Wednesday, August 08, 2007



Reassessing Talam

Talam was one of my better calls in 2006. Below was the posting made almost a year ago on 24 August 2006 when the share price went to 10 sen:

Desperately Seeking Talam
Making Sense & Assessing Risk

August 24, 2006 - When things like Talam happens, what do you do? Talam's shares already at a 52 week low of 17 sen, dropped as low as 10 sen today on huge volumes after both Bursa and the company disclosed that Talam has again delayed finalisation of its annual accounts for year ended 31 Jan 2006. Bursa has warned that failure to submit by 31 August will result in suspension and maybe delisting. The knee jerk sellers would theorise that most companies who delay submission are prime candidates for PN4/PN17, or there is a huge writedown, or need to restate losses for previous years, etc...

Facts
1) The company has a MOU with major financiers to pare down debts by 70% over a 2 year period. Its current debt is RM864.3m. That makes its current gearing at 1.4x, not that exceptionally high that it is unmanageable.
2) Knowing IJM, it would want Talam to clean up its books before doing anything with Talam/K-Euro.
3) It has a good NTA at RM0.89. It will have impairment losses and losses on land disposals, and late delivery charges. Prudent to whack 75% off NTA = RM0.225.
4) Outstanding shares 629.18m. Market cap at RM0.12 means the company is worth just RM75.5m. Even a Main Board shell is worth RM20m.
5) If it fails to submit by National Day, an automatic suspension will be imposed. Talam knows that and acknowledged that, so what gives??
6) The delay has been invoked since end May 2006, so nothing really new here.Why the sell-off?? The delay has been known for sometime. Not having enough employees is a stupid excuse, should not even put that in. Valuation and restructuring stuff, plausible excuse. The market is pricing in a lot of potential bad news. The threat of delisting is just a normal announcement of Bursa, so its not a real threat. Look at the existing PN4/PN17 companies, most are trading higher than RM0.10 and they are in a lot more shit than Talam. These are the facts, make your own assessment. Of course, I could be proven terribly wrong... and end up with just eating kuih talam for a very long time...

Recent News:
April 11, 2007 - Talam sold 25.1 acres of land in Bukit Beruntung to Tesco Stores (Malaysia) Sdn Bhd for RM18,587,052 (US$5.4 million). The net proceeds from the sale will be utilised to pare the group's borrowing and sales related expenses. The sale will reduce Talam's gearing and enhance the development in this location.

March 28, 2007 - The long-delayed RM3.12 billion west coast highway project linking Banting in Selangor to Taiping in Perak will resume and the work will be given to the original contractors, Datuk Seri Najib Tun Razak said today. The deputy prime minister told reporters that the decision to resume the project covering 215.8km was made at today's Cabinet meeting.
The project, mooted 11 years ago, was put on hold due to the 1997 Asian financial crisis. Concessionaires for the project, touted to be the alternative to the North-South Expressway, include
Talam Corporation Bhd and Kumpulan Europlus Bhd. In November 2006, Works Minister Datuk Seri S. Samy Vellu said that the Economic Planning Unit (EPU) would re-submit a working paper on the project to the Cabinet.

Things got really interesting yesterday with the news that KEuro may sell its stake in Talam.

August 7, 2007 - In an announcement yesterday to Bursa Malaysia that departs from the norm, K Euro's directors highlighted several observations. The directors pointed out that the two companies – Selasih Jauhari Sdn Bhd and Desiran Johan Sdn Bhd – were private limited companies with paid-up capital of RM2 each, and that they were in no position to ascertain their credibility. It was further highlighted that the K Euro board was not certain the option agreement would be successfully implemented because “there are numerous conditions precedent to be fulfilled”.
The two private companies represented to K Euro were in a position to offer a scheme to enhance the value of the assets of Talam Corp Bhd, an associated company of K Euro. They also said the scheme could enable Talam to generate cash to reduce its borrowings. Should the proposed scheme be unable to meet what the two companies have represented, the boards of Talam and K Euro would not accept it, and the option agreement would lapse. K Euro's board also highlighted that the purpose of the option agreement was to enable the two private companies to submit their proposed scheme to the boards of K Euro and Talam for consideration. In the announcement, K Euro said the option agreement was for Selasih Jauhari and Desiran Johan to acquire a 25% stake in Talam, amounting to 157 million shares, at an exercise price of 30 sen a share.
Presently, K Euro holds 42.94% of Talam, and upon an exercise of the call option, Selasih Jauhari and Desiran Johan would have a 17.94% stake in Talam. The scheme proposed by the two private companies would not increase the borrowings of Talam. Further, the option price was fixed at 30 sen a share but they represented to K Euro that there would not be a reduction in the value it held in Talam, being RM141.4mil, or 51 sen a share, in book value. The granting of the call option is conditional on several approvals, including agreement from the board of K Euro, and the board and shareholders of Talam for the proposed scheme.
K Euro said it would now concentrate on its two principal projects: the West Coast Expressway and Canal City.
Sources said while it was announced in June that IJM Corp Bhd would proceed to acquire a 25% stake in K Euro for RM33.1mil cash, or 28 sen a share, the exercise was not completed and as such, IJM was still not represented on the K Euro board. The conditional agreement with Selasih Jauhari and Desiran Johan was, therefore, a decision made by K Euro's existing board.
There might be a desire to enhance the value of Talam, especially since K Euro's stake in it would eventually be diluted anyway, when the convertible instruments in Talam are issued and converted into shares by its creditor banks.
The sources believe the two private companies' proposed scheme might involve an injection of some assets that have yet to be disclosed. They also believe that although the private companies have paid-up capital of just RM2, they are owned by a businessman of means whose identity had remained undisclosed.

