Saturday April 23, 2011
IN response to the article entitled Should Bursa woo another,' on April 16, please allow me to add colour and put the Bursa Malaysia stock exchange merger suggestion in possibly a more enlightened prospective.
The question to answer is why would, say, London Stock Exchange (LSE) or another G-20 country stock exchange want to merge/acquire Bursa Malaysia? Is Bursa like Doha Stock Exchange (DSE), whereby, in 2008, NYSE Euronext beat out LSE and Deutsche Bourse for 25% in DSE? Today, does Bursa, part of FTSE Advance Emerging Market, have enough liquidity, velocity, volume, listing, reputation, etc, to provide value to LSE?
Concurrently, does Bursa want to be a small fish in the very big LSE pond? Why would Bursa want to offer itself from a position of, not weakness, but inequality? But, would Bursa want to bid for ASX after failure of the SGX bid?
The arguments for common platform, back-office integration, economies of scale may make more sense when the marriage is between emerging market exchanges, especially Bursa's budding state-of-the-art technology platforms, products, and clearing. For an advanced emerging market, Bursa has solid regulatory framework, sound governance, confidence building investor protection and has better weathered the global financial crisis than some of the Gulf Cooperation Council (GCC) markets and countries.
If Bursa is to be part of a stock exchange acquisition/merger, then it should look at selected OIC countries. This type of transaction may be part of the Islamic Development Bank's (IDB) mandate to facilitate intra-OIC trade and investment flows to 25% by 2015, to build size. Obviously, the host country national agenda's poison pill' defence will also be offered by the target exchanges, but, at times, it's merely a strategy for a higher asking price.
Exchanges in countries such as Pakistan, Kazakhstan, Turkey, Egypt, Nigeria, UAE (DFM or ADX) or even Saudi Arabia may be the ideal internationalisation for Bursa. These countries are early, emerging or established Islamic finance hubs and the linkage to Bursa allows them to compress the learning curve, from products to regulations.
For example, Bursa has been championing the Asean link and Organisation of Islamic Conference (OIC) countries are looking to establish a similar link.
Bursa may eventually become the LSE' to some of these exchanges. It may just avoid sentiments (capital) colonisation, often used under rubric of national interest in the Muslim world. Thereafter, Bursa can approach the likes of LSE for a merger of equals!
As the architect of the Halal Food Index, I suggested Saudi, Ankara, Malaysia and Indonesia (SAMI). Malaysia's leadership in Islamic finance fits in perfectly well with the initial internationalisation into the Muslim world.
If the proposal for merger encounters the commonly heard national interest defense, then, as a plan B, Bursa should consider leading a SAMI common platform, it may be easier than the present efforts for a GCC or OIC platform.
Furthermore, Malaysian blue chips CIMB, Maybank, Petronas, Proton, and Sime Darby probably have greater presence and recognition in the Muslim world than US, France, or UK, hence, building critical mass by starting with lower hanging fruits.'
Malaysia is contributing and leading the US$1 trillion Islamic finance market and the US$640bil halal food market. These two inter-related areas are not only building the national agenda of a halal-eco' system, but, will have additional capital allotted as part of the Capital Market Plan 2 (CMP2).
Malaysia is a successful sukuk story, not only for listings, liquidity (v. GCC) but also handling of defaults, on Islamic REITs and ETFs, on Islamic stock brokering, and so on.
The launch of SAMI Halal Food Index by former Prime Minister Tun Abdullah Ahmad Badawi during the World Halal Forum, in Kuala Lumpur, was a no-brainer, as (1) the country was a natural place and (2) there are 95 Bursa-listed companies in the index.
Positioning “halal” as a new asset class with its launch pad in Malaysia created waves in all mainstream media and has resonated in countries where the “halal” term may be on the way to become google.' A seeded halal equity food fund launching off the SAMI index, the world's first, is a good story for roadshows in, say, the GCC, where, say, sovereign wealth and other type of funds are spending moneys to address the national food security issues. However, there are challenges Bursa needs to overcome if a meaningful amount of international investors, presently less than 25%, are to arrive on the Malaysian shores. Many countries, including G-7 members, are vying for the petro-liquidity of the GCC. Malaysia needs to do more than the informative' road shows and one-on-one investor relations.
The speakers on the road shows may showcase Malaysia as an ideal Islamic and conventional investment destination for the ASEAN region, but the reality of illiquidity, too few investment instruments, etc, presents a “by-pass” of Malaysia into Singapore or Indonesia. For example, GLiCs' holdings of major companies have reduced company liquidity, and, for international investors, liquidity is a paramount precondition for investing in emerging markets.
Liquidity begets liquidity,' hence, liquid markets are the investment banker's calling cards for IPOs!
Furthermore, whatever happened to the “talked up” BNP's Easy ETF of 2010? Why is CIMB's Asean 40 and Xinhua 25, both UCITS 3 compliant, prospering better in neighbouring Singapore? Why was the Sabana REIT listed in Singapore?
Are these issues related to lack of education and market awareness? Do the regulators need to do more? Will CMP2 overcome some of these challenges to address the investment leakage' to neighbouring countries?
Bursa Malaysia needs to work from a position of informed strength, like Islamic finance, not opt for sentimental merger for the sake of flavor of the month' or jumping on the bandwagon of G-20 stock exchange mergers. Bursa is an important stakeholder of a country poised to be a G-20 country in the future, but it must strategically and tactically position itself about size, platforms, products, and yields.
That's the lyrics of a musical serenade' to all international investors.
Rushdi Siddiqui
Global Head, Islamic Finance & OIC Countries
http://biz.thestar.com.my/news/story.asp?file=/2011/4/23/business/8506552&sec=business
Saturday, April 23, 2011
Big Companies, Stolen Ideas
Saturday April 23, 2011
GOVERNANCE MATTER
By SHIREEN MUHIUDEEN
Shireen Muhiudeen exposes how some big unscrupulous companies are stealing ideas from smaller companies.
IN our reviews of various public-listed companies (PLCs) across the region, one issue has cropped up again and again: The appropriating of a small company's ideas by a much bigger company.
The law protects all fruits of the human imagination from songs to sketches and sonnets but not ideas. You cannot own an idea, and this is why big companies can exploit smaller ones, which tend to be more innovative and enterprising because that is the only way they can survive.
Typically, before Company B can value a business transaction by Company A, Company B has to ask Company A to give it a Request For Proposal (RFP). Generally, Company A will do so as long as Company B signs the usual Non-Disclosure Agreement (NDA).
Now, quite often, if the company demanding information is larger than the company disclosing it, the former will keep asking for more and more data from the latter, on the pretext that it is just doing due diligence.
The smaller company will then end up giving the larger one all the ideas it has in the hope that that will seal their business deal.
In this way, the larger company gets to know all it wants about the smaller company's knowhow. Worse, the larger company claims that as its own.
This is a cheap means for the larger company to expand its own business model. In fact, when we spoke to one such large company, it said that it “reviewed” all applications by small and medium enterprises (SMEs), paying particular attention to any ideas or opportunities that the company could exploit for its own ends!
Business ethics
Legally, it is not doing anything wrong. But siphoning another's ideas under the guise of doing due diligence goes against every grain of business ethics.
Recently, we reviewed a company that had a big business plan to tap global funds, using an idea that it presented as its own. The thing is, we knew of a smaller company that had presented exactly that idea to a PLC some six years ago.
We had followed every development in that negotiation, from the signing of the NDA right up to the excuses given by the PLC as to why the evaluation process was taking so long.
That smaller company has since taken the PLC to court, alleging the breach of a condition precedent contained in a subscription and shareholders agreement, as well as a failure to fulfill its obligations.
But, in trying to get justice, it is the smaller company that suffers the most; it cannot forge ahead because it is being weighed down by long legal proceedings, to say nothing of how much it has to spend for lawyers to argue its case.
When asked about the smaller company's grievances, the PLC brushed off all queries and said, “Oh, these are just small, insignificant issues”, implying that they would not affect its own business model. Shouldn't they, though? If the PLC is selling itself with ideas siphoned off another company, what does such siphoning say of the sustainability of its business model?
This big and not so beautiful PLC goes ahead and launches its “latest” ideas while daring the smaller company that came up with these ideas to send it a cease-and-desist letter. It can be so arrogant because it knows only too well that it has much deeper pockets than the aggrieved company and so will simply push the latter over the edge with mounting legal fees.
Currently, the law gives recourse to aggrieved smaller companies based on what they have actually lost to the bigger companies. But surely it should be based on what smaller companies could have earned but for the idea-siphoning?
From this, it is evident that bigger companies are taking advantage of the current disconnect between how much the courts will make them cough up and how much smaller companies really suffer financially from someone else using their good ideas.
Stamina
This means that it is still cheaper for big companies just to use a smaller one's ideas, even if that smaller player takes them to court for doing so.
Not surprisingly, bigger companies tend to operate in this manner because smaller companies simply do not have the stamina and finances to protect their good work.
This is often the case even if the law is overwhelmingly in the smaller company's favour. The smaller company simply cannot afford the very long time taken for justice to be done.
But something, clearly, needs to be done for fairness. Now, directors of companies are required to declare in their annual reports that “they are responsible for all information and representations contained in the financial statements” and that “the financial statements have been prepared in conformity with generally accepted accounting principles” and that “the reflected amounts are based on the best estimates and informed judgment of the management with an appropriate consideration as to materiality”.
This being the case, perhaps there should also be a statement to the effect that they have not infringed another company's intellectual property, have not settled out of court or that they have no pending legal proceedings regarding the use of another's ideas.
As Malaysia gears itself up to be a full-blown knowledge-based, or K-economy, it becomes critical to protect SMEs, especially in the telecoms sector where this is very prevalent. If the law does not ring-fence their rights, they will be forced to look beyond Malaysia to flourish.
Shireen Muhiudeen is managing director of Corston-Smith Asset Management in Malaysia, a fund management company that makes investment decisions based on corporate governance
http://biz.thestar.com.my/news/story.asp?file=/2011/4/23/business/8505184&sec=business
GOVERNANCE MATTER
By SHIREEN MUHIUDEEN
Shireen Muhiudeen exposes how some big unscrupulous companies are stealing ideas from smaller companies.
IN our reviews of various public-listed companies (PLCs) across the region, one issue has cropped up again and again: The appropriating of a small company's ideas by a much bigger company.
The law protects all fruits of the human imagination from songs to sketches and sonnets but not ideas. You cannot own an idea, and this is why big companies can exploit smaller ones, which tend to be more innovative and enterprising because that is the only way they can survive.
Typically, before Company B can value a business transaction by Company A, Company B has to ask Company A to give it a Request For Proposal (RFP). Generally, Company A will do so as long as Company B signs the usual Non-Disclosure Agreement (NDA).
Now, quite often, if the company demanding information is larger than the company disclosing it, the former will keep asking for more and more data from the latter, on the pretext that it is just doing due diligence.
The smaller company will then end up giving the larger one all the ideas it has in the hope that that will seal their business deal.
In this way, the larger company gets to know all it wants about the smaller company's knowhow. Worse, the larger company claims that as its own.
This is a cheap means for the larger company to expand its own business model. In fact, when we spoke to one such large company, it said that it “reviewed” all applications by small and medium enterprises (SMEs), paying particular attention to any ideas or opportunities that the company could exploit for its own ends!
Business ethics
Legally, it is not doing anything wrong. But siphoning another's ideas under the guise of doing due diligence goes against every grain of business ethics.
Recently, we reviewed a company that had a big business plan to tap global funds, using an idea that it presented as its own. The thing is, we knew of a smaller company that had presented exactly that idea to a PLC some six years ago.
We had followed every development in that negotiation, from the signing of the NDA right up to the excuses given by the PLC as to why the evaluation process was taking so long.
That smaller company has since taken the PLC to court, alleging the breach of a condition precedent contained in a subscription and shareholders agreement, as well as a failure to fulfill its obligations.
But, in trying to get justice, it is the smaller company that suffers the most; it cannot forge ahead because it is being weighed down by long legal proceedings, to say nothing of how much it has to spend for lawyers to argue its case.
When asked about the smaller company's grievances, the PLC brushed off all queries and said, “Oh, these are just small, insignificant issues”, implying that they would not affect its own business model. Shouldn't they, though? If the PLC is selling itself with ideas siphoned off another company, what does such siphoning say of the sustainability of its business model?
This big and not so beautiful PLC goes ahead and launches its “latest” ideas while daring the smaller company that came up with these ideas to send it a cease-and-desist letter. It can be so arrogant because it knows only too well that it has much deeper pockets than the aggrieved company and so will simply push the latter over the edge with mounting legal fees.
Currently, the law gives recourse to aggrieved smaller companies based on what they have actually lost to the bigger companies. But surely it should be based on what smaller companies could have earned but for the idea-siphoning?
From this, it is evident that bigger companies are taking advantage of the current disconnect between how much the courts will make them cough up and how much smaller companies really suffer financially from someone else using their good ideas.
Stamina
This means that it is still cheaper for big companies just to use a smaller one's ideas, even if that smaller player takes them to court for doing so.
