少侠很是用功
The Edge Singapore
May 27, 2013
The Week: Should DBS press on with bid for Bank Danamon?
BYLINE: Goola Warden
LENGTH: 579 words
It was not what officials at DBS Group Holdings wanted to hear. Yet, news reports quoting Darmin Nasution, the outgoing governor of Bank Indonesia (BI), that DBS would be allowed to acquire a 40% stake in PT Bank Danamon were taken to be a victory of sorts. In reality, an outright rejection from Indonesia's authorities might have been a better outcome for investors in DBS.
In April last year, DBS announced plans to acquire a 67% stake in Bank Danamon from Temasek Holdings for IDR7,000 per share, or a total of IDR45.2 trillion ($6.2 billion). DBS said it would pay for this by issuing 439 million new shares at an issue price of $14.07. That would have increased Temasek's stake in the enlarged DBS to 40% from 29% currently. DBS also planned to make a cash offer for all the remaining shares in Bank Danamon at IDR7,000 each. That would have cost it a further IDR21.2 trillion.
While the deal would have given DBS a significant footprint in one of the region's most under-banked markets, the transaction was criticised by some observers for benefiting Temasek at the expense of minority investors in DBS. Indeed, shares in DBS have risen 31% since April 2 last year to $17.39 currently. On the other hand, shares in Bank Danamon have slid 0.9% to IDR5,850 during that time.
Pressing ahead with the acquisition of just 40% of Bank Danamon is likely to draw more criticism. For one thing, not having outright control of the Indonesian bank might limit the ability of DBS to extract maximum synergies from the unit. A mere 40% stake in Danamon would also be a drag on DBS's capital ratios under the new Basel III standards, according to a report by UBS dated May 21.
According to news reports, BI might eventually allow DBS to acquire more than 40% of Bank Danamon in the event the Monetary Authority of Singapore (MAS) allows Indonesian banks easier access to the Singapore market. For its part, DBS reacted coolly to the news reports of BI's decision. "DBS hopes the application will be approved as originally submitted and will continue to be closely guided by Bank Indonesia," says a spokeswoman for DBS.
According to officials at DBS, as at May 21, the bank had not received written notification of BI's approval for it to acquire a 40% stake in Bank Danamon. Some analysts doubt that written notification will be issued immediately if BI and MAS now enter discussions about reciprocal market access. "Without a clear, indisputable path to control within a sensible timeframe, we think DBS may need to reconsider its options," says UBS in its report.
Indeed, there is a possibility that Temasek will also baulk if it is not allowed to unload its entire 67% stake in the transaction. "If DBS were to get just 40% and Temasek can only sell 40%, both are likely to walk away as the deal would not make any sense," says Kenneth Ng, an analyst at CIMB Research, in a report.
So, what happens next? "We think the episode is not over yet," Ng says in his report. "BI seems to be finessing to get concessions from MAS, so that Indonesian banks can gain access to Singapore before BI eventually allows a full transfer of the 67% stake. We think MAS could ultimately approve of such a plan." Even then, however, DBS might not be allowed to acquire all of Bank Danamon, Ng adds.
Gaining a significant footprint in Indonesia could boost DBS's long-term prospects. Yet, the uncertainties it faces in its bid for Bank Danamon raises serious questions about whether it ought to press ahead.
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The Edge Singapore
May 27, 2013
Week in Review
BYLINE: Compiled by Jo-Ann Huang
LENGTH: 558 words
F&B group Japan Foods Holding is opening the Menya Musashi brand of restaurants in China, marking its expansion in the country. Japan Foods will do this via Highly Yield, a joint venture with Ajisen Investments, an indirect wholly-owned subsidiary of Ajisen China, in which Japan Foods holds a 20% stake and Ajisen Investments hold the remaining 80%. Menya Musashi is a popular brand of restaurants in Japan serving ramen. Japan Foods holds the license rights to operate restaurants of the Menya Musashi brand in Singapore. The group has opened five restaurants in Singapore and through joint ventures, has five restaurants in Hong Kong.
Religare Health Trust, the business trust with a portfolio of healthcare assets in India, announced that its executive director and chief operating officer Gurpeet Dhillon will become the company's CEO with immediate effect. Dhillon succeeds Ravi Meh-
rotra, who will continue to serve as chairman and director of Religare Health Trust. The trust reported a 3.55-cent distribution per unit for its FY2012 ended-March, representing a yield of 8.75%, on the back of $49.6 million in revenue. It added that Gurgaon Clinical Establishment, the largest asset within the trust's portfolio, is fully operational and a key growth driver.
Trading company Intraco says the acquisition of Dynamic Colours Ltd (DCL) will bring about synergistic benefits to both companies. Foo Der Rong, CEO of Intraco, says DCL could market the plastic resins distributed by Intraco's plastics division to customers in Vietnam and Malaysia, while Intraco could market the compounded resins DCL produces to its own customers. Intraco announced a conditional cash offer for DCL on May 3, following the acquisition of 20.1 million DCL shares at 18.5 cents, raising its shareholding in DCL from 29.9% to 39.5%. It is now offering to acquire all the issued shares of DCL at the same price, conditional upon receiving more than 50% of the voting rights of the issued shares.
Cedar Strategic, a Catalist-listed company in the real estate industry engaged in asset management, is acquiring Hua Cheng Group, a leading property player in Guizhou province in China for $936.2 million. The move is part of Cedar Strategic's positioning as a regional real estate group. Hua Cheng has assets worth RMB6.7 billion ($1.36 billion) in Guizhou, and has completed more than 12 property developments to date. Dr Charlie In, chairman of Cedar Strategic, says the acquisition will complement its property portfolio in Singapore, and is expected to generate stable income revenue streams. Cedar Strategic will acquire Trechance, the owners of Hua Cheng, for $936.2 million, satisfied by the issuance of 46.8 million new shares at two cents each. It will also convene an EGM among shareholders to seek approval for the acquisition.
Sembcorp Industries, the biggest utility company in Southeast Asia, has officially opened its US$1 billion ($1.26 billion) Salalah water and power plant in Oman. The facility consists of a gas-fired power plant and a seawater desalination plant, the largest of its kind in Dhofar, Sembcorp said in a statement. The company's first facility in Oman, it will provide water and power under a 15-year purchase agreement with the state. Commercial operations at the facility began earlier this year, the company said in the May 19 statement.
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The Edge Singapore
May 27, 2013
EdgeWise: A Myanmar gem tycoon dazzles local investors
BYLINE: ---
LENGTH: 654 words
Nay Win Tun wears a ring set with diamonds and a ruby the size of a quail's egg on each of his hands. A gem-encrusted writhing dragon pin adorns the lapel of his jacket. And, he could be struggling Catalist-listed WE Holdings' ticket to salvation.
Nay Win Tun is chairman of the Ruby Dragon group of companies, based in Myanmar's southern Shan state. According to reports, the business empire was founded in 1992, after Shan rebel leader and Nay Win Tun's mentor Aung Kham Hti cut a peace deal with the country's military regime. Over the last two decades, the group's interests have expanded from gold and gem mining to vineyards, resorts and construction materials.
On May 18, WE Holdings said it would invest US$20 million ($25.24 million) in a 20% stake in Dragon Cement, which owns a cement factory in Shan state. WE Holdings also has an option to acquire a further 20% of Dragon Cement for US$20 million.
Dragon Cement was started two years ago, reportedly with about US$21 million in initial investment. The Ruby Dragon group also provided it with funds for working capital. Dragon Cement now produces 400 tonnes of wet process cement daily. WE Holdings' investment will go towards doubling its output to 800 tonnes daily. Under the deal, the limestone, gypsum and coal mines that supply raw materials to the cement factory will be held under Dragon Cement.
Shares in WE Holdings are up nearly 200% this year, as the company has begun looking for investment opportunities in Myanmar. In early March, WE Holdings said it would expand into the oil and gas business in Myanmar, through a joint venture with Nay Win Tun. As part of the agreement, both parties would invest $100,000 each in a joint-venture company. WE Holdings intends to spend some
$1.17 million on expansion into this sector.
Kenny Sim, CEO of WE Holdings, says the company has not abandoned its plans to enter the oil and gas sector following its decision to invest in Dragon Cement. In fact, the joint venture it formed with Nay Win Tun is still actively looking for oil exploration opportunities in Myanmar, he adds.
In the meantime, however, the cement deal was too good to pass up. "We identified Myanmar as one of the locations where there will be growth," Sim says. "We realised that the property market and infrastructure sector is booming, and the best way to be part of it would be through the cement business."
According to Nay Win Tun, the cement business enjoys gross margins of 40%. And, with strong demand from road builders and housing developers in the Shan state, he does not have plans to expand beyond this market for now.
Through WE Holdings, however, Nay Win Tun has access to cash from the public market for any investment opportunities that do come along. With the steep run-up in its shares, WE Holdings has raised cash more than once this year
In February, it took in some $6 million from the placement of new shares. Its controlling shareholders, including CEO Sim, also sold some of their shares. That exercise brought in Terence Tea, now WE Holdings' chairman. Tea currently holds about 10.3% of WE Holdings through his metal trading company SingYaSin SMC.
On April 2, WE Holdings announced a rights-cum-warrants issue that could raise as much as $10.1 million. The company says it plans to use about half the proceeds to repay debt, and another $3.45 million to fund new businesses.
Meanwhile, WE Holdings has signed a deal with Serial System to dispose of its electronics business for US$2.06 million. That is just 3.3% of its FY2013 revenues, and close to its FY2007 earnings before business deteriorated. (The company has a March year-end). Serial System also has an option to buy WE Holdings' inventory, which is carried in its books at US$4.8 million.
Will WE Holdings fare any better in Myanmar with Nay Win Tun than it has with its legacy electronics business? For now at least, it's a risk that investors seem happy for it to take.
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The Edge Singapore
May 27, 2013
Economy Watch: US growth likely to gain momentum, says Société Générale's Aneta Markowska
BYLINE: Assif Shameen
LENGTH: 1648 words
As benchmark US equity indices slipped from their recent record highs, markets are now scouring for clues on when the world's largest economy will taper off its aggressive monetary stimulus programme. As part of its quantitative easing efforts, the US Federal Reserve has been buying US$85 billion ($107 billion) worth of Treasury and mortgage bonds every month in an attempt to keep long-term borrowing rates down. The move has pushed the prices of bonds up, while sending their yields lower and encouraging more American consumers to spend and invest.
One person who believes that the Fed may soon begin to reduce its asset purchase programme is Aneta Markowska, chief US economist for French banking giant Société Générale in New York. She argues that the current consensus view of the Fed rolling back at year-end may be off the mark. She believes the asset purchases will start tapering off in the third quarter, though like others, she does not believe the US central bank will move on interest rates until 2015 when unemployment dips below the 6.5% target. Markowska spoke to The Edge Singapore over the phone from the US recently. Here are excerpts from the interview.
What is your take on the US economy right now? Until a few weeks ago, the consensus was that the US economy was in a recovery mode with a rebound in housing, improving consumer sentiment and falling unemployment. Some of the more recent data suggests the recovery may be more fragile.
That's not really been a huge surprise. Maybe the softness came in a little bit earlier than expected but we always knew that there were fiscal restraints that were going to affect the economy, particularly the sequester which kicked in around March. Everybody thought the effects were likely to be felt with a little bit of a delay. There is also this typical seasonal slowdown in hiring in the US and that seasonal distortion has emerged since the crisis. So, there was an expectation that we would see some deceleration in the pace of hiring. If anything, I will argue that the deceleration is not as severe as expected. The consensus GDP forecast for 2Q is around 1.5%.
Would you say that the US is on track to get unemployment down to the magical 6.5% number by next year-end?
The 6.5% unemployment target might only [be] hit at some point in 2015. I would also say that the private sector is now looking much healthier. There has been a lot of repair in household balance sheets. I also think housing is now a tailwind to growth, not just through residential investments but also through secondary knock-on effects from rising home prices. So, a lot of the structural headwinds to growth that we were facing in recent years have dissipated and have actually become tailwinds. If it hadn't been for fiscal restraints, we would be seeing growth in excess of 3% on a more consistent basis. So, we really just have to get through that fiscal restraint and I believe that it will begin to diminish in the second half of the year at the margins and some of the positive private sector fundamentals will start to come through on the GDP numbers. I expect much stronger growth in the second half of the year or around 3% for the third and fourth quarters.
It seems US consumers are getting a bit of a bonus as well, with lower commodity prices, particularly low gasoline prices at the pump, which work like a nice tax cut?
The gasoline prices are an added benefit, which are helping to offset the fiscal drag in the near term. We had a slight tax increase earlier in the year and there wasn't much of an impact on consumer demand in the first quarter and while there is some concern that we might get a delayed hit in the second quarter, there have been other factors offsetting, including the decline in gasoline prices, which is quite helpful. As at April, consumption growth had already hit 1.7%, so there is actually upside risk to GDP numbers in the second quarter.
Have US household balance sheets been repaired to the extent where consumers are more confident about spending?
Absolutely. I think it has to do with the type of repair that is going on because up until recently, the Fed struggled with reflating home prices, in particular. So to the extent the households who wanted to rebuild their balance sheets had to do it through the liability side, that is by reducing their mortgage and obviously that [had] weighed on consumer demand. Now that home prices are rising decidedly above or ahead of expectations, the rebuilding of balance sheets has shifted to the asset side. This is a more growth-friendly balance sheet repair. That is why I believe we are now at the end of the deleveraging process or the pressure to reduce debt by cutting demand.
Isn't there also that wealth effect from the soaring stock market with US indices hitting new highs every other day?
To be honest, empirical evidence suggests that wealth effect with respect to financial markets is not that strong. Actually, wealth effect due to higher residential real estate prices is much stronger. So, that is why I think we are at an inflection point because even though the Fed was very successful in reflating financial assets, it struggled to reflate housing. It has only started to succeed on that front quite recently.
Talk about that fiscal drag. The US went to the edge of a fiscal cliff at the end of last year, but just avoided it; there was the withdrawal of the payroll tax and, more recently, the sequester. At end-May 2013, have Americans taken all the hits from the fiscal drag or are there more to come?
We are still in the process of taking the hits. I think by the end of the year or by the third quarter, we will be past the worst of it. I will argue that we have already passed all the hits on the tax increases and to the extent we were going see an impact, we would have seen it by now. There is only so much delay that one would anticipate on that. The impact of the sequester is still, however, a question mark. We really haven't seen much in the data yet. We are still in the beginning of it, so there is a risk that it might still come through in the next few months. But I believe in the second half of this year we will have been through the inflection point of fiscal restraint. Government spending will still continue to contract but as long as the pace of contraction starts to diminish, we will have acceleration of the GDP.
Let's move beyond the next two quarters and look out to a few years from here. What will drive the US economy forward over the next three years? Is it going to be shale, the oil boom that makes it Saudimerica or manufacturing coming back to the US as "insourcing" becomes the next big trend?
We are at the start of a multi-year secular trend or cycle where we are seeing a lot of new structural drivers. As far as the shale story [is concerned], that's already showing up in the data. The "insourcing" or manufacturing renaissance is not showing in the data yet, but we are certainly seeing a compelling case when you look at unit labour costs in the US now compared with some [of] our Asian trading partners. When we add on top of that all the non-labour costs such as logistics and shipping, it makes the case even more compelling. We are now seeing more anecdotal evidence that [it] is actually happening and that companies are bringing some production back at the margins. But really, they are just testing the waters and seeing if the numbers that look good on paper actually work in real life. So far, we hear that some of the experiences have been very positive, so I expect to see more of it over the next few years. But it will happen gradually over time and we will start to see the impact of this manufacturing renaissance and insourcing over the next few quarters.
What could go wrong for the US economy at the moment? What might derail US economic recovery? Are the big risks mainly external - such as a sudden turn for the worst in the European debt crisis or a sharp slowdown in China - or something internal that the Fed might do or Congress might force the Administration to do on fiscal policy?
Certainly the external risks are always there although I will say that the US is primarily a domestic demand-driven economy. The only way Europe or China could impact the US economy in a negative way is through a financial event or a financial shock and while that continues to be a risk, I don't think that is a huge risk right now. The real risk is that once the US economy starts to normalise, meaning we start to erode the excess slack and the Fed starts to normalise its policy, whether that process will be smooth or disruptive. While I don't expect the Fed's move to be outright disruptive, I do believe it is unlikely to be as smooth as the Fed would like it to be. We are looking at bond yields to move up quite sharply. Our own year-end target for 10-year treasuries is 2.75% (from 1.97% currently). While we don't think that will necessarily derail the economy, we think the whole process could be challenging for investors and probably bring volatility back into financial markets.
But you don't see the Fed moving anytime soon - not this year and probably not for much of next year.
No, not on interest rates but I think the Fed will start tapering [off] asset purchases sooner rather than later. Our own call is that it will start tapering in the third quarter and that it will actually be done with asset purchases by the end of the year, so we do see risks on the consensus view, which is that [the] Fed will continue to buy at [the] current pace at least until the end of the year. If the tapering does begin in the third quarter, we believe the bond markets could sell off pretty sharply. I believe the risks to growth are shifting to the upside and the Fed tapering will come sooner than everyone expects and that the next big challenge is the normalisation of interest rates.
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The Edge Singapore
May 27, 2013
Corporate: US economy, stocks to upstage Asia in two years, says Standard & Poor's
BYLINE: Frankie Ho
LENGTH: 1420 words
Asia may be the world's centre of attention at the moment, with stocks in Japan all the rage among investors and most economies in the region still bustling with activity, but it is the US that will capture the global spotlight in the next couple of years as the world's biggest economy springs back to life.
That, in a nutshell, is one of the key messages delivered at a recent investment conference in Singapore organised by S&P Capital IQ, a sister company of Standard & Poor's Ratings Services and subsidiary of New York-listed McGraw Hill Financial.
According to Paul Gruenwald, Asia-Pacific chief economist at S&P Ratings Services, the "real surprise" in the next two years will come from the US. "It looks like all the pieces are coming together. We have households starting to spend again. Banks are starting to lend again. The housing market has turned around. The fiscal situation is looking better. Shale gas is coming online. So, we can actually tell a pretty good story about the US," he says.
While some investors are concerned that the US Federal Reserve may soon decide to wind down its quantitative easing (QE) programme and even raise interest rates - measures that helped lift the world's largest economy out of recession - Gruenwald figures that any such moves should be regarded positively. "If the Fed is thinking about going off zero per cent rates and ending QE, that means the economy and the labour market are strong enough for them to be confident enough to start moving."
As the US economy gathers strength, American corporate spending will rise and interest in US stocks will increase, says Lorraine Tan, another speaker at the conference. She is vice-president of Asia equity research at S&P Capital IQ. "North American expansion is there. Part of that is fuelled by deferred spending over the past few years because of the recession."
Companies in the US are also benefiting from cheaper fuel costs as the country exploits vast reserves of shale gas. "Cost pressures in the US are not really there. The [environment] is therefore more conducive for organic expansion. It's definitely more competitive [than Asia] as well," Tan adds.
Already, the Dow Jones Industrial Average has risen above the 15,000-point mark for the first time, buoyed by recent signs of strength in the economy, including a drop in the US jobless rate in April to 7.5%, the lowest since December 2008. "I think the expectation is that the US is going to garner the lion's share of the interest in equities in the next couple of years," says Tan.
Stocks in the US are still "relatively cheap" in terms of valuations, with price-to-earnings ratios of companies tracked by the S&P 500 index holding below their long-term average, she points out. "Going by the long-term average, you'll see the S&P 500 at 1,700. There is still room to go up." The S&P 500 is up about 17% so far this year, and is holding above 1,600.
Kinks in Asia
As for Asia, economies in the region should continue to hum along, but challenges abound, according to S&P. For one, a mismatch in supply and demand has emerged, following substantial investments in Asia over the past few years.
"This region, in our view, is becoming a victim of its own success, in the sense that a lot of companies are no longer investing in Europe or the US, but in Asia because that's where the growth is," says Xavier Jean, director of corporate ratings at S&P Ratings Services. "When everybody starts investing in the same place, it creates more and more supply and structural over-capacity.
"When China's GDP was growing at 9%, people were building capacity for 9% growth. But when China's growth slows to 8% or 7.5%, you start having a bit of dissociation between the supply and underlying demand, which, although still very robust, is going down to some extent."
Sectors most exposed to this "dichotomy" include chemicals, mining and base metals, Jean says. Even certain consumer segments in countries such as Indonesia and Vietnam are starting to face excess supply, although some companies are reluctant to scale down expansion as "they don't want to be left by the side of the road if [economic] growth picks up".
Complacency has also set in in some industries in Asia, Jean adds. "Because demand was growing, the only thing they [felt they] had to do was to add capacity. That led to management thinking they could not fail, that they didn't need to innovate. But we've started seeing margin pressure across a number of sectors. This complacency and cannot-fail attitude is potentially a risk for the next two years or so for the corporate sector."
Consolidation within industries is essential in order for companies to achieve some stability in the prices of their goods and services, according to Tan. Already, fixed asset investments in China are tapering off, she notes. "That is probably prudent." China may even let some of its state-owned enterprises go under, "something they are not necessarily used to doing". Higher labour costs in Asia will also continue to be a key risk for companies, she adds. As such, profit margins for companies in Asia excluding Japan are likely to be "stable at best".
Cheap debt
Low borrowing costs may also work against some companies in Asia, Jean notes. "Some companies see that they can borrow money cheaply and just borrow it. They then think about what they are going to use it for. That is something that doesn't bode well from a value creation point of view. They start diversifying. Companies that historically are very strong in one sector, because money is so cheap, start expanding into a completely unrelated sector. For sure, you create value when things go well. But when you don't have any track record or experience, things can turn sour," he says. "When value creation is dictated by increased risk-taking rather than by looking at your markets, trying to innovate and maintaining and developing your competitive advantage, that is a bit worrying."
Without naming the companies involved, he alludes to "some very high-profile Thai takeovers of companies" in Singapore as an example. "[The Thai parties] spotted a very large opportunity outside their market - in this case, Singapore - and started using debt because debt is cheap. There are some sectors that are notoriously difficult to create synergy; consumer products just take forever."
Through his firms Thai Beverage and TCC Assets, Thai tycoon Charoen Sirivadhanabhakdi took control of Singapore F&B group Fraser and Neave in February in a $13.8 billion acquisition, the largest takeover deal in the city-state's corporate history.
'Consumption must increase'
In order for economic growth in Asia to be more sustainable, consumption - rather than investment - needs to increase, according to Gruenwald. While investment is necessary for building and maintaining infrastructure, a consumption-based approach to growth is more important as an economy will come out of the infrastructure build-out stage of its development and move towards maturity, he says. "Boosting investment alone may work for a while to stimulate growth, but it will eventually hit the wall of diminishing returns."
Within Asia, China and Singapore rank the lowest in terms of private consumption as a percentage of GDP, says Gruenwald. The former has a consumption-to-GDP ratio of 36%, while Singapore's is 39%, well below the range of 50% to 65% for the rest of Asia. "This tells me that these economies are not getting enough resources to households. That's allowing countries to run big current account surpluses and pile up on reserves. This is not good news."
To boost consumer spending, Gruenwald suggests that countries in Asia strengthen their social safety nets so that households spend less on insurance and more on consumption. Banks should also be encouraged to lend more to households and small and medium-sized enterprises, while countries should allow their currencies to appreciate so that imports are cheaper. State-owned enterprises should ideally also distribute part of their profits to households.
In general, while Asia should continue to outpace global economic growth in the near term, "most of the upside" will come from the US in the next couple of years, he figures. "We don't expect too many fireworks out of Asia. China is going to be a 7.5%-to-8% growth story. Asean, led by Indonesia, is going to be pretty stable. Meanwhile, we have these small tiger economies - Hong Kong, Singapore, Taiwan and South Korea - that kind of go up and down more than the global economy."
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The Edge Singapore
May 27, 2013
Opinion: Time for companies to think of better ways to reach customers
BYLINE: Joan Ng
LENGTH: 756 words
On holiday in Italy two years ago, I was buzzed out of bed by my ringing smartphone. I groggily swiped the screen to turn off what I thought was my alarm - wondering why I felt so unrested - only to be greeted by an all-too-familiar voice: "Good morning, ma'am, I'm calling from..."
No doubt, there are readers who have felt the same annoyance before at being rudely awakened, and who are, like me, looking forward to the implementation of the Do Not Call (DNC) Registry next year. New rules will require companies to cross-check phone numbers against a national database before calling those numbers or sending text messages.