My Two Sen:
- Things were going along hummingly for IJM when they went through with the injection of IJM property division into RB Land. Everything seems to be OK with KEuro as well and Talam was supposed to be next on IJM's plate. KEuro and Talam were operating AS IF they were under the IJM umbrella already. For example: Talam appointed IJM as the contractor /jv partner to resume its various stalled developments such as Taman Puncak Jalil, Putra Perdana, Kinrara Section 3, Bukit Beruntung, Lagoon Perdana, Sierra Selayang and Ukay Land. All that activity has been happening since late last year.
- IJM will almost control Talam anyway through its probable acquisition of KEuro as the latter controls 43.1% of Talam.
- Thanks to a stronger property market, Talam should be able to dispose off its hotel, shopping mall investments and hospital for RM200m-RM250m.
- Talam's NTA per share is at 52 sen (revised from 89 sen last year).
- Major land assets: 400 acres Bukit Sentosa 3 valued at RM258m; 260 acres Puncak Jalil valued at RM159m; 1,284 acres at Batang Berjuntai valued at RM146m; 2.16 acres at Larkin Centre, Johor Bahru valued at RM37m; 67 acres at Bukit Sentosa 1 valued at RM38m; 58 acres at Bukit Sentosa 2 valued at RM33m; 340 acres at Tanjung 12 valued at RM43m; 50 acres at Danau Putra valued at RM51m; 401 acres at Ulu Yam valued at RM25m; 120 acres at Saujana Putra valued at RM58m; the killer asset is 2,500 acres at Bukit Beruntung valued at RM624m; 40 acres at Ukay Land valued at RM45m; 90 acres at Sierra Ukay valued at RM27m; 10 acres at Kinrara 3 valued atRM39m; 80 acres at Lestari Puchong valued at RM109m; 1.5 acres Yin Hai Complex, Jilin, China valued at RM56m; Marcourt Hotel, Jilin, China valued at RM123m; Menara Maxisegar valued at RM58m; Pandan Indah Medical Centre valued at RM40m; etc.
- IJM probably was not going to buyout Talam as by virtue of buying KEuro, it also controls Talam and will get the benefits of the development works under Talam. However, with the presence of the new potential buyers, IJM may be forced into making a bid to control Talam.
- While Talam has its debts to work out, it has a good extensive landbank. Those assets probably rose in attractive ness over the last couple of years from being unwanted to "hey, looks kinda interesting now". The killer asset is Bukit Beruntung, whoever wants to be a player for the next 10-20 years will need this vehicle. The race course will be shifting from Sg Besi to near Bukit Beruntung sometime the next few years, could be interesting for a long term player.
- Methinks IJM will come in aggressively to control Talam, after all save yourself a lot of time to accumulate the assets under Talam. In order to propel RB Land /IJM Property to be a major player, NOT controlling Talam seems to be a bit silly. This is quicken IJM's resolve to control KEuro asap so that they do not sell their 43% stake in Talam. If IJM is going to control KEuro, it will not cost them much to also control and clean up Talam - this strategy could be to force IJM to quicken its acquisition of KEuro and stop them demanding so much from the jvs and contracts under Talam, and take Talam private.
- The danger is in the 2 companies submitting the proposal to KEuro. Esp RM2 companies, man, you know these RM2 companies will be very influential vehicles. Maybe I should use my RM2 and also submit a proposal to KEuro.
- Any way you cut it, Talam is in play and players will be looking hard at Talam's landbank, not many like them around despite's Talam's debt crisis. If IJM loses indirect control of Talam, it may lose out on the development contracts and jv opportunities. An aggressive bidding war could send the share price closer to 60 sen. More upside for Talam surely.

Tuesday, August 07, 2007


Public Service Announcement

A couple of weeks ago I had a fever for a few days, then rashes appeared, yup it was dengue. Never thought I would get dengue, after all they do fog my area once a week and the place is very clean. Sigh!

Deaths from dengue fever in Malaysia have risen by a third so far this year and health authorities said recently that the worst is yet to come. The mosquito-borne virus has killed hundreds in Southeast Asia this year, prompting the World Health Organisation to warn that the Western Pacific region could be at risk from a major dengue outbreak. Malaysia recorded 30,285 dengue cases so far this year with 65 deaths, up from 20,258 cases and 49 deaths in the first seven months of 2006, said Hasan Abdul Rahman, director of the Health Ministry's Diseases Control Division.

You can ask your doctor till the cows come home and they will tell you that there is no cure. Plus as western educated medical doctors, they cannot bring themselves to tell you the alternative cures. Not that I am forcing them to say anything but I am sure they have heard of traditional remedies, but they will still not tell me anything except check into the hospital and drink 100 Plus. Now I was left with the situation of leaving things as it is and go over my will, or ask around. It was a good survey, what was surprising was that there were the same 3 remedies from asking about 20 friends and contacts.

Now, I am not saying that these are indeed cures but hey, they won't kill you. Do you just want to check into hospital (you should if your platelet count dips below 100) or try something that won't kill you. The few doctors / nurses and even the Health Ministry lady said to go to hospital and get a drip and drink lots of water esp 100 Plus. That's the funny thing, all the western medicine staffers recommend 100 Plus (an isotonic drink). Now that's great marketing information - somebody should try and buy out the drinks manufacturer cause I can see their popularity growing strongly forever.

I took the 3 options for 2-3 days and the rashes were gone by the second day. The fastest working remedy was the soup, I felt "recovery" almost immediately. So, here's the public service announcement about the remedies:

1) Papaya Leaves - Put the 4-6 papaya leaves into a blender plus half a cup of water. You won't be able to blend the fibrous leaves totally, so just filter it and drink a couple of table spoons twice a day. Tastes very bitter but not that bad actually.

2) Replenishing Liquids - Blend bitter gourd, green apples, starfruit with a dollop of honey. Make a liter a day and keep it cold as the concoction will turn brown after a day. Drink throughout the day - it actually tastes very nice. I think Jusco prepares the same fresh juice mix for sale. Naturally also drink lots of water and 100 Plus in between.

3) Bitter Gourd & Frog Soup - To me, this had the greatest immediate relief. Cut up one bitter gourd and boil with three whole frogs (getting fresh frogs from the markets was the difficult thing and get them to de-skin for you). Use 8 bowls of water and boil till you get 3 bowls over low heat half-opened top, season with salt. It actually tastes pretty good and the frog tasted well. Do that once a day. Eat some of the bitter gourd as well.

Most of the remedies are based on the concept of heatiness, which western medicine cannot and do not accept as a valid condition. Like I say, these remedies will not kill you and the fact that friends who have had dengue also gave similar remedies (esp the soup) lends credence to the remedies.

Hey, you are supposed to have a no cure sickness, why not try a no-side-effects remedy!? Of course, you should do that and check into the hospital at the same time as they need to do a blood count thingee regularly to see if the count is dropping. If it drops to a precarious level they may have to resort to some blood transfusion - so its not a small matter. With or without the remedies, one MUST take a blood test every day to check the count. If its dropping, its not good.

