A very tiny American research firm and short seller, Hindenburg, issued a very critical report about the Adani Group, one of India’s biggest conglomerates. A pulled secondary share sale of US$2.5bn and a rout in the markets shows that a pal of PM Modi, and India Inc are no match for a tiny American short seller.
This despite inflation not abetting in this quarter, something that our millionaire ministers said would happen earlier this here.
In early July, I wrote about looming markdowns to private assets referencing the comments of Temasek’s CIO defending Temasek’s investments in private assets: Was Temasek’s CIO whistling in the graveyard? Note that GIC is also big investor in private assets.
Recently, the managers of Harvard University’s $51bn endowment have warned of substantial markdowns to come in its private equity and venture capital portfolio, predicting heavy losses for institutional investors.
Trumpets please.
.
As A S’porean, not a citizen of the US of A or a citizen of the world, I want to know what’s the real returns in S$ above global inflation. Because the S$ is our currency, not the US$.
Check this out at Cynical Investor’s takes on S’pore’s History: Very good documentary about the 60s and 70s.
Not the touristy or nostalgic BS, but why the old S’pore had to be demolished to save S’pore and make LKY and the PAP look great.
He was very bullish in his remarks about Temasek’s unlisted assets: see below. Wondering out loud, because maybe being super KS (a PAP Hard Truth) now requires Temasek’s unlisted assets valued as at 31 March 2022 to be marked down by 30% to reflect present day reality?
No I’m not being anti-PAP or alarmist. I just read the international financial media and extrapolate what I read into the S’pore context. Something our constructive, nation-building media don’t do because they are constructive, and nation-building.
Let’s begin at the beginning.
A typical example of how our our constructive, nation-building media reported Temasek’s results:
Temasek Holdings’ net portfolio value reaches record S$403 billion, made up of mostly unlisted assets for first time
https://www.todayonline.com/singapore/temasek-holdings-net-portfolio-value-reaches-record-s403-billion-made-mostly-unlisted-assets-first-time-1941811
Going by the usual definition of “unlisted assets”, Temasek’s unlisted assets include investments in private equity, venture capital. property and infrastructure. Btw, the differences between these categories are often very thin. One category can morph into another and then another.
‘Mapletree Investments (property), the Port of Singapore Authority (PSA) (infrastructure), and the Singapore Power (SP) Group (infrastructure) are examples of unlisted assets.
In the past decade, this segment of the portfolio has generated returns over 10% per annum through IPOs, trade sales or from the performance of the businesses. The value of these unlisted assets has risen nearly four-fold from S$53bn to S$210bn. It was money for jam to invest in unlisted assets:
Cheap debt is a red rag to private-equity bulls: around half a typical buy-out is paid for using debt, magnifying the returns to investors’ capital. It has played a critical role in each buy-out boom period; the present one can trace its genealogy directly to rate cuts by central banks during the global financial crisis.
https://www.economist.com/business/2022/07/07/private-equity-may-be-heading-for-a-fall
So when interest rates rise, valuations fall.
Below is part of Chris Kuan’s FB post on Temasek’s unlisted assets. Read how Temasek’s CIO bullishly (Or defensively for cynics like me?) pictures what Temasek’s unlisted assets are doing for our reserves, and Chris K’s retorts. My take, if so good why die die must raise GST in the face of inflation?
But before you read it, here’s some analyses from the Economist and the FT on private equity investments (Remember the lines between the various categories of unlisted assets are often very thin).
If they are revalued today, they be marked could down around a third. Do remember that Temasek’s unlisted assets are valued as of as 31 March 2022.
The analyses of the FT and Economist are premised on the view that public markets are a useful window on the future of unlisted assets. The view on that premise is ugly, very ugly.
Firstly,
One index, which maps private-equity portfolios to their public stockmarket equivalents, is down by 37% this year.
https://www.economist.com/business/2022/07/07/private-equity-may-be-heading-for-a-fall
Secondly, in the UK, investment trusts that invest in private equity are now trading at big discounts to their reported net asset valuations (NAVs), reports the FT. The average being currently well over 30%. The reason? Investors expect the value of a lot of the holdings will soon be written down in line with price falls in listed markets.
Unlisted assets benefit
from a fig leaf of illiquidity, resulting in a delay between real and reported fund valuations. In the absence of a liquid market to price investments, private-equity funds assess the current “fair value” of their portfolio based on the price an investment would realise in an “orderly transaction”, which should look similar to the valuations of comparable companies in the public markets.
https://www.economist.com/business/2022/07/07/private-equity-may-be-heading-for-a-fall
But to be fair to Temasek, the situation is not be that bad for some (Or maybe most?) of its unlisted assets. The FT explains that “not all private equity trusts invest in the kind of early-stage growth businesses that are collapsing in value”. It goes on, “Some are focused on mature businesses and focused on profits and cash flows.” These should not see the same writedowns.
PSA, and SP Group are good examples “of mature businesses and focused on profits and cash flows” that should not see huge writedowns.
And do note that in the recent quarter, Blackstone (tua kee in unlisted assets: it started life in private equity) marked down its US$276bn portfolio of corporate private equity investments by 6.7%. And some funds tied to real estate and credit investments were also marked down. One fund had had virtually all of its investment gains wiped out. So maybe a 30% markdown is alarmist?
Let’s hope the bulk of Temasek’s unlisted assets are like PSA and SP Group, but as Chris K KPKBs, we juz don’t and won’t know.
The CIO may wax lyrical about the “liquidity”, “steady dividends” and “insights” derived from unlisted assets, the fact that unlisted assets comprised the majority means Temasek’s portfolio is more illiquid, hence higher risk. The more fully owned assets it has, the more difficult it will be for the company to sell assets at a pinch and at a reasonable price. Add in the issue of price discovery for assets that has no ready market, you can see how risks have gone up. This is the asset liquidity issue raised by S&P a few years ago when the rating agency gave a much lower standalone credit rating that is apart from the implicit guarantee from the Republic (which by implication means Temasek’s AAA rating is undeserved if it were not for the implicit state guarantee).
Now becos unlisted assets are illiquid any asset manager investing in them needs to price in the illiquidity premium….. which is to say if the expected total return from a listed asset is 10%, that of an equivalent unlisted assets should be higher in order to compensate for the risk that it is difficult to sell and the price discovery is poorer. The CIO says the unlisted assets in Temasek more than compensate for the illiquidity premium but beyond words, no picture no sound. Here is the problem with unlisted or private assets – the manager of these assets have ample opportunity to fudge asset values. It is a well known trait among such managers, i.e. the private equity funds, to be slow in marking down asset values when stock market fall like presently but quick to mark them up when markets are rising. A clear example of the fudge can be seen when private equity assets have not been marked down or marked down little in comparison to the stock price of listed investment companies holding private credit assets which had been hammered (there is little difference between private equity and private credit). So what are the board of directors got to say about this – they obviously approve but are the returns justified by the increased risks and the increased non transparency of asset values. Someone did pontificate that Temasek generate “good risk adjusted returns” some years ago and yours truly wonder if the term “good risk adjusted returns” is really understood.
Chris Kuan
Having read this post, maybe you will share my very cynical tots that the CIO was defensive (rather than bullish)? And maybe he was whistling in the graveyard? He’s hoping not to write the obituary of unlisted investments in next year’s annual report. We should hope not. LOL.
GST at 15% to save our reserves from being the investments in unlisted assets?
Share
I own some Hwa Hong shares, the bulk of the shares since the early 1990s. It paid good dividends: regularly there were special dividends as the co sold off some or other asset. For the last 11 years, I’ve been collecting decent but unexciting dividends. Juz waiting for something to happen.
Hwa Hong is now the target of an unfriendly takeover orchestrated by a former MD.
The book net asset value as at Dec 31, 2021 stood at $0.2852 based on historical valuations. I always assumed that NAV was a lot higher, probably at least $0.37. Btw, the NAV has been around that mark for a long time.
So when the ex-MD, a member of the Ong family controlling the co and some outsiders bid for the co at $0.37, I wasn’t too surprised.
The bidders soon raised their bid to $0.40.
The independent adviser reported that the fair value surplus of these investment properties of $97.4 million represents approximately $0.1492 per share, which would result in a revalued NAV per share of $0.4344. Again I didn’t find this too surprising.
All the usual accounting smoke and mirrors. Nothing to get upset about.
But that isn’t all. Based on information provided by the management (who include other members of a member of the Ong family is an executive director, and other Ongs also happen to be directors: there’s only one independent director), Provenance says the adjusted RNAV as at Dec 31 is $0.5052. [Note this paragraph was amended for clarity on 20 July at 5am)
This is 77% more than the book net asset value as at Dec 31, 2021 of $0.2852. This I found amazing. Something is really wrong with the accounting profession which allows such vast discrepancies in what should be an objective, hard number. They shouldn’t be helping write fiction.
Hence this grumble.
This issue isn’t new here: Hyflux fiasco shows why “book value” is BS. There the shareholders also found out that the NAV was fiction. And so did the directors including Oliver Lum the founder and major shareholder. At least Hwa Hong minority shareholders can laugh all the way to the bank.
Coming back to the takeover, Provenance recommends that the offer is “fair and reasonable”, a call I can’t argue against.
More on the takeover soon.
In https://atans1.wordpress.com/2020/05/28/cheat-sheet-for-fortitude-budget-hali-tied-of-signing-peanuts/ in May, I pointed out that $18bn was in “Contingencies Funds” in the then latest “Fortitude Budget”.
So when I first heard about the latest $8bn in corporate welfare (OK, OK there’s trickle down to the plebs), I tot “Only $5bn left leh”.
But then I learnt
Fresh S$8b Covid-19 measures funded in part by no mid-year bonus for civil servants, lower military spending: MOF
Constructive, bation-building media
So it seems that the entire $13bn has already been spent, and this new $8bn in corporate welfarism is being funded by squeezing civil servants (not that they don’t deserve having less Bismati rice and chicken thighs in their iron rice bowls) and spending less on the military (Can cut meh? Tot our paper generals need every cent in their budget to keep S’pore safe?) and on the development of infrastructure?
An Adrian Tan commented on FB
Smoke and mirrors. They drew down $13bn more than they needed for contingencies: https://atans1.wordpress.com/2020/05/28/cheat-sheet-for-fortitude-budget-hali-tied-of-signing-peanuts/. Now they say the extra $8bn coming from savings. What am I missing?
According to the UK’s Financial Reporting Council, the auditors lapdog turned toothless watchdog after repeated audit scandals, the most common failings of auditors were not enough scepticism and insufficient challenge, especially when it comes to impairments, goodwill, long-term contracts and revenues, loan-loss provisions and cash flows.
Think our very own Hyflux (Did Hyflux’s auditors mislead?) and igNoble House (igNoble Hse omnishambles puts spotlight two int’l accounting firms).
The departure of one of Hyflux’s non-executive independent director, super legal eagle and academic, Simon Tay earlier this month after there was “unresolved differences in opinion” between Mr him and the other directors over the issue, opened an interesting side window into his financial illiteracy.
As at Feb 7, Mr Tay held 500,000 of Hyflux’s 6 per cent perpetual securities and 350,000 share options in his own name, it said.
Constructive, nation-building media
I make no comment about his share options as I don’t know how he came by them.
But why would anyone who is financially literate own 500,000 of Hyflux’s 6 per cent perpetual securities? The company had negative cash flow: Hyflux revisited: Got profits but cash flows out.
It was a high risk investment whose only reward was a 6% coupon. There are lower risk alternatives: think S-reits or SPH.
What it shows is someone who is not financial literate having a brain like that of the greedy, stupid uncles and aunties who bought Hyflux’s perpetual and preference shares. How did a financially illiterate person become an independent director of Hyflux?
But maybe he could too rich to care about losing $500,000. So much toilet paper?
Want to know more about what went wrong at Hyflux?
Hyflux on investor losses: “Not our fault, banksters at work”
Did Hyflux’s auditors mislead?
Hyflux fiasco shows why “book value” is BS
Japan is hosting the Tokyo International Conference for African Development (Ticad) summit. And Japan’s prime minister, Shinzo Abe, is the co-host.
He warned African leaders about the dangers of accumulating too much debt, the AFP news agency reports. His comments are seen as a snarky warning about China’s role in Africa as Beijing is said to favour its own companies for big infrastructure projects.
He told the leaders attending the development conference in Yokohama that Japan was promoting “quality” investments to be supported by Japanese institutions, the agency reports.
Unlike China, Japan says sound financial advice and support is behind its Africa strategy.
Tokyo plans to train experts in 30 African countries in the next three years on how to manage risk and public debts, it says. It wants to send financial experts to debt-ridden countries on multi-year missions to help them improve their finances and thus avoud the “Chinese debt trap”: overborrowing from the Chinese, being dependent on the Chinese for financing and having to sell assets to repay the debts.
He said more entrepreneurs should be encouraged to improve economies on the continent.
“If partner countries are deeply in debt, it interferes with everyone’s efforts to enter the market,” the Japanese prime minister was quoted as saying.
Muddy Waters (Temasek helped Olam see off an attack from them yrs ago: see this*): has written a really nasty report about a UK company Burford Capital,a litigation funder. The shares collapsed. because muddy waters has a more than decent track record despite having its balls crushed by Temasek over Olam.
Carson Block, the boss of Muddy Waters, had been speaking to BBC Radio 4’s Today Programme about his concerns.
One of his concerns is that the profits did not result in positive cashflow, rather negative cashflow.
He makes a great analogy about an accounting trick (OK OK OK, a legitimate accounting practice that ‘s perfectly legal): realised gains not reflected in the income statement (and hence cashflow). Think Hyflux: the profits were there, but there was no positive cash flow, rather cashflow was negative.
“Hyflux Group has generated negative operating cashflow in every year since 2009. Was this highlighted to bondholders and shareholders? If so, in what form? Why did the Board continue to pay dividends, when the operating cashflow was negative and accumulate more debt during this time?”
The investor watchdog also highlighted that Hyflux, despite the negative operating cashflow, reported profits in each year before 2017 and asked how this was possible.
Legitimate accounting tricks practices allowed this. See box for detailed explanations.
https://www.theedgesingapore.com/portfolio/total-compliance-financial-reporting-was-it-misleading
———————————————————————————————–
As Carson Block put it, “The analogy I like is if I say ‘I’m going to take you on vacation, meet me at the airport oh Hawaii is amazing, it’s got great beaches, my favourite hotel is this one’ and then you meet me at the airport and I say ‘we’re going to Ireland’. Hawaii has nothing do with Ireland and all that discussion about Hawaii has nothing to do with where we were going.
“And that’s basically what all this discussion about realised gains in the investment materials is. It has nothing to do with – or very little to do with – what flows into the income statement.”
Want to know more about what went wrong at Hyflux?
Hyflux on investor losses: “Not our fault, banksters at work”
Did Hyflux’s auditors mislead?
