspension since last September to avoid the margin calls on pledged shares, they are also spared the agony of seeing their shares plunge when adverse developments surfaced. The counter-argument is again that they also missed the chance of making an exit in the recent rally

SGX does not give blanket approval to requests for trading suspension and extensions. As one market watcher puts it, the exchange takes on a non-systematic response as it is a judgment call.

But where trading suspension goes on for a prolonged period without any progress, there should be a drop-dead deadline. In the case of Maveric, it has been nearly three years since its trading suspension. Yet, the management doesn't seem to be close to injecting a new business into the shell company while the company continues to burn cash.

Another company Cityneon has been suspended since November last year after its public float fell below 10 per cent upon the close of a voluntary takeover by Laviani Pte Ltd as it hasn't managed to restore the public float to meet the requirement.

Market conditions and poor investor sentiment have been cited as reasons for the delay in raising the public float. But minority shareholders watching the recent market rally pass by them may again question the extended deadline for the company.

There needs to be sufficient grounds to justify trading suspensions and why the status should remain. This is especially important when shareholders remain clueless about the state of affairs of the companies.

A definitive timeline towards trading resumption being made public and regular updates on that progress may be in the right order.

Published June 18, 2009

Top-end bungalows going, going, gone

7 good class bungalows sold in April and May, more deals in the works

By UMA SHANKARI

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(SINGAPORE) The most prestigious segment of Singapore's residential property sector has picked up over the past two months.

Hot sale: Movie star Jet Li bought this Binjai Rise bungalow last month for $19.8m

Seven good class bungalows (GCBs) were sold in April and May - up from just two transactions in Q1 2009 - according to Savills Singapore's analysis of caveats captured by URA Realis.

The numbers are for bungalows with the minimum plot size of 1,400 square metres (about 15,069 square feet) stipulated for GCBs in the 39 GCB areas (GCBAs) here gazetted by the Urban Redevelopment Authority (URA). However, if bungalows with land areas below 1,400 sq m are also included, the April-May period saw 10 caveats - again significantly higher than the three caveats lodged in Q1.

'The higher GCB sales in April and May reflect the general improvement in investment sentiment on the back of the stockmarket rally. Some GCB buyers could also be savvy investors who made money in the stock market. Going ahead, they may feel that there's more upside than downside for GCB prices,' says Savills' director for prestige homes Steven Ming.

The biggest GCB transaction in May (and also so far this year) was the $30 million sale of 2A Ridley Park, which has 27,233 sq ft land area. The price works out to $1,101 per square foot (psf) of land area - also the highest on a unit land price basis in 2009.

At least one other transaction has been done at above $1,000 psf recently, although it has yet to be reflected in caveats: 1 Cluny Hill, which was sold for $16.2 million or $1,081 psf based on its 14,985 sq ft plot size. Forbes Property Realty Network brokered the deal.

Douglas Wong, director, luxury homes at CB Richard Ellis, notes that GCB investors in Singapore often own two or more such properties - one for their own residence and the rest for investment. 'With the recent increase in activity, they may consider it opportune to liquidate some of their GCB holdings and get some cash back to plough into other investments or their business,' he said.

Compared with just three GCB transactions in Q1, Mr Wong expects some 14-17 deals in Q2. 'Assuming the stock market is able to hold up till the end of 2009, we estimate that some 38-45 GCBs could be sold for the whole of 2009, amounting to a total quantum of some $700-800 million,' he added. This would not be far off from the $827 million from the sale of 51 GCBs last year.

Other notable GCB transactions in May include a property at Jervois Road that sold for $13 million ($862 psf), and another bungalow at Binjai Rise that was sold for $19.8 million ($871 psf) to international action star Jet Li.

The highest ever psf price attained for a bungalow in a GCB area is $1,899 psf for 32H Nassim Road in October 2007. But the area of that plot is 13,423 sq ft, less than the minimum GCB plot size. That's why the GCB benchmark is generally considered $1,308 psf - the price obtained for 15 White House Park, with 22,012 sq ft land area, in August 2007.

Activity in the landed housing market first started picking up this time around in the 'low-end' segment - meaning terraced and semi-detached houses - about three months ago, said Michael French, MD of Asia Premier Property Consultants.

'We have not seen such buying levels in the market for a long time,' he said.

The activity then filtered up to smaller bungalows of about 4,000-8,000 sq ft. Then, about four weeks ago, demand for GCBs took off, with several large deals being concluded in May.

More big GCB deals are on the cards. BreadTalk founder and chairman George Quek is looking to sell his 2 Swettenham Road GCB and the price tag could be as high as $33 million, or $991 psf. Mr Quek bought the property, with 33,293 sq ft land area, with his wife last year for $27 million or $811 psf. He has appointed Newsman Realty to handle the sale, and the firm's managing director, KH Tan, hopes to get $33 million for the 1960s bungalow.

The property will be sold through a closed tender on June 30. Mr Tan has pre-selected 30 prospective buyers whom he intends to invite to view the property and to participate in the bidding exercise. Part of the proceeds from the sale will be donated to charity.

Published June 18, 2009

'Buy China' requirements levied on stimulus projects

Move may strain ties with trading partners after 'Buy American' criticisms

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(BEIJING) China has imposed a requirement for its stimulus projects to use domestically made goods - a move that could strain ties with trading partners after Beijing criticised Washington's 'Buy American' stimulus provisions.

Projects must obtain official permission to use imported goods, said an order issued by China's main planning agency and eight other government bodies.

Even before the order, business groups worried that foreign companies might be excluded from construction and other projects financed by Beijing's four trillion yuan (S$854 billion) stimulus.

Foreign makers of wind turbines complained that they have been shut out of bidding on a US$5 billion stimulus-financed power project.

'Government investment projects should buy domestically made products unless the products or services cannot be obtained in reasonable commercial conditions in China,' said the order, dated June 1 and reported this week by state media.

'Projects that really need to buy imports should be approved by the relevant government departments before purchasing activity starts.'

Beijing's stimulus is aimed at insulating China from the global slump by boosting domestic demand through higher spending on construction of highways and other public works.

Yesterday, Premier Wen Jiabao said that the economy is showing 'positive changes' but the basis of a recovery is not solid and the country should prepare for long-term difficulties, the official Xinhua News Agency reported.

Mr Wen has made similar comments several times this year, reflecting government efforts to reassure China's public and companies, and encourage them to stimulate a recovery by spending more while also warning against complacency.

Mr Wen cited rising industrial output, investment and retail sales, Xinhua said. It gave no new economic data and mentioned no new initiatives.

The communist government promised in February to treat foreign and domestic goods equally in stimulus spending and has appealed to other governments to support free trade and avoid protectionism.

China criticised Washington for a provision that would favour US suppliers of steel, iron and manufactured goods in projects financed by its stimulus. China's main state news agency labelled such conditions 'poison' to efforts to solve the global economic crisis.

There was no indication that the latest order was a response to Washington's stimulus provisions.

China's World Trade Organization (WTO) commitments require it to treat foreign and domestic goods equally in commercial trade. But Beijing has not signed a WTO treaty that extends such requirements to government procurement, which might limit options for challenging Beijing's 'Buy China' order.

Beijing has imposed similar requirements on government projects such as China's giant Three Gorges Dam to favour domestic suppliers of equipment and services.

The American and European Union chambers of commerce appealed to Beijing to make stimulus spending decisions on economic grounds and to avoid protectionism.

The European Union Chamber of Commerce expressed concern that preferential treatment for domestic companies 'would send the wrong signal' at a time when international cooperation is needed to revive the global economy.

Foreign diplomats and business groups have appealed to Beijing to release more details of stimulus projects and how companies can win contracts.

Authorities are looking into complaints by Chinese companies that they were unfairly excluded from stimulus projects, the government announcement said.

'Bidding documents set a lot of discriminatory conditions to illegally limit Chinese-made equipment. This phenomenon is very obvious and in some cases, very severe,' it said. 'It limits the improvement of the equipment manufacturing industry.'

The order does not make clear whether domestically made products includes those of China- based operations of foreign companies. -- AP