Saturday, November 26, 2011

Reits, A Mystery?

The KReitAsia case has been discussed at length in BT by Wong Wei Kwong. The 3 main issues of Corporate Governance, viz the voting vs the polling process during the EGM, the incentive scheme for Reit managers, the independence of the IDs, were all correctly identified.

But, I guess  the KReitAsia issue has turned out to be a hot topic, so that some in the media wants their one-minute of fame. and  in TodayOnline , there is an article on Reits by Colin Tan  dated 25/11/2011 entitled  "A decade on, REITs remain a mystery".

Wow, what a eye-balls grabbing title; and coming from a property professional, I am quite baffled that he find Reits, a property "staple", a mystery!!

Contrary to the spirit of the BT article, which was to seek clarity and had a a value-add  in pointing to ways to improve Reits, as an asset class on SGX, Colin's article sought to mystify and muddy the Reit vehicle; in fact, the entire fleet of 23 listed Reit vehicles, at that.

First, lets start with the positives, what Colin got right.....
This may have to do with the existing reward structure - the payoff is better with acquisitions than getting the existing assets to perform better. Is this what the Monetary Authority of Singapore (MAS) intended when it drew up the regulatory framework for REITs?

There may be better justification for a hands-off approach in the early days when the industry was in its fledging stages and when the MAS needed to build up the industry.

However, as the recent K-REIT Asia controversy has highlighted, it may be time for further regulation, especially in the areas of independence and avoidance of conflict of interests.

Many times in the past, I had prodded journalists to look further into certain REIT issues but all have declined, citing a lack of understanding of the subject matter.

Also, as pointed out by one reader, most REIT unitholders are not sophisticated enough to look after their own interests because of their lack of understanding. Even a representative of an institutional fund I spoke to immediately after the K-REIT controversy erupted showed a lack of understanding of the issues. They simply trust the management to do the right thing.
Colin thinks that Reit holders, even IIs are not sophisticated enuff to understand the issues.
He probably pushed it too far....
The rest of the article is peppered with  serious assertions that are highly contentious and unsubstantiated.

Colin might be an expert. But he needs to back up his assertions which must be challenged!!

Excerpts... must be said that REIT managers have mostly had to acquire their properties on the higher side of valuations if only because it is the only way they can get the owners to sell it to them
This is a gross generalisation.
The property market is cyclical.
Reit managers acquire most properties at close to valuations.
Property prices rise and fall; subject to demand and supply, so do valuations.
Remember, property prices and rents are cyclical,  at any time there will always be valuation "gaps" and differing opinions creating opportunities for buy or sell.
Reit managers actually have the luxury to choose their timing so that they buy (only) in a down cycle, when assets are fairly priced or under-priced (hence, my objection to KReit timing for OFC's purchase), so long as the properties are reitable (able to be let out to good tenants and generate NPI  after Op Expenses and Interest charges) and that the Net Present Value of the DCF  exceeds valuations.

A REIT can get a property on the cheap only when the owner is ignorant of its true market value or if it is a forced sale - many investors still do not realise this.
Wow, unless the property is miniscule in size terms , which then means that it is not reitable, most  properties will be properly valued before sale. Many investors know this!!  Try taking a  property loan or a Refi, the banks will make U pay for a valuation, not to mention a SPA for a property.

At the same time, the REIT manager can only justify the acquisition to shareholders if it is yield-accretive. Otherwise, the REIT is better off not doing anything.

So, a spot of financial engineering is required to get it to be so. This will buy the REIT manager some time to get the asset to perform to expectations or for the market to turn around and justify the values. In a rising market, this is not a problem.

Otherwise, for the acquisition to be yield-accretive, the REIT will have to buy a property of lower quality or one with higher risk because such properties have higher yields
Serious accusations!!
If the Reit manager do any of the 3 mentioned above:
1) A spot of financial engineering
2) Buy an asset of lower quality
3) Buy an asset  with higher risk,
 then that Reit is surely headed for disaster.
Of the 23 surviving Reits on the SGX, will Colin care to substantiate with just 1 example, which Reit Manager, do any of the above to get accretive yield?
As more properties in Singapore are acquired by the REITs, there will be fewer available on the market. As such, the asking price by the remaining landlords can only get higher. Given more time, it will become clear, if it is not so now, that the current model is not sustainable in the long run.

Sounds prophetic and self congratulatory.

