From NYT’s Dealbook
From NYT’s Dealbook
From NYT Dealbook:
A RISKY BET ON THE PANAMA CANAL The Panama Canal’s new locks will be on display this weekend, when heads of state congregate to see a Chinese container ship become the first commercial vessel to make the passage from the Atlantic to the Pacific.
But when the celebrations end, the future of the expanded canal will be cloudy at best, its safety, quality of construction and economic viability in doubt, Walt Bogdanich, Jacqueline Williams and Ana Graciela Méndez report in The New York Times.
A new canal needs enough water, durable concrete and locks big enough to safely accommodate larger ships. A Times investigation has found that the Panama Canal fails on all three counts.
The low bid for the project – a billion dollars less than the nearest competitor’s – made it precarious from the outset, according to a confidential analysis commissioned by the insurer for the four-nation consortium that built the new locks. “This is a high-risk situation,”wrote the analysts from Hill International in 2010.
As the project developed, it was mired in infighting, political firestorms and severe concerns about its physical structure.
The canal has made Panama, a country with few natural resources, crucial to global economics. It became a major banking, trading and airline hub, not to mention a transit zone for drug dealing and money laundering.
The consequences will be wide-ranging if the canal does not deliver. American grain and soybean farmers and producers of liquefied natural gas may find it harder to sell to Asian customers. Asian manufacturers may forsake the struggling ports on America’s East Coast, or they, and ultimately consumers, will shoulder the added cost of going the long way round, through the Suez Canal.
The canal’s success may also be undercut by the slowdown in global trade, especially from China.
Read The Times investigation into the problems that struck the $3.1 billion expansion project here.
Or why it was sold
Charts from FT
So what else could Temasek do?
FT reported sometime in January
it was widely assumed that global trade would keep expanding. Until recently, this assumption did not seem unreasonable. In the decade before 2008, global trade rose by an average of 7 per cent a year, faster than global GDP growth, because countries such as China were booming and western businesses were creating a web of cross-border supply chains.
History, however, does not unfold in predictable ways. As the World Bank described in a sobering report last week, global trade growth has slowed down sharply in recent years to around 3 per cent, or roughly the pace of global GDP expansion, and it is slowing further now.
It kept ordering bigger ships. These ships when operated drove down operating costs, allowing Maersk to undercut NOL and orher shipping cos. Bit like employers using FTs.
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.
During the Spring Festival, we had more evidence of how a scholar, army general and ex-Temasek MD is failing to refloat NOL which he steered onto the rocks. He had to sell the crown jewels to try to refloat NOL No need to remind readers that SMRT is run by a scholar and a retired SAF general. NOL today, the MRT ststem tomorrow.
Contrast NOL’s financial performance withwhat’s happening at Maersk Line.
NOL has suffered three straight years of pre-tax losses in challenging industry conditions.
The buyer, Tokyo-listed Kintetsu World Express (KWE), has said it will keep APL Logistics’ headquarters in Singapore.
“In an increasingly competitive liner shipping sector, NOL believes that it is imperative to strive to have the most cost-competitive position, and the strongest financial position in order to have a better chance to thrive,” NOL said yesterday.
“Accordingly, NOL has decided to dispose of its logistics business and focus on improving its core liner shipping business.”
Mr Ng Yat Chung, NOL’s group president and chief executive, said: “The transaction will also strengthen our balance sheet and unlock value for our shareholders.”
NOL, which posted its fourth-quarter results last Friday, said operational cost efficiencies helped narrow its net losses to US$85.1 million from losses of US$137 million a year earlier.
Even our constructive, nation-building media was forced to show how desperate the CEO had become: he sold the crown jewels, cannabalising NOL
The move sees NOL selling the only profitable part of its business. APL Logistics posted a 5 per cent jump in fourth-quarter revenue to US$458 million and core Ebitda of US$20 million, while APL, NOL’s container shipping business, posted losses.
