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Archive for December, 2009|Monthly archive page

Sino-Enviro: Waz up Doc?

In China, Corporate governance on 31/12/2009 at 4:05 pm

When is the EGM to remove the executive directors going to be called?

On 17 December 2009, the independent directors announced, inter alia :”At the conclusion of the hearing on Thursday, 17 December 2009, Chong JC granted, amongst others, the following orders:

a. That pursuant to section 182 of the Companies Act (Chapter 50), an

Extra-Ordinary General Meeting of the members of the Company (the

“Meeting”) be called and conducted within 21 days from the date of

i. To remove the Executive Directors from the Company’s Board of Directors”.

It’s now 31 Dec, and there is no EGM annc.  Why not?

One wonders if the IDs have found out that the EDs have the votes to prevent them from being removed? http://atans1.wordpress.com/2009/12/26/spare-a-tot-or-more-on-sino-environment/

Juz speculating, Watson.

But having gone to court, this silence from the IDs is deafening, and should worry the punters (sorry investors) in this stock. But then it seems the retail shareholders of this company are extremely passive. It took the IDs to get an order of court to hold an EGM, while the efforts of some shareholders (I salute them) to organise an EGM came to nothing.

They should realise passivity has its price. Ask those investors in minibonds, and HN5, Jubilee and Pinnacle notes.

Investment Strategy for 2010?

In Economy, Investments on 31/12/2009 at 10:59 am

Look for strong balance sheets and dividends that will compensate if brokers’ optimism turn to be wrong. If past form is any guide, the brokers will get it wrong again. If my fortune teller’s track record is as bad, he would have starved to death for lack of clients.

Remember in late 2008, they were pessimistic for 2009 (and they were nearly right: remember March 2009?). Now the brokers are bullish for 2010, predicting STI will break 3000. As this is only 3% away, this should be a no-brainer. But what then? I’ve not seen a negative outlok for the whole of 2010.

STI tracks the US market closely. The 10-year price-to-earnings ratio of the S.& P. 500, a measure of how expensive stocks are relative to profits, was more than 20.3 in late December, up from 13.3 in March. The average for the last 130 years is 16.4, according to calculations by Robert J. Shiller, the Yale economist. So there are reasons for being cautious again.

In mid-2009, the FT carried an intervieww with a strategist from CLSA  who said we are in the midst of a bear market rally. Nothing new here. But unlike other pundits, he said this rally could run for another two years before collapsing. He cited what happened after the dotcom bubble bust in 2000/ 2001.

He said, with hindsight, it was clear that the recovery from 2003 to 2007 was a bear market rally.

Bottom line: A bull run or bear market rally can only be predicted in hindsight. So a little caution is again called for.

As this NYT blogger wrote:

“Travel back in time to the dark days of last March, when the Dow was flirting with 6,500 and pundits were predicting the end of capitalism as we know it. As a result, stocks were dirt cheap — as they always are in a panic. Should you double up with your last cash reserves or slowly feed in more limited amounts of cash?

‘The conservative approach turned out to be wrong: although you did just fine, you could have made a bundle by going all in. But suppose the economy, and the markets with it, had indeed fallen off a cliff. Those who went all in would have been wiped out, while those who kept some dry powder would still at least be paying the bills. Which just might be how it turns out the next time.” Italics are mine.

Full posting

Parkway — Winner’s Curse turned Blessing

In Uncategorized on 31/12/2009 at 5:28 am

Brokers are optimistic about Parkway’s prospects in 2010. One reason is the expectation of better-than-expected prices for its Novena hospital suites.

For example: “Medical suites at Gleneagles have transacted recently at about $4300psf in the secondary market. As such, subsequent launches of the Novena medical suites could fetch higher prices than the initial target of $3500psf, resulting in a potential earnings upside of at least 25% in FY11. Our sumof-the-parts target price of $3.55, implies an undemanding PER of 26x on its Singapore operations”, Kim Eng Securities writes.

A far cry from the concerns of brokers and investors in 2008 when Parkway’s “winning bid of $1.25 billion was twice that of the second highest bid”.

Which brings me back to this http://atans1.wordpress.com/2009/11/23/judging-sphs-mall-bid-ceo-gives-a-hostage-to-fortune/. SPH, Fair Price and Income could get this project (which they won by a 42% margin from the next highest bid) right.

These two bids are text-book examples of the argument why investors should not buy on fundamental value, but rather on what they think everyone else thinks their value is, or what everybody else would predict the average assessment of value is.

As Keynes said “It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.” He was talking of a beauty contest, where newspaper readers are asked to choose the “most beautiful” women.

Think of how much cheaper, Parkway and the GLCs could have obtained the land if they had followed Keynes dictum.

But making judgements of others’ judgements is not that easy.  Parkway’s chairman Richard Seow said at the time, “Looking at the competitive landscape it’s very difficult to advocate where everyone’s going to come out…so we put in a bid which we were comfortable with.”

For Parkway that paid-off.

Finally, wonder what Raffles Medical group executive chairman Loo Choon Yong now thinks? He had commented at the time that this was one tender he was happy to lose.

Good 2010.

How NYT describes Temasek

In Uncategorized on 30/12/2009 at 5:19 am

In a piece on Temasek’s latest US$ bond offering, NYT describes Temasek as: “The fund is trying to get its house in order after a tumultuous year, suffering not only from its bad bets on Western banks, but also a failed experiment to get a prominent outsider as its chief executive.”

