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||Asean Affairs 4 December 2012
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A rise in HSBC's China manufacturing PMI to 50.5 in November, its first time above the 50-point growth threshold in 13 months, suggested the world's second-biggest economy may be heading into 2013 with more momentum after struggling this year.
The expansion in Chinese factory activity should provide a boost for world growth, particularly since recovery in the debt-strapped euro zone still appears a long way off.
Yet the outlook elsewhere in Asia, including India and South Korea, was less encouraging. A nd in the United States, manufacturing shrank in November, turning in its worst showing in more than three years.
The big emerging economies that have contributed most to global growth recently have struggled of late, with India's economy expected to grow at its weakest rate in a decade.
Brazil logged an unexpectedly weak third quarter, though manufacturing expanded last month at the quickest clip in nearly two years, suggesting a gradual turnaround.
Foreign investors resumed buying stocks in the Philippines and Thailand in November after selling shares in the previous month, according to data from Thomson Reuters and stock exchanges.
Data showed Philippine stock market recorded net inflows of $204 million in November after posting a net outflow of $225 million in October. Thailand received $201 million of inflows in November after reporting $583 million outflows in October.
The November inflows came as the Philippine main index .PSI scaled an all-time closing high in the month and the benchmark SET index .SETI marked a new 16-1/2 year closing high.
Philippine and Thai benchmark indexes have gained around 29 percent each so far this year, outperforming others in Southeast Asia.
Vietnam .VNI added $66 million of net foreign inflows in the month, the fifth consecutive month of net gain. Indonesia saw net foreign selling of $324 million, while Malaysia posted $57 million of outflows for the month.
U.S. stocks struggled to extend the previous week's gains, dropping on Monday as disappointing U.S. factory numbers dampened optimism about China's economic growth.
The declines broke a three-day streak of gains for the S&P 500, keeping it shy of its 50-day moving average of about 1,420, a level that the index has been below since Oct. 22, and now serving as a key resistance point for investors.
Manufacturing activity in the United States surprisingly contracted in November, the Institute for Supply Management said, dropping to its lowest level in more than three years. Economic data has been mixed in recent months, fanning worries about the pace of growth at a time when investors are already concerned about the "fiscal cliff" issue in Washington.
Olam International Ltd, remains under pressure regarding Muddy Waters and questions about the company's spending, accounting practices and debt levels. Muddy Waters is short the stock, and others have jumped in of course, that is the point of the Muddy Waters song and dance, but this time it is not directly backed by a hedge fund, and I have heard that Muddy Waters may need a strong result on Olam as they are not in the cash position they once were.
But Muddy Waters may be up a creel without a paddle, Olam has started and aggressive defense and is ready for the battle, standing behind them of course in big brother and substantial shareholder Temasek. Temasek could clean up on Olam and mop the floor with Muddy Waters should they decide to do so, and it looks like they have!
Today Olam took another aggressive step against the short sellers announcing a rights issue on Monday consisting of bonds and warrants.
The rights issue takes advantage of Muddy Waters cash position. 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.
The commodity trader proposed an underwritten rights issue of $750 million in principal amount of 6.75 percent bonds due in 2018, along with 387.4 million free detachable warrants.
The issue price of the bonds will be 95 percent of the principal amount and the gross proceeds from the issue of the bonds are $712.5 million, Olam said.
Each warrant carries the right to subscribe for one new share at an exercise price of $1.291 each, on the basis of "313 bonds of principal amount of US$1.00 each with 162 warrants for every 1,000 existing ordinary shares in the capital of the company," it said.
"The low pricing will ensure a wide spread uptake of the offer, adding to Muddy Waters problems with Olam" is what I said in my note to traders today, I also noted that the rights issue puts Muddy Waters on the hook to fulfill the right on the shares that have been shorted.
Olam's shares have fallen only 10 percent since the battle with Muddy Waters began last month. They closed at S$1.575 on Friday and were suspended from trade on Monday.
Olam said rights issue was fully backed by Singapore state investor Temasek Holdings Pte Ltd, which holds a 16 percent stake in the company and is Muddy Waters biggest problem with trying to collapse Olam.
Olam has sued Muddy Waters in a Singapore court and issued a detailed rebuttal of the firm's allegations, saying it was not at risk of insolvency and had enough liquidity.
The Ananda IPO in Thailand looks over valued given the comparative valuation of firms like Sansiri and Raimon Land. Ananda Development has set its initial public offering price at 4.20 baht per 10-satang-par-value share in a bid to raise 5.6 billion baht. For the first nine months of this year, the company achieved revenue of 3.79 billion baht for a net loss of 314 million. In 2011, full-year revenue was 5.69 billion baht for a net loss of 317 million due to amortization costs.
At present, the company has retained losses of 220 million baht but expects to return to the black next year, as pre-sale bookings worth 13.5 billion baht will be realized in the next two years
The company plans to sell 1.33 billion shares in its IPO.
Ananda president Chanond Ruangkritya said 3 billion baht of the proceeds will be used to refinance a leveraged buyout loan from Krung Thai Bank, 2 billion will be used for business expansion and the rest as working capital, hearing working capital in any IPO deal scares me every time.
"Foreign investors don't really care about dividends. They look more for high growth potential," said Mr Chanond, that may be true, but profits and valuations are also considerations.
The company hopes its debt-to-equity ratio will decrease to 0.9 times after the refinancing, which is good but not good enough to justify the price.
Ananda plans to spend 10-15 billion baht to start five or six new projects each year over the next three years for growth of 20-30%.
.He remains confident in the company's strength, which is high-rise condominiums.
The company may perform well, but it may take a few years to turn it around, buying this IPO would be for long term gains if you had faith in the performance, not short term speculation.
Executives at Indonesia’s biggest automotive distributor, Astra International, remained upbeat that the nation’s new car sales can reach 1 million units next year despite some potential challenges, including rising inflation, wage increases and higher taxes.
Astra held a workshop for journalists in Bandung on Friday, where company executives explained domestic car sales are predicted to reach between 1.08 million and 1.1 million units next year.
This prediction was made despite comments by Astra executives that the situation for Indonesia’s automotive industry is likely to face a number of challenges over the next few years.
From January through October this year, car sales in Indonesia reached around 923,000 units. Astra, the sole distributor of several automotive brands including Toyota, Daihatsu, Mitsubishi and Isuzu, contributed 501,540 units.
“In 2013, we will enter a period that will not be easy,” Prijono Sugiarto, the president director of Astra International, told reporters at the workshop.
Possible inflation after the government increases electricity costs was one concern he mentioned. A possible rise in the cost of subsidized fuel was another.
The House of Representatives left open the possibility of a price increase in subsidized fuels when it approved the 2013 budget plans in October.
Finance Minister Agus Martowardojo has confirmed this possibility, though analysts have said the government may find it difficult to hike the price of subsidized fuel, especially low octane Premium, given the sