Published December 31, 2008

CMT price hike appears to be due to hedging: SGX

Exchange probing if there was market misconduct and will act accordingly

By CHEW XIANG

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THE Singapore Exchange yesterday said that the sudden spike in CapitaMall Trust (CMT) share price on Monday appeared to be due to 'hedging activity' by an unnamed financial institution.

On Monday, two million CMT shares were traded at $3 just before the market closed. That is 87.5 per cent above the previous closing price of $1.60.

It was the stock's single largest daily gain and was its highest closing price since August.

The trade added 22 points to the benchmark Straits Times Index, which closed up almost 55 points on Monday at 1,780.57. Yesterday, CMT shed most of the gains, closing at $1.64, down $1.36 or 45 per cent. The STI fell 9.92 points to 1,770.65.

SGX said in its statement that it 'will investigate the possibility of any market misconduct and take up such action as may be necessary with the relevant authorities'.

CapitaMall Trust said in a statement yesterday that it had not announced any new information and did not know of any other possible explanation for the trading. It was responding to a query from the exchange.

Observers had said that the spike was likely to be due to an error trade, pointing out that CapitaLand, which manages the trust, was trading at just above $3. Others attributed it to window-dressing by investors as the year closes.

In May, one investor sold 400,000 United Overseas Bank shares at almost a dollar below the previously traded price just minutes before markets closed. UOB closed that day 98 cents down, taking 16.8 points off the STI.

And in May 2007, one trader keyed a mistaken order to sell 400,000 DBS Group shares at 27 cents - about $24 below its then trading price - which briefly triggered a 400-point fall in the STI. The trades were eventually cancelled.

SGX said earlier this month that effective next year, it would only review error trades involving losses of at least $5,000 and for a review fee of $500.

The exchange also said that all error trades must be reported to the SGX within 30 minutes of occurrence.

Published December 31, 2008

Cosco warns of lower full-year profits

Doubtful debts and higher shipbuilding, offshore marine costs take toll

By KALPANA RASHIWALA

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COSCO Corporation (Singapore) has warned that the group will post lower profits for the year ending Dec 31, 2008, compared with the previous year, due to doubtful debts and higher costs for shipbuilding and offshore marine contracts.

The major shiprepair, shipbuilding and marine engineering group posted net profit of $336.6 million for the financial year 2007, up 64 per cent from FY2006.

Cosco's FY2008 results will be released on Feb 23, 2009.

In a profit guidance issued yesterday, Cosco said that the company's shipbuilding subsidiaries recently received requests for delays in making payments by several shipowners, in light of the adverse global economic climate and the deteriorating market conditions facing the shipping industry over the past few months.

'Accordingly, provisions will have to be made for doubtful debts,' Cosco said.

In addition, the group has faced increased operational costs for several shipbuilding and offshore marine contracts, as a result of the jobs exceeding their original budgets.

The cost overruns arose from several factors, including the significant jump in steel prices. Also contributing were higher ancillary outsourcing and subcontracting costs, and tighter pre-delivery inspection procedures imposed by shipowners facing current unfavourable market conditions.

Yet another factor was additional operational and development costs incurred due to the unwillingness of some residents to vacate their properties which were originally planned for acquisition by the group for shipbuilding purposes.

'These operational issues have also contributed to some delivery delays. Accordingly, the group will assess the various causes of delay and consider the need for provisions for the payment of penalties under these contracts, if necessary,' Cosco said.

'To address the operational costs issues, the group will, with the increased experience that it has gained in shipbuilding and offshore marine construction, carry out an operational review of the various shipbuilding units to identify areas for improvement and the appropriate actions that need to be implemented to enhance the group's capabilities and efficiencies in these areas,' it added.

In a separate announcement, Cosco said that subsidiary Cosco (Zhoushan) Shipyard Co has agreed to reschedule delivery dates for seven 57,000 deadweight ton (dwt) bulk carriers, following requests from a European shipowner and an Asian shipowner that had contracted for the vessels.