Not surprisingly, bigger companies tend to operate in this manner because smaller companies simply do not have the stamina and finances to protect their good work.
This is often the case even if the law is overwhelmingly in the smaller company's favour. The smaller company simply cannot afford the very long time taken for justice to be done.
But something, clearly, needs to be done for fairness. Now, directors of companies are required to declare in their annual reports that “they are responsible for all information and representations contained in the financial statements” and that “the financial statements have been prepared in conformity with generally accepted accounting principles” and that “the reflected amounts are based on the best estimates and informed judgment of the management with an appropriate consideration as to materiality”.
This being the case, perhaps there should also be a statement to the effect that they have not infringed another company's intellectual property, have not settled out of court or that they have no pending legal proceedings regarding the use of another's ideas.
As Malaysia gears itself up to be a full-blown knowledge-based, or K-economy, it becomes critical to protect SMEs, especially in the telecoms sector where this is very prevalent. If the law does not ring-fence their rights, they will be forced to look beyond Malaysia to flourish.
Shireen Muhiudeen is managing director of Corston-Smith Asset Management in Malaysia, a fund management company that makes investment decisions based on corporate governance
http://biz.thestar.com.my/news/story.asp?file=/2011/4/23/business/8505184&sec=business
Friday, April 22, 2011
MDeC confident of further MSC growth
Thursday April 21, 2011
By EDY SARIF
edy@thestar.com.my
CEO: ICT will play big part in drive to develop nation’s high-value economy
KUALA LUMPUR: Multimedia Development Corp (MDeC) expects to sees further growth in the third phase of the development of the Multimedia Super Corridor (MSC) that is set to run from this year to 2020.
Chief executive officer Datuk Badlisham Ghazali said during this critical phase, MDeC would help the MSC to develop Malaysia's high-value economy by continuing to drive the uptake of information and communication technology (ICT).
He said the first four years of the MSC Malaysia Phase 3 plan aimed to see MSC companies achieve a 21% increase in gross domestic product (GDP sum of good and services produced) contribution to RM42bil. This compares with the RM34.57bil it recorded in Phase 2 which ran from 2004 to 2010.
Badlisham said at the end of the four years (end-2015), MSC companies' revenues were expected to increase to RM142bil from the RM103.8bil recorded in Phase 2. A 75% increase in exports to RM58bil from RM33bil and a 47% increase in job creation to 160,000 from the 111,367 in the previous phase are expected.
“We want ICT to be more pervasive with a wider economic footprint. Our strategies in the three main clusters of creative multimedia, shared services outsourcing and InfoTech have been realigned to put stronger emphasis on wealth creation and high-value investments,” he said.
Badlisham added that MDeC was very confident going forward into the MSC Malaysia Phase 3 as it had gained above its target in Phase 2.
“Phase 2 is about creating economies of scale while Phase 3 is focused on empowering the rakyat, further enabling the Government and enhancing the ICT sector towards achieving the goal of an innovative, high-income and developed nation by 2020 in line with the New Economic Model,”he said.
Other core initiatives under Phase 3 include the establishment of two new cybercities each year and completing the Innovative Digital Economy framework by the second half of this year.
MDeC is an organisation that directs and oversees MSC Malaysia, the national ICT development initiative, by advising the Government on legislation and policies, developing industry-specific practices and setting the standards for multimedia and digital operations.
The group is also responsible for promoting MSC locally and globally, while providing strategic support to MSC Malaysia's status companies.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/21/business/8522114&sec=business
By EDY SARIF
edy@thestar.com.my
CEO: ICT will play big part in drive to develop nation’s high-value economy
KUALA LUMPUR: Multimedia Development Corp (MDeC) expects to sees further growth in the third phase of the development of the Multimedia Super Corridor (MSC) that is set to run from this year to 2020.
Chief executive officer Datuk Badlisham Ghazali said during this critical phase, MDeC would help the MSC to develop Malaysia's high-value economy by continuing to drive the uptake of information and communication technology (ICT).
He said the first four years of the MSC Malaysia Phase 3 plan aimed to see MSC companies achieve a 21% increase in gross domestic product (GDP sum of good and services produced) contribution to RM42bil. This compares with the RM34.57bil it recorded in Phase 2 which ran from 2004 to 2010.
Badlisham said at the end of the four years (end-2015), MSC companies' revenues were expected to increase to RM142bil from the RM103.8bil recorded in Phase 2. A 75% increase in exports to RM58bil from RM33bil and a 47% increase in job creation to 160,000 from the 111,367 in the previous phase are expected.
“We want ICT to be more pervasive with a wider economic footprint. Our strategies in the three main clusters of creative multimedia, shared services outsourcing and InfoTech have been realigned to put stronger emphasis on wealth creation and high-value investments,” he said.
Badlisham added that MDeC was very confident going forward into the MSC Malaysia Phase 3 as it had gained above its target in Phase 2.
“Phase 2 is about creating economies of scale while Phase 3 is focused on empowering the rakyat, further enabling the Government and enhancing the ICT sector towards achieving the goal of an innovative, high-income and developed nation by 2020 in line with the New Economic Model,”he said.
Other core initiatives under Phase 3 include the establishment of two new cybercities each year and completing the Innovative Digital Economy framework by the second half of this year.
MDeC is an organisation that directs and oversees MSC Malaysia, the national ICT development initiative, by advising the Government on legislation and policies, developing industry-specific practices and setting the standards for multimedia and digital operations.
The group is also responsible for promoting MSC locally and globally, while providing strategic support to MSC Malaysia's status companies.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/21/business/8522114&sec=business
More M&As on the horizon for larger banks
Wednesday April 20, 2011
Plain Speaking - By Yap Leng Kuen
THE banking mergers and acquisitions (M&As) scene is coming alive again with deals expected in the next one to two years. Bankers reckon that this time, it could be fuelled not so much by the smaller but the larger to mid-sized banks.
The stronger groups, mainly Maybank and CIMB, are likely to come under the radar of investors as they forge ahead in their respective core strengths and possibly look for tie-ups to enhance that.
Both banks have made known their ambitions for a strong regional presence; Maybank's recent acquisition of Kim Eng Securities and expansion in Indonesia via Bank Internasional Indonesia are steps in that direction while CIMB has stated its intention to become the top three bank in South-East Asia by market capitalisation and asset size.
Their names have cropped up recently as potential bidders for Abu Dhabi Commercial Bank's (ADCB) 25% stake in RHB Capital Bhd.
ADCB has engaged Goldman Sachs to look into a possible divestment of its stake in RHB Capital which it bought for RM7.20 per share or RM3.9bil in mid-2008.
CIMB, with its growing contributions from the Indonesian operations as well as treasury and investment banking, is seen as a prime candidate for an M&A with RHB which is especially well-known for its strong consumer banking franchise. CIMB has been trying to grow its consumer banking through a previous M&A with Southern Bank; further steps to boost the group in that direction are expected.
It is noted that CIMB and RHB have a common shareholder - Khazanah Nasional Bhd.
In drawing up an M&A strategy, factors such as size and scale are important but equally vital are aspects such as strategic fit and synergies.
We should not assume that just because certain banks are among the smallest, therefore, they should be the first to be merged or swallowed.
In this respect, banks like Affin may just continue to operate as a boutique bank.
The AmBank group, which has struck a strategic partnership with the Australia New Zealand banking group, may be in one of the sweetest spots.
Contrary to common speculations that it may be eyeing an M&A with RHB, the AmBank group may just go ahead with ANZ as its strong partner not just in Malaysia but also the region.
EON Bank, the subject of a takeover bid by Hong Leong Bank and court battle among the directors, will know its fate with regards to the court judgement at end of this month.
Ng Wing Fai of Primus Pacific Partners is challenging the other directors on their decision to table the Hong Leong bid to shareholders,
In the midst of this possible M&A scenario, all eyes turn to Public Bank which has a similar customer base with that of Hong Leong.
Will there be any moves among these two retail and SME strongholds?
Alliance Bank may be sitting pretty on its own now but it is widely regarded to be the potential doorway for DBS Bank of Singapore as they have a common shareholder in Temasek Holdings Ltd.
Langkah Bahagia Sdn Bhd, which holds a 14.8% stake in Alliance Financial Group Bhd (AFG), is said to be looking for a buyer of its stake, held through Vertical Theme Sdn Bhd.
It cannot be confirmed but many believe that stake could be sold to Temasek, Singapore's investment arm.
Vertical Theme has a 29% stake in AFG while Temasek has a 49% stake in the former. Temasek also has a 27.8% stake in the DBS group.
Associate editor Yap Leng Kuen believes the next round of bank mergers could be expensive but focussed on value creation.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/20/business/8514173&sec=business
Plain Speaking - By Yap Leng Kuen
THE banking mergers and acquisitions (M&As) scene is coming alive again with deals expected in the next one to two years. Bankers reckon that this time, it could be fuelled not so much by the smaller but the larger to mid-sized banks.
The stronger groups, mainly Maybank and CIMB, are likely to come under the radar of investors as they forge ahead in their respective core strengths and possibly look for tie-ups to enhance that.
Both banks have made known their ambitions for a strong regional presence; Maybank's recent acquisition of Kim Eng Securities and expansion in Indonesia via Bank Internasional Indonesia are steps in that direction while CIMB has stated its intention to become the top three bank in South-East Asia by market capitalisation and asset size.
Their names have cropped up recently as potential bidders for Abu Dhabi Commercial Bank's (ADCB) 25% stake in RHB Capital Bhd.
ADCB has engaged Goldman Sachs to look into a possible divestment of its stake in RHB Capital which it bought for RM7.20 per share or RM3.9bil in mid-2008.
CIMB, with its growing contributions from the Indonesian operations as well as treasury and investment banking, is seen as a prime candidate for an M&A with RHB which is especially well-known for its strong consumer banking franchise. CIMB has been trying to grow its consumer banking through a previous M&A with Southern Bank; further steps to boost the group in that direction are expected.
It is noted that CIMB and RHB have a common shareholder - Khazanah Nasional Bhd.
In drawing up an M&A strategy, factors such as size and scale are important but equally vital are aspects such as strategic fit and synergies.
We should not assume that just because certain banks are among the smallest, therefore, they should be the first to be merged or swallowed.
In this respect, banks like Affin may just continue to operate as a boutique bank.
The AmBank group, which has struck a strategic partnership with the Australia New Zealand banking group, may be in one of the sweetest spots.
Contrary to common speculations that it may be eyeing an M&A with RHB, the AmBank group may just go ahead with ANZ as its strong partner not just in Malaysia but also the region.
EON Bank, the subject of a takeover bid by Hong Leong Bank and court battle among the directors, will know its fate with regards to the court judgement at end of this month.
Ng Wing Fai of Primus Pacific Partners is challenging the other directors on their decision to table the Hong Leong bid to shareholders,
In the midst of this possible M&A scenario, all eyes turn to Public Bank which has a similar customer base with that of Hong Leong.
Will there be any moves among these two retail and SME strongholds?
Alliance Bank may be sitting pretty on its own now but it is widely regarded to be the potential doorway for DBS Bank of Singapore as they have a common shareholder in Temasek Holdings Ltd.
Langkah Bahagia Sdn Bhd, which holds a 14.8% stake in Alliance Financial Group Bhd (AFG), is said to be looking for a buyer of its stake, held through Vertical Theme Sdn Bhd.
It cannot be confirmed but many believe that stake could be sold to Temasek, Singapore's investment arm.
Vertical Theme has a 29% stake in AFG while Temasek has a 49% stake in the former. Temasek also has a 27.8% stake in the DBS group.
Associate editor Yap Leng Kuen believes the next round of bank mergers could be expensive but focussed on value creation.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/20/business/8514173&sec=business
Are there too many banks in Malaysia?
Wednesday April 20, 2011
IN reference to the article titled “Catalyst for banking merger” by Risen Jayaseelan that appeared in StarBiz on April 12, I would like to question the view that there are too many banks in Malaysia.
If the view is based on balance-sheet strength, then it is an outdated view. Look at the Western banks such as Citi Group, RBS, Lloyds and many more. Did their big balance sheet help them to weather the credit issues? Or did it make it more difficult for them to achieve their return-on-equity targets, thus possibly driving the banks into more risky behaviour?
One could also argue that big banks are “riskier” than smaller banks because of heavier systemic risks the larger banks pose. The recommendation from Britain’s Independent Commission on Banking (Vickers Commission) does seem to confirm this and suggests additional capital buffers for large banks.
To quote The Economist, “On capital, the commission reckons that the minimum that systemically important banks should set aside as buffers ought to rise to 10% from the 7% proposed by Basel III”.
Credit issues should be addressed by transparency, proper controls by the central banks and ultimately, having competent people in the banks. Mergers for “balance sheet reasons” only make sense if the strong ones merges or acquires the weak ones to eliminate the weakest links in the banking system.
There is nothing wrong with having healthy small and medium-sized banks. They offer more choices for their customers. At the same time, there can be the bigger banks in the country with regional aspirations.
Mergers and acquisitions (M&As) for banks should be driven by cost synergies, better opportunities and competition. In other words, M&As should be driven by market forces and not by unfounded calls by non-stakeholders of the banks.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/20/business/8515405&sec=business
IN reference to the article titled “Catalyst for banking merger” by Risen Jayaseelan that appeared in StarBiz on April 12, I would like to question the view that there are too many banks in Malaysia.
If the view is based on balance-sheet strength, then it is an outdated view. Look at the Western banks such as Citi Group, RBS, Lloyds and many more. Did their big balance sheet help them to weather the credit issues? Or did it make it more difficult for them to achieve their return-on-equity targets, thus possibly driving the banks into more risky behaviour?
One could also argue that big banks are “riskier” than smaller banks because of heavier systemic risks the larger banks pose. The recommendation from Britain’s Independent Commission on Banking (Vickers Commission) does seem to confirm this and suggests additional capital buffers for large banks.
To quote The Economist, “On capital, the commission reckons that the minimum that systemically important banks should set aside as buffers ought to rise to 10% from the 7% proposed by Basel III”.
Credit issues should be addressed by transparency, proper controls by the central banks and ultimately, having competent people in the banks. Mergers for “balance sheet reasons” only make sense if the strong ones merges or acquires the weak ones to eliminate the weakest links in the banking system.
There is nothing wrong with having healthy small and medium-sized banks. They offer more choices for their customers. At the same time, there can be the bigger banks in the country with regional aspirations.
Mergers and acquisitions (M&As) for banks should be driven by cost synergies, better opportunities and competition. In other words, M&As should be driven by market forces and not by unfounded calls by non-stakeholders of the banks.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/20/business/8515405&sec=business
Wednesday, April 20, 2011
Saturday, April 16, 2011
S'pore Allows Stronger Currency to Slow Inflation
Published: Thursday April 14, 2011 MYT 10:48:00 AM
SINGAPORE: Singapore will allow its currency to strengthen in a bid to ease inflationary pressures sparked by robust economic growth and rising energy and food costs, the central bank said Thursday.
The Monetary Authority of Singapore said in a biannual policy statement that it will re-center its exchange rate policy band upward while leaving the slope and width of the band unchanged.
Meanwhile, gross domestic product jumped a seasonally adjusted annualized 24 percent in the January-to-March period from the previous quarter, the Trade and Industry Ministry said separately Thursday.
"The key tipping point for the more aggressive policy shift was the strong performance of first quarter GDP," said Wai Ho Leong, an analyst with Barclays Capital in Singapore. Leong estimated the central bank revalued the currency band between 1 percent and 1.5 percent.
Central bankers across Asia have tightened monetary policy this year, mostly through higher lending rates, as soaring commodity prices and solid economic growth threaten to spur inflation.
The Singaporean dollar has gained about 2 percent so far this year to a record SG$1.25 per U.S. dollar after strengthening 9.3 percent last year. Singapore's central bank uses its currency exchange rate policy, rather than interest rates, to regulate monetary liquidity and inflation.
The central bank left unchanged its 2011 inflation forecast of between 3 percent and 4 percent. Consumer prices rose 5 percent in the 12 months through February.
"Global oil and food prices have increased and will remain high," the central bank said. "Headline inflation is forecast to stay elevated. Domestic cost and price pressures will remain firm."
The central bank adjusted its trading band twice last year to allow the currency to strengthen. Policymakers have said recently that they will use a stronger Singaporean dollar to combat inflation, but don't want to strengthen the currency too much because that could undermine the city-state's export competitiveness.
Singapore's economy, which relies on manufacturing, finance and tourism, jumped a record 14.5 percent last year.
Last quarter on a seasonally adjusted annualized basis, manufacturing surged 80 percent, construction gained 15 percent and services increased 8.4 percent, the ministry said.
"This is significantly higher than what the market had expected and once again underlined the strong economic fundamentals of this small open economy," Singapore's DBS bank said.
The economy grew a seasonally adjusted annualized 3.9 percent in the fourth quarter.
Compared with the same period a year earlier, the economy grew 8.5 percent in the first quarter after expanding 12 percent in the fourth, the ministry said.
The central bank said the economy will likely grow this year "at the upper end" of the government's forecast of between 4 percent and 6 percent.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/20110414105510&sec=business
SINGAPORE: Singapore will allow its currency to strengthen in a bid to ease inflationary pressures sparked by robust economic growth and rising energy and food costs, the central bank said Thursday.
The Monetary Authority of Singapore said in a biannual policy statement that it will re-center its exchange rate policy band upward while leaving the slope and width of the band unchanged.
Meanwhile, gross domestic product jumped a seasonally adjusted annualized 24 percent in the January-to-March period from the previous quarter, the Trade and Industry Ministry said separately Thursday.
"The key tipping point for the more aggressive policy shift was the strong performance of first quarter GDP," said Wai Ho Leong, an analyst with Barclays Capital in Singapore. Leong estimated the central bank revalued the currency band between 1 percent and 1.5 percent.
Central bankers across Asia have tightened monetary policy this year, mostly through higher lending rates, as soaring commodity prices and solid economic growth threaten to spur inflation.
The Singaporean dollar has gained about 2 percent so far this year to a record SG$1.25 per U.S. dollar after strengthening 9.3 percent last year. Singapore's central bank uses its currency exchange rate policy, rather than interest rates, to regulate monetary liquidity and inflation.
The central bank left unchanged its 2011 inflation forecast of between 3 percent and 4 percent. Consumer prices rose 5 percent in the 12 months through February.
"Global oil and food prices have increased and will remain high," the central bank said. "Headline inflation is forecast to stay elevated. Domestic cost and price pressures will remain firm."
The central bank adjusted its trading band twice last year to allow the currency to strengthen. Policymakers have said recently that they will use a stronger Singaporean dollar to combat inflation, but don't want to strengthen the currency too much because that could undermine the city-state's export competitiveness.
Singapore's economy, which relies on manufacturing, finance and tourism, jumped a record 14.5 percent last year.
Last quarter on a seasonally adjusted annualized basis, manufacturing surged 80 percent, construction gained 15 percent and services increased 8.4 percent, the ministry said.
"This is significantly higher than what the market had expected and once again underlined the strong economic fundamentals of this small open economy," Singapore's DBS bank said.
The economy grew a seasonally adjusted annualized 3.9 percent in the fourth quarter.
Compared with the same period a year earlier, the economy grew 8.5 percent in the first quarter after expanding 12 percent in the fourth, the ministry said.
The central bank said the economy will likely grow this year "at the upper end" of the government's forecast of between 4 percent and 6 percent.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/20110414105510&sec=business
Govt May Buy Water Bonds
Thursday April 14, 2011
By YAP LENG KUEN
lengkuen@thestar.com.my
Special purpose vehicle or PAAB believed to be on standby
PETALING JAYA: Amid strong concerns voiced by water bondholders in the financial sector, the Federal Government is believed to be planning a special purpose vehicle or getting Pengurusan Asset Air Bhd (PAAB) to buy over the bonds for which some are running into an event of default.
The Finance Ministry, after receiving urgent feedback from the bondholders that include banks, the Employees Provident Fund and Great Eastern, is likely to use the time tested method of setting up a vehicle like Pengurusan Danaharta Nasional to take over the bonds, sources said.
(Danaharta is the national asset company that was set up following the 1997 Asian financial crisis to take over ailing assets).
Facilities at PAAB are also on standby; PAAB has a coffer of RM40bil, half of which is government guaranteed. After spending RM4bil to buy over water assets in three states, PAAB still has a deep pocket.
Puncak Niaga Holdings Bhd is calling for a bondholders' meeting “to seek certain waivers'' following the recent downgrades by Malaysian Rating Corp which had resulted in the rating of some of Puncak's debt to fall below the minimum required under their respective trust deeds.
“While the current rating prevails, an event of default exists on some of the group's debt wherein the revised rating is below the minimum level. If allowed to remain, further action (if any) by the respective bondholders could result in a default on the group's debt obligations,'' said Puncak, which issued RM546.88mil of redeemable unconvertible junior notes.
Analysts pointed out that the first principal payments of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) bonds were coming up in July; already, the water treatment operator's cashflow is affected as Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) had recently reduced its monthly payment to these operators to 42% of invoiced amounts from 45%.
“The Federal Government's stepping in will be a stop-gap measure,'' said a water sector analyst.
“Puncak will get to restructure its debt repayment profile by stretching the payment of interest over a longer period and possibly saving on costs via the issue of government papers, However, longer tenure bonds still command higher interest.''
The valuation of the bonds will be the next issue to be ironed out among the parties, as bond yields have changed over time, thus affecting the value of the bonds.
“A give-and-take approach should be adopted among all parties,'' opined the analyst.
The Federal Government's helping hand at this juncture may be a relief to Puncak but, on the flip side, analysts view this as giving the Government a leverage on the water industry.
This means that Puncak will probably not be able to ask for excessive compensation if they want to give up the water concession.
While the debt problem of water-related companies may be solved, the worry is that the equity side may be more complicated. The equity portion is owned by the concessionaires and shareholders which are fragmented between federal and state governments.
The two major issues confronting equity owners are the stalemate over control in distribution and sale of water and fragmented shareholding structure between state and federal governments.
Due to the continuing disagreements, the cashflow of Puncak will still be affected as the mismatch persists between payment upstream, based on pre-agreed rates, and revenue, based on existing capped rates.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8478564&sec=business
By YAP LENG KUEN
lengkuen@thestar.com.my
Special purpose vehicle or PAAB believed to be on standby
PETALING JAYA: Amid strong concerns voiced by water bondholders in the financial sector, the Federal Government is believed to be planning a special purpose vehicle or getting Pengurusan Asset Air Bhd (PAAB) to buy over the bonds for which some are running into an event of default.
The Finance Ministry, after receiving urgent feedback from the bondholders that include banks, the Employees Provident Fund and Great Eastern, is likely to use the time tested method of setting up a vehicle like Pengurusan Danaharta Nasional to take over the bonds, sources said.
(Danaharta is the national asset company that was set up following the 1997 Asian financial crisis to take over ailing assets).
Facilities at PAAB are also on standby; PAAB has a coffer of RM40bil, half of which is government guaranteed. After spending RM4bil to buy over water assets in three states, PAAB still has a deep pocket.
Puncak Niaga Holdings Bhd is calling for a bondholders' meeting “to seek certain waivers'' following the recent downgrades by Malaysian Rating Corp which had resulted in the rating of some of Puncak's debt to fall below the minimum required under their respective trust deeds.
“While the current rating prevails, an event of default exists on some of the group's debt wherein the revised rating is below the minimum level. If allowed to remain, further action (if any) by the respective bondholders could result in a default on the group's debt obligations,'' said Puncak, which issued RM546.88mil of redeemable unconvertible junior notes.
Analysts pointed out that the first principal payments of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) bonds were coming up in July; already, the water treatment operator's cashflow is affected as Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) had recently reduced its monthly payment to these operators to 42% of invoiced amounts from 45%.
“The Federal Government's stepping in will be a stop-gap measure,'' said a water sector analyst.
“Puncak will get to restructure its debt repayment profile by stretching the payment of interest over a longer period and possibly saving on costs via the issue of government papers, However, longer tenure bonds still command higher interest.''
The valuation of the bonds will be the next issue to be ironed out among the parties, as bond yields have changed over time, thus affecting the value of the bonds.
“A give-and-take approach should be adopted among all parties,'' opined the analyst.
The Federal Government's helping hand at this juncture may be a relief to Puncak but, on the flip side, analysts view this as giving the Government a leverage on the water industry.
This means that Puncak will probably not be able to ask for excessive compensation if they want to give up the water concession.
While the debt problem of water-related companies may be solved, the worry is that the equity side may be more complicated. The equity portion is owned by the concessionaires and shareholders which are fragmented between federal and state governments.
The two major issues confronting equity owners are the stalemate over control in distribution and sale of water and fragmented shareholding structure between state and federal governments.
Due to the continuing disagreements, the cashflow of Puncak will still be affected as the mismatch persists between payment upstream, based on pre-agreed rates, and revenue, based on existing capped rates.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8478564&sec=business
Bank Negara likely to raise SRR again by 1%
Thursday April 14, 2011
By TEE LIN SAY
linsay@thestar.com.my
Economists say it will further tighten liquidity
PETALING JAYA: There is a strong possibility that Bank Negara will raise the statutory reserve requirement (SRR) of banks by another 1% at its monetary policy meeting next month to further tighten liquidity, acccording to economists.
Selective capital controls may also be introduced to stem the large amounts of liquidity in the system.
The move to increase the SRR is not surprising as Bank Negara is moving towards normalisation of 4%.
Last month, the central bank announced a 1% increase in the SRR to 2%, effective April. It last reviewed the SRR in 2009.
“To address the liquidity issue, increasing interest rates is not so effective. The higher interest rates will merely attract more funds, and this will eventually increase inflation. Raising the SRR would be a more appropriate measure,” said MIDF Research chief economist Anthony Dass.
“We do not rule out further normalisation move in the SRR ratio towards 4% by the end of the year. Therefore, we expect another adjustment of 1% in May, raising SRR to 3% - a pre-emptive measure to manage the risk of this build-up of liquidity from resulting in macroeconomic and financial imbalances,” said AmResearch senior economist Manokaran Mottain.
