Published September 29, 2008
The bear pulls in privatisation deals
More listed firms taken private in the past few months
By OH BOON PING
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PRIVATISATION activity appears to be on the rise in recent months, following the recent stock market slump amid a deepening credit crisis.
This month, King's Safetywear, which manufactures and markets industrial safety footwear, said that it had received a cash offer of 43.8 cents per share from Safe Step Group with a view to delisting the company, while key management members of SP Chemicals offered cash of 73 cents a share for all the shares they do not own, to take it private.
Likewise, SingTel recently bought a 60 per cent stake in mainboard-listed Singapore Computer Systems (SCS) for $140 million, and will be making a general takeover offer for the remaining SCS shares with an eye to delisting SCS eventually.
Besides these, there are at least five other acquisition bids made in the past few months, even though not all the targets will be delisted.
For example, Baida Finance (Group) Company, which is involved in project investing and financing, is taking a 11.1 per cent stake in E3 Holdings - making it the single largest shareholder - but there are no plans to raise its stake further to delist E3 at the moment.
The spate of merger and acquisition (M&A) deals came in the last few months when stock market sentiment took a hit over the worsening global credit crunch.
On Friday, the Straits Times Index (STI) closed at 2,411.46, down 32.78 points, as the global financial crisis deepens.
Said George Lee, head of OCBC's investment banking: 'The current increase in privatisation takeovers is driven by low valuation of many listed companies.'
'Many are trading at discount to net tangible asset or very low price-earnings multiple of 3-4 times. At such valuation, it makes little sense to remain listed with its cost associated with listing and governance,' said Mr Lee, who believes the trend is likely to continue.
Indeed, as concerns grow over the financial markets, investors looking to offload their stakes now have a greater incentive to accept any attractive general offer.
Robson Lee, partner at law firm Shook Lin & Bok LLP, told BT that 'shareholders typically buy on hope, hold in greed and sell in fear. Valuations for good companies are likely to be adversely affected by the current downturn and the global credit crunch.
'A cash offer for shares in an uncertain economic environment, where credit is scarce and cash is king, is likely to be successful, as investors scramble to consolidate their cash positions.'
Moreover, he pointed out, investors are unsure if there will be a protracted bear market and this uncertainty is pulling sentiment down.
'The US Congress is taking its time to approve the US$700 billion financial rescue plan proposed by Henry Paulson, Ben Bernanke and Christopher Cox. And the continual political wrangling within an election-mired Congress has adversely affected market sentiment in recent weeks.'
The other M&A bids that were made here in the past few months include Unisteel Technology's takeover offer from Kohlberg Kravis Roberts and Co, Dimension Data's buyout of Datacraft Asia, and Khazanah Nasional's additional 16.41 per cent interest in Parkway Holdings.
Monday, 29 September 2008
Published September 29, 2008
WALL STREET INSIGHT
Will reality rain on the bailout parade?
By ANDREW MARKS
NEW YORK CORRESPONDENT
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WALL Street ended last week under a heavy cloud of uncertainty, but traders will return to business today in a celebratory mood, after an early Sunday morning announcement from the US Treasury Department and Congressional leaders that they have reached a tentative agreement to buy at least US$700 billion worth of distressed assets.
With a resolution agreed to and ready to be put into place, the sigh of relief should lift an anxious Wall Street to a big day today. Just the hint late last Friday that Congressional leaders and Bush administration officials appeared to be back at the table negotiating the rescue after a near-agreement fell apart last Thursday night boosted stocks to a strong finish at the day's end.
On Friday, the Dow Jones Industrial Average rose 118.20 points, or 1.1 per cent, to close at 11,140.26. The blue-chip index fell 2 per cent for the week. The S&P 500 registered a weekly decline of 3.2 per cent , while the Nasdaq Composite Index ended the week with a loss of 4 per cent .
Getting an agreement, 'will give the market a big lift', said SG Cowen & Company chief equities trader John O'Donohue. 'Just the relief of being able to watch trading screens instead of CNN to find out the latest on what's happening in Washington will bring out some of the investors who've pulled their money out of the market while they waited to see what the outcome would be.'
But once the celebration over reaching an accord is over, and that's likely to happen within days if not less, investors will have to start asking 'Now what?' and that's when things will get interesting again.
