Published August 27, 2008

A good deal for Eng Wah minorities?

By VEN SREENIVASAN

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BONANZA or bummer? That's a question some of Eng Wah Organisation's minority shareholders might be pondering after the company announced it had sold its remaining four properties to its founder and controlling shareholder, Goh Eng Wah, and his daughter and managing director, Goh Min Yen, for $99.48 million.

Earlier, the mainboard-listed cinema and property group disposed of a fifth property to another party for some $13 million.

The concern is that the $99.48 million selling price was virtually the valuation price of the property. So did Mr Goh and his family - who control 70 per cent of the company - get a sweetheart deal? To answer this, one has to look at the transaction in the context of Eng Wah's impending $675 million reverse takeover (RTO) by Transcutaneous Technologies Inc (Transcu), a Japanese biotech firm whose board members include luminaries like former US state secretary Alexander Haig, ex-deputy state secretary Richard Armitage and top World Health Organisation research scientist Steven Reed.

Under the RTO deal, Eng Wah must clear all its assets and liabilities, then distribute the resultant cash to shareholders. The RTO process is in its final stages, and if all the paperwork is in order, should be completed by its December deadline.

Soon after the preliminaries of the RTO were nailed down in Q4 last year, Eng Wah appointed international property specialist Jones Lang LaSalle (JLL) to handle the sale of its property. In May this year, Chesterton International did a valuation of the properties. However, JLL's invitations for expressions of interest on the properties appear to have gotten off to a cool start in January. Though several parties came forward, the deepening global credit crunch made it difficult for prospective buyers to raise funding. The property market started softening by mid-year, with no serious offers on the table.

Meanwhile, the rapidly deteriorating property market conditions made the May valuation report a historical, and somewhat irrelevant, document.

Yet disposing of the assets was a key condition for the RTO. The choices were clear: sell at the best available price, or abandon the RTO. And the best price available as at last Friday was that put forward by the Goh family.

Eng Wah is now at the point of realising $113 million in cash from its five properties. Then there is the additional $27.5 million from its previously-approved capital reduction exercise. And there is also that $2.75 million from the sale of its Crazy Horse cabaret premises two weeks ago. The grand total works out to $143 million.

But under the share swap agreement, Transcu will get $10 million in cash. That leaves at least $133 million for shareholders, or some 88 cents per share. Under the terms of the RTO, this money is to be distributed to Eng Wah shareholders. In addition, shareholders will get one pre-placement Transcu share per Eng Wah share. The remaining Transcu shares will be privately placed out later at 38 cents per share.

So, the underlying value of each Eng Wah share works out to $1.26 per share (88 cents cash plus 38 cents in Transcu shares) - a nice little Christmas bonus.

With the Goh family abstaining from voting on the transaction, minority shareholders will have the decide, on Sept 10 whether to approve the deal.

The key question is whether the properties were sold at a fair price. To answer this, they have to look at the state of the property market, whether there are any higher bids, and whether such a sale can be completed before the December deadline. In essence, has New York-listed JLL done a good job?

Another factor to remember is that, for the longest time, this stock has been one of the most illiquid and inactive counters on the local bourse, stuck largely in the 25-35 cents band.

The failure of its Crazy Horse franchise and the unexciting cinema business has not done much to enhance Eng Wah's attraction as an investment prospect.

But news of the RTO injected new life into the stock late last year. And, most importantly, the RTO now gives long-suffering minorities a very profitable exit strategy.

Published August 27, 2008

Temasek warns of lean years as returns dwindle

It flags stagflation risk; its 7% total shareholder return on portfolio lowest in recent years

By CONRAD TAN

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(SINGAPORE) Temasek Holdings has warned of a growing danger that global economic growth could stall as the fallout from the credit crisis spreads around the world, with possible stagflation posing a severe risk for years to come.

Temasek's own vast portfolio of investments was buffeted by the turmoil that swept financial markets since the start of the crisis last year.

By market value, the total return to Temasek's sole shareholder - the Finance Ministry - for the year to end-March fell to just 7 per cent, from 27 per cent a year earlier.

Economic profit or wealth added - which Temasek uses internally to gauge its returns above a risk-adjusted benchmark - was a negative $6.3 billion, the first time in five years it fell below the cost-of-capital hurdle. A year earlier, wealth added was $23.4 billion.

By one measure, the market risk of Temasek's portfolio rose 67 per cent over the year to end-March, reflecting the 'severe stress' in global financial markets, according to its latest annual report.

Related links: Click here for Temasek's news release Key highlights of Temasek Review 2008

Group net profit for Temasek for the year to end-March doubled to a record $18.24 billion from a year earlier, boosted by strong operating performance at its portfolio companies and divestment gains from its asset sales.

Under standard accounting rules, the consolidated net profit includes Temasek's share of profits from companies in which it has a stake of 20 per cent or more, but does not directly reflect its share of the profits or losses of firms in which Temasek has a stake below 20 per cent. Profits from Singapore's DBS Group, of which Temasek owns 28 per cent, would be included, while profits from the UK's Standard Chartered Bank, in which Temasek has a 19 per cent stake, would not.