Manokaran added that despite the inflation rate hitting a 22-month high in February, he did not expect any overnight policy rate adjustment (OPR) for fifth consecutive time in the next MPC meeting in May.
“Given the economy in a lethargic mood, a steady interest rate is highly desirable and instrumental for the recovery process, especially when the Government is embarking on mega investment plans under the Economic Transformation Programme,” said Manokaran.
He expected a single OPR hike in the second half of this year, once the domestic economy achieved steady but strong growth.
On selective capital controls, Anthony said this could be taxes on inflow or outflow.
“It can be either quantity based or price based. This is something which is already done in China, Indonesia, Taiwan and South Korea,” said Dass.
He said since May 2010, liquidity has been growing by double digits every month.
The higher SRR would mop up between RM6bil and RM7bil from the banking system, which is currently flush with excess liquidity of RM250bil.
Increasing the SRR is a one-off move that will soak up some RM6bil from the banking system.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8477275&sec=business
By TEE LIN SAY
linsay@thestar.com.my
Economists say it will further tighten liquidity
PETALING JAYA: There is a strong possibility that Bank Negara will raise the statutory reserve requirement (SRR) of banks by another 1% at its monetary policy meeting next month to further tighten liquidity, acccording to economists.
Selective capital controls may also be introduced to stem the large amounts of liquidity in the system.
The move to increase the SRR is not surprising as Bank Negara is moving towards normalisation of 4%.
Last month, the central bank announced a 1% increase in the SRR to 2%, effective April. It last reviewed the SRR in 2009.
“To address the liquidity issue, increasing interest rates is not so effective. The higher interest rates will merely attract more funds, and this will eventually increase inflation. Raising the SRR would be a more appropriate measure,” said MIDF Research chief economist Anthony Dass.
“We do not rule out further normalisation move in the SRR ratio towards 4% by the end of the year. Therefore, we expect another adjustment of 1% in May, raising SRR to 3% - a pre-emptive measure to manage the risk of this build-up of liquidity from resulting in macroeconomic and financial imbalances,” said AmResearch senior economist Manokaran Mottain.
Manokaran added that despite the inflation rate hitting a 22-month high in February, he did not expect any overnight policy rate adjustment (OPR) for fifth consecutive time in the next MPC meeting in May.
“Given the economy in a lethargic mood, a steady interest rate is highly desirable and instrumental for the recovery process, especially when the Government is embarking on mega investment plans under the Economic Transformation Programme,” said Manokaran.
He expected a single OPR hike in the second half of this year, once the domestic economy achieved steady but strong growth.
On selective capital controls, Anthony said this could be taxes on inflow or outflow.
“It can be either quantity based or price based. This is something which is already done in China, Indonesia, Taiwan and South Korea,” said Dass.
He said since May 2010, liquidity has been growing by double digits every month.
The higher SRR would mop up between RM6bil and RM7bil from the banking system, which is currently flush with excess liquidity of RM250bil.
Increasing the SRR is a one-off move that will soak up some RM6bil from the banking system.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8477275&sec=business
Bank Islam Gives Up on Muamalat
Tuesday, April 12, 2011, 08.25
By Adeline Paul RajPublished: 2011/04/12S
Kuala Lumpur: Bank Islam Malaysia Bhd (5258) has, after two years, given up its pursuit of Indonesia's oldest Islamic lender PT Bank Muamalat Indonesia.
Sources said Bank Islam was recently invited to bid for a controlling stake in the Indonesian lender, but decided not to because it was looking too pricey.
"The pricing expectations were too high," one of them told Business Times.
Check out how Petronas can help to save your money!
It is understood that the three major shareholders of Bank Muamalat, who are from the Middle East and collectively hold just over 70 per cent, hired investment bank Morgan Stanley to advise on the sale and handle bids.
The deadline for bids to come in was last Thursday. It is believed that several private equity firms put in bids.
Sources said that apart from pricing issues, Bank Islam also became less keen on Bank Muamalat after a closer study revealed that the latter's business is predominantly in small-to-medium-enterprise banking rather than retail banking.
Bank Islam, which is controlled by BIMB Holdings Bhd, had wanted a bank that was strong in retail banking to tap the vast potential in the world's most populous Muslim nation.
Managing director Datuk Seri Zukri Samat, when contacted, said the bank "is not participating in Bank Muamalat but is still keen on Indonesia". He declined further comment.
Bank Islam, which is Malaysia's oldest Islamic bank, was reported to have been eyeing Bank Muamalat as far back as August 2009, but exploratory talks with some of the bank's shareholders since then have not led to anything more concrete, sources said.
Jakarta-based Bank Muamalat has 350 offices in Indonesia and a branch in Malaysia. It had some 20.4 trillion rupiah (RM7.2 billion) in assets as at end-2010, a 32 per cent increase from a year ago.
Its major shareholders are Islamic Development Bank (28 per cent), Boubyan Bank Kuwait (about 21.3 per cent) and an investment holding company from Jeddah, Sedco Group (about 21.3 per cent).
Bank Islam, which is 30.5 per cent-owned by Dubai Group LLC, operates primarily in Malaysia, where competition is set to become more intense as more foreign banks are allowed in under further liberalisation of the financial sector.
For it to grow, it needs to explore mergers and acquisitions. But banks from all over, including Malaysia and the Middle East, have been pursuing lenders in Indonesia, driving up prices.
"Indonesia, with its population of over 200 million and low banking penetration, offers banks opportunities for faster growth," banking analyst David Chong of RHB Research said.
Malaysian banks that were early movers there include CIMB Group, which bought Bank Niaga in 2002, and Malayan Banking Bhd, which bought Bank Internasional Indonesia in 2008.
Read more: Bank Islam gives up on Muamalat http://www.btimes.com.my/Current_News/BTIMES/articles/bimbm-2/Article/index_html#ixzz1JGo5htyX
By Adeline Paul RajPublished: 2011/04/12S
Kuala Lumpur: Bank Islam Malaysia Bhd (5258) has, after two years, given up its pursuit of Indonesia's oldest Islamic lender PT Bank Muamalat Indonesia.
Sources said Bank Islam was recently invited to bid for a controlling stake in the Indonesian lender, but decided not to because it was looking too pricey.
"The pricing expectations were too high," one of them told Business Times.
Check out how Petronas can help to save your money!
It is understood that the three major shareholders of Bank Muamalat, who are from the Middle East and collectively hold just over 70 per cent, hired investment bank Morgan Stanley to advise on the sale and handle bids.
The deadline for bids to come in was last Thursday. It is believed that several private equity firms put in bids.
Sources said that apart from pricing issues, Bank Islam also became less keen on Bank Muamalat after a closer study revealed that the latter's business is predominantly in small-to-medium-enterprise banking rather than retail banking.
Bank Islam, which is controlled by BIMB Holdings Bhd, had wanted a bank that was strong in retail banking to tap the vast potential in the world's most populous Muslim nation.
Managing director Datuk Seri Zukri Samat, when contacted, said the bank "is not participating in Bank Muamalat but is still keen on Indonesia". He declined further comment.
Bank Islam, which is Malaysia's oldest Islamic bank, was reported to have been eyeing Bank Muamalat as far back as August 2009, but exploratory talks with some of the bank's shareholders since then have not led to anything more concrete, sources said.
Jakarta-based Bank Muamalat has 350 offices in Indonesia and a branch in Malaysia. It had some 20.4 trillion rupiah (RM7.2 billion) in assets as at end-2010, a 32 per cent increase from a year ago.
Its major shareholders are Islamic Development Bank (28 per cent), Boubyan Bank Kuwait (about 21.3 per cent) and an investment holding company from Jeddah, Sedco Group (about 21.3 per cent).
Bank Islam, which is 30.5 per cent-owned by Dubai Group LLC, operates primarily in Malaysia, where competition is set to become more intense as more foreign banks are allowed in under further liberalisation of the financial sector.
For it to grow, it needs to explore mergers and acquisitions. But banks from all over, including Malaysia and the Middle East, have been pursuing lenders in Indonesia, driving up prices.
"Indonesia, with its population of over 200 million and low banking penetration, offers banks opportunities for faster growth," banking analyst David Chong of RHB Research said.
Malaysian banks that were early movers there include CIMB Group, which bought Bank Niaga in 2002, and Malayan Banking Bhd, which bought Bank Internasional Indonesia in 2008.
Read more: Bank Islam gives up on Muamalat http://www.btimes.com.my/Current_News/BTIMES/articles/bimbm-2/Article/index_html#ixzz1JGo5htyX
Crude Oil Down on Lower Growth Estimates
Thursday April 14, 2011
PETALING JAYA: Crude oil prices saw a setback yesterday after the International Monetary Fund (IMF) lowered its growth estimates for Japan and the United States.
Analysts said the move by the IMF renewed doubts on crude oil demand and the strength of global recovery. It also indicated that the recent rise in price had undercut demand.
They said investors were also expecting lower demand in Japan in the aftermath of the earthquake, the tsunami and nuclear crisis. Japan had raised the severity rating of the crisis at its nuclear plant to the highest level, on a par with the 1986 Chernobyl disaster.
“Selling pressure also intensified after the International Energy Agency (IEA) warned prices above US$100 a barrel have hurt global demand for energy and Goldman Sachs urged investors to cash in their commodity bets,” an analyst said, adding that oil prices had been due for a correction.
“Oil prices have retreated in the morning, in response to the news that Libyan leader Muammar Gaddafi had signed peace talks towards ending the civil war in Libya,” an analyst with a local brokerage said.
Oil prices have risen tremendously on heightened concern over the potential for oil supply disruptions in the Middle East and North Africa.
At 5pm yesterday, oil for May delivery fell as much as 88 cents, to US$105.37 a barrel on the New York Mercantile Exchange, the lowest price since March 31.
MIDF Research chief economist Anthony Dass expects some stablisation to oil prices by the end of second quarter.
He said the IMF had not revised the world growth of 4.4% and believed the slump in crude oil prices was just a “short breather.”
“It is just a trading correction. The fundamental have not changes,” he said, adding that the uncertainties in the Middle East could come to a tail-end by the second half.
Dass said the reconstruction had not started in Japan and demand could pick up in the second half when Japan began its reconstruction works.
The research house expects oil to average US$105 a barrel on the high side for the rest of the year or US$95 per barrel on conservative estimates.
Early this week, both the IMF and IEA said the economy was starting to feel the pressure of high oil and commodity prices.
In a report on the world economy, the IMF said that commodity prices had increased more than expected and noted risks to the recovery from additional disruptions to oil supply.
On Tuesday, Reuters quoted IEA head of the industry and market division David Fyfe as saying that the agency had noticed slowing demand trends in the US and Asia Pacific.
“There's been a marked slowdown since autumn last year. China is looking a bit slower. Thailand and Malaysia have seen a bit of a slowdown.
“We are quite early in the cycle, we have only been above US$100 a barrel for the first quarter. We would expect sustained economic effect from prices to take six to 12 months to feed through.”
Meanwhile, members of Opec with spare capacity in March increased output to help compensate for output disruption in Libya.
Opec blamed the high oil prices on speculation rather than shortage of oil. It emphasised that inventories were still above the historical trend.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8478335&sec=business
PETALING JAYA: Crude oil prices saw a setback yesterday after the International Monetary Fund (IMF) lowered its growth estimates for Japan and the United States.
Analysts said the move by the IMF renewed doubts on crude oil demand and the strength of global recovery. It also indicated that the recent rise in price had undercut demand.
They said investors were also expecting lower demand in Japan in the aftermath of the earthquake, the tsunami and nuclear crisis. Japan had raised the severity rating of the crisis at its nuclear plant to the highest level, on a par with the 1986 Chernobyl disaster.
“Selling pressure also intensified after the International Energy Agency (IEA) warned prices above US$100 a barrel have hurt global demand for energy and Goldman Sachs urged investors to cash in their commodity bets,” an analyst said, adding that oil prices had been due for a correction.
“Oil prices have retreated in the morning, in response to the news that Libyan leader Muammar Gaddafi had signed peace talks towards ending the civil war in Libya,” an analyst with a local brokerage said.
Oil prices have risen tremendously on heightened concern over the potential for oil supply disruptions in the Middle East and North Africa.
At 5pm yesterday, oil for May delivery fell as much as 88 cents, to US$105.37 a barrel on the New York Mercantile Exchange, the lowest price since March 31.
MIDF Research chief economist Anthony Dass expects some stablisation to oil prices by the end of second quarter.
He said the IMF had not revised the world growth of 4.4% and believed the slump in crude oil prices was just a “short breather.”
“It is just a trading correction. The fundamental have not changes,” he said, adding that the uncertainties in the Middle East could come to a tail-end by the second half.
Dass said the reconstruction had not started in Japan and demand could pick up in the second half when Japan began its reconstruction works.
The research house expects oil to average US$105 a barrel on the high side for the rest of the year or US$95 per barrel on conservative estimates.
Early this week, both the IMF and IEA said the economy was starting to feel the pressure of high oil and commodity prices.
