Related post: http://www.bbc.com/news/business-34344926
Related post: http://www.bbc.com/news/business-34344926
Under the worst test scenario – this assumes that a 10 per cent cut in revenue, 10 per cent foreign exchange depreciation and 100 basis-point hike in interest rates happen all at once next year – three sectors emerged as the most resilient: China water-utility stocks, healthcare and manufacturing. So says MayBank Kin Eng in a report in mid Sept.
Don’t know about the Chinese utlities but the rest of list (see below)l ooks about right.
Healthcare stocks such as Q&M and Raffles Medical: “buffered by the largely non-elective procedures they offer”: “Under (the worst scenario), their earnings could drop 12 to 16 per cent when revenue declines, while foreign exchange and interest rate changes do not really move the needle,” said the report.
It added that manufacturers such as Innovalues, Valuetronics Holdings and Venture Corporation – which earn the bulk of their revenues in US dollars – should benefit from the strengthening greenback as they reap cheaper production costs.
Offshore and marine, property and banking sectors – already under pressure – which could be “severely tested” by falling oil prices, rising interest rates and depreciating currencies, noted the report.
In the event of a market shock, highly geared offshore and marine asset owners like Vard Holdings, Pacific Radiance and Swiber Holdings may need to “recapitalise their equity, restructure their debt or face consolidation”, it said.
Developers CapitaLand and OUE would also be at risk of cash-flow constraints as their earnings before interest, tax, depreciation and amortisation (Ebitda) fall to “dangerous levels”, while the local banks could well see profits slump by up to 80 per cent.
S’pore along with Thailand and India, appears to be more resilient compared with others in the region, said Maybank Kim Eng.
China and Indonesia stood out as the most vulnerable, with China the only country to log a negative free cash flow in the stress test.
“This could be a consequence of excess capacity in China, meaning a shock has a greater impact on cash flows,” noted the report.
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.
Govt’s plan to be a lNG trading hub is a no-brainer.
I’ve advised since 2013 that investing in Temasek’s Fab 5 is a no-brainer for conservative, KS types. https://atans1.wordpress.com/2013/10/03/temaseks-fab-5-spore-blue-chips/
Here’s looking at major problems at two of them.
Problems in the Brazilian and Mexican oil industries caused by the fall in oil prices are not good for Keppel and SembCorp. They have received massive orders for rigs from Latin America in recent years.
But new orders will be weak and existing contracts will renegotiated.
Both have also been forced to deny allegations of corruption in winning Brazilian biz. There is a big political and financial corruption scandal in Brazil, centred around Petrobas, its national oil champion. Petrobas has been a big player in the rig market.
But recorded order books are huge (billions of USD) and both have weathered storms. Both have experienced, internally promoted CEOs
Time to cut and run is when scholar, ex-SAF general is parachuted in as CEO (like in SMRT, NOL).
On oil prices: views are very mixed
Big Oil is too confident about crude prices. After a 40 percent rally from January’s six-year low, the momentum has been on the upside. But the current prices – $65 a barrel for Brent and $60 for WTI – look more like a ceiling than a floor.
That is not what many insiders seem to think. Some oil service companies expect mid-$70s Brent by the end of this year. Anglo-Dutch Shell assumed oil will rebound to $90 by 2018 in its $70 billion takeover of the UK’s BG Group. Some believe that the steep cut in capex costs will affect supply, including shale, and boost prices again.
Just this week, the head of BP said he doesn’t expect the glut to clear until at least 2016. The Shell view would be a good excuse to hold onto these two Fab5 shares.
They make rich S’porean clients poorer, taking from the rich to give to their even richer employers? They are really the “Princes of Thieves”, better than “Robin Hood “Prince of Thieves”.
Remember these bond deals pay good commissions to the private banks (and their private bankers): they get fees from their clients (for giving them access to these now toxic products), and the issuing companies (for stuffing their mullets with junk).
Go KPKB to CASE, CAD and the central bank. Hehehe. Wonder if millionaire ministers kannsa burnt? They’ll need a pay increase.
Remember DBS’ Indian FT blowing up its Treasured clients with credit notes? This could be alot worse for the private clients.
Singapore’s richest investors are hoping that “never” means about three years in the bond market.
Holders of perpetual notes with no set maturity face the island’s first redemption options in September, when three companies including oil services firms Ezra Holdings Ltd. and Swiber Holdings Ltd. can choose to repay securities sold in 2012. While Ezra says it plans to pay off the notes and refinance, their yield has surged more than 200 basis points over the last year to 14.2 percent, suggesting it may be costlier to replace them. Swiber faces the same test after saying it plans to redeem its bonds, which have added more than 230 basis points.
Private banks have snapped up the bulk of Singapore’s S$9.5 billion ($7.1 billion) of corporate perpetuals on behalf of wealthy clients, reckoning the companies would repay the notes at their soonest chance rather than incur higher interest rates when a so-called step-up coupon takes effect. While that would offer some compensation if the debt stays alive, any mishaps could shake faith in securities that have funded about 15 percent of the island’s corporate debt over the last four years.
Three out of every 10 notes sold last year are yielding more than 6 percent. Halcyon Agri Corp. went to debtholders last month asking them to waive interest cover requirements before it’s even had to stump up a coupon payment. Bloomberg’s default model shows that VTB Capital SA has an almost 50 percent chance of reneging on its debt.
“The recent swings have been a good wake-up call,” said Vishal Goenka, the Singapore-based head of local currency trading in Asia for Deutsche Bank AG. “Investors need to analyze the credit quality of issuers more thoroughly.”
Exchange data show hedge funds and other large speculators have accumulated a record-breaking number of North Sea Brent futures and options contracts equal to almost 265m barrels of oil — the equivalent of almost three days of global oil demand.
At the same time, oil producers and other physical market players have rushed to lock-in prices, selling forward more than half a billion Brent barrels in a bid to protect against future price falls. It is the highest level since the Intercontinental Exchange (ICE) started publishing position data in early 2011.
Happens in the UK too.
[T]he question, as petrol prices begin to rise, is whether they have risen faster in response to the rising oil price than they fell when the oil price was falling.
It seems pretty clear that they did, because last summer it took about a 20% fall in the oil price before there was any significant decline in the petrol price.
Goldman Executive Sees Opportunity in Falling Oil Prices Goldman Sachs has calculated that falling oil prices will push well over a trillion dollars into other industries around the world, said Gary D. Cohn, the investment bank’s president and chief operating officer.
This is the view of FT columnist and hedgie Gavyn Davies last week
“The oil price has dropped around 60% since June, to $48 a barrel, and I understand that BP expects that it will stay in the range of $50 to $60 for two to three years.
Although no oil company has a crystal ball, this matters – especially since it has a big impact on its investment and staffing ambitions,” BBC’s Robert Preston
The US oil price fell below the symbolic threshold of US$50 a barrel for the first time since April 2009, before finishing the day at US$50.05: NY last night.
This report appeared on I Jan
Hedge funds finally pulled back from bets on higher oil prices as the market faced its worst year since 2008.
Speculators reduced their net-long position in West Texas Intermediate crude for the first time in four weeks, cutting their holdings by 5 percent in the week ended Dec. 23, Commodity Futures Trading Commission data showed yesterday. Long wagers dropped the most since August.
Meanwhile junk energy bonds keep on tanking. The vultures are circling.
Below is a piece from a broker on smaller cap O&M plays.. My view is don’t play, play. Buy two of Temasek’s Fab 5 and ride the upswing and sleep peacefully if oil prices remain low for a long time.
according to data compiled by Bloomberg. Sembcorp Marine Ltd. (SMM), the world’s second-biggest oil-rig maker, is down 29 percent this year, the index’s worst-performing stock.
Keppel Corp. Ltd. (KEP), which earned 69 percent of its revenues from the offshore and marine sectors in the quarter through September, is down 20 percent, the third-worst performer.
Many of the stocks in report posted by a friend on Facebook cannot survive prolonged period of oil at present levels.
OFFSHORE & MARINE (OVERWEIGHT)
Could Yesterday Be Capitulation?
Singapore oil and gas (O&G) stocks dropped 5-16% yesterday when Brent crude
fell 2% intra-day to USD67.50/bbl. A capitulation? We see at worst a 10-15%
short-term oil price downside from here before bumping up against marginal
deepwater costs, which form the oil price floor from a fundamental
perspective. The market’s fear is palpable, creating a positive environment
for mid-term returns for investors who can ride out the volatility.
What’s the downside? Today, global oil production stands at c.92m
barrels/day, c.70% onshore, c.20% shallow water and c.10% deepwater. Oil
demand is still growing 1.5% annually, while US shale supply has exceeded
forecasts. To maintain this production level to meet demand, deepwater
sources with marginal costs at USD40-80/barrel (bbl) must remain
profitable. Using the range’s mid-point, prices could go 10-15% lower in
the short term before a physical supply crunch. Oil traders know this and
will likely not extend shorts beyond USD60/bbl.
The oil market is heavily-speculated, too. Investors tend to forget that
the oil market is a human one too, prone to overreaction to peaks and lows.
Oil-related stocks now appear to be swinging in response to oil traders’
moves, which completely ignore company fundamentals.
What is made can be unmade. Cheerful media articles are now talking about
oil going to the USD36/bbl range (financial crisis low) or the USD12/bbl
range (in the 1980s when Saudi Arabia last defended market share). They
ignore the fact that the financial crisis low was caused by a global credit
crunch, forcing traders to take liquidity out from any source. The 1980s
environment was that of a global recession when oil demand fell 10%
cumulatively and when 90% of the oil was produced onshore. Such conditions
do not exist today. The recent price fall was more or less engineered by
the Organisation of the Petroleum Exporting Countries’ (OPEC) decision to
maintain production, which takes a simple production cut to undo.
Our Top Picks at USD70/bbl oil. Oil prices at this level will hit
ultra-deepwater hard, but shallow-water fields (at USD25-50/bbl) remain
strongly profitable and production-related work are unlikely to be
significantly affected. We continue to like selected Singapore O&G stocks
that entered this correction with starting valuations already low, which
have since become 35% lower. Our Top Picks are Giken Sakata (GSS SP, BUY,
TP: SGD0.65), Ezion (EZI SP, BUY, TP: SGD2.65), Nam Cheong (NCL SP, BUY,
TP: SGD0.61), Pacific Radiance (PACRA SP, BUY, TP: SGD1.55) and Marco Polo
Marine (MPM SP, BUY, TP: SGD0.60). They have strong 12-month earnings
growth and low valuations, unique industry positions and a focus on
shallow-water operations that can lead to a strong re-rating when the
market stabilises. We are negative on Vard (VARD SP, SELL, TP: SGD0.57) and
PACC Offshore Services (POSH SP, NR) for their deepwater exposure.
And watch out.
Swiber and Ezra Holdings Ltd. are scheduled to repay S$720 million ($552 million) of notes within the next two years, or three-quarters of the borrowers’ market value, after funding expansion.
Swiber, with a market value of about $150 million, has raised the equivalent of $289 million in four bond sales this year, three in Singapore dollars and one in offshore yuan. The October 2016 notes issued at par in April traded at 92.99 cents Nov. 27, while the June 2016 bonds sold in May were at 94.65.
Swiber had negative operating cash flow of $5.3 million in the quarter through September, according to its latest results, and total bonds and loans climbed to $1.23 billion at Sept. 30 from $837.7 million at the end of 2013.
“The company is aware of current market concerns surrounding the oilfield services sector as a result of the recent weakness in oil prices,” a Swiber spokesman said in an e-mailed statement. “Swiber has developed good longstanding and supportive relationships with its banks, and is confident of its ability to meet existing debt obligations when these come due.”
Ezra Holdings’ total liabilities were $2.2 billion at the end of August, a 22 percent leap from a year earlier. Its 2016 bonds issued in March dropped more than two cents in as many months, Bloomberg compiled prices show.
Oil’s correction should be temporary as a lack of substitutes will ensure strong demand, said Eugene Cheng Chee Mun, chief financial officer of Ezra Holdings.
“We are proactively looking at refinancing options,” said Cheng Chee Mun. The company is at the peak of the capital expenditure cycle and should start increasing free cash flow next year and hence start to deleverage, he said.
Backgrounder from NYT’s DealBook dated Monday
Oil prices have come under pressure as global output of crude oil exceeded demand this year. In particular, domestic oil production has soared more 70 percent over the last six years, to roughly nine million barrels a day. The country is still a net importer, but with production growing by more than a million barrels a day every year, it is importing less and less almost every month. Imports from OPEC producers have been cut by more than a half in recent years, forcing increasing competition among Saudi Arabia and other exporting countries seeking to replace the American market with Chinese and other Asian markets. The tumbling price in oil has produced economic hardship and potential political problems for OPEC producers like Venezuela and Iran.
How low can oil prices go? Tony Roth, chief investment officer at Wilmington Trust, told Reuters, “Crude seems to have no floor right now, and we could easily see the price drop into the low $60s.” Ed Morse, global head of commodities research at Citigroup, told The Wall Street Journal, “There’s lower prices ahead.” On Monday morning, benchmark futures in New York and London slumped as much as 3.7 percent, before making up some of those losses. “It’s clear that a production war is on and it will be survival of the fittest,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said in an email to Bloomberg News.
Last December, there were three pieces of gd news
— KFELS delivered its 21st new build offshore rig for 2013, setting a world record for the most number of rigs delivered in a year.KFELS held the previous record of delivering 13 rigs in a year back in 2009.
— Keppel O&M (KPELS parent)won $150m in contracts (five of them). This year there is expected to be strong growth in capital investments in global exploration and production (E&P) projects which should should keep new orders coming in for Singapore’s offshore and marine sector this year, although rising costs and competition could put pressure margins.
– It will build its first drillship. But it doesn’t have a buyer lined up. Keppel is usually very KS, so this is something to watch. Still going into drillship is a major step showing it has confidence in its technical ability to built such ships. Most likely Keppel couldn’t get a decent price from operators who would want big discounts for being the first customer.
But it has a new CEO, a numbers man, not an engineer.
Keppel Corporation has appointed its CEO-Designate Loh Chin Hua as an executive director to its board with effect from January 1, 2014.
Its CEO Choo Chiau Beng will retire on the same day.
With effect from the same date, Mr Loh will also succeed Mr Choo as chairman on the boards of the group’s key subsidiaries, including Keppel Land, Keppel Offshore & Marine and Keppel Infrastructure.
Mr Loh was appointed as group chief financial officer in January 2012 and then CEO-Designate in July 2013.
He has been with the Keppel group for 11 years and has over 25 years of experience in real estate investing and fund management. (CNA in early December)
Those who know their history of US car maker, GM, will know that GM’s decline began when the top job went to a finance guy, not an engineer. Keppel’s core competency is riig-building, not property or finance, the new CEO’s core skills. And frankly KepLand sucks by comparison with CapitaLand or Keppel’s offshore engineering biz. If it was an ang moh co, investors would have demanded that Keppel divest its property biz And Kep T&T. But to give the new CEO some credit, Kep T&T is finally going ahead with a reits of its data centre assets.
And here’s an interesting article I came across: http://www.fool.sg/2013/12/12/is-keppel-corp-really-cheap/
Finally, the other Temasek’s Fab 5 stocks still look gd for those who want equity exposure, decent income and relative safety. Doubtless there will be those TRe readers who will post I’m a PAP mole if TRE republishes this article. They should remember, Deng’s,”It doesn’t matter whether a cat is white or black, as long as it catches mice.”: likewise let’s be objective when trying to make money. They should also remember Mao’s “Seek Truth from facts.”, if they hate Deng for being complimentary about S’pore.
Declaration of interest: got Keppel shares. in super long term section of portfolio, alongside HSBC, Haw Par and Hwa Hong.
Many moons ago TRE told us that Temasek owns bonds in Chesapeake that are convertible at US$27 (issued when stock was around 23-25). And that the bonds were deeply underwater: the shares went as low as below 15 (Sorry the TRE link no longer is working ’cause of TRE’s new system of trying to get money from stone) Related post: https://atans1.wordpress.com/2012/09/13/gd-news-for-temasek-on-chesapeake/
Well over a yr later, the shares closed yesterday at 26.79, having traded as high as 27.50 in recent months. Let’s see if TRE updates its story on Chesapeake. Suspect pigs will fly first. What say you Richard, TeamTRE?
There’s more. On 16 August, MediaCorp’s freesheet (ST Lite) reported: Temasek Holdings has sold its 4 per cent stake in Cheniere Energy after a surge in the share price of the United States natural gas importer, just 15 months after it unveiled the purchase as part of its “longer-term interest” in the energy sector.
The move is a sign of Temasek’s willingness as a self-professed “active investor” to realise profits. But it also comes after Temasek last year billed the stake as part of a broader plan to cooperate with Cheniere and US private equity group RRJ Capital to take advantage of the US shale gas revolution.
“The shares had a decent run over the past year,” said Mr Enrico Soddu, an analyst at the London-based Institutional Investor’s Sovereign Wealth Center. “Temasek just seized the opportunity to make a solid profit.”
Temasek sold 9.2 million Cheniere shares either directly or through affiliates in the second quarter, valuing the stake at US$257 million (S$326.2 million), according to a quarterly filing of its US stock holdings with the US Securities and Exchange Commission.
Shares in Cheniere had climbed as much as 200 per cent by the end of the second quarter after Temasek and RRJ announced in May last year they would spend about US$468 million on an equity investment in Cheniere.
Temasek and RRJ were to have formed a marketing company with Cheniere to sell liquefied natural gas (LNG) in Asia in a bet on rising shale gas production and exports to the region.
More to irritate Temaeek and S’pore (self) haters, especially TRE readers*. There are advantages to S’poreans’ reputation as the Prussians of the East: hardworking, careful, conscientious and mindlessly efficient. These are very qualities that make Keppel and SembCorp world beaters in rig-building.
Singapore’s two main yards, Keppel and SembCorp Marine, have also invested heavily in quality and efficiency. They specialise more in deep-sea rigs than in drill-ships and carriers. Keppel, the bigger of the two, is building a record 20 such monsters this year; next year it will deliver the first of three giant, $600m “jack-up” rigs (ones that are floated into place then jacked up on their legs).
Time is money
The Singaporeans are also good at building things on time, which is vital in an industry where late delivery can cost the operators of rigs and drill-ships over $500,000 a day. Over the past five years, rigs ordered from Keppel and SembCorp were, on average, delivered ahead of schedule, whereas Chinese yards delivered 50-250 days late, says IHS Petrodata, a research firm.
As to China’s cost advantage, having facilities in Indonesia helps provide cheap labour for SembCorp’s rig building biz. Keppel too has an Indonesian operation, though its tiny compared to SembCorp’s.
And with Vietnam having problems with China over maritime boundaries, one wonders if Chinese built-rigs are allowed in its waters. Remember, energy cos are exploring for oil off Vietnam. Still, the waters do not require the sophisticated rigs built by these TLCs.
Related post: https://atans1.wordpress.com/?s=Temasek+Fab+5
*Though TRE readers will be pleased that these TLCs are not led by ex-generals or ex-Temasek MDs. The CEO of Keppel is a scholar, but I’m not sure of the background of CEO’s SembCorp. But both have worked that these TLs for many yrs. They were not parachuted in like in NOL to teach executives to suck eggs.
S’pore (at 61% of debt to GDP) is third in Asean, M’sia tops the list (81%), followed by Thailand (68%) , according to a World Bank report. (http://www.economist.com/news/economic-and-financial-indicators/21588882-household-debt-asia)
A recent World Bank study identified Malaysia and Thailand as having the largest household debts, as a share of GDP, among eastern Asia’s developing economies. In Malaysia, where household debt now exceeds 80% of GDP, the government has been seeking to curb credit growth. Thailand’s government boosted access to credit following the country’s big floods in 2011. The recent slowing of growth in many Asian economies raises concerns about the sustainability of all this personal debt.
Note two weeks ago, I reported
In other Asean news
Indonesia‘s economy expanded at its weakest rate in four years in the third quarter as a result of slowing exports and subdued domestic demand.
Its economy grew 5.6% in the July-to-September period from a year earlier, down from 5.8% in the previous quarter.
Indonesia’s exports have been hurt by slowing demand from key markets and a drop in commodity prices.
Meanwhile, domestic demand has been impacted by rising fuel prices and rising interest rates.
Fuel prices in the country surged earlier this year after the government removed its subsidy programme.
Petrol prices went up by 44% while diesel prices rose by 22%, leading to higher transportation costs and electricity bills.
And as usual Indonesia is repenting the nationalistic policies it always implements when the economy is doing well. It is again, as usual, lifting restriction on foreign investments, to attract foreign capital.
Thais are in the streets, protesting a controversial amnesty bill. http://www.economist.com/blogs/banyan/2013/11/unrest-thailand
And an energy boom in the region. http://www.thefinancialist.com/an-oil-and-gas-boom-for-southeast-asia/
And it’s not because of the polar bears, or Santa and his elves (FTs?) or reindeer.
It’s the new sea route: the NE passage. It’s nothing for the “We love to rubbish S’pore” readers of TRE and TOC to get worked up about. Very few ships use this route (I think 40 this year). And while this number will increase, most ships will sail the traditional route via the Malacca Straits. For one, ships have to be specially built for this route. First gas tanker crosses the Arctic to Japan.
The Bakrie Group said this week some documents used to justify an investigation at Bumi Resources PLC were stolen or accessed by hacking.
“Some of these documents appear then to have been ‘doctored’ to give a purposely misleading impression of a number of business transactions at Bumi Resources,” a Bakrie Group spokesman, said on Dec. 10. The Bakries plan to submit a report to U.K. police and regulatory authorities, while Indonesian police are probing the hacking complaints, Fong said.
Nathaniel Rothschild described the allegations as a “desperate attempt to divert the inquiry” by the Bakries and Chairman Samin Tan. He said e may seek to remove the board of the coal venture he founded with Indonesia’s Bakrie family in the coming weeks because it has failed shareholders.
Last week, Indonesia’s constitutional court ruled that BPMigas, its upstream oil and gas regulator should be disbanded, adding to the growing legal uncertainty that has hampered investment in its natural resources sector. BPMigas is responsible for negotiating with oil and gas contractors such as BP, Chevron and ExxonMobil.
On Sunday, Thailand’s PM announced her country’s intention to join a US-led regional trade pact after meeting the US president on Sunday. M’sia and Vietnam signed up a long time ago. Surprising, S’pore has not signed up yet.
Not all roses from the US for the Burmese govt when POTUS visited Burma on Monday: US demands that the Burmese govt makes “unconditional release of remaining political prisoners, an end to ethnic conflicts, steps to establish the rule of law, ending the use of child soldiers and ensuring the safety and welfare of the people of Rakhine state”. The Burmese government is not the only group the US will work with. The US will also work directly with opposition groups, backing demands for the rule of law and human rights. This is like saying US will work with SDP in S’pore to ensure the rule of law and human rights.
PAS still wants to chop off limbs even if it gets into power with Anwar and DAP. And the Chinese and Indians still support DAP and Anwar? Juz look at the Muslim Brotherhood in the Middle East. Sharia law rules OK when the Brudders get into power. PAS is a Brudders branch.
This investment has been problematic for Temasek https://atans1.wordpress.com/?s=Chesapeake
The shares closed at US$19.89. Temasek owns bonds that are convertible at US$27 (issued when stock was around 23-25).
The Chesapeake Energy Corporation said on Wednesday that it had agreed to a series of asset sales (US$6.9bn) as part of an effort to reduce its considerable debt burden.
The search for base metals will likely focus on major producing regions such as South America … It is also one of the few merchants still doing business in Venezuela, where the aluminum industry is in crisis.
Noble already has an array of iron ore and coal offtake deals and strength in alumina and aluminum through tolling deals. Last December, it signed a pact to supply a smelter in Azerbijan with alumina in return for aluminum output.
Stock could fly again but its up against shume big mean boys. And is the founder still active in mgt? And if so gd or bad for co?
Recently Lord Rothschild, a 70-something deal-maker and shrewd investor, teamed up with the Rockefeller* family office. He said the US was the place to invest in because of its growing oil production. The two charts in this link explains what he means.
Well Temasek is buying into North America, though its flagship investment is one dog with fleas https://atans1.wordpress.com/2012/05/27/temasek-the-gd-the-bad-and-the-ugly/
Interestingly Lord Rothschild, unlike Temasek, has no plans to invest in Europe. BTW, he has a palace on the Greek island of Corfu. Time to buy the island?
*The first rich Rockeffer made his fortune in oil refining and distribution.
On 5 June 2012, Australia said it would delay environmental approval for a A$10 billion (US$9.72 billion) coal project proposed by India’s GVK Power & Infrastructure, a potential setback in the company’s bid to take advantage of India’s need for coal.
Well it was reported on 19 June that GVK Power and Infrastructure is seeking to raise US$500 million to US$600 million by selling a stake in its Singapore arm and is in talks with Government of Singapore Investment Corp for a potential deal, two sources with direct knowledge of the matter said.
The Indian developer of airports, power projects, roads and mines will sell a minority stake in GVK Coal Developers (Singapore) Pte Ltd, the sources said, adding that a deal may be a precursor to a Singapore listing of the unit that holds coal assets in said Australia.
Tricky buggers these Indians.
Brent crude reached its highest-ever average price at $111 a barrel in 2011: from BP’s Statistical Review of World Energy 2012 published on June 12.. Oil prices were consistently high last year affecting economic growth and investment plans
Ang moh financial commentator says nice things abt Temasek (Bang yr balls SDP, Chris Balding, KennethJ and TRE. I hope TRE reflects that its heloo TJS has never said the nasty things that the others have said abt our SWFs. In fact by saying that S$60bn is “small change”, he implies that they are doing a gd job. But how would he know? He was in the loop over 20 years ago.)
As I said yesterday, our SWFs didn’t do extractive industries presumably because one LKY didn’t understand “miners”, he said a few yrs ago. Gd advice: given this (credit downgrade) a few weeks ago; and this (billionaire stalker of underperforming US cos) revealed yesterday that he had bought a 7.6% stake in Chesapeake Energy Corp and called for the natural gas producer to replace at least four directors, saying the board has failed “in a dramatic fashion” in its oversight of management).
The background and details on Temasek’s stake: http://www.tremeritus.com/2012/04/29/temasek-flops-again/
Maybe, balls-up like this resulted in Temasek last week naming Boon Sim, former global head of mergers and acquisitions at Credit Suisse Group AG, as its president for North America. He will also work closely with teams to support its interests in Latin America and Europe.
Temasek … said it expects the markets to enter a “period of stress” for the next one to two years amid the European debt crisis, adding risks to investments http://www.bloomberg.com/news/2012-05-22/temasek-says-markets-entering-period-of-stress-in-next-2-years.html.
The oil and natural gas exploration company Cove Energy has accepted a $1.91 billion takeover offer from PTT Exploration and Production of Thailand, which trumps a rival bid from Royal Dutch Shell.
Our SWFs didn’t do extractive industries presumably because one LKY didn’t understand “miners”, he said a few yrs ago, explaining why GIC didn’t go into miners in a big way to ride the commodities boom.
Article 14 has got it absolutely right last week http://article14.blogspot.com/2012/04/electricity-prices-go-up-because-of.html. He is right to point out that SP Services explanation of why electricity prices have to rise (that the price of natural gas is going up) is absolutely rubbish. World prices of natural gas have collapsed as Article 14 pointed out.
The explanation is simple, but I suspect it is an explanation that SP Services and the government want to “hide” from ordinary S’poreans who don’t follow energy prices and trends, or the evolution of the energy industry over the decades. The sad but funny reason is that there is no selfish or self-serving reason to “hide” anything.
Here’s an opportunity for the PM (“working together”) or Tharman (“I think it’s important for us to retain a relationship of trust between whoever is the elected government and the people”) to show that they are “walking the walk’ of “engaging” us.
