How can independent director of troubled S-Chip resign?

Hongwei’s independent director Ji Yicheng has resigned saying,”personal reasons, heavy workload”.  If the director of a troubled listco can quit when the listco gets into trouble,  then what is corporate governance all abt? Such an action is making a mockery of the responsibilities of being an independent director

The SGX must do something to prevent an independent director of a troubled S-Chip, indeed any troubled listco, from resigning. Such a resignation must have the approval of SGX.

The directores at the time the company got into into trouble must sort out the mess.  They cannot be allowed to “move on”.

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CapitaLand: The peril of being a China play?

CapitaLand is trading below its FY2010 NAV per share of S$3.32. This has not been seen since September 2009 to May 2010. CapitaLand is currently in a position of balance sheet strength (FY2010: S$7.2 billion cash, 0.18 net gearing), and has balanced exposure to diversified property segments across different geographical regions. DBS Sec

Moreover, the market has assigned no value to any accretion from an expected S$6 billion in capital deployment this year. We update assumptions and maintain a ‘buy’ rating with a fair value of S$4.05 at parity to RNAV.

Me: Nothing to do with balance sheet strength or profitability. Investors are concerned with its large China exposure. And I hear hedgies are shorting it as a proxy bet against Chinese property.

Go buy an island

What with the uncertainty in Libya and the coming GE, time to take a break from trying to find gd investments, here and overseas.

Go do sumething more productive? Like fishing? Or buy a Chinese island?

Two more reasons to avoid S-Chips

Two S-Chips have been suspended because of audit problems.

What more dangers lurk in the S-Chip swamp? Whatever the case, those Ozzies who don’t want ASX to be taken over by SGX have two more reasons.

China Water Play: and its not an S-Chip

United Envirotech is owned by local blue chip UEL

OCBC likes the stock despite revising its value downwards by 5% to 0.65. When report was issued on 2 February, the stock had closed at 0.455.

Don’t enter the dragon

To avoid being shafted.

I was reading these Shanghai Asia related letters to the press a couple of weeks was and preening myself myself for giving Shanghai Asia a miss several yrs ago. What attracted me then was that the company was making foil paper for cigarette manufacturers. And the Chinese were (and are) smoking all the way to hell.

But fast forward to today and this business is being sold at an unattractive price. Minority shareholders are rightly upset but can’t do anything because the controlling shareholder supports the deal.

I gave it a miss because S-Chips were then in the Wild, Wild West when it came to corporate governance. They still are it seems, notwithstanding the efforts of SGX and the SIAS, the shareholders’ champ, to assure us that S-Chips are well regulated.

Even Chinese companies listed in the US are considered dodgy by this widely followed writer on all things investments.

So let’s give S-Chips that have everything in China except a few independepent directors here a miss, shall we?

China: Not selling US treasuries

Juz buying via London

If S’pore is as close to China as MM, PM, SM and other ministers, and our “constructive, nation building” media say they are, surprised that the Chinese do not do it via S’pore.

China: Link between weak currency and inflation

A gd explanation from a biased economist. He wants to use tariffs to “fix” China.

[I]nflation is the market’s way of undoing currency manipulation. China has been using a weak currency to keep its wages and prices low in dollar terms; market forces have responded by pushing those wages and prices up, eroding that artificial competitive advantage. Some estimates I’ve heard suggest that at current rates of inflation, Chinese undervaluation could be gone in two or three years — not soon enough, but sooner than many expected.

China: What we don’t hear from our MSM

In their new book, “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise” (John Wiley & Sons), Carl E. Walter and Fraser J.T. Howie paint a troubling portrait of China’s economy and its financial system. Despite the nation’s mind-boggling growth and images of gleaming skyscrapers and luxury cars, the authors say China’s growth model is flawed and fragile, and they warn about substantial risks accumulating in its banking system.

Q&A

Backgrounder: S’pore Inc has big bets on China

The iPAD is Chinese

According to a report by a pair of economists out of the Asian Development Bank Institute, the success of Apple’s iPhone plays a major role in contributing to the USA’s trade deficit with China. The Wall Street Journal (login required) explains that while sales of the iPhone show around a billion trade surplus with China on paper as of 2009, the actual figure is a lot less because the iPhone is only assembled in China, not designed there. While the wholesale price of an iPhone is 8.96, the value of the only truly “Chinese” part is assembly, valued at .50 per unit. But because the iPhone ships from inside China, the entire value gets added into the trade figures, thus showing the billion trade surplus. If the numbers actually accounted for the true value coming out of China, the surplus for 2009 would have been about million instead — meaning in reality there is an almost billion trade deficit just from the iPhone alone.

The iPHONE is Japanese

Suzhou IPO: Missing from media reports

The local media reported that the company managing Suzhou Industrial Park (SIP) could be slated for an initial public offering (IPO) of at least 4.5 billion yuan ($883.3 million), going by conservative estimates.

The project started off with Singapore taking a dominant 65 per cent stake and the Chinese taking the minority interest of 35 per cent. But its shareholding reform in 2001 saw this structure reversed with China taking the majority 65 per cent. Singapore’s interest has since been pared down to 28 per cent following capital injection by new investors.

MM in 2004 listed out four success indicators for the SIP. They are attracting businesses and investments; urban planning and development; ‘software’ transfer; and finally, a public listing. (Extracts from BT, but others too covered story)

Funny none of them reminds us that S’pore Inc invested US$147m in the park as of 2000, and that the losses then were US$90m. Sumething ST reported years ago.