However, thankfully my count recovered immediately following taking the remedies and continued to improve quickly. Yes, I may have had a mild one and might have been improving on my own anyway - but the soup really made me feel much better almost immediately, can sleep soundly even.

Cut To The Chase

The Great Game said...
Hi Dali, Have been a silent reader of your blog for some time, and I found it to be highly educational for a novice like me. Just to share my 2 cents on this subprime crisis. Although subprime only constitutes a relative small % of total mortgage market, the rippling effect to other credit markets (or the investor confidence in strucutred finance), e.g. the leveraged loans is unquantifiable, & has been grossly underestimated by many. The financial institutions are trading at such low multiples mainly due to the huge leveraged loan (those funky 'covenant-lite' notes) that they warehoused for the buyout house especially for the notoriouly tough negotiator like KKR.

In particular, I think Bear Stearns and Lehman would be hit the worst, given their lack of balance sheet strength and hence high % of leveraged loan to market cap, vs the like of Citi & JP Morgan. If the credit market deteriorates, some of the early LBO transaction commensurated might even folded. Let alone the constraints on capex spending (which further impending growth), massive layoff to meet the rising interest cost might even be plausible. Thus, the current healthy corporate performance is not going to last for too long (even less than 24 months). This might transpire to be even worse than the collapse of the junk bond market in the 80s.

In the worst case scenario, the liquidity would soon be drying up due to the self-perpetatuing investor confidence crisis when every hedge fund is being forced sale to meet the margin call, which results in further decline in asset value and further forced sale. Coupled with the intrisicaly linked global financial market (mainly via CDS) we have today , the result would be truly disatrous.

What I have found interesting is that nobody has highlighted the conflicting role of the rating agencies (the big 3, S&P, Moody and Fitch) play in this crisis. Being highly profitable, structured finance (both advising and evaluating) has been a bonanza for them in the past few years.

Dali: great game,

thats one of the best postings fm a reader... thanks ... you made a few great points which I wish to elaborate here ...u r right in that Bear Stearns and Lehman might be in deeper waters, that's the consequences of being in the second tier in investment banking rankings... the top ones such as Goldman, Citigroup, Merrill, JP are more well diversified, more international in their revenue base, and may not have a similar proportion of exposure to CDOs...the second tier houses, to boost revenues may have to be more aggressive in CDOs as they cannot match the top tier in IPOs and top tier advisory work in LBOs, private equity, restructurings etc...

the other point to make is that many investment banks do not have a big exposure to CDOs because these have been packaged and sold to funds and other institutions ... unlike LTCM debacle where the big houses are left holding the bag, hence the "rescue", the fat pigs do sleep with the fat cats...
where these CDOs end up is what's critical here .. a lot went to hedge funds and private institutions and/ or corporate funds vehicles... some asian banks are hit as well esp if they have US bases such as HSBC, but they have come clean fast and cleared the rubble before anyone could say "hey, what was that" (10/10 for managing a potential disaster) ... DBS was also hit a bit bad comparatively for an asian bank ... due to the "slowness to expand internationally" Malaysian banks are safe ... hence if the losses are largely in "private vehicles", the danger is not as severe, a few hedge funds folding will result in some rich people or endowment fund losing a few hundred millions here and there ... its a bitch but not exasperatingly so

there is a buy-sell betting options on the likelihood of the Fed dropping rates by at least 25 basis points tonight.... two weeks back the contract was trading at 30%-40% likelihood, as of yesterday I saw the contract in the 90% likelihood levels..

Favourite Coffee Shop In KL

I can only put that headline cause I am from Ipoh and there are better ones in Penang, Ipoh, Teluk Anson, Taiping, Kluang etc... but from KL, this place takes the prize by a proverbial mile. Since the market is so volatile and I have said what's needed to be said on the markets, ... let's look at something really important like good food. There has been a plethora of kopi tiams sprouting all over the country cause (retro is back) and the basic menu is not difficult to replicate... but as any foodie will tell you, the really good ones stand out quite easily. You just know it!

My favourite place is Kopi Time located at Wisma Atria PJ. If you need instructions, don't bother going there. A good kopi tiam will have good coffee/tea and a variety of good eats. This one is halal. Let's be honest here, the coffee here is good but not spectacular, we all can find many better places for local coffee, esp in the other places mentioned outside of KL - that's the downside, but the coffee and tea are still decent enough and better than a lot of places in KL. I go there for the food. Below are the MUST-HAVES:

1) There is roti bakar with kaya, and then there is Roti Bakar Special at Kopi Time. Everything's the same except the butter is about the thickness of three Kraft cheese slices - the way older Hainanese coffee shops used to make them. Its a bit decadent and you cannot have it this way everyday, but once a week is OK, I guess. This is really good even though I can find better kaya in Ipoh.

2) Kopi tiam food is nostalgic food. The most nostalgic is the half boiled eggs (but you can also have the Omega eggs, which is a plus). Now everyone can do them but here's the killer blow - its the bottle of soya sauce. To really get the nostalgia back, you need the soya sauce to be at a certain "wateriness" consistency, not thick at all. They have the right sauce here.

3) The nasi lemak is also very good, great sambal. But that's not what I would usually order. The piece `de resistance is the fourth item.

4) Its the Chee Cheong Fun! Being from Ipoh, nobody can claim better chee cheong fun. While Kopi Time's chee cheong fun is not as smooth, it is still very good, a more than acceptable second best for not being able to drive to Ipoh. But what sets the dish apart is the curry sauce, its thicker than normal, flavours bursting with each gulp, good enough to drink on its own - seriously! The hint of a really good cook, they will spinkle generously the fried shallots and spring onions - a very potent dish.