As it’s the economics and evolution of the natural gas market that make us pay more for natural gas while prices keep going down, this should not affect perceptions of the government by reasonable (the majority) of S’poreans.
Over a week ago, the NYT reported, the price of one million Btu of natural gas fell below US$2.20 for the first time since 2002, while oil prices slipped a little but remained above US$100 a barrel. The last time natural gas was this inexpensive, oil cost about US$20 a barrel.
Unlike the oil market*, the natural gas market, is not a global, nor an efficient one (outside of the US). (I’ll explain this in detail later using S’pore and Qatar as examples).There is only a limited global trade in gas (the S’pore government is trying to encourage such trade with the building of a gas terminal), which can be transported in tankers, but mostly gas must move in pipelines over land in Europe and North America, the biggest users of energy. Example: natural gas prices have been rising in Britain this year even as they have been falling in the US.
Supply has soared in the US because of increased production from hydraulic fracturing (a newish technology), but demand in the US cannot change rapidly. Power plants that can burn gas or oil were shifted to gas long ago. And a relatively mild winter in the US has reduced demand. There is now a glut there.
S’pore, as readers, will know gets its supply of gas from gas fields in Indonesia and Malaysia. The energy MNCs who developed these kind of fields did not develop these fields until they were assured that there were assured long-term buyers of the gas (This is still true today). There are a lot of upfront costs and the lead period from the time the fields are being developed to the first shipment of gas to the customer are measured in decades. Example: gas was discovered in Qatar in large quantities in the 1980s. It became a major exporter only in the early to mid-noughties. It took that long to build the facilities to ship the gas to places like Japan and South Korea, taking into account the time to negotiate the contracts.
Then there is the issue of pricing. Until very recently, natural gas contracts were priced off the price of oil because they were often found together, and both were scarce.
When the gas contracts for S’pore were negotiated all those many years, the price of the gas that S’pore pays was priced off the price of oil. Hence one reason of the paradox of us paying higher prices for gas when the price of gas is at a 10-year low. Another reason is that S’pore is locked into long-term contracts, and another is that until the gas terminal is operational in the second quarter of 2013, we can’t get gas from another source. BTW, the plans for a gas terminal show that the government can get things right.
Now S’poreans are not the only people who got “screwed” by the breakdown between the price of gas and oil. KKR and TPG, giant and successful US private equity investors invested billions of their investors’ funds in TXU. One of the things they were betting on was that gas prices would be priced-off oil prices for the foreeable future. Err now even Buffett has lost money buying TXU bonds.
So why don’t we get told the truth of why we are paying higher prices when the price of natural gas has collapsed, when the answer has nothing to do with government or its agencies incompetency?
One reason could be that the PR people in these organisations are still stuck in the pre-internet model of news management. They believe and advise that “news” can be manipulated to fool the people all of the time.
More seriously, the government and its agencies may want us to think that their value (and high salaries of the senior staff) lie in making the right long-term decisions all of the time.
They should realise that S’poreans are no longer dependent on the government, its agencies and the constructive, nation-building local media for facts and analysis.
And that S’poreans have realised that long-term decisions don’t always result in benefits for S’poreans. We know that already because of the FTs, and public housing and transport problems, the result of long-term planning and decisions.
In the case of gas, it was (and still is outside the US) a rational decision to buy on long-term contracts gas that is priced off oil. It’s not a balls-up on the lines of the FT, and public housing and transport policies which has the government throwing money at the public housing and transport systems, and telling us that it’s changing its “FTs are betterest” policy.
Finally, market expectations are that this time next year, oil prices are expected to be almost where they are now, while natural gas prices are forecast to have risen more than 50%. What a great time then to shout about the competency of the government, when telling us that electricity prices are relatively stable?
My point is that facts are changing, what may look bad for the government one day, may look good another day, depending on the facts. It shouldn’t “hide” the truth (especially when the truth doesn’t discredit the government) if it wants S’poreans to regain trust in the government.
*Oil moves around the world in tankers that can be diverted from one destination to another in response to shifts in demand. A sharp change in demand or supply in any place is likely to show up in prices everywhere. Oil prices can also be affected by geopolitical concerns. Example: oil prices have risen on worries that Israel might attack Iran, leading to a drastic reduction in Iranian oil exports.
Thai oil and gas company PTT Exploration and Production said on Friday that it had submitted a rival US$1.7 billion bid for energy exploration Cove Energy, trumping a previous offer from Royal Dutch Shell by 12.8%. PTT is state-controlled and is the second largest listco on the Thai stock exchange. It is capitalised at slightly more than US$19bn.
Remember Chips Goodyear? He was going to be Temasek’s CEO before he quit Temasek’s board. Seems he wanted Temasek to make these kind of big mining or energy bids. Seems this was too exciting for Temasek or its shareholder.
If the US is Superman and Batman is China, and both want a growing world economy, their enemy is the Joker super-enhanced with kryptonite, or otherwise known as “Iranian oil”.
Extract from BBC Economics blogger, Stephanie Flanders:
All the mainstream forecasts for global growth in 2012 assume a flat or falling price of oil. Last year’s updated IMF forecasts, for example, assume the average price of oil falls from around $105 per barrel last year to $100 in 2012 and $95 in 2013.
For the UK, you’ll remember the likely fall in inflation (helped by stable or falling oil prices) was one of my biggest “reasons to be cheerful” in 2012.
US and EU sanctions on Iran could well mess with these hopes, especially if Iran decides to cut oil shipments well before the EU sanctions formally come into force. In the past few weeks, Iran’s leaders – and its parliament – have been talking about doing precisely that.
Iran exported roughly 2.2 million barrels of crude per day in 2010, equivalent to around 2.5% of global demand. A good chunk of that oil went to Europe, unfortunately quite a lot of it to the countries in crisis. Around 15% of the oil imported by Spain, Greece and Italy comes from Iran.
The oil price has crept up in recent weeks, but if you want to insure yourself against a major price spike later in 2012, you can do it very cheaply. The market just doesn’t think it’s very likely.
There are lots of sensible reasons for traders to be relaxed. Saudi Arabia has pledged to increase its production, if necessary, to keep the oil price stable; the US financial sanctions, which would make it very difficult for Iran to get paid for its oil, have quite a lot of flexibility built into them; and the EU sanctions are likely to be phased in.
And yet, this is the oil market we are talking about. And Iran. Neither exactly has a reputation for stability, or predictability.
Senior Israeli politicians at Davos were suggesting privately that there was a one in three chance of some form of violent confrontation with Iran this year.
Of course, Israel has an interest in talking up the threat posed by Iran. But the noises coming out of Tehran are not exactly reassuring. You have to wonder whether the rest of the world – including traders in oil futures – is taking it seriously enough.
Billionaire Wilbur Ross is betting that the slump in shipping which drove oil-tanker returns to a 14-year low is ending.
Ross & Co manages about US$10bn in assets, is part of a group (including China Investment Corp, China’s SWF) spending US$900 million on 30 ships hauling gasoline, diesel and other refined products. It is Mr Ross’s first shipping investment and deploying ‘another few hundred million’ in the industry ‘is certainly easy to do,’ he said in interviews in August.
