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Showing posts from July, 2006
Fed's Rate Hike Over?
Finally, Something That's Flaccid & Good

Despite the non-stop shelling between Lebanon-Israel, global equity markets have been able to shrug off the repercussions. That's largely due to the growing perception that Federal Reserve have temporarily finished with raising rates. The peaking of the rate hiking cycle is significant because something that has peaked can only go down. Reason #1 for the perception - the Fed's beige book report on regional economic activity showed that economic growth lessened around the U.S. in the past six weeks, while price pressures generally remained in check The report, one of many factors the Fed uses to determine monetary policy, would seem to give another reason to end rate hikes in the near future.

Consumer spending appears somewhat weaker, while strong factory and commercial lending activity suggests business spending may be compensating for it. On wages, a growing gap between highest- and lowest-paid employee…
Landmarks' RNAV & Sungei Wang REIT

This is not an attempt to further promote Landmarks but rather a clarification. The RNAV looks at the book value of assets and compare that to the independent valuation or closest to market valuation. Then we take the market values with the corresponding capital rates, deduct the book value to get the revaluation surplus. We then add the revaluation surplus to shareholders funds to get the RNAV.

Datai 33% - RM125m
Datai Hotel 33% - RM85m
Datai Golf Course 33% - RM7m
Datai Land 33% - RM35m
Andaman 100% - RM145m
Sungei Wang Plaza 100% - RM560m
Shangrila Hotel 27% - RM300m
Teknologi Tenaga Perlis 20% - RM225m
Landmarks Land 20% - RM35m

The assets under Landmarks are mainly good class assets and many are REIT-able. The company has stayed under the radar for a long time because the controlling shareholder was holding just 18% and did not have the financial muscle to get a bigger stake. The recent popularity of REIT makes a lot of sense to other predators to …
Top Buys For 2006 #8 - Landmarks

While Tebrau is swaying sideways, the longer it does that, the more uncomfy I get. So better to look at other finds. Landmarks look interesting. The sale of Sungei Wang Plaza and the Andaman Hotel to Sungei Wang REIT should bring about a 50 sen capital repayment to shareholders. Or shareholders could swap one SW-REIT for every 2 Landmark shares. Deal scheduled for completion in October 2006. The net yield for the REIT is expected to be 4.8%. The structure of the deal and the available free float makes Landmark shares a prime target for hedge funds and yield based investors. The main uncertainty is the listing process of the REIT, which was scuppered by the SC earlier. This time around, green light is expected and should attract lots of funds into Landmarks.

All other stuff like room rates, blah blah on its Langkawi hotels and Shangrila are unecessary. The other probable deals to come after the REIT are:

1) sale of stake in Shangrila Hotels

2) sale of its …
Where Do You Go To, My Lovely?
Ten Bucks For Those Who Know The Song/Singer

Finally, something biting and worth reading from the New Straits Times. None other than the column by Brendan Pereira. Basically he wrote on the missing buggers who basically absconded after much trickery and illegal activities. Brendan's words in blue:

... judging by the Malaysian experience, there is little need to keep looking over your shoulder for the phalanx of advancing enforcement officials. All you need is a crooked mind, an insatiable hunger for ill-gotten gains and an escape route, and you are on your way to joining the exclusive club of Messrs Balbir Kaur, Teh Soon Seng, Datuk Patric Lim, Jennifer Tay, Michael Soosai, etc. They are members of the fugitives club. They are wanted for corruption, stock market manipulation, criminal breach of trust, attempting to defraud a stockbroking firm and cheating. At some point during the course of investigations, they bolted, changed their identities, altered …
The Private Equity Buyout Effect
Here Come The B.S.D.s

It is a significant deal, when Merrill Lynch paid one of their regular visits to HCA, the commercial American hospital company. Merrill Lynch had an audacious proposal: assembling a group of private investors to acquire the company for more than $US30 billion. The deal, including debt, is the largest leveraged buy-out ever, worth $US33 billion. Ignoring inflation, that eclipses the historic $US30.6 billion takeover of RJR Nabisco in 1989. The 89 episode was the subject material for the wildy successful book Barbarians At The Gate, easily one of my favourite books of all time. I guess the barbarians have returned again, only this time, the gates are more welcoming.