The new rule will add, however, a layer of cost and complexity that businesses appear concerned about. Recent news reports have quoted representatives from industry bodies such as the Contact Centre Association of Singapore and the Singapore Business Federation, which say small and medium-sized companies in particular will face challenges with compliance. Besides the additional work involved in looking up numbers every 30 days, businesses also have to pay for each number checked.
But companies concerned about such details are missing the forest for the trees. There is strong consumer support for a DNC Registry. The Infocomm Development Authority (IDA)'s public poll of 724 respondents found that 97% supported such a list and 96% wanted a Data Protection Commission to investigate and serve enforcement notices on organisations that have breached data protection laws. The real message that telemarketers, contact centres and businesses in general should take home is this: Customers do not like being bothered on their mobile phones.
There will always be exceptions, of course, just as there will always be people who click on spam email and keep the business model of spammers alive. According to a study by computer scientists from the University of California in Berkeley and San Diego, one response in 12.5 million emails sent is enough for spam operations to turn a profit because the business cost is so low. And indeed, when the IDA conducted its public consultation on the proposed DNC registry, some organisations responded that the new rules would disadvantage customers who want to receive marketing messages.
Yet, building a customer communication and marketing campaign on the same principles as email spam - low costs and working on the law of averages rather than actual understanding of the target customer - was a poor model to begin with. Companies should not think about how much more it will now cost them to hit on that one customer who will say "yes" on the phone, or respond positively to an SMS ad campaign. Rather, they should think about how they can make their interactions with customers more meaningful.
American entrepreneur and author Seth Godin writes that "the best definition of permission marketing used to be messages that were anticipated, personal and relevant". The real question marketers should ask, Godin says, is would people miss it if it did not arrive? That is because spam is not defined by a set of regulations or a marketer's objective, but by whether the recipient wants it.
Today, the sending of bulk unsolicited commercial electronic messages such as text messages and emails is governed by a Spam Control Act that requires senders to include an "<ADV>" prefix in the subject header and a valid means to unsubscribe. In other words, it is not technically spam unless there is no way to get out of it. Yet, a text message that complies with those rules is no less annoying.
Companies need to think of better ways to reach their consumers. And technological advancements have made it possible for even small businesses to accomplish this. Consider LINS Smoodees, a small veggie smoothie shop in the CBD that earlier this year tried to build a marketing database on Facebook. Anyone who "liked" its Facebook page would be able to redeem a one-for-one offer. The company has built a database of 1,000 customers and can send them messages about what is on offer daily.
Customers indicate their preferences in all sorts of ways, and social media is just one of them. Other new media marketing tactics emerging include online coupons and smartphone apps. The great thing about such targeted technologies is that most recipients are interested in whatever is on offer. And once companies have people looking forward to what they have to say, they will not be in the awkward position of having to explain why they had to wake someone up in the wee hours of the morning.
LOAD-DATE: May 28, 2013
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The Edge Singapore
May 27, 2013
Corporate: Singapore's REIT sector is maturing
BYLINE: Goola Warden
LENGTH: 2248 words
Eng Seat Moey, managing director and head of asset-backed structured products at DBS Group Holdings, has seen Singapore's real estate investment trusts (REITs) come a long way over the past decade. In 2002, Eng helped facilitate the listing of CapitaMall Trust, Singapore's first REIT, which hit the market with about $600 million in assets. Today, CMT has assets of $9.6 billion, and a market value topping $8 billion. It is the biggest and, arguably, the most successful of more than two dozen REITs and property-related business trusts in the local market.
Over the past year, the FTSE REIT Index is up 39% against the Straits Times Index's pedestrian 23% gain excluding dividends. That could fuel further growth in the sector, as individual property trusts raise funds for acquisitions, and new trusts are created. Notably, Singapore saw the biggest REIT ever to come to market this year with the listing of Mapletree Greater China Commercial Trust (MGCCT), which had an asset size of $2.1 billion, Eng notes.
Now, a handful of long-term winners with the heft and expertise to continue delivering steady returns look set to forge ahead. "It's no longer a situation where a REIT manager just sits back, acquires, acquires and acquires to look for yield accretion," Eng tells The Edge Singapore during a recent interview. "REIT managers have to up the ante and actively manage the portfolio and capital structure."
Singapore's leading REITs have been doing just that. Last year, CMT divested itself of Hougang Plaza for $24.1 million. The REIT is also redeveloping assets such as Jurong Entertainment Centre into JCube, and transforming acquisitions such as -Iluma into Bugis+ under asset enhancement initiatives (AEIs). Meanwhile, CMT's first development property, a 30% stake in Westgate in Jurong, will open this year-end. Most recently, CMT announced it is spending $35 million on an AEI for Bugis Junction, recovering 70,000 sq ft from department store BHG and reconfiguring the space. The REIT is expected to deliver a return on investment (ROI) of 9% from the AEI.
Another REIT that is demonstrating an ability to deliver returns in a multiple of ways is CapitaCommercial Trust, which focuses on office properties. In 2011, CCT sold Robinson Point and Starhub Centre. CCT is also redeveloping its Market Street Car Park site into CapitaGreen in partnership with sponsor and major shareholder CapitaLand.
CMT and CCT are part of the CapitaLand corporate stable, which other REIT managers seek to emulate. Eng says REITs backed by big local property groups such as CapitaLand, Ascendas, Mapletree Investments, Keppel Land and Frasers Centrepoint have an advantage because of their deep talent pool and strong financial standing. These REITs also enjoy a lower cost of debt and a ready pipeline of assets that they can acquire to grow.
The way Eng sees it, these qualities are just what investors are looking for in a REIT. "As investors become more selective, they want to look at the capability and expertise of the REIT manager. The REIT manager is very important," she says. "It's a lot more of fund management, property management and capital management."
This focus on quality is partly the result of the problems encountered by the sector during the recent global financial crisis, when credit became scarce and asset values collapsed. Even the best-managed REITs were caught in a bind, and it was ultimately the ones backed by strong parents prepared to lend support that came through. Among the
REITs that raised fresh equity during the crunch with the backing of their parent groups were CMT, CCT, Keppel REIT and Mapletree Logistics Trust.
A number of REITs that did not have strong parents ended up being acquired by other groups. Notably, Allco Commercial REIT's manager was bought by Frasers Centrepoint. MacarthurCook Industrial REIT and its manager were acquired by George Wang, an Australian businessman. Cambridge Industrial Trust's manager changed hands. Meanwhile, Macquarie Prime REIT is now known as Starhill Global REIT, after its manager was acquired by Malaysia's YTL Corp.