Hyflux fiasco shows why “book value” is BS
*https://atans1.wordpress.com/2013/11/26/temasek-tales-tlc-overpaid-olam-cheong-wont-read-this-in-tre-toc/
KPMG has agreed to pay U$50m to settle claims by the Securities and Exchange Commission that it went back to alter audits it had already completed, after using stolen data from the Public Company Accounting Oversight Board, an accouting watchdog that revealed they were about to be inspected.
The SEC also found that numerous KPMG audit professionals had cheated on internal training exams by sharing answers and manipulating test results.
Related post: Hyflux: “going concern” BS/ KPMG again and again
Must be KPMG again
India is pushing for a five-year ban on Deloitte and KPMG over allegations the firms helped conceal bad loans at Infrastructure Leasing & Financial Services, a major infrastructure and finance group whose default last year triggered a credit crisis.
FT
Related posts:
Time investors to put pressure on Hyflux’s auditor?
Hyflux: “going concern” BS/ KPMG again and again
Hyflux on investor losses: “Not our fault, banksters at work”
Lim Tean has said he’s been talking to a group of Hyflux investors who lost money. Well they should and other Hyflux investors should take note that KPMG (their watchdog)
——————————-
KPMG’s role in Hyflux
“When KPMG issued an unqualified opinion on the full year results for the Hyflux Group in March 2018, there were no events or conditions that individually or collectively, cast significant doubt on the going concern assumption as at the balance sheet date of 31 December 2017, or at the audit report date of 22 March 2018.”
Then according to Hyflux, everything went wrong when in May, there was a run on Hyflux by its banksters. Because of its bad (and unexpected?) Q12018 results announced on 9 May: “certain financiers expressed concerns over their ability to continue with existing credit exposures to the group.”* They tot halal Hyflux had transmuted into haram Hyflux.
Hyflux on investor losses: “Not our fault, banksters at work”
——————————————————————————-
is in more trouble in the UK. British regulators have called for KPMG to be fined at least a record £12.5m for misconduct in its work for Bank of New York Mellon.
(It’s other UK troubles: Hyflux: “going concern” BS/ KPMG again and again)
Time to shakedown KPMG for $.
This means going after the directors and mgrs (Remember MD Oliver Lum has a Dalvey Rd house and her motorcycles), the auditors, and the valuers of Tuaspring.
I was inspired to suggest this after reading the very droll Mr Lombard
Get claws in to auditors
A probe into Grant Thornton’s audit of collapsed contractor Interserve suggests a scandalous anomaly, and a possible deterrent. Advisers to the company were paid more in fees than its market value before administration. It happened at Carillion and Patisserie Valerie, too. If fees could be clawed back in the event of shareholders being wiped out, it might improve the quality of both audits and advice.
Here’s why the directors, mgrs and auditors could be liable:
So in the light of the loss in 2017, it’s reasonable to ask why the book value of Tuaspring was not looked at again before the auditors blessed the 2017 accounts in March 2018,
Here’s why the valuers are worth shaking down.
When Hyflux was first awarded the Tuaspring project in 2011, based on the financial model which modeled the cashflow projections from the project, the power plant was expected to generate profits from day one. This financial model was audited by an external financial model auditor and furnished to the offtaker. In 2013 when Tuaspring was able to secure a non-recourse project financing loan, the lender commissioned an independent market study of the project which arrived at similar conclusions supporting the book value of approximately SGD1.4 billion.
But
“This valuation [Done in 2018 which showed that the book value was BS: my comment] is based on the most recent market study conducted by K4K Training & Advisory SL, the same consultant who did a similar market study in 2016 (which supported the valuation then). The view taken in this most recent market study is significantly different from that in 2016 due to . . . the losses in the electricity market in the recent years and the projected lower spark spreads for the remaining concession period.”
Noting that the current valuation is “significantly lower” than that adopted in 2016, Hyflux said that it intends to commission a further valuation to be undertaken by a different valuer for the purposes of finalising the 2018 full-year financial results.
“As the carrying value is a reflection of the current depressed market, in the event that the Singapore power market recovers to provide generation companies with sufficient spark spread margins, the valuation might then be revised.”
Hyflux as reported by BT
Hopefully, ACRA do more than watching (but don’t hold yr breath): Hyflux: “going concern” BS/ KPMG again and again.
The constructive, nation-building media report that the Accounting and Corporate Regulatory Authority (Acra) is watching the Hyflux fiasco closely. And this is newsworthy? It’s ACRA job to investigate, not watch, cock-ups like these.
But then being a regulatory bureaucrat is one good way of getting a very expensive free lunch. The other is being a minister.
ACRA is watching because Hyflux investors (who never bothered to read the issue documents or Hyflux’s financials) are asking why Hyflux’s auditor KPMG failed to flag the risks of Hyflux earlier. Like real given they didn’t bother to read: Hyflux: Don’t cry for the investors. So even if accounts were qualified, what could the investors do? Only KPKB earlier because the shares etc would have been suspended on a haram certification.
Seriously, this “news” reminded me that UK’s accounting watchdog Financial Reporting Council (FRC) made public, several weeks ago, plans to make auditors apply more robust checks when reviewing whether a company was likely to continue operating in response to several high-profile corporate failures that have undermined confidence in business.
Two recent UK corporate failures were similar in nature to what happened at Hyflux.
To recap: KPMG on 22 Match 2018, said the 2017 accounts were halal, but on 22 May 2018, the company sought court protection from its creditors: Did Hyflux’s auditors mislead? and Hyflux directors, mgt & auditors kooning from 2016 onwards?.
——————————————
Hyflux’s BS explanation:
“When KPMG issued an unqualified opinion on the full year results for the Hyflux Group in March 2018, there were no events or conditions that individually or collectively, cast significant doubt on the going concern assumption as at the balance sheet date of 31 December 2017, or at the audit report date of 22 March 2018.”
Then according to Hyflux, everything went wrong when in May, there was a run on Hyflux by its banksters. Because of its bad (and unexpected?) Q12018 results announced on 9 May: “certain financiers expressed concerns over their ability to continue with existing credit exposures to the group.”* They tot halal Hyflux had transmuted into haram Hyflux.
Hyflux on investor losses: “Not our fault, banksters at work”
Hyflux should have remembered
A Banker Lends You His Umbrella When It’s Sunny and Wants It Back When It Rains
(Often attributed to Mark Twain)
———————————–
Coming back to the FRC: it wants auditors to do more when reviewing whether a company was a “going concern” and likely to remain in business for another year, highlighting the collapses of construction group Carillion (auditor KPMG) and retailer BHS as key factors behind the decision.
It said auditors should challenge corporate management teams “more robustly” and “thoroughly test” the adequacy of the evidence put forward by company directors. It also wants auditors to say whether they believed management assessments with respect to going concern judgments were appropriate, and to explain how they came to that conclusion.
It said the collapse of BHS, Carillion, and failed UK bank HBOS during the financial crisis, had “brought into question why such companies had clean auditor’s opinions, which included no warnings that the companies were at risk of collapse”. Sounds like Hyflux?
Mike Suffield, the FRC’s acting executive director of audit regulation
Recent corporate failures and the FRC’s own enforcement work has shown the existing [going concern requirements] needs to be strengthened.
Our proposals will significantly expand the work required of auditors — however, we believe this to be an important investment in the quality of the work that underpins what is a cornerstone of audit.”
Karthik Ramanna, professor of business and public policy at the University of Oxford’s Blavatnik School of Government
The implication of these proposals is that auditors missed key red flags due to weak auditing standards. The real issue isn’t that the auditors need more technical guidance but rather that they are conflicted in their dual roles as watchdog and consultant.
(Emphasis mine)
Hyflux shareholders should be angry to learn that KPMG (their auditor which audited Carillion and HBOS), said it had (in the UK) already increased how much information it provided in audit reports this year by highlighting the key risks the firm considered when “carrying out work on the going concern basis of accounting”.
KPMG added: “It is vital that as a profession, we examine all possible avenues to improve public trust both in audit, and the wider corporate landscape. We welcome the FRC’s consultation into the standards governing our work around going concern, and how we report on that work to shareholders.”
Will KPMG also provide this info for us natives for SGX listcos?
Btw, KPMG is the forensic auditor whose report the Aljunied Town Council is relying on in take the Wankers Three to the cleaners: “Peanuts”: WP MPs’ liability. KPMG is also Temasek’s auditor: TOC misrepresents facts yet again.
And will Hyflux retail investors still vote for the PAP? (Reference: Will Oliver Lum and other Hyflux investors still vote for the PAP?)
So
HYFLUX has taken a S$916 million impairment for the nine months ended Sept 30, to adjust for a fall in carrying value of the Tuaspring water and power plant and other write-downs.
This figure was released … after Hyflux submitted its latest statement of financial position to the High Court.
“The impairment loss . . . relates predominantly to the impairment loss arising from the assessment of the carrying value of Tuaspring and the impairment of receivables for previously completed projects,” …
Hyflux had asked a valuer to conduct an up-to-date valuation of the Tuaspring plant, but no exact figure was shared in the submission.
BT report in early March
But
When Hyflux was first awarded the Tuaspring project in 2011, based on the financial model which modeled the cashflow projections from the project, the power plant was expected to generate profits from day one. This financial model was audited by an external financial model auditor and furnished to the offtaker. In 2013 when Tuaspring was able to secure a non-recourse project financing loan, the lender commissioned an independent market study of the project which arrived at similar conclusions supporting the book value of approximately SGD1.4 billion.
And when it did its 6% Perpetuals in 2016, the book value attributed Tuaspring was around this value.
So in the light of the loss in 2017, it’s reasonable to ask why the book value of Tuaspring was not looked at again before the auditors blessed the 2017 accounts in March 2018,
When KPMG issued an unqualified opinion on the full year results for the Hyflux Group in March 2018, there were no events or conditions that individually or collectively, cast significant doubt on the going concern assumption as at the balance sheet date of 31 December 2017, or at the audit report date of 22 March 2018.
Hyflux on investor losses: “Not our fault, banksters at work”;
if not earlier in 2017 when signs of trouble may have become apparent. Unless of course maybe Hyflux’s finance and accounting departments were staffed by Wankers or their relatives and friends? See: Wankers’ Party still blur on audits and accounting and What the US army and WP have in common?.
OK, OK, juz joking.
I’ll end with more extracts from BT report to give an idea of how big the hole caused by the drop in book value of Tuaspring and how the banksters are getting their money back while PAP voters are being screwed (anti-PAP voters got no money according to TRE cybernuts):.
At the end of September 2018, the value of Hyflux’s held-for-sale assets was S$651 million, or S$824 million lower.
Hyflux said: “This valuation is based on the most recent market study conducted by K4K Training & Advisory SL, the same consultant who did a similar market study in 2016 (which supported the valuation then). The view taken in this most recent market study is significantly different from that in 2016 due to . . . the losses in the electricity market in the recent years and the projected lower spark spreads for the remaining concession period.”
Noting that the current valuation is “significantly lower” than that adopted in 2016, Hyflux said that it intends to commission a further valuation to be undertaken by a different valuer for the purposes of finalising the 2018 full-year financial results.
“As the carrying value is a reflection of the current depressed market, in the event that the Singapore power market recovers to provide generation companies with sufficient spark spread margins, the valuation might then be revised,” Hyflux said.
Banksters take their money and run:
However, if creditors consent to haircuts under its proposed restructuring scheme, Hyflux will return to a net asset position of S$1.1 billion, according to the group’s pro forma calculations. Mr Gerald said: “This means that the company may have positive value post restructuring.”
Post-restructuring, Hyflux’s pro-forma net tangible assets (NTA) per share would be 4.2 Singapore cents, based on an NTA of S$815.3 million distributed across an enlarged share base after an equity injection and various debt-for-equity swaps.
Indonesia’s Salim Group and Medco Group had earlier agreed to give Hyflux a S$400 million equity injection in exchange for a 60 per cent stake in the company post-restructuring. Effectively, Salim-Medco is buying into Hyflux at 3.4 Singapore cents a share.
If the Salim-Medco deal goes through, Hyflux’s debt securities holders and senior unsecured lenders will be cleaned off the balance sheet.
PAP voters get shafted:
Retail perpetual and preference share holders will have their S$900 million in claims swapped for S$27 million in cash and S$69.2 million shares, assuming that the shares are valued at 3.4 cents apiece. That works out to a 10.7 per cent recovery rate on their principal.
And there’s the retail shareholders.
Will they still vote for the PAP? Double confirm, ground not sweet for PAP.
Vote wisely. But the problem is Mad Dog, Lim Tean and Meng Seng.
Sad.
OK, OK, Hyflux never said this. But going by what it has said publicly (See below), one can reasonable infer that this is the message it’s trying to imply: the motor-cycle riding Ms Lum, other investors, employees etc are suffering because Hyflux’s banksters were scared of losing their money, making a run at Hyflux, trying to squeeze money from Hyflux’s hard assets.
Let me explain.
According to Hyflux everything was fine financially in March when it’s auditors chanted everything was halal, not haram.
When KPMG issued an unqualified opinion on the full year results for the Hyflux Group in March 2018, there were no events or conditions that individually or collectively, cast significant doubt on the going concern assumption as at the balance sheet date of 31 December 2017, or at the audit report date of 22 March 2018.
Must be joking, right?
Auditors are supposed to assess continual use of going concern assumptions over the next 12 months as per the Singapore Auditing Standards SSA 570. With the (bankruptcy) protection filing date being two months after KPMG’s sign-off date, what are the material variances which have not been contemplated resulting in this failed assessment?
BT quoting an investor who lost $ in Hyflux
—————————————————————————————————-
Then according to Hyflux, everything went wrong when in May, there was a run on Hyflux by its banksters. Because of its bad (and unexpected?) Q12018 results announced on 9 May: “certain financiers expressed concerns over their ability to continue with existing credit exposures to the group.”* They tot halal Hyflux had transmuted into haram Hyflux.
Reminds me of the joke which Hyflux should have quoted:
A Banker Lends You His Umbrella When It’s Sunny and Wants It Back When It Rains
(Often attributed to Mark Twain)
But to be fair to its banks, did Hyflux tell its banks post December 2017 results, that everything was oh so fine financially, so that the 1Q 2018 results came as a big surprise to its lenders?
To be continued.
But I’ll leave you with what a top banking lawyer** once told other lawyers about bankers
Just remember this: if bankers were as smart as you, you would starve to death
(Henry Harfield addressing a meeting of lawyers in 1974)
Remember MayBank (the non-recourse lender) according to Hyflux really believed that Tuaspring was worth more than $1bn.
When Hyflux was first awarded the Tuaspring project in 2011, based on the financial model which modeled the cashflow projections from the project, the power plant was expected to generate profits from day one. This financial model was audited by an external financial model auditor and furnished to the offtaker. In 2013 when Tuaspring was able to secure a non-recourse project financing loan, the lender commissioned an independent market study of the project which arrived at similar conclusions supporting the book value of approximately SGD1.4 billion.