I have mentioned often that the funds raised by the private equity buyout firms over the last 12 months points to more bigger deals in order for the funds to perform. Private equity firms like Kohlberg Kravis Roberts, which came to fame in the RJR buyout, and others largely…
AMD's Deal Forces Intel's Hand
Chips Ahoy!

PC chipmaker Advanced Micro Devices and graphics chip maker ATI Technologies have merged in a block buster deal. Shares of Nvidia (up $1.66 to $19.43), one of the largest makers of graphics chips for computers and other consumer electronics - and the number one competitor to ATI (up $3.00 to $19.56) - were up nearly 10 percent yesterday. AMD (down $0.90 to $17.36) said that it will spend US$5.4 billion to acquire ATI in a cash and stock deal that is expected to close in the fourth quarter.

Analysts and investors say that the spike in Nvidia's shares could be attributed in part to speculation that Nvidia is in talks with Intel (up $0.28 to $17.43), the number one maker of chips for PCs, to supply graphics chips to the company. But people in the business are divided on whether the news means that Nvidia and Intel will reach an agreement, or whether such a partnership would take the shape of an out-and-out acquisition.

The news of ATI…
Stumbling Blocks To FDIs Into Malaysia

Foreign investors said their main issues with Malaysia are bureaucracy and limits on foreign ownership, according to Chew Seng Kok, the managing partner of law firm Zaid Ibrahim & Co. There are numerous other issues which cloud FDIs interest in Malaysia. Certain issues are largely immovable and is part of the system, such as the 30% bumiputra partner. That to most FDIs is a turnoff, but its part of the system.

When we talk of bureaucracy, we are also talking of some arbitrary interpretations by the Foreign Investment Committee (FIC) which sometimes create ambiguity and uncertainty when apllying for approvals. Which is why so many potential investors would ask if there were any contacts who know people at FIC well - there should never be a need to know anyone well at anyplace ... it is not a neighbourhood operation. Whether there is a need to know "someone" well or not should not even be discussed, if there is a perception problem, hig…
Diminishing Flower Power
IRIS Has Left The Building

Since coming back from being designated, Iris has rallied again above the RM1.30 level. FYI, Iris has collapsed from RM1.20 to today's closing price of RM0.51 on huge volumes. That down trend and volume was similar for the past 3 trading days. Bearing that in mind, it might be worth a review of comments made by the MD of Iris just a few weeks ago, right after the stock was designated:

As reported in The Edge via an interview:

The only people who have suffered from the designation of Iris Corp Bhd are the small individual investors. Institutional funds have not sold down their Iris shares and in fact are buying more of the stock,” says Datuk Tan Say Jim, co-founder and managing director of the company.

Iris is perhaps the most talked about stock by far this year. After achieving a surprising rise in its share price, the stock was then rumoured to be a syndicated play. The authorities had issued a few trading warnings on the stock and f…
August - Time To Go away

I mentioned that although the underlying fundamentals are strong for equities, we are probably not going to see a strong rally till mid-end of October. August is not a good month generally. Markets are about to move into what is typically the worst time of the year for stock investing: late summer and early fall (Western world view). The third quarter is also typically the worst quarter of the year for Wall Street. And those who follow the four-year cycle of the presidency will tell you that the second year of a presidential term of office, like 2006, is the worst of the four. Although, any year under Bush seems to be the worst to me.