Since then, these once-troubled REITs have begun to draw an investor following. Starhill Global REIT, for instance, is viewed as a play on iconic shopping destinations in Singapore, Malaysia and Australia. "YTL Corp is fully committed, and Starhill Global REIT grew by venturing into Australia and Malaysia," Eng says.
More to come
REITs have seen their market valuations rise significantly since the global financial crisis. At current levels, they are trading at an average 5.2% yield based on forecast distributions per unit (DPU) for 2013, and an average 1.24 times their book value. A year ago, they were trading at an average yield of 6.5%, and close to their book values.
That is making it worthwhile to package property assets into trusts. Among the property groups that have indicated an intention to launch new REITs are Overseas Union Enterprise and Singapore Press Holdings. Dynasty REIT with mainland Chinese malls and offices could also revive plans to list after being shelved last year, some market watchers say. M&L, a hotel group that attempted an IPO last year, could try again. A couple of industrial REITs could also be in the pipeline, including one linked to the former managers of Cambridge Industrial Trust.
"We see a lot more new sectors coming up. Last year, we had two hotel IPOs. This year, we are bringing new geographies," Eng says. "There is a likelihood we could expand to Europe because property prices are much cheaper there, and Asians are going to Europe to buy so, we may bring European assets here. It's not unthinkable to bring European and US assets into Singapore."
Meanwhile, the established REITs in the market could expand their portfolios. CMT is now in a position to acquire its parent's 50% stake in ION Orchard, according to Eng. Units in CMT are now yielding about 4%, lower than the property yield on ION Orchard, which means the property can be acquired on terms that would be immediately yield accretive, even if the deal was funded entirely through the issue of new units. CapitaLand's 50% stake in ION Orchard was last valued at $1.4 billion in its books.
"People expect them to put it in. I'm sure ION is yield accretive," Eng says. Indeed, that could well be the deal that renews investor interest in CMT. "It has come to a stage where CMT is so big that to acquire, and for the acquisition to make sense and be yield accretive, it would have to buy a huge property," she adds. Analysts have estimated that ION Orchard could contribute 13% to CMT's earnings before interest and tax in the event CapitaLand's stake in it is acquired.
Fee structure in focus
The ability to grow is not the only quality investors look at these days, though. A decade after REITs first came to Singapore, investors have also become more discerning when it comes to their fee structures and how that influences the behaviour of their managers. Notably, fees linked to the size or growth of the assets in REIT portfolios have been criticised for incentivising managers to acquire assets rather than deliver value for unitholders. Now, there are calls for REITs to introduce more performance-oriented fee structures, and adopt an internal management structure.
Eng says Singapore's REITs were initially based on the Australian model. "We looked at Australia and we adopted their kind of fee structure. As we grew, investors have become more savvy, and REIT managers have to progress," she says. "The REIT manager's fee, from feedback from investors, has to be more performance based." MGCCT, the latest major REIT to hit the market, has a base fee that is tied to DPU and a performance fee driven by DPU growth. That is a standard that other
REITs might follow in the future, according to Eng. "Mapletree is giving you the benchmark."
REITs have to be of a certain size before they can adopt such fee structures, though. "If you come out with a small REIT, you won't even get to pay your employees' salary and rental," Eng remarks.
REITs versus business trusts
Investors have also become more careful in assessing the risks of REITs and business trusts. REITs have definite debt ceilings. Those with a credit rating are allowed debt-to-asset ratios of up to 60%. In practical terms, however, REITs rarely allow their debt-to-asset ratios to stray beyond 50%. Unrated
REITs, on the other hand, need to keep gearing ratios at or below 35%. All REITs are required to pay out at least 90% of their distributable income in order to get the full benefit of their tax incentives.
Some REIT managers say this hampers their ability to grow their portfolios because every major acquisition requires the issue of new units. Eng figures there probably should be some flexibility for REITs to hold back more of their distributable income if it is to improve their assets. "Investors would understand," she reckons. "Managers are trying to lobby [for] that. If they have a good reason for keeping cash, they should not be taxed, especially if it's for capital expenditure. There should be flexibility."
In fact, business trusts are being used for property assets because of the flexibility they offer. Besides not having to pay out all their distributable income, business trusts can also hold substantial development projects. REITs are only allowed to have 10% of their assets exposed to development projects.
Yet, business trusts have not performed as well as REITs. In fact, Singapore investors have endured spectacularly poor results with some business trusts. For instance, the troubled Forterra Trust said in February that it would not be paying dividends for the next three years. Meanwhile, Pacific Shipping Trust and Hyflux Water Trust were both privatised within five years of their listing.
What can business trusts do to improve their marketability? Eng says the sponsors of these trusts ought to adopt a visible cash distribution policy and stick to it. After all, the purpose of a trust is to deliver steady and stable returns through cash payouts to investors. "I want to know if you are going to distribute 50% or 80% [of your distributable income]. Otherwise, why don't you go and adopt a company structure?" says Eng.
Eng adds that business trusts ought to keep their investments focused in a specific field so that investors can understand them more easily. She also points out that managers of business trusts, which do not have a cap on their debt-to-asset ratios, are often tempted to push up their gearing in order to deliver higher returns to investors and earn more fees for themselves. But that can make the market nervous. "If you carve out more than your accounting profit, and you want the investors to pay for it in higher valuation, you must give them clarity in terms of gearing," Eng advises. "If not, they will penalise you."
Sponsors of business trusts might also look into improving their corporate governance safeguards. "For REITs, at least you have an independent trustee," Eng says. Business trusts do not have this particular safeguard, but some of them have begun to look for ways to assure investors that their interests are not being overlooked.
Notably, some business trusts are internalising their management company. Units in Hong Kong-listed HKT Trust, for instance, are "stapled" to shares in its management company. Hence, unitholders also own the management company. HKT Trust also has a distribution and gearing policy, and any change requires the approval of its unitholders. Similarly, Bursa-listed KLCC Stapled Group has shareholders owning both the REIT and manager.
"You can always inject the internal trustee manager [into the trust]. There is nothing to stop you from doing that. You can also get the unitholders to approve the independent board like a listed company. These are things you can do to improve corporate governance," Eng says. Corporate governance standards could also be enhanced by creating an independent trustee as with the REITs, she adds.