As Michael Parson, an equity analyst at stock market research firm Bull/Bear Equities put it: 'Once the market can turn away from Washington and start focusing on the state of the economy and what this upcoming earnings season is going to look like, we're going to have a very difficult reality to deal with. The fact is we're in a bear market and fundamentals have been steadily eroding the last few weeks and that's going to be reflected in company earnings for the third quarter and more importantly for the company outlooks for the next quarter.'
The government can do a great deal in terms of reassuring stock market investors that the financial system is safe from failure and it can get the credit markets flowing again back to some semblance of normaility with the rescue as a backstop, Johnson Illington Advisors chairman Hugh Johnson said. 'But that doesn't take away the fact that we're still in the midst of an uncertain and deteriorating condition for both the economy and corporate profits.'
Marc Pado, chief investment strategist at Cantor Fitzgerald believes that stocks have already built into prices a recession and another poor profit reporting season.
It's unlikely that light will be glimpsed once the furore over the rescue plan fades. Investors will have a week full of key economic data on a troubled economy, including the employment report for this month on Friday, to digest.
Before that, Monday brings personal income data, followed by the Chicago purchasing managers report and the consumer confidence index on Tuesday. The widely followed S&P Case/Shiller home price index is also released that day.
On Wednesday, ADP's private sector employment report is released, as is ISM manufacturing data. Construction spending and the auto industry's monthly sales reports are also that day. On Thursday, weekly jobless claims and factory orders are reported.
Friday's jobs report will show more job losses, but Wall Street is expecting that it won't be enough to worsen the unemployment rate of 6.1 per cent.
The progress of merger or takeover negotiations for Wachovia Corp, with Citigroup reportedly close to reaching an agreement with the troubled bank, should be the only major event coming from the private sector this week.
WALL STREET INSIGHT
Will reality rain on the bailout parade?
By ANDREW MARKS
NEW YORK CORRESPONDENT
Email this article
Print article
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WALL Street ended last week under a heavy cloud of uncertainty, but traders will return to business today in a celebratory mood, after an early Sunday morning announcement from the US Treasury Department and Congressional leaders that they have reached a tentative agreement to buy at least US$700 billion worth of distressed assets.
With a resolution agreed to and ready to be put into place, the sigh of relief should lift an anxious Wall Street to a big day today. Just the hint late last Friday that Congressional leaders and Bush administration officials appeared to be back at the table negotiating the rescue after a near-agreement fell apart last Thursday night boosted stocks to a strong finish at the day's end.
On Friday, the Dow Jones Industrial Average rose 118.20 points, or 1.1 per cent, to close at 11,140.26. The blue-chip index fell 2 per cent for the week. The S&P 500 registered a weekly decline of 3.2 per cent , while the Nasdaq Composite Index ended the week with a loss of 4 per cent .
Getting an agreement, 'will give the market a big lift', said SG Cowen & Company chief equities trader John O'Donohue. 'Just the relief of being able to watch trading screens instead of CNN to find out the latest on what's happening in Washington will bring out some of the investors who've pulled their money out of the market while they waited to see what the outcome would be.'
But once the celebration over reaching an accord is over, and that's likely to happen within days if not less, investors will have to start asking 'Now what?' and that's when things will get interesting again.
As Michael Parson, an equity analyst at stock market research firm Bull/Bear Equities put it: 'Once the market can turn away from Washington and start focusing on the state of the economy and what this upcoming earnings season is going to look like, we're going to have a very difficult reality to deal with. The fact is we're in a bear market and fundamentals have been steadily eroding the last few weeks and that's going to be reflected in company earnings for the third quarter and more importantly for the company outlooks for the next quarter.'
The government can do a great deal in terms of reassuring stock market investors that the financial system is safe from failure and it can get the credit markets flowing again back to some semblance of normaility with the rescue as a backstop, Johnson Illington Advisors chairman Hugh Johnson said. 'But that doesn't take away the fact that we're still in the midst of an uncertain and deteriorating condition for both the economy and corporate profits.'
Marc Pado, chief investment strategist at Cantor Fitzgerald believes that stocks have already built into prices a recession and another poor profit reporting season.
It's unlikely that light will be glimpsed once the furore over the rescue plan fades. Investors will have a week full of key economic data on a troubled economy, including the employment report for this month on Friday, to digest.
Before that, Monday brings personal income data, followed by the Chicago purchasing managers report and the consumer confidence index on Tuesday. The widely followed S&P Case/Shiller home price index is also released that day.