NOL said the purchase price represents a 15 times multiple to the APL Logistics group’s reported core Ebitda, a measure of profit, for the full year of 2014.
Since August last year, NOL has been mulling over a sale of APL Logistics and undertook a competitive bidding process.
Maersk Line, the world’s biggest container shipping line, continued its strong performance by boosting net profit to $2.3bn last year from $1.5bn in 2013.
Seen as a bellwether for global trade as it transports 15 per cent of all seaborne freight, Maersk Line said it expected container demand to grow 3-5 per cent this year, well below the pre-crisis levels of more than 10 per cent but in line with 4 per cent growth last year.
“We basically don’t expect a lot of change. The low oil price should give some changes in patterns,” said Mr Andersen, pointing to growth in Asia-US and Asia-Europe trade but declines in north-south routes to Africa and Latin America.
Maersk Line expects to post a higher underlying profit this year than in 2014. The conglomerate as a whole said it expected an underlying profit this year of slightly below $4bn, compared with $4.1bn in 2014.
At the end of October, NOL announced: that losses continued in the third quarter with the company $23m in the red compared to a net profit of $20m a year earlier, hit by port congestion in Southern California.
“We see a slowdown in emerging markets, partly driven by a lower need for raw materials from China. Europe – it’s very slow growth, if any, at the moment, and there’s no reason to expect a big change here,” said Nils Andersen,Maersk’s chief executive.
Revenues for the third quarter were flat at $2.06bn. For the first nine months of 2014 NOL lost $174m, compared to a $61m profit in the same period last year that included a one time gain from the sale of its headquarters building.
NOL claimed cost savings of $290m so far this year but these had been “largely offset” by lower rates, lower volumes and increased costs for port congestion.
But about a week later, FT carried this report: Denmark’s largest company by sales reported better than expected profits in the third quarter and lifted its profit outlook for Maersk Line, its container shipping business.
Maersk has bucked the trend in a container shipping industry dogged by overcapacity, losses and weak demand. Thanks to aggressive cost cutting and lower use of fuel, Maersk Line is by far the most profitable container group.
Maersk Line estimates its operating margin, which was 8.2 per cent in the second quarter, was 8.5 percentage points higher than the average of its rivals.
It lifted it again in the third quarter, posting an operating margin of 10.5 per cent, and leading Maersk Line to boost its guidance for the year for net profits to more than $2bn compared with $1.5bn previously. Net profit in the third quarter rose by a quarter to $685m.
“The days of rapid growth in containerised trade are over. We have to be happy as an industry that we are still growing . . . But we can still make good business,” said Mr Andersen.
But Maersk is more than just a container shipping group as the conglomerate has sought to emphasise its other businesses in recent years including oil exploration and production, port terminals and drilling rigs.
The Danish group, seen as a bellwether for global trade as it carries 15 per cent of all seaborne freight, said demand had slipped in the third quarter compared with the start of the year and was now expected to increase by 3-5 per cent this year, down from 4-5 per cent.
So having a scholar, ex-SAF general and ex Temasek MD hasn’t done any favours for NOL, or S’pore Inc. On his watch (to be fair in really bad weather, he crashed NOL onto the rocks. Still in charge despite that , he has repeadely failed to stop the water from coming in.
The red ink continues to flow with plans to sell its APL Logistics unit in a sale that could fetch at least US$1 billion (S$1.27 billion).
Btw, local broker calls NOL a buy: http://www.ihsmaritime360.com/article/15494/neptune-orient-lines-gets-buy-rating-on-cheap-valuation.
Below shows trade flows across the Pacific. Maersk btw is based in Denmark and its traditional strength is the Asia, Europe trade. But it still dominates global shipping.
“Still, if the Workers Party can’t get its act together over cleaning hawker centres how can it ever hope to run a $trillion country? ,” Auntielucia. She is right. Actually, it’s worse than this or what PM is alleging. It is really very stupid to accuse a govt agency of being “political” without evidence that can hold up in the court of public opinion. Might blog on this if no other blogger raises the issue.