Their other dishes are also quite good and worth a try as well. See you there! Opens 7am-10pm daily. p/s just for the heck of it, try their barley drink (hot), its the thickest barley drink ever, close to the consistency of a good porridge (but in a good way), can almost stand a straw up on its own, and its very tasty as well

Monday, August 06, 2007


Sidetracked


I came across the following line sometime back. I have tweaked it slightly. Maybe we all can reflect on what kind of person we are & our friends/lovers too:


I've learned that you can tell a lot about a person by the way he/she handles/treats the following:


a rainy day

the elderly

lost luggage

service staff / the maid

Saturday, August 04, 2007



Why Markets Will Recover Quickly

No one wil argue if you say that global liquidity is more than ample. The current jitters are not new and readers can peruse my previous postings to get further elaboration. My main argument is just to highlight 3 huge financial stocks in the US. Bank of America closed at 47.00, Citigroup at 45.80 and Wachovia at 44.94. At those prices, the dividend yield for Bank of America stands at 4.77%. Citigroup's dividend yield comes in at 4.9% while Wachovia's at the same dividend yield as well. No matter how you cut it, these are enticing dividend yields for any cash holder in US dollars. Considering the US Treasuries are yielding 5%, but you still have to ay federal levy of 35%: hence these stock dividend yields are highly attractive.


The subprime worries has weighed down financials for the past few weeks. The current weakened share prices translates to just 10x of previous year's earnings for the 3 stocks! Hence the financials will be very attractive once the jitters evaporate. Even now, they are highly attractive but no man dare bargain hunt aggressivey during such uncertainty. However, the evidence shows that the rebound will be substantial once it happens. We have to consider also that most other sectors are unaffected by the subprime worries.

This weakened state is largely contained in certain pockets in the US. The rest of the world will just have to wait it out. The longer US dawdles, the greater the likelihood of markets decoupling from the US.

Do I think this indicates that the worst is over? I shall answer this question with two rhetorical questions.

Do taxi drivers pick their noses at traffic lights?

Does Dolly Parton sleeps on her back?


What An AD By Petronas


We all love the festivity ads and commercials by Petronas - they are always hearfelt, nostalgic and meaningful ... remembering better times and sees the goodness in Malaysians ... that the more different we are, the more things we have in common. Well, when you have Yasmin Ahmad's sensitivity and creative brilliance, its a potent mix.


But have you seen the new Merdeka ad??? OMG, what a daring one! It shows a guy being asked to build a sampan to pay off his debt ... in the end the creditor friend gave the boat to him as a gift which will allow him to be independent and make a decent living. The new boat sank, and the tag lin at the end was in Malay but its resounding, loosely translated: Are what we putting in now able to carry us to the future, what our future will be depends on what we put in now.

Now, I don't know about you but its amazing that this was passed by the Ministry of Information. Yes, the ad was meant for all Malaysians, but one could not help but think of our government. Its very daring, its very timely ... just for that I will try to pump at Petronas as much as I can.

The nuances within the commercial is what makes it special and daring. The guy who owes money said he didn't have money to buy resources to build the sampan. The creditor friend said its OK, he can use the resources and wood available at his house to build the sampan. The symbolism, the symbolism.

Catch the ad if you can cause I believe it could be pulled off the air soon. Some bigwigs are bound to be sitting in their living room thnking, "Hey, its about .... ".

Friday, August 03, 2007


The Crucial Number

U.S. labor market softened slightly in July, according to government statistics released Friday. Nonfarm payrolls grew by a lower-than-expected 92,000 in July, the least seen since February. And the nation's unemployment rate rose to 4.6%, up from 4.5% in June and the highest reading since January, the Labor Department reported. Economists had been expecting payroll growth of about 133,000, according to a survey conducted by MarketWatch. The jobless rate was expected to remain at 4.5%. Some of the weakness came from a surprising 28,000 drop in government jobs in July. Excluding the government, private-sector payrolls rose 120,000. This was actually higher than the 107,000 private sector jobs created in May. Meanwhile, payrolls in May and June were revised lower by a cumulative 8,000. Jobs grew by 188,000 in May and 126,000 in June.

The equity market should like the mix in this report, just a whiff of weakness to keep rates low and enough private sector strength to keep hopes high," said Robert Brusca, chief economist at FAO Economics, in a research note. He said the weakness in government jobs wouldn't last going into the presidential-election cycle.

The weak job growth could add to worries that the economy is slowing. Second-quarter gross domestic product rose to a 3.4% annual rate from 0.6% in the first quarter, that is the positive undertone. Against this backdrop, the Federal Reserve will meet next Tuesday to set the course for U.S. interest rates for the next six weeks. The Fed maybe tempted to lower rates seeing the jitters surroundng the subprime consequences, in particular to Bears Stearns' continuing troubles.

Standard & Poor's downgraded its outlook for Bear Stearns Cos. added to Wall Street's credit-related worries. It was downgraded from stable to negative in light of potential litigation from the clients of the failed hedge funds. To me, all ratings agencies tend to be reactionary rather than anticipatory in nature. Just as they were 6 months late in downgading the mortgage business, the same is true now. That to me is another positive factor.

As explained, the unemployment rate is crucial as that will indicate if the Americans are able to ride out the subprime or credit tightening. To me, the data is neutral, however if more big investment banks get into more trouble, the jitters could permeate and dull the markets for some time yet. With tha in mind, the Fed faces its first big challange and should err on the side of caution by dropping rates.
p/s The Simpsons The Movie is one of the better cartoons for adults for a long time. Look for the scene where Bart skateboards naked, hilarious!

The Happiest Dads In The World

Mr Davis should be the happiest dad in the world. His 9 year old son, Rhain Davis, has been signed by Manchester United to join the U-10 squad at MU. Usually MU will recruit for their youth squads 8 years and above but never from as far as Australia. Rhain is based in Brisbane, has a British passport and an England-based grandad. And its the grandad who sent the video to MU.

The senior Davises will be counting the "deals" appearing on their doorsteps for endorsements, etc... omg, the retirement fund is here already. Just go to youtube and search for Rhain Davis, you will be amazed that a 9 year old can do that! Or just click on link below:

Thursday, August 02, 2007


If Only ...

If only we have a few like-minded senior politicians ... if only ...

From The Sun paper, an excerpt from the inaugural lecture by Raja Nazrin Shah, Raja Muda of Perak, to commemorate the legacy of Professor Syed Hussein Alatas on July 31, 2007, in the Islamic Arts Museum, Kuala Lumpur. The lecture was titled "Towards a decent social order for all Malaysians."

Before I begin, let us observe a moment of silence in memory of Allahyarham Professor Dato' Dr Syed Hussein Alatas. For more than five decades, Alatas was one or Malaysia's leading intellectual lights. He was a role model and inspiration to many and I include myself among them. He was more than a pioneering Southeast Asian social scientist. He was a public intellectual whose ideas and influence touched many fundamental aspects of Malaysian life. He wrote on subjects that resonate deeply within society. He was far from the "useless sociologist" that he claimed to be in this matter, at least, he was completely wrong.