Could it be because the 28% S’pore Inc owns could be worth US$153m (after dilution)? Financially S’pore Inc could have made some money (US$6m), not taking into account its share of the US$90m accumulated loss. If the loss is taken into account, it would have lost US$52m.

Either way a marginal gain or loss (I’m assuming S’pore Inc didn’t invest more), taking into account, if true, the goodwill that our teaching “tai kor” would have generated among the Chinese, something our ministers and our media constantly like to remind us of.

And S’porean self-haters (many on the internet) would be banging their balls in frustration that S’pore Inc didn’t lose big time. Though they would be consoled a lot of ministers and senior civil servants spent plenty of time on this project.

So it’s very strange that our “constructive, nation building” media did not report this triumph of S’pore Inc? Or am I missing sumething?

But then our media is not first world class, only fourth world class. Everything must be “betterest”. Another example

The economy did 14.7%, highest in Asia. This was trumpeted by our MSM last week.

If our stock market was tops (or near) in Asia, there would be the usually trumpets.

But our mkt as measured by STI only did 10.1%.

MIIF: Unnoticed China play

Macquarie Int’l Infrastructure Fund has transformed itself into a China play with infrastructure assets in China and Taiwan. In 2010, it sold all kinds of investments like nursing homes in Canada.

It promises to be a Asian infrastructure play.

It’s latest presentation (Nov 2010) says it has 37cents in cash, RNAV of 80 cents a share, and no borrowings at MIIF level. But if it’s share of its investments borrowings are included gearing is 57%. Taz the catch.

Got to find out how its investments are valued and its plans for its cash.

Let you know. Wary as MIIF has been a dog with fleas. And if one annualises its Sept dividend payment, it yields abt 5%. Bit low for trust that was promising gd payouts at IPO time.

MIIF prior to the restructuring showed the problems of the model that Temasek and CitySpring mgt aped. Macquarie group was a pioneer of the model of using lots of debt to buy boring utility assets, and then spinning the assets off into trusts. Investors got income, Macquarie got fees at every level. Then the economic crisis struck and all lost out.

Poor China: screwed again

China is being shafted again.

China lends money to the US so that Americans can buy Chinese gds. It’s the biggest holder of US govmin bonds, losing billions yearly.

Now it’s lending to EU countries so that EU can buy Chinese. Article China’s support appears aimed at curbing losses on its growing financial investments in Europe, as well as helping to thwart a deeper downturn in an economic bloc that has overtaken the United States as China’s largest trading partner.

All this lending doesn’t reflect that china is the financial hegemon

Lord Keynes said, “If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy.” The quotation means that if someone owes a large amount of money, the borrower too is at risk.

GLP: Third time lucky

If you can’t get yr excuses right first time, try and try again.

Finally Global Logistic Properties (GLP) got it right. As I blogged earlier it got its nickers in a twist when explaining why  its prospectus did not disclose a non-compete agreement http://atans1.wordpress.com/2010/12/16/glps-non-actionimplications-for-sgxs-bid-for-asx-spore-inc/

Last Wednesday BT reported,”[it] did not specifically disclose information about a non-compete arrangement with ProLogis because it didn’t see the US-based firm as a real threat to its business, sources close to GLP told the media yesterday … GLP had looked into whether ProLogis was likely to re-enter the Chinese market when the non-compete clause expires next February, and felt that the chance was ‘remote’ … it would be hard for ProLogis to restart its mainland China business, as it had sold all its assets and brand name in the country to GLP … They may still have a large operation elsewhere in the world. They may still have a large market cap. But they have no presence in Asia – that’s it,’ said the source on why the non-compete information was not material.

This reasoning I can buy. And it would seem, so does the market. On Friday it was +0.14 to 2.26. It was trading at 2.18 the day before BT had an article abt its non-disclosure. It then fell.

Why did it take so long to come up with a decent explanation  It wrote twice to the media spouting gibberish. Hope it

HSBC: Returning to its Chinese roots

Remember the “S” stands for “Shanghai” and “H” for Hongkong.

Growth in China has averaged around 10 percent a year for the last decade and shows little sign of slowing. As trade flows with the rest of the world increase — HSBC says they will reach $5 trillion by 2015, which means growth of 13 percent a year — more of China’s cross-border trade will be settled in yuan.

On paper, HSBC is well placed to take a good chunk of business in that yuan-denominated trade. It is often one of the first foreign entities to win key licenses in China. It was the first to settle a cross-border yuan trade last year, the first to handle a yuan-denominated interest rate swap in Hong Kong in October, and it became the first international bank to complete yuan settlements in six continents with a deal in Brazil last month. …

GLP: Foreign brokers love it

Global Logistic Properties (GLP), got  ’buy’ calls from 4  brokers (3 foreign) last week. It is a “buy” because it is leading provider of logistics facilities in China.

It owns logistics facilities in China and Japan – Asia’s two largest economies – and may expand into other economies (GLP says it is ‘building the leading distribution facility platform in Asia) in the region, stands to benefit from Asia’s strong economic growth. In particular, rise of consumer spending in China will boost profits.

Citi has a target price of $2.78 for GLP. It noted that yields from the sector are typically higher than those from the retail and prime office property segments in fast-developing China, and that the logistics space does not face the high policy risks that GLP’s residential peers are exposed to.

Nomura has a $2.58 price target for the stock. UBS, has a $2.65 price target for the stock.

In addition to these points, DBS says: We derive an RNAV of $2.76 using a sum-of-the-parts analysis that captures the value of its underlying assets as well as potential re-investment opportunities from balance sheet deployment. Our TP of $2.76 is pegged at parity to RNAV. Key risks to investment stem from regulatory and policy as well as global economic conditions.