The delivery dates of four of the vessels have been rescheduled from between February 2010 and June 2010 to between February 2011 and November 2011, while the delivery dates of the other three vessels have been changed from between August 2009 and November 2009 to January 2012.

Cosco said that the changes in delivery dates are not expected to have any material impact on the company's net tangible assets and earnings per share for FY2008.

Cosco also announced that Cosco (Zhoushan) has completed the construction of its first 57,000 dwt bulk carrier. The vessel is undergoing test and sea-trials. 'Upon successful completion of the sea-trials, the vessel will be delivered to its owner,' the group said.

Published December 31, 2008

Japan ponders US$110b plan to buy out bad loans

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(TOKYO) Japan's government and central bank are considering a US$110 billion scheme to buy bad loans and other financial assets from banks to ease a credit crunch gripping the country's businesses, daily Sankei Shimbun said yesterday.

At a juncture: Japan's economy has likely shrunk in the October-December quarter by 12.1per cent on an annualised basis, in what would be its sharpest contraction in 34 years, says Barclays Capital

Such a scheme would come on top of Tokyo's efforts to keep the world's second-largest economy from sliding deeper into recession as the global credit crisis hurts exports and corporate funding conditions tighten.

The government and the central bank are hoping to implement the scheme by the end of March, buying various types of assets from banks including bad loans, corporate debt, stocks, commercial paper and derivatives products, the newspaper said without quoting sources.

They may buy up to 10 trillion yen (S$159.13 billion) of these assets under the scheme, said Sankei, the smallest among Japan's five major newspapers with nationwide circulation.

Japan, like the United States, is already in recession, with companies such as carmakers Toyota and Honda slashing output as customers close their wallets worldwide.

Any new asset buying scheme would probably be an expanded version of a rescue plan during Japan's financial crisis in the late 1990s, when the government bought bad loans from banks through the Deposit Insurance Corporation, a government-affiliated institution, until 2005.

An official at the Deposit Insurance Corporation told Reuters that they had no knowledge about the matter and the Bank of Japan was not immediately available for comment.

The authorities have already unveiled a series of measures to ease credit strains and rev up the economy as the fallout from the global financial turmoil spread.

The government has announced extra spending plans and its biggest ever budget for the next fiscal year, while the central bank cut interest rates to near zero and offered to temporarily buy commercial paper outright earlier this month, echoing some of the emergency steps taken by the US Federal Reserve.

Analysts, however, doubt whether buying bad debt would be as effective today as it was in the late 1990s, when Japanese banks were saddled with a huge pile of bad loans as a weak economy hurt companies, while tumbling stock prices eroded banks' balance sheets.

'I do not see this would be particularly effective as the amount of bad loans is smaller than those banks were saddled with in late 1990s,' said Hironari Nozaki, bank analyst at Nikko Citigroup.

In another development, Japan's gross domestic product has likely shrunk in the October-December quarter by 12.1 per cent on an annualised basis, in what would be its sharpest contraction in 34 years, Barclays Capital said yesterday.

Barclays downgraded its forecast for Japan's fourth-quarter GDP due to factors such as record falls in exports and industrial output in November, said Kyohei Morita, chief economist in Japan for Barclays Capital.

Data this month showed that industrial output fell 8.1 per cent in November from a month earlier, the largest fall on record, and that exports posted a record annual fall in November.

Barclays' latest forecast is for Japan's fourth-quarter real GDP to decline 3.2 per cent from the previous quarter, which would translate into an annualised fall of 12.1 per cent, Mr Morita said.

That would be the biggest contraction in GDP since a 13.1 per cent annualised drop in January-March of 1974, when Japan was reeling from the early 1970s oil shock.

The situation may be even worse now, Mr Morita said.

Japan's GDP expanded in the quarters before and after the first quarter of 1974, whereas Japan may now be facing five straight quarters of contraction because GDP is also likely to shrink in January-March and April-June of next year, Mr Morita said.

Japan's GDP fell in both the April-June and July-September quarters of this year.

'I think you can say that it is a little more severe this time around,' he said. -- Reuters