Alatas was not only a brilliant academic. He was also a public figure who believed deeply in this country and did what he thought was right even if it cost him dearly. He never hesitated from speaking the truth. Alatas' work has substantial, indeed, profound, implications for a decent social order for all Malaysians. This lecture will focus on three themes that Alatas felt most compelled to write about and which are as relevant today as they ever were. The first was religion, especially islam and how it was positive force in development. The second was how Asian needed to be mentally liberated from colonial and western patterns of thinking. He was an ardent believer in Asians being able to think independently and creatively for themselves. The third theme was creating the conditions for good governance, particularly the eradication of corruption. He regarded the scourge of corruption to be the most damaging in developing countries.

Alatas wrote on other subjects as well, on history on Malaysian politics and in his own field of sociology. The scope of his work was very wide and his output remarkable. He published more than 16 books and over 50 articles and papers during his lifetime. Schooled in the European tradition. Alatas was also equally familiar with the writings of Islamic scholars. This added a dimension to his analysis that was rarely available to most western social scientists. Whether conducting a penetrating analysis, constructing an intricate argument or the pen and his mastery of language meant that he was capable of conveying the most nuanced thoughts and arguments. As with all good scholars, he was fiercely independent of mind. He refused to be subservient to any foreign imposed epistemology or to neglect his intellectual roots. He could take on and take apart western scholars and eastern politicians alike with devastating critiques. At the same time, Alatas was fair-minded. He was not an ideologue. He thought about issues rationally. He was prepared to acknowledge the importance of the contributions of those he disagreed with provided they had merit.

He was proudly Malay, paassionately Muslim and yet persistently multi-racialist. He believed in non-communal politics, an ideal he shared with his illustrious uncle, Dato' Onn Jaafar. He knew how strong the retrogressive forces at work in society could be. He was a rare breed of man in his day and rarer still in this day and age. I will now turn from the man to the first of his great themes, namely, religion.
Religion, Islam and Development - The world view on Islam in the West has been tainted by past prejudices when little was know about it. Exacerbating the current situation are books on Islam written by non-Muslims. I am reminded of the comment by Schopernhauer, "What Peter says about Paul says more about Peter than it says about Paul". The tendency to give Islam fictitiously antagonistic and anti-modern qualities is unmerited and unwarranted. It would have been all too easy to become angry at the unfair allegations launched at the Muslim world and to repay hatred with hatred. While an emotional response of some kind could be understandable, it also runs the risk of being counterproductive. One hardly demonstrates the superior nature of one's religion by taking actions that contradict them. This is something that the radicals of all religious stripes, and not only those who are Muslim, have failed and still fail dismally to comprehend.

Alatas'response to the unjust views about Islam was to be committed, alongside others in the Muslim world, to inter-civilisational dialogue. At the tender age of 26, he founded and edited a journal entitled 'Progressive Islam', which was dedicated to "the promotion of knowledge concerning Islam and Modern thought". Two years later, in 1956, he published a small booklet entitiled 'The Democracy of Islam'. He demonstrated to Muslims that they have nothing to fear, either doctrinally or intellectually, to anything that the West had to throw at them. They could be as knowledgeable and confident as any in the western world. His defence of Islam comprised not just in appealling to Quranic authority. He drew on Greek, Roman, liberal and even socialist thoughts. He was able to soundly cite little-known historical events and well-known historical authorities. And because he was familiar with the world's major religions, he was able to rationally deconstruct the popular arguments against Islam to show the underlying myths and fallacies. Through dialogue, he was able to engage western intellectuals, inform them, make them reconsider their arguments and eventually earn their respect.

Today, there are those who think that the interest of the Islamic world is somehow advanced by being insulated and isolated from the west. They think that they can gain appreciation and admiration by mantra-like repetition of religious doctrines. And where Islamic civilisation in the past loved knowledge and produced great scientific and technological breakthroughs, the present appears to be marked by a sad lack of ability and an even sadder lack of interest. Many Muslims today consider themselves under siege to such an extent that their only option is to escape into "other-worldiness". When they respond to provocations. It is to lass out with displays of heated emotion rather than coool reasoning minds. Little do they realise that the less rational the discourse and the more coercive the reponse, the greater is the extnt to which Islam's authority and power is undermined. If Islam has to be defended by force rather than reason. I would submit that there is something fundamentally wrong about our interpretation of it. Such responses are by those who lack the knowledge and self-assurance of Islam's fine intellectual and discursive tradition.

As a sociologist, Alatas showed that Islam is not opposed to progress but is inherently compatible with capitalism and modernisation. The qualities that were supposedly part of the capitalist spirit such as a strong work ethic, frugality time management rational thinking and most importantly the concept of a 'calling' by the Almighty were all "strongly pronounced in the Islamic ethic". The application of scientific knowledge to all aspects of human life is also compatible with Islam. These include objectification of nature, rationally, empiricism, critical and inquiring thought and emphasis on systems procedures. If some Muslims do not demonstrate their economic proficiency, he argued, it was not due to Islam. Rather, non-religious factors were at work. If Islam were to blame, one would find Muslims everwhere devoid of economic success. This is clearly not the case.
Mental Liberation - The second of Alatas themes is that of mental liberation. In his seminal work, 'The Myth of the Lazy Native', he analysed colonial capitalism and the way the natives of Malaya, the Philippines and Indonesia were portrayed. He then comprehensively deconstructed the accounts which stereotyped their poor racial qualities. He argued that it was the colonial system that produced the observed behaviour. The natives of these countries were no more nor less hard working than any if the surrounding political, economic and social environment were the same. The visible effects of colonialisation have been studied and are relatively well know. What had been much less examined, however, was the way that colonial ideology was held in place the invisible yet pernicious effects that it exerted on thinking. Colonial ideology required that the ability of the natives be lowered in order to justify foreigh powers taking and holding on to the reins of power. Thus, they were typecast as being unable to fulfill proper economic functions by reason of their nature.