BTW GIC is its single-largest shareholder.

The touch of Midas

I mentioned Midas Holdings earlier in the year.http://atans1.wordpress.com/2010/05/24/midas-here-be-value/. Then DMG & Parners and Kim Eng were recommending it, if I recall correctly. Looks like it is an S-Chip that proved sceptics wrong.

A CIMB Research dated  Nov 24 has rated it an “Outperform”.

MIDAS plans to expand its aluminium extrusion capacity further to 70,000 tonnes (+40 per cent) by H1 FY12 after its recent capacity expansion. Coupled with strong results from its metro train maker associated company, we see better earnings growth ahead. As a result, we raise our net profit forecasts for FY10-12 by 1-11 per cent. Our TP rises accordingly from $1.14 to $1.26, still based on 15 times CY12 PE, in line with peers. We see stock catalysts from sizeable contract wins in FY11 from Chinese train makers. Maintain ‘outperform’.

Midas has announced plans to add 20,000 tonnes of capacity by H1 FY12 that would bring its total extrusion capacity to 70,000 tonnes. It may locate the new production lines outside its current plant for strategic reasons, and we see southern Chinese cities as possible locations. In view of its expansion plans, we lift our FY12 average production capacity assumption to 60,000 tonnes.

I hear Kim Eng, DMG & Partners, UOB KH are also recommending the stock.

Chinese officials to people: Don’t panic

China’s main economic planning agency has moved to reassure people who fear inflation is getting out of control.

But the Shanghai stock market was down on Monday and Tuesday on fears of more measures to control  inflation  especially that of food. The market fell almost 2% on Tuesday.

The BBC Online article continued: The National Development and Reform Commission (NDRC) said in a statement that the country had “the capacity” to keep prices in check.

There is particular concern about food price inflation, amid suggestions that some people are hoarding commodities.

But the NDRC said the government had adequate reserves of foodstuffs like poultry, eggs and grain to meet needs.

Food prices jumped 10.1% in October from a year earlier, increasing the overall inflation rate to 4.4%, well above the government’s 3% target.

An oil bull still?

Hedge funds cut bullish bets on oil by the most in almost three months amid speculation fallout from the Irish debt crisis and China’s efforts to curb inflation will slow economic growth, sapping demand for fuel.

The funds and other large speculators reduced so-called long positions, or wagers on rising prices, by 15 percent in the seven days ended Nov. 16, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report, released Nov. 19. It was the first drop in four weeks and the largest decline since the seven days ended Aug. 24.

Bloomberg story

And remember that if China uses its energy resources as efficiently as the West and Japan

http://atans1.wordpress.com/2010/09/28/whither-the-price-of-oil/

Global food prices: not time to panic yet!

Still lower than 1980 levels as this chart shows

But big macs are getting more expensive in China. The US policy of QE2 is forcing up the real value of the yuan (via the price of gds, services and food). The more the Chinese defend the exchange rate to prevent the Yuan from appreciating in norminal terms, the more the real value of yuan rises.

The US is still the hegemon.

HSBC’s view of emerging mkts

Mkts are flying what with Aug- Oct passing without a mkt collapse and the Fed pumping money into the system. Time to join the party. I’ve sat on the sidelines so far this yr, so I’ll sit on my hands a bit longer. Must admit its hard not to want to do something.

The CEO of HSBC, said late last week, there were likely to be “some bumps in the road ahead” in developing countries, especially in China. Reminder: HSBC generates most of its earnings growth in Asia.

“Our latest data from emerging markets points to a slowdown in the rate of recovery,” he said in a statement. But the bank added that it still expected growth in the region to outpace that of the developed world for the foreseeable future.

He gave a positive outlook for the rest of the year, saying that “the global economy is in better shape than many expected a year ago.” But that “while fears of a double dip in the West may be overplayed, the passage from downturn to upturn is clearly taking longer than previous cycles.”

HSBC said pretax profit in the third quarter was “well ahead” of the period a year earlier, as reserves for bad loans reached its lowest quarterly level since early 2007. Its lending business in the United States accounted for the biggest share of improvements. Business in October was “in line with third-quarter trends,” HSBC said. HSBC does not give detailed earnings figures on a quarterly basis.

The investment banking unit of HSBC also reported a drop in trading. HSBC said performance of the business was “robust although trading activity was lower.”

China plays on S&P 500

The Economist has constructed a “Sinodependency index”, comprising 22 members of America’s S&P 500 stockmarket index with a high proportion of revenues in China. The index is weighted by the firms’ market capitalisation and the share of their revenues they get from China. It includes Intel and Qualcomm, both chipmakers; Yum! Brands, which owns KFC and other restaurant chains; Boeing, which makes aircraft; and Corning, a glassmaker. The index outperformed the broader S&P 500 by 10% in 2009, when China’s economy outpaced America’s by over 11 percentage points. But it reconverged in April, as the Chinese government grappled with a nascent housing bubble.

I’ll try to get the names of other companies on this index.

China plays: Impact of interest rate rise

China  announced an unexpected increase of its key interest rates by 0.25 percentage point last week.

Local stockbroker DMG says

Some of the corporates we follow will be positively impacted by the interest rate hike:

There should be a net positive impact on China Essence Group (unrated) with higher borrowing costs likely to be more than offset by savings from US dollar- and Hong Kong dollar-denominated debts. China Essence is a potato starch manufacturer and derives most of its revenue from China’s domestic market. Interest-rate and foreign-exchange risks pertain mainly to its 690 million yuan (S$135 million) in outstanding debts, consisting of a US$50 million short-term bank loan; 90 million yuan in working capital loans; and HK$250 million (S$42 million) in zero-coupon convertible bonds due in December 2011 (with repayable amount at HK$378 million). With a significantly smaller yuan-denominated debt, we see net positive foreign exchange impact on weaker USD and HKD.