Anyway, I’m sure she would agree with me that S’pore would become like Burma under incompetent government.
A WALK AROUND battered, ramshackle Yangon, Myanmar’s biggest city and former capital, quickly makes it clear how far the country has fallen behind the rest of Asia over the past half-century. In large part the place is but a ghostly reminder of former glories. Under British colonial rule, before independence in 1948, Rangoon (as it was then) was a thriving, cosmopolitan entrepot, the capital of Burma, one of the region’s wealthiest countries. All that came to an abrupt end in 1962 after a junta of army officers, led by the brutal General Ne Win, seized power and launched the country on the quasi-Marxist “Burmese Way to Socialism”. Private foreign-owned businesses were nationalised, prompting the exodus of hundreds of thousands of people, many of Indian origin. (From the Economist, a few weeks ago)
The govt should pay to send kids there during the hols. Make it the PAP as the usual suspects would shout “politics”, and rightly so.
No Asean-round up this week. But readers might find this interesting http://www.economist.com/node/21581660. It’s about the building of a highway across the Kra Isthmus that shippers can use to by-pass the Malacca Straits.
And M’sia’s ports too. All are major transshipment centres.
Thailand, for instance, the second biggest investor in Myanmar after China, is forging ahead with a bigger version of Thilawa [port Japanese are building] at Dawei, on Myanmar’s Tenasserim coast. The deep-water port, associated industrial zone and roads connecting them with Bangkok 300km away will cost about $8.5 billion. Thai rulers had for centuries been toying with the idea of building a canal across the Kra Isthmus, linking the Gulf of Thailand directly to the Andaman Sea and the Indian Ocean to avoid the journey round peninsular Malaysia through the Strait of Malacca (see map). Dawei will at last give Thailand that link.
Grand plans to improve roads all the way from Bangkok to Cambodia and Vietnam are also in hand to spare those countries the tedious rounding of Malaysia and allow them to ship their goods from Dawei directly to Europe. This could profoundly alter the economic geography of South-East Asia, much reducing the importance of Singapore’s and Malaysia’s container terminals as trans-shipment points. Thilawa will also provide companies like Famoso with more direct access to European markets.
China, long the biggest investor in Myanmar, has been toiling away at its own grands projets. The most important of these are the new oil and gas pipelines that crisscross the country, starting from a new terminus at Kyaukphyu, just below Sittwe, up to Mandalay and on to the Chinese border town of Ruili and then Kunming, the capital of Yunnan province (see map above). This will save China having to funnel oil from Africa and the Middle East through the bottleneck around Singapore.
Great video on Burma’s strategic position.
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.
Burma and Thailand want to build a highway linking a to-be built port in Burma to a port in Thailand. This will enable cargo to by-pass the congested Malacca Straits.
Will this remain a dream like the Kra canal, then the Kra oil pipeline? I suspect not as there are benefits for Thailand and Burma.
Might even attract TLCs: there will be a need for industrial and logistic parks.
As for the Straits of Malacca as a shipping lane? Well the development of the US inter-continental port, highway rail system to move containers from the West Coast to the East, hasn’t affected the traffic using the Panama Canal. It is being enlarged to take bigger ships.
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?
The FT reports that Chinese importers are requesting trading houses to defer shipments of commodities. Sometimes they have broken agreements by refusing to accept deliveries.
Commodities specifically mentioned are iron ore and thermal coal (Noble’s specialities), cotton (Olam speciality) and soyabeans (Wilmar is world’s boiggest crusher). No wonder the price of these stocks keep weakening.
BTW, until I read below, I didn’t realise Noble is a big player in coffee and cocoa (but revenue is “peanuts” compared to iron ore and energy).
Commodities supply chain manager Noble Group (based in HK but listed here) announced on Wednesday the resignation of its chief executive only hours after reporting a surprise US$17.5-million (S$22.5-million) net loss in the third quarter from a net profit a year earlier. It blamed volatile market conditions and mark-to-market losses.
CEO Ricardo Leiman will remain as an adviser to the group after resigning “for personal reasons”, Noble said.
Chairman Richard Elman was appointed acting CEO, “We are taking this opportunity … to realign our goals and strategies to adapt to the many challenges that exist in the prevailing market conditions … It goes without saying that we are very unhappy with this performance even if it does just cover a very short period … things happen’ which are out of our control … remains very healthy and strong”.
Last week, Credit Suisse issued a report on industrial Reits. Excerpts from report’s Executive Summary.
Not as defensive as perceived: We assume coverage of the Singapore industrial Reits sector with a slightly negative stance as we believe that the perception of its defensiveness (due to longer lease tenures) is misplaced.
… we have done thorough analyses on the factory, business parks and warehouses sub-segments, and conclude that we are most positive on the warehouse sector fundamentals.
… flat to low single-digit growth for factory rents driven by high occupancy, and business park rents to moderate due to the oncoming supply pressure (including new supply of decentralised office space).
Potential weak demand may slow rental growth: Singapore industrial rents have surpassed pre-sub-prime crisis peaks and are at 10-year highs.
… upside is limited from here on, given the moderating economic growth outlook, Singapore’s high exposure to the US and European economies and the appreciating currency which will reduce Singapore’s competitiveness as an industrial location of choice.
However … the few less labour-intensive, higher value-add fields, and sectors/ players with better pricing power, like biotechnology, water technology, environmental/energy sciences will likely be less impacted by cost inflation.
This should underpin rental growth for the class of industrial assets exposed to these sectors.
… expect rents in (logistics) warehouse – our preferred industrial sub-segment – to continue to remain strong on the back of fairly strong 90-91 per cent occupancies based on limited supply completion over the next three years. While supply for all factories over the next five years looks manageable, at 9-10 per cent of existing supply of 332 million sq ft NLA for factories and business parks … rents for older-specs factories could come under pressure especially given current economic uncertainties, which will likely impact SMEs and less cost-efficient companies (those at the lower end of the value chain).
… hi-tech and business park rents to moderate, due to the oncoming supply of business parks over the next four years amounting to 29 per cent of existing supply, coupled with existing high vacancies.
M&A increasingly challenging: Despite the supportive capital-raising environment, in our view, with cap rates continuing to compress on the back of rising competition for land (as industrial assets have the highest yields), … becoming increasingly challenging for a Reit to make an accretive acquisition, particularly in Singapore, where capital values today are at 10-year highs.
Based on our analyses of Ascendas Reit (A-Reit), Mapletree Logistics Trust (MLT) and Mapletree Industrial Trust (MINT), we conclude that (1) A-Reit has the most debt headroom with $1 billion available for future acquisitions; (2) A-Reit and MLT both have the strongest acquisition pipeline, with $1 billion each of injection pipeline from their sponsors; and (3) MINT and MLT have the highest risk of placement, depending on the size of transaction given their gearing levels of 39.3 per cent and 40.6 per cent, respectively.
Three investable names, at this stage: After screening for market cap of over $1 billion and liquidity of US$1.5 million/day, only three of the seven industrial S-Reits are deemed investable: A-Reit, MLT, MINT.
We see relative value among certain smaller-cap S-Reits. Cache Logistics Trust (‘buy’, TP: $1.11), which currently offers a yield of over 8.0 per cent, is attractive, backed by transparent earnings structure and armed with a low leverage of 26 per cent, having the headroom to acquire further.
Frasers Commercial Trust (‘buy’, TP: $1.05), at a P/B of 0.6 times, is unjustified in our view, given that the yield-enhancing steps taken by management and plans to re-finance its expiring loans should result in future interest savings.
I’m glad someone sess value in FCT where I have a holding. Yields 6.77%.