That outlook contrasts with the pessimism of John Fredriksen, founder of Frontline Ltd, the biggest operator of the largest crude carriers. The 67-year-old billionaire said in May that it would probably be another year or two before ship values collapse and he can start adding to his fleet.
So can we imitate Ross by buying SGX counters? NOL and Samudera have container fleets. So do Pacific Trust and Rickers Maritime. BerlianLaju has the world’s 3rd largest chemical tanker fleet, more than 93 of them, but they are not the ships Ross and friends are buying.
But there is FSL. It has a fleet of 16 tankers and seven container vessels. Of the 16, 11 are product tankers (what Ross is buying), two crude tankers and three chemical tankers (presentation August 2011). But this is a tricky company to analyse, so do yr homework. It is also a shipping trust and such trusts are yield plays.
On all four counts* … India scores badly. New Delhi has already seen street rallies protesting rising food prices. And if India needs higher subsidies, its weak and cash-strapped coalition government – dented anew by last week’s WikiLeaks claims – seems powerless to deliver them. The sovereign most exposed to an oil shock could be the least well prepared to deal with it.
*a country’s oil intensity (how much oil it takes to produce a unit of output), its energy trade balance, its current level of price inflation, and the government’s fiscal position. The first two give an indication of a country’s exposure to higher prices; the latter two suggest how much scope it has to absorb and defray them through fuel, electricity and food subsidies.
Consider four metrics: a country’s oil intensity (how much oil it takes to produce a unit of output), its energy trade balance, its current level of price inflation, and the government’s fiscal position. The first two give an indication of a country’s exposure to higher prices; the latter two suggest how much scope it has to absorb and defray them through fuel, electricity and food subsidies. By that reckoning, Malaysia may come out best. Its oil intensity is just the wrong side of the Asian average, on BP data. But as one of only two net exporters of oil and gas in Asia, its terms of trade should benefit. Aggressive monetary tightening, moreover, has so far helped to keep inflation tamed. The fiscal picture could be prettier: this chronic over-spender has run five budget surpluses in the past 40 years. But while subsidies remain a big burden – second only to Indonesia, as a percentage of gross domestic product – they are cushioned by oil revenues.
(Issued juz before earthquake)
We reiterate our preference for offshore shipyards with strong order flows for 2011. Our top picks are Keppel Corp (‘buy’; TP S$14.63) and Sembcorp Marine (‘buy’; TP S$6.63) as the key beneficiaries of resurgence in premium jack-ups; and Cosco Corp (‘buy’; TP S$3.16) being the leader among Chinese yards for offshore projects. We view a prolonged spike in oil prices as a key risk, as it poses a significant threat to global economic growth.
As Asia’s largest net energy exporter, only Malaysia will benefit significantly from higher energy prices. With crude oil, natural gas and palm oil making up almost 30% of total exports, the country is experiencing a significant positive terms-of-trade shock, says Barclays Capital.
It says US$120 oil would add 3.1 percentage points to Malaysia’s current account balance as a percentage of GDP, and 0.9 percentage points to Indonesia’s.
Japanese bank Nomura talks of a doubling in oil price to U$220a barrel if unrest in Libya continues.
Before you do anything stupid remember that Nomura called a buy on Indonesia and other regional markets last December. Waz that call worth?
A strong oil price and a strengthening US$.
Nomura says Indonesia’s fundamentals are solid. Growth is strong, inflation is muted, and the central bank aims to keep the rupiah stable. And the government aims to kick-start infrastructure projects by making land acquisition easier.
So GDP growth is expected to grow from an estimated 5.9% this year to 7% next year. Nomura sees a 15 times PE for the equity market next year, with a possible re-rating to as much as 16.5 times PE.
The firm’s top stock picks in Indonesia are infrastructure providers. Commodity companies are also expected to do well. Coal prices are rising even as production volumes improve. A return to normal weather conditions will also boost Read the rest of this entry »
The price of oil on both sides of the Atlantic has hit its highest level since the financial crisis.
In Europe, Brent crude futures rose to $91.58 per barrel, while in the US, West Texas Intermediate hit $89.35 – the highest levels since October 2008.
Despite the market rally, prices still remain 40% below their pre-crisis peak.
Among the factors driving prices higher are rising demand because of the global economic recovery and cold weather in Europe, as well as the weak US dollar.
Meanwhile, temperatures are also expected to fall in the eastern United States, according to the US National Weather Service.
Hedge funds cut bullish bets on oil by the most in almost three months amid speculation fallout from the Irish debt crisis and China’s efforts to curb inflation will slow economic growth, sapping demand for fuel.
The funds and other large speculators reduced so-called long positions, or wagers on rising prices, by 15 percent in the seven days ended Nov. 16, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report, released Nov. 19. It was the first drop in four weeks and the largest decline since the seven days ended Aug. 24.
And remember that if China uses its energy resources as efficiently as the West and Japan
In 2008, I attended a seminar where a very senior Shell analyst dismissed the possibility of nuclear energy as an option for S’pore. He said that if a nuclear plant was sited on the NE side of S’pore, the safety or protection zone would stretch somewhere to the SW side of S’pore, in Jurong.
So with all the recent talk of building a nuclear power plant, I was surprised that there doesn’t seem to be anything said or written on safety issues.
For example what are safety zones and their extent?
Googling brought me to the website of the US Dept of Homeland Security: Local and state governments, federal agencies, and the electric utilities have emergency response plans in the event of a nuclear power plant incident. The plans define two “emergency planning zones.” One zone covers an area within a 10-mile radius of the plant, where it is possible that people could be harmed by direct radiation exposure. The second zone covers a broader area, usually up to a 50-mile radius from the plant, where radioactive materials could contaminate water supplies, food crops, and livestock.
So a 10-mile (16-km) zone is needed to prevent us from being exposed to direct radiation. To give you an idea of the distances involved, Changi Airport is 20 km from Orchard Rd. So if the plant were at Changi Airport, the zone would include Toa Payoh, AMK, Bishan, Marine Parade and some pretty posh places along Dunearn Rd and Bukit Timah Rd. And although the Istana is not within the 16 km radius, radioactive particles don’t know where the 16-km mark is. It all depends on weather conditions how far they will travel. Hence the wider zone given by the analyst from Shell: he added a margin just to be cautious. Read the rest of this entry »
The leader of the Greens in Australia said that the 2005 execution by Singapore of Australian drug trafficker Van Nguyen is an example of why Singapore’s human rights record should prevent SGX from acquiring the ASX.
— the Greens and the Liberals and independents can outvote the minority Labour Party govmin; and
— in a situation where the S’pore govmin does not have a voting stake in SGX (unlike in the case of GIC and Temasek where the govmin clearly has the power), its human rights record is an issue;
what chance for GIC, or Temasek or a group company, or any other GLC getting approval to make a significant acquisition in the energy or mining sectors in Australia? Remember Temasek wants to expand its exposure in these sectors and GIC follows investment fashions and investing in natural resources is oh so hip. Oz is a “no-brainer” place to invest in given its abundance of natural resources, closeness to China geographically, its gd legal system and its political stability.