Investors more discerning
Whatever the case, investors have become discerning enough to recognise the risks and growth potential of different REITs and trusts. While large REITs backed by major property groups tend to have relatively high valuations, some are higher than others.
For instance, retail property REITs such as CMT and Frasers Centrepoint Trust are trading at yields of 4% to 5%. Eng says that reflects the stability of their cash flows and the long-term growth potential they offer. On the other hand, industrial property REITs such as Cambridge Industrial Trust and Sabana Shariah Compliant Industrial REIT are trading at higher yields of 6% to 7%. That is partly because of the relatively short land tenure, and relatively long leases taken by their tenants. "It's a sector where there is very little you can do to enhance the asset, not like retail [property] and hotels," Eng says.
This does not mean that there is no room for these assets in the market. In fact, diverging valuations for different REITs and trusts are a clear sign of the market's growing maturity. As Eng puts it, CMT came to market a decade ago with a portfolio of local shopping malls that investors were familiar with. "You can touch and feel it. And, in Singapore, it's easy to value." Now, there are 32 REITs and trusts in the market with all manner of assets, located all over the globe. "We've come a long way," Eng says. "Investors have become selective. They know one REIT from the other."
LOAD-DATE: May 28, 2013
LANGUAGE: ENGLISH
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The Edge Singapore
May 27, 2013
Corporate: New Listing: TEE International spins off property subsidiary in IPO of TEE Land
BYLINE: Chan Chao Peh
LENGTH: 1098 words
Engineering company TEE International is spinning off its property development subsidiary TEE Land in a Mainboard listing to unlock the value of its property business and raise capital for future growth.
TEE International will issue 115 million new TEE Land shares at a minimum indicative price of 50 cents to raise gross proceeds of at least $57.5 million. Based on that price and a total share base of 446.9 million shares, TEE Land will have a market value of at least $223.4 million. Post-IPO, TEE International will hold at least 70% of TEE Land.
Since TEE International announced plans to spin off its subsidiary last November, its stock has surged about 20 cents to close at 47.5 cents on May 22, giving the company a market value of $221.1 million. On May 15, TEE International shareholders voted in an EGM to approve the listing. Lee Bee Wah, a Member of Parliament and previously a director of TEE International, has also been appointed TEE Land's chairman.
TEE International, listed in 2001, was founded in the 1980s as a general electrical contractor. In 2006, the company ventured into property development. Since then, TEE International has completed six developments, launched 10 others and obtained stakes in eight other
projects that have yet to be launched. The capital value of TEE Land's portfolio stands at $394.6 million.
Jonathan Phua, CEO of TEE Land, explains during a press conference that the listing will help unlock the value of its property portfolio. "For our engineering business, you don't need much leverage from the banks, but property is really capital-intensive. By taking [the property business out], you will see TEE International in a different light. This is something most shareholders want to see," says Phua, who is the nephew of Phua Chian Kin, group CEO and managing director of TEE International.
TEE Land plans to use 42% of the gross proceeds from the listing for future business growth. Twenty-four per cent will be used to repay a loan from parent TEE International, another 18% has been set aside for working capital and a further 10% will be used for the repayment of bank loans. "When the government releases good plots of land, we should have the 'bullets' to bid," says Phua.
For 1HFY2013 ended Nov 30, 2012, TEE Land earned $666,000 on revenue of $6.79 million. In 1HFY2012, the corresponding figures were $2.69 million on revenue of $2.87 million. For FY2012, the company earned $1.52 million on revenue of $7.91 million.
Like TEE International, TEE Land has not set a formal dividend policy. According to the preliminary prospectus, however, the company intends to pay at least half of its net earnings for FY2013 as dividends.
TEE Land's management believes that demand in Singapore's property market will remain healthy, despite the availability of 36,352 unsold new units at the end of last year. "People are upgrading from HDB flats to condominiums. Those already staying in condos are looking for their second or third units for investment," says Phua, who attributes the unsold units to potential buyers' holding out for possible discounts as well as the slew of launches in the market.
The most recent tender for a 10,990.6 sq m 99-year leasehold plot at Kim Tian Road, which closed on April 18, drew 11 bids. The top bid of $550 million was just a shade higher than the second-highest bid of $513.3 million. "I believe they have done their sums. All of us have done our sums. Bidding for land [involves] certain risks that we have to take," says Phua.
On May 15, the government announced plans to put up five more sites for sale, which could add 2,725 residential units to the market. Phua is not worried. "Most of our developments are more than 75% sold. It is not necessary for us to cut prices. We have good margins on these projects," he explains.
Phua believes that, unlike many of the mass-market projects with hundreds of units in each development, TEE Land's chosen niche differentiates it from the competitors. "Most of our developments are freehold and have fewer than 200 units each, allowing us to remain nimble," he says.
Currently, TEE Land has eight unlaunched projects. Locally, they include a wholly owned development at 64-98 Hillside Drive, as well as joint ventures of various stakes in Cactus Road, Geylang, Sam Leong Road and West Coast Highway. It also has one development each in Thailand, Malaysia and Vietnam.
TEE Land's IPO has drawn a couple of big names. Pre-IPO investors include Koh Wee Meng, billionaire executive chairman of hotel operator and developer Fragrance Group, in his own capacity. Together with Tommie Goh and Jeremy Lee Sheng Poh, both of investment firm 2G Capital, Koh has put in a total $4 million for a post-IPO stake of 3.55%.
TEE Land's management declines to say whether there are already plans to go into property joint ventures with Fragrance. "They have shown that they have confidence in us. We hope to have good news soon," says Boon Choon Kiat, TEE Land's finance director-cum-executive director. TEE International's other regular partners in the property business include KSH Holdings, Heeton Holdings, Oxley
Holdings and Zap Piling.
Boon, who joined TEE International in 2000, has been fronting its Thailand and, more recently, other Indochina businesses. Outside Singapore, Thailand is the second-largest market for TEE Land, with its string of joint ventures with the Panichewa family, which besides property, also has interests in non-life insurance, industrial estates, toll ways and car rental. "They are very well connected, very wealthy, and we are very happy and have more plans to work together," says Boon.