The Chinese see value in Africa

The Chinese (people and state-owned enterprises (SOEs)) are flocking to Angola in darkest Africa. The latter are there for the natural resources that China needs, the former because they see the personal opportunities that they see the SOEs drive into China will bring them. Smart people, the Chinese.

So shouldn’t S’porean entrepreneurs and companies (TLCs, GLCs, and SWFs included) head for Africa? Rather than head for China, or Asia as the govmin keeps encouraging us to do? True Asia esp China waz the place to do in the 80s and 90s and early noughties, but if the Jews of Asia are moving on out of their country into Africa, shouldn’t we?

And admiral Cheng Ho was there in the 15th century.

Are our ministers on auto-pilot mode, or is there something they dislike abt Africans?

BTW when I was a student in London in the late 1970s, I got a lot of stick from African students. They tot one LKY was a racist. I argued that he was simply stating facts. This stance cost me dear: I wasn’t invited to partake of raw stakes of lion, zebra or antelope meat. I love steak tartar.

China: Great Morgan Stanley chartbook

Via www.hedgeanalyst.com.

Thanks guys.

Whither the price of oil?

A stupid question. Upwards and onwards. Juz look at the small cap stocks in S’pore’s offshore marine industry.

But consider this fact reported in “The Squeeze”, Tom Bowyer’s book on the recent history of the oil industry.  China requires three times more oil and gas to manufacture the same item than US or Europe. The equivalent of 16m barrels of oil are wasted every day.

All this means is that if China can get more energy efficient, it can increase output, using less oil.

I’m an energy bull, but this statistic has me wondering if I shld be less bullish.

China Black Swan risks quantified

Morgan Stanley’s Qing Wang created a new tracking concept, the China Macro Risk Radar (CMRR). The  goal is to provide a framework to asses and monitor risk events of low to moderate probability (high probability events already have their own standing at the firm and are singled out in client calls) and high impact.

As part of its inaugural edition, MS has assigned 10 risk events to four different categories on the CMRR – each risk event is assessed according to six aspects, including its description, content, potential impact, likelihood, timeframe, and evolving direction. The top 10 event  that shld concern investors  can be summarized along the following four verticals:

Risk Category A: Macroeconomic

Risk Event 1: Massive NPLs

Risk Event 2: Local Governments Default

Risk Event 3: Economic Hard Landing

Risk Category B: Policy and Regulatory Changes

Risk Event 4: Rapid Wage Increase

Risk Event 5: Introduction of Property Tax

Risk Event 6: Resource Tax Reform

Risk Category C: Financial Market Shocks

Risk Event 7: Property Bubble Burst

Risk Event 8: Commodity Prices Spike

Risk Category D: External Shocks

Risk Event 9: European Sovereign Debt Crisis Redux

Risk Event 10: Trade Protectionism

A visual summary

S’poreans, Temasek may have a problem

Of the 90 publicly listed Chinese property developers listed on the Shanghai and Shenzhen stock exchanges, almost two-thirds of them reported negative operating cash flows for the first half of 2010.

This makes clear why the Chinese authorities had earlier asked the banks to use a 60% haircut in estimating residential property  losses.http://atans1.wordpress.com/2010/08/11/temasek-what-abt-these-chinese-property-charts/

Looks like trouble for the Chinese property developers and banks may be coming sooner than later, and for China bank bull Temasek. A repeat of Merrill Lynch and Barclays?

Remember Temasek owns 4% of Bank of China; and 6% of  China Construction Bank. And StanChart is a cornerstone investor  in Agricultural Bank of China with abt 1% paying US$500m for this privilege). Temasek owns 18% of StanChart.

And what about CapLand and KepLand, with their biggish exposure to Chinese residential properties?

Sigh

Dogs? Temasek’s Chinese bank investments

Might sound dumb to ask given that the Chinese banks that Temasek invests in are some of the largest in the world, and given that China’s economy is growing like the bean stalk in the story Jack and the Bean Stalk.  But then Shin, Merrill Lynch and ABC Learning were “no brainers”.

State agency Central Huijin Investments did something strange recently. It has controlling stakes in nearly all of China’s largest banks, including China Construction Bank (6% owned by Temasek), Agricultural Bank of China (StanChart is a cornerstone investor with abt 1% paying US$500m for this privilege) and Bank of China (4% by Temasek) . Temasek owns 18% of StanChart.

Huijin just raised Rmb40bn (US$5.9bn) as part of  a Rmb187.5bn fund raisng. The aim of raising the Rmb187.5bn is to recapitalise  Chinese banks it controlled.

Sounds prudent given the explosive loan growth rates of the banks brought about by Chinese attempts to stimulate the economy.

But this is the weird bit: the state-controlled banks were estimated to have bought more than 80% of Huijin’s first bond issue, on orders from their shareholder. If this is repeated, this means the Chinese banks are lending money to their controlling shareholder so that the shareholder can buy shares in them.  No new cash is invested by the controlling shareholder.

Sounds something that only Wall Street cowboys would dream of doing.

Except that the Wall Street cowboys would be in jail for pulling off this stunt, unless of course, if a Texan is president.

China: Rerun of US Sub Prime? Part II

Chinese banks have been ordered to account for around Rmb2,300bn ($340bn) in off-balance sheet loans in a move that could put some lenders under serious stress and require another large round of capital-raising, reports FT.