So maybe to widen our SWFs’ options, S’pore should promise Australia that it will never hang any Oz citizen for any crime. There is a precedent: a British man who fled to Oz was only extradited here only on condition that he wouldn’t swing if he was found guilty of murder.
It’s not as though there are that many other countries that have an abundance of natural resources, closeness to China geographically, gd legal systems and political stability.. Canada too is another place where judicial murder is frowned upon. That leaves only the US where judicial murder is fine.
So maybe my friends in Maruah should approach the SWFs for funding?
A stupid question. Upwards and onwards. Juz look at the small cap stocks in S’pore’s offshore marine industry.
But consider this fact reported in “The Squeeze”, Tom Bowyer’s book on the recent history of the oil industry. China requires three times more oil and gas to manufacture the same item than US or Europe. The equivalent of 16m barrels of oil are wasted every day.
All this means is that if China can get more energy efficient, it can increase output, using less oil.
I’m an energy bull, but this statistic has me wondering if I shld be less bullish.
If like me you ever wondered about the value of oil in the ground, it’s US$8.51a barrel. Granted this valuation is about oil that is hard to extract: 350km offshore, up to 7km below the surface in the southern Atlantic Ocean, under deep water and massive layers of rock, sand and salt.
Analysts think that US$6 a barrel is a fair price for this oil, given the difficulty of extracting it. But Brazil has sold the oil to Petrobras (Brazil’s government owns 40% and a majority of voting rights) at US$8.51 a barrel (42%) price. It will get more Petrobas shares.
The minority shareholders hated this but gritted their teeth and took up their shares in Petrobas capital raising exercise.
that stock worth around $70 billion had been taken up—a world record, and more than three times the size of Agricultural Bank of China’s giant share offer two months ago. Of that total, almost $43 billion-worth of the shares will be taken up by the government in return for giving Petrobras the right to develop 5 billion barrels of reserves.
S’pore’s rationale for its S$1.5bn LNG terminal is energy security (see backgrounder).
But an unstated aim is S’pore’s desire to ride on China’s growth. China needs a lot more energy, and gas is clean and relatively cheap. There will be opportunities for traders to make use of the terminal to sell LNG to China and other countries.
Err that was the plan. So the analysis by Wood Mackenzie, an energy consultancy, that in China, coal gasification, coal bed methane and in particular shale gas are expected to supply more than 12bn cu ft per day by 2030, cannot be welcomed here.
Wood Mackenzie says China will need only half as much more LNG from 2020 onwards than it will require in the next decade, cutting the country’s need for new tanker-delivered LNG to 8m tonnes a year from 2020, against 16m annually during the next decade. Read the rest of this entry »
Taz at least to Exxon’s CEO talking of Exxon’s investment in XTO Energy.
And Exxon, the oil & gas major usually gets these things right. Remember it takes up to 30 years to develop a major oil or gas field.
Temasek doesn’t have such a long-term horizon. Remember its “long-term” investment in Merrill Lynch?Lasted slightly more than a yr, and it cut loss, juz as the market was turning, and top hedgies were buying into BoA (buyer of ML). Read the rest of this entry »
Temasek, which had previously issued bonds only in US and Singapore dollars, sold £200m of 12-year bonds and a further £500m of 30-year debt. The 30-year bonds were popular with British pension funds because there is a shortage of long-term UK debt.
The 12-year bonds were priced at 95 basis points above UK government bonds, while the 30-year paper yielded an extra 90bp over gilts.
Temasek declined to comment on the rationale for the sale, the wires and FT quoted people close to the deal saying it was a move t obtain relatively cheap long-term funding, diversify its investor base and borrowing profile.
There has been speculation that Temasek would invest in BP. The fundraising was not linked to any new investments in the UK, according to people familiar with the matter, the wires and FT reported.
But could Temasek be interested in a small London listed oil & gas company? It is interested in the energy sector. Read the rest of this entry »
This blog has reported that Indonesia is the new Brazil https://atans1.wordpress.com/2010/03/20/our-neighbour-the-new-brazil/. We should be nice to them but be careful of its bullying tendencies. Indonesia has form in bullying those it thinks are weak. It succeed in East Timor, West Papua, Acheh and Celebes. It failed against M’sia and S’pore.
It seems to be trying again. Sometime back, our very own superhero MightyMind (or MM Lee in real life) told us, “We are buying gas from our neighbours; they are thinking of upping the price in spite of the contract”: confirming Indonesian reports that various Indonesian officials have renewed calls for the country to renegotiate a reduction in the volume of gas sold to Singapore, given Indonesia’s growing domestic gas demand.
E.g. in June, Coordinating Economy Minister Hatta Radajasa was quoted as saying, “I have ordered the Energy Ministry and upstream regulator BPMigas to renegotiate the contracts, though we may not achieve what we want. I don’t want to breach the contracts, but we have to try any possibility.”
Energy and Mines Minister Darwin Zahedu Saleh was quoted in mid-June as saying Indonesia will adopt a government-to-government approach, rather than a business-to-business one, to renegotiate the gas supply deals with Singapore.
Indonesian Vice-President Boediono said in June the government will gradually increase its domestic gas price to try to increase investment in the industry and encourage foreign investors to sell their Indonesian gas domestically rather than export it.
But the government led by the son of MightMind has not gone AWOL. Singapore has already started building a $1.5 billion liquefied natural gas terminal that will starting importing LNG from early-2013, according to MM from Qatar.
The terminal will initially be able to import as much as 490 mscfd of gas, slightly more than the total the three gas pipelines (two from Indonesia and one from Malaya) brings here.
Background info from BT on Indon gas
At present, Sembcorp Gas imports 325 million standard cubic feet daily (mscfd) of natural gas per day from West Natuna in Indonesia under a 22-year deal. This gas goes to major power generators and petrochemical companies here, including Tuas Power, PowerSeraya, ExxonMobil and Ellba Eastern.
From 2011-12, Sembcorp will import an additional 86 million mscfd from Natuna under a second deal that has been struck.
GSPL, a subsidiary of Temasek Holdings, currently imports 350 mscfd of gas daily from Grissik via the Sumatra-Singapore pipeline under a 20-year contract that expires in 2023.
GSPL has recently been in discussions with the production sharing contract holders there, including ConocoPhillips, on a new sales agreement for additional supplies, including for GMR of India’s upcoming Island Power station here.
Both Sembcorp’s and GSPL’s Indonesian piped gas contracts are based on formulas that take into account high sulphur fuel oil prices.
As it is, the Indonesian reports cited a BPMigas official saying the Singapore importers are paying double the amount paid by domestic buyers there.
We’ve analysed that Temasek ignored MM’s warning against extractive industries (OK “mining” to be precise) when it went into shale gas https://atans1.wordpress.com/2010/05/21/temasek-ignoring-mm-iii/
The news sometime back that Shell is paying US$4.7bn for a shale gas firm confirms that Temasek and other SWFs are correct. Err except that the seller, private equity firm KKR, is reported to have paid US$350m juz 11 mths ago for a “significant minority interest”. KKR invested via debt convertible into equity.