Refreshing change from our MSM’s comments, and those postings on local socio-political blogs heh?

Making S’poreans investors in S’pore Inc?

In Economy on 29/12/2009 at 11:17 am

Remember the government’s “growth shares”? The idea was to give us a share of Singapore’s prosperity. Many Singaporeans (self included tot it was too Mickey Mousey and that’s insulting Mickey)

A famous US economist has a better idea.

With a GE coming, maybe the governing party,  or one of opposition (none of that “alternative” rubbish) parties (or an alliance of them) can come up with a variant for Singapore — where the state does not need funding.

A Contrarian Trade or Betting against SWFs?

In Energy, GIC, Temasek on 29/12/2009 at 5:43 am

Maybe it is time to buy the banks? Like John Paulson who is long BoA (Remember he correctly predicted the sub-prime credit crisis in 2007. That reaped him a US$3 billion profit.)

In a story from Fortune: “The next wave of sovereign wealth fund investments is likely to look very different from the flurry that occurred before the crisis. For one, the funds have drastically cut back on banking assets. Just 16% of the deals they made this year involved the financial sector, down from 48% in 2008, according to Barclays data. (Remember Temasek’s and GIC’s investments in Merrill Lynch (BoA), Barclays and UBS; and Temasek’s sales of BoA and Barclays.  GIC  only made wagga($) on Citi and it could get diluted there on its remaining holdings.)

And short or sell natural resources.

“Meanwhile, including China Development Bank, which received a capital boost from China Investment Corp., more than 50% of sovereign wealth funds’ investments were in the natural resources sector, up from a mere 8% the year before. Huey Evans points to the Chinese government’s investments in Rosneft and Petrobras (PZE), oil companies that agreed to send the country fuel in exchange for loans.”

M-Reit — Last chance to buy?

In Investments, Property on 28/12/2009 at 7:03 am

Later today, the new shares of MI-Reit start trading.  MI-Reit closed on X’mas eve at 21 cents.

Note AMP’s and other core shareholders have an average cost of just under 20 cents a share. And the rights was done at 15.9 cents a new share. There could be a lot of sellers out there at 20-21 cents.

Might not take much for the shares to trade below AMP’s cost e.g. the completion of the deal to buy four industrial buildings from AMP will now be delayed to Jan 11, 2010.

So might it be time to buy? A few weeks ago, BT reported, “The new co-sponsor of MacarthurCook Industrial Reit (MI-Reit) yesterday said that it [AMP] will focus on regaining unitholders’ trust before embarking on new acquisitions, likely industrial properties in Singapore and Japan.”

There is more incentive now for AMP (assuming the deal to sell the buildings go thru) to do what it said it would do: what with shares near or below its cost price.

Finally AMP has its name on the Reit which is now AIMS-AMP Capital Industrial Reit. The name change comes after AMP acquired 50 per cent of the Reit manager’s total share capital. The delay in deal completion is likely to be technical, given AMP’s name is on brass plate.

Where GIC and Temasek gets their $

In Economy, GIC, Temasek on 26/12/2009 at 1:08 pm

“If Singaporeans are not “hard-driving and hard-striving”, where did GIC and Temasek get so much money to lose?”: a posting on a Temasek Review article.

Not quite correct because the money that GIC and Temasek invest comes from government surpluses. As about 43% of Singaporeans don’t pay income tax, this means that the surpluses are generated by being thrifty (government’s view) or mean (view of many netizens).

Economists in the private sector, and the Reform Party (the sec-gen was once an economist and he has a first-class degree from Cambridge) have argued that rather than accumulate large surpluses that are then invested abroad, the government should spend more building up Singapore’s human capital. By spending more on things like education, healthcare and consumer protection, the returns generated will be better than the returns on overseas investments.

This is an argument that has excellent academic credentials. China is often asked by eminent economists ,”Why do you export so much when you, in return, use the surplus lend to the Americans so that they can buy more from you?” The economists advise that China should invest more locally.

Now MM Lee’s view is that Singapore needs the reserves should anything go badly wrong. He could have quoted the example of Kuwait, which surprising he has not. When Kuwait was invaded by Iraq, the reserves were used to help pay for the war. And afterwards for the reconstruction of the country. He could have cited Iceland and Dubai (which again he hasn’t) as countries that got into trouble because they ran out of $.

BTW, one noted local economist has said that the government is effectively pocketing the difference between the returns it gets from investing abroad and the returns it pays on our CPF accounts: a carry trade arbitrage. Borrow low and invest for higher returns.

For the technically minded, our CPF monies are invested in special government bonds. The $ from the bonds flow into the government’s Consolidated Fund together with revenues from taxes etc. All government expenses are paid out from this fund. If there is a surplus (as there usually is)  part of that can go to GIC and Temasek. The government argues that because all the monies in the fund  is fungible (cannot be separated), one is wrong to argue that CPF monies are invested abroad.

Technically the government is correct, but so what is the retort? The financial effect is the same as if our CPF monies are invested abroad.

Finally, Singapore is unique among the countries with the largest sovereign wealth funds. The other SWFs are effectively funded from oil revenues. In the case of Singapore, it could be reasonably argued, by government critics, that the funding results from the “hard-driving and hard-striving” Singaporeans who are forced to save, and from less than optimal government spending.