Contradicts the point he, himself made earlier----- that Reits can only justify their acquisitions, if the DPU are accretive. Reits, can simply say "NO", if prices are too high.
I can cite many cases Katong Mall, Chinatown Mall, Yew Tee Point, Parc or Bugis Junction---- the landlords chose to sell becos of certain internal issues such as a change of strategy or biz direction. For 77 King Street that was acquired by KReit, the owner was a Greek, who had personality issues with the tenants and hence could not get the occupancy higher.

Reits is an asset class that has worked in many jurisdictions eg US, UK and Australia.
The model is sustainable and has worked;  the biz model can evolve as the size grows----- with AEI (Asset Enhancements), Development ( up to 10% of asset value), sale of Old Properties. There is also less need for cash calls as size evolves, since placements will be  smaller  and bite- sized, relative to the size of the evolved Reit (Kreit will become No 2 in size in SG)  and easier to find subscribers; after the growing pains.

REITs are often presented as defensive plays as it relies on revenues generated from income-producing properties held in its portfolio. While it may be so in more mature economies, the situation is different in Singapore.

In mature economies, a typical portfolio of properties in a REIT is a lot more stable. The leases are longer, which means the payout is much more consistent. In Singapore, most REITs are on the acquisition trail and their portfolios are always expanding.

Is SG, not a maturing economy?
Colin should check out the WALE, before and after the acquisition  for most of the acquisitions by Temasek-linked Reits,  before he makes all the bold statements, above.
Almost all the Reits, I am vested in or know of ( i.e. with good sponsors), have no issues with consistent divd payouts.With the exception of some Reits hit by the Japanese triple whammy, most Reits have a stable portfolio of properties.

As a vested Property Professional, Colin should clarify
NOT sensationalise and mystify.

Friday, November 25, 2011

Li DaoKui on China

This article by Grace Segran appeared on Today , on 25/11/2011.
Those who follow me on the CNA Forum will know that he is one of my fave commentators on China.

By all accounts, the Chinese economy is thriving. While America and Europe continue to struggle with debt and unemployment, China is moving from strength to strength. Still, Chinese economists and policymakers are looking ahead to see what problems China may be facing in the not-too-distant future and, more importantly, how to prevent or mitigate them.

For a start, Professor David Li Daokui (picture), a     member of the Monetary Policy Committee of the People's Bank of China and the director of the Center for China in the World Economy at Tsinghua University, believes that China is heading into a major grain shortage.
China already has a very limited amount of per capita arable land, he told INSEAD Knowledge. However, as China industrialises and urbanises, labour costs are rising quickly. These costs will be capitalised into the price of agricultural products such as grain. The Chinese consume grain in very large quantities - not just whole grains but also as raw materials for the production of other food items. Together, these factors are leading to a perfect storm that will result in an increased demand for grain.

The increase in demand for grain is a global problem, according to Prof Li. It would only take one bad crop to throw the world into a major food shortage. "We can imagine that, with the frequency and severity of natural disasters in China as well as in other parts of the world, the overall global grain output will be decreased, which will pose a potentially grave threat to grain security, leading to worldwide food shortages and resulting in global inflation in food prices," he says.

It is important for China to think carefully about its agricultural strategy. Prof Li recommends that the Chinese government takes measures to increase the scale of grain production by investing in agricultural technology. He also suggests that China invests in grain production overseas.

He opines: "This will not only work towards China's self-interest but will also contribute to helping to solve the wider global grain supply problem."

Prof Li predicts that, like grain, there could be a global shortage of oil that could adversely affect China's development. However, he points out that oil and grain are different kinds of resources.

"The risks associated with oil and grain are different, as the geographical supply of oil is relatively concentrated," he says. "Oil responds much more dramatically to changes in the global economy. The downturn in the European and American economies has depressed the price of oil. However, even a small economic recovery could cause an upward surge in oil prices."

Since China is dependent on external oil supplies, a dramatic increase in oil prices could be devastating to the Chinese economy. In Prof Li's view, China must be prepared for these possible fluctuations by building a domestic supply of crude oil equivalent to three to six months of domestic consumption. China should also diversify risk factors by establishing long-term contracts with countries that supply oil and begin to rely on other energy sources.

Over the past three decades, China has experienced a steady increase in its supply of money. It now has an overall money supply of US$10.5 trillion (S$13.7 trillion), which is higher than that of the United States and is equivalent to nearly double its gross domestic product.