Related post: Hyflux fiasco shows why “book value” is BS
———————————————-
*This is what Hyflux said:
The operating losses of Tuaspring drove Hyflux to record its first full year of loss in 2017. When losses were also reported in its first quarter 2018 results released on 9 May 2018, certain financiers expressed concerns over their ability to continue with existing credit exposures to the group. This, coupled with the uncertainty of Tuaspring divestment or entry of a strategic investor, raised a significant spectre of an upcoming liquidity crunch. Accordingly, subsequent to discussions with its legal and financial advisors, the Hyflux Board was advised to proactively take steps to make an application for a moratorium order, which is where events stand today. At that point in time, the company was in full compliance with its financial covenants and was not in default of any financing facility.
https://www.hyflux.com/wp-content/uploads/2019/02/Hyflux-responses-to-SIAS-letter.pdf
**From NYT’s obituary
Mr. Harfield spent his entire career at the New York law firm of Shearman & Sterling, where he helped develop the legal and regulatory framework for the international banking business after World War II. He represented the firm’s lead bank client, Citibank.
Many of the issues he worked on were esoteric, but important. He developed the legal basis for negotiable certificates of deposits, creating a legal way for commercial banks to pay interest on deposits. Citibank introduced certificates of deposit as a product in 1961.
All this talk about Hyflux’s accounts and KPMG reminded me of another set of accounts that involved KPMG.
Aljunied-Hougang Town Council (AHTC)
is seeking to claim S$33.7 million of “improper” payments made to AHTC’s former managing agent FM Solutions and Services (FMSS) and contractor FM Solutions and Integrated Services (FMSI).
A retired WP cadre (no friend of Auntie, Low or Bayee) told that this amount is excessive. It’s all the gross payments made by WP run Aljunied town council to FMSS and FMSI without deduction for services provided. No-one, not even PAPpy running dogs (apologies to the real dogs), denies that services were provided: What the US army and WP have in common. The issue is accounting for those payments: Wankers’ Party still blur on audits and accounting and .
The lawyer for the Wankers Three said
The sum of money that AHTC seeks to claim is unreasonable, as it amounted to all payments made to FMSS and FMSI. This contradicts the previous assessment made by accounting firm KPMG, which stated that there was an alleged improper payment of slightly over S$1.5 million, with only about S$624,000 to be recovered.
The retired cadre who has read all the various audit reports (AGO/ PwC and KPMG) says that while KPMG has lots of issues about the payments made to FMSS and FMSI , it has only flagged as an improper payment an amount around $1.5m. The other payments are open to question, some more questionable than others, only considering as haram an amount around $1.5m : What the US army and WP have in common
Whatever, funny that the defence lawyer slammed KPMG while relying on its view of liability of the amount in question:
Defence lawyers in AHTC trial slam the way KPMG compared managing agent costs
Low can easily pay off $1.5m: juz sell one of his condos.
And why audited accounts are juz another genre of fiction: science fiction is closer to reality.
I tot these tots when I read Hyflux’s response to a question from the Securities Investors Association of S’pore (SIAS) which read:
On what basis was Tuaspring being valued at SGD1.4 billion? This has proven to be overstated by at least SGD900 million as Hyflux has confirmed any bids received in the 2018 sale process for Tuaspring were for less than Maybank’ s outstanding project finance debt of approximately SGD500 million?
This is what Hyflux said:
When Hyflux was first awarded the Tuaspring project in 2011, based on the financial model which modeled the cashflow projections from the project, the power plant was expected to generate profits from day one. This financial model was audited by an external financial model auditor and furnished to the offtaker. In 2013 when Tuaspring was able to secure a non-recourse project financing loan, the lender commissioned an independent market study of the project which arrived at similar conclusions supporting the book value of approximately SGD1.4 billion.
When the Tuaspring power plant entered into commercial operations in 2016, the lender commissioned another independent market study before the drawdown of the second tranche of the project finance loan, which valuation also then supported the book value ascribed to the Tuaspring project. However, while the 2017 divestment process attracted three preliminary non-binding bids that also supported the book value of the project, the 2018 sale process for Tuaspring during the moratorium did not yield a similar bid due to the limited number of parties pre-qualified to perform due diligence at such time. Please refer to https://www.hyflux.com/qa-from-second-noteholders-townhall-meetings/ for further details on the Tuaspring divestment process.
https://www.hyflux.com/wp-content/uploads/2019/02/Hyflux-responses-to-SIAS-letter.pdf
So book value is what Hyflux or any company says it is. To be fair, this can only happen with the approval of the accounting prostitutes profession and other prostitutes experts.
Think I’m unfair?
This is Hyflux’s response as to how the major assets of Hyflux were valued, and in particular why no impairment write-downs were made:
All major assets of Hyflux are measured at fair value, in accordance with the Financial Reporting Standard (“FRS”) 39 –Financial Instruments: Recognition and Measurement and FRS 105 –Non-current Assets Held for Sale and Discontinued Operations. These assets are assessed at the end of each reporting period to determine whether there is objective evidence that they are impaired, in accordance with FRS 36 –Impairment of Assets.
In accordance with the Group’s accounting policies (set out in the Annual Reports), an impairment loss, once determined, is recognised in the Income Statement in the relevant period.
Impairment losses recognised in respect of all non-derivative financial assets and non-financial assets, including investments, (if any) have been disclosed in the Annual Reports in the respective years.
The financial statements of Hyflux, as in all general purpose financial statements, have been prepared using the going concern basis of accounting.Under the going concern basis of accounting, the financial statements are prepared on the assumption that the entity is a going concern and will continue its operations for the foreseeable future.
https://www.hyflux.com/wp-content/uploads/2019/02/Hyflux-responses-to-SIAS-letter.pdf
But Hyflux and the prostitutes accountants and other experts, can point out that the non-recourse lender (Maybank) “commissioned an independent market study of the project which arrived at similar conclusions supporting the book value of approximately SGD1.4 billion.”
If a leading Asean bank could screw up so badly, anti-PAP types shouldn’t be too upset that retail investors lost money.
Related posts:
Did Hyflux’s auditors mislead?
Further to A really curious incident, where I criticised SIAS for not KPKBing early, here’s one criticism it got right, though why didn’t it raise this earlier, much earlier?
“On Mar 22 2018, KPMG provided a clean a clean audit report for Hyflux Group for the financial year 2017. On May 22 2018, Hyflux Limited and a number of subsidiaries filed for court protection from creditors,” SIAS said, asking what transpired between Mar 22 and May 22 in 2018.Read more at https://www.channelnewsasia.com/news/singapore/hyflux-questioned-over-ceo-olivia-lum-remuneration-financial-11229034
Really shumething must be done about the audit prostitutes profession. Very related post:
In the coming yr, investors, creditors and S’porean regulators of Noble will be singing
Fee-fi-fo-fum,
I smell the blood of an accountant from Ernst & Young or PricewaterhouseCoopers,
Be he alive, or be he dead
I’ll grind his bones to make my bread.
The back story
Noble Group is facing insolvency after authorities in Singapore said the crisis-hit commodity trader would not be able to list shares in a new entity, dealing a potentially fatal blow to its emergency debt restructuring.
Singapore’s white collar crime agency, its de facto central bank and the regulatory arm of the country’s stock exchange said they had “significant uncertainties about the financial position of ‘New Noble’”.
In a statement they said “New Noble’s” net asset value could be as much as 45 per cent lower than stated by the company when local standards stipulated by Singapore’s Accounting and Corporate Regulatory Authority were applied.
“It would be imprudent to allow the re-listing as investors will not be able to trade in New Noble’s shares on an informed basis. Monetary Authority of Singapore and Singapore Exchange will therefore not allow the re-listing of New Noble to proceed.”
FT a few weeks ago
The auditors were and are the Hong Kong arm of Ernst & Young
But they are not the only ones facing questions.
Noble Group’s Chief Executive Yusuf Alireza sought to draw a line under a long-running accounting dispute after a report by board-appointed auditor PricewaterhouseCoopers (PwC) found no wrongdoing in the company’s accounting practices.
CNA Insider, part of the constructive, nation-building media screamed
Profit margins for hawker fare? As low as 20 to 30 cents
Giving the example of
Mr Ng, who started The Fishball Story in 2013, disclosed that his net profit from selling a bowl of noodles at S$3 was 20 to 30 cents.“That’s the margin … and it’s pathetic,” he lamented. “It’s very difficult for (hawkers) to continue selling cheap food any more.”
This example and other similar examples in the CNA article had the usual cybernut suspects and even ordinary S’poreans KPKBing on new media about the plight of hawkers, and blaming the Pay And Pay people.
The ordinary S’poreans joining the cybernuts in baying for PAP blood are either not thinking straight or are financially incompetent.
Is that “margin” or “net profit” before or after the “salary” that hawker pays himself? When I see the word “net margin” or “net profit”, I assume that the amount is net of everything including “salary” payments made by ownself to ownself.
Same query for the other examples quoted in the CNA article because nowhere in the article does it state whether the “margin” or “net profit” takes into account the amount that the hawker pays himself for his efforts.
If it doesn’t then it’s really a tough life. If it does, then whether it’s that tough a life depends on the amount that ownself pay ownself before KPKBing about the “peanuts” net profit.
“Dollars and Sense” of a Hawker Stall
But does the “Estimated Monthly Cost” include the “wages” that the two entrepreneurs pay themselves? If they had employees, the employees’ wages would be included under this heading. But as they are both bosses and workers, it isn’t clear if “Cost” includes their “wages”.
Makes a big difference on the real bottom line.
Initial Cost Of Starting Hawker Stall (Inclusive Of Opportunity Cost)
(Excluding Apprenticeship Fee)
$40,000
Monthly Operating Cost$11,000 – $15,000
| Estimated Daily Revenue | $1,000 | Based on assumption of 200 Customers, average spending of $5 |
| Estimated Monthly Revenue | $22,000 | 22 working days per month |
| Estimated Monthly Cost | $13,000 | |
| Estimated Monthly Gross Profit | $9,000 |
——————————————————————-
Many moons ago when surgeon Susan Lim was trying to portray herself as more sinned against than sinning, I wrote
“Do the breakeven cost of $46,000 include any payments to you in the form of salary, director’s fees or advance payments?”. If they do, these numbers should have been disclosed by her when she bandied these numbers. These would have given an analyst a better understanding of what went into calculating the breakeven.
I’m not accusing Susan Lim or her accountants of anything shady or stupid. I’m juz trying to understand how the numbers she quoted prove that, This was a huge loss-making assignment.
I predicted that Bayee would not be WP’s Sec-Gen: WP Low’s anointed one
I was wrong but the I guy tipped to be Sec-Gen will soon be: OK, OK before next GE. Read above link to see who is that person.
Reason? The trial going on involving Bayee, Auntie and Sifu Low.
The trial involving three elected members of the opposition Workers’ Party held Aljunied-Hougang Town Council began last Friday. The stakes are high, and a potential judgment against the MPs could see them bankrupted and disqualified from holding public office.
https://www.facebook.com/notes/remy-choo-zheng-xi/ahtc-trial-what-to-look-out-for/10156061952333737/
While one suit is brought in name of AHTC (Ownself sue ownself), the suits came about because an independent panel (My take on the panel when it was set up) approved by the Wankers’ Party (AHTC accounts: WP outsources decision to recover monies) recommended that legal action be taken against the town council members and others to recover the alleged improper payments.
I do not see any reasonable defence to these claims. Think of all the bad accounting (KPMG report on AHTC: Notice the deafening silence?) and expect the defendants to lose. Related post: Wankers’ Party still blur on audits and accounting.
Low and Auntie, I’ve predicted will not stand in next GE, so at worse their political careers are cut short near the end. Not a happy ending if they are bankrupted but they fought the good fight, keeping alive the flame of Opposition in a dark time.
But Bayee is young and is a newly elected Sec-Gen of WP and losing the case and being bankrupted and disqualified from holding public office will be a great end of his so far unimpressive political career.
Whenever Auntie steps down, the betting in the WP, Secret Squirrel and Morocco Mole tell me, is that one Nicole Seah will be the next chairman: remember her? She’s been working hard and quietly in the Marine Parade GRC.
The Law Suits, in SummaryThere are two lawsuits.Suit 668 is brought by AHTC, acting on the instructions of an Independent Panel appointed by order of the Court of Appeal.Suit 716 is a lawsuit brought by Pasir Ris-Punggol Town Council (PRPTC).In both Suits, it is alleged that the Defendants are liable for alleged improper payments made by the Managing Agents to third party contractors between May 2011 – November 2015.
(Part of a continuing series)
You cannot make this up: How a billion M$ disappeared: an honest mistake in misplacing a decimal place.
On Aug 9, Lim Guan Eng, the M’sian finance minister said
the balance in the Refund Trust Fund was only RM1.486 billion as at May 31, 2018.
The latest is
“Actually, the amount left in the Refund Trust Account was about RM148.6 million only, and not RM1.486 billion as announced last week.
“This was due to an unintentional mistake by an officer in my office who displaced a decimal point,” he said.
Read more at https://www.channelnewsasia.com/news/asia/gst-refund-shortfall-malaysia-finance-minister-lim-guan-eng-10615042
When Temasek released its details, TOC, it seems, tried to cast aspersions on Temasek’s results by pointing that its auditor KPMG was in the UK’s authorities’ dog house for the quality of its audits in the UK.
The UK Financial Reporting Council (FRC) is an independent regulator responsible for promoting high quality corporate governance and reporting to foster investment in UK. Its board of directors is appointed by the UK Secretary of State for Business, Energy and Industrial Strategy. FRC plays a crucial role in the oversight and development of corporate governance standards such as the UK Corporate Governance Code and standards for the accounting industry.
UK FRC said that KPMG audits had shown an “unacceptable deterioration” and will be subject to closer supervision.
Every year, the UK FRC reviews the audits of Britain’s biggest companies to ensure they meet certain standards. The FRC noted problems at other auditing firms too, but KPMG was specially singled out for the poor quality of its work.
“There has been an unacceptable deterioration in quality at one firm, KPMG,” the FRC said in a statement …
Terry’s Online Channel
As OCBC is also audited by KPMG, is TOC also casting aspersions on OCBC’s results?
Seriously, TOC doesn’t tell that all the big four accountancy firm are in the sights of the UK’s authorities:
The UK’s top banking and insurance supervisor has said he is worried about the quality of audits by the Big Four accountancy firms. Sam Woods, the chief executive of the Prudential Regulation Authority, told the Treasury select committee on Wednesday that it was “a bit of a worry” that the Financial Reporting Council rebuked the four firms* — Deloitte, EY, PwC and KPMG — last month for a fall in quality, particularly in banking audits. Stephen Haddrill, the FRC’s chief executive, said at the time that “the Big Four must improve the qualify of their audits and do so quickly”. The FRC attributed the deterioration in quality to a failure to challenge management and show appropriate scepticism across their audits.
FT
And that despite all this KPKBing, when Goldman Sachs Int’l tried to appoint a non-big four auditor Grant Thorton to audit it, replacing a big four auditor, the UK authorities raised an eyebrow on whether Grant Thorton can do the job. The matter is ongoing.
