Sime Darby to unlock assets worth RM3bil

PETALING JAYA: Seven years after Sime Darby Bhd went through a mega-merger of all plantation companies under the Permodalan Nasional Bhd group, the group is now looking to unlock the value of its assets which is close to RM3bil.

Two weeks ago, Sime Darby did not discount the possibility of acquiring a real estate investment trust and its management company in a move that was seen as unlocking some RM1.4bil in its property division.

The company has disclosed that a listing of its automotive arm is an option it is considering to enhance shareholder value, and it has been reported that Sime Darby had invited investment banks to make a pitch for its listing.

Analysts have estimated Sime Darby to raise some US$500mil (RM1.6bil) from the listing of its automotive arm, which is expected to take place by year-end.

Analysts had mixed views towards Sime Darby listing its divisions to unlock value.
Some feel that Sime Darby’s divisions are ripe for listing because they have matured, while there are other views that a listing would only be beneficial if it did not impact the valuation of the parent company.

AmResearch analyst Thomas Soon said the listing of its divisions made sense because the businesses had grown over time and it had attained economies of scale.
“It makes sense because the businesses have grown. It is a good time to spin off the individual businesses,” said Soon.

“As a spin-off, Sime Darby would actually unlock value rather than lose value. Previously, the businesses were not so integrated, but now, there is a clear distinction in its businesses,” he said.
He sees Sime Darby becoming a pure plantation company in the future.

However, UOB KayHian research head Vincent Khoo said Sime Darby needed to carefully study the potential exercise from a valuation perspective. Breaking its businesses up would not result in operating value creation, he said.

“From a valuation perspective, it might be better to keep the businesses under the conglomerate umbrella. This is because once they have broken away, they might lose their premium from potentially not being included in the index,” he said.

Additionally, he noted that trading businesses on their own tended not to fetch high valuations. “They tend to be not particularly expensive,” he said.
Sime Darby’s automotive business is seen as largely being driven by trading activities because of its position as a distributor of several marques.

The breaking up of Sime Darby is not an entirely new notion. In August last year, the company had indicated that the group could consider possibly listing its key divisions when the time was ripe.
Even under the previous president and group chief executive officer Datuk Seri Ahmad Zubir Murshid, there were plans to list its automotive and plantation businesses.

Ahmad Zubir had explored listing the Hong Kong and China motor operations on the Hong Kong Stock Exchange and the Indonesian plantations on the Jakarta Stock Exchange.
The pressure to list came about as pressure mounted on Sime Darby due to it being a laggard after concluding the biggest merger in Malaysian corporate history involving eight listed companies.
The eight companies were Sime Darby, Sime Engineering Services Bhd, Sime UEP Properties Bhd, Golden Hope Plantations Bhd, Mentakab Rubber Co (Malaya) Bhd, Kumpulan Guthrie Bhd, Guthrie Ropel Bhd and Highlands & Lowlands Bhd.

The merger was valued at RM30bil when it was initiated in December 2006. Upon completion and relisting, it was requoted at close to RM60bil.
But since then, Sime Darby has not performed up to expectations, with the expected savings derived from the merger being offset by losses from its oil and gas (O&G) arm that amounted to RM2.1bil in the financial year ended June 30, 2010.

The losses from the O&G arm resulted in Sime Darby being in the limelight for all the wrong reasons, and eventually saw the company taking civil suits against Ahmad Zubir and four other executives. The cases are still pending.

Home prices under pressure

PETALING JAYA: Malaysia is seeing signs of a possible moderation in overall house prices, data from the central bank show.

The growth in the Malaysian House Price Index (MHPI) declined to 9.6% in the fourth quarter of 2013, compared with 12.2% a year earlier, according to Bank Negara.
This was the first time since the third quarter of 2011 that the MHPI was below 10%, and the improvements were recorded across most states and most types of dwelling.
It said sales and new launches slowed in the last quarter of 2013, possibly due to the various measures imposed to cool down the housing sector since 2010.

“It’s possibly due to the wait-and-see attitude of some developers and buyers following the prohibition on developer interest-bearing schemes in November last year, further increases in real property gains tax in January this year, higher minimum purchase price for houses by foreigners, and uncertainties regarding the potential impact of the goods and services tax,” Bank Negara said.
The central bank pointed out that there was no conclusive evidence of a housing bubble in the country. It added that analysts, rating agencies and international organisations, such as the International Monetary Fund, had lauded the pre-emptive and concerted measures taken by the Government and Bank Negara since November 2010 to curb excessive speculative activities in the domestic property market and promote a sustainable housing market.