Lenders must put all loans sold or transferred to lightly regulated Chinese trust companies back on their books by the end of 2011. And must stop using “informal securitisation” to evade regulatory requirements.

Trying to ensure that banks don’t do what Citi, Merrill Lynch and other US banks were doing? Concealing their leverage albeit legally.

Reminder: Other big problematic numbers are loans to local governments, more than US$230bn of which are considered to be at serious risk of default, and real estate exposure, which accounts for roughly one-tenth of the big banks’ corporate loan books. FT

We live in interesting times.

China: Rerun of US Sub Prime? Part I

In 2009,  banks were ordered to increase their loan books by a third.  The result has been a sharp rise  in real estate prices and the pace of construction.

A recent National Bureau of Economic Research paper, “Evaluating Conditions in Major Chinese Housing Markets”, notes that Beijing land prices have nearly tripled since early 2008. Land sales have become the main source of income for local governments.

Some Rmb10,000bn (£946bn, €1,129bn, $1,475bn) of bank loans have been made local government infrastructure projects. Meanwhile, Chinese banks are repackaging their loans and selling them on to investors, says Fitch.

Sounds a bit too close to what was happening in US, where everything depended on rising house prices.

We shall see if the results are the same.

Temasek, CapLand: What abt these Chinese property charts?

Courtesy of this blog. And look at the money supply charts too.

No wonder China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 6o% in the hardest-hit markets. Banks were instructed to include worst-case scenarios of prices dropping 50- 60% in cities where they have risen excessively. Previous stress tests carried out in the past year assumed home-price declines of as much as 30%.

Expectations seem to be for a sharp decline in Chinese property prices over the next two years, with some, and perhaps significant, impact on Chinese banks.

Some time back it was reported that Temasek had emerged as one of the top 10 acquirers in the Greater China region,

after doing six deals worth US$1.47 billion since 2005. According to a market M&A report commissioned by Deloitte, Temasek is ranked No 9 – after Morgan Stanley and Goldman Sachs, which are No 7 and No 8 respectively. The report

Temasek: China banks’ loans

Chinese banks may struggle to recoup about 23%  of the Rmb7,700bn (US$1,100bn) they’ve lent to finance local government infrastructure projects . reports Bloomberg quoting “a person with knowledge of data collected by the nation’s regulator”.

The estimate implies US$261bn of debt will go bad, almost five times the US$53.5bn the nation’s five largest banks are raising to replenish capital. Remember Temasek owns 4% of Bank of China and 6% of China Construction Bank, both of which have raised more capital from shareholders.  And 18% -owned StanChart  invested $500 million in Agricultural Bank of China’s recent IPO.

If the estimate proves even a bit correct, Temasek will be having to invest more in the next few years  to avoid dilution.

Related post

http://atans1.wordpress.com/2010/02/08/tlcs-in-china-groupthink-or-mastermind-at-work/

China: No premium for A shares

Mainland Chinese investors traditionally had to pay a huge premium for shares listed domestically over what those same shares trade for in Hong Kong. The premium has disappeared. Why?

Prices in Shanghai and Shenzhen have fallen by 22% and 15% respectively this year, making the mainland one of the world’s worst-performing markets. In Hong Kong prices of shares in the same companies have fallen far less. Outsiders appear more willing to believe China’s growth story than the Chinese.

Investors no longer have funds. .Of the US$19bn raised recently by Agricultural Bank of China, more than half came from other Chinese state-owned organisations. Every other big bank is raising more capital. Chinese companies raised $54 billion in equity in the first half of this year (before the AgBank listing) and another $80 billion in debt, according to Dealogic.

The moves to liberalise the yuan could play a part.

But Chinese companies are still trying to list.

Singapore’s Economy — Clouds a’plenty

Strange tot in light of broker upgrades as reported in BT

But the boss of Rio Tinto (one of the three cos that supplies China with iron ore)  is  concerned that the global economy is very volatile). He is concerned about a slow down in China. But if Intel’s more optimistic view is correct, let the gd times roll on.  Article on the contrasting view of both companies.

And if the economy is so strong,why the slowdown in house sales in June and the slight dip in retail sales? Article reporting this news.

GE: Opportunities beyond China

Jeffrey Immelt, General Electric’s chief executive, has launched a rare broadside against the Chinese government, which he accused of being increasingly hostile to foreign multinationals.

He warned that the world’s largest manufacturing company was exploring better prospects elsewhere in resource-rich countries, which did not want to be “colonised” by Chinese investors. “I really worry about China,” Mr Immelt told an audience of top Italian executives in Rome, accusing the Chinese government of becoming increasingly protectionist. “I am not sure that in the end they want any of us to win, or any of us to be successful.” Mr Immelt acknowledged the importance of the Chinese market, which contributed $5.3bn to the group’s revenues last year – FT.

But US$5.3 bn is a peanutty 3% of 2009 revenues, and China will always need natural resources, so his plan to do without China is credible, unlike Google’s*.

Hmm maybe, China-fixated Temasek and its TLCs can learn from this? In their case, diversify away from China without losing the opportunity cost of not investing direct in China. Get what I mean?

Temasek Gp are big in China

http://atans1.wordpress.com/2010/02/08/tlcs-in-china-groupthink-or-mastermind-at-work/

Mentality of China bulls

http://atans1.wordpress.com/2010/03/12/understanding-the-mentality-of-china-bulls/

*But Google has a cunning plan to use Android to soften losses on search in China. Never count Google out.