All this is a matter of public record, yet TOC in what seems to be an attempt to slime Temasek left out inconvenient facts.
Looks like TOC is going the way of the Idiots S’pore or is it Indian S’pore?
Sad for someone who helped out at TOC.
*TOC said only KPMG was singled out, remember: “KPMG was specially singled out for the poor quality of its work”?
The directors of listcos especially.
The judge said the purpose of publishing accounts was to provide the market and the public with information about the state of the company so “informed decisions” can be made by interested parties about their financial affairs.
FT report on the MD of a bank jailed for falsifying accounts
When I started work in the late 70s, PR practioniers were the lowest of the low in the business social pecking order: they were the pariahs. Accountants were the Brahmins of the caste system.
But accountants are no longer the Brahmins after the repeated scandals involving int’l accounting firms,
Things are so bad that according to the International Forum of Independent Audit Regulators accounting lapses were identified at 40% of the 918 audits of listed public interest entities they inspected last year. Worse they report that 41% of the problems identified by audit regulators last year related to independence and ethics.
So nowadays PR people are valued more highly than accountants.
Don’t believe me?
There’s a takeover battle going on in the UK. Melrose has made a hostile bid for GKN.
GKN’s advisory fees are to set include £60m to its bankers; up to £12.3m for lawyers; £1.83m on accountants; and as much as £6.4m on public relations advice.
Melrose is paying its accountants £2m. It’s PR adviser £1 to £5m depending on whether it wins.
Money talks, BS walks.
Well argued, Pritam Singh and Sylvia Lim !
Great to see WP coming up with both solid, constructive suggestions on how to prudently and intelligently use government land sales, a key element of our huge fiscal headroom to enlarge sustainable revenues, as well as rigorously rebutt the established, conservative “wisdom” for not doing so.
(Retired chief economist of GIC. He would say that wouldn’t he because he like Pritam, Auntie and others (self included) oppose the GST hike because we know that there’s a lot of our money being withheld?)
This reminded me that someone posted some time back
If Pritam becomes Sec-General, it’ll be “Ownself sabo ownself”.
🤣
(FB post a few weeks ago on speculation that he’ll be next Sec-Gen of WP)
Spot on. There’s a lot of mud thrown at Aljunied TC. But it’s a fact that it didn’t keep proper accts.
Auntie, good accounting is a national issue/ TOC bans avatar again
Wankers’ Party still blur on audits and accounting
What the US army and WP have in common
And he was Sylvia’s right hand man there, and an incompetent one at that. Low had to send in Png when things were really getting out of control.
So there’s no clean break for WP from the Alunied TC mess if he becomes leader. So waz the point of Low (and Auntie: no announcement yet but I talked about this sometime back WP Low’s anointed one) stepping down?
It’s partly to give the WP in Aljunied a chance to disassociate itself from the accounting problems (largely self-inflicted). WP can say “New team. Please give us another chance” and knowing S’poreans they’ll be willingly to give that chance because they love an underdog. But with Pritam as Sec-General, how to say “New Team. Please give us another chance”? WP can only say “Please give Bayee another chance”.
Btw, my sources say that Dennis Tan will be Sec-Gen. More on this one of these days on the next Hougang MP.
A TRE commenter has come to the same view and proposes an interim solution until Pritam after the court cases where Auntie, Low, Pritam are decided.
Pritam Singh remains favourite to succeed Low Thia Khiang?
I refer to the article on TISG, titled http://www.theindependent.sg/pritam-singh-remains-favourite-to-succeed-low-thia-khiang-as-wp-secretary-general/ and would like to respectfully disagree with and as well as NCMP Goh’s premature assessment of Pritam Singh’s “ascension” to become the next WP Sec-Gen!
As we already know, all 3 of them, including current SG and Chairman have been implicated by SC Phillip Jeyaretnam’s suit and as things are progressing, does not look too good for all 3 considering the formidability of SC Jeyaretnam in fighting cases and securing an outright victory.
The party should in the interim, be led by veteran MPs Chen Show Mao and Faisal Manap as SG and Chairman respectively, with the 3 remaining NCMPs supporting as Org Sec, Treasurer and Webmaster.
Should Pritam Singh become SG, it will throw the party into total chaos once the outcome of the case is known and would have implications for the party, going into the next G.E. whether it be 2019 or 2020!
Willy Sum
Point of order: Philip J (the real son of JBJ, other one is autistic) is not a lawyer in the case. He led the committee that decided that ATC should sue Auntie, Low, Pritam and friends: Ownself sue Ownself.
In 2018, another bad yr for SMEs, I took a cheap shot at Inderjit Singh and Jack Sim because they, Tay Kheng Soon and the other usual suspects last yr came up with yet another a wish list for SMEs (See below). Nothing really new in the list.
I think rather than banging their heads against the wall, asking “More money PAP” they should rethink their entire approach about wanting more tax payers money to be thrown at SMEs.
Since, Turban and Toilet Men keep saying the govt should start thinking out of the box, maybe they should set a good example and stop banging their turban and head, respectively, against the banks’ and govt doors, and think of creative ways that they, with the help of the govt can help SMEs.
Here’s three constructive, nation-building suggestions.
One is persuading the govt to allow HDB flats to be used as collateral for loans.
In HDB flat: Dead Capital, I wrote
And the PAP administration KPKBs about the need to create an entrepreneurial, risk taking society? Entrepreneurs need funding and banks and other financial institutions need collateral when making risky loans. And property is the best collateral. No collateral no funding.
They should also try to granulate the SME universe i.e classify the SMEs into different categories by turnover, staff seize or other criteria they think relevant and then focus on what categories need what help. And where to prioritise
Let me explain. SMEs cover a wide spectrum.
Small Medium Enterprises (SME) in Singapore are defined as companies with at least 30% local shareholding, group annual sales turnover of less than $100 million or group employment size of not more than 200 workers (Skills Connect, 2013). Out of 180,000 SME’s in Singapore, 70% of them have a turnover of less than a million and commonly referred to as micro-SME’s (Scully, 2014).
Click to access Embracing-Structured-Internship-1.pdf
For a start this means subcategorising the 30%, then the 70%, so that a nuanced, granular view of the SME universe is possible. This will help policy makers etc analyse the group better, and hopefully lead to better policies to help SMEs.
Related to this segmentation is the need to create some kind of quality assurance mark to help credit providers and equity investors differentiate the sheep from the goats.
As I’ve said before, I’ve given up investing in listed SMEs because. in the main, the management of listed SMEs are determined to reward the controlling shareholders (management) rather than create shareholder value for investors. Family members (daughters-in-law for example) are paid do nothing, while sons are overpaid to do simple jobs.
And as these SMEs go thru a vetting process before they are listed. What more about the vast majority of SMEs?
And that’s before the suspicion especially for non listed SMEs that the accounts are “fake” and that external financing for the business will find their way into the owners’ pockets. Hence all those personal guarantees that the banks ask for.
Even SME champion Inderjit Singn has privately conceded that there are badly run SMEs, though one of his pals told Chris K, when asked by Chris K, how many SMEs are really professionally and competently run,”We are not here to moralise issues”.
But as Chris K points out when commenting on commenting on a story about $40 million of bogus SkillsFuture claims
giving grants or providing soft financing to firms that are not professionally and competently run is a moral hazard.
While there are various platforms for SMEs to raise funds from suckers investors, there’s a need for good ways that financiers and investors can use to identify “good” SMEs. True there’s a SME credit agency (https://www.dpgroup.com.sg/smecreditrating/), but it ain’t enough.
So Turban and Toilet Men should be thinking of creating and administrating a methodology that can identify well run SMEs. An SME can then approach the organisation administering the methodology and for a fee get certified as a well run SME. If it fails to get certified, it and the certifier keep quiet, ensuring that the matter remains private and confidential.
Investors and financiers can then feel more comfortable when “certified” SMEs approach them for funds.
————————————-
SME wish list
Commodities trader Noble Group Ltd is negotiating a debt restructuring program with its creditors to stay out of an insolvency process and expects to receive proposals soon, its chairman said on Friday.
What is interesting is that FT reports that the creditors may swap their debts for equity. Should that happen present shareholders including sovereign wealth fund China Investment Corp, one of its its biggest shareholders, will be heavilt diluted.
Could be an interesting play then for the brave as there’ll be leverage and the new shareholders will have an incentive to keep the credit lines open. I’m looking at what assets remain.
The Noble House is dead. Long live the Noble House.
Starting in 2019, US audit reports will have to include a new section detailing “critical audit matters” (CAMs) — specific issues that made a material difference to the financial statements and required a complex or difficult judgment call. The report will also have to say how the issue was resolved.
Sorry can’t give source as I forgot where i saw this
WP MP thinks MoH’s accounts is like that of AHTC isit?
Remember that AGO said (based on a report by int’l accounting firm PwC that AHTC’s accounts were not fit for purpose. Also KPMG, another int’l accouting firm said the same thing”KPMG report on AHTC: Notice the deafening silence?
Can’t stop laughing at MP Png’s attempts to compare MoH’s accounts to that of AHTC where readers will remember that an independent committee (whose members were approved by the AHTC) acting on behalf of AHTC are now suing Low, Auntie and others for breach of their fiduciary duties to AHTC.
Mr Png had questioned if the Ministry of Health (MOH), in its statement issued in July, could interpret the report as an “endorsement” that there is no fraud, as it is not forensic in nature.
The AGO report took MOH to task for inadequate oversight and weaknesses in the management of development projects under the ministry.
…
“The AGO report only highlights lapses – it is a selective audit. As such, the AGO report, when it came out, the language they used was also quite similar to what was also used previously and what we encountered before,” Mr Png said.
“It’s not a forensic thing, so no ministry should take for granted that because it is not mentioned that there is no fraud, that there is no fraud and that it does not warrant any further investigation.”
Read more at http://www.channelnewsasia.com/news/singapore/ago-audit-of-moh-did-not-indicate-fraud-or-need-for-further-9270282
The AGO never said that MoH’s accounts were not fit for purpose, something that it said about AHTC’s accounts.
Whatever,
Ms Indranee said Mr Png had possibly “misunderstood the nature of an audit”.
“An audit will highlight or precipitate a forensic enquiry if there is reason to do a forensic enquiry,” she said.
“So if you go in, and you find there is a conflict of interest – for example, payment related to third parties or if your system as a whole enables the same person to approve a payment, submit a request for payment and sign a cheque for payment – that would require a forensic investigation.
“But if you go in and you find that there is, in MOH’s case, a possibility of overpayment which actually has not even occurred, and you point it out and you can rectify it and if the nature for it is because I have explained earlier, human error, negligence or non-compliance – that in itself does not trigger a forensic audit.”
FORENSIC INVESTIGATION NOT NECESSARY: INDRANEE
Ms Indranee said one has to look at the nature of the lapse – whether it requires a “further and deep investigation”. She said that the financial statements of the Government were found to be “fair and accurate” as well as reliable.
The second part any audit would highlight is if the rules and processes are adequate and have been complied with.
“In this case, it would appear that the rules and processes are adequate but in some cases, they were not complied with, that does not necessitate a forensic investigation. So it is quite correct for MOH to say that the audit did not in this instance disclose evidence of fraud,” Ms Indranee said.
Mr Png also asked if the AGO would direct all the entities in the report to investigate improper payments made and determine the amount of money to recover.
Ms Indranee said it was important to note that there was no indication in the report of payments due to “fraud, misfeasance or dishonesty”. She said the cases highlighted in the report concerned overpayments made without prior approval, and they arose as a result of human error, negligence and a failure to follow established procedures.
She said the agencies highlighted in the report are taking “prompt actions to recover” any amount that might have been paid out in error. For example, the Singapore Corporation of Rehabilitative Enterprises had recovered the overpaid amounts, as noted by the AGO.
Ms Indranee said the Economic Development Board had also recovered the amount in the two cases of overpayments, while the Ministry for Social and Family Development is also taking “corrective actions to make good under-reimbursements and to recover over-reimbursements”.
Read more at http://www.channelnewsasia.com/news/singapore/ago-audit-of-moh-did-not-indicate-fraud-or-need-for-further-9270282
FT reports that Noble turned down a takeover offer from Centricus, a London fund, connected with SoftBank and rich Arabs.
Meanwhile Noble said when unveiling yet more losses yesterday it was continuing to seek a white knight investor.
Money talks. BS walks.
| It’s that time of the year when the cybernuts especially those from TRELand get their yearly free (They are cheapskates, juz like the ang moh tua kees) high from the Auditor-General’s report detailing cock-ups in the process and procedures of ministries and state agencies.
For the rest of us, it shows “Efficiency? What efficiency?”: the PAP administration, like all management systems or bureaucracies, has flaws that need to be fixed. Monitoring and fixing things are eternal, non-ending unglamarous work. Those criticised often grumble (sometimes rightly) that they live in the real world, not in a world where box-ticking is more important that delivering the “goods”. Not in the case of the WP though. Whatever, this NYT Dealbook story tells us why getting the paperwork right is important. Private Student Loan Debts May Be Wiped Away |
| Tens of thousands of people who took out private loans to pay for college but have not been able to keep up payments may have their debts wiped away. The reason? Missing paperwork. |
| At least $5 billion in troubled loans are at the center of a legal dispute that has echoes of problems that arose from the subprime mortgage crisis a decade ago. |
| Private student loans, which come with higher interest rates and fewer consumer protections than federal loans, are often targeted at the most vulnerable borrowers, but judges have already dismissed dozens of lawsuits against former students because of insufficient documentation. |
| Court records reviewed by The New York Times show that many other collection cases have been brought without complete ownership records. |
| Like those who took on subprime mortgages, many people who took private student loans may never earn enough to repay the debt. |
Warriors don’t do accounting.
Let me explain.
Here I said the “W” in WP now stood for “Warriors”, not “Wankers”.
So I tot it funny when I read about the real warriors. failure to account fpr monies spent — the battle-hardened US army led by generals who have fought in battles, not paper generals with no experience of combatm, failed financial audits
For years, the Inspector General – the Defense Department’s official auditor – has inserted a disclaimer on all military annual reports. The accounting is so unreliable that “the basic financial statements may have undetected misstatements that are both material and pervasive.”
And
The United States Army’s finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced.
The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up.
As a result, the Army’s financial statements for 2015 were “materially misstated,” the report concluded. The “forced” adjustments rendered the statements useless because “DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions.”
Disclosure of the Army’s manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades.
http://www.reuters.com/article/us-usa-audit-army-idUSKCN10U1IG
1MDB had previously said that nothing was missing and pointed out that the accounts were audited by the international firm Deloitte. After the DoJ’s action in freezing assets, 1MDB announced that their accounts audited by Deloitte for 2013 and 2014 cannot be relied upon.
Then Deloitte resigned.
Guardian account of the 1MDB sagahttps://www.theguardian.com/world/2016/jul/28/1mdb-inside-story-worlds-biggest-financial-scandal-malaysia
Brexiters (52% of Britons) and 51% of Aljunied GRC voters vote against their own economic interests.
On Friday, I read in the Economist that
58% of the North East voted for Brexit, the second-highest share of any region.
… places like Sunderland struggle. Unemployment there is the highest in Britain. And despite north-easterners’ enthusiasm for Brexit, it will do their economy little good: 60% of their exports go to the EU, a higher proportion than that of any other region. It also benefits from EU funds—soon to dry up—that have built much local infrastructure.
On Sunday I read
Home Affairs and Law Minister K Shanmugam on Saturday (Jul 23) said accounting firm KPMG’s fourth monthly report on the Aljunied-Hougang Town Council (AHTC) paints “a devastating account of the Workers’ Party’s mismanagement of its town council”.
In a Facebook post, Mr Shanmugam described the findings as “a damning litany of highly irregular and suspicious financial practices, poor governance structures and extensive leadership failures”.
http://www.channelnewsasia.com/news/singapore/kpmg-report-on-ahtc/2981454.html?cid=FBcna
The voters in Aljunied already had the AGO’s report that the the WP couldn’t keep proper records. Yet 51% still wanted them to continue the town council.
I’ve been thinking of buying Noble House but am still concerned that the accounting issues surrounding the long-term supply contracts could resurface, They’ve not gone away. Maybe the rights issue prospectus can help.
As a reader commented on FT
The only winner in this mess is Iceberg. They nailed it 18 months ago. They were right. They still are right. Their analysis was excellent and everyone who lost money, and that was everyone should be kicking themselves for not heeding their advice.
Btw, the reader remains sceptical that the underwriters will do due diligence on the accouting issues. I suspect he’s right.
Under the just departed CEO, Noble made small investments in commodity producers to secure marketing and supply rights, in some cases for as long as 20 years.
Noble’s team of quantitative analysts designed structured trades and business models involving long-term commodity contracts.
Critics have said the company booked profits upfront on some of the contracts, which were based on overly optimistic assumptions about commodity prices. Noble has defended its accounting policies, and board-appointed consultants PricewaterhouseCoopers found it had complied with international accounting rules. Err so did Enron, Global Crossing etc. Their accounts were approved by the big four accounting forms, one of which is Pricewaterhouse.
Noble’s board said that it looks forward to working with Alireza in future “should the opportunity arise”.
Hmm this could be boiler-plate PT to signal that the parting was really amicable. but maybe he left because he wants to do a LBO? Ot because he wants to buy from Noble the investments in commodity producers that he made as CEO and which caused all sorts of accounting problems for Noble?
Stock seems to have strong support at the 0,29 level. Hope its “outside” buying. I’m putting the stock on my “Punt?” list.
May want to read this
The Noble House, already under pressure in a weak commodities market when blogger Iceberg Research alleged in Feb last yr that the company was inflating its assets by billions of dollars by not fairly representing the value of its commodity contracts. The company has rejected the claims. And gor PWC to bless its methodology forgetting that int’l accounting firms have reputations juz better (slightly) than tabloid journalists and second-hand car salesmen.
But until now, the bad news never stopped despite the effirts of the CEO and the share-buying chairman and founder. Fitch Ratings affirmed Noble Group’s BBB-minus rating with a stable outlook yesterday (Jan 14), remaining the only agency to assign this nvestment-grade rating on Asia’s biggest commodities trader.
Fitch said the decision followed Noble’s improved balance sheet and sufficient liquidity position following its stake sale in Noble Agri, its pledge to cut working capital needs for its metals unit, and continued cash flow generation from its operations,
Both S&P and Moody’s had cut Noble’s rating to junk, sending its bonds and stocks tumbling. Its stock is trading at the lowest since October 2008.
Its credit default swaps contracts trade on an upfront basis (Pay before you bet, credit not allowed) and its CDS curve is inverted, an indication investors consider it a stressed credit. All this makes its bankers keep their fingers on the recall button. For Noble, no credit, no play.
But new yr, new luck? And the yr of the Monkey is coming on 8 Feb. Should be a gd yr for traders.
Maybe by the end of the yr of the monkey the chairman who has been buying shares will have the last laugh. As will the CEO. But then in the Chinese paneheon of deities, the Monkey King is the trickster. So who knows? Ask Buddha, the only deity who can defeat him.
Nmm. I’ll go to the Chinese temple on Tembling Road on Feb 8 and toss the fortune stocks on whether to buy Noble.
Opdate at 6.45am: Maybe it should try to refinance its borrowings early. Glencore juz did this to show its banks are onboard.
A stock to watch.
Oct 2 Noble Group’s global head of M&A has resigned from the company, marking a string of recent senior level departures at the commodities trader as it battles weak prices of resources, people familiar with the matter said on Friday …
On Thursday, Reuters quoted sources as saying that two senior U.S.-based energy executives had left Noble in the past week.
Noble hit the spotlight in February when blogger Iceberg Research questioned its accounting practices. Noble defended its financials, and board-appointed consultant PricewaterhouseCoopers found no wrongdoing in a report published in August.
http://www.reuters.com/article/2015/10/02/noble-group-executives-departure-idUSL3N12217L20151002
Not a good day to be averaging down on Monday.
But first: when I read the following extract http://m.todayonline.com/ge2015/wp-activists-help-party-grow-grassroots-network
“This is very much (Mr Low’s) style, he wants to give residents as much face time as possible, and they are also willing to wait to speak to him,” said Ms Ivy Tan, who has been helping out at the Bedok Reservoir-Punggol division since 2012. As such, their MPS often stretch past 11pm.
Mr Chen Show Mao (Paya Lebar) and Mr Muhamad Faisal Manap (Kaki Bukit), meanwhile, set up several stations at their MPS, which are manned by party activists who help to interview residents, transcribe their cases and draft relevant letters..
I couldn’t help but wonder about PritamS style of looking after his constituents. I read the article several times and couldn’t the answer.
Ah well.
Have you noticed that in the last few months, Png Eng Huat is the man beside Auntie, when it came to AHPETC matters? Before that it was always Auntie (chairperson) and Pritam (Both Png anf Pritam are vice-chairpersons). But ever since after the AGO’s report was published, it has been Png beside Auntie. Seems he has been tasked to sort out the mess created by the lack of oversight.
———————————————————————————————-
What did the Auditor-General’s report say?
The report found five key lapses in the AHPETC’s accounts:
1. Lack of governance over transactions with related parties;
2. Poor monitoring of S&CC arrears;
3. Poor record and accounting system;
4. Non-compliance with rules on sinking fund;
5. Insufficient internal controls
https://sg.news.yahoo.com/what-you-need-to-know-about-the-ahpetc-saga-070752226.html
—————————————————————————————-
The PAP had bayed and howled for the the WP to “come clean” (produce the documents), or if the WP was really concerned about its finances, it bring a forensic accountant to reconstruct the accounts. Pritam retorted that they needn’t answer to Parliament, but to residents.
There was no production of the documents (AWOL? MIA?), and no forensic audit (Too expensive? Concerned about the probable findings?). Instead Png worked with the AHPETC’s auditors and another newly appointed accountant to sort out the mess. The end result was that Auntie could write in the report to the 2014/ 2015 report:
AHPETC has continued to improve its financial processes and management.
AHPETC has cleared most of the disclaimers from the previous annual audits. The remaining observations relate mainly to opening balance issues for which there are still information gaps and legacy issues. There are still areas to work on. AHPETC will continue to improve its financial management.
Still even by the WP’s admission, there’s plenty of work to be done. And the use of the word “mainly” gives the lie to the claim that it’s all the fault of the PAP and PA. Makes one wonder if the WP is afraid of what a forensic audit will uncover?
Never mind the PAP may still force one. https://atans1.wordpress.com/2015/09/21/wps-punngol-east-problem-paps-excuse-king/
Forensic audit of AHPETC accounts
As someone who wants S’pore to move from a de facto one-party state to something more pluralistic, I was glad that Aljunied remained WP territory. But I was sad that the WP had escaped a forensic audit of the AHPETC accounts. This would have happened if PAP had won.
But I forgot the Punggol East victory.
Independent auditors may be called in to verify the accounts of Punggol East Single Member Constituency (SMC) only if facts and figures are in dispute, said its newly-elected Member of Parliament (MP) Charles Chong.
How not to dispute? For one, Auntie and Low want a fight over Charlie Chong’s alleged statement of a $1m surplus. A lot of he said, she said, TOC said: so I’ll let it be.
More importantly, while the latest set of accounts are pretty decent, as Auntie has said
AHPETC has continued to improve its financial processes and management.
AHPETC has cleared most of the disclaimers from the previous annual audits. The remaining observations relate mainly to opening balance issues for which there are still information gaps and legacy issues. There are still areas to work on. AHPETC will continue to improve its financial management.,
there will be a need for the SMC to ensure that it is getting its fair share of the APPETC’s assets (and liabilities). Given that all the accounts of the AHPETC are qualified, it is reasonable and legitimate to ask for a forensic audit of the AHPETC accounts in order to calculate the SMC’s fair share of the assets and liabilities.
Three cheers for the swing voters in PE.
Of course, Auntie and Low could agree to be so generous to the residents of PE (thereby short-changing Aljunied and Hougang) that Charlie would keep quiet.
Zorro Lim: excuse king?
When I read this some time back, I couldn’t help laughing at Zorro’s excuse and wondering why Auntie etc hadn’t used such a similar excuse: “We screwed up, but had good intentions.”
Arrogant meh?
Grassroots leaders involved in financial irregularities were only trying to help, said the deputy chairman of the People’s Association (PA), Lim Swee Say, in Parliament on Monday.
“We can fault (grassroots volunteers) for their non-compliance of financial procedures, but please do not doubt them in their passion and commitment in always doing their best for the community,” Mr Lim said*.
(CNA)
The problem is that while Zorro can get away with “I can say with confidence there is no irregularity at the system level”, the WP can’t, given the Auditor-General’s report and its own auditor’s qualifications. https://atans1.wordpress.com/2015/08/16/pap-wp-dont-do-accouting/
———
*More: He said the root cause of these lapses were the “good intentions” of the grassroots leaders.
He went on to tell grandfather stories, by raising various examples of how grassroots leaders were “actually doing their best to serve the interests of the residents and meet the urgent needs of the community.”
… related how grassroots leaders had gone “all around Singapore” to look for face masks when the haze hit the island in 2013.
This was after a community hospital had appealed to the GROs for air purifiers for patients who were being housed in the hospital’s non-airconditioned wards.
When they found a “small store which had limited stock”, the grassroots leaders decided to purchase the masks without first calling for three tenders, which is what is required by the rules.
“… is this a case of non-compliance of financial procedures and rules? The answer is yes,” Mr Lim said. “Is this a case of grassroots leaders and volunteers compromising the interests of the community? The answer is certainly no.”
Backgrounder: PA, where the AGO had conducted test-checks on about 115 grassroots organisations (GROs) under the PA umbrella.Out of the GROs test-checked by the AGO, 30 per cent were found to have financial or accounting irregularities.
To be fair, Low said
“In Singapore, if we had committed any criminal offence, we would already been thrown in jail!
“If there were any corruption, would they still leave you alone?”
Seriously, I always tot that a lot of the ministers’ attacks on AHPTEC’s accounts and affairs were over the top and were actually damaging the PAP rather than WP: own goals.
But perhaps the PAP were trying to goad the WP into remarks like what Low did above. I personally find Low’s comments offensive because I know that if proper records were not kept*, it’s impossible to find out if crimes were committed. Low’s “But the most important is after the inspection of the accounts, they found no criminal offence,” is absurd. There may be none. But the only way to find out is to reconstruct the accounts using forensic analysis.
Here two comments by the Pet Minister are relevant: “Another observation the High Court made was that if this kind of conduct had taken place in a public company, it probably would attract criminal sanctions,” the Pet Minister said.
And, “The High Court said Ms Lim misled Parliament, was dishonest. She has not responded to that.”
Only a PAP victory in Aljunied will reveal if the WP leaders can be charged in court.
Low used to be known to use silence or non-action as a weapon effectively. Not anymore?
Take his comments on GST
I’m suggesting that we have enough representation in Parliament,” Mr Low said. “So that after the elections, they have to think twice if they want to do anything, including the GST hike.”
“From past experience, it shows that the PAP is always capable of doing something, revising policies which will affect the lives of people after the general election,” Mr Low said on Saturday.
The Ministry of Finance (MOF) says there is “no basis” to claims made by some online websites that the Government will raise the Goods and Services Tax (GST) after the upcoming General Election (GE).
In a post on the gov.sg website on Thursday (Aug 6), the MOF said that online chatter, which claimed that GST would be increased to 10 per cent, were “inconsistent with what the Government has recently stated”.
“In the 2015 Budget Statement in February, DPM Tharman Shanmugaratnam stated that the revenue measures the Government had already undertaken will provide sufficiently for the increased spending planned for the rest of this decade,” the MOF noted.
Among the measures is the inclusion of Temasek Holdings in the Government’s Net Investment Returns (NIR) framework from 2016, and the increase in the top marginal rates for personal income tax from Year of Assessment 2017. The statement added: “These measures came after moves in recent years to make Singapore’s property tax rates more progressive, with significantly increased tax rates for high value residential properties, offsetting reduced tax rates for lower value homes.”
Related posts:
— https://atans1.wordpress.com/2015/02/25/budget-ask-in-a-very-loud-voice/
—————————————–
*When the AGO auditors went in to do a special audit of the TC , they were horrified to find that the TC’s archival and record system consisted of a room full of piled up boxes overflowing with documents. No proper record keeping and many missing records, some conveniently so for FMSS as related third party transactions were found to be an issue by the AGO and even later by the TC’s own auditors. What was Sylvia and her MPs doing during all this time? To be blunt, they had been sleeping on the job, underestimated the challenge of running a GRC TC and trusted the wrong people to do it but who screwed them. The only problem is because the monies are all residents’ monies, the ones who got royally screwed are the residents of AHPETC and many of them till today don’t even know it.
http://sggeneralelections2016.blogspot.sg/2015/09/the-story-of-fmss-ahpetc-more-than-meets-eye.html
Warning, blogger is pro-PAP.
When I read the latest attacks on the WP’s management of AHPETC, I couldn’t help remembering the attacks on Raffles by other East India Company officials that in one instance led to his impeachment. He was cleared of all impropriety in all the cases.
But when he retired, he was not only not granted a pension (he had asked for £500 a year), but was sent a bill for £20,000 (worth £2m today) for allegedly over-claiming expenses during his administrations (principally relating to the British occupation of Java).
He died two months after receiving the bill and was not able to defend himself.
His estate amounted to around £10,000, which was paid to the Company to cover his outstanding debt. His widow was left destitute.
Historians take the view that the bill was a mean-spirited attempt by his employer to “fix” him. He was a difficult (somes a rogue) employee and neither Java nor S’pore made money for the Company despite his promises to the contrary. Java was a huge drain on the East India Company but the occupation of Java had the backing of the then Governor-General in India, Lord Minto.
Raffles was more interested in extending British influence in the region, while the East India Company was interested in profits to pay dividends to its shareholders. It had soldiers, sailors and territory, but these were means to the end of making money for shareholders.