Prof Li explains that this excessive circulation of cash presents many risks for the Chinese economy. Without viable options to invest this money, asset price bubbles could develop and the prices of certain assets could climb. "We saw this in the housing market bubble in the US ... When asset prices reached unsustainable levels, the bubble burst, causing a nationwide economic meltdown."

Prof Li suggests that China shifts its monetary policy to reduce the amount of money circulating in the economy. He says: "China should tighten its supervision on financial institutions to control systemic financial risks in this sector and prevent excessive price increases."

China could also let excess capital flow out of the country, by allowing companies and individuals to convert their yuan into other currencies. Eventually, these measures should facilitate a two-way flow of capital, allowing China to regulate the flow of money into and out of the country.

On the whole, the Chinese economy is in good health, Prof Li asserts. Still, it is vitally important not to underestimate the risks that, if left unchecked, could devastate China and undo years of economic progress.

This article first appeared in the latest issue of INSEAD Knowledge. David Li Daokui, who received his doctorate in economics from Harvard University, is Mansfield Freeman Professor of Economics and part of a trio to replace Fan Gang as academic members to the Chinese central bank's monetary policy committee.

Final recommendations of the CGC

This is a letter from Mr Mak Yuen Teen to BT, dated 24/11/2011, on the final recommendations of the Corporate Governance Council (CGC).
He shows  the interlinks of the issues of  "tenure of IDs", "specific limits to number of IDs" and why, not being strict with these issues can further accentuate the  conflict of interests; as was the case with some IDs who provide legal and accounting services.....

THERE is much to commend in the final recommendations of the Corporate Governance Council on proposed revisions to the Code of Corporate Governance. It is pleasing to see that the council has retained most of its initial recommendations, including extending the definition of independence to include independence from substantial shareholders, increasing the proportion of independent directors in certain circumstances, and disclosure of remuneration of each individual director and the CEO.

Reforms of corporate governance are always subject to resistance from vested interests. The greater impact that a proposed reform will have on boards and companies, the greater will be the resistance. However, it is often precisely those strongly resisted reforms that are needed to create a step-change in corporate governance, as opposed to glacial change, and to transform the corporate governance culture in companies. In my view, the failure to adopt strongly resisted reforms explains why systemic failures in corporate governance still occur throughout the world after years of so-called reforms in corporate governance.

It is therefore disappointing to see the council shy away from tougher guidelines which would have led to more transformational change in our corporate governance culture. Regulators have often cited our top ranking in the Asian Corporate Governance Association's Corporate Governance Watch 2010, while ignoring the fact that the same report indicates that corporate governance culture remains our weakest link - scoring only 53 out of 100.

By failing to bite the bullet more strongly on tenure of independent directors, number of directorships, and conflicts of interest relating to business relationships - and giving a stronger push to board renewal - the council may have lost an opportunity to promote a transformation of our corporate governance culture.

The council has decided to water down the recommendation on the nine-year limit on independent directors by removing this from the criteria relating to independence. It has instead recommended that a 'particularly rigorous review' for directors who have served more than nine years and for the board to explain why a director should still be considered independent after nine years. While many jurisdictions, including the UK and Australia, do allow independent directors to have longer tenure if the companies explain, it is rare for companies to exploit the flexibility accorded by the 'comply and explain' approach, especially when it comes to tenure of independent directors. Active institutional shareholder activism and intense media scrutiny help explain why this is so.

Unfortunately, in Singapore, companies do often tend to adopt an overly technical approach to implementing the code, by using the guidelines in the code as the 'ceiling'. In their minds, these guidelines are meant to reflect 'best practices' and there is little reason to do better than these 'best practices'. Indeed, some are using a pseudo-legal approach to independence, by getting a legal opinion to support the nominating committee's determination of independence, when 'independent director' is not a legal concept.

This brings me to the council's reluctance to recommend specific limits on number of directorships. Some have conveniently touted statistics about the small number of directors who currently sit on multiple boards, but have avoided the statistics that these small number of directors are already omnipresent in many companies.

By not putting specific limits, it will again allow boards following a technical approach to point to the fact that any limit is acceptable because no limit is specified in the code.

It is disappointing that the council did not see fit to consult on whether the code should state specific limits on number of directorships in the guidelines when many have expressed the view over the past few years that specific limits are needed. By not consulting on whether the code should include specific limits, but only consulting on a recommendation that boards themselves set the limits and disclose them, it would have been difficult for the council to now recommend specific limits. As the council has noted, some respondents have advocated that the code include specific limits.