China: a problem S’pore doesn’t have

It’s labour unrest . Add another entry to the list of worries for the global economy and financial markets: labor unrest in China – NYT

I sure hope Temasek andits TLCs who have big bets in China have taken this into account. Remember, we don’t do”labour unrest” here.

http://atans1.wordpress.com/2010/02/08/tlcs-in-china-groupthink-or-mastermind-at-work/

http://atans1.wordpress.com/2010/02/09/why-my-obsession-with-tlcs-in-china/

Err time for Lim Say Swee to lecture the Chinese leaders on what they can learn from MM Lee and him on how to keep the workers docile?

Midas: Here be value?

[Update on 31 May 2010 -- Midas wins S$234m  Shanghai metro contract.]

Brokers’ reports say that S-Chip Midas will be beneficiary of China’s rail expansion.

How big is this expansion, sometime back FT reported:  Bank of China, the country’s third-largest lender by assets, will invest $1.1bn in a railway line as Beijing encourages state-controlled financial institutions to help pay for the world’s most ambitious rail network expansion .

BoC said it would buy a 14.5 per cent stake in a new railway operator that will build a line to transport coal from inland Shanxi province to Shandong province on the eastern seaboard.

The announcement came one month after the bank said it would invest nearly $900m in a state company that is building the high-speed rail line between Shanghai and Beijing.

China is expected to account for well over half of all global rail investment this year, with an estimated Rmb824bn ($120bn) budgeted for 2010 alone.

“Apart from the US interstate expansion in the 1950s and 1960s or the US railway build-out in the early 19th century there has never been anything like this,” according to John Scales, transport co-ordinator at the World Bank office in Beijing.

S=US$

Frontier Markets: Do they offer value?

Where is the dividing line between frontier and emerging markets? “It’s not very clear,” said emerging markets specialist Mark Mobius of Templeton. “Generally speaking, frontier markets are those that are relatively small and illiquid and have been pretty much ignored up to now.

‘Cambodia or Sri Lanka would be examples, along with Vietnam and Pakistan. But then you have other markets, like those in the Middle East which have not traditionally been part of emerging markets, such as Kuwait, Abu Dhabi and Dubai.”

By his definition, we have three around us: Cambodia, Sri Lanka and Vietnam.

Interested in Cambodia and Laos?

Frontier Investment and Development Partners says that investment in China’s neighbours has become an option for those interested in China itself, reports the FT. FIDP claims to be a private equity investor.

FIDP, which has offices in Singapore, Cambodia and Mongolia, has launched its Cambodia and Laos fund, and is due to start investing its first $50m (£32m, €37m) by July. The fund is “an extended China play”, designed to profit from exports to China as well as the shift of investor interest from west to east. It will focus largely on agriculture and infrastructure, seeking to benefit from China’s continued demand for raw materials and its desire for food security and the need to improve transportation links for trade

Both Cambodia and Laos boast swathes of undeveloped land and untapped reserves of resources. The discovery of oil reserves off the south-west coast of Cambodia has yet to be quantified and the potential for Laos to become a major source of hydropower using the Mekong river has also not yet been utilised. But … these countries are primed for rapid growth.

And as roads are built and an unbroken rail network is created across the region, the proximity to China of countries such as Cambodia and Laos will provide them with an additional advantage over commodity exporters further afield.

China has provided large sums towards developing infrastructure and transportation links in both countries. In March, a Chinese delegation to Cambodia pledged to expand commercial ties between the two countries, including an agreement between telecommunication companies Chinese Huawei Technologies and Cambodia’s CamGSM.

Sino-E: Expectations raised then dashed in three weeks

It was less than a month ago that Sino-Environment annced that S$14 million had been “secured”. http://atans1.wordpress.com/2010/03/29/sino-e-wheres-the-14m/ and implied that things were looking up

So it must have come as a shock to shareholders that the CEO had quit and the company is in interim judical mgt.

Were the independent directors doing the right thing earlier this year? http://atans1.wordpress.com/2010/01/10/sino-e-where-are-the-managers-doc/

Or were they intent on making sure they could not be sued?http://atans1.wordpress.com/2010/01/03/sini-e-the-plot-thickens/

Hopefully someone will explain to the shareholders how within the space of less than a month expectations were raised and then dashed. Though I doubt it.

AIA deal: Why big Pru shareholders upset

“You sell billions of cheap stuff to buy billions of expensive stuff,” James Clunie, manager of the 1.5 billion- pound Scottish Widows fund, said in an interview in Edinburgh on May 7. “It’s a bad deal. It doesn’t look sensible,” reported the FT.

He was referring to fact that Pru is trading at around 1 x Embedded Value* and in return Pru is buying AIA for 1.69 X EV, when AIA’s two major markets S’pore and HK are not inmature insurance markets .  The Pru is paying in their view for blue skies in China, where AIA has a presence but nothing to shout about unlike the big Chinese insurers who are trading at 2 X EV.

He is not the only one upset. The largest single shareholder with 12%, Capital Mgt is upset. One of its fund mgrs has set up a site advocating that someone pls bid for Pru and split it up.

Warren Buffett if he had been a Pru shareholder would agree with them.  “You simply can’t exchange an undervalued stock for a fully-valued one without hurting your shareholders,” he recently said. And he had earlier criticised Kraft for placing out its shares at lower prices than it had earlier bot back shares, in order to finance the Cadbury takeover, illustrating the problem companies face when buying back in what in retrospect is a bear market. http://atans1.wordpress.com/2010/03/03/buybacks-problematic-in-bear-markets/

*“Embedded value” (the sum of net assets plus the current value of future profits from existing policies) assumes that an insurer will write no more new business, nor make any gains on its investments. That is why most recent deals in mature markets have been completed at about 1.2 times – a small premium for control, for cost synergies, and for growth potential. The 1.69 times that the UK insurer is proposing to pay seems bullish, given that AIA’s two biggest markets by gross written premiums are Hong Kong and Singapore, already overrun by agents. FT

Temasek: Update on its China bank investments

As readers will be aware Temasek has strategic stakes in Bank of China (4%) and China Construction Bank (6%), two of the four biggest Chinese banks.

