Published October 28, 2009

Temasek bond to set price benchmark

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SINGAPORE investment company Temasek Holdings said its US$1.5 billion bond sale this month will set a new pricing benchmark for its debt.

The sale of 4.3 per cent, 10-year notes 'helps to establish public markers for our credit quality, and provides us with the discipline of engaging with an expanded international stakeholder base', chief financial officer Leong Wai Leng said in a statement yesterday.

Temasek sold its first bonds for four years on Oct 20, pricing them to yield 95 basis points more than similar-maturity US Treasuries, according to data compiled by Bloomberg. The notes last traded at an 89 basis-point spread, according to Royal Bank of Scotland Group prices.

Temasek updated its charter in August, the first time in seven years, reflecting a transformation from a passive owner of stakes in government-controlled companies to an investor with more than two-thirds of its assets outside Singapore.

The company said in May that it wanted to establish a 'series of different tenured bonds for a more robust and nuanced signal over the longer-term'. -- Bloomberg

Published October 28, 2009

Aussie case puts heat on directors

By R SIVANITHY

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THE name Centro Properties would probably not be readily recognisable to most readers, regulators and company directors here but if the Australian Securities and Investments Commission (ASIC) wins a legal case it initiated last week, you can be sure Singapore-listed companies' office bearers and anyone with an interest in directors' responsibilities would surely sit up, take notice and very quickly familiarise themselves with all things Centro.

Not only that, they'd also be wondering how far the buck should be pushed when holding company bosses culpable for accounting transgressions? Should it stop at senior management or should it include non-executive directors as well?

Centro is an Australian-listed operator and manager of shopping centres in Australia, New Zealand and the US. At the peak of its fortunes in mid-2007 its shares traded at A$10; today, after a spectacular crash triggered by the US sub-prime collapse and revelations surrounding a huge, apparently opaque debt burden, the shares sell for about A$0.30. Even now, after a lengthy financial rescue, Centro is still described as struggling to survive.

Adding to its woes, in a controversial move last week, ASIC said it is seeking management bans and pecuniary damages against the entire Centro board of 2007, alleging that the board breached its duty in approving accounts that year which contained material mis-statements.

At the heart of the issue is A$1.5 billion (S$1.9 billion) of short-term debt, or debt which has to be repaid within a year, that was incorrectly classified as non-current in Centro's accounts and its listed spinoff, Centro Retail Trust.

The company is currently embroiled in other legal wrangles, including one against its former auditors PricewaterhouseCoopers (PwC) and another against aggrieved shareholders who allege in a A$1 billion class action that Centro's failure to properly classify its debt levels led to the collapse in its shares once the correct picture was revealed.

The case is the first brought under new laws introduced in 2004 requiring the chief executive and chief financial officer to personally sign off on the accounts, declaring them as having complied with accepted accounting standards.

Now, it's worth noting that Centro's 2007 accounts had been passed by PwC so in effect the ASIC is saying it doesn't matter if external experts have endorsed the numbers, all Centro directors - executive and non-executive alike - should have had an intimate knowledge of the accounts and should have known of the mis-statement.

The case, described in the Australian financial press as having shocked the financial community, is sure to polarise opinion. Our guess is that ASIC's actions will be generally condemned within corporate circles because it significantly raises the bar on directors' performance and responsibilities, especially since even non-executive directors are being targeted. Critics will likely argue that it is unreasonable to expect all company officers to possess such detailed knowledge of the accounts and that if all directors are found guilty, such a ruling would deter many qualified people from holding directorships.

Supporters, on the other hand, would welcome the move and argue that the law requiring senior management to sign off on the accounts was introduced in the wake of the Enron and Worldcom scandals several years ago and such a law has surely to be enforced via the courts sooner or later.

Our sympathies are with the latter camp - it is entirely reasonable to expect top management to know their accounts inside out and to be made answerable for any large-scale accounting lapses that exert a material effect on the share price.

The only area open to debate really, is whether non-executive directors can be held similarly accountable since they are not closely involved with the day-to-day running of the business and may have no real managerial clout. Should they be made equally liable? It'll certainly be interesting to see what the Australian courts decide.

Published October 28, 2009

LATEST US DATA
Jobs rut deepens US consumer gloom

October confidence index shows biggest fall in eight months

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(NEW YORK) US consumer confidence deteriorated sharply in October as the worst job market in a quarter century heightened concerns about the future, more than outweighing modest improvements in the housing sector.

Despite the stability in house prices, which saw a fourth month of gains in August, a report from The Conference Board suggested Americans are far from upbeat.

The industry group's confidence index dived to 47.7 this month from 53.4 in September, the biggest drop in eight months. The report was unequivocally weak, with the expectations index plunging to 65.7 from 73.7.

Persistent trouble in the labour market was a major culprit. The proportion of respondents saying jobs were hard to get rose to 49.6 from 47.0 per cent.

'Consumers' assessment of present-day conditions has grown less favourable, with labour market conditions playing a major role,' said Lynn Franco, director of The Conference Board Consumer Center Research.

'Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays,' Ms Franco added.

'There really isn't any scope for us to see sustained gains in consumer spending for quite some time,' said Joshua Shapiro, chief US economist at Maria Fiorini Ramirez Inc, a New York forecasting firm. 'The labour market remains very weak.'



The current conditions indicator fell to 20.7, and is near its lowest level in 26 years. This mirrored the labour market, where the current jobless rate of 9.8 per cent is the highest since 1983.

At least home prices, battered by a severe recession in housing, appeared to be finding a footing. The Standard & Poor's Case/Shiller report on house prices showed its index of prices in 20 cities rose 1.2 per cent, outpacing median forecasts of economists polled by Reuters.

The rise helped moderate the year-on-year price decline, slowing it to 11.3 per cent.

'It does suggest there is some recovery going on,' said David Sloan, economist at 4Cast Ltd. 'It is possible the market is getting some temporary support from the temporary tax credit which may not last longer.'

'Broadly speaking, the rate of annual decline in home price values continues to improve,' David Blitzer, chairman of the index committee at S&P, said in a statement.

While the US housing market, a primary driver of the worst US recession since the 1930s, has found some footing after a three-year slump, it remains highly vulnerable to setbacks.

Mr Blitzer said the upcoming expiration of the government's US$8,000 tax credit for first-time home buyers on Nov 30 and anticipated higher unemployment rates through year-end could negatively impact home prices going forward.

'Both may have a dampening effect on home prices,' he said.

Furthermore, many analysts say prices are poised to fall again, with a new wave of foreclosures in the pipeline.

The composite index of prices in 10 metropolitan areas gained 1.3 per cent in August after a 1.7 per cent rise the previous month. The monthly price increases helped the annual rates, with the yearly pace of declines in home prices slowing to a 10.6 per cent drop in the 10-city index and a 11.3 per cent decrease in the 20-city index. -- Reuters, Bloomberg, AP