Published December 3, 2008

S'pore market pulls in US investors as crisis deepens

Q3 saw net US$543m of S'pore stocks bought, reversing net sale in Q2

By CHUANG PECK MING

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AS the financial crisis deepens at its epicentre in the US in the third quarter, investors there - those still with cash to spare - appear to have taken cover in some selective markets abroad, including Singapore.

The latest figures released by the US Treasury show that US investors snapped up a net US$543 million worth of stocks listed on the Singapore Exchange (SGX) in the July-September quarter (Q3), reversing a net sale of US$897 million in Q2 and US$960 million in Q1.

US investors had sold a net US$347 million of their Singapore holdings in August, but made a net purchase of US$1.44 billion in stocks in July, which helped made them a net buyer of Singapore stocks in Q3.

SGX stocks were one of the biggest purchases made by US investors during the quarter, even when they were unloading their global stock holdings, including those from Asia, as the financial crunch spread.

Only in Brazil (purchases of US$4.36 billion), Spain (US$1.13 billion), Ireland (US$886 million) and Argentina (US$704 million) did US investors spent more on stocks, outside the tax-haven Caribbean region.

Within Asia, apart from Singapore, US investors were net buyers only in the Chinese (US$250 million), Indonesian (US$11 million) and Thai (US$89 million) stock markets.

Analysts offered one possible explanation for why US investors were buying in these markets when they were selling everywhere: these markets offered better bargains as prices fell.

Stock prices plunged by almost 20 per cent quarter-on-quarter in Q3 in Singapore, 22.39 per cent in Thailand and 21.99 per cent in Indonesia. They dropped 16.7 per cent in China.

But while stock prices in Singapore, Thailand and Indonesia fell more than in markets such as South Korea (-13.54 per cent) and Japan (-16.48 per cent), where US investors dumped US$3.53 billion and US$10.22 billion worth of stocks respectively, they fell no greater than in other major Asian markets.

Prices in the Hong Kong stock market tumbled 18.9 per cent, while those in Taiwan went down by 23.98 per cent. And US investors disposed of a net US$8.59 billion of stocks in Hong Kong, and US$881 million in Taiwan.

Another explanation is that US investors are more upbeat on the long-term prospects of China, Singapore, Indonesia and Thailand.

Still, when Lehman Brothers sank in September, leading to the massive sell-off on Wall Street which wiped out 25 per cent of the value of US stocks in the first two weeks of October, US investors were ready to abandon the Singapore market. That month, they sold a net US$553 million of SGX-listed stocks.

On the whole, US investors off- loaded a net US$24.48 billion worth of stocks in Asia in Q3, with Japan accounting for 41.7 per cent of the total sales. These followed net sales of US$5.72 billion in Q2 and US$3.52 billion in Q1.

Worldwide, excluding the US, US investors posted net stock sales of US$17.91 billion in Q3, after mopping up a net US$16.78 billion in Q2.

By region, only in the Caribbean and Latin America were US investors net buyers of stocks in Q3, picking up US$21.85 billion and US$4.55 billion respectively.

Published December 3, 2008

Expenses eating into Tung Lok's profits

By JAMIE LEE

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PROFITS dished out by Tung Lok Restaurants over the past few years have been less than piping hot.

For its fiscal half-year ended September, the F&B group turned in $2.51 million in net losses, reversing a net profit of $6,000 for the previous corresponding period.

Six-month revenue dipped just 4 per cent year-on-year to $33.7 million from $35.1 million - but expenses and losses from joint ventures (JVs) and associate businesses continued to go up. Tung Lok posted a 5.13 per cent increase in other operating and administrative expenses, as well as losses from JVs and associates, to $26 million from $24.7 million a year ago.

These were due to higher advertising spending, utilities and staff training, losses from its manufacturing joint venture as well as $600,000 in impairment charges for one of its overseas operations, which it later identified, following a Singapore Exchange query, as a joint-venture outlet in China 'which had not been performing well'.

The company needs to take stock of its management of expenses and its joint ventures.

From fiscal 2006 (spanning April 2005 to March 2006) to fiscal 2008, total expenses and losses in joint ventures as well as in associates have continued to go up - and at a faster pace than the increase in sales.

Tung Lok reported $42,273 in such expenses in FY06, $47,456 in FY07 and $52,644 in FY08. Expenses jumped 12.3 per cent from FY06-07, versus an 8 per cent increase in revenue in the same period. For FY07-FY08, expenses surged 10.9 per cent against a 9 per cent rise in sales.

Earnings hit

While the company has remained in the black over the last three fiscal years, its earnings have fallen in FY07 and FY08.

Looking at the net loss posted in the previous six months and against the backdrop of an economic downturn, full-year earnings are expected to be hit in FY09. The group said in its half- year financial statement that it was working to manage its operating costs and improve its quality in food services, and said that the group would 'intensify its marketing efforts and focus its development on a casual dining concept'.

But given that the crux of the problem lies in controlling expenses, marketing campaigns need to be carefully evaluated in terms of costs and benefits.

Stretch ad dollar

Tung Lok's earlier marketing efforts might have reaped some benefits as the restaurant chain is synonymous with Chinese fare in Singapore today. But given that the branding has already made its intended impact, the company should aim to stretch its advertising dollar, as many other companies are doing, to brace itself against the recession.

The company has also expanded rapidly over the last few years - opening up Taiwanese restaurant Shin Yeh and mid-market restaurant Zhou's Kitchen, as well as expanding its My Humble House chain into India and Japan.

But over the last two fiscal years, Tung Lok has registered increasing losses in JVs and new set-ups. It has not given a breakdown of how its JVs and associate businesses have done but, given the thinning profits, it would be more prudent for Tung Lok to consolidate its position in a few ventures, rather than dipping its fingers into too many pies. Management should review its JV portfolio to see if it had been too hasty in expanding.

The F&B chain's sales figures are promising - gross margins have been stealthily maintained at about 70 per cent - which signals that the restaurant is pricing its menu correctly. It is a pity that these have not translated into sustainable earnings for the company as expenses continue to climb.

Tung Lok is known for being avant-garde but it's time to get back to basics. It must manage its spending.

Published December 3, 2008

Restructuring of Minibonds on hold

By SIOW LI SEN

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(SINGAPORE) Minibond investors have just been dealt a fresh blow - restructuring options are no longer on the table following legal challenges arising from the bankruptcy of Lehman Brothers.

It also means that the receivers cannot sell the underlying collateral of the Minibond notes while the lawyers fight over them, a process which can go on for at least two years.

Last night, the trustee said that lawyers acting in the Chapter 11 proceedings for Lehman Brothers in the United States, which structured the Minibond products, have reserved the right to challenge all aspects of the unwinding process.

'As a result, throughout the various stages of the unwinding process, there is a strong possibility that there will be legal challenges to resolve, which could result in prolonged litigation, before proceeding to the next stage,' said HSBC Institutional Trust Services (Singapore) Limited.

'Hence, both the trustee and receivers are not able to give any valuations at this stage, and appeal to investors to understand that the unwinding process is likely to take considerable time,' it said, adding that the receivers and trustee will act to safeguard the interests of the noteholders.

It also said that restructuring is not viable at this stage.

'The restructuring proposals previously received with respect to the Minibond notes have been ruled out as an option for now, due to the legal issues and complexity involved in unwinding the structures,' said the trustee.

In October, three financial institutions were said to be submitting restructuring proposals which would essentially mean taking over the underlying securities and holding them until maturity.

The restructuring proposal held out a slim hope that there might be some money for investors upon maturity.

Investors bought the defaulted Minibonds arranged by Lehman Brothers worth $508 million over the last two years, of which $375 million worth was sold to about 8,000 retail investors through nine distributors.

HSBC said that three receivers from PricewaterhouseCoopers (PwC) Singapore have been proceeding with an orderly unwinding of the Minibond note structures including the various swaps in the structures.

Even this is being challenged by the lawyers, and HSBC and the receivers said that they are aware that Lehman might intend to challenge certain aspects of the unwinding process.

Dominic Nixon, one of the three receivers, said that they were working as quickly as possible to get a resolution for noteholders here in Singapore.

'Due to the multitude of factors that are not within the immediate control of the trustee and receivers, this cannot be resolved within a short span of time.

'The receivers expect the process could take at least two years or more,' he said.

The Monetary Authority of Singapore (MAS) said that the independent financial adviser, Deloitte & Touche Corporate Finance Pte Ltd (DTCF) concurred with the decision of the receivers to terminate the swaps.

'In addition, pending further clarity over the legal issues and the resolution of any litigation involved, DTCF understands that the receivers are not presently able to either restructure the notes or to realise value by selling or liquidating the underlying collateral,' it said.

In Hong Kong, the legal challenge has tripped up a buyback process. Banks there had agreed to buy back the Minibonds after mass protests from aggrieved investors.

A report from the South China Morning Post last week said that a taskforce which agreed to a government proposal for banks to buy back the Minibonds after valuing them had to discuss whether US bankruptcy laws would prevent them from doing so.

MAS also said that the latest developments do not affect the handling of complaints of Minibond investors who felt that they were mis-sold.

'We require distributors to have a rigorous process to look into every complaint and to ensure that legitimate grievances are dealt with fairly, regardless of the outcome of these legal issues,' it said.

Noteholders who are not satisfied may have their complaints referred to the Financial Institutions Dispute Resolution Centre for mediation or adjudication.