How important are seasonal factors? Patterns are there because of some underlying factors, and as observers, we need to decipher whether those similar factors are repeating this year before we hold onto the rule of thumb. Investors are nervously eyeing the worst violence in years in the Mideast; oil prices are near record highs; wo…
Global Political Generalisations

Israel / Lebanon - Generally the fighting has escalated but contained within the two. Related countries are not barging in to help, which is a good sign. United Nations made a meek call for ceasefire and called Israel's response excessive. Most of the G8 quietly on Israel's side, even most of the Middle East countries quietly hope that Israel succeeds in paralysing or even eradicate the Hez Army. Major nations on the sidelines, meekly protesting the war but holding to the line that Israel have the right to defend themselves. Israel would be very appreciative of that ... and should there be a concerted call next week for Israel to cease fire by the G8 - chances are high that Israel will listen as they know "friends" allowed them to fight the Hez and destroy as much infrastructure as possible, before being told to stop. More positive developments to follow next week. Its like a friend watching his stronger friend pummeling a weak strange…
KLSE Trading Notes
Welcome Relief On Iris

Iris has basically corrected from RM1.20 or thereabouts down to RM0.70 in just a matter of days. Despite the strong indications and a good tetsimony by Bernanke to Congress, speculative counters took a backseat for the last 2-3 days of trading. A war that is not ending between Lebanon and Israel is not obstacle but a severe warning by KLSE seems to do the trick.

Malaysia's stock exchange warned investors on Thursday of the perils of investing in speculative stocks after several of them nosedived. Bursa Malaysia did not name any stocks but pointed to some high price volatility in some shares and urged investors to base investment decisions on companies' fundamentals. "Bursa will not hesitate to take appropriate regulatory action, which may include designation or suspension, in the interest of a fair and orderly market". But why say it AFTER speculative counters have corrected??!! It appears that certain bigwigs moving the counter…
Most Expensive Apts In Shanghai
Enough Already, No One's Buying

Nine months after opening in Shanghai, China's most expensive luxury apartment complex has yet to attract a single buyer, but developer Tomson Group is not about to slash prices to get people in. Sales may prove difficult in the near term at Tomson Riviera, located on the banks of Shanghai's Huangpu River, as Beijing's efforts to cool an overheated property sector may keep buyers away from a complex where units can cost US$20 million (HK$156 million). As the development's four towers sit idle, the company is still determined to hold the line on prices. The development's 220 luxury apartments now carry price tags averaging 110,000 yuan per square meter. The fact that they have not been able to sell even one apartment in 9 months tells you a lot - wrong pricing, market does not exists for that price range, way too many units at that price (for that price you want exclusivity, not a togetherness with an…
Rosneft To Begin Trading
But Seriously, Should People Even Buy?

Rosneft shares will begin trading on the London Stock Exchange as planned after the High Court threw out an attempt by rival oil group Yukos to block the initial public offering.The Russian oil company was given the go-ahead to float despite allegations from Yukos, which brought a case seeking to derail the listing, that the flotation would amount to the "laundering" of illegally-acquired assets. The court also refused a plea by Yukos for permission to seek judicial review of decisions by the Financial Services Authority (FSA) and the London Stock Exchange (LSE) to admit Rosneft shares for trading in London.

Yukos will now consider whether to take its case to the Court of Appeal but this will not happen in time to block the start of trading today. A spokeswoman for Yukos said the case had been decided on a "technical point of law" and did not deal with the company’s central complaint that its assets had …
AIM's Losing Credibility

London's AIM has been an attractive IPO choice for smaller tech companies unwilling, or unable, to meet the higher qualification bar required by other markets, but many shares listed on AIM experience a price drop after their offerings. This indicates a lack of long term buyers and maybe even a quick way for owners to cash out. So far this year, eight of the 20 tech companies worldwide that filed IPOs on AIM, or 40 percent, are trading below their offering price.

Last year, the number was 34 of 68, or 50 percent, and in 2004, it was 45 percent. Companies and investors have to ask themselves if these smallish technology firms are using London's AIM IPOs as a financing event or as an exit. Especially for US technology firms opting for the AIM exchange, surely there must be good reasons why they could not get onto Nasdaq. AIM's small size makes it very volatile because large investors have a bigger effect on valuations. It could be choppy for th…
World Is Getting Smaller 4
M&A Deals That Scares You