In a report on the world economy, the IMF said that commodity prices had increased more than expected and noted risks to the recovery from additional disruptions to oil supply.
On Tuesday, Reuters quoted IEA head of the industry and market division David Fyfe as saying that the agency had noticed slowing demand trends in the US and Asia Pacific.
“There's been a marked slowdown since autumn last year. China is looking a bit slower. Thailand and Malaysia have seen a bit of a slowdown.
“We are quite early in the cycle, we have only been above US$100 a barrel for the first quarter. We would expect sustained economic effect from prices to take six to 12 months to feed through.”
Meanwhile, members of Opec with spare capacity in March increased output to help compensate for output disruption in Libya.
Opec blamed the high oil prices on speculation rather than shortage of oil. It emphasised that inventories were still above the historical trend.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8478335&sec=business
Be Clear About Projects Involving Public Monies
Thursday April 14, 2011
Making a Point - By Jagdev Singh Sidhu
WHEN Malaysians heard of the massive 500km mass rapid transit system being planned for Iskandar Malaysia, a knee jerk reaction was expected.
Many found it incredulous that such an expensive and expansive public transport system could be mooted by the Iskandar Regional Development Authority (Irda).
The cost of the 150km of MRT being planned for Kuala Lumpur, which has a large number of people coping with a poor public transportation system and a clogged up road network is probably in excess of RM50bil and many people wonder how Irda is justifying one for Iskandar Malaysia. It has far fewer people in an area three times larger than Singapore.
Checks with Irda, however, paint a different picture from what was in the news.
Irda officials claim that the 500km integrated transportation network over that distance would mainly utilise a bus rapid transit system, which will cost far less than an MRT.
The rail component would not necessarily be the MRT and could be limited to just a few km of a monorail system.
The message of their statement is this - planning is necessary for Iskandar Malaysia and it's a luxury Irda and Iskandar Malaysia should capitalise on as it has the opportunity to do something that most other cities in Malaysia did not.
Although Iskandar Malaysia encompasses Johor Baru, much of the land area is an open canvas for the authority to chart an efficient public transportation system from scratch.
That means Iskandar Malaysia should not fall into the transportation trap many of the other major cities in Malaysia are facing.
The population of Iskandar Malaysia is projected at 1.5 million people.
The road network in Iskandar Malaysia, which is being upgraded and with new arteries being built, will be enough to cater for that population.
As a large number of people living in Iskandar Malaysia commute to work in Singapore, a proper transportation system is needed to ferry them across the Tebrau Strait.
More light would be shed when the construction of a station connecting the island with Johor Baru was formalised.
But Iskandar Malaysia will need an upgraded public transportation system within southern Johor.
Development plans and programmes underway are anticipated to see more people moving into Iskandar Malaysia as the billions of ringgit of investments already committed and being earmarked should see the number of people living in Iskandar Malaysia rise to three million by 2025.
The projects planned would lead to a massive number of people migrating to Iskandar Malaysia. EduCity, Legoland and the Premium Outlet are designed to cater to large number of people.
The Premium Outlet, which is scheduled to be completed by the end of this year, will occupy an area of 44 arces and it expects four million visitors in its first full year of operations.
If the bigger picture was communicated clearly and concisely, much of the consternation over the 500km MRT news would have been avoided or if the message was from clear from the start.
In fact, articulating development plans that involve a large sum of the taxpayers' money should not be left to random interpretation.
Deputy news editor Jagdev Singh Sidhu thinks a lot of husbands would need to make an investment in a pair of good walking shoes once the Johor Premium Outlet is completed.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8478099&sec=business
Making a Point - By Jagdev Singh Sidhu
WHEN Malaysians heard of the massive 500km mass rapid transit system being planned for Iskandar Malaysia, a knee jerk reaction was expected.
Many found it incredulous that such an expensive and expansive public transport system could be mooted by the Iskandar Regional Development Authority (Irda).
The cost of the 150km of MRT being planned for Kuala Lumpur, which has a large number of people coping with a poor public transportation system and a clogged up road network is probably in excess of RM50bil and many people wonder how Irda is justifying one for Iskandar Malaysia. It has far fewer people in an area three times larger than Singapore.
Checks with Irda, however, paint a different picture from what was in the news.
Irda officials claim that the 500km integrated transportation network over that distance would mainly utilise a bus rapid transit system, which will cost far less than an MRT.
The rail component would not necessarily be the MRT and could be limited to just a few km of a monorail system.
The message of their statement is this - planning is necessary for Iskandar Malaysia and it's a luxury Irda and Iskandar Malaysia should capitalise on as it has the opportunity to do something that most other cities in Malaysia did not.
Although Iskandar Malaysia encompasses Johor Baru, much of the land area is an open canvas for the authority to chart an efficient public transportation system from scratch.
That means Iskandar Malaysia should not fall into the transportation trap many of the other major cities in Malaysia are facing.
The population of Iskandar Malaysia is projected at 1.5 million people.
The road network in Iskandar Malaysia, which is being upgraded and with new arteries being built, will be enough to cater for that population.
As a large number of people living in Iskandar Malaysia commute to work in Singapore, a proper transportation system is needed to ferry them across the Tebrau Strait.
More light would be shed when the construction of a station connecting the island with Johor Baru was formalised.
But Iskandar Malaysia will need an upgraded public transportation system within southern Johor.
Development plans and programmes underway are anticipated to see more people moving into Iskandar Malaysia as the billions of ringgit of investments already committed and being earmarked should see the number of people living in Iskandar Malaysia rise to three million by 2025.
The projects planned would lead to a massive number of people migrating to Iskandar Malaysia. EduCity, Legoland and the Premium Outlet are designed to cater to large number of people.
The Premium Outlet, which is scheduled to be completed by the end of this year, will occupy an area of 44 arces and it expects four million visitors in its first full year of operations.
If the bigger picture was communicated clearly and concisely, much of the consternation over the 500km MRT news would have been avoided or if the message was from clear from the start.
In fact, articulating development plans that involve a large sum of the taxpayers' money should not be left to random interpretation.
Deputy news editor Jagdev Singh Sidhu thinks a lot of husbands would need to make an investment in a pair of good walking shoes once the Johor Premium Outlet is completed.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8478099&sec=business
February IPI Lifted by Manufacturing and Electricity Output
Tuesday April 12, 2011
PETALING JAYA: Lifted by increases in manufacturing and electricity output, Malaysia's industrial production index (IPI) expanded 5% in February from a year ago after gaining a revised 0.5% year on year (yoy) in the preceding month.
According to the Department of Statistics, manufacturing output rose 7.9% yoy, while electricity output rose by a marginal 0.7% yoy in February.
The increase in manufacturing output was attributable to increases in the following groups - petroleum, chemical, rubber and plastic products (17.1% yoy); non-metallic mineral products, basic metal and fabricated metal products (26.3% yoy); and food, beverages and tobacco products (10.1% yoy).
The mining sector, however, remained depressed, with a decline of 0.7% yoy due to decreases in crude oil index (-4.7% yoy).
The improvement in February's industrial production was in tandem with higher external demand, the department said.
Data released last week showed Malaysia's exports grew above market expectation at 10.7% yoy due to strong rebound in shipment of electronics and electrical products. Strong commodity prices were also providing a buffer for exports of the resource-rich country.
In a separate report, the Department of Statistics announced that manufacturing sales in February rose 10.9% from a year earlier, after a revised 7.6% gain in the preceding month.
Economists expected the IPI in the months ahead to decelerate, as global growth continues to moderate.
The situation will also be exacerbated due to short-term supply chain disruptions resulting from the earthquake and tsunami that hit Japan last month.
“A dent in output is expected in the automotive and electronics sectors.
“Although both sectors have sufficient stock at the moment, inventories will run out in May due to the shortage of components and parts,” CIMB Research said in a report.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/12/business/8461410&sec=business
PETALING JAYA: Lifted by increases in manufacturing and electricity output, Malaysia's industrial production index (IPI) expanded 5% in February from a year ago after gaining a revised 0.5% year on year (yoy) in the preceding month.
According to the Department of Statistics, manufacturing output rose 7.9% yoy, while electricity output rose by a marginal 0.7% yoy in February.
The increase in manufacturing output was attributable to increases in the following groups - petroleum, chemical, rubber and plastic products (17.1% yoy); non-metallic mineral products, basic metal and fabricated metal products (26.3% yoy); and food, beverages and tobacco products (10.1% yoy).
The mining sector, however, remained depressed, with a decline of 0.7% yoy due to decreases in crude oil index (-4.7% yoy).
The improvement in February's industrial production was in tandem with higher external demand, the department said.
Data released last week showed Malaysia's exports grew above market expectation at 10.7% yoy due to strong rebound in shipment of electronics and electrical products. Strong commodity prices were also providing a buffer for exports of the resource-rich country.
In a separate report, the Department of Statistics announced that manufacturing sales in February rose 10.9% from a year earlier, after a revised 7.6% gain in the preceding month.
Economists expected the IPI in the months ahead to decelerate, as global growth continues to moderate.
The situation will also be exacerbated due to short-term supply chain disruptions resulting from the earthquake and tsunami that hit Japan last month.
“A dent in output is expected in the automotive and electronics sectors.
“Although both sectors have sufficient stock at the moment, inventories will run out in May due to the shortage of components and parts,” CIMB Research said in a report.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/12/business/8461410&sec=business
Too many M'sian Banks, Consolidation Needed
Tuesday April 12, 2011
Raison D'etre - Risen Jayaseelan
When change is needed and no one is budging, sometimes you need an outsider to stir things up. This seems to be the case for banking consolidation.
Despite the merits of consolidation having been spelt out over the years, little progress has been made. Malaysia has nine domestic banks, which are too many considering that most of them fall within the mid to small size category. Scale will increasingly determine a bank's future.
To be fair, some banks are believed to be exploring consolidation and Hong Leong Bank Bhd is in the midst of acquiring EON Capital Bhd. Still, one wouldn't be far off the mark to describe the state of banking consolidation in Malaysia as slow-going.
But an interesting development took place last week, when Abu Dhabi Commercial Bank Bhd (ADCB) appointed advisors to help it determine what to do with its 25% stake in RHB Bank Bhd.
This move could become a catalyst for banking consolidation, as the advisors seek out a possible deal that is palatable to ADCB and RHB's other big shareholder, the Employees Provident Fund (EPF).
Consider this scenario: What if Goldman Sachs and Bank of America Merrill Lynch (ADCB's advisors) put together a deal in which a larger local bank makes an offer to take over RHB, offering a share swap to the latter's shareholders?
Such a deal would proffer an attractive opportunity to both EPF and ADCB to hold shares in a much larger financial institution that will become the largest in the country with a strong regional presence.
More significantly, such a deal will surely spark off a chain of events, spurring on the other big bank in the country to find itself an acquisition target or targets so that its size remains comparable to the soon-to-be formed giant that RHB will be part of.
This theory, though, may be pooh-poohed by those who reckon that all ADCB is looking for is a quick exit from the Malaysian market and will therefore settle for anyone who is wiling to pay a premium-to-market price for its 25% stake.
But that is not necessarily the case. Firstly, ADCB is not a distressed seller. A quick look at ADCB's financials will tell you that while the bank had been hit by the recent financial crisis, it has since shown significant improvements.
Indeed, it has been so prudent with its provisioning that the company is now likely to receive significant write-backs over the next few years from money it had lent to Dubai World.
ADCB returned to the black in 2010, posting a profit of Emirati dirham (AED) 391mil (US$106mil) for the year after taking significant impairment provisions of AED 3,287mil (US$895mil). It reported a loss of AED 513mil (US$140mil) in 2009 largely due to provisioning.
What is more likely the situation with ADCB is that it is having to allocate a significant amount of capital for its investment in RHB, which is required under strict banking rules.
However being only able to equity account its 25% holding in ADCB may not necessarily be the best use of that capital. Hence this is why it is rare for one bank to directly own minority stakes in other banks.
It makes more sense for banks to own a majority stake in another bank as that would entitle the former to consolidate the earnings of the subsidiary bank.
For a bank like ADCB, it may make more sense for it to use its capital to grow its business or loans in the UAE, which seems to be picking up after the crisis.
Hence ADCB, if given the chance, may want to make RHB its subsidiary. So too would Australia and New Zealand Banking Group Ltd (ANZ) of its investment in AMMB Holdings Bhd.
This is, however, not likely for now - Bank Negara recently reiterated its policy that the foreign shareholding cap of 30% stays. The central bank did add that any request for an increase in foreign shareholding will be dealt with on a case-by-case basis.
But with little indication that foreign parties will be allowed to increase their shareholding, ADCB's best bet may be to sell its stake and that move is what could prove to be the spark for the next phase of Malaysia's banking consolidation.
Business news editor Risen Jayaseelan is cognizant of this statement by one of the country's top bankers in a recent interview with a business weekly: “I do get irritated with deal peddlers' who just want fees and are completely unrealistic about the real business challenges of mergers and love to fuel rumours”.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/12/business/8463103&sec=business
Raison D'etre - Risen Jayaseelan
When change is needed and no one is budging, sometimes you need an outsider to stir things up. This seems to be the case for banking consolidation.