On Wednesday, ADP's private sector employment report is released, as is ISM manufacturing data. Construction spending and the auto industry's monthly sales reports are also that day. On Thursday, weekly jobless claims and factory orders are reported.
Friday's jobs report will show more job losses, but Wall Street is expecting that it won't be enough to worsen the unemployment rate of 6.1 per cent.
The progress of merger or takeover negotiations for Wachovia Corp, with Citigroup reportedly close to reaching an agreement with the troubled bank, should be the only major event coming from the private sector this week.
Published September 29, 2008
Grade A office rents in CBD slide for first time in years
Average monthly rent at Raffles Place slips 1.4% to $17.64 psf in Q3
By KALPANA RASHIWALA
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(SINGAPORE) Grade A office rents in Singapore's Central Business District (CBD) have declined for the first time since the office market troughed in 2004.
The average gross monthly Grade A rental value for the Raffles Place area slipped 1.4 per cent to $17.64 per square foot (psf) in the third quarter, from $17.89 psf in the preceding quarter, according to the latest data from Knight Frank.
The Suntec/Marina Centre/City Hall area led the declines in Grade A office rentals in Q3, with a 6.2 per cent quarter-on-quarter fall to $15.13 psf. In the Shenton Way/ Robinson Rd/Tanjong Pagar area, the drop was 2.8 per cent, followed by a 2.7 per cent decline along Orchard Road.
Knight Frank director (research and consultancy) Nicholas Mak said that he expects office rentals to continue declining by 14-19 per cent islandwide in the next 12 months (from current levels) as the global financial turmoil and possible mergers and acquisitions contribute to consolidation and reduction in office demand.
Giving her take on weakening office demand, DTZ executive director Ong Choon Fah said: 'Most companies are in cost containment mode and would be looking for ways to manage the increase in their accommodation costs. There has also been quite a lot of leakage of CBD office demand to business parks and vacant state properties converted to offices.'
Mrs Ong reckoned that headline office rents may not come down much but noted that leasing incentives like rent-free periods have started to reappear. Agreeing, an analyst said: 'Major landlords will try to maintain headline rents, because once rents come down, it affects their whole portfolio.'
Besides weaker demand for office space amid the financial turmoil, Knight Frank's Mr Mak attributed the softening rentals in Q3 to the government's efforts to increase office supply (including transitional office sites). 'In addition, landlords are more cognisant of the substantial supply of office space that will be completed from 2010 and have become more realistic and flexible in their rental expectation when it comes to lease negotiations; they want to hold on to their tenants and maintain their buildings' occupancy rates,' Mr Mak said.
The fall in the average Grade A Raffles Place rental value in Q3 marks the first quarterly decline since Q2 2004. This incipient weakening follows a rapid escalation in office rentals over the past two years on the back of tightening supply and strong demand from occupiers, including global financial institutions expanding their operations in Singapore. Average Grade A Raffles Place rents surged 82 per cent last year and that was on top of the 67 per cent gain posted in 2006, according to Knight Frank.
But it's a different story now. 'Since Q1 2008, there appears to be a crack in the growth momentum for office demand in the Downtown Core area due to external factors such as the US sub-prime crisis that began in the second half of last year,' said Mr Mak.
The slowdown in demand in the Downtown Core area - which includes the key office districts like Raffles Place/Marina Bay, Shenton Way and Marina Centre - and tapering off in rentals in Q3 does not come as a surprise, he adds. 'The tenants in this area are primarily financial institutions, many of which had already completed their expansion or consolidation plans over the last 24 months and some are adopting a more cautious approach by putting any further expansion plans on hold,' Mr Mak observed.
Knight Frank's data showed that Grade B offices in Singapore also experienced downward pressure on rentals in Q3. The biggest fall was in the Orchard Road location, where the average rent decreased 7.8 per cent quarter-on-quarter to $10.70 psf a month in Q3. Raffles Place and Shenton Way/ Robinson Rd/Tanjong Pagar Grade B offices were less impacted by easing office rentals and dipped by 1.8 per cent and 2 per cent quarter-on-quarter respectively.
As a whole, offices in non-CBD locations also mirrored the general slowdown in rental in Q3. Rentals continued to weaken for the Beach Road/Middle Road area, with a 3.4 per cent quarter-on-quarter drop. Suburban areas too met a similar fate with quarter-on-quarter rental decreases ranging from 1-8 per cent.