So the quote at the beginning of this piece has elements of the truth.

Spare a Tot or more on Sino-Environment

In China, Corporate governance on 26/12/2009 at 10:22 am

It’s party time, but spare a tot for the independent directors of Sino-Environment.

They are not having a good time. They have gone to court to get orders to hold an EGM to remove the executive directors, and to restrict the EDs’ actions.

If at the EGM the EDs are not removed, the two IDs could find themselves personally  liable for a lot of  legal bills, including the cost of getting the court orders. And looking really dumb. But if they didn’t do anything, they might be sued by some investors or troubled by the authorities.

Already the EDs have complained, “The Independent Directors have apart from legal advice rendered to them by the solicitors to the Company, sought and obtained separate legal advice for themselves in their personal capacities, at the expense of the Company. We have informed them that they should do the right thing by not using Company’s funds to pay their own legal fees.”

“The fees charged by WP to the Company for acting for the IDs from April to date amount to the sum of S$268,946.00.”

And “The IDs had appointed PwC to carry out the “special audit” before they informed the EDs about the appointment … The EDs have never agreed to any fee structure or fee of PwC as alleged …The EDs strongly object to the unjustifiable fees that PwC charged to the Company to date, amounting to the sum of S$952,874.00. “

Come the start of the Lunar new year in February, will the nightmare continue for the IDs? It could, as it is difficult to think the EDs would take what is happening lying down. They said, “The EDs’ reasons and explanation as to why they have not acceded to the IDs’ calls to step down have already been fully explained.”

They wouldn’t say this would they, if they didn’t think they have the votes? IDs could find that despite an open share register (Remember, SIAS said that the share register of Sino-Environment is open, with no controlling shareholder), the EDs have the votes.

What price the IDship of a S-Chip? You could find yourself liable to shareholder suits or suits from the company. And the authorities may ask you questions.  And there is the reputational damage. Based on the last available annual report, the then IDs each got $250,000 or less. How much exactly was not disclosed (perfectly legal this).


The Perils of Indexation

In Investments on 25/12/2009 at 9:34 am

This writer believes that indexation is the way to go when investing in equities. http://www.fisca.sg/financial_education?mode=PostView&bmi=189571

But I think  this is going too far: “What can retirees do? They have to invest in equities to earn a higher return. Although equities have a higher level of risk, it can be mitigated by investing in a low cost fund, such as an exchange traded fund. The return on equities is likely to be around 5% to 7%, which is much better than 2% on government bonds.”

Err what about the principal? Remember oldies may need their capital sums in a hurry.

The return of the Dow to 10,000 (10520 on X’mas eve) serves as a sad reminder that stocks have gone virtually nowhere, on balance, for more than a decade. It was in March 1999 that the Dow first climbed above 10,000, before soaring as high as 14,164 two years ago and plummeting as low as 6,547 this past March.

Likewise the STI. The STI started 2000 at around 2000. Went to a high of just below 4000 and on 24 Dec was at 2837 Just in March 2009, it was at  1455.

Fine if you are a young person with an investment horizon of 30-40 years, and a plan to regularly rebalance your portfolio, so as to take $ (or add $) to yr equity index funds.

But not if you are a retiree or someone 60 going on 70, when your investment horizons are shorter.  Especially if you have not invested in shares when younger: the volatility may weaken yr heart or demotalise you.

Sumething worth remembering

In Investments, Property on 25/12/2009 at 5:29 am

“You often find when your property is being sold that the agent tells you that the property is a mediocre one, but if you are on the buyer side, it’s suddenly the world’s best.”

Speaker was head of the Rey/Nouvion family office in Monaco, Laurent Nouvion, quoted in a recent Barclays Wealth report. Thanks to Today for this quote.

Christmas smile

In Uncategorized on 24/12/2009 at 5:52 am

Marketing Magazine has a little fun with brands least likely to sponsor Tiger Woods.

Brylcreem’s slogan “control yourself” and Greggs the bakers’ line “ready when you are” make the top 10.

The excuse for this posting is one of Haw Par’s http://atans1.wordpress.com/2009/12/11/hidden-tiger/brands is in the list.

Casino delays, Economy and early Elections

In Economy on 23/12/2009 at 6:27 am

So Sands is to be delayed: it will now open in the second quarter of 2010 instead of the first. And there is speculation about a delay by Resorts World.

These delays albeit minor may have implications on the timing of GE and the growth of the tourism sector, a key driver of the economy.

CIMB in a recent report is very bullish on Singapore (but then which broker isn’t?).

An important reason are the casinos: “The two resorts are expected to produce economic multipliers, should tourist arrivals rise from 9m in 2009 to 12m-13m in 2010. Directly, the positives would filter down to other industries such as food & beverage, hotels and interior designers.”

So continued delays (even minor) and the BT report that “Las Vegas Sands (LVS), which is in the midst of applying for its casino licence for Marina Bay Sands (MBS), may not have the help of junket operators when it opens in April”, could be problems not only for the casinos but also for the economy.

For the record, Bank of America Merrill Lynch analyst Melvyn Boey estimates VIP clients will account for about 50% of the business at the Singapore casinos. But of these VIP clients, only about 30% might be expected to be brought in by junket operators with most being ‘in-house VIP clients’. Now 30% of 50% sounds a lot to me, though he says it is “insignificant”

(Some background on why junket operators may give Singapore a miss. The boss of Sands was quoted by BT, “First of all, I don’t think the junket reps (representatives) are going to apply for licences. There may be one or two – but the government has said they don’t want the Macau style junket reps that take a very large percentage of the gross income.”)

So all the more reason for a General Election in March (after the goodies in the Budget) rather than later in the year when conditions may not be so good (“Events, dear boy, events”). The government is believed to be planning an election in 2010 despite MM Lee’s well known reservations to calling an early general election (an election need not be called until sometime in early 2012).

Remember there was a lot of speculation when LHL became PM that an early election would be held? Speculation which only ended when MM said he saw no reason for an early election.

So the probability of an early GE in March is another reason to stay invested. Traditionally STI trends upwards when there is speculation of a general election.

To whom do directors owe their duties to?

In Corporate governance on 22/12/2009 at 10:48 am

As lawyers who are fans of MU should know,when MU (when it was a listed company) became the target of a highly leveraged buy-out offer by the Glazers, the directors sought legal advice on their duties towards shareholders and MU.

They were advised that directors owe a duty to the company and not its individual shareholders. In many instances, the distinction is not significant, since what is good for the corporation will also benefit its shareholders. Maximising the return to shareholders (or creating “shareholder value”), in many cases, does not conflict with the interests of the company.

But there may be situations where the interests of the company and shareholders may conflict.

The interests of shareholders may lie in realizing a short-term gain on their investment, something which the directors may decide is not the in the interest of the company in the long term. For example, the debts that MU incurred in going private, might have prevented the club from buying the players MU needed to win trophies. It didn’t happen at MU; despite its debts MU has the wagga (dosh) to buy players. But the example of Liverpool FC shows that this fear was reasonable and legitimate.

The interests of majority shareholders may not also be the same as the interests of the company. Controlling shareholders may want the corporation to take certain action that may be in its interest, but not necessarily in the best interests of the corporation. Hedge funds, with a controlling stake, may want the company to pay a high dividend because they (the controlling shareholders) want to maximise the returns to their investors. But the company may need the cash to expand its production lines.

The correct answers to these kinds of issues depend very much on the facts of each situation: something the independent directors of Sin0-Environment are finding out the hard way.

Sino-Environment Cont’d

In China, Corporate governance, Investments on 20/12/2009 at 12:08 pm

SIAS has said that the share register of Sino-Environment is open, with no controlling shareholder; correcting my presumption that the EDs and connections could still control the company.

SIAS goes on to urge “minority shareholders to turn up in force at the EGM to support the Independent Directors (IDs) as their combined votes are important to ensure that the proposal to remove the EDs wins shareholder approval.” (A quibble here: If there is no-one or group with a controlling interest, how can there be “minority shareholders”? SIAS must mean “small shareholders”. Sorry it’s the lawyer in me.)

On a very serious note: What are the implications, if at the EGM, there is a majority who vote against the removal of the EDs?

What happens when shareholder democracy clashes with possible corporate misdeeds? Remember, unlike directors (who have to act in the best interests of the company), shareholders can act in their selfish interests. Shareholders who find themselves “at the wrong end of the stick” as the English expression goes, have to go to court to protect their interests. How will everything then play out?

When general Cornwallis surrendered to George Washington in 1781 (effectively ending the American Revolution), the surrendering British army’s band is reputed to have played “World Turned Upset Down”. If the EDS remain in office after the EGM, some assumptions of company law and the listing manual, may be founding wanting.

As someone interested in the intricacies of company law and the listing manual and how they interact, I selfishly hope that the EDs win.

I know, I know. No a charitable tot at Christmas, especially towards many of the shareholders of the company. But they have to live with the consequences of their actions or inactions. No-one forced them to buy this particular S-Chip.

Whither Wall Street, STI Follows

In Economy, Investments on 19/12/2009 at 6:10 am

Poll of Wall Streeters.

Let’s hope their bullishness is correct though if we go by their views in Dec 2008 and 2009, and March  2009 …

Are they just extrapolating current trends?

Waz the point?

In Corporate governance on 18/12/2009 at 7:13 am

So the court has ordered the executive directors of Sino-Environment Technology Group to call for an EGM to remove the EDs (bit like asking piglets to vote for Chinese New Year) from the company’s board.

As the public only has 43% of the vote, presumably the EDs and their connections control the balance. What if the EDs use these shares to block their removal? They have their rights too.

Possible moral of the story: be very careful in investing when the EDs and their connections have more than 51% of the votes.

The perils of buying on NTA calculations

In Corporate governance, Investment banking, Investments on 17/12/2009 at 7:36 am

Recently I read a report on United Engineers by CIMB.  “We maintain our Outperform rating and target price of S$2.15, still based on a 20% discount to our end-CY10 RNAV estimate of S$2.68. Our positive view remains founded on its attractive valuations against underlying assets backed by improving operating indicators and an improving net gearing. We see stock catalysts from further stabilising of commercial rents. UE trades at a depressed 0.5x P/BV”

No-one I know ever got rich buying UE. And this reminds me of what I wrote in June 2009.

——

The perils of buying NTA

The share price of United Engineers is falling after its high of S$2.37 on 29 May. This illustrates that buying a counter at a deep discount to its NTA can be problematic, if there is no catalyst to unlock value. To recap. As part of an asset rationalising swap, Straits Trading and its controlling privately-owned shareholder swapped assets.

