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||Asean Affairs 3 December 2012
ASEAN Equity Preview
Investors everywhere are unreasonably nervous about the ability of lawmakers to undo the $600 billion in tax increases and spending cuts that are set to begin in January; those changes, if they go into effect, could send the U.S. economy into a recession, that will not happen, we will here a lot of politics, no economics, and the debt ceiling will be lifted or the USA will go in to default if the taxes come, money will flee to Asia, the last bastion of democracy and capitalism.
I do not expect a US default any time soon, the loss of economic power in the USA will be with a whimper, not a bang. Dollars will be printed in ever increasing amounts, standards of living will fall and taxes will increase, it is not all Obama:2016, it will happen because politicians in western countries only look to the end of their term in office, not the long term benefit to the country.
For over a decade the US Government has invaded the civil liberties of citizens and lowered their standard of living, printing money pays the bills, a low dollar policy helps trade balances, but the future generations will pay a hefty price for this economic folly.
A string of economic indicators next week, which includes a key reading of the manufacturing sector on Monday, culminates with the November jobs report on Friday.
Our own research shows that there is no winning in the fiscal cliff debate. Obama wins, the debt ceiling is lifted again, more money is printed and the value of Gold increases. If Boeher wins, and there is a reprieve in tax hikes, more money will come back in to the market and, Gold will go up, the last thing I would want to be left holding is a bag of US Dollars.
The US Dollar is in a precarious position right now, The Fed is pumping it out at a record rate, the Government is spending it at a record rate and companies have more cash than ever before.
Politicians have reduced the Debt Ceiling to a simple political football, if the USA does not raise the debt ceiling the US Government would go in to default, I do not want a bag of US Dollars if that happens. Most likely a deal will be reached, more US Dollars will be printed, and again, I do not want a bag of US Dollars if that happens.
So the best place to be buying equities, and to live of course, is Asia.
My thoughts on Olam
Sunny Verghese seems to be on the right path, and remember, big brother Temasek is right behind him, he did buy some Olam stock last week as I suggested he might, not enough, and he has not convinced his financiers to come to market yet, this has to be his number one priority.
Olam's CEO conceded yesterday that the firm might have to tone down the very thing that defines it - its hard-driving expansion - if it wants to be less of a target for short-sellers like Muddy Waters' Carson Block.
"We will take stock and see whether we need to slow down, decelerate, recalibrate. We're convinced that we've got a great strategy . . . but we might recalibrate . . . the pace at which we are doing things," Mr Verghese told The Business Times yesterday.
Olam International Ltd is under attack from short sellers but the company looks to be holding on OK, I do not think Olam is the new Enron, and if we were to extend the theory of pre booked profits that is being spouted by the short sellers then every insurance company in the world is in bankruptcy and so are most of the banks.
Olam will survive this, and considering how much short selling would have been generated, and the net short position the company may bounce back over $2.00SGD and give the short sellers a nasty, but well deserved shock.
“There is no substance in their broad allegations,” Olam said today in a statement, promising a fuller response in due course. “We will clear our name and hold Muddy Waters accountable for their damaging actions.”
But instead of fighting the short sellers CEO Sunny Verghese needs to reach in to his pockets, rally his friends and burn the short sellers, it is not our opinion that the short sellers are well heeled enough to withstand much of an attack, there are plenty of rumors about the financial state of the short seller and Muddy Waters may be looking for a big winner here to salvage themselves.
Certainly I hope it is the case, it would be a shame for the reputation Singapore has built to be destroyed by the rumor and innuendo of Muddy Waters.
Sunny Verghese, here is the check list of what you need to do now.
1. Get some funds together, reach out to your financiers.
2. Prepare a detailed statement of financial standing.
3. Distribute that to Brokers, Banks, Hedge Funds and Bond Traders.
4. Make the Statement available to the public.
5. Buy the debt and the equities.
Based on volume I would estimate the short position averages around $1.90SGD, the brokers acting on behalf of the short seller would have a safety margin of around 30% so the stock needs to run to $2.34 to rid the company of the short seller.
The average short away from the short seller looks to be around 1.68SGD, so they will become buyers at the $1.86SGD point.
This will be an interesting week.
How the fight is shaping up.
Has a good history
Should have access to capital
Poor reaction to the claims against him
Over 2 years of falling stock prices
Has done this better than anyone before
Has market followers that short and aid the position
May not have access to capital
A break of $2.34 would put him out of the game
Daiwa House Industry, a Japanese property company, agreed to buy a 10 percent stake of Bekasi Fajar Industrial Estate from Argo Manunggal Land Development, in a move that will allow Daiwa to help develop the estate and boost infrastructure.
Krishna Daswara, corporate secretary of Bekasi Fajar, said the deal was completed on Friday.
He would not disclose the value of the agreement.
A 10 percent stake of Bekasi Fajar is valued at around Rp 639 billion ($66.5 million), using the company’s total market capitalization of Rp 6.37 trillion on Friday. Krishna would not confirm the Jakarta Globe calculation.
The company’s stock jumped on Friday as a result of the news. It closed 9.1 percent higher at Rp 720 on the local market.
After the transaction, shares of Argo Manunggal Land will be reduced to 69.7 percent from the existing standing at 79.7 percent.
Argo Manunggal Land is unit a Argo Manunggal Group, which also controls property company Alam Sutera Realty, a house property developer. Alam Sutera has projects in Serpong, Banten and in Sentul, near Bogor.