So jury is out on whether Shell, Temasek, etc. are bubble blowers and buyers.
One wishes Temasek were ahead of the curve (StanChart, Indonesian telcos, Asian banks) instead of being in the middle (hopefully — like the Chinese banks*) or at the back (Merrill Lynch, Barclays, ABC Learning, Shin: anything else?)
There are reports that Temasek will be a keystone investor in the AgriBank of China. If true this will be the third major investment in a Chinese bank. The other two have been good investments.
GIC may have lost as much as S$760 million dollars in its investment in British oil giant BP, according to data provided by Bloomberg. Story from Corporate Observer.
Obviously GIC is not aware of this analysis.
Once a company gets very large, its growth rate inevitably slows. Its success will have attracted admirers, inflating its valuation. And then there is “tall poppy” syndrome, the tendency for the leading company in an industry (Goldman Sachs, Microsoft) to be the subject of political and regulatory attack.
Rob Arnott of Research Affliiates has quantified this process. He looked at the Wall Street sectors between 1952 and 2009 and saw how the leading stock in the sector performed over subsequent one, three, five and 10 year periods. On average, the tall poppies underperfomed by 3-4 percentage points a year. Getting exposure to a sector by choosing its largest component is thus the quick route to underperformance. Interestingly, Mr Arnott found the performance was worse when government spending is rising; suggesting that active govcerment means more regulation which means bad news for the big stocks.
Given that sector leaders comprise around one-quarter of the market value of the Russell 1000, that means investors could outperform by almost a percentage point a year by owning the entire sector minus its leader.
MM is vindicated. A few yrs back, he said he doesn’t understand mining, hence GIC did not go into mining projects. What is oil exploration except mining by another name? Temasek better watch out https://atans1.wordpress.com/2010/05/21/temasek-ignoring-mm-iii/
No not again. Temasek does another natural resources deal, it was reported last week.
Temasek and Hopu Investment Management, a Beijing-based firm, are to spend more than US$1bn to acquire a stake in New York-listed Chesapeake Energy; a US producer of natural gas from shale rock. They follow other foreign investors into the sector.
They agreed to buy US$600m of convertible preferred stock and have an additional 30-day option to acquire a further US$500m of the stock, which they are “highly likely” to exercise alongside other investors. Bloomberg reports.
Cynics must be wrong to continue believing that the government (and MM lee in particular) controls the decision-making process at Temasek. Temasek has the independence to do the wrong things. Bit surprising that Temasek’s PR machine does not highlight this. Are there subversives in the PR department that want to hide the truth of the relationship between Temasek and the government from the public. Friends of SDP and Dr Chee?
But still, one would have tot Temasek would listen to someone whom Time magazine rates as among the 100 most influential persons in the world. Sigh, reminds me that somewhere in the bible there is something about a prophet being without honour in his own home.
Let’s hope that the Fates do not punish the hubris of Temasek’s management. We lose.
BTW three mining deals you may not be aware of
It agreed to buy a peanutty US$50 million stake in the January share sale in Hong Kong by SouthGobi Energy Resources Ltd., a coal producer operating in Mongolia.
It provided funding for Niko Resources Ltd.’s $300 million acquisition of Black Gold Energy LLC. Temasek bought the C$310 million convertible bonds issued by Niko, the Calgary-based oil and natural-gas explorer said in a statement on Dec. 30.
And it bought 382,000 additional shares in Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, in the first quarter, according to a recent filing with the SEC. Based on a closing price of US$70.24, that additional investment was worth about US$27 million, “peanuts”.
According to a Reuters report, it has also recently bot C$500 million in Inmet Mining and a peanutty US$50 million in Platmin over the past two months.
The US military has warned that surplus oil production capacity could disappear within two years and there could be serious shortages by 2015 with a significant economic and political impact.
The energy crisis outlined in a Joint Operating Environment report from the US Joint Forces Command …
Maybe it is time to buy the banks? Like John Paulson who is long BoA (Remember he correctly predicted the sub-prime credit crisis in 2007. That reaped him a US$3 billion profit.)
In a story from Fortune: “The next wave of sovereign wealth fund investments is likely to look very different from the flurry that occurred before the crisis. For one, the funds have drastically cut back on banking assets. Just 16% of the deals they made this year involved the financial sector, down from 48% in 2008, according to Barclays data. (Remember Temasek’s and GIC’s investments in Merrill Lynch (BoA), Barclays and UBS; and Temasek’s sales of BoA and Barclays. GIC only made wagga($) on Citi and it could get diluted there on its remaining holdings.)
And short or sell natural resources.
“Meanwhile, including China Development Bank, which received a capital boost from China Investment Corp., more than 50% of sovereign wealth funds’ investments were in the natural resources sector, up from a mere 8% the year before. Huey Evans points to the Chinese government’s investments in Rosneft and Petrobras (PZE), oil companies that agreed to send the country fuel in exchange for loans.”
Glencore International, the world’s biggest commodity trader, has bought a 51% stake in Chemoil Energy for US$233 million ($325 million) from the Chandran Family Trust.
It paid 35.52 US cents a share: 21.1% discount to the closing price of 45 US cents, on Friday.
In late May this year, just before rumours of Glencore buying a stake appeared, Chemoil was trading at around the 30 US cents level. The rumours pushed it to as high as 56.5 US cents.
Moral of the story: buyer of a controlling block may not need to pay a premium to market. It all depends on its bargaining power vis-a-vis the seller. And whether there is another major shareholder willing to deal: Itochu Corporation, a Japanese conglomerate, with a 37.5% stake in Chemoil, was apparently contented with its stake.
A follow-up to comment on Temask selling its oil and gas E&P, Orchard, at the wrong time.
“Oil prices have fallen for the fifth day in a row, weighed down by a stronger US dollar and amid concerns over demand.
‘US crude oil for January delivery fell $1.31 to settle at $72.62 a barrel.
‘In London, Brent crude fell $1.24, settling at $75.19.” — BBC Online report. $=US$
Remember as the price of oil falls, the more the financial pressure on smaller E&P outfits. The slowdown in bank lending doesn’t help their finances. They will be under pressure to sell stakes in their properties.
For those who believe that Temasek always gets things wrong (buying into and selling out of Barclays, Merrill Lynch/ BoA; buying into Shin, ABC Learning, Global Crossing), then Temasek’s sale of its oil and gas exploration and production company, Orchard, is a sign to load up on oil-related stocks.
It got its timing into E&P wrong, creating Orchard just as world oil prices started their climb towards a record US$147 in July last year. High oil prices meant it was more expensive to buy into E&P assets then. But one would have thought that the fail in oil prices combined with the credit crisis should have meant opportunities for Orchard. Smaller oil amd gas E&P companies needed funding.Apparently, Orchard did nothing because it was sold to listed RH Petrogas for “peanuts”: S$351,000-$371,000.
One can reasonably wonder if MM’s thoughts affected Orchard’s plans. MM Lee said (at about the same time as Orchard was created) GIC would not invest in mining ventures, because he didn’t understand mining. What is oil and gas E&P except a form of mining?