How Much You Overpay To The Devil
Must catch the successful box office of The Devil Wears Prada. Privately held Prada, which produces high-end clothes and accessories under the Prada and Miu Miu lines, has signed a preliminary agreement to sell a 5 percent stake in the company to its primary lender, Banca Intesa, in a deal that values the company at 2.75 billion euro (US$3.45 billion). My, my, imagine just how much you have been overpaying for Pradas and Miu Mius in order for the fashion house to be valued above US$3.0 billion??!! The bank paid 100 million euro for its stake in the designer and will lend the company an additional 200 million euro, which will go toward paying down debt and completing Prada’s acquisition of Britain’s Church’s Group. The deal, which could mark the first step toward the company’s long-awaited and oft-frustrated initial public offering. Then, you can buy your Pradas and also a slice of the company at th…
ICBC To Launch World's Biggest IPO Soon

China's largest bank, Industrial and Commercial Bank of China (ICBC), hopes to raise US$19b when it lists in Hong Kong and Shanghai in what may be the world's largest flotation soon. The bank is this week expected to request a listing on the Hong Kong Stock Exchange, where it is likely to place 12 percent of its share capital. Another six percent was to be placed on the Shanghai bourse. ICBC was hoping to appeal to the city's big tycoons -- such as Asia's richest man Li Ka-shing -- to buy a 1.3 billion dollar, 10-percent bloc of shares. The IPO is expected to just beat the world's largest IPO so far, the 18.4 billion dollar listing in 1988 of Japan's NTT DoCoMo telecom operator. It will certainly eclipse the 13.7 billion dollar flotation of rival Bank of China in earlier this year, then the fourth largest listing.
Funds Flowing Into Private Equity Excessive

There have been a lot of money flowing into venture capital coffers as because firms with strong track records are attracting the money. Firms such as KKR, Carlyle and Texas Pacific have been garnering billions over the last couple of months. Last week saw more of the same when New Enterprise Associates raised a US$2.5 billion venture fund, and the Blackstone Group raised a US$15.6 billion private equity fund, the largest ever. In the private equity universe, buyout firms like Blackstone raise substantial sums from institutional investors to combine with loans to take companies private. Venture capitalists, a much smaller portion of the private equity world, raise money from institutional investors to start and build companies.

These firms aim of an annual 20% return over the medium and longer term. How the hell do you invests US$15 billion? Plus now you are competing with a few US$10 billion sized private equity funds as well for the same co…
Biggest Foreign Fund Manager In China
Good To Know

When we talk of size, we talk of the Fidelitys and Vanguards... but for the emerging economic giant like China, the fund management industry is still very fluid, with players jockeying for positions all the time. Foreign fund management houses have to navigate the rules and regulatory requirements and evolvement to put in place the best strategies. The number one foreign jv in terms of funds under management is China International ( a jv with JP Morgan holding a 49% stake) with nearly Rmb 12 billion. Followed by Invesco Great Wall with Rmb 11.5 billion. Previous year's top dog, Fortis Haitong saw its assets drop by a surprising 32% to Rmb 3.8 billion (back in 2004 funds under management hit a peak of Rmb 13 billion for Fortis Haitong). China Merchants (a jv with ING) also saw lots of money flowing out of their funds management unit.

One of the biggest beneficiaries of the recent asset reallocation is Guangzhou based E-Fund, an equit…
Bad News Bears
Real Bears Or Scarecrows??

Well, there seems to be a deluge of bad news surrounding global equities. How should investors view the situation?

1) Oil prices breaching US$78 per barrel, mainly due to Israel stepping up military action against Lebanon. Geopolitics are unstable at the moment, and instead of the usual flight to safety, now its a flight to gooey safety of the enveloping oil, Oil is now seen as a good inflationary hedge, political hedge and solid asset for the medium term.

2) Bank of Japan should end its 5 years of zero interest rates policy and hike rates very soon. Many see this as a sign of tightening, my gawd, how much lower can you go from zero. The uptick should be seen as a very positive sign - that there is strong investment demand, sound export growth, good bank lending (finally), and higher prices (no more stagflation). Japan growth story complements the China and India growth cycle very well.