12% of UE was sold to Tecity at around S$1.52 a share, and 7% of WBL Corp was sold to ST as part of the asset swap. ST ended up with 19% of WBL. BTW WBL has another 10% of UE.

There was speculation that Tecity had immediate designs on UE. UE’s shares are at a deep discount to its published NTA of S$3.43. They remembered Tecity’s bid for ST which ended with Tecity paying S$6.70 for assets (revalued) worth S$6.52 a share. What is forgotten is that Tecity busy coping with the consequences of having spent S$1.1bn to own 82% of ST; is not likely to want to reward other UE shareholders at Tecity’s expense.

Assuming it bids at published NTA, it would have to spend S$679m. And if, the other major shareholder, GE Life starts a bidding war, the cost could escalate, like in ST. In early 2008, there were estimates that UE’s NTA could be S$6. And if it did bid at NTA or more, any time soon, ST’s minority shareholders would rightly cry foul.

TeCity’s founder, the deceased Tan Chin Tuan, would spin in his grave hearing his heirs being accused of being unfair to minorities.

Incidentally the cost of selling UE’s assets are likely to be very high.

Maybe future UE annual reports should give an estimate of the costs of selling these assets to unlock the published NTA. And maybe advisers to the independent directors of a target company; and the acquirer should subtract the costs of liquidating the assets when toying with NTA values in their reports.

If this had been done in ST, Tecity could have got away with a lower bid.

 

When a controlling stake goes at a massive discount

In Energy, Investments on 16/12/2009 at 9:10 am

Glencore International, the world’s biggest commodity trader, has bought a 51% stake in  Chemoil Energy for US$233 million ($325 million) from the Chandran Family Trust.

It paid 35.52 US cents a share: 21.1% discount to the  closing price of 45 US cents, on Friday.

In late May this year, just before rumours of Glencore buying a stake appeared, Chemoil was trading at around the 30 US cents level. The rumours pushed it to as high as 56.5 US cents.

Moral of the story: buyer of a controlling block may not need to pay a premium to market. It all depends on its bargaining power vis-a-vis the seller. And whether there is another major shareholder willing to deal:  Itochu Corporation, a Japanese conglomerate, with a 37.5%  stake in Chemoil, was apparently contented with its stake.

Property prices: MM Lee is too modest

In Economy, Property on 15/12/2009 at 7:49 am

MM was quoted as saying, “If the country is going to go down, then economy will go down, people’s incomes will be down, unemployment will be up, then property values will go down.”

He is being modest. We have had a recession, but property prices have been on the rise . He should have said, “We ensure property prices go up even in a recession.” [In 2009, prices of resale flats rose by 8.2% and this in a recession :Addition on 29 Jan 2010]

A few months ago, a terrace house few doors away from my home was sold for $1.45m. The previous transaction along the row was a few years ago at $900,000. This had followed a transaction in 2000 0r 2001 at $950,000.

Well another house along the row is now on the market for $2m.

Thank you PAP.

Note the links were updated on 4 Jan 2010 for various reasons.

A problem with int’l trade credit, again?

In Economy on 14/12/2009 at 5:45 am

I came across the following extract from a BBC Online article. The writer, “Laura” works in a British commercial bank.

If what she says applies in places like S’pore, HK, USA etc, we could see a second dip soon.    Note after the collapse of Lehman, int’l trade almost stopped for a few months because banks stopped accepting letters of credit from banks that they thought could collapse.

“I have had a growing worry over international finance over the last few months. Since the crunch started, confidence in other banks has been knocked. The most obvious manifestation of this was LIBOR being thrown out of kilter. Whilst this has now settled it only shows the picture of banks operating in the UK. What can’t be seen easily is the reduction or extinction of the willingness of banks to accept letters of credit from foreign banks which many customers who export or who have sister companies abroad need to trade round the world.

‘There are some countries now which have no banks which UK organisations are happy to accept a letter of credit from. Letters of credit are, in simplistic terms, one bank saying our customer is good for the money. This letter says we guarantee that so please let them have the goods and pay after delivery. If your customer then doesn’t pay you, their bank has to honour the letter of credit they approved. If your bank doesn’t have faith that they would honour that then the whole system falls down. Which it virtually has.

‘This situation hasn’t notably improved for some countries and I think this is a real threat to economic growth to UK Plc next year, as low exchange rates should mean good times for exporters. If they can’t get funding, however they won’t be able to capitalise on this.”

But banks that have global networks and strong franchises in trade financing like HSBC (I got shares here), Citi (after US government bailout) and Standard Chartered are minting money.

Base Metal into Gold: no not Alchemy. It’s all in the Accounting

In Accounting, Corporate governance, Investment banking on 13/12/2009 at 9:58 am

Here’s an explanation of how accounting turned an investment banking loss of £160m into a profit of £3.65bn. And so made “hundreds, and possibly even thousands, of staff at the state supported Royal Bank of Scotland group (RBS)” eligible “for bonuses totalling about £1.5bn”.

Wow!

The moral of the story: be sceptical, very sceptical of the headline financial numbers. And read the footnotes cynically.

What happens if S-Chips can’t get IDs?