Felda Investment buys 49.45% stake in Encorp in RM239.72mil deals

PETALING JAYA: Felda Investment Corp (FIC), the investment arm of the Federal Land Development Authority (Felda), has bought out all the shares in Encorp Bhd held by two major shareholders for RM239.72mil.

The move, said observers, could make Encorp the listed property development vehicle of the Felda group, which owns large swathes of valuable landbank in major cities across Malaysia.
According to a Bursa Malaysia filing yesterday, FIC had acquired 49.45% of Encorp from Lavista Sdn Bhd and Pegang Impian Holdings Sdn Bhd via separate conditional sale and purchase agreements.

This will oblige FIC to extend a mandatory takeover offer for the shares, warrants and loan stocks that it does not own in Encorp at RM1.55, 55 sen and RM1.55 apiece, respectively.

Lavista is to dispose of its 29.85% stake, as well as 8.33 million five-year warrants and 16.66 million five-year 6% redeemable convertible secured loan stocks (RCSLS) with a nominal value of RM1 each to FIC for RM133.69mil cash.

World economy on track for modest recovery, inflation to remain well contained

Schroders Economic & Strategy Viewpoint says the world economy is on track for modest recovery as monetary stimulus feeds through and fiscal headwinds fade in 2014. Nonetheless, it is not good news for the rest of the world particularly those economies which have relied on selling to the US, it says. It says the US economy still faces fiscal headwind, but gradually normalising as banks return to health and private sector de-leverages. The Federal Reserve is expected to complete tapering of asset purchases by October 2014, possibly earlier, with the first rate rise expected in the third quarter of 2015.

“The emerging markets are vulnerable in this respect and it is notable that the surplus in these economies has declined significantly from 5% to 1% of gross domestic value (GDP) since the crisis according to figures from the IMF,” it says. Schroders notes that much of the improvement in US trade has been with the fragile five of Brazil, India, Turkey, Indonesia and South Africa. “These economies are now adjusting, but this analysis suggests that there will be no return to pre-2007 export growth,” it says. It adds that tighter monetary policy also weighs on emerging economies. It says that China’s growth is downshifting as past tailwinds on strong external demand, weak US dollar and falling global rates going into reverse. “The authorities seek to de-leverage the economy,” it says.
The Chinese GDP growth slowed in the first quarter of 2014, from 7.7% at the end of last year to 7.4%, year on year. “Though this was better than expected – City expectations had been for a rate of 7.3% - the economy is still slowing and we think hopes for greater stimulus will be dashed.

“Meanwhile, higher frequency data for March, combined to give a leading indicator, generally points to continued softness in the second quarter,” it says. Combined with the weaker PMI seen at the month’s start and softer money supply numbers, Schroders opines that it is difficult to feel positive about Chinese growth, despite the better than expected GDP number. Pulling this together the conclusion is that the US is likely to be less of a locomotive for global growth than it has been in previous cycles, it says. “Consumer spending is likely to be more lacklustre and, of the demand generated by the US, more is likely to be met by domestic rather than overseas production,” Schroders adds.

Malaysian Islamic capital market now worth RM1.5 trillion

KUALA LUMPUR: The Malaysian Islamic capital market (ICM) which grew by 8.8% in 2013 is now worth RM1.5 trillion.

ICM now accounts for 56% of the overall Malaysian capital market, said the Securities Commission deputy chief executive Datuk Dr Nik Ramlah Mahmood.

“Seventy-one per cent of our public listed companies are designated as syariah-compliant. We also maintained our position as the largest sukuk issuer in the world, accounting for 69% of the global sukuk issuance,” she said at the BNP Paribas - INCEIF Centre for Islamic Wealth Management Symposium here yesterday.

“She said better wealth creation and investment opportunities for investors had also been made available by increasing the number of full-fledged Islamic fund management companies in Malaysia.

“Our Islamic fund management industry with RM97.5bil in assets under management, is managed by 19 asset management companies licensed to exclusively manage syariah-compliant funds.
“Of the total assets under management, RM42bil is in the form of syariah-compliant unit trust funds which grew by 21% in 2013,” said Nik Ramlah.