3) Bernanke did the thing expected of him. Non farm payroll fi…
Don't Worry, Be Happy!
Wealthy Does Not Equate Contentment

New Economics Foundation is an independent think-and-do tank that inspires and demonstrates real economic well-being. They aim to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues. NEF was founded in 1986 by the leaders of The Other Economic Summit (TOES) which forced issues such as international debt onto the agenda of the G7 and G8 summits. NEF is unique in combining rigorous analysis and policy debate with practical solutions on the ground, often run and designed with the help of local people. NEF also create new ways of measuring progress towards increased well-being and environmental sustainability.

A new global measure of progress, the Happy Planet Index, reveals for the first time that happiness doesn’t have to cost the Earth. It shows that people can live long, happy lives without using more than their fair share of the Earth’s resou…
Heeeerrrreeeee's ..... The Jeyeratnams!
Singapore's Second Royalty Family

Followers of Singapore politica would be familar with Joshua B Jeyeratnam, or JBJ, or better known as the dissenting voice of the island republic for umpteen years now. What a lot of people do not know is that he has managed to cultivate a stable of offsprings who are literally minting money, fame and power in their own right.

Son Ken Jeyeratnam is a hedge fund manager in London with strong networking contacts in Australasia, and has just launched a US$500 million hedge fund there. Formerly, Ken was a successful derivatives trader. Another son Philip leads an even more exciting life - an attorney, law professor and curiously a decent novelist as well. Philip is now running the project finance practice of a top tier Singapore law firm.

I guess JB Jeyeratnam would have been a very filthy rich hedge fund manager or investment banker if he was born in the 70s, instead .... his role for most part of his adult …
Qatari Pipeline Across Saudi Arabia
Shouldn't Somebody Get The OK First??!!

Saudi Arabia plans to block a US$3.5 billion pipeline backed by Occidental Petroleum and Total SA that would carry Qatar natural gas to the United Arab Emirates, the Middle East's second-largest Arab economy. The undersea pipeline crosses Saudi territory and ``cannot be constructed without the agreement of the kingdom,'' according to a July 8 memo faxed by the Saudi government to the National Bank of Abu Dhabi, which is involved in financing the energy link. Saudi Arabia ``has not given its consent,'' the letter says.

The partners in the so-called Dolphin project have already started to lay pipe in the Persian Gulf between the U.A.E. and Qatar and have raised US$3.45 billion from lenders including ABN Amro Holding NV, Citigroup Inc. and HSBC Holdings Plc. The opposition threatens to reduce the U.A.E.'s ability to meet demand for power and curtail economic growth. Shouldn't somebody…
PCCW Finds Buyer Acceptable To Beijing

Richard Li Tzar-kai will step down as chairman of PCCW, Hong Kong's largest telecommunications company, later this year after he agreed to sell most of his holdings to former Citigroup banker Francis Leung Pak- to in a deal worth HK$9.16 billion. Li's 75 percent-owned Pacific Century Regional Developments will sell its entire 23 percent stake in PCCW to Leung in a transaction that will make the former Citigroup banker the largest shareholder in PCCW.

Li will retain a 3 percent stake he holds privately in PCCW following the sale. Leung's acquisition is priced at HK$6 per share, which represents an 8.1 percent premium to PCCW's Friday closing share price of HK$5.55. While Leung has been a succesfful financial player since the heady days at Peregrine, Leung is not worth THAT much that he can buy the stake all by himself - watch this space for an array of private equity groups in his team.

Leung, who has relinquished all his duties at C…
Warren Buffett Buffeted
You'll Never Get To Heaven If You Break My Heart

You make the largest donation ever known in the modern world, and you get slagged for it??!! What gives?? Buffett's contribution is not th end of the matter. Many, well-meaning influential people, have come out to critique the donation, motives, heaven/hell concepts, theology, effectiveness, etc... Here are some comments:

Richard Posner (on effectiveness), ex-Chief Judge on US Court of Appeals : "The foundation is an inherently inefficient allocative institution because, much like the government, it is not subject to market tests. There is no way to assess the value of the Gates foundation's expenditures because the foundation is not competing in any product or capital market. (Colleges and most other recipients of charitable gifts, in contrast, compete in product markets.) Gates and Buffett are extremely able businessmen but the Gates foundation is engaged in activities, such as fighting Third Worl…