Despite the merits of consolidation having been spelt out over the years, little progress has been made. Malaysia has nine domestic banks, which are too many considering that most of them fall within the mid to small size category. Scale will increasingly determine a bank's future.
To be fair, some banks are believed to be exploring consolidation and Hong Leong Bank Bhd is in the midst of acquiring EON Capital Bhd. Still, one wouldn't be far off the mark to describe the state of banking consolidation in Malaysia as slow-going.
But an interesting development took place last week, when Abu Dhabi Commercial Bank Bhd (ADCB) appointed advisors to help it determine what to do with its 25% stake in RHB Bank Bhd.
This move could become a catalyst for banking consolidation, as the advisors seek out a possible deal that is palatable to ADCB and RHB's other big shareholder, the Employees Provident Fund (EPF).
Consider this scenario: What if Goldman Sachs and Bank of America Merrill Lynch (ADCB's advisors) put together a deal in which a larger local bank makes an offer to take over RHB, offering a share swap to the latter's shareholders?
Such a deal would proffer an attractive opportunity to both EPF and ADCB to hold shares in a much larger financial institution that will become the largest in the country with a strong regional presence.
More significantly, such a deal will surely spark off a chain of events, spurring on the other big bank in the country to find itself an acquisition target or targets so that its size remains comparable to the soon-to-be formed giant that RHB will be part of.
This theory, though, may be pooh-poohed by those who reckon that all ADCB is looking for is a quick exit from the Malaysian market and will therefore settle for anyone who is wiling to pay a premium-to-market price for its 25% stake.
But that is not necessarily the case. Firstly, ADCB is not a distressed seller. A quick look at ADCB's financials will tell you that while the bank had been hit by the recent financial crisis, it has since shown significant improvements.
Indeed, it has been so prudent with its provisioning that the company is now likely to receive significant write-backs over the next few years from money it had lent to Dubai World.
ADCB returned to the black in 2010, posting a profit of Emirati dirham (AED) 391mil (US$106mil) for the year after taking significant impairment provisions of AED 3,287mil (US$895mil). It reported a loss of AED 513mil (US$140mil) in 2009 largely due to provisioning.
What is more likely the situation with ADCB is that it is having to allocate a significant amount of capital for its investment in RHB, which is required under strict banking rules.
However being only able to equity account its 25% holding in ADCB may not necessarily be the best use of that capital. Hence this is why it is rare for one bank to directly own minority stakes in other banks.
It makes more sense for banks to own a majority stake in another bank as that would entitle the former to consolidate the earnings of the subsidiary bank.
For a bank like ADCB, it may make more sense for it to use its capital to grow its business or loans in the UAE, which seems to be picking up after the crisis.
Hence ADCB, if given the chance, may want to make RHB its subsidiary. So too would Australia and New Zealand Banking Group Ltd (ANZ) of its investment in AMMB Holdings Bhd.
This is, however, not likely for now - Bank Negara recently reiterated its policy that the foreign shareholding cap of 30% stays. The central bank did add that any request for an increase in foreign shareholding will be dealt with on a case-by-case basis.
But with little indication that foreign parties will be allowed to increase their shareholding, ADCB's best bet may be to sell its stake and that move is what could prove to be the spark for the next phase of Malaysia's banking consolidation.
Business news editor Risen Jayaseelan is cognizant of this statement by one of the country's top bankers in a recent interview with a business weekly: “I do get irritated with deal peddlers' who just want fees and are completely unrealistic about the real business challenges of mergers and love to fuel rumours”.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/12/business/8463103&sec=business
Felda Hires 2 Banks for Sugar IPO
Monday April 11, 2011
KUALA LUMPUR: The investment banking arms of CIMB Group Holdings Bhd and Malayan Banking Bhd (Maybank) will manage the US$200mil-US$300mil (RM604.3mil-RM906.4mil) initial public offering (IPO) of Malayan Sugar Manufacturing, the sugar processing arm of the Federal Land and Development Authority (Felda), Thomson Reuters publication IFR reported.
Felda Global Ventures, the holding company which runs the commercial businesses of Felda, was also planning to divest a “handful of other businesses” although no further IPOs were expected this year, said IFR. — Reuters
http://biz.thestar.com.my/news/story.asp?file=/2011/4/11/business/8456582&sec=business
KUALA LUMPUR: The investment banking arms of CIMB Group Holdings Bhd and Malayan Banking Bhd (Maybank) will manage the US$200mil-US$300mil (RM604.3mil-RM906.4mil) initial public offering (IPO) of Malayan Sugar Manufacturing, the sugar processing arm of the Federal Land and Development Authority (Felda), Thomson Reuters publication IFR reported.
Felda Global Ventures, the holding company which runs the commercial businesses of Felda, was also planning to divest a “handful of other businesses” although no further IPOs were expected this year, said IFR. — Reuters
http://biz.thestar.com.my/news/story.asp?file=/2011/4/11/business/8456582&sec=business
Thursday, April 7, 2011
Portugal seeks bailout, Europe debt crisis spreads
Published: Thursday April 7, 2011 MYT 9:01:00 AM
LISBON, Portugal (AP) - Portugal asked for a bailout to relieve its crushing debt, joining Greece and Ireland by becoming the third eurozone nation to seek outside help amid a bruising financial crisis.
Prime Minister Jose Socrates went on national television Wednesday to announce that Portugal must take international assistance to save its rapidly deteriorating economy, after months of insisting that he would not ask for a bailout.
Socrates said his caretaker government asked "for financial help, to ensure financing for our country, for our financial system and for our economy."
He did not say how much Portugal would seek, but analysts have predicted Portugal will need up to 80 billion ($114 billion). That amount is bearable for Europe's finances unless other nations - notably Spain - end up asking for help.
Portugal urgently needs the rescue because it has been forced to pay increasingly unsustainable interest rates to persuade investors to buy its debt. Banks from Spain to Germany are heavily exposed to the possibility of a Portuguese default, which would threaten the very existence of the zone.
But analysts believe a package to save Portugal will be crafted by the European Union and the International Monetary Fund. European Commission President Jose Manuel Barroso said in a statement after Socrates' announcement that Portugal's request "will be processed in the swiftest possible manner."
The IMF said Wednesday night that it had not yet received a request for financial assistance from Portugal, but added in a statement that "we stand ready to assist Portugal."
"Ideally you want it to be bigger than the maximum you need to create that confidence that this is a once-for-all bailout," Seiver said. "They don't want to have to come back in a year and say, 'You know, it wasn't quite enough.'
Portugal has one of the 17-nation eurozone's smallest and weakest economies and has struggled for months to finance its economy amid investor fears that it is incapable of settling its debts.
Socrates announced his resignation two weeks ago after opposition parties refused to accept additional austerity measures he proposed to stave off a bailout, but he agreed to stay on as a caretaker leader until the nation holds a special election in June.
There was confusion over whether Socrates could ask for a bailout in his current post because of doubts whether Portugal's constitution permitted an interim leader from doing so. But Socrates said in his speech that he hoped opposition party leaders would support his decision.
"This is an especially grave moment for our country," he said. "And things will only get worse if nothing's done."
Other European nations have been urging Portugal for months to accept outside help in a bid to contain the continent's debt crisis from spreading, amid market fears that the eurozone itself could break apart if it didn't.
The biggest risk for investors is Spain, which has the zone's fourth largest economy and could be too big to bail out. Economic conditions in Spain are especially grim - with one out of every Spaniards out of work - but analysts generally agree that the government has recently put in place enough austerity measures to prevent the country from turning into the next bailout victim after Portugal.
Dan Seiver, finance professor at San Diego State University, said he doesn't expect that a Portuguese bailout, which was anticipated by many, is going to make it any more or less likely that Spain will ask for a bailout of its own.
"The Spanish debt burden is not as high as some of these other countries and the economy has presumably better growth prospects, so there's still this hope that Spain will not need a bailout," he said.
He also said he doesn't expect the debt crisis to spread, but notes that the real test will be whether Spain's cost to borrow money goes up, specifically rates on 1-year and 10-year bonds.
"If those numbers don't really change, then the market is saying 'We don't see any spillover,'" he said.
Portugal's troubles are rooted in a decade of measly growth averaging only 0.7 percent a year while it simultaneously amassed huge debts to finance social programs and government expenses to give the Portuguese benefits similar to their richer European neighbors.
Investor were not convinced that the moves were sustainable, and their fears amplified over the last six months as buyers of Portuguese bonds increasingly demanded higher returns to buy the nation's debt amid predictions Portugal will enter into a double-dip recession.
The yield on Portugal's 10-year bonds hit the unsustainable level of 8.54 percent Wednesday before Socrates made the bailout announcement, up from 5.8 percent a year ago.
The resignation of Socrates' government left the nation without a fully operating administration, amplifying market fears. Two ratings agencies subsequently downgraded Portugal's bonds to just one notch above junk level in recent days, triggering widespread alarm across Europe.
Portugal managed to raise about 1 billion ($1.43 billion) in a Treasury bill sale Wednesday before Socrates made the bailout announcement, but investors demanded record interest rates.
The bailout request came as Portugal's biggest banks announced they will no longer buy national debt as they deal with their own liquidity problems amid heavy assistance from the European Central Bank.
Amid tightened financing, predictions abound that Portuguese companies may face difficulties making their payrolls. And Portugal's unemployment rate last year reached a record 11.2 percent, with gloomy prospects of any relief for job seekers. - AP
http://biz.thestar.com.my/news/story.asp?file=/2011/4/7/business/20110407091215&sec=business
LISBON, Portugal (AP) - Portugal asked for a bailout to relieve its crushing debt, joining Greece and Ireland by becoming the third eurozone nation to seek outside help amid a bruising financial crisis.
Prime Minister Jose Socrates went on national television Wednesday to announce that Portugal must take international assistance to save its rapidly deteriorating economy, after months of insisting that he would not ask for a bailout.
Socrates said his caretaker government asked "for financial help, to ensure financing for our country, for our financial system and for our economy."
He did not say how much Portugal would seek, but analysts have predicted Portugal will need up to 80 billion ($114 billion). That amount is bearable for Europe's finances unless other nations - notably Spain - end up asking for help.
Portugal urgently needs the rescue because it has been forced to pay increasingly unsustainable interest rates to persuade investors to buy its debt. Banks from Spain to Germany are heavily exposed to the possibility of a Portuguese default, which would threaten the very existence of the zone.
But analysts believe a package to save Portugal will be crafted by the European Union and the International Monetary Fund. European Commission President Jose Manuel Barroso said in a statement after Socrates' announcement that Portugal's request "will be processed in the swiftest possible manner."
The IMF said Wednesday night that it had not yet received a request for financial assistance from Portugal, but added in a statement that "we stand ready to assist Portugal."
"Ideally you want it to be bigger than the maximum you need to create that confidence that this is a once-for-all bailout," Seiver said. "They don't want to have to come back in a year and say, 'You know, it wasn't quite enough.'
Portugal has one of the 17-nation eurozone's smallest and weakest economies and has struggled for months to finance its economy amid investor fears that it is incapable of settling its debts.
Socrates announced his resignation two weeks ago after opposition parties refused to accept additional austerity measures he proposed to stave off a bailout, but he agreed to stay on as a caretaker leader until the nation holds a special election in June.
There was confusion over whether Socrates could ask for a bailout in his current post because of doubts whether Portugal's constitution permitted an interim leader from doing so. But Socrates said in his speech that he hoped opposition party leaders would support his decision.
"This is an especially grave moment for our country," he said. "And things will only get worse if nothing's done."
Other European nations have been urging Portugal for months to accept outside help in a bid to contain the continent's debt crisis from spreading, amid market fears that the eurozone itself could break apart if it didn't.
The biggest risk for investors is Spain, which has the zone's fourth largest economy and could be too big to bail out. Economic conditions in Spain are especially grim - with one out of every Spaniards out of work - but analysts generally agree that the government has recently put in place enough austerity measures to prevent the country from turning into the next bailout victim after Portugal.
Dan Seiver, finance professor at San Diego State University, said he doesn't expect that a Portuguese bailout, which was anticipated by many, is going to make it any more or less likely that Spain will ask for a bailout of its own.
"The Spanish debt burden is not as high as some of these other countries and the economy has presumably better growth prospects, so there's still this hope that Spain will not need a bailout," he said.
He also said he doesn't expect the debt crisis to spread, but notes that the real test will be whether Spain's cost to borrow money goes up, specifically rates on 1-year and 10-year bonds.
"If those numbers don't really change, then the market is saying 'We don't see any spillover,'" he said.
Portugal's troubles are rooted in a decade of measly growth averaging only 0.7 percent a year while it simultaneously amassed huge debts to finance social programs and government expenses to give the Portuguese benefits similar to their richer European neighbors.
Investor were not convinced that the moves were sustainable, and their fears amplified over the last six months as buyers of Portuguese bonds increasingly demanded higher returns to buy the nation's debt amid predictions Portugal will enter into a double-dip recession.
The yield on Portugal's 10-year bonds hit the unsustainable level of 8.54 percent Wednesday before Socrates made the bailout announcement, up from 5.8 percent a year ago.