CLSA initiates coverage with a S$1.70 target price, calling the stock “Underperform”.
CLSA says, trading at 1X P/B, “NOL is neither expensive with an average 2012 to 14 ROE of 10.3 per cent nor compelling with past earnings slumps offering investors trough-0.4X P/B as a cyclical entry point.” Earnings forecasts remain materially below consensus in 2011 to 2012, “so until expectations are reset, NOL will underperform.” On NOL’s recent vessel purchase, it says “the fleet renewal provides NOL with an opportunity to remain relevant on European trade, as well as significantly reduce its unit costs”.
For the record, there have been mgt changes over the last few months with experienced mgrs leaving and an ex-general from Temasek joining.
In June NOL had its third executive resignation in less than two months, when Eng Aik Meng, president of APL – NOL’s liner arm – resigned. He will leave APL on Sept 1 and take a new position “outside the transportation industry”. Mr Eng will be replaced by Kenneth Glenn, who is currently based in Shanghai as president of APL’s North Asia region. Mr Glenn has been in the industry for 32 years and joined APL in 2000.
This change comes days after the stepping down of Bob Sappio – head of the shipping line’s Pan- American Trades It is also the second leadership change following news of the replacement of Mr Widdows, with Temasek executive Mr Ng, in April.
NOL executive director Ng Yat Chung will become chief executive officer of NOL when Mr Widdows retires at the end of the year. He is a ex-general, not admiral, from the SAF.
This Temasek-related Reit invests in logistics facilities in the region. Its latest investment is in S Korea.
Its yield is 6.8%. While its last traded price is $0.92 and its last reported NAV is $0.85, OCBC recently came out to say that OCBC calculated that its revised NAV is $1.01 (also OCBC’s target price for the stock). Not a rich discount to the share price but pretty decent, given its Temasek credentials.
I might add it to my portfolio.
If you can’t get yr excuses right first time, try and try again.
Finally Global Logistic Properties (GLP) got it right. As I blogged earlier it got its nickers in a twist when explaining why its prospectus did not disclose a non-compete agreement https://atans1.wordpress.com/2010/12/16/glps-non-actionimplications-for-sgxs-bid-for-asx-spore-inc/
Last Wednesday BT reported,”[it] did not specifically disclose information about a non-compete arrangement with ProLogis because it didn’t see the US-based firm as a real threat to its business, sources close to GLP told the media yesterday … GLP had looked into whether ProLogis was likely to re-enter the Chinese market when the non-compete clause expires next February, and felt that the chance was ‘remote’ … it would be hard for ProLogis to restart its mainland China business, as it had sold all its assets and brand name in the country to GLP … They may still have a large operation elsewhere in the world. They may still have a large market cap. But they have no presence in Asia – that’s it,’ said the source on why the non-compete information was not material.
This reasoning I can buy. And it would seem, so does the market. On Friday it was +0.14 to 2.26. It was trading at 2.18 the day before BT had an article abt its non-disclosure. It then fell.
Why did it take so long to come up with a decent explanation It wrote twice to the media spouting gibberish. Hope it Read the rest of this entry »
Global Logistics Properties has replied to a hack’s rant on why it should have disclosed GLP’s non-compete agreement with ProLogis in China and Japan in its prospectus. The GIC-linked company, which listed on SGX in October continues to contend that the “existence of the non-competition arrangement between the company and ProLogis is not material, and continues to be non-material to the ongoing business of the company”. The quote is from its reply to BT who first exposed this agreement.
I won’t go into the legal issues involved except to say but I find the reply inconsistent. BTW the links to the reply and rant may go walkabout in a few days’ time.
But what will SGX do? If it does nothing (putting the onus on the central bank: MAS approve prospectus leh), or investigates and then clears GLP, it will fuel Ozzies suspicions of the SGX takeover of ASX for two reasons. Read the rest of this entry »
Global Logistic Properties (GLP), got ‘buy’ calls from 4 brokers (3 foreign) last week. It is a “buy” because it is leading provider of logistics facilities in China.