In Corporate governance, Investments on 11/12/2009 at 12:24 pm

I wonder if the SGX has thought thru its proposals on imposing more duties on independent directors of S-Chips (OK the proposals apply to all companies with major overseas units: but it seems reasonable to conclude that S-Chips were the intended targets of these measures.)

Will the S-Chips find IDs prepared to serve on their boards, if the proposals become the “law”? Already the chairman of the Singapore Institute of Directors has expressed concern that existing IDs may resign to avoid these additional duties? What happens if IDs resign and the S-Chips cannot find replacements?

What will SGX do? Suspend these companies, or delist them? And wouldn’t the losers be the retail gamblers , opps, investors?

If the S-Chips pay a lot of money, I’m sure they can get IDs. The issue is whether they got the cash to pat them. Many of them are SMEs; the bigger companies prefer HKSE.

Finally is there a problem? The president of SIAS was quoted recently as saying  that it would be unfair to view  “the 154 S-Chips” as being especially vulnerable to problems arising from weak corporate governance, only  a few were “problematic”.

He should know, shouldn’t he?

Hidden Tiger?

In Investments on 11/12/2009 at 5:13 am

Haw Par historically trades at a big discount to its assets and businesses. The discount has got even bigger. Its 4% stake in UOB is now worth more than Haw Par’s market capitalisation — by about 4%.

UOB closed yesterday at S$19.84. This works out to S$6.05 a Haw Par share. Haw Par closed at S$5.83.

And Haw Par has a rat-bag of businesses and assets  ranging from healthcare products (‘Tiger Balm’), oceanriums, an aquarium (there seems to be some legal trouble here),  properties, and 5.2% of UOL (an SGX-listed property company where the UOB Wees have a controlling interest (29.13); like in Haw Par (30.6%). OK rat-bag is unfail,  its businesses are usually profitable, and the assets have value.

So at the these prices of Haw Par and UOB, one gets UOB shares at a 4% discount if one buys Haw Par shares. And the other businesses and assets are thrown in for “free”.

And who knows, one day the  value of Haw Par’s UOB shares; and its other assets, and businesses may be unlocked. Two long-term value investors have been around for years: MacKenzie Cundill Investment Management has 11.67% and Arnhold and S.Bleichroeder has 14.74%.

Meantime, we long-term investors get decent dividends: present yield is 4%.

 

How a top hedgie thinks

In Uncategorized on 10/12/2009 at 4:08 pm

Part of a Reuters report on John Paulson’s views. He is a billionaire hedge fund manager.

“Given his prescient bearish call on mortgage credits, Paulson’s views are widely watched for what he has in his $33 billion investment portfolio.

‘He highlighted the attractive yields on credit issued by GMAC due in Sept 2011, the former General Motors automotive financing company that the U.S. government propped up at the end of 2008.

‘By Paulson’s thinking, the government involvement is equivalent to an explicit guarantee on GMAC’s finances.

“So instead of buying (a) Treasury bond which yields 84 basis points, I can buy GMAC which is almost, I consider equivalent to a government bond and I can get 11 percent. That is why we have allocated so much money to this particular security,” he said.”

Buying for dividend yields can be dangerous

In Investments on 10/12/2009 at 11:41 am

Just ask the investors in Global Investments ( GIL, the former Babcock & Brown Structured Finance Fund) and Macquarie International Infrastructure Fund Limited (MIIF)

At the IPO price of S$1.06 in late 2006, GIL was offering a yield of 9%, while MIIF’s prospectus in May 2005 stated “forecast dividends delivering an annualised yield of between 7.1% to 9.0% on the Offering Price for the period ending 31 December 2005 (see ‘‘Financial Forecasts — Assumptions’’)”. Its listing price was S$1.

Well GIL (with lots of CDOs in its portfolio) is now around 24 cents, while MIIF is around 43.5 cents.

The saving grace is that both are trading below their latest available NAV calculations. MIIF’s NAV as at Sept is 80 cents down from June’s 86 cents. GIL’s is 36 cents as at September, up from June’s 35 cents.

The moral of these two stocks is that high yields could be a sign that investors need to be compensated for the risk that the dividends are not sustainable and that the stock price would fall. Of course, if one is lucky, it could simply mean that the market got it wrong — the dividends are sustainable and the stock price undervalues the company.

You place yr bets, and leave it to the cards.

Always be sceptical of media hype

In Media on 10/12/2009 at 6:45 am

Especially where it has vested interests: a cautionary tale.

Makes you want to cheer MM Lee on when he criticises the media.

Time to load up on oil-connected stocks? II

In Energy, Temasek on 09/12/2009 at 1:59 pm

A follow-up to comment on Temask selling its oil and gas E&P, Orchard, at the wrong time.  

“Oil prices have fallen for the fifth day in a row, weighed down by a stronger US dollar and amid concerns over demand.

‘US crude oil for January delivery fell $1.31 to settle at $72.62 a barrel.

‘In London, Brent crude fell $1.24, settling at $75.19.” — BBC Online report. $=US$

Remember as the price of oil falls, the more the financial pressure on smaller E&P outfits. The slowdown in bank lending doesn’t help their finances. They will be under pressure to sell stakes in their properties.

Time to load up on oil-connected stocks?