He adds that demand for residential projects in Thailand is mainly from local professionals and executives who plan to occupy the property, given the low interest-rate environment. These projects also see investment demand from wealthier buyers - both local and foreign, including Singaporeans. "Thailand is the unpolished gem. We are likely to see more projects and opportunities there, so we need to quicken the pace," says Phua.
TEE Land is also actively seeking distressed assets in Vietnam. Farther afield, the company is looking at countries such as Sri Lanka, New Zealand and Myanmar, where TEE International is exploring a cement-plant joint venture.
"You are looking at a company that is really diversified. We do have exposure in the region. If anything happens to one country, we will not suffer the full impact, unless it is a global situation. We are looking at a very diversified portfolio - and we are continuing to diversify our portfolio," says Boon.
LOAD-DATE: May 28, 2013
LANGUAGE: ENGLISH
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The Edge Singapore
May 27, 2013
Corporate: New Listing: Soilbuild Construction taps Mainboard to fund working capital and expansion
BYLINE: BY GOOLA WARDEN
LENGTH: 1072 words
Soilbuild Construction Group has raised $42 million through an IPO with an eye towards expanding its construction business to Myanmar. In March, the group announced that it had signed an agreement with a Myanmar company to provide consulting and project management services. A month later, the group secured a second contract to provide similar services to a second Myanmar company.
"Myanmar is at a very infant stage and their rules are not clear. We can sit back and wait for the rules to morph and lose first-mover advantage or get in on advisory work, where we can interact with the contractors and see how they operate and understand that market better," says Ho Toon Bah, executive director of Soilbuild Construction, on the sidelines of the media and analysts' briefing. "In a consultancy role, we don't bring our [cash] capital, only intellectual capital. And yes, we are looking for more jobs."
Soilbuild Construction is the seventh IPO this year and the fourth to be listed on the Mainboard of the SGX. Of the IPO proceeds of $42 million, 58.3% will be used for working capital, 23.8% for expansion to regional countries, 11.9% for productivity improvements and 6% for IPO expenses. "We have been largely Singapore-centric, but over the last 12 months we started building our external wing," Ho says.
In the public tranche of the IPO, two million shares priced at 25 cents apiece were available for application. The placement tranche of 166 million shares was placed out by United Overseas Bank and Oversea-Chinese Banking Corp. Post-listing, parent Soilbuild Group Holdings will hold 73.8% of the company, while the free float will be 25%. At the IPO price of 25 cents, Soilbuild Construction's market cap on listing will be $166 million. Trading of the stock will begin on May 27.
Based on the earnings per share of 3.3 cents for FY2012 ended Dec 31, Soilbuild Construction's historic price-to-earnings ratio is just 7.5 times. Post-listing, its net asset value will be 8.3 cents. Soilbuild Construction will also have a dividend policy. "We believe dividends should form a part of any investment, and we've committed to paying out 25% of our net profit," says Ho. The company said it would pay at least 25% of net profit after tax from the date of its listing until Dec 31, and a further 25% for FY2014.
Meanwhile, Soilbuild Construction will continue to source for jobs locally. "Construction demand of between $26 billion and $32 billion is projected for 2013, anchored by public-sector projects," the Building & Construction Authority (BCA) announced earlier this year. Of this, 53% is likely to come from public housing demand and rail construction.
"We started to move into public housing in 2011 and we are quite pleased that we managed to get $250 million of public housing projects," Ho says. Currently, the company has construction projects in Ang Mo Kio, Bukit Batok and Tampines HDB estates.
As at April 30, Soilbuild Construction's order book stood at $511 million. "Over half is internal [from Soilbuild Group] and the other half is external," says Ho, referring to the contracts to build developments for Soilbuild Group. "The split between residential and industrial property is 40:60."
Parent Soilbuild Group Holdings was founded by Lim Chap Huat with a capital of just $25,000 in 1977. In 2005, Soilbuild Group listed on the Mainboard at 31 cents, but was privatised in 2010 at 80 cents.
"When we listed the company in 2005, it was listed as a development company, and construction formed part of its business. Over the years, that company grew with construction, property development and a portfolio of investment properties," Ho recounts. "We believed the complex structure of its business was not understood by investors. Because trading value was low and the stock illiquid, Mr Lim decided that he would buy out the minority shareholders," he explains.
"But since our delisting, we have been working very hard," Ho says, pointing to the various HDB projects the company has clinched. It has also structured some deals with third parties by taking equity stakes in developments such as Angullia Park with Sonangol Land. The company is also developing Lavender BizHub with an equity stake. "These are efforts we've put in, and you see the results in profits and turnover," Ho notes.
Soilbuild Group has also built up a portfolio of industrial properties valued at between $800 million and $850 million. In 2011, the company submitted the winning tender (in a two-stage tender process) of $288.3 million to build a portfolio of properties for JTC (Jurong Town Corp). The properties comprise 10 blocks of flatted factories and amenity centres situated at Kolam Ayer, Kallang Basin and Tai Seng. That could form the pipeline should Soilbuild Group decide to sell its industrial properties into a REIT. Analysts expect Soilbuild Group to list its REIT this year, and as early as end-June.
Ho is confident that Soilbuild Construction can continue to expand its order book. "Since we have an A1 grading, we can tender for public-sector projects of unlimited value," he points out. Indeed, out of the some 1,100 construction companies in Singapore, only 64 have A1 grading. "It gives us a lot of advantages," Ho notes.
"HDB has made an announcement to step up its BTO [build-to-order] programme and we will continue to receive orders," he says. "With the HDB, we have no counterparty risk." The government's white paper on population may have been met with apprehension by Singaporeans, but Soilbuild Construction should benefit. "The population white paper projecting 6.9 million is good news. There are going to be more houses and more buildings to be built and more jobs for us," Ho figures.
As for the government's call to improve productivity in the construction sector, Ho says high labour costs can be absorbed by mechanising some processes such as replacing labour with machines and using precast concrete. "However, what is more worrying is attracting talent such as site engineers. Nowadays, many graduates would rather become hedge fund managers than civil engineers, so you have a brain drain from construction to the banks," Ho gripes.
Nevertheless, Soilbuild Construction is certain future growth would have to come from overseas expansion. "We will continue to look at our external wing to expand to other Southeast Asian countries, in particular Myanmar, which is at a very early stage of growth," says Ho.
LOAD-DATE: May 28, 2013
LANGUAGE: ENGLISH
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