Conflicts of interest
Finally, on the guidelines on independence pertaining to business relationships, the council could also have done more. While it is true that business relationships with other related corporations may not necessarily affect independence of a director especially if these related corporations have few dealings with each other, they could nevertheless pose conflicts of interest for independent directors in some cases.

However, my biggest concern in terms of business relationships is with independent directors who work for firms providing services to companies, such as legal and accounting services.

We have even seen instances of companies with independent directors chairing audit committees while their firm provided accounting-related services. In my view, the council should have come down stronger on these kinds of business relationships.

It should also have lowered the $200,000 annual threshold for business relationships, and included the recurring or non-recurring nature of such relationships in the guidelines. For example, a director whose firm is retained on a long-term basis as its legal adviser should not be considered independent even if the annual amount of fees fall well below $200,000.

The matter of monitoring and enforcing the 'comply or explain' approach is not addressed by the council. However, this is probably more a matter for the Monetary Authority of Singapore (MAS) to consider 
I hope that the MAS will impose a greater responsibility on the Singapore Exchange to monitor and enforce the 'comply or explain' requirement in the listing rules. While it is well and good to raise the bar on the responsibilities of institutional investors, the exchange must also play its role.

Overall, my biggest worry is that while the revised code may help us maintain our high corporate governance ranking and even improve it, our corporate governance culture, implementation and enforcement will remain weak. I fear that complacency and self-delusion will in the longer term come back to haunt us.

The writer is an associate professor of NUS Business School


My Thots.....

 I have often used the word SGX ecosystem in my posts--- not for want of a fancy word.
If U look deeply into the nature of things, unless U invest entirely out of  SGX listed cos. U are affected by the SGX ecosystem.

An "ecosystem" implies that the "organisms" in the ecosystem are interlinked and inter-dependent. Minority shareholders, retail shareholders, IIs (Institutional Investors), Majority shareholder, SGX (itself i.e regulatory and non-regulatory components), MAS, Fundmanagers, Research Analysts, Brokerages and even the biz media are all interlinked and inter-dependent.

Take away all the plankton, the anchovies and the sharks and whales will die off.

But, if each and everyone of the "organisms" in the ecosystem are acutely aware of their inter-dependence, then they will seek to understand how the ecosystem works and to preserve the "balance".

If U are an "organism" in the ecosystem, self preservation means U will want to do what it takes, so as NOT to endanger and destroy the ecosystem. Not just for minority shareholders, but also for the majority shareholders and MAS/SGX too!!

The important question is:
Has the Corporate Governance scene in SG reached the stage of maturity in terms of "awareness"  as in say UK, US & Australia, to allow the companies to come up with their own limits.
There shareholder activism is strong with good media scrutiny and support.
Here, we are at the precipice saddled with many rampant recent Corporate Governance abuses.
Faced with no choice , we are at the incipient stages of  "being aware"  of the importance of Corporate Governance and getting all in the ecosystem involved; so as to help overcome the resistance to current "bad practises".

China's RRR

Is China cutting its RRR (Reserve Requirement Ratio)?

This Reuters article dated 24/11/2011 and the one below, seems to suggest that PBoC could be moving in that direction.

Sources told Reuters earlier this week that the central bank had cut the reserve requirement ratio for five banks in the eastern province of Zhejiang, a centre for private enterprise, by 50 basis points to 16 per cent to support the rural economy.
But the Financial News, published by the People's Bank of China, quoted the central bank's Zhejiang branch as saying that the fall in the reserve requirement ratio for six rural banks to 16 per cent had kicked in automatically after a one-year policy plan expired this month.
Some investors had speculated that the adjustment was part of a government campaign to relax monetary policy in some quarters of the economy. The talk gained traction after a manufacturing survey showed output at a 32-month low in November.
The newspaper said the central bank reviewed the third-quarter loan books of rural banks every November, and banks that did not lend freely to farms were punished with a 50-basis-point rise in reserve requirements.
The six banks in question were penalised a year ago and the penalty lapsed in November, the newspaper reported.
'The revision of the reserve requirement ratio of these banks to a normal level should not be interpreted as a cut in their reserve requirements,' the paper said.
But, it must be noted that the "upping" of the RRR last Nov , was to punish these same  rural banks for NOT lending to the farms.

The following 2nd article, again from Reuters, same date, suggests that the cuts in the RRRs may happen, next yr.