'The credit crisis is not over - we expect to see further contagion in the real economy in the US, Europe and also Asia over the next 24 months,' said Temasek chairman S Dhanabalan in the 2008 Temasek Review published yesterday.

The fallout from the credit crisis 'will continue to dampen the global economy' for the next two years, he added.

The 7 per cent one-year return to the government - which includes dividends paid by Temasek to the government net of new capital injections - is the lowest since Temasek started publishing its annual report in 2004, when the return was 46 per cent.

Temasek's portfolio performance over longer periods, however, remains strong, with compounded annual returns of 23 per cent over five years, 9 per cent over 10 years, and 18 per cent since Temasek's inception in 1974.

But Mr Dhanabalan was cautious on the outlook. 'We are concerned with the emerging risks of stagflation. This presents huge socio-political as well as economic risks in the next three to five years,' he said.

Bold policies by regulators in the US had averted a major systemic failure, but 'the risks of stagflation have become more apparent with the twin bogeys of high oil and food prices', he added.

Still, 'there may be opportunities as imbalances are corrected', although such opportunities may be limited if stagflation - a period of stagnant economic growth coupled with high inflation - does set in, he added.

During the year to end-March, Temasek sold $17 billion worth of assets, including some $12 billion in Asia, 'as we anticipated a massive structural adjustment', said Mr Dhanabalan.

In April last year, Temasek also received an injection of new capital from the government, which boosted its portfolio value by $10 billion, net of dividends paid to the government. An undisclosed dividend amount is set yearly by the Temasek board, said Michael Dee, Temasek senior managing director, international, at a media briefing yesterday. Mr Dee, a former investment banker, recently joined Temasek from Morgan Stanley.

Published August 27, 2008

Bet on Asia stays, but Temasek sheds some assets

Its investments in US and UK banks were 'primarily because we saw value', says MD

By CONRAD TAN

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(SINGAPORE) Temasek Holdings' focus on Asia has reaped substantial rewards so far, even as it poured billions of dollars into US and UK banks over the past year.

Portfolio shift: The large divestments in Asia saw, for the first time, Temasek's net investments outside Asia exceeding net investments in Asia

Investments made since 2002, when Temasek reshaped its portfolio to boost its exposure to emerging Asia, earned an annualised return of 32 per cent over the six years to end-March - double the 16 per cent returns on the rest of its portfolio, said Michael Dee, Temasek senior managing director, international, at a media briefing yesterday.

Investments made since March 2002 now make up 41 per cent of Temasek's $185 billion portfolio, he added.

Over the year to end-March, Temasek invested just under $17 billion in Asia and another $15 billion outside the region.

But it also divested more Asian assets than non- Asian assets during the year - $12 billion compared with $5 billion.

Within Asia, Temasek trimmed its portfolio exposure to North Asia to 22 per cent from 24 per cent, selling its stake in China Cosco Holdings. Temasek also pared its stakes in other major Chinese firms such as China Construction Bank and Bank of China.

But Temasek also boosted its exposure to South Asia, buying a stake of 4.99 per cent in Indian mobile operator Bharti Airtel for an estimated US$2 billion last year.

And in March this year, it sold Singapore power generating company Tuas Power for $4.2 billion. That prompted a fall in Temasek's portfolio's exposure to Singapore to 33 per cent as at end-March, from 38 per cent a year earlier.

The large divestments in Asia meant that for the first time, Temasek's net investments outside Asia exceeded net investments in Asia, with 68 per cent or $10 billion outside Asia and the remaining 32 per cent or $5 billion in Asia.

Its major forays outside Asia included a US$4.9 billion investment into Merrill Lynch in the US and £pounds;975 million (S$2.6 billion) in Barclays in the UK, both last year. It also raised its stake in UK-based Standard Chartered Bank to 19 per cent from 13 per cent.

This contrasts starkly with the previous five years, during which Temasek's total net investment outside Asia was just $1 billion, while net investment in Asia was $26 billion.

But Temasek chairman S Dhanabalan said in the 2008 Temasek Review published yesterday that the firm continues to like Asia, even as it adds to its investments elsewhere.

'We will continue to broadly focus on Asia with its long-term trend of growth and development in the next decade or two.'

Temasek is also looking to increase its exposure further afield, including new markets such as Russia and Latin America, said Mr Dhanabalan. 'We are setting up offices in Mexico and Brazil to deepen and broaden our exposure to Latin America.'

The firm has boosted its staff strength to 350 over the past year, from 250 previously, and set up a new international division that will oversee all of Temasek's overseas offices, said Mr Dee. 'We're expanding our global footprint.'

Its recent investments in US and UK banks were 'primarily because we saw value', said Manish Kejriwal, Temasek senior managing director of investment, international and India.

Asked if Temasek was concerned over the recent declines in the share prices of banks it had stakes in, Lao Tzu Ming, managing director of risk management, said: 'Unlike short-term traders such as hedge funds, we are not highly geared - therefore we can ride through the storms.'

The portfolio remains well-diversified, said Temasek. Its single largest investment accounts for less than 19 per cent of its overall portfolio, down from 26 per cent five years earlier.