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.

How property is priced by the market

IN a system where income levels, savings, costs, population density, demand, supply, rents, property sizes, property condition, property usage and preferences are so different, how does a property acquire “a” price that is acceptable to a buyer and subsequently acceptable to the market?
Why does a property sell at RM1.6mil when almost everyone living there can at best afford only RM800,000 or sell at RM800-RM1,000 per sq ft when up to a short while ago the maximum was only RM350 per sq ft?
Can 350 new properties in a scheme sell at the same price as one single latest transaction of an existing property in the vicinity? Can 10 developers sell 350 new properties each based on the abovesaid one single latest transaction?
Let’s take a look over the last 30 years at how properties had been priced in the market. Subang Jaya would make a good starting point.

In 1980 when I first started working, I noted that the latest phase of the new single and double-storey terrace houses in Subang Jaya were priced at between RM90,000 and RM140,000 per unit respectively, up from their previous pricing of between RM60,000 and RM90,000 in 1979. The 1980 pricing echoed the newly revised housing loan amounts of Division 2 and Division 1 government officers. All the launched units were quickly sold with the new and huge demand. In the subsequent phases, the pricing followed the momentum of the earlier fully sold sale prices with additional premiums for time, newer design and specifications and variations in the floor and land areas.
Then in the 1990s in the condominium city of Mont’Kiara, I noted the new condominiums were priced based on the price range of the existing two-storey terrace houses in Sri Hartamas/Desa Hartamas which were no longer being built due to land shortage and high land prices. The new condominiums provided an ideal alternative for the affluent younger Malaysians who were seeking a lifestyle change. The prices were also influenced by foreign buyers who preferred a new property with security and property management services at prices and rents which they could afford.
When the number and type of foreign buyers and tenants increased, the developer started to build larger units which were priced based on the price range of semi-detached and detached houses in the neighbourhood. This was well accepted by the market as it was based on actual demand for new, secure and well managed properties by foreigners especially since there were two international schools in the vicinity.
I also noted that in pricing the newly-launched terrace houses in the mid-1990s in Bandar Utama, the prices were 10% to 20% lower than the last transacted prices of existing comparable houses in the same neighbourhood such as TTDI, Damansara Jaya and Damansara Utama. Here the rationale was that the price of the newly-launched house should reflect a discount compared to an existing property, to take into consideration the 2-year waiting period during which interest has to be paid to the bank and rents have to be paid to stay in the current accommodation. It is interesting to note that this rationale is no longer followed by developers and their marketing gurus who now price the newly-launched schemes at higher prices than the highest sale price of an equivalent existing house. The basis being, “why not” when everybody wants to invest in properties and loans are easy and cheap.