China could cut its reserve requirement for all banks in the first three months of 2012, a senior Chinese banker said on Thursday, adding to talk that a fast-cooling world economy may lead Beijing to relax monetary policy.

China's central bank has not metted out any substantive monetary tightening measures since mid-July for fear of crimping economic growth at a time when Europe's debt crisis is hurting exports.
'There is possibility of a cut in the reserve requirement ratio in the first quarter, and the tone of macro policy will change during the central economic work conference,' said Huang Jifa, deputy head of investment banking at the Industrial and Commercial Bank of China.
Industrial and Commercial Bank of China is the world's biggest bank by market value.
The central economic work conference is an annual year-end meeting of top Chinese policy makers where a blue-print of the following year's economic policy plans and targets are decided.
The meeting is expected to be held in coming weeks.
'If policy remains as tight as before, some problems will emerge, including in the property sector,' Mr Huang told reporters on the sidelines of a debt conference in Beijing.
The reserve requirement ratio for China's biggest banks is at a record high of 21.5 per cent and has drawn complaints from bank executives, who say the unduly steep ratio hurts profits by restraining banks' ability to lend.

However, I would not bet on this speculation; simply becos Reuters and many in the biz media has always been wrong-footed by PBoC when they were upping the RRRs.....

Thursday, November 24, 2011

ID Tenure Limit

I am quite disappointed that the corporate governance code prescription for ID tenure limit  of 9yrs max,  was abandoned.........

See following excerpt from BT article by Lynette Khoo and Kenneth Lim on 23/11/11

Most key changes proposed to the corporate governance code remained intact - but one was watered down considerably in the final recommendations to the Monetary Authority of Singapore (MAS).

This involved a proposed nine-year tenure limit for independent directors. The Corporate Governance Council has decided, instead, to leave it to the nominating committee to decide whether a director is still independent after nine years of serving on the board. This followed feedback from the industry that a high number of directors will be defined as non-independent if this code is applied.
The Council said it had sought to avoid being too prescriptive in its recommendations. 'We have to let water find its own level,' said Council chairman Alan Chan, who is also chief executive of Singapore Press Holdings.
The Council recommended that the independence of such directors be subject to 'particularly rigorous review', and the board should explain why the director should be considered independent.
A stricter test of independence, which includes recent associations with substantial shareholders, was kept in place.
The Council also maintained the initial proposal that independent directors make up at least half of the board in certain circumstances. The recommendations were finalised after gathering feedback from 75 respondents between June and July.
The Council yesterday shed light on how each decision was calibrated, weighing the varied views among the respondents.
Mr Chan stressed the need to have a balanced Code that is 'workable in practice'.
To facilitate compliance with the revised Code, the Council recommended that a transitional period be introduced such that the Code will only apply to annual reports for fiscal years commencing from July 2012.
Leo Mun Wai, MAS assistant managing director for capital markets, said MAS will evaluate the Council's recommendations and release its response in due course.
Some industry players were disappointed that the term limit for independent directors missed the cut.
HIM Governance CEO Tan Lye Huat felt that the provision should have been kept and the 'onus should be left to the nominating committee or board to comply or explain' as he believes there is no shortage of directors in Singapore.
Stefanie Yuen Thio, joint managing director of TSMP, said there should be compelling reasons for a director to remain on the board after serving for nine years or he should step down for at least two years.
'The 'explain or comply' policy has not been particularly successful in promoting corporate governance' and companies may adopt boilerplate disclosures, she added.
While the Council acknowledged the risks of long tenures on independence, it said boards needed to have discretion in this regard.
OCBC chief executive David Conner, who chairs the subcommittee on board matters in the Council, said he did not expect any companies to 'take the Code lightly'.
The Council also kept unchanged its initial recommendations to let boards decide the maximum number of directorships for appointees; to fully disclose directors' remunerations; and to decide resolutions by polling.
Loh Hoon Sun, managing director of Phillip Securities, was one of the parties who provided feedback on the initial proposals. He suggested that the appointments of some independent directors should be left to professional bodies, rather than the companies themselves. 'Personally I'm a little disappointed that my suggestion was not adopted,' he said.
But Mr Loh felt that the revised Code in general was an improvement over the 2005 version.
Others note that more could be done to address the business relationships that independent directors have with the companies where they serve.
One matter of debate was what constituted material services that would compromise independence of directors. The proposed definition keeps the annual $200,000 threshold over the past year, and extends it to non-profit organisations linked to the director.
Yap Wai Ming, partner at Stamford Law, felt that the threshold of $200,000 for 'material services' could be lowered.