In Energy, Temasek on 09/12/2009 at 5:56 am

For those who believe that Temasek always gets things wrong (buying into and selling out of Barclays, Merrill Lynch/ BoA; buying into Shin, ABC Learning, Global Crossing), then Temasek’s sale of its oil and gas exploration and production company, Orchard, is a sign to load up on oil-related stocks.

It got its timing into E&P wrong, creating Orchard just as world oil prices started their climb towards a record US$147 in July last year. High oil prices  meant it was more expensive to buy into E&P assets then. But one would have thought that the fail in oil prices combined with the credit crisis should have meant opportunities for Orchard.  Smaller oil amd gas E&P companies needed funding.Apparently,  Orchard did nothing because it was sold to listed RH Petrogas for “peanuts”:  S$351,000-$371,000.

One can reasonably wonder if MM’s thoughts affected Orchard’s plans. MM Lee said (at about the same time as Orchard was created) GIC would not invest in mining ventures, because he didn’t understand mining. What is oil and gas E&P except a form of mining?

Bull in a China Shop — but will he find value in S-Chips?

In China, Investments on 08/12/2009 at 4:32 pm

Anthony Bolton is not as well-known here as Warren Buffett or Jim Rogers

But one thousand pounds invested in his Fidelity Special Situations Fund at launch would have grown in value to £146,700 in 28 yrs.

He is relocating to HK (from London). Writing in FT.com he said, ‘that a recent tour of China had rekindled his desire to manage money. “The [investment] opportunity is simply too great to pass up. My retirement can wait a little while yet.”’

Brushing aside growing concerns that Chinese-related equities were overvalued, “The bargain stage for Chinese stocks is over but it is too early to talk about real bubbles just one year after the crisis”.

His forte is stock-picking, and it will be interesting to see if he finds value in S-Chips.

Dubai – Harbinger of China’s problems?

In China, Economy on 08/12/2009 at 9:57 am

I think the concerns in the media about Dubai World’s “default” is the PR hype of careless creditors, trying to create hysteria to pressure the ARabs.

So I very nearly missed this very thoughtful insight in FT.

“There is a country on the other side of Asia, whose currency is also pegged to the dollar. Although its economy is expanding rapidly, short-term interest rates are below 2 per cent and the money supply has grown by 30 per cent over the past year.

‘This country is experiencing a real estate boom. Reports tell of a newly constructed ghost city with dwellings for a million people. Speculators are reportedly snapping up luxury developments, which remain unoccupied long after completion. Despite a 20 per cent vacancy rate in the capital city, new skyscrapers are being planned.

‘This country’s economy is also state-directed. Its rulers are looking for 8 per cent annual GDP growth as they seek to diversify their economy away from exports. State-owned enterprises are borrowing and investing to meet this target. Construction and infrastructure are taking an ever greater share of GDP, even though many projects are likely to prove unremunerative. A mentality of “build and they will come” prevails.

‘In short, economic conditions in China have much in common with those that prevailed until recently in Dubai. The population of China is roughly a thousand times greater than the tiny emirate’s. For this reason alone, the lessons from Dubai should be heeded.

The writer, Edward Chancellor, is a member of GMO’s asset allocation team.

Grantham Mayo Van Otterloo is a Boston-based asset management firm well known among institutional investors.

Jeremy Grantham, the founder, built much of his investing reputation by correctly identifying speculative market “bubbles”. He avoided investing in Japanese equities and real estate in the late eighties, as well as technology stocks din the late nineties.

He began warning about the overvaluation of equity and credit markets in 2006, well before the start of the present crisis, “In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist.”

Well Bear Sterns,  Lehman collapsed. And Merrill Lynch, Citi,  RBS, HBOS needed help to avoid failing.

“Mr. Chancellor is the author of several books including Crunch Time for Credit (2005) and Devil Take the Hindmost: A History of Financial Speculation (1999), a New York Times Notable Book of the Year. Prior to joining GMO, he worked as deputy U.S. editor for Breakingviews.com in New York and for Lazard Brothers.”

Winners and Losers as the US Dollar Falls

In Economy on 07/12/2009 at 6:00 am

Great US-centric schematic on above.

Useful for followers of local mkt.

Dubai World “Default” — An Alternative View

In Uncategorized on 04/12/2009 at 11:30 am

Yesterday a senior writer in BT vented the conventional outrage about Dubai. “HERE’S how not to communicate you’re in a financial hole: Put out a terse statement asking for a six-month payment moratorium on US$60 billion of debt that you owe, and then promptly close shop for a four day public holiday.

I beg to defer. If you were a debtor who knew his Keynes ( “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.” ) wouldn’t you want your creditors to see reason by showing them the consequences of their unreasonableness?

“That is what Dubai World did last Wednesday. It scared the daylights out of the markets and, in the absence of any further information, triggered all manner of paranoid speculation. Is Dubai itself going bust? Will there be contagion? Who will be next? Can already weakened banks withstand this?” (BT)

So Dubai Inc. succeeded in showing the creditors why they should be reasonable: they could lose everything by being unreasonable. Don Corleone would be proud.

Then after helping them see reason, wouldn’t you want to show them that things are not that bad? That the debt to be restructured was only US$26 billion, not US$60 billion.