Looking ahead, Knight Frank said that in the short term, the beleaguered financial markets are expected to lead to many firms either postponing their expansion plans or consolidating their space usage. Restructuring at some organisations could lead to sub-letting of excess space to ease cashflow problems.
Grade A office rents in CBD slide for first time in years
Average monthly rent at Raffles Place slips 1.4% to $17.64 psf in Q3
By KALPANA RASHIWALA
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(SINGAPORE) Grade A office rents in Singapore's Central Business District (CBD) have declined for the first time since the office market troughed in 2004.
The average gross monthly Grade A rental value for the Raffles Place area slipped 1.4 per cent to $17.64 per square foot (psf) in the third quarter, from $17.89 psf in the preceding quarter, according to the latest data from Knight Frank.
The Suntec/Marina Centre/City Hall area led the declines in Grade A office rentals in Q3, with a 6.2 per cent quarter-on-quarter fall to $15.13 psf. In the Shenton Way/ Robinson Rd/Tanjong Pagar area, the drop was 2.8 per cent, followed by a 2.7 per cent decline along Orchard Road.
Knight Frank director (research and consultancy) Nicholas Mak said that he expects office rentals to continue declining by 14-19 per cent islandwide in the next 12 months (from current levels) as the global financial turmoil and possible mergers and acquisitions contribute to consolidation and reduction in office demand.
Giving her take on weakening office demand, DTZ executive director Ong Choon Fah said: 'Most companies are in cost containment mode and would be looking for ways to manage the increase in their accommodation costs. There has also been quite a lot of leakage of CBD office demand to business parks and vacant state properties converted to offices.'
Mrs Ong reckoned that headline office rents may not come down much but noted that leasing incentives like rent-free periods have started to reappear. Agreeing, an analyst said: 'Major landlords will try to maintain headline rents, because once rents come down, it affects their whole portfolio.'
Besides weaker demand for office space amid the financial turmoil, Knight Frank's Mr Mak attributed the softening rentals in Q3 to the government's efforts to increase office supply (including transitional office sites). 'In addition, landlords are more cognisant of the substantial supply of office space that will be completed from 2010 and have become more realistic and flexible in their rental expectation when it comes to lease negotiations; they want to hold on to their tenants and maintain their buildings' occupancy rates,' Mr Mak said.
The fall in the average Grade A Raffles Place rental value in Q3 marks the first quarterly decline since Q2 2004. This incipient weakening follows a rapid escalation in office rentals over the past two years on the back of tightening supply and strong demand from occupiers, including global financial institutions expanding their operations in Singapore. Average Grade A Raffles Place rents surged 82 per cent last year and that was on top of the 67 per cent gain posted in 2006, according to Knight Frank.
But it's a different story now. 'Since Q1 2008, there appears to be a crack in the growth momentum for office demand in the Downtown Core area due to external factors such as the US sub-prime crisis that began in the second half of last year,' said Mr Mak.
The slowdown in demand in the Downtown Core area - which includes the key office districts like Raffles Place/Marina Bay, Shenton Way and Marina Centre - and tapering off in rentals in Q3 does not come as a surprise, he adds. 'The tenants in this area are primarily financial institutions, many of which had already completed their expansion or consolidation plans over the last 24 months and some are adopting a more cautious approach by putting any further expansion plans on hold,' Mr Mak observed.
Knight Frank's data showed that Grade B offices in Singapore also experienced downward pressure on rentals in Q3. The biggest fall was in the Orchard Road location, where the average rent decreased 7.8 per cent quarter-on-quarter to $10.70 psf a month in Q3. Raffles Place and Shenton Way/ Robinson Rd/Tanjong Pagar Grade B offices were less impacted by easing office rentals and dipped by 1.8 per cent and 2 per cent quarter-on-quarter respectively.
As a whole, offices in non-CBD locations also mirrored the general slowdown in rental in Q3. Rentals continued to weaken for the Beach Road/Middle Road area, with a 3.4 per cent quarter-on-quarter drop. Suburban areas too met a similar fate with quarter-on-quarter rental decreases ranging from 1-8 per cent.
Looking ahead, Knight Frank said that in the short term, the beleaguered financial markets are expected to lead to many firms either postponing their expansion plans or consolidating their space usage. Restructuring at some organisations could lead to sub-letting of excess space to ease cashflow problems.
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