My Thots...

Are the IDs indispensable?
There are cases of IDs who are way past retirement age who nods off and go to sleep during AGMs, some of them are in their  late 70s or 80s, close to their 90s in age.
I have nothing against age, as some like Richard Hu are old but their wisdom, experience, depth of knowledge and alertness of mind are important resources that could be tapped.
But, for some after 9 yrs, they are bored and they cannot hide their boredom; openly sleeping during AGMs----- those who attend AGMs regularly will attest.
A rotation may help; if they are so "invaluable", as claimed; else, such bored and indifferent IDs, should simply go.

Well, nobody is indispensable. 
Most or  Is it  all IDs cannot live forever......

Bedok Residences

See SGX announcement by Capitaland/Capitamall Asia

On Sunday Night, 500 people were reported to be on the queue.
But, some reporters and naysayers doubted the queue---- they say agents were creating the queues to evoke interest.

But, think about it.
Agents earn commissions, they cannot create demand if there really is none; since they will have outgoing expenses to pay the students/retirees on the queue w/o correspondng incomes.

The OCBC analyst who "kicked tyres"  and did a site check was more accurate.

After enquiring with three agents, however, we found they would only hire a replacement to wait in line if we were committed to buy and submitted cheques. From these data-points, we judge that there is robust demand for the launch and expect a strong sales performance in terms of both units sold and average selling prices later this week.

Indeed, judging by the SGX annnouncement, as at 5pm; 350 units out of the 450 units released for sale on the 1st day is a very good response for Capitaland/CMA.

 Of the total 583 units, 450 units were released for sale today. As of 5 pm today, 350 units have been sold of which 15% are one-bedroom units, 28% are one bedroom + study units, 36% are two-bedroom units, 16% are three-bedroom units, 4% are four-bedroom units and 1% are penthouses. The average price per-square-foot is S$1,350.

Indicative pricing was SGD 1200 to 1400 psf.
So SGD 1350 psf, is on the high side.

The site was bought for S$788.9m in Sep 2010, and has a site area of 268,047 sq ft with a lease term of 99 years (plot ratio 3.5) ====> cost of land psf is SGD 841 psf ppr.

But, this is a mixed development, so cost of land for for the residential dev is probably at about SGD 600 psf with building costs at about SGD300 psf.

At SGD 1350psf vs the SGD 900 psf total costs; GPM approx. 33%.

Wednesday, November 23, 2011


 PARD SGX announcement

1st tranche
19.76%  was acquired at AUD 1.78.

2nd tranche
3% at AUD 1.58.

Great Buy.
Management  looking for a substantial stake above 30%, in Tassal?

FED Stress Test

See FRB announcement last nite.

What it involves?
BHC (Bank Holding Cos) or FIs (Financial Insitutions) with total consolidated assets > USD 50 b

1) To ensure FIs have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress.
2) Institutions will be expected to have credible plans that show they have sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions, and are well prepared to meet regulatory capital standards agreed to by the Basel Committee on Banking Supervision as they are implemented in the United States.
3) Boards of directors of the institutions will be required each year to review and approve capital plans before submitting them to the Federal Reserve

Required under the newly legislated Dodd Frank Act.
- the Federal Reserve annually will evaluate institutions' capital adequacy, internal capital adequacy assessment processes, and their plans to make capital distributions, such as dividend payments or stock repurchases.
-the Federal Reserve will approve dividend increases or other capital distributions only for companies whose capital plans are approved by supervisors and are able to demonstrate sufficient financial strength to operate as successful financial intermediaries under stressed macroeconomic and financial market scenarios, even after making the desired capital distributions.

-  the 19 firms* that participated in the CCAR in 2011, also the same 19 that took part in SCAP for TARP.
-  12 additional firms** with at least $50 billion in assets that have not previously participated in a supervisory stress test exercise.

Tests A : Instructions for the 19 firms
Tests B: Instructions for the 12 aditional firms

Tests A are considered one of the most stringent Stress Tests to-date.
Hypothetical stress scenario:
Unemployment  at 13 %
US GDP  fall 8%

Tests B are  scaled-back tests on the capital plans of 12 more financial firms  and considered less complex.