Bekasi Fajar manages and operates an industrial estate in Bekasi, to the east of Jakarta.
The industrial estates of Bekasi Fajar are home to manufacturing plants belonging to Astra International, the country’s largest automotive distributor, and its subsidiaries Toyota Astra Motor and Astra Daihatsu Motor.
Hitachi Construction Machinery Indonesia and Nutrifood Indonesia also operate plants at the estate.
Net income of Bekasi Fajar rose more than 250 percent to Rp 301 billion in the first nine months this year from the same period last year, while its revenue jumped to Rp 662 billion in the period from Rp 351 billion last year.
Bakasi Fajar made a stellar debut in April this year, raising Rp 300 billion from the sale of its 20 percent stake during its initial public offering.
Shares of the company have more than quadrupled from its IPO price at Rp 170 apiece.
Ayala Corp is cashed up and ready to expand on many fronts.
Ayala Corp. has issued P10 billion worth of medium-term corporate bonds to bankroll the conglomerate’s continued expansion nationwide.
The 7-year notes were priced at 5.45 percent a year, 98 basis points above the three-day average 7-year PDST benchmark. The company said its book-building process indicated a strong demand for the bond with orders accounting for about 170 percent of the issue size.
“Ayala is raising funds for its capital requirements to enable the company to realize opportunities for expansion both through organic growth of its existing business lines as well as value-accretive acquisitions,” the company said in a disclosure.
Just recently, the company entered into an agreement with DBS Bank Ltd. to acquire part of the common shares held by DBS in Ayala-subsidiary Bank of the Philippine Islands for P25.6 billion.
“It is also pursuing a robust pipeline of projects in the power and transport infrastructure sectors as it looks to build a platform for long-term growth,” the firm said.
Ayala said it had always been a consistent and innovative issuer in the domestic capital market over the past few years, raising more than P70 billion from the capital market since 2004.
Last May, the company issued a P10-billion, 15-year bond in the market, which was the longest-listed bond placed by any Philippine corporation. Ayala said it has pioneered investment products in the local market that provided the broader investing public, particularly retail investors, with alternative investments.
Appointed as underwriters to sell the bonds to the public were BPI Capital, BDO Capital and Investments, First Metro Investments, HSBC, ING Bank, RCBC Capital, SB Capital and Standard Chartered Bank.
The company expects to list the bonds on the Philippine Dealing and Exchange System (PDEx) on November 23.
Earlier this week, Ayala announced that the Zobel family’s flagship holding firm posted a consolidated net income of P8.7 billion for the January-to-September period, or 19-percent higher than that of the same period last year.
Core net income, which excludes the impact of the accelerated depreciation from its telco unit and revaluation gains realized by its international property unit last year, reached P9.3 billion, representing a 31-percent year-on-year increase.
This was a poor IPO and it will be a few years before it is worth buying, long term the prospects are good, but for now it is heavily overpriced.
Felda Global Ventures Holdings Bhd (FGVH) will expand its plantation land bank, improve the productivity of its current assets, look at growth in the Asean region for its mid-stream businesses and address the age profile of its oil palm trees in its ambition to grow annual revenue by eight-fold by end-2020.
Group president Datuk Sabri Ahmad said that this year, the group was spending RM270mil to replant trees.
“We aim to replant at least 15,000 ha per year. This is a continuous process, and in the first three years, the age profile of our trees should be addressed. There will be significant growth after that as we increase the yield profile and efficiency,” he said at a briefing.
Sabri said about 30% of the group's planted area had young and immature trees, which utilised “new planting material and eventually, this will give us best in class in terms of OER (oil extraction rate).”
Within the Asean region, Sabri said FGVH was working with a group in Myanmar for rubber plantations. “The first phase is a rubber processing facility. We are negotiating for a 30,000 ha concession in Myanmar.”
He also said FGVH was looking at starting a packing plant in Myanmar by June next year, as well as opportunities in Mindanao, the Philippines. “For Mindanao, we are waiting for the peace process to settle down.”
Sabri said the group had started work on 15,000 ha in a greenfield area in West Kalimantan. “We are also looking at a brownfield in the same area, maybe about 30,000 ha.”
On acquisitions, Sabri said the group had “robust protocols to address new investments carefully to ensure we get assets that are a strategic fit.”
Sabri also said FGVH would look at West Africa and explore the replication of the Felda model in working with poor farmers. The Felda Land Development Authority (Felda) was a statutory body founded in 1956 to alleviate poverty among rural Malays via a land resettlement scheme.
FGVH yesterday announced to Bursa Malaysia that its revenue for the third quarter doubled from RM1.88bil in 2011 to RM3.77bil in 2012 but net profit fell 40% to RM245mil this year.
Bangkok Bank is going to be a big winner over the next decade.
Bangkok Bank says that in two years the so-called CLMV (Cambodia, Laos, Myanmar, Vietnam) countries could be more important to Thailand as trading partners than the US, though Thailand also has no choice but to let lower-labour-cost production shift to these countries and to concentrate on higher value production such as cars and services.
“We are entering the same sort of exciting time as when the US starting building its railroads to the west,” he says.
Shayne Heffernan Ph.D.
Economist/Hedge Fund Manager
Live Trading News
Heffernan Capital Management
Chinese Society of Economists
American Economic Society
Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
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