Even more damaging than the typecasting was the insidious effects on thinking. Colonialism created a total schema or what i like to refer to as a "thought regime" which dominated the way people understood and spoke about subjects. Words, concepts and supposed cause-and effect realationships were all canstructed to suit the purpose of the colonialists. What was particularly annoying was that colonialists then accused the local populace of becoming addicts. As a result, intellecutal thinking became "captive" to the prevailing thought regime. It became bound by colonial language and assumptions, imitative and non-creative. This was something the communists also understood very well. From an early stage, they imposed social order throgh such means as mass propaganda campaigns, the decimation of intellectuals and so called "re-education" programmes, all in order to impose the desired worldview. History was rewritten to favour the political order. Facts were omitted or misrepresented to shape collective social consciousness. Language itself was subverted to serve the regime.

The recognition that minds can held captive to particular worldviews was an important step in the intellectual development of former colonies. Not only did countries have to be decolonialised politically, they had to be de-colonialised in terms of mindsets. Having achieved freedom we need to be careful not to fall back into set patterns of thingking which serve narrow interests and stife the sprit of inquiry, creativity and ultimately, change. Entrenched interests, of course, generally prefer the status quo. They do not appreciate being challenged by new ideas and new ways of doing things. And change is essential if countries are to develop holistically. The one group Alatas turned to was intellectuals, which he believed would serve as an antidote to two widespread 'poisons' in developing countries. The first of these poisons were those he called 'fools' - persons who were educated but yet unable to provide any creative solutions to the problems of the day or to demonstrate high standards of behaviour and performance. According to him, developing countries lag behind others when a large number of fools determine the interest of the nation. 'They usually just follow the line of least resistance. The second poison was 'bebalisma' - a general attitude of ignorance, indifference and idolence or dislime of work. It makes society non-anticipatory, non-thinking, non-rational and non-contextual. No priority is given to the things that really matter and no embarrassment is felt for mistake and shortcomings.

The concept of the fool and 'bebalisma' stuck a chord with the Malaysian public. Who, after all, does not have a favourite personal story of clownish bureaucracy or of bebalism? The stakes, however, are much higher. "To lack intellectuals," Alatas said, "is to lack leadership". "Our national problem', he said, "should be tackled with intellectual justice, not with exploitative ignorance" intellectuals possess the ability to pose, define and analyse problems and propose solutions.

Good governance - One of the great themes in Professor Syed Hussein Alatas' work is known in today's parlance as 'governance'. He fought tirelessly to elevate integrity and justice in society and to correct social ills. The battle against corruption received top priority. His books on the topic were published from as early as 1968 Four of his publications were exclusively devoted to the discussion of this social illness. He drew attention to the debilitating effects of corruption on the human condition. Corruption is mankind's most deadly social disease. It is a disease than can undermine good governance, weaken institutional foundations, distort public policy, compromise the rule of law and constrain the economy. If not nipped in the bud, it is like a cancer whose deadly cells multiply rapidly and pervade the body politic. Once corruption becomes widespread, there is the danger that corrupt acts will no longer seem immoral and unlawful - just business as usual. In Syed Hussein's terminology, it can even become 'an industry' in itself. A society where corruption is rife is one where the actions of an unprincipled minority have detrimental consequences on the welfare of the majority. The interests of a minority override the interests of the majority. It curbs competitiveness to the detriment of economic and social development. It leads to tremendous misallocation of resources. The cost of doing business becomes unacceptably high. Investors shy away. Incomes fall. Jobs are lost, the People suffer. Corruption exists because of man's enduring desire for personal gain. The monotheistic religions believe that even the first humans, Adam and Eve, were bribed - by a serpent. As the story teaches, the consequences for humanity were colossal. History has shown how a culture of corruption can lead to the fall of empires and the destruction of civilsations. Unfortunately, societies have not always learned from their own sufferings. Greed can be so rife that lessons from history often go unnoticed.

This is why values, and principles based on integrity and soical justice, as enunciated by Syed Hussein, are crucial. Mental attitudes and values are what shape a nation's development. Strengthening processes, systems and institutions can only be effective if a strong value system exists as the foundation. In addition, the environment in which corruption takes place has to be conditioned to keep it in check. The starting point is with the nation's leaders. Figures in authority must be chosen for their integrity first and qualifications second. They must take personal ownership in bringing out a decent social order, and they must be held accountable if they do not achieve it. Those with a chequered past or clear evidence of questionable morality should be prevented from taking office. There should be zero tolerance for corrupt practices. There must also be concrete anti-corruption measures and management practices based on efficiency, transparency and accountability. This is the second leg. Unnecessary and complex regulations and licensing requirements should be pared back or else simplified in order to discourage under the table deals. The award of contracts should be fairly and transparently administered. Oversight agencies and appeal processes should be in place to ensure that discretionary power is not abused. It goes without saying that an anti-corruption system must be functioning and effective.

Syed Hussein was right when he observed that there was no leader or any developing country who had not adopted an anti-corruption platform. Those who could be taken seriously, however, were very few. The third leg of good governance is the mobilisation of public opinion. Syed Hussein placed great store on the power of public outrage. He believed that if you awakened society's consciousness to the ills of corruption and gave cases of corruption widespread pubilicty, it would generate such an adverse reaction the the government would be forced to take action. Complaints and protests may be irksome, but they should be treated as welcome and constructive feedback. Syed Hussein's work has many implications for a decent social order for all Malaysians. Before going into some of them, let me do what the good Professor would have done, and that is to define exactly what the term 'social order' means. While there are many competing and complementary definitions, the one I choose to use is simply this: A social order is one where formal and informal social institutions, customs and practices determine and reinforce what are acceptable and unacceptable social norms and behaviour in society. The former include class, ethnic, religious, kinship and intellectual influences. A decent social order would be one where the social factors mentioned above produce social norms and behaviour that are fundamentally efficient, productive and just. Not only that, I would add that the idea of decency implies standards that are more than minimally adequate but which correspond to the highest international levels. What does all this mean in concrete terms? What characteristics or traits would a decent social order in Malaysia have?