These investments have done well, but need cash because of the loans they were directed to make last year, when China wanted domestic demand to make up for weak exports. http://atans1.wordpress.com/2010/04/14/temask-profitable-holdings-require-more/

China Construction Bank has announced a plan to boost a balance sheet that has been eroded by a year-long lending binge. The world’s second-largest lender by market value, plans to raise up to Rmb75 billion (US$11 billion) from a rights issue which, if successful, will be the largest offering of its kind in Asia.

CCB will offer 0.7 rights share for every 10 existing A- and H-shares. The price will be no more than Rmb4.50 per rights share, according to a stock exchange filing on Thursday night last week.

Under the plan, approximately 16.36 billion new shares will be issued, of which 15.7 billion will be Hong Kong-listed H-shares directed to overseas investors. Only 630 million are Shanghai-listed A-shares earmarked for mainland investors. The proposal is pending shareholder and regulatory approvals.

Bank of China  announced plans to sell U$5.8 billion worth of convertible bonds sometime back and we shall see if it needs more cash*.

AND Chinese banks, flush from record profits that were bolstered by a yearlong lending binge, are expected to face a business slowdown as Beijing tries to slow lending to keep the economy from overheating.

Full article from NYT.

Update

Industrial and Commercial Bank of China, the world’s largest bank by market value, and Bank of China, the country’s third largest lender by assets, are reconsidering previously announced plans to sell convertible bonds and new shares in Shanghai and Hong Kong, according to analysts and Chinese media reports. The banks might be under pressure from to sell shares through a rights issue to existing large shareholders and by selling more shares in Hong Kong than in Shanghai, as a means of stabilising the Shanghai market.

Just when you tot it was safe

Thinking of starting to  invest seriously in emerging markets? Standard Chartered warns of bubble in emerging markets. Extract from Guardian article:

Gerard Lyons, chief economist at Standard Chartered, said Asia was the main recipient of western capital, but there was also evidence of speculative activity in Latin America, Eastern Europe and Africa.

A combination of a prolonged period of low interest rates in the west and strong growth in emerging markets meant the money would continue to flow in. “The size of the flows could become more significant,” he added. “There is a significant risk, even though it is a consequence of economic success.”

The report noted that many countries did not have the capacity to absorb the capital inflows, with the result that the money boosted share and property prices, adding to inflationary pressures.

“The longer it takes to address this, the bigger the problem will be. Just as excess liquidity contributed to problems in the western developed economies ahead of the financial crisis, excess liquidity has the potential to cause fresh economic and financial problems across the emerging world.”

Massive flows of capital from emerging economies, especially those in Asia, helped to inflate the asset bubbles in the west that led to the financial crash of 2007. Standard Chartered said global liquidity flows had now reversed, with emerging economies now on the receiving end. Recipients included countries with current account surpluses such as China, and those running current account deficits such as Vietnam and India.

Lyons said China was the emerging economy investors were looking at for signs of trouble. “China is not a bubble economy but it is an economy with bubbles.” But he added that the problem was not confined to Asia, and that hedge funds were now looking at “frontier markets” in Africa.

While emerging markets needed foreign direct investment to help them grow, Standard Chartered said the influx of hot money was a big worry. “Although hot money is regarded as temporary, it persists until the incentive to speculate is eliminated.”

Oh and there is the Greek crisis. 2008, here we come again?

China: Command & Control

As the loan officers for a regional branch of a major Chinese bank were preparing to issue more loans their computer screens froze. It was not a system failure due to Vista problems, rather the bank’s intranet network had been deliberately shut down to stop new loans being made. Full article

The purpose of the above is to illustrate that if the authorities feel the need to control the property market, they can be ruthless.

China must tackle its property bubble for the sake of economic health and social stability, even if the market feels some short-term pain in the process, an official financial newspaper said on Thursday.

Monetary tightening, along with steps to control housing demand and expand supply, are the right policy choices for the government, the China Securities Journal said.

The front-page commentary adds to the impression that officials are determined to make a success of their latest crackdown on property speculation. Previous attempts to cool prices have been tempered by a fear of over-tightening because the property sector is a pillar of the economy. Reuters/ NYT report

So investors in S’pore property counters with big exposures in China, be warned.

http://atans1.wordpress.com/2010/02/03/capland-what-price-the-mega-china-deal/

I’m sure Temasek and its group cos are aware of how brutal the Chinese authorities can be.

http://atans1.wordpress.com/2010/02/08/tlcs-in-china-groupthink-or-mastermind-at-work/

But based on the Merrill Lynch/ BoA fiascos, who knows?

“We are short entities that are selling into China”

The man who made his name and fortune shorting Enron talks on China’s property bubble.

BI: So when do you see the bubble bursting for China?

JC: Well, always with these things, we’re often early and it appears we’re early here too. But the good news  for office building bubbles is that they’re pretty tangible. So when you see the apartments stop selling, when you stop seeing foundations being laid, and holes in the ground, when you see the cranes not going up anymore, buildings being half-complete – that’ll tell you you’re at the end.

Read more.