Well that’s what Dubai Inc. did “Thereafter, Dubai World, which has operations spanning property, ports, infrastructure and much else, tried to reassure everyone that things actually aren’t so bad. It revealed that it plans to restructure only US$26 billion of its debt. Moreover, many of its assets are on a ‘stable financial footing’ such as Dubai Ports World, the Jebel Ali Free Trade Zone and the investment arm Istithmar, and these would not be part of any deal; the restructuring will apply only to the dud assets, mainly property.” (BT)

And wouldn’t you want to remind the creditors that that the problem is theirs, not yours?

This is what Dubai Inc. did “After the emirate finally emerged from its holiday this week, Dubai’s government made clear that it will not stand guarantee for the debts of Dubai World, even though the latter is a state-owned conglomerate.”*. With support from Abu Dhabi who “indicated, ever so cautiously, that it will consider providing financial support for Dubai World, but only on a ‘case-by-case basis’.”. (Quotes from BT).

All in all, the way Dubai Inc. handled the issue shows that the big Western banks can be jerked around by debtors with attitude. BTW, Dubai World’s adviser is a house that many in the City of London, and New York still think of as a Jewish house: Rothschild.

After all as the BT writer acknowledges after some caveats, and gnashing of teeth, “Eventually, however, Dubai will be back as a vibrant business and financial centre. It has the location, it has the connectivity and it has the DNA that no other city in the Gulf can come close to matching.”.

The Arabs of Dubai Inc. have the right attitude towards banks and other international creditors: the latter have short memories, and not much scruples. If you are rich, they will do business with you.

Finally a wicked thought. Someone unscrupulous in the know could have made a fortune: shorting on Thursday and Friday when Dubai was closed. And covering back after Dubai Inc. clarified its initial announcement. But that would be taking cynicism too far.

* Would the writer say the same of Temasek, Keppel or any Singapore GLC? One suspects not .

Temasek’s exposure to Dubai (Part 2)

In Temasek on 03/12/2009 at 3:53 pm

For those S’poreans who hate Temasek, forever gloating, whenever Temasek messes up, the pickings from Dubai are slim. The TLCs have tiny exposures there even CapitaLand and DBS, S’pore’s national champs active in the area.

Even Standard Chartered’s exposure to the part of Dubai World under restructuring, is according to the FT,  US$350m: peanuts.

Gd work Singapore Inc.

The TLCs went to where the $ were Abu Dhabi.

Too clever by half?

In Investments, Property on 03/12/2009 at 9:57 am

The new-cosponsor MacarthurCook Industrial Reit (MI-Reit), AMP, and the new investors looked like they got a great deal when the recapitalisation of MI-Reit was annced in early November. Their entry price was 19.9 cents (taking into acct the entry price of 28 cents and the  rights issue of 2 for 1 at 15.9 cents). In the case of AMP,  it didn’t pay any cash for its initial investment. It sold properties and got shares valued at 28 cents. Ask Cambridge Reit about this.

There was a bun fight as Cambridge Reit said the deals destroyed value.

At the time the deal was done, the share price was 30 something cents. Having gone ex everything, it is now hovering at 20 cents.

So an investor coming in at 20 cents comes in almost at price that AMP etc entered. Now if I were AMP or one of the other 28-cents investors, I’d not be pleased at the engineers who planned and executed the deal.

So it is no surprise to read in today’s BT: “The new co-sponsor of MacarthurCook Industrial Reit (MI-Reit) yesterday said that it will focus on regaining unitholders’ trust before embarking on new acquisitions, likely industrial properties in Singapore and Japan.”

Cheapos (sorry value investors) like me will wait to see if it mkt price can come closer to rights issue price. All it needs is for Dubai to scare the markets one more time or another bad set of US economic numbers.

What price income protection? Or the cost of an annuity

In Investments on 02/12/2009 at 11:09 am

I was reading an article describing how much a 21-year old and  a 40-year-old man or woman would require to set aside to get an annual income equivalent to the median annual earnings in the UK. (“If you line up all the workers in the UK, from the highest earners and one end to the lowest at the other, and pick the person exactly in the middle – that is the median.”)

Data was provided by an insurer and a fund manager. The insurer calculated on the basis of the lump sum needed to buy a annuity; while the fund manager calculated on the assumption of expected investment returns if a lump sum was invested.

I tabulated the numbers in a table and in the last column calculated the differential in percentage terms using “Investment Cost” as the denominator.

DESCRIPTION EARLY RETIREMENT COST (using Annuity) INVESTMENT COST PERCENTAGE DIFFERENCE
Man aged 21 £2,019,117 £807,245 149
Man aged 40 £1,268,780 £659,248 92
Woman aged 21 £1,658,201 £666,076 148
Woman aged 40 £1,069,225 £554,676 95
Assumptions An estimated inflation rate of 3% a year. Take into account tax that would have to be paid. An average annual growth rate of 5% in these investments and inflation of 3%.  
Source Canada Life Fidelity International  

The differential surprised me. I know, I know: the annuity payments are assured, annual investment returns are not, and can be volatile. The investment principal could be depleted. And yields on long-term government paper, that the insurer would invest in to pay the annuities, are pathetic. But still ….  And BTW an annuity stops paying on death. Investments can be inherited.

And this in a country where the annuity market is very developed. Imagine the premium in Singapore where the annuity market is not as developed as that of the UK.  By any measure, the annuity market here is third world.

FYI, a friend is trying to provide me with local data so that I can localise the comparison. (Update on 14/1/2010, no gd local data to work on.)

Still the above table shows that the price of an assured life-time income is very high.

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