So there’s another round of “he said, she said” about AHPETC’s managing agent. T’ll not comment but remind readers yet again of the underlying very technical and very dry issue. As it’s the weekend, you might want to skip the bolded bit and read to the end. There’s a bit of “She said, he said” asfer this pix.
Recently, representatives from nine opposition parties and the ruling PAP were represented at a three-hour forum organised by the National University of Singapore Society.
“I think in the case of AHPETC, I think what we’ve been hearing are fairly lengthy – I don’t want to say excuses, that doesn’t sound very nice – explanations which I also don’t fully understand. If you were to ask about money then I would say in the case of the AGO audit, all the monies we’ve been talking about has been accounted for, and no money is lost. But in the case of AHPETC, I’m not too sure,”
“I wish that more answers had been forthcoming from AHPETC. Then I think we would have wasted much less time on the issue and I think the population would be much the wiser.”
Have to agree with her.
To be fair, I’ll report what WP’s Mr Gerald Giam said. He pointed out that AHPETC Chairman Sylvia Lim, as well as the elected MPs who are town councillors, “all spoke, all explained various aspects of the report” during a two-day debate in Parliament. He said that this was in addition to “numerous other press statements”, “open letters to residents” and door-to-door explanations.
“I think we have done a lot of explaining already. Just because the PAP does not want to accept our explanations does not mean we haven’t explained,” said Mr Giam. “We have explained every point that has been brought up which demands an explanation and we have spared no effort in that. And with the coming election, I’m sure this issue will be raised up by the PAP and we will respond if we need to.”
Note WP has avoided stating categorically that no public funds have been lost, and no damage suffered. It can’t because AGO has said the accounts are not fit for purpse.
Yet WP has yet to commission a forensic audit, reconstruction of accounts that will tell all. This despite saying that it accepts that the AGO is professional and independent. So it saying AGO is wrong that its accounts are not fit for purpose?
Sadly as DPM Teo has said, only a PAP victory in Aljunied will uncover the truth. Or to be more accurate, a reality that is closer to the absolute truth. Remember the PAP is always out to “fix” the Oppo.
Let the voters In Aljunied and the areas where the WP is challenging the PAP decide. I’ve already decided (somewhere here, near the bottom) what I’m going to do. And voters might want to be reminded that AHPETC does things directly (like Bishan/ TP GRC. It no longer has a managing agent.
————————————–
This piece is my reaction to
— what TOC reported MP Ravi as saying on the running of a town council if he wind Hong Kah’; and
— a letter to TRE from a reader.
Mr Philemon said that residents can be assured that he would be able to run a town council if he were to be elected as he is supported by the party machinery of SPP, which had run Potong Pasir for twenty over years.
“We have twenty over years of experience with Mr Chiam leading the town council in Potong Pasir. And when he left, he left with a surplus. And there were lifts upgraded, I think about 29 lifts that were upgraded, without residents co-paying for it. So that is the kind of assurance the residents can have, when they elect someone from SPP.
Not so easy Ravi. I hope that the appropriate people in SPP read an article in TRE on how AIM fixed the WP in Aljunied. To double confirm, I append the piece in full below and I sent this post to Ravi.
Last December, I asked if AHPETC had a 21st century IT systema world-class town council town council management software package? https://atans1.wordpress.com/2014/12/16/does-ahpetc-have-a-21st-century-it-system/
It turned out that according to the Auditor-General, AHPETC didn’t even an accounting system that was fit for purpose.https://atans1.wordpress.com/2015/08/18/auntie-good-accounting-is-a-national-issue-toc-bans-avatar-again/
Here’s a piece from TRE that has a plausible explanation for part of the WP’s accouting woes: that the WP was fixed. The writer makes certain assumptions like AIM uses Oracle or that the WP used Excel to store files, but ignore these very technical issues.
At heart waz he saying is that the WP or (rather I suspect) its Managing Agent walked into a trap laid by the PAP: “When the export [of data from the AIM system] is done, you will need to import the data to the new system. And you can only do it after the new system is developed. Most likely the new system will be a subset of the old system.
‘Therefore with the removal of the system from AHPETC, all this information is gone. They will need to manually extract the information from the exported files. Definitely no easy task.”
This explains why the AHPETC had problems submitting data to MDA, And why Auntie and Pritam took so long to verify the arrears issue.
Now this begs the question: Why did the WP not foresee the problem? Or did it think, minor IT issue? (No, I don’t ask why did AIM fix the voters’ choice, it’s in the DNA of the the PAP: fixing the Oppo and all voters.)
And is it now too pi seh to admit it got screwed?
But it still doesn’t explain why its Managing Agent didn’t keep proper records of the transactions that the Managing Agent undertook when it started operations or why the WP didn’t monitor its Managing Agent. Remember it had three hot shot lawyers, and JJ (Masters in finance). OK it didn’t have a trained accountant at a senior level.
—-
This is what we know so far.
The town council system that was used previously by the old Aljunied is a S$24 million software solution and it was sold to AIM for S$140,000.
I wasn’t involved in the project nor am I a member of WP. But anybody who has done Application Development projects with the government will know this is a huge project and it will probably involve hundreds of developers and testers, a couple of Project Managers and more Business Analysts. The size of the project tells me that they are using Oracle database (its license can easily reach $1million at least). The type of servers it is running on should be very high end, always turn on and has to be constantly kept cool (Air con is always on. Redundant air cons must be on standby in case the main one failed). This should be at least a 16 months project. I will not be surprised if it is 24 months.
However this is not the main issue. The main issue is the information from the database. And there are lots of it.
For example, these are the scenarios that I can think of.
Who has paid S&CC fees for last month? Who hasn’t? If you haven’t paid, is this your first time? Any reminders send? If so when? If this isn’t the first time, then how many times haven’t paid? If this isn’t the first time, then what are the months that have missed payments?
What type of flat? Based on flat type, penalty fees can be calculated.
Whether you are a PR or a citizen? Because the rates may be calculated differently.
If you have moved to a new flat within the GRC and you have missed the payments, what is the new address? How to ensure that the bill will be send to the new address and not the old?
These are just the tip of the iceberg. For a S$24 million project, there will be hundreds of scenarios more.
So if AHPETC was given 1 month to migrate the data, it will be an impossible task. Because to migrate, you need a new system for the migration to work. You need to migrate from the old to new system.
If there is no new system, then you have to export the data out. Given the time constraint, most likely to Excel files. And it will not be to 1 file. There will be hundreds/thousand of Excel file because of the way relational databases are designed. With Excel, it is very difficult to sort, filter and analyse the huge amount of data.
However that is only half the story.
When the export is done, you will need to import the data to the new system. And you can only do it after the new system is developed. Most likely the new system will be a subset of the old system.
Therefore with the removal of the system from AHPETC, all this information is gone. They will need to manually extract the information from the exported files. Definitely no easy task.
In short, I hope everyone will know the significance of what AIM has done.
Yours Sincerely,
Underemployed
People are interested in national issues, not just town council matters, Sylvia Lim says (TOC). Well the need for a town council to have an accounting system that is fit for purpose is also a national issue. OK I exaggerate. It’s an issue at least in areas where the WP is contesting, is a fairer statement.
Auntie Lim*, Gilbert Goh**, TOC (As SPH and MediaCorp are to the PAP, so TOC** is to the WP) and TRE are trying to equate the lapses at PA and other government entities and departments identified by the Auditor-General with that of the the lapses at AHPETC identified by the Auditor-General.
The big difference is that the while the Auditor-General says nasty things about the way the govt bodies like the PA does things, he doesn’t say that they don’t have an accounting system that is not fit for purpose. He is able to pick out lapses in the PA and other govt bodies because they have proper accounting systems. The accounting systems allow the lapses to be noticed.
But he says that the AHPETC accounting system sucks so badly that no proper records are kept.
The Auditor-General pointed out, inter alia, that AHPTEC did not “a system to monitor arrears of conservancy and service charges accurately and hence there is no assurance that arrears are properly managed”.and “No proper system to ensure … proper accounts and records were kept as required by the Town Councils Act.” (Related post https://atans1.wordpress.com/2015/02/10/conflicts-of-interest-what-conflicts/
Because proper records are not kept, no-one knows if there are irregularities. There may be none but there may be some or many: who knows? And what if there are major irregularities?
The way things are going, only a PAP win in Aljunied will ensure that the truth comes out on whether anything is wrong. WP is dragging its feet on setting the system right. It is moving to the Bishan/ Toa Payoh model of directly managing the cleaning etc, which will allow it to say it has “moved on” without resolving the issue of irregular accounts.
Someone posted this analysis on Facebook
Having read the full report, the responses by APHTEC and AGO and PWC’s responses I would say the following.
1. That management and supervision for the first two years were sorely lacking , to the extent that corporate governance is needed , FMSS and FMSI was allowed both management powers, payment powers without supervision.
2. Whether current WP members accept it or not. There is a difference between Management Companies appointing their own people to the TC as GM’s when the management companies are owned by the GOV or GLCs and hence there is no direct pecuniary interests and when in the case of FMSS everything is owned and attributed to Miss How and her Husband and there is a direct pecuniary interests.
3. I could accept the need to appoint FMSS. I cannot accept the need to appoint FMIS whereby the shareholders were both the deputy GMS for lift EMS services. To the extent that there are only a few TC management companies and they refused to help , can the same be said of lift management companies ?
4. To an extent the problem can be laid at the head of the Sec Gen and Low. The people under his leadership trusted low and low I believe trusted miss how.
5. The trust was built over her management of the TC in Hougang for many years and it just seems that when faced with the problem of integrating seven town councils which in itself will be the largest town council in SINGAPORE, she lacked both the management and accounting expertise necessary to integrate all the bits and pieces.
6. FMSS at the end of the day seems to have bitten of more than they could handle, likewise FMSS was not adequately supervised by all the MPs and the leadership within the party for whatever reason.
He could have added, but didn’t, that the WP TC Chair and Vice are lawyers, albeit one was from SMU law school. And there is another MP that is a lawyer, a former partner is a top US law firm. Btw, one, M Ravi called these lawyers three,”cow dung” in another context.
One wonders why they didn’t draw up better conflict of interest mgt rules for the TC’s consideration. And if they did, why were these not implemented? Because Low trusted the Ms How?
Let’s be very clear, the PAP administration didn’t bully or fix the WP on this issue of bad record keeping. This was self-inflicted.The managing agent bears a lot of responsibility for the state of affairs. It didn’t keep proper records of who it was paying, and for what purpose. The AHPETC failed in its duty to monitor what the managing agent was doing.
The inability of the AHPETC to keep proper records is now personal.
I now live in Marine Parade GRC (Joo Chiat kanna rezoned). I’ve voted for the WP since I was able to vote (bicyle thieves, an ex-Woodbridge patient) because I believe that a one-party state is bad for S’pore; but do I want to live in a GRC managed by the WP, a party that couldn’t keep proper records, and is in denial over this fact? And which throws smoke on the issue. It can’t bluff me because I was a Hon Treasurer of a club https://atans1.wordpress.com/2014/11/23/ahpetc-sadly-pap-ib-gets-it-right/.
And I’m not alone: the neighbours (they are accountants, lawyers etc), and the really real Marine Parade residents I talk to, are wondering if the bad record keeping will continue. We know WP can keep the area clean and tidy, but can it keep proper financial records? https://atans1.wordpress.com/2015/08/16/pap-wp-dont-do-accouting/
—–
*Ms Sylvia Lim says the Aljunied-Hougang-Punggol East Town Council (AHPETC), has been singled out for “exemplary treatment” by the government.
She also called on the govt to “act with similar vigour, by withholding grants and commencing legal proceedings”, against gov’t depts and stat boards which have been found with financial irregularities in the Auditor-General’s Report.
Ms Lim made the call in her court affidavit on the hearing on the MND’s application on Monday.
(TOC)
**A statement seeking support from the public has been posted online as a petition calling for the government to investigate fully the recent slew of financial and accounting irregularities unearthed in the Auditor-General’s Office (AGO) Report.
“We… hope our government will investigate thoroughly the AGO audit lapses and come up with a official statement to address the concerns of the people,” the statement, posted on change.org, said.
“The lapses are both glaring and shocking as Singaporeans have all along place their trust in a government that has enjoyed above-board corruption-free governance for a very long time,” the statement by Gilbert Goh said.
(TOC again)
***TOC has again banned my Facebook avatar from commenting on TOC’s Facebook posts. It’s TOC’s right. But so like the PAP. But then WP is nothing more than PAP Lite and TOC is its poodle. And let’s see if a TOC founder stands as a WP candidate this GE.
As Chairman and deputy chairman of the PA, ah Loong and Zorro should do what Khaw implicitly asked the WP leaders to do and what Lui may or not have done (I’ll blog one of these days on why the Ah Loong administrations sucks in comparison with that of his dad’s: never a clear message). I don’t know if Lui is willingly (or unwillingly) taking the rap for the failures of the MRT system, or he juz going MIA or AWOL to look at his monthly CPF statement and feel happy).
In the Budget earlier this year, the PA’s expenditure was increased 51.3% to over $1 billion.
Minister Lim Swee Say, Minister (Prime Minister’s Office) and Deputy Chairman of PA, said that the budget allocated to the PA “reflects a higher level of commitment by the Government towards promoting social cohesion and racial harmony.”*
Yet the management of the PA didn’t ensure that the systems were in place to ensure that the records on how this money (and earlier funds) were kept in accordance with the PA’s own internal rules.
The Auditor-General (AGO) is not happy. The People’s Association was flagged for various lapses in the Auditor-General’s Report, released on Wednesday (Jul 15), including lapses in management of tenancy contracts in Community Club/Centre Management Committees (CCMCs) and procurement lapses.**
The AGO had conducted audits on only 115 GROs out of the 1,800 over GROs, which as TOC points out “is only 6.39 percent of the total GROs which PA is in charge of”.
As TOC points out, with the recent findings by AGO on the GROs, one would have to be concerned or extremely concerned that public money may be misused or misappropriated due to the lack of understanding of proper accounting practices set by PA’s financial rules.
…
To recap:
There are 1,800 grassroots organisations under the People’s Association’s umbrella.
That’s a mere 6.4% of all the GROs.The Auditor General audited only 115 of them.
And already, the AGO found almost 40% of them with financial irregularities.
So while PA has said that it would conduct internal investigations and audits of its GROs, a more prudent method to ensure public monies would be lawfully used, is to get AGO along with a 3rd party auditor to audit the whole group of GROs under the PA.
In the meantime, the Minister of Culture, Community and Youth, Lawrence Wong, who oversees the PA, should be accountable and freeze the funds that are meant to be given to PA until the auditors can be sure that proper accounting process can be put in place for the GROs – and that public funds are duly protected from misuse.
Terry Xu
Now given that Khaw had recommended that the AHPETC commit hari kiri, and given that the PM is the chairman of the PA and Zorro Lim is the minister-in-charge of PA, why is Khaw silent on them performing hari kiri? At the very least, he should recommend that they do deep bows and apologies at the National Day rally next week.