Pricing trend
Another pricing trend noted was the continuous rise in the prices of shopoffices in Bangsar and Desa Hartamas, etc. Here the price rise was directly influenced by the rentals paid for the ground floor retail units which were in high demand by food and beverage outlets. This trend continues in all the new smaller shopping complexes as well, where the food and brewerage (F&B) outlets form the largest composition of tenants. The reason they can pay higher rents is because there are a large number of people/small entrepreneurs who find this sector the easiest to enter or invest in, as the payback period is only a short 3 years and there are no barriers to entry.
The other occupiers of the shopoffices and small shopping complexes have no choice but to cough up the same rent as the F&B outlets, as they set the “tone” for the rent in that particular row of shops. As the rents rise, so will the prices as they are directly related.
Similarly, properties in areas which can be converted to a different use where new demand is being created such as showrooms, bridal studios, etc can afford a higher rent. Prices rise due to the higher rents paid. Then by way of the much misused comparison method of valuation, other properties in the vicinity also rise in price, irrespective of their current use, rent and turnover.
I note that in highly popular areas where supply of a particular type of preferred property is limited, like in Damansara Heights/Bangsar etc, the number of transactions per year is very limited as no one really wants to sell since there are no other similar alternatives to move into. Then when out of the blue, a unit here is advertised for sale (usually because the owner is migrating or just wants to test the market) a “special purchaser” will come along and easily pay 20% to 30% above the last transacted price to secure the unit. This is repeated in the next sale when the second “special purchaser” pays another 20% to 30% above the last special purchaser price.
After two such transactions, the price paid by the “special purchaser” becomes the market price and extends to all other properties which are considered comparable, such that the price is now beyond the capacity of the people who have always lived or traded in that vicinity.
The price here is based more on the price which someone living or trading elsewhere is prepared to pay. This is what is happening in Singapore, London, etc. where foreign purchasers set the price. In Malaysia this is happening in Iskandar, KLCC and Penang.
Prices are also directly influenced in the following manner. Say a typical terrace house in a locality measuring 20’ by 60’ and 20 to 30 years old, is fetching prices in the range of RM350,000 per unit. A new scheme comes up in the area where the new unit measures 24’ x 80” and is of modern quality. Here the two properties are not comparable in terms of size and quality. The new unit is priced at say twice the price of the older smaller unit (based on cost, floor area and land area) and sets a new price benchmark for that locality. Then in a matter of time, all the existing properties in the vicinity (particularly all those that have been renovated) try to adopt a similar selling price per sq ft as the new property, using the location, location, location theory, never mind that upon purchasing the older property, the new buyer has to spend a hefty sum to make it livable to modern standards.
Then there is the effect of the policies of the lending institutions on the price. The policies of the lending institution in respect of loan tenure, interest rates and the loan to value ratio directly influence the pricing of a property. During a period of high confidence, sellers can quote high prices just to test the market, but as long as the purchase of the property can be financed, the buyer is prepared to pay the higher asking price as the loan is spread over 20 to 35 years and almost 90% to 100% of the purchase price can be financed.
And all it takes is for one property to be sold and financed at the newly tested price and the new price level will then be tested even higher with the next lending institution. This is particularly true for new types of properties which the buyer and lending institution cannot compare with an existing property.
The above real examples clearly indicate how properties have been priced by the market. It is noted that despite property being a long-term investment and outlay, the market’s pricing mechanism is very short term and dynamic particularly when moving upwards. The prices being set by the market in the short term may not always equate with sustainable market values. It is a strong probability that if one blindly follows the pricing set by the market during a very short-term dynamic cycle, life can become one of endless and needless debt.

Obama: US not 'bullying' Malaysia

PUTRAJAYA: US President Barack Obama has denied that Washington is 'bullying' Malaysia in the ongoing negotiations for the Trans-Pacific Partnership Agreement (TPPA).

Instead, he said, he himself was being bullied by his own (Democratic) party on the pact while protests against the agreement was more due to "people being fearful of the future or have invested in the status quo."

"It is important for everybody to wait and see what is the (final) agreement before they jump into conclusions," he said in response to a question that Washington was bullying Kuala Lumpur in negotiations on the TPPA at a joint press conference with Prime Minister Datuk Seri Najib Tun Razak here on Sunday.

He said it is understandable that there would be objections, protests, accusations of political conspiracies, which is true not only for the US and Malaysia, but for all the negotiating countries.

In looking ahead towards a conclusion of the TPPA negotiations, he said that "countries and companies must be ready to take the next leap."

Najib, in earlier comments, expressed confidence that the overall benefits of the TPPA would far outweigh the disadvantages of the pact, which is still being negotiated by 12 Pacific rim economies although there would be some losers and gainers.

He also said that Washington understands Malaysia's domestic sensitivities as evident during his bilateral talks with Obama earlier.

Obama also said the TPPA would benefit Malaysia in achieving high-income nation status by 2020.
Najib, who is also Finance Minister, said Malaysia was committed to the process of getting the acceptance of people as far as the TPPA was concerned.

The TPPA negotiation involved Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam.

Malaysia is the third leg of Obama's four-nation tour of Asia. Prior to Malaysia, the 44th American president had visited Japan and South Korea. He heads to the Philippines on Monday.

Obama's visit to Malaysia is the first by a sitting US President since President Lyndon B. Johnson in 1966. - Bernama