The resignation of Socrates' government left the nation without a fully operating administration, amplifying market fears. Two ratings agencies subsequently downgraded Portugal's bonds to just one notch above junk level in recent days, triggering widespread alarm across Europe.
Portugal managed to raise about 1 billion ($1.43 billion) in a Treasury bill sale Wednesday before Socrates made the bailout announcement, but investors demanded record interest rates.
The bailout request came as Portugal's biggest banks announced they will no longer buy national debt as they deal with their own liquidity problems amid heavy assistance from the European Central Bank.
Amid tightened financing, predictions abound that Portuguese companies may face difficulties making their payrolls. And Portugal's unemployment rate last year reached a record 11.2 percent, with gloomy prospects of any relief for job seekers. - AP
http://biz.thestar.com.my/news/story.asp?file=/2011/4/7/business/20110407091215&sec=business
Proton closing in on Perodua
Thursday April 7, 2011
By THOMAS HUONG
huong@thestar.com.my
PETALING JAYA: Proton is edging closer to regaining its top spot in the car market, five years after losing that position to Perodua.
Sales figures show that the gap in vehicle sales between national carmakers Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) is narrowing rapidly.
In the first quarter of this year, Proton recorded sales of 44,870 units while according to analysts, it is likely that Perodua sold about 45,000 vehicles.
Perodua is expected to release its confirmed 2011 first quarter sales figures on Friday.
At Proton’s factory in Shah Alam.
For the January-February period this year, Malaysian Automotive Association (MAA) reports showed that Proton and Perodua recorded vehicle sales of 27,365 and 27,713 units respectively.
Proton's top-selling car is the current-generation Saga, followed by the Persona, Exora and Inspira.
The Myvi remained as Perodua's best-selling car, followed by the Viva and Alza. For the past five years, Perodua has been the top-selling national carmaker.
Last year, the company enjoyed an all-time record sales of 188,641 units while Proton sold a total of 157,274 vehicles.
Proton's loss of its crown as the top-selling national carmaker can be traced back to 2006, when Perodua outpaced Proton significantly by selling 152,733 cars.
The same year saw Proton sales dipping to 115,538 units (compared with 166,118 units in 2005).
Perodua's star rose with the Myvi, which was launched in May 2005 and rapidly became the nation's best-selling car over the next few years.
However, in recent years, Proton has narrowed the sales gap considerably with successful models such as the current-generation Saga, which sold 72,303 units last year (compared with Myvi sales of 77,657 units).
An automotive analyst with a local research firm said Proton had done well with the car models released in the past three years.
“Also, the strong 2011 first-quarter sales performance can be partly attributed to the Inspira which created new excitement when it was launched last November. Sales for a new car model is usually very strong in the first few months,” she said.
Meanwhile, an OSK Research automotive analyst said Proton had a good chance of overtaking Perodua in 2013.
“Public perception of Proton cars has improved in recent years. Last year, Proton exported about 14% of its total production. Also, in the near future, Proton is likely to have a 1.6-litre turbo-charged engine for its Exora. There is also a strong possibility of a global compact car introduction by 2013 in a tie-up with Nissan.”
The OSK Research analyst pointed out that Proton sales were also boosted by an exchange programme, which begun in mid-February and will end on April 30, where customers could trade in their cars (10 years old and above) and obtain rebates for a new Gen2, Waja or Savvy.
Discounts offered are up to RM6,000 and RM4,000 for 2010 and 2011 Proton models respectively.
Also, the impending launch of a Myvi replacement model, which is believed to be in the second half of this year, might have cooled Perodua sales.
Both analysts said many car buyers were holding back purchases while waiting for the new Myvi to be launched.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/7/business/8428936&sec=business
By THOMAS HUONG
huong@thestar.com.my
PETALING JAYA: Proton is edging closer to regaining its top spot in the car market, five years after losing that position to Perodua.
Sales figures show that the gap in vehicle sales between national carmakers Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) is narrowing rapidly.
In the first quarter of this year, Proton recorded sales of 44,870 units while according to analysts, it is likely that Perodua sold about 45,000 vehicles.
Perodua is expected to release its confirmed 2011 first quarter sales figures on Friday.
At Proton’s factory in Shah Alam.
For the January-February period this year, Malaysian Automotive Association (MAA) reports showed that Proton and Perodua recorded vehicle sales of 27,365 and 27,713 units respectively.
Proton's top-selling car is the current-generation Saga, followed by the Persona, Exora and Inspira.
The Myvi remained as Perodua's best-selling car, followed by the Viva and Alza. For the past five years, Perodua has been the top-selling national carmaker.
Last year, the company enjoyed an all-time record sales of 188,641 units while Proton sold a total of 157,274 vehicles.
Proton's loss of its crown as the top-selling national carmaker can be traced back to 2006, when Perodua outpaced Proton significantly by selling 152,733 cars.
The same year saw Proton sales dipping to 115,538 units (compared with 166,118 units in 2005).
Perodua's star rose with the Myvi, which was launched in May 2005 and rapidly became the nation's best-selling car over the next few years.
However, in recent years, Proton has narrowed the sales gap considerably with successful models such as the current-generation Saga, which sold 72,303 units last year (compared with Myvi sales of 77,657 units).
An automotive analyst with a local research firm said Proton had done well with the car models released in the past three years.
“Also, the strong 2011 first-quarter sales performance can be partly attributed to the Inspira which created new excitement when it was launched last November. Sales for a new car model is usually very strong in the first few months,” she said.
Meanwhile, an OSK Research automotive analyst said Proton had a good chance of overtaking Perodua in 2013.
“Public perception of Proton cars has improved in recent years. Last year, Proton exported about 14% of its total production. Also, in the near future, Proton is likely to have a 1.6-litre turbo-charged engine for its Exora. There is also a strong possibility of a global compact car introduction by 2013 in a tie-up with Nissan.”
The OSK Research analyst pointed out that Proton sales were also boosted by an exchange programme, which begun in mid-February and will end on April 30, where customers could trade in their cars (10 years old and above) and obtain rebates for a new Gen2, Waja or Savvy.
Discounts offered are up to RM6,000 and RM4,000 for 2010 and 2011 Proton models respectively.
Also, the impending launch of a Myvi replacement model, which is believed to be in the second half of this year, might have cooled Perodua sales.
Both analysts said many car buyers were holding back purchases while waiting for the new Myvi to be launched.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/7/business/8428936&sec=business
Oil higher, Topped US$109 a Barrel on Nymex
Published: Thursday April 7, 2011 MYT 9:13:00 AM
NEW YORK (AP) - Oil rose again Wednesday, passing US$109 a barrel at one point, as the dollar weakened against major foreign currencies.
Benchmark West Texas Intermediate gained 49 cents to settle at $108.83 per barrel on the New York Mercantile Exchange. It climbed as high as $109.15 earlier in the day - the highest since September 2008.
The dollar, which tends to move in the opposite direction from oil, lost ground against foreign currencies. The euro climbed to a 15-month high a day before the European Central Bank was expected to increase interest rates. Oil is priced in dollars, and tends to rise when the dollar falls and makes crude cheaper for investors holding foreign currency.
Oil has climbed for several weeks as the Libyan rebellion shut down most of that OPEC country's exports, and energy traders worried about future supplies from the region. Libya produced nearly 2 percent of the world's oil, and an extended shutdown could threaten the production capacity of other OPEC members that are covering some of the shortage.
Gasoline pump prices in the U.S. have followed oil higher, climbing to a national average of more than $3.71 for a gallon (nearly $1 a liter) of regular on Wednesday, according to AAA, Wright Express and Oil Price Information Service. Pump prices have increased nearly 64 cents gallon since the beginning of the year.
Oil rose even though the Energy Information Administration reported that U.S. crude supplies grew more than expected last week, increasing by 2 million barrels. Analysts expected an increase of 1.3 million barrels, according to Platts, the energy information arm of McGraw-Hill Cos.
Gasoline demand dropped by 112,000 barrels per day. Platts senior oil analyst Linda Rafield said demand could be falling because of rising pump prices and the high unemployment rate, which is keeping a lid on consumer spending.
In other Nymex trading for May contracts, heating oil added a less than a penny to settle at $3.1912 per gallon and gasoline futures lost 0.84 cent to settle at $3.1929 per gallon. Natural gas fell 8.5 cents to settle at $4.146 per 1,000 cubic feet.
In London, Brent crude rose 4 cents to settle at $121.93 per barrel on the ICE Futures exchange.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/7/business/20110407092251&sec=business
NEW YORK (AP) - Oil rose again Wednesday, passing US$109 a barrel at one point, as the dollar weakened against major foreign currencies.
Benchmark West Texas Intermediate gained 49 cents to settle at $108.83 per barrel on the New York Mercantile Exchange. It climbed as high as $109.15 earlier in the day - the highest since September 2008.
The dollar, which tends to move in the opposite direction from oil, lost ground against foreign currencies. The euro climbed to a 15-month high a day before the European Central Bank was expected to increase interest rates. Oil is priced in dollars, and tends to rise when the dollar falls and makes crude cheaper for investors holding foreign currency.
Oil has climbed for several weeks as the Libyan rebellion shut down most of that OPEC country's exports, and energy traders worried about future supplies from the region. Libya produced nearly 2 percent of the world's oil, and an extended shutdown could threaten the production capacity of other OPEC members that are covering some of the shortage.
Gasoline pump prices in the U.S. have followed oil higher, climbing to a national average of more than $3.71 for a gallon (nearly $1 a liter) of regular on Wednesday, according to AAA, Wright Express and Oil Price Information Service. Pump prices have increased nearly 64 cents gallon since the beginning of the year.
Oil rose even though the Energy Information Administration reported that U.S. crude supplies grew more than expected last week, increasing by 2 million barrels. Analysts expected an increase of 1.3 million barrels, according to Platts, the energy information arm of McGraw-Hill Cos.
Gasoline demand dropped by 112,000 barrels per day. Platts senior oil analyst Linda Rafield said demand could be falling because of rising pump prices and the high unemployment rate, which is keeping a lid on consumer spending.
In other Nymex trading for May contracts, heating oil added a less than a penny to settle at $3.1912 per gallon and gasoline futures lost 0.84 cent to settle at $3.1929 per gallon. Natural gas fell 8.5 cents to settle at $4.146 per 1,000 cubic feet.
In London, Brent crude rose 4 cents to settle at $121.93 per barrel on the ICE Futures exchange.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/7/business/20110407092251&sec=business
Bank Negara: Let Market Decide on the Number of Banks
Wednesday April 6, 2011
KUALA LUMPUR: The market will determine the number of banks in the country, which currently are well-capitalised.
Malaysia has nine financial services groups with Malayan Banking Bhd, CIMB Group Holdings Bhd and Public Bank Bhd in the top three.
Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said banks have reached a “minimum size and are well-capitalised with quality capital that has enabled them to take advantage of economies of scale”.
“In the current environment, we leave the number of banks to be determined by the market,” she told reporters after her keynote address at the Financial Inclusion Policymakers Forum yesterday.
Tan Sri Dr Zeti Akhtar Aziz says banks are well-capitalised with quality capital.
Zeti said the banks were able to invest in technology and provide financial products as well as services as required by the economy.
Former Finance Minister Tun Daim Zainuddin last Friday warned that there were “way too many banks” in the country. He cautioned that only big banks with huge capital could sustain if there were another economic crisis.
Underscoring Daim's remarks were speculation in recent weeks of more merger and acquisition (M&A) activity to come among banks mirroring the activity in the wider market and following the imminent takeover of EON Capital Bhd, the owner of EON Bank Bhd by Hong Leong Bank Bhd.
The speculation was further reinforced by an early March report by Reuters quoting Prime Minister Datuk Seri Najib Tun Razak, who said the Government might consider allowing Australia and New Zealand Banking Group Ltd to raise its 23.8% stake in AMMB Holdings Bhd, the owner of AmBank (M) Bhd, to 49%.
Foreign shareholdings in local banks is currently capped at 30%.
Singapore's investment arm Temasek Holdings Ltd is keen to take a bigger stake in Alliance Financial Group Bhd (AFG), the owner of Alliance Bank Malaysia Bhd via Langkah Bahagia Sdn Bhd, which was interested in selling its 14.8% stake held via Vertical Theme Sdn Bhd.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/6/business/8419443&sec=business
KUALA LUMPUR: The market will determine the number of banks in the country, which currently are well-capitalised.
Malaysia has nine financial services groups with Malayan Banking Bhd, CIMB Group Holdings Bhd and Public Bank Bhd in the top three.
Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said banks have reached a “minimum size and are well-capitalised with quality capital that has enabled them to take advantage of economies of scale”.
“In the current environment, we leave the number of banks to be determined by the market,” she told reporters after her keynote address at the Financial Inclusion Policymakers Forum yesterday.
Tan Sri Dr Zeti Akhtar Aziz says banks are well-capitalised with quality capital.
Zeti said the banks were able to invest in technology and provide financial products as well as services as required by the economy.