It owns logistics facilities in China and Japan – Asia’s two largest economies – and may expand into other economies (GLP says it is ‘building the leading distribution facility platform in Asia) in the region, stands to benefit from Asia’s strong economic growth. In particular, rise of consumer spending in China will boost profits.
Citi has a target price of $2.78 for GLP. It noted that yields from the sector are typically higher than those from the retail and prime office property segments in fast-developing China, and that the logistics space does not face the high policy risks that GLP’s residential peers are exposed to.
Nomura has a $2.58 price target for the stock. UBS, has a $2.65 price target for the stock.
In addition to these points, DBS says: We derive an RNAV of $2.76 using a sum-of-the-parts analysis that captures the value of its underlying assets as well as potential re-investment opportunities from balance sheet deployment. Our TP of $2.76 is pegged at parity to RNAV. Key risks to investment stem from regulatory and policy as well as global economic conditions.
BTW GIC is its single-largest shareholder.
CWT’s Q3 2010 earnings of $5.5 million was below brokers’ estimates, with the costs for its Freight Logistics and new warehouses being responsible.
Their views can be summed up in DMG& Partners comments:
While we remain positive over its long term prospects with new offices set up for its Freight Logistics, new warehouses being built and Singapore’s strong economic recovery, we are trimming our FY2010 and FY2011 core earnings estimates by 9.6 per cent and 12.4 per cent respectively, to account for higher startup costs.
Q3 2010 revenue was up 22.8 per cent year-on-year (y-o-y) to $192.7 million, but earnings fell 9.2 per cent y-o-y to $5.5 million on the back of rising freight costs, the phasing out of the government’s resilience budget scheme, startup costs incurred for new undertakings such as operations in Europe and new major customer accounts and steel logistics business adversely affected by a drop in demand from the marine industry.
CWT recently set up new offices in Hong Kong, Indonesia, Portugal, Slovenia and Croatia and extended direct service coverage to Ukraine, Ghana and Nigeria.
Following the recent boost in its presence in Europe, we believe expanding in South Africa remains as CWT’s focus, as this will enable it to capture trade flows of soft commodities such as coffee and tobacco, between Asia, Africa and Europe.
Demand for logistics facilities is likely to grow in view of its correlation to economic and trade growth. CWT is building more warehouses (Hub 3 and one at Pandan Road) to capture rising demand. Err what happens if there is an economic slowdown caused by currency wars or a slowdown in the US.
(Update on 1 December: See link to November 2010 post at end of article)
Remember last yr when Temasek revised its charter and took out something about “growing our own companies” (my words, not theirs)?
The local MSM, bloggers and various chatter-boxes moaned and wondered who would replace Temasek in its nurturing role?
Well last week, we may have gotten an answer: though based on the silence of the chatterliterati, they did not know, or care, that their question might have been answered.
EDB Investments (EDBI) took around 2.7% of CWT’s enlarged capital, paying S$12.6 million.
According to a CWT statement, the investment arm of the Economic Development Board subscribed to 16 million new shares in the company at $0.788 per share. The issue price represented a discount of nearly 10% to the counter’s weight-average price of $0.875 the previous Friday.
Net proceeds from the sale would be used to finance CWT’s long-term expansion.
For those not familiar, CWT offers integrated logistics services to commodities and chemical companies, in addition to providing international freight forwarding. It claims to have the largest container yard capacity in Singapore with four container depots.
Now all these activities are activities that the EDB wants to promote here. So you can the fit.
The transport and storage industries account for 9% of Singapore’s GDP (gross domestic product) and employed about 182,000 people in 2008: quite a contribution neh?
And, as BT said “the competitiveness of Singapore’s trading and export-orientated manufacturing industries depends on a strong logistics industry that can offer high value, integrated supply chain services to connect Singapore with the global markets.”
Other good reasons to invest in CWT Read the rest of this entry »