Let me quickly summarise five of them. First, if Malaysia is to have a decent social order, it cannot be characterised by social fragmentation and polarisation. The social order must be one that leads to cohesion within and among communites. There must be horizontal equity whereby all Malaysians in equal circumstances are treated in exactly the same way. Second, the social norms that a decent social order produce would lead Malaysians of all races and religions to engage one another with absoulte civility and respect. Coercion and overt and covert threats of violence as a means of attaining political, economic and social ends would never be sanctioned. The only legitimate way to take into account differences and resolve problems is through dialogue and negotiations. Third, Malaysians would feel a deep-seated sense of ownership over the problems of the country. They would be motivated to take decisive action and to make whatever sacrifices that are necessary for the good of the country. There would not be the high degree of indifference and apathy that there is at present. There would not be the tendency to escape from the challenges confronting the country or to apportion blame. Fourth, only Malaysians who are capable, hard working, bold and scrupulously honest would be allowed to serve in positions of responsibility. Those who are inefficient, incompetent and most importantly, corrupt would be held in absolute and utter contempt by society. In this regard, the fight against corruption would be the first priortiy in the Malaysian development agenda. It would be recognised that corruption ensures that no decent social order is possible. Actions to ensure a corruption-free society would be unrelenting.Fifth, the public would have a high degree of trust in the pillars of state, the executive judiciary and legislature, as well as the civil service and police. Those appointed to these institutions would be the best the country has to offer. They would never allow respect for their office to be compromised in anyway, preferring to resign rather than let it fall into disrepute. At all times, the rule of law would prevail.In short, a decent Malaysian social order would be one that is based on inclusiveness and accommodation as opposed to marginalisation and discrmination. Problems that are of racial or religious origin would be resolved in ways that demonstrate the best aspects of race and religion rather than driving Malaysians away from each other.

Indeed, if Malaysia professes to be an advanced country, it had better be prepared to meet a higher standard of behaviour and morality. Anything less and it runs the risk of being declared a shameless sham. Perhaps Syed Hussein's most important and enduring legacy for a decent social order for all Malaysians - one that underscores all five points I have mentioned - is his insistence on values and morality as a basis for public dicourse and action. Without these, development will not lead to the social uplifting of all Malaysians. Instead, it will result in rampant corruption, extreme elltism and perilous social inequlity.

In her tribute to Alatas, Dr. Deborah Johnson concluded as follows; "Perhaps posthumously and in thelight of the distance that the passage of time brings, the work of an intellectual such as Syed Hussein Alatas may receive the balanced, critical attention that will affirm his contribution to crtique of 'fools', Alatas would possibly have been even given more public honour. Far more accolades have been heaped on those who have done far less. This presumes, however, that wealth, prestige and position were what he wanted. His life and his work show otherwise.

NOTE: Prof Syed Hussein passed away on Jan 27, 2007.

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More by Raja Nazrin:

In a keynote address at the ‘Young Malaysians’ Roundtable Discussion on National Unity and Development in Malaysia’ yesterday, the Crown Prince of Perak, Raja Nazrin raised seven important steps for every Malaysian to realise that they ‘all had a vital role in building a strong nation’:

The first of seven steps he defined towards this end was a sense of belonging and a common destiny, binding Malaysians of all races, religions and origins together in a common purpose.
Step Two: Don’t just wish away problems, as nation-building is premised on the fact that there are differences in society.
Step Three: Nation-building required accommodation and compromise.
Step Four: Avoid enforced solutions, as coercion or threats of violence would nullify nation-building.
Step Five: Inclusiveness, to enable the various sectors of society to be productively engaged.
Step Six: Political, social and economic incentives should exist to reward good behaviour and penalise bad.
Step Seven: The greatest challenge to nation-building was balancing the need for change with that of continuity, particularly in facing globalisation.

Yuan To Move Higher, Faster

The yuan is very likely to move up higher and faster within the next few days. This bodes very well for strong all around Asian currencies as they are all keeping in step with the yuan's rise. This will also drive back funds into Asian assets. The likelihood of a stronger yuan was put in place by by the US politcos. Efforts to put sanctions on China over trade policies seen as hurting the US gained steam on Capitol Hill as a second congressional panel approved a bill aimed at pressuring Beijing to revalue its currency. The Senate Banking Committee, on a 17-4 vote, moved to tighten the government's definition of currency manipulation and make it harder for the Bush administration to avoid labeling a country a currency manipulator. Under U.S. law, if a country is declared a currency manipulator, the Treasury Department must either initiate bilateral negotiations or pursue a claim with the International Monetary Fund. The committee's legislation would require the Treasury to do both. If those avenues fail, the Treasury would have to file a complaint with the World Trade Organization, which has greater enforcement powers than the IMF.

The action follows Senate Finance Committee approval last week of a bill that would allow companies hurt by currency manipulation to seek temporary relief in the form of antidumping penalties on imports from the offending nation. The White House, wary of antagonizing China, has threatened to veto both measures. This is exactly the joker card that Paulson needs to show it to China to get what he wants them to do. In order to avoid a politically charged atmosphere, we should see Beijing allowing the yuan to rise faster. Nobody wants a bloodbath now, esp when the US elections are moving into 3rd gear and China is preparing for the best Olympics you have ever seen.

Henry Paulson has warned congressional leaders that such bills might violate World Trade Organization commitments and trigger a trade war. But the White House has stopped short of calling the legislation a WTO violation. All said, this allows Paulson to play good cop-bad cop to both sides. Likely winners, Paulson and Asian markets.

Why I Don't Like Stem Life

Stem Life, just like the company's business, the share price seems to have grown another leg. I was never convinced on the attraction of the business model. I am convinced that there is a commercial need being satisfied. I am also convinced that investors have gone troppo with the stock, they should check in to Subang Medical for a checkup to make sure their senses are in tune.

Its a stem cell banking and therapy service provider. Stem cell banking allows clients to store their healthy stem cells for future use in treating diseases such as blood disorders, heart disease and cancer. Possible advancements may also allow treatments for Alzheimer's and arthristis.

Main revenue base is the first time charge for extraction. Storage revenue is less than 10% of revenue. We are talking about private stem cell banking here. There are only two private stem cell banking companies, Stem Life and CryoCord. Stem Life has 64% of the banking market. Stem Life also holds a 40% equity in Thai StemLife. The fees charged by Stem Life is on the same level as the two Singapore competitors, Cordlife and Stemcord.

To me, the business model viability for a services based company hinges on the "barriers to entry". It has a first mover advantage. It is compliant with standards set by the American Association of Blood Banks and the New York Cord Blood Bank. Its labs are about to be accredited by the College of American Pathologists. The staff required are unique but not debilitatingly so. These are hurdles but not very significant hurdles. To me stocks such as Stem Life has a few big KILL JOYS drawback which are more than enough to kill off my interest: the discovery of alternate forms of stem cell harvesting and/or discovery of drawbacks of stem cell therapy and/or the discovery of alternative treatments which makes stem cell research obsolete.