“Of particular relevance to the Islamic wealth management industry is the fact that Malaysia now has 52 Islamic wholesale funds with almost 15 billion units in circulation with a total net asset value (NAV) of RM16.43bil.
 
“This represents almost 28% of the NAV of all wholesale funds in Malaysia. While it is clear that the local ICM has supported domestic growth by offering a multitude of financing and investment opportunities to domestic businesses and investors, it also continues to leverage on Malaysia’s core strengths to make very significant strides in the international arena and is now increasingly more integrated with the international market,” she added.

According to Nik Ramlah, a milestone was achieved in this regard with the introduction of the revised screening methodology of listed stocks.

“The two-tier quantitative approach introduced in 2013 further aligns our screening process with international practices, thus paving the way for a greater inflow of foreign Islamic funds into the domestic markets,” she said. — Bernama

 “By also incorporating a two-tier quantitative benchmark approach comprising business activity and financial ratio benchmarks, the adoption of the revised methodology is envisaged to further enhance the attractiveness of the Malaysian Islamic equity market and fund management segments to international investors.

“With this in place, the wealth management industry should gain more traction with a wider market, especially from investors looking for syariah-compliant wealth management solutions,” she said.
The symposium, jointly organised with the Labuan International Business and Financial Centre, attracted more than 150 delegates.

A total of six speakers and panelists, ranging from regulators, Islamic scholars, academicians and industry practitioners, convened to share their insights and knowledge of the Islamic wealth management industry.

During the one-day symposium, speakers and delegates deliberated on practical issues and challenges in further developing the Islamic wealth management industry and its relevant management structures such as the Labuan Islamic Trusts and Foundations, to gain a competitive advantage in establishing Malaysia as a preferred Islamic wealth management destination.

At the end of the symposium, Chairman of BNP Paribas - INCEIF Centre for Islamic Wealth Management (CIWM) Advisory Board Professor Datuk Dr Syed Othman Alhabshi, said more awareness programmes need to be created, especially for high net worth individuals and financial wealth managers to promote Islamic wealth management in Malaysia.

Labuan IBFC chief executive officer Saiful Bahari Baharom said Malaysia had the infrastructure and expertise in the Islamic finance space to develop a strong competitive value proposition in syariah-compliant wealth management.

“The Islamic wealth management value chain is long, starting with the acquisition of assets, advisory and management services, in addition to legal, taxation and syariah advice, alongside trust and custodial services. Right at the end is the distribution of the assets.

“Each of these parts contributes to a specific value-added competency that we must strive to enhance to help grow our domestic high-value wealth management industry,” he added. -- Bernama

Consumer confidence in M’sia below global average: Nielsen

KUALA LUMPUR: Consumer confidence in the country has taken a hit as Malaysians continue to worry about the economic outlook, food prices and job security this year, according to a Nielsen survey.

Malaysia saw the region’s largest decline in confidence between the fourth quarter of 2013 and the first three months of 2014, declining six index points to 92. This is two points below the global average of 94 points, says the latest Nielsen Global Survey on Consumer Confidence and Spending Intentions.

In contrast, Indonesia’s confidence index score remained the highest globally at 124 points in Q1 2014, while the Philippines scored 116, followed by Thailand at 108, Singapore and Vietnam at 99 points each.

“It is interesting that the well-known political challenges have had hardly any effect on Thai consumers, who remain generally optimistic about their financial situation,” Luca Griseri, head of Nielsen’s financial services in Singapore and Malaysia.

Griseri said the negative sentiment was driven primarily by rising fuel and grocery prices due to the reduction in government subsidies.”

The Q1 survey, which queried 30,000 respondents with Internet access1in 60 countries, uses a baseline of above and below 100 points to indicate optimism and pessimism

Compared to the last quarter, 39% of Malaysians cited the economy as their main concern (up 4 percentage points), followed by 21% who are worried about rising food prices (down 2 pp) in the coming six months.

Job security remained in third position with a slight dip to 20% (down 3 pp).

Malaysian consumers are also concerned about their health (up 5 pp to 16%) and increasing utility bills (up 3 pp to 14%) as compared to previous quarter. On the contrary, concern surrounding debt (down 6 pp to 13%) and crime (down 5 pp to 13%) registered a decline versus last quarter.

Consequently, saving intentions among consumers in Malaysia continue to increase, with more than three in five consumers saving their spare cash in Q1 2014 after covering essential living expenses (up 1 pp to 64%).