Former Finance Minister Tun Daim Zainuddin last Friday warned that there were “way too many banks” in the country. He cautioned that only big banks with huge capital could sustain if there were another economic crisis.
Underscoring Daim's remarks were speculation in recent weeks of more merger and acquisition (M&A) activity to come among banks mirroring the activity in the wider market and following the imminent takeover of EON Capital Bhd, the owner of EON Bank Bhd by Hong Leong Bank Bhd.
The speculation was further reinforced by an early March report by Reuters quoting Prime Minister Datuk Seri Najib Tun Razak, who said the Government might consider allowing Australia and New Zealand Banking Group Ltd to raise its 23.8% stake in AMMB Holdings Bhd, the owner of AmBank (M) Bhd, to 49%.
Foreign shareholdings in local banks is currently capped at 30%.
Singapore's investment arm Temasek Holdings Ltd is keen to take a bigger stake in Alliance Financial Group Bhd (AFG), the owner of Alliance Bank Malaysia Bhd via Langkah Bahagia Sdn Bhd, which was interested in selling its 14.8% stake held via Vertical Theme Sdn Bhd.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/6/business/8419443&sec=business
Downtrend In Property Loans
Wednesday April 6, 2011
By THEAN LEE CHENG
leecheng@thestar.com.my
Higher deposit to curb market speculation seems effective
PETALING JAYA: Bank Negara's move to require house buyers to pay a higher deposit seems to be weeding out speculation in the property market, some analysts said.
Its monthly statistical bulletin last week showed that for fourth consecutive months since November, the number of loan applications to buy residential property has reduced.
On Nov 2 last year, the central bank announced a 70% loan-to-value (LTV) cap on a borrower's third and subsequent house-financing facility, meaning that these buyers would have to fork out 30% of the purchase price.
The move was prompted by fears of a retail credit bubble fuelling speculation on the prices of residential properties. Certain areas reported price spikes that are indicative of speculation and multiple-unit purchases by individuals.
However, analysts cautioned that the data was not conclusive.
Some analysts said the decline in the first couple of months might be seasonal and believed data from March would accurately show the effects of the LTV rule.
RAM Rating Services Bhd's head of financial institutions ratings Promod Dass said: “Household financing facilities now account for approximately 55% (or RM489bil) of the local banking system's loans, with loans for the purchase of residential property comprising about half (RM238bil) of total household loans.
“Although the full impact of this move has yet to filter through given the short time since its implementation, loan applications for residential property purchases have started slowing down in the last two months of 2010 and January.
“The heftier down payment because of the more stringent 70% LTV cap is aimed at discouraging excessive over-leveraging in the property market. While the early signs are that this move has weeded out a degree of speculation in the residential property market, it will take at least six more months to gain a conclusive feel on whether such speculation has been curbed,” Promod said in an e-mail.
Malaysian Rating Corp vice-president and head of financial institutions ratings Anandakumar Jegarasasingam said the LTV ruling was insufficient to control the level of household sector debt in the economy or an unhealthy property price appreciation.
“Any individual who is purchasing a third residential property is either likely to be affluent or a reasonably savvy property speculator. If property speculation is to be curbed, the authorities should perhaps explore more direct measures involving taxes and prudential restrictions,” he said.
Another issue was whether the current trend of lower applications for housing loans could eventually lead to a softening of the property market.
ECM Libra said in its banking report yesterday that “residential property and non-residential loans approved have shrunk and are set to continue their downtrend.”
ECM Libra's analyst Bernard Ching said “loans growth are expected to taper off due to our expectation that property sales growth may slow down later this year as a result of the imposition of loan-to-value cap.”
Another analyst said the drop in housing loan applications, and the reduction in the number of loans approved, would eventually lead to a softening of the property market. “Increasingly, developers will find it more difficult to push sales and this will lead to a softening,” he said.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/6/business/8422703&sec=business
By THEAN LEE CHENG
leecheng@thestar.com.my
Higher deposit to curb market speculation seems effective
PETALING JAYA: Bank Negara's move to require house buyers to pay a higher deposit seems to be weeding out speculation in the property market, some analysts said.
Its monthly statistical bulletin last week showed that for fourth consecutive months since November, the number of loan applications to buy residential property has reduced.
On Nov 2 last year, the central bank announced a 70% loan-to-value (LTV) cap on a borrower's third and subsequent house-financing facility, meaning that these buyers would have to fork out 30% of the purchase price.
The move was prompted by fears of a retail credit bubble fuelling speculation on the prices of residential properties. Certain areas reported price spikes that are indicative of speculation and multiple-unit purchases by individuals.
However, analysts cautioned that the data was not conclusive.
Some analysts said the decline in the first couple of months might be seasonal and believed data from March would accurately show the effects of the LTV rule.
RAM Rating Services Bhd's head of financial institutions ratings Promod Dass said: “Household financing facilities now account for approximately 55% (or RM489bil) of the local banking system's loans, with loans for the purchase of residential property comprising about half (RM238bil) of total household loans.
“Although the full impact of this move has yet to filter through given the short time since its implementation, loan applications for residential property purchases have started slowing down in the last two months of 2010 and January.
“The heftier down payment because of the more stringent 70% LTV cap is aimed at discouraging excessive over-leveraging in the property market. While the early signs are that this move has weeded out a degree of speculation in the residential property market, it will take at least six more months to gain a conclusive feel on whether such speculation has been curbed,” Promod said in an e-mail.
Malaysian Rating Corp vice-president and head of financial institutions ratings Anandakumar Jegarasasingam said the LTV ruling was insufficient to control the level of household sector debt in the economy or an unhealthy property price appreciation.
“Any individual who is purchasing a third residential property is either likely to be affluent or a reasonably savvy property speculator. If property speculation is to be curbed, the authorities should perhaps explore more direct measures involving taxes and prudential restrictions,” he said.
Another issue was whether the current trend of lower applications for housing loans could eventually lead to a softening of the property market.
ECM Libra said in its banking report yesterday that “residential property and non-residential loans approved have shrunk and are set to continue their downtrend.”
ECM Libra's analyst Bernard Ching said “loans growth are expected to taper off due to our expectation that property sales growth may slow down later this year as a result of the imposition of loan-to-value cap.”
Another analyst said the drop in housing loan applications, and the reduction in the number of loans approved, would eventually lead to a softening of the property market. “Increasingly, developers will find it more difficult to push sales and this will lead to a softening,” he said.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/6/business/8422703&sec=business
High Oil Price Will Hurt M’sia As Trade Partners Get Hit
Wednesday April 6, 2011
By TEE LIN SAY
linsay@thestar.com.my
PETALING JAYA: With the price of Nymex crude oil reaching US$108.47 a barrel on Monday, its highest level since September 2008, Malaysia will benefit on a knee-jerk basis.
However, the country will subsequently feel the drag as the growth of its trading partners are affected by high sustained fuel prices.
Analysts said that as a net exporter of crude oil, Malaysia was more insulated compared with its regional peers due to the positive terms of trade in the short run.
They said Malaysia's economic growth could be dampened by second-round effects from higher oil price as its trading partners, who are mostly net importers, reduced their exports as costlier fuel and higher inflation bite into consumer spending.
CIMB Investment Bank head of economic research Lee Heng Guie said the overall net impact on Malaysia would be moderate.
“Based on its major trading partners' vulnerability to high oil prices, high oil prices could shave Malaysia's gross domestic product growth by 0.5 percentage point through both direct and indirect channels,” he said.
On exports, he said, for every US$10 rise in crude oil prices, assuming a constant volume, export earnings were expected to rise by about RM4bil, raising export growth by 0.5% points. Hence, Malaysia would still enjoy a trade surplus.
MIDF Research economist Anthony Dass said that even prior to the unrest in Middle East and North Africa, he had raised his crude oil price projection for 2011 to US$105 per barrel from US$95, compared with US$80 in 2010.
Lending support to his upward adjustment in crude oil price are fear that the Quantitative Easing 2 (QE2) of US$600bil by the United States will dilute the value of US dollar, improving economic outlook from developing Asia, supply constraint and some levels of geo-political risks.
QE2 will see US Federal Reserve buying a substantial volume of long-term Treasury bonds, thereby inducing bondholders to shift their wealth into equities. The resulting rise in equity prices will increase household wealth, providing a boost to consumer spending.
Anthony believes that the world economy has righted itself amid optimism that macro issues have started to turn around.
He said rising commodity prices in the past month did not cause global growth to lose steam. “Thus, we reiterate our 4.3% global growth (projection) for 2011 compared with 4.8% in 2010.”
He also believes that the first-round effect from higher oil price will be positive, raising real GDP by 0.4%.
“But the second-round impact on the economy will be negative. It will slash growth by 0.8%, dragged by weaker external demand with much depending on domestic demand. Hence, the net effect on growth will be a contraction of 0.4%,” said Dass.
Lee said based on an average oil price of US$85 per barrel, Malaysia's oil-related revenue was estimated at RM59.4bil or 35.8% of total revenue this year.
The last time oil prices skyrocketed and threatened to derail the global economy was between August 2007 and July 2008.
At that time, Nymex rose from US$58.32 per barrel on January 2007 to US$145.29 in July 2008.
On a more positive note, oil and gas companies will be the direct beneficiaries of rising crude oil prices.
The uptrend in crude oil prices will encourage more upstream activities by oil majors which will subsequently cascade down to the entire value chain of the oil and gas industry.
Rising crude oil prices will boost jet fuel prices too and, in turn, fuel airlines operating costs.
“Assuming that there's no hedging, every 1% gain in crude oil prices will erode MAS' bottomline by 2% and Air Asia by 6%.
“We believe the tolerance level for jet fuel will hover between US$117 and US$125 a barrel. At US$105, we expect jet fuel to be around US$119 per barrel, falling within the comfortable zone,” said Dass.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/6/business/8420718&sec=business
By TEE LIN SAY
linsay@thestar.com.my
PETALING JAYA: With the price of Nymex crude oil reaching US$108.47 a barrel on Monday, its highest level since September 2008, Malaysia will benefit on a knee-jerk basis.
However, the country will subsequently feel the drag as the growth of its trading partners are affected by high sustained fuel prices.
Analysts said that as a net exporter of crude oil, Malaysia was more insulated compared with its regional peers due to the positive terms of trade in the short run.
They said Malaysia's economic growth could be dampened by second-round effects from higher oil price as its trading partners, who are mostly net importers, reduced their exports as costlier fuel and higher inflation bite into consumer spending.
CIMB Investment Bank head of economic research Lee Heng Guie said the overall net impact on Malaysia would be moderate.
“Based on its major trading partners' vulnerability to high oil prices, high oil prices could shave Malaysia's gross domestic product growth by 0.5 percentage point through both direct and indirect channels,” he said.
On exports, he said, for every US$10 rise in crude oil prices, assuming a constant volume, export earnings were expected to rise by about RM4bil, raising export growth by 0.5% points. Hence, Malaysia would still enjoy a trade surplus.
MIDF Research economist Anthony Dass said that even prior to the unrest in Middle East and North Africa, he had raised his crude oil price projection for 2011 to US$105 per barrel from US$95, compared with US$80 in 2010.
Lending support to his upward adjustment in crude oil price are fear that the Quantitative Easing 2 (QE2) of US$600bil by the United States will dilute the value of US dollar, improving economic outlook from developing Asia, supply constraint and some levels of geo-political risks.
QE2 will see US Federal Reserve buying a substantial volume of long-term Treasury bonds, thereby inducing bondholders to shift their wealth into equities. The resulting rise in equity prices will increase household wealth, providing a boost to consumer spending.
Anthony believes that the world economy has righted itself amid optimism that macro issues have started to turn around.
He said rising commodity prices in the past month did not cause global growth to lose steam. “Thus, we reiterate our 4.3% global growth (projection) for 2011 compared with 4.8% in 2010.”
He also believes that the first-round effect from higher oil price will be positive, raising real GDP by 0.4%.
“But the second-round impact on the economy will be negative. It will slash growth by 0.8%, dragged by weaker external demand with much depending on domestic demand. Hence, the net effect on growth will be a contraction of 0.4%,” said Dass.
Lee said based on an average oil price of US$85 per barrel, Malaysia's oil-related revenue was estimated at RM59.4bil or 35.8% of total revenue this year.
The last time oil prices skyrocketed and threatened to derail the global economy was between August 2007 and July 2008.
At that time, Nymex rose from US$58.32 per barrel on January 2007 to US$145.29 in July 2008.
On a more positive note, oil and gas companies will be the direct beneficiaries of rising crude oil prices.
The uptrend in crude oil prices will encourage more upstream activities by oil majors which will subsequently cascade down to the entire value chain of the oil and gas industry.
Rising crude oil prices will boost jet fuel prices too and, in turn, fuel airlines operating costs.
“Assuming that there's no hedging, every 1% gain in crude oil prices will erode MAS' bottomline by 2% and Air Asia by 6%.
“We believe the tolerance level for jet fuel will hover between US$117 and US$125 a barrel. At US$105, we expect jet fuel to be around US$119 per barrel, falling within the comfortable zone,” said Dass.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/6/business/8420718&sec=business
Tuesday, April 5, 2011
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