But then the PAP believes that “All animals are equal but some animals are more equal than others”:
But to be fair to the PM, Zorro and the PA and the PAP, rather than challenging the AGO and throwing smoke as the WP would (think AHPETC: there is lousy record keeping, so lousy that no-one knows if money has been stolen or not, and Pritam and his Auntie mentor have to do a manual check to report the correct arreas situation), a review by a newly formed Grassroots Finance Review Committee, to prevent a recurrence of procurement lapses flagged in a report by the Auditor-General’s Office (AGO) will take three months, the People’s Association said.
“The common lapses found in most of the grassroots organisations test-checked indicate that they may not be familiar with PA’s financial rules,” the AGO said in its report on Wednesday (Jul 15).
A statement released by the PA on Thursday said the committee will be chaired by a member of the PA’s board of management, Timothy de Souza. “Mr de Souza is a trustee of the Eurasian Association of Singapore and an experienced grassroots leader”, the PA said. He is also the auditor of a Neighbourhood Committee.
The other members of the committee are chief financial officer and member of the Auditing and Assurance Standards Committee of the Institute of Singapore Chartered Accountants John Teo Woon Keng and Mr Chiang Heng Liang, director of wealth management at an international bank and chairman of Kolam Ayer Citizens’ Consultative Committee.
The committee will be supported by PA senior officers, and they will be able to tap on expertise from the Ministry of Finance for advice.
The committee will review and recommend refinements to financial and procurement rules and procedures, especially with regard to AGO observations, the PA said. It will also propose measures to enhance compliance of financial rules and recommend measures to strengthen monitoring by staff. And, it will enhance training for staff and grassroots leaders.***
I’m still wondering what the WP are going to fix its accounting systems? Can some cybernut enlighten me? I got rezoned into Marine Parade and me and the neighbours (they are accountants, lawyers etc), and the really real Marine Parade residents I talk to, are wondering if the bad record keeping will continue. We know WP can keep the area clean and tidy, but can it keep proper financial records?
And we want to know if the WP can assure us that the excellent bus links to the other parts of S’pore will continue. Rightly or wrongly, we attribute these links to one Goh Chok Tok who was once the MP of the real Marine Parade.
Finally, the WP kept saying that a vote for the WP is a vote to keep the PAP honest. Who is keeping the WP honest? I mean someone has to take the rap for an accounting system that isn’t fit for purpose?
Will PritamS or his mentor step up for a deep bow? Or both?
But Ah Loong should set a good example, and take a deep bow next weekend. pigs will fly first.
———————————-
*He said that out of the $339.6 million or 51.3% increase in the estimated Financial Year (FY) 2015 expenditure of the PA, $239.3 million (70.5%) is meant for the development of facilities for residents’ use.
These include the building of the Tampines Town Hub, construction of nine new CCs and two Water-Venture outlets; as well as to upgrade 28 existing CCs under PA’s 15-year upgrading cycle.
The increase of $100.3 million or 29.5% in operating expenditure will go into implementing the Pioneer Generation Ambassador programme where staff and volunteers reach out to seniors where they live, as well as supporting the work of the grassroots organisations (GROs) and Community Development Councils (CDCs) in assisting the needy and in building and bonding our multi-racial and multi-cultural communities.
(CNA)
**LAPSES IN MANAGEMENT OF TENANCY CONTRACTS
Of the 91 CCMCs test-checked by the Auditor-General’s Office (AGO), 35 did not obtain approvals from the relevant approving authorities for awarding 53 tenancy contracts, totalling S$17.78 million. Approvals were either obtained from committees which were not authorised to do so, or whose approval limits were below that of the contract values, the AGO said.
In addition, 10 of the 35 CCMCs did not obtain the relevant approvals for the direct award of 13 tenancy contracts without competition, worth a total of S$3.67 million.
“The number of lapses detected points to a weakness in the People’s Association’s monitoring of CCMCs’ compliance with its financial rules with regard to tenancy contracts,” said the AGO. PA has informed the AGO that is has since obtained covering approvals for the tenancy contracts.
LAPSES IN PROCUREMENT
Test-checks of nine grassroots organisations (GROs) – comprising four CCMCs, three Citizens’ Consultative Committees (CCCs) and two Residents’ Committees (RCs) – revealed non-compliance with PA’s financial rules, including the award of nine contracts totalling S$152,600 prior to obtaining approvals; the award of 15 contracts worth S$565,300 from the wrong approving authorities; not seeking approval for 10 direct purchases from suppliers worth a total of S$53,700; and not inviting quotations in writing for 13 purchases totalling S$187,900.
“The common lapses found in most of the grassroots organisations test-checked indicate that they may not be familiar with PA’s financial rules,” the AGO said. “They also reflect a lack of oversight by PA.”
The PA has since informed the AGO that it will review its procurement rules for GROs, to strike the right balance between competitive procurement and “expeditious decision-making” on the ground.
LAPSES IN ENGAGING TRAINING OPERATORS
According to the report, the AGO found common lapses in engagement of training operators and the collection of course fees across most of the seven grassroots organisations checked.
For example, four GROs engaged operators directly without calling competitive bids under eight contracts, totalling S$311,800. “Hence, there was no assurance that the GROs were able to obtain the most advantageous bids for the courses,” the AGO said.
One RC awarded a contract for tuition services with an estimated revenue of S$1.11 million to the incumbent operator through a quotation exercise, when a tender was required. There was no evidence other operators were invited to quote, the AGO said.
Four RCs test-checked could not produce evidence that they had carried out audit checks on course fees – totalling S$1.26 million – collected by operators on the RCs’ behalf, according to the report. The PA said that the RCs had conducted random checks on the collection of the fees, but these went undocumented. The course fees have been fully collected from the operator, PA added.
One RC did not take any action when an operator repeatedly delayed handing over course fees collected on behalf of the PA, totalling S$414,700, every month from April 2013 to July 2014. This exposed the RC to the risk of the operator defaulting on the payment of course fees, the AGO said.
LAPSES IN MANAGEMENT OF RELATED PARTY TRANSACTIONS
The AGO’s checks found that the chairman of a CCC was involved in approving the award of two contracts worth a total of S$32,000 and corresponding payments to a company of which he was a member of the senior management. For one of the awards, another CCC member involved in the approval process was both a director and shareholder of the company, the AGO said.
The CCC chairman also approved payment for a purchase worth S$1,500 from another company where he was both a director and shareholder.
In these cases, the two CCC members involved did not declare their interests in the transactions, the AGO said. “As a result, there was no assurance that the transactions were conducted at arms’ length.”
PA acknowledged that the chairman should not have approved the payments, but checked and found that there was no irregularity in the payments as the amounts tallied with the quotations and the work tendered.
Test-checks revealed seven instances where the CCC chairman was involved in approving his own claims, totalling S$114,767 – a “clear conflict of roles”, the AGO said. In three of these payments, no supporting documents were available.
The PA’s response was that the chairman had inadvertently approved his own claims, and said that the vice-chairman and treasurer will endorse future payment vouchers instead.
MP for Sembawang GRC Khaw Boon Wan said the grassroots leader in question was from Admiralty CCC and that he has stepped down to facilitate a full investigation.
“I am glad that the Investigation Panel found no evidence of dishonesty. Nonetheless, it was a related party transaction that was not declared,” Mr Khaw said in a statement. “The CCC will study the investigation report, and review its procedures to ensure that such lapses do not recur.”
Fellow MP for Sembawang GRC, Vikram Nair said he was saddened to learn of the findings by the AGO and that the grassroots leader concerned has “served with distinction for many years”. The man is giving full cooperation in the investigation, Mr Nair said.
ISSUES WITH FUND UTILISATION REPORTS
The PA obtained excess funding from the Citizens’ Consultative Committee ComCare Fund (CCF) from the MSF, amounting to S$84,394 over two years, due to errors and omissions in the updating of disbursements at seven CCCs checked.
The errors include duplicate entries of CCF disbursements, incorrect amounts recorded and inclusion of financial assistance that was not to be funded by the CCF. Disbursements were entered into the system by an officer without any independent checks, the AGO found.
These errors led to inaccurate CCF usage reports submitted by PA to MSF, ranging from an overstatement of S$225,703 in some cases to an understatement of S$120,210 for FY2012/13 and 2013/14.
In response, the PA said it was conducting a one-off reconciliation exercise for all CCCs to update and correct the CCF utilisation reports, meant to be completed by June this year.
CNA
***The committee will strengthen the supervision of its 1,800 grassroots organisations (GROs). “The committee will also recommend suitable measures that would enable our 37,000 grassroots leaders and volunteers to continue to serve the community’s best interests while maintaining good governance and sound financial practices.”
Additionally, a hotline has been set up to help GROs with queries on correct procurement procedures. The number is now active and has been communicated to GROs internally.
(CNA, I think)
FT’s Alphaville drew attention to PwC’s disclaimer: PwC said Noble records profits on long-term sales and marketing deals in a manner consistent with industry practice
So if it turns out that “There may be a fundamental difference between a company following the rules and a company presenting a true picture of its financial position,” (Andrew Fastow, the infamous treasurer of the even more infamous Enron, to a FT conference), PwC is not liable. https://atans1.wordpress.com/2015/07/03/noble-house-airasia-ceos-spin-meisters-take-note/
No wonder PwC is a “professional services firm” where the oldest profession is prostitution.
Forgotten the issues, here’s Michael Dee’s letter to employees: http://www.sharesinv.com/articles/2015/05/29/open-leter-noble/?utm_source=email?
He was at the very least right right that their jobs were at stake.”Noble said it was targeting a 16 per cent reduction it its global workforce to just over 1,500 people by the end of the year.” reports the FT.
My eyes rolled when I read the CEOs of above two cos recently said that their cos follow the accounting rules. (Remember, credible doubts have arisen over whether their accouting reflects their financial position.)
The best riposte to “We follow the accouting rules” came recently when an ex-convict recently addressed a FT conference.
“There may be a fundamental difference between a company following the rules and a company presenting a true picture of its financial position,” said Andrew Fastow, the infamous treasurer of the even more infamous Enron, to a FT conference.
Or as he puts in another way, that it’s possible for a company to comply with accounting standards while at the same time painting a misleading picture of its real financials.
I tot it tragically funny when he said he went to prison partly for doing things that got him a best CFO award: innovative off-book entities.
Debt of 11.5 billion ringgit ($3.1 billion) is already uncomfortably high for an outfit expected to make 1.9 billion ringgit in EBITDA this year. AirAsia’s part-owned sister airlines, especially in Indonesia and the Philippines, owe it increasing sums: amounts due from associates were nearly 2.5 billion ringgit at the end of 2014.
The gloomy case, as made by Hong Kong’s GMT Research, is that this cannot last. AirAsia is booking profits from affiliates that it cannot collect. While restrictions on foreign ownership mean it is only a minority shareholder, it effectively controls these airlines and should consolidate their accounts. Facing up to reality would force a big equity issue.
AirAsia counters that its accounts are transparent, debt is coming down, and cheap fuel and reduced competition should make for a “very good year”. Selling and leasing back planes will help cut debt. It’s also planning to publish pro-forma consolidated accounts.
Fernandes says local partners in Indonesia and the Philippines will each inject over $80 million of fresh equity, and both units will sell $100 million-plus of convertible bonds, before floating in 2017. Some of this will be used to pay back sums owed to the parent.
Well, perhaps. But new investors in the affiliates will need to be comfortable with much of their cash going to repay debts, while also believing in a bright future for these units. As HSBC analysts note, both are sub-scale and face powerful local rivals in Lion Air and Cebu Air.
http://blogs.reuters.com/breakingviews/2015/06/18/airasia-takes-multi-stop-route-to-capital-raising/
The real moral of the stories of Noble and AirAsia is that when one makes money or is in fashion, no-one cares about accounting details, But when the fashion changes, or one loses money, the daggers come out and the hyenas and vultures circle.
And don’t like a lost co, set up a website and slime away
As FIFA Scandal Grows, Focus Turns to Its Auditors. Despite longstanding suspicion of corruption, FIFA has received a clean bill of financial health for 16 consecutive years from KPMG, one of the world’s top auditing, accounting and consulting firms.
“It’s legitimate to raise questions about the effectiveness of the audits, given that the risks were already widely rumored.”
Barry Jay Epstein, a financial-reporting expert, on KPMG giving FIFA a spotless record of financial health.
NYT Dealbook
Sometime back I wrote
Noble said it had secured US$2.25bn of commitments for a new credit facility.
It retains the confidence of its lenders, giving them enough info to keep them lending. The problem for investors is that we small investors will be the last to know when banks cut credit lines.
From FT
The $2.3bn revolving credit facility has also come under scrutiny from analysts and traders after at least three tranches of the three-year loan were offered to other banks in the secondary market.
“”It could indicate the banks may be losing some confidence in the company,” said Wei Bin, analyst at Maybank Kim Eng in Singapore.
A hedge fund manager said the latest sell-off was notable because it was accompanied by large daily trading volumes.
“It is now trading in such volume it appears some of the major shareholders are changing their view on the stock,” said Robert Medd at GMT Research, an independent research firm. GMT has published several reports critical of Noble.
Phew glad I wasn’t tempted: https://atans1.wordpress.com/2015/05/14/noble-why-im-not-tempted/
Many of Noble’s operations and investments are exposed to the slowdown in China.
And the Chinese economy is still slowing. And the engine of growth is no longer exports or infrastructure spending or construction. It’s the service sector.
Maybe when I hear that Noble is starting to shipping Pinoy gals to China as wives for barren branches, will I buy the stock.
A trading house requires lots of working capital (i.e. borrowed money). The short sellers by raising issues about “aggressive accounting” are trying to get its facilities cut.
Well
— S&P believes the company deserves its investment grade credit rating; though it would like to know more about the assumptions.
— Noble’s banks have juz renewed a US$2.2bn credit line.
So it’s up to Muddy Waters to make sure that the mud sticks to its allegation of “aggressive accounting”. .
But it’s not so easy because if the price falls substantially, the banks get scared and change their minds while S&P might get scared that its missing something. It could then say that share price fall affects the rating.
Not easy to make money in stock markets. ask Ho Ho Ho about StanChart, Merrill Lynch and Chesapeake.
“We unfortunately live in world where knowing that you run your business professionally is not enough,” the CEO of Noble wrote in a letter to stakeholders in February. “You must be able to prove it.”
But will he walk the talk? Two big funds* think so and have been buying. Maybe they have been assured on the following?
[A] chunk of the profits Noble reports comes from non-cash gains created by “marking to market” long-term contracts (eg, to supply coal) and derivatives it holds. Iceberg is not accusing Noble of fraud, but it is questioning how realistic these valuations are and asking how much of the company’s reported profits are the result of this practice. Noble reported that at the end of 2014 the net fair value of these positions was $4.6 billion, equivalent to 91% of its book value.