In addition, Malaysians have cut back on expenses for home improvements (down 4 pp to 14%) and basic out of home entertainment (down 2 pp to 16% versus previous quarter) in an effort to rein in household expenses.

“Malaysian consumers’ reaction to concerns about the economy is to save more and spend less on discretionary items, to prepare for a possibly worsening economic climate. If these intentions materialise, they could have a negative effect on the economy,” Griseri noted.

Consumers in Malaysia also said they would continue to reduce household spending even when economic conditions would improve in order to increase saving.

The five areas they intend to continue cutting back are 1) gas and electricity (41%), 2) purchase of new clothes (28%), 3) out-of-home entertainment (28%), grocery (cheaper brands, 26%) and telephone expenses (21%).
“Despite Malaysian consumers’ tendency to save for a rainy day, it is interesting to note that they are still willing to spend on holidays,” Griseri noted.

Public Bank to raise RM5bil, first rights issue after 10 years

PETALING JAYA: Joining the band of banks that are beefing up their capital base for the Basel III requirement, Public Bank Bhd has proposed a renounceable rights issue to raise up to RM5bil.

This is the first cash call that Public Bank, which is the third largest financial institution in the country, is making in 10 years and the amount is the biggest among local financial institutions.
In January this year, CIMB Group raised RM3.55bil through a private placement of 500 million new shares at RM7.10 each.

It’s easy to fathom why Public Bank has embarked on a capital-raising exercise, Its Tier-1 capital is one the lowest among its peers and it contributes to meeting the capital requirements of Basel III.

As of the first quarter to March 31, 2014, Public Bank had a Tier-1 Capital of 10.1% versus an industry average of 12.8%. The Tier-1 capital is measurement of a bank’s core equity capital compared with its total risk-weighted assets. This is the measure of a bank’s financial strength.

It also has a common equity Tier 1 (CET-1) ratio of 8.5% versus an average of 12.8%.
Public Bank shares closed unchanged at RM20.16 on volume of 3.32 million shares.
In recent weeks, the stock had risen more than RM1 from the RM19.16 level to hit a high of RM20.80 on April 4, following an agreement by shareholders to merge its local and foreign shares. This exercise was completed on April 16.

In a filing with Bursa Malaysia, Public Bank said that the proposed rights issue was part of the company’s capital management strategy to further strengthen its capital position. “It will also facilitate the building up of an adequate level of capital buffer in preparation for the forthcoming regulatory capital requirements,” it said.

A banking analyst added that while Public Bank was probably building up its capital base for the Basel III requirement, it was more likely building up its war chest before a rate hike took place.
“I don’t think Public Bank wants to be in a position where it needs to compete with other banks to raise funds. So why not do it now?” explained the analyst.

Public Bank is in fact the third bank to raise funds after Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd.

Maybank raised RM3.66bil back in 2012 after it sold 412 million new shares at RM8.88 each to local and foreign institutions via a private-placement exercise.

In January, CIMB Group raised RM3.55bil via the issuance of 500 million new shares at RM7.10 each, also through a private-placement exercise.

On the rights issue, the issue price of Public Bank’s rights shares will be at a discount of at least 20% but not more than 35% from the theoretical ex-rights price of the five-day volume weight average price of Public Bank shares preceding the price fixing date.

Public Bank currently has a paid-up share capital of 3.53 billion shares. The rights issue will raise an additional 350.21 million shares, hence enlarging its paid-up share capital to 3.88 billion shares.
Public Bank said that the actual capital outlay and issue price of the rights shares would be determined later.

Public Bank’s founder and chairman, Tan Sri Teh Hong Piow, who owns 24.08% in Public Bank, has undertaken to subscribe his entitlement in full.

Together with Tan Sri Tay Ah Lek, the duo have been running the bank since its inception. In recent months, there have been speculation that Quah Poh Keat, who is now the deputy chief executive officer II, will lead the bank.

From the gross proceeds, some RM4.97bil will be utilised over the next 12 months for working capital and general banking purposes. The remainder will be used as defrayment of cost for the rights exercise.

Meanwhile, Public Bank yesterday announced the appointment of Cheah Kim Leng as an independent director of the board. Cheah served Bank Negara for 32 years in all aspects of banking regulation from formulation of policies to guidelines governing banks.