* The 19 bank holding companies participating in the 2012 CCAR are:
Ally Financial Inc., American Express Company, Bank of America Corporation, The Bank of New York Mellon Corporation, BB&T Corporation, Capital One Financial Corporation, Citigroup Inc., Fifth Third Bancorp, The Goldman Sachs Group, Inc., JPMorgan Chase & Co., Keycorp, MetLife, Inc., Morgan Stanley, The PNC Financial Services Group, Inc., Regions Financial Corporation, State Street Corporation, SunTrust Banks, Inc., U.S. Bancorp, and Wells Fargo & Company. These 19 firms also participated in the 2011 CCAR and the 2009 SCAP.

**The 12 bank holding companies participating in the CapPR are:
 BBVA USA Bancshares Inc., BMO Financial Corp., Citizens Financial Group Inc., Comerica Inc., Discover Financial Services, HSBC North America Holdings Inc., Huntington Bancshares Inc., M&T Bank Corp., Northern Trust Corp., RBC USA Holdco Corp., UnionBanCal Corp., and Zions Bancorporation.

3Q2011 to 4Q2013  with exception for trading and counterparty positions according to the Basel III and DoddFrank schedules.

1)  Key purpose, here is transparency in a time of great uncertainty.
Transparency breeds  and bolsters confidence and keeps out nasty "rumors" about BHCs  B/S exposure to assets in the Eurozone.

2) It will put the burden on the affected BHCs to prove they can make a capital distribution (aka dividends), NOT on the Fed to block it-------likely that BofA and CitiGroup will have to pare down dividends as a result!!

3) Tests B are NOT required under the Dodd Frank Act as these FIs are under the USD 50b cap.
Nevertheless, if they have to go to the FED for aid in a crisis they have to satisfy the tests requirements; and the FED seems to be very prudent and cautious in including these other 12.

KReit Rights Issue - Important Dates

Despatch of Offer Information Statement to Eligible Unitholders : 21 November 2011
Commencement of "nil-paid" rights trading : 21 November 2011 from 9.00 a.m.
Last date and time for splitting and trading of "nil-paid" rights : 29 November 2011 at 5.00 p.m.

Closing Date(1):
Last day for acceptance/application
of and payment for Rights Units/Excess
 Rights Units and close of the Rights Issue: 5 December 2011 at 5.00 p.m. (2),(3) (9.30 p.m. for Electronic Applications through ATMs of Participating Banks)
Last date and time for acceptance of
and payment for Rights Units by renouncees : 5 December 2011 at 5.00 p.m. (3),(4)

Expected date of issue of Rights Units : 13 December 2011
Expected date for crediting of Rights Units : 14 December 2011
Expected date for refund of unsuccessful applications (if made through CDP) : 14 December 2011
Expected date of commencement of trading of Rights Units on the SGX-ST : 14 December 2011

Tuesday, November 22, 2011

About This Blog


Qiaofeng (QF) Musings has its humble beginnings in the CNA Forum "Market Talk".
It started with QF posing his thots to articles he read under 2 threads:
"Good Articles N Such" and "Good Opportunities N Such"-- in response to the rapidly changing Macro environment  and its effects on  Investment or Equity Opportunities in 2007/2008.

As a value seeking bottoms-up investor, QF had an inherent disdain for the Macro news as a catalyst for investment decisions. However, through out the GFC (Global Financial Crisis),  QF discovered that the Global investing and biz world is too  closely interlinked and intertwined----  that the web of cross border finances   and that rapidly changing news flow can affect and effect  biz decisions and outcomes in very "unpredictable" ways.

For example, when Lehman collapsed, the MMF (Money market funds ) almost collapsed and the the "trust" amongst FIs (Financial Institutions) were so low that LCs (Letter of Credits) seized and  global trade collapsed causing many biz models and entire industries to collapse in countries remote from the epicentre because they were linked through the USD, as reserve currency of choice.

QF wrote many of his musings on the CNA Forum predicting the rise  and regionalisation of the RMB, its use by countries that trade with China, and a eventual internationalisation of the RMB; way back when the crisis first started in 2007/2008.

There were many other musings on the TARP issue, QE1.0, QE2.0 for the Macro environment and on Stocks such as Pac Andes and MIIF. Those that followed the 2 threads would know.

However, the CNA Forum went through a format change, recently--- so  the 2 threads were entirely lost and deleted. To make matters worse, the "new" CNA Forum has many posting issues and was too "unfriendly" for QF's liking.