It is hard to tell from what Noble discloses in its accounts whether its valuations are indeed fair; and since it is also unclear how much of its profits come from such changes in valuation, it is difficult to assess how robust its profits are. Noble did not respond to requests from The Economist for comment. The firm’s cashflow has been weak. Over the past three years it has booked net profits of almost $1 billion but negative cashflow of almost $2 billion, after working-capital, capital-investment and interest costs.
On March 5th it issued an 11-page rebuttal, suggesting that a disgruntled ex-employee was behind Iceberg. It also gave more detail about the “fair value” positions. They reflect over 12,000 individual contracts, almost half of which mature within two years. Over the past three years the firm has realised $800m of cash from such positions. Yet the rebuttal omitted a vital piece of information: how much profit has been booked from these positions. Without this nugget it is hard to form a sensible judgment about Noble’s books or health.
Emphasis mine
—
*A unit of insurer Prudential, and Invesco increased their stakes in the company. [Added at 1.40pm]
Opps looks like Olam tried to be too clever by half. By calling a rights type issue but not answering two of Muddy Point’s questions (that it is spending lots of $ on lousy investments and the restatements), investors have decided to sell given that there will a lot more debt, at expensive prices, a possible dilution, and that Muddy Waters might just be right.
Then there is the cred of management: saying it had lots of cash but then calling yet another bond issue. And having to retract a statement on the approach to Temasek.
In such a confused situation, investors might as well sell esp with the year end in sight.
And on a technical issue: leaving the warrants to be priced tomorrow was asking for trouble.
All in all, management and its investment banks have not covered themselves in competency.
(Or “Answering some issues raised by the CHC case”, or “Can’t blame CHC members from being defensive” or “Netizens rushing to crucify before hearing the evidence”)
One question that has been asked on the internet, “What happens if all the members of City Harvest Church sign a resolution giving retrospective approval to what the pastor and the others charged are alleged to have done? Can they escape the consequences of the charges and the Charity Commissioner’s findings?”
The answer is: Even if all the church members agree to give their retrospective approval, nothing changes. By becoming a charity, CHC becomes subject to the Commissioner of Charities, and all that entails. It is no longer a private organisation, and the laws and regulations relating to charities applies. After all by becoming a charity, CHC deprives tax benefits: in return it has to play by the law and the Coc’s regulations. These include not misusing the chariy’s funds. Cannot suka suka choose what to obey. Not their grandfather’s money: it’s the money of Harry’s Law. Harry’s Law is more like obeying God: cannot pick and choose what to obey. It’s either God’s way or the highway to Hell. Same for Harry’s Law.
Another question raisen on the internet is, “Has the CoC defamed a CHC executive committee member?
The man is in denial. CoC is justified in giving details of its findings. Only if he can prove that at least one of the CoC’s findings is wrong, can he win a defamation suit.
Are the church members supporting Kong and the others in denial, and too defensive in defending Kong, wife and friends?
Those netizens who are anti-CHC, Kong, the others charged, Auntie Sun and the “prosperity” gospel can reasonably argue that the members should accept the CoC’s findings.
But as the appeal process has not even begun, church members can reasonably point out that their support does not mean they are in denial.
They are waiting to see the evidence. After all, netizens are always telling S’poreans that, “The PAP government is always wrong, never ever right”. So why should it be any different in this case? Because netizens don’t like pastor Kong, Auntie Sun, the CHC, and the “prosperity” gospel, so everyone got to trust the PAP govt that it does no wrong
And anyway, only charges have been filed against the pastor and friends. They have yet to be found guilty, and the law says that a person is innocent until proven guilty. And the bar is very high: beyond reasonable doubt, not on the balance of probabilities. The latter is the standard the CoC uses in his investigations.
So those who want to scourge, give gall wine, crown with thorns, crucify and spear CHC, Kong, the others charged, Raunchy Auntie and the “prosperity” gospel, hold your instruments of torture and death. Bit too early to drag them to slow and lingering deaths by dragging them behind Satan’s chariots.
Let Harry’s Law pass judgement first.
Seriously, it’s sad to see so many netizens waste and squander the after-effects of the unmasking of STOMP’s (and SPH’s) fabrications. Juz because they don’t like Kong, wifey, friends and the “prosperity” gospel doesn’t mean they should behave like the journalists and editors of the constructive, nation-building media at their howling, baying, snarling best.
Only the PAPpies will be happy: netizens are vigilante comboys and cowgals that S’poreans have to be protected against.
(Or “HSBC: Glass half empty or half full?” or “The difficulty of analysing a company esp a bank”)
HSBC Holdings, one of Europe’s biggest banks, said on Monday that its profit rose 27 percent last year in part because of greater demand for loans in the developing world.
(“Profit” here means profit attributable to shareholders)
http://dealbook.nytimes.com/2012/02/27/hsbc-profit-rises-on-demand-from-emerging-markets/?src=dlbksb
But FT preferred to focus on the 6% fall in pre-tax underlying profits to US$17.7 bn.
But pre-tax profits actually rose 15% to US$21.9bn. But FT, rightly in my view, took out the US$13.9bn gain in the value of the bank’s own credit. This is Alice-in-wonderland accounting that banks have to use (some happily, some reluctantly). The weaker banks love it.
HSBC is currently the most profitable Western bank, with its nearest rival, JP Morgan having profits 15% lower.
HSBC Asia Pacific posted profits before tax of US$13.3 billion – 15% more year on year. The region accounted for 61% of the group’s total pre-tax profit.
As regards HSBC S’pore, it posted a pre-tax profit of US$595 million for FY2011, up 14% from a year ago. A lot better than OCBC’s and UOB’s S’pore operations. I plan to blog on how well Citi’s, HSBC’sand StanChart’s S’pore operations compare to our three local banks, one of these days. BTW StanChart juz reported that its pre-tax profit from it’s S’pore operations has hit US$1bn, up 40%.
There were three trained and highly experienced accountants (the chairman included) on the eight person ministerial salary review committee, the most from any single profession.
Maybe the reason is that accountants can do magic with numbers? At least that is how it appears to us “lesser mortals”?
Example: The accounting profession can make a sum of money appear as US$4bn for the co that is paying out the sum and as US$6bn for the company receiving it.
And there is the old joke that the best accountant is one that will ask you, “What answer do you want?” when you ask him, “What is 2+2”?
MF Global may have engaged in “window dressing,” reducing its level of debt before reporting its finances each quarter so as to appear less risky to investors, according to an analysis by the Wall Street Journal.
Despite all the laws enacted since Enron and Lehman Brothers, this trick is still being used. Other tricks still in use:
— accelerating revenues;
— delaying expenses;
— accelerating expenses preceding an acquisition;
— “Non-Recurring Expenses”;
— “Other” income or expense;
— off-balance-sheet items; and
— synthetic leases.
The problem with a bank’s balance sheet is that on the left side nothing’s right and on the right side nothing’s left.
Think Lehman’s and Dexia’s balance sheets. One day AAA, six months’s later rubbish. That fast leh?
Profit and loss accounts are just as rubbishy. Recently UBS’s third quater profit fell to 1.02 billion Swiss francs (US$1.2 billion) in the three months ended Sept. 30 from 1.66 billion francs in the period a year earlier. The trading loss of 1.85bn Swiss francs (alleged caused by a rogue trader) and charges linked to a cost-cutting plan were partly offset by an accounting gain on the bank’s own credit of 1.8 billion francs and the sale of some investments.
Now this accounting treatment was not not only used by UBS. According to the FT’s Lex, four-fifths of the US$16bn net profits in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.
Lex describes the accounting treament thus: ” Try this on your credit card company: your creditworthiness has weakened, so you write down the value of what you owe them to reflect the greater riskthat you will not pay it back and credit the difference to your personal account. That is what exactly accounting allows”.
Readers will know by now that UBS, where GIC is a major long-term (and suffering) investor, is planning to reduce the scale of its investment banking operations, the source of its on-going problems since 2007.
But they may not know “What they are trying to do has never been done before,” Christopher Wheeler, an analyst at Mediobanca, said. “They want to shrink the investment bank by choice, which means unwinding positions without loss and running down their books while keeping the morale among staff, and it’s unclear who’s running the shop.”
And don’t be fooled by its latest results. Despite being hit by a 1.85bn-franc loss from deals made by an alleged rogue trader, it just made a better-than-expected third-quarter net profit of 1bn Swiss francs (US$1.1bn).
The loss was almost entirely offset by a 1.77bn-franc accounting gain that came from changes to the value of the bank’s own debt. One of these days, I’ll blog on the Alice-in-Wonderland accounting that allows this type of gain to materialise. According to the FT’s Lex, four-fifths of the US$16bn net profits in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.
No, this is not a rant abt GIC’s performance or how it misleads the public abt its performance. It’s about how its inability or unwillingness to communicate with us, the public, can be self-defeating, leading to more questions being asked, especially on why it keeps relying on spin rather than facts, as illustrated by this media statement from GIC.
In a statement to the media last week, the Ministry of Finance said, How well GIC performs is not a secret. Its mandate is to preserve and enhance the international purchasing power of the reserves over the long term. Hence, it publishes its 20-year annualised real rate of return.
GIC also reports its returns over five- and 10-year periods as intermediate measures of its performance.
GIC’s Performance as per annual report
| Period | Government’s nominal rates of return in US$ for period ended 31 March 2011 (%) |
| 5-Year | 6.3 |
| 10-Year | 7.4 |
| 20-Year | 7.2 |
Well its performance might be as well be secret.
The problem is that these performance numbers raise questions on their methodolgy, to which answers are not available. I will only raise one issue, but this one issue will take acres of space. TOC has raised other less technical issues.
My grumble is that there is no disclosure on whether the functional currency is US$ or S$. By “functional currency”, an accountant means the currency in which the accouts are prepared. We only know that the returns are presented in US$, the presentational currency. This does not imply that the functional currency is US$.
If the accounting of the funds under mgt are done in S$, the performance results would have included the exchange loss arising from the US$ depreciation against the S$. So if its functional currency is S$, but its presentation currency is US$, then all exchange losses arising from US$ depreciation against the S$ will have been taken into account.
If however if the functional currency is US$, then its US$ denominated assets and US$ investment income will not be impacted by US$/S$ movements. And any analysis would have to take US$ depreciation into account.
The differences can be great. (Please click “Read more” to read the article in full, if you are reading from the Home page. There is a necessarily long-winded example to illustrate what I’m trying to say.) Read the rest of this entry »
Today’s financial industry may be too complex and too subject to opinions for the accountants to get right, even if they want to. Witness PricewaterhouseCoopers, which audited both Goldman Sachs and AIG. At the height of the financial crisis, the exact same securities on each firms’ books were valued at radically different prices. In other words, there was no way to compare the two firms’ results.
The complexity makes the accountants even more susceptible to pressure from management. That pressure is all too real. And the problem in Enron’s case was never the consulting business. It’s that the accountants forgot who they were working for. They’re supposed to work for investors, not management. Their job is to make sure investors have a fair chance at assessing a company’s financial condition.
————————————
Put simply, the unfortunate truth is that corporate bad behavior often pays. Thus, if accountants always behave like homo economicus — the hyper-rational, purely opportunistic hero of economic theory — rampant frauds are only to be expected.
—————————–
In the middle of March, BT reported that the CEO declined to comment on the S$14 million cash reserves the group’s former executive directors claimed to have kept in a Xiamen bank, saying: “We haven’t sent the auditors in yet, so I don’t want to make any comments on the cash as that could be quite misleading.”
Have the auditors gone in yet? And if not, when? Sin0-E shld be telling its shareholders.
[Update on 18 April 2010 — Co says money is there and that it has been secured]
As a group of managers have asked for the opportunity to subscribe for 20% or more of the group’s issued paid-up capital in the form of new shares, shareholders could be reassured that there is value in Sin0-E, something that the CEO was quick to point out. But they should worry that this request was tied to a pledge of support to the new directors.
A polite threat?
Based on filings with SGX in the last week of February, “the buybacks among listed firms surged last week, after very low activity for three straight weeks. A total of six companies posted 17 repurchases worth $2.1 million. The number of transactions was more than the seven repurchases from Feb 1 to 19. Among the stocks that recorded significant buybacks last week were KTL Global, HTL International, and InnoTek”, reports BT.
The theory is that a company buys back its shares when it thinks the market is undervaluing the shares. But buying in a bear market can cause problems especially since bear markets can only be recognised in hindsight.
In a bear market, buybacks become a bad tool of creating shareholder value, and can cause management problems if they want to issue new shares to fund an investment.
One Warren Buffett said a few months ago, ” What we know with certainty, however, is that Kraft stock, at its current price of $27, is a very expensive “currency” to be used in an acquisition. In 2007, in fact, Kraft spent $3.6 billion to repurchase shares at about $33 per share, presumably because the directors and management thought the shares to be worth more.
‘Does the board now believe those purchases were a mistake and that Kraft’s true value is only the current price of $27 per share – and that it is therefore fine to structure a major acquisition based upon that price? Would the directors use stock as merger currency if the price were, say, $20 per share? Surely the true business value of what is given is as important as the true business value of what is received when an acquisition is being evaluated. We hope all shareholders will use this yardstick in deciding how to vote.”
The ST suggested that S-Chips should deposit their cash in in DBS, OCBC or UOB and not Chinese banks. This could reassure investors that the S-Chips’ cash were safe. This would in turn help the shares to trade above their net cash per share.
Err might not be a gd idea. Forget about the practical reasons like
— the companies not having the cash they claim they have; or
— withdrawing the cash after depositing it for reporting purposes and deposting it again just before the next reporting date. To prevent this the banks would need clear mandates to report such actions, and manpower and systems to track such movements.
It could be that the investors are (or will be) concerned that the cash could be used up in unprofitable businesses. Chinese dot.com companies listed on Nasdaq were trading below their net cash positions after the dot.com bust. Investors rightly assumed that they would not see the cash.The cash would be used to fund internet ventures etc. Anything else except be returned to shareholders.
They were right.
I’ve always wondered why SIAS had been quiet on the lack of news from Sino-E’s board on what was being done to protect the assets and business of the company. I had tot that maybe company had quietly assured SIAS that things were in motion but that publicity could cause problems.
So I was surprised to read in Wednesday’s papers that SIAS had gone public on Tuesday, saying it had asked asked questions since December, but had been ignored. ST also reported that Sino-E had responded in a sense. No wonder it didn’t earlier reply or inform shareholders, the news is not reassuring. Bugger-all has been done other than reconstituting the board and appointing a CEO. Production has ceased, and the cash has not been secured.
Though to be fair, the board is S’pore-based, while business, assets are in a faraway district in a faraway province from Beijing or Shanghai in China. And the board could could argue that since the shares are still suspended, there was no need to upset shareholders with the bad news.
Let’s hope that SIAS has learnt that a nicely, nicely approach could be taken as a sign of weakness and impotence. More and louder growls, pls. If nec, howls pls. Wolves are feared: lap dogs and toothless mutts are not. As MM has said, S’poreans needed to be spurred.
Thoughts of a Cynical Investor 