Connected post

http://atans1.wordpress.com/2010/02/08/tlcs-in-china-groupthink-or-mastermind-at-work/

http://atans1.wordpress.com/2010/03/12/understanding-the-mentality-of-china-bulls/

Temask: Profitable holdings require more $

Err the SDP and its new media allies will spin this as: “Profitable investments — requires more money. Waz happening Temasek?”

As you will be aware Temasek has stakes in two Chinese banks; 4% in Bank of China, and 6% of  China Construction Bank Corporation. These stakes are profitable.

But Temasek would need to invest more if it wants to maintain the size of its stake because they need a lot more capital.

China’s four biggest publicly traded banks (Industrial and Commercial Bank of China, Bank of Communications , Bank of China, China Construction Bank ) could face a combined capital shortfall of at least Rmb480bn (US$70bn) over the next five years, according to the president of Industrial and Commercial Bank of China, reports the FT.

All these banks have announced plans in the past month to raise fresh capital after orders to lend liberally last year. But the total amounts they plan to raise fall far short of the five-year estimate of Yang Kaisheng, ICBC president.

Poor Temasek: nothing satisfies critics gunning for you.

Sino-E: Could this happen?

If this can happen to a UK listco, which is part of the Hong Leong Gp, could happen to Sino-E or any other S-Chip that has or had management or corporate governance problems.  SIAS and SGX should ask listcos what steps they have taken to prevent sumething similar happening to them in China? FT reports

Millennium & Copthorne, the hotel group, underscored the challenges for western companies operating in China on Monday after it revealed that a former employee at one of its joint ventures there had allegedly sold $48m (£31m) of the venture’s assets without M&C’s permission.

The company said the employee, Cheung Ping Kwong, sold the assets – which included a hotel and development land – in spite of a Chinese newspaper advertisement issued by the joint venture warning that he had been removed from his position at the group and was not authorised to sell the holdings.

Sino-E: More $ down the drain?

Can’t understand why Sino-Environment spends $ on advisers* in connection with the proposed restructuring of the Company’s 4% convertible bonds due 2013 issued in an aggregate principal amountof S$149 million (the “Bonds”) and its debt obligations.

When it terminated nTan Corporate Advisory in March as the independent financial adviser (IFA ) to the Company, the board said, “In line with the Company’s cost-cutting measures, the Company has terminated the appointment of the IFA with effect from 18 February 2010. The Company’s newlyappointed chief executive officer, Mr Sam Chong Keen, will undertake the task of negotiating and liaising with the Company’s bondholders.”

I think the board owes the shareholders an explanation for this change of mind. And I hope SIAS or SGX will ask the board for an explanation. Though something tells me that nothing will happen.  Poor shareholders, they might reasonably think that  directors are spending shareholders’ money to ensure that the board doesn’t get sued.

Or that the board thinks CEO is not up to job?

*Ernst & Young Solutions LLP (“E&Y”) is the financial adviser. “E&Y’s scope of work will include, among other things:

(a) advising and assisting the Group on suitable options for discussion with the holders of the Bonds (the “Bondholders”) and providing assistance on the development of a comprehensive debtrestructuring plan of the Company’s existing borrowings and liaising and negotiating with the Bondholders in connection with the debt restructuring exercise; and

(b) undertaking a business and financial analysis on certain related matters.”

“The Company has also appointed Stamford Law Corporation as its legal adviser to act for the Group in relation to matters arising from the debt restructuring.”

Great excuse for telco to buy bank stake

Some time back, China Mobile agreed to buy 20%  of Shanghai Pudong Development Bank for 39.8 billion renminbi (US$5.8 billion) to expand its electronic payment business.

The reason for the telco to buy such a big stake in a bank:  China Mobile and Pudong Bank will form a strategic alliance to offer wireless finance services including mobile bank cards and payment services, according to a statement  filed with the HKSx.

Wonder if  the corporate communications departments of TLCs, M1, SingTel and Starhub have filed away this excuse. Their company might need to adapt it if it ever has to buy a stake in a bank in the Temasek stable.

Why?

In late March according to a Reuters report, Bank of China, China’s fourth largest bank, said it was in talks with Temasek, to set up a rural business bank in China. The bank under discussion would have 40-60 branches, President Li Lihui told reporters at a media briefing to discuss Bank of China’s 2009 results

Now wouldn’t such a bank need wireless expertise and don’t StarHub and SingTel love to do dumb things? Fooie fans still don’t know if we will get World Cup coverage.

DBS: What the new chairman should be looking at II

He should ensure that any acquisition in Indonesia, India, Malaysia and Thailand,  the countries where DBS says it would look for acquisition opportunities is disciplined in terms of valuation, strategic fit and execution.  Investors still remember the Dao Heng fiasco, overpaying and having to take billion dollar impairement charge. And the purchase of POSB was not such a gd deal as anti-government subversives like to imply that it is.

Better still he shld relook at the rationale for these M&A activities.

DBS is  Singapore and Hong Kong centric. But, in February, it said it was aiming to have 30 per cent of its revenue from South and South-east Asia, excluding Singapore, 30 per cent from Greater China and 40 per cent from Singapore within five years.

Morgan Stanley estimates that DBS would have to grow at a compounded annual growth rate of 40 per cent a year in South and South-east Asia to achieve its stated target in that region i.e. it would have to grow via acquisitions.

BTW last Friday BT reported that DBS’s CEO had said DBS had identified unnamed acquisition targets in Indonesia which shld worry investors.

Previous post on topic

http://atans1.wordpress.com/2010/03/24/dbs-what-the-new-chairman-shld-be-looking-at/

He shld be relooking at FT policy — both in principle and execution.