At the prompting of some friends, QF finally embarked on the 1st tentative step to blogging when he failed to join the "Valuebuddies Forum", due to some technical issues which the administrator there has since resolved.

Blogging takes up quite some effort and QF has had great inertia making the change.
QF's musings on the CNA Forum had  like some 1000 plus page views for each of the 2 threads, over each weekend before it ceased due to the forum format change, as such there were many faithful followers whom I had communicated and reached out to.

QF does not profit monetarily from his postings. But, I do have a deep sense of satisfaction in the sharing of my thots and my lessons in investing, in my CNA Forum sojourn.

Hence, I am continuing that sojourn through my own blog here.

Monday, November 21, 2011

Who are snapping up the High End condos?

A 3,003-sq-ft, 4-bedroom apartment in the The Marq (Premier Tower) at Paterson Hill is reported by the BT, to have sold for nearly $6,850 psf ($20.5 m), topping the previous record set in August for $6,394 psf

Who are snapping up these High End  condos?


'The majority of buyers in this segment are foreigners. Singaporean buyers typically aim for Good Class Bungalows, since the absolute price for a GCB is quite similar to that for a luxury apartment in a project like The Marq,' says Jones Lang LaSalle's head of residential and national director Jacqueline Wong.

'It is foreigners, who don't qualify to buy a GCB, who are the main players looking at luxury condos right now. Their interest in buying property in Singapore has never dissipated; their interest is still there. But due to the global uncertainty including European debt crisis, everybody's more cautious, more selective now. They want value buys or fire sales - but these are difficult to find in Singapore as our high-end developers are deep-pocketed,' added Ms Wong.

Why ?
A possible reason is design, and exclusivity, it seems.....

....the developer's track record of consistently improving its product in terms of quality, design and concept. 'It has always reinvented itself. Take The Marq, for instance. The Signature Tower has an interlocking design for each of the apartments (which are over 6,000 sq ft) so that it feels like a penthouse even for units on lower floors - with double-volume ceiling height in the living and dining area and a private pool for each apartment.

'(SC Global chairman and chief executive) Simon Cheong has paid careful attention to the project's details even in the common areas like the lobby. There's a club lounge/ library where they serve drinks, and the gym is fully equipped. There's a concierge service, and sculptures and other artwork on display in various parts of the development.'

So it seems, the foreigners are still snapping up despite the resilently high prices.

What is Kepland up to?

What is Kepland up to?

First, they sold OFC to KReit-Asia.
Now they are selling Robinson Centre housed under Alpha  Core Real Estate Fund, managed by Keppel Land unit, AIP ( Alpha Investment Partners).
Alpha bought Robinson Centre for $145 million in 2006 from GuocoLand.
According to BT, they are selling it to  a Taiwanese investor for nearly SGD 300 m ( $2,240 psf NLA).

The price being paid by the Taiwanese party set to buy Robinson Centre is thought to reflect a net yield in the region of 3.5 per cent, based on the building's current rental income stream. The prospective buyer is looking at Robinson Centre as an investment - that is, with a view to collecting rental income from it - rather than for redevelopment, BT understands.
Robinson Centre was completed about 11 years ago. Investment sales of office blocks have gathered momentum since last month, say market watchers.

KReit-Asia is paying $2,380 psf net of rental support, for OFC.

Question is:
What is Kepland up to?
Is there an impending buying opportunity coming up?

Other Big Q is:
Why are all the Institutional Investors snapping up the Office Towers now?
If U read the Research reports by  local Equity Analysts and Property Analysts, Office Properties are facing a downturn. But, the smart money seems to think otherwise.

....last month, Royal Group Pte Ltd, controlled by Asok Kumar Hiranandani and his son Bobby, acquired two adjacent 999-year leasehold office blocks at Phillip Street in the Raffles Place area for a total of about $283 million, or an average price of $2,350 psf. One Phillip Street was sold for $2,050 psf and Commerce Point (at 3 Phillip Street) at $2,490 psf.

Another deal last month involved the sale of a 50 per cent stake in a company whose sole asset is the 12-storey freehold Finexis Building, a smallish office block at 108 Robinson Road.
The transaction was based on the office block's latest valuation - in July - of $110 million or about $2,043 per square foot on its total strata area of 53,830 sq ft, which is understood to be close to the building's net lettable area.

Go figure.

"Wisdom is purified by virtue and virtue is purified by wisdom. Where one is, so is the other."