The emergence of Berjaya Corp into the company is interesting as its insurance arm could package attractive insurance plans to pay for the stem cell banking plans for clients. Berjaya Corp now owns 13% of Stem Life; and 43% of Berjaya General Insurance through its 62% owned Berjaya Capital. However, that is not as explosive as what most are making it out to be because any similar companies can do the same with any insurance companies, with or without the minority stake. Hence the emergence of Berjaya Corp is no big deal.

My main aversion factor is their net profit margins, which is now very rich at 33%. That is very unlikely to continue. We know because we can look at similar regional companies in Asia such as Soiken Inc (16%), Ain Pharmaceiz (2.2%) and Falco Biosystems (2.7%). Plus, hint hint, the other two main competitor in Singapore are not listed, don't you wonder why?! Singapore has a better access to a more knowledgable client base, plus affordability is better - but why are they being kept private still? The situation is the same in Europe, the companies there have been operating much longer: best of the lot are Isotron Plc (19.7%) and Synexus Clinical Research (17.3%), but the rest gravitate towards the 10% level including Biomeriux (9.7%) and Unilabs Sa-Br (7.1%). The corporate experience shows the same for similar companies operating in the largest market for stem cell banking, the USA: Laboratory Crp of America Holdings (12.5%), Covance Inc (11%), MDS Inc (9.6%), Quest Diagnostics (9.8%), to name a few.

Taking into account my one KILL JOY factor, and putting the 33% net profit margin now enjoyed by Stem Life. Let's look at the high end of earnings estimates, for 2007 let's put it at a net profit of RM14m and for 2008 at RM18m, those are on the higher end trust me. That works out to be an EPS of 8.4 sen and 11 sen respectively, or a PER of 66x and 51x respectively. Mind you, the net profit margins will DROP from here towards the mean. The existing two Singapore companies are competitors in a lot of ways already. Just the existence of another player will trim down the net margins even faster.

Its a decent business but its not Google. At RM5.60 ... better off flying kite! (Market cap at a quite ridiculous RM924mn).

Wednesday, August 01, 2007


Fear, Panic & Information

Lack of information will magnify the fears, resulting in panic mode action. Adequate information flow should not disturb the fear and panic buttons in investors. Why the jitters? Shares of American Home Mortgage Investment Corp. plunged 90 percent yesterday after the company raised fears it may become insolvent, renewing concern about worsening credit quality in the mortgage market and killing a Wall Street rally. The struggling mortgage lender said its financial backers have essentially pulled the plug. The Wall Street banks that lend American Home Mortgage money for home loans -- which include firms like UBS AG, Bear Stearns Cos., and JPMorgan Chase & Co. - will not extend the company any more money, and some have demanded back the money they have lent. American Home shares, which were halted all day Monday, plummeted when trading finally began at about 2 p.m. EDT and ended the day at US$1.04 a share, down from US$10.47 on Friday before the company first disclosed the depths of its financial woes. Talk about limit down, what limit down,Malaysian shares have it so good.

The Dow Jones industrial average, which had been up as much as 140 points earlier in the day, reversed course after the resumption of trading in the company's stock and then kept falling. It fell 1.1 percent or almost 146 points for the day. American Home Mortgage will probably go bankrupt, or at least be restructured into something leaving very little value for shareholders.

American Home Mortgage said it has over the last three weeks paid "very significant" margin calls, which occur when a lender demands compensation after a borrower's collateral loses value. The company still faces "substantial" unpaid margin calls. We ask ourselves, IS THIS THE FIRST FEW COLLAPSES due to the weak subprime market??? Answer is NO, this echoes reports from a number of other mortgage lenders of late, including New Century Financial Corp., the Irvine, Calif.-based lender that filed for bankruptcy protection earlier this year.

The company failed Monday to deliver US$300 million in mortgages promised to home buyers, and said it expects to be unable to finance US$450 million to US$500 million in additional mortgages Tuesday. The reason American Home Mortgage's lenders are balking is the mortgage loans that act as collateral for the company's credit lines have sunk in value. The market where investors buy mortgage loans has suffered "unprecedented disruption" this year, the company said, and it is having trouble selling its mortgages. Last year, the lender sold two-fifths of its loans to Countrywide Financial Corp., Deutsche Bank AG, and Wells Fargo & Co.

Dozens of mortgage lenders have gone bankrupt this year as more people miss payments on home loans, housing prices sag and skittish investors flee risky mortgage debt. But while most of the bankrupt lenders catered to "subprime" borrowers or borrowers with checkered credit histories, almost none of American Home Mortgage's US$58.9 billion in loans last year were classified as subprime. American Home Mortgage specializes in adjustable-rate mortgages, which carry interest rates that reset according to certain benchmark interest rates. This type of debt has hamstrung a lot of borrowers in the past year because interest rates have jumped.
The company also lends to so-called Alt-A borrowers, or borrowers that cannot document their income. While Alt-A credit is not considered as unreliable as subprime, it is a step down from prime. To me, that is a lot worse than normal subprime when you cannot document your income.

Alliance Bancorp, an Alt-A lender based in Brisbane, Calif., went bankrupt this year. Separately, ratings agency Moody's Investors Service said it is increasing its assumptions for losses on pools of Alt-A loans. As delinquencies in Alt-A debt mount, Moody's said it sees signs that Alt-A loans were underwritten using similar standards to subprime loans.

If these developments are nothing new, are they UNEXPECTED? Please, its been written in the stars already. If you go back a few months to look at the historical developments in subprime, and the downtrend of the US housing market, its there for more than the past 10 months already, its not new. Its a down cycle, yes, and companies affected to fail, yes. Do Americans need to panic??? Do the rest of the world need to panic????? Let's look at the situation, weakening property prices will not affect repayments as much as higher interest rates. The Fed sould be stepping in earlier than first thought to drop at least 25 basis points in interest rate to calm the waters.

I have been advocating calm following the recent jitters because at the end of the day, its the unemployment factor which will enable them to ride out the stormy subprime waters. The jobs market is still very firm, even considering the job losses in the property related sector for the last 10 months. That's very encouraging. The firm employment market is also due to a more robust global economy, particularly Asia, Europe, Latin America, ... well everywhere I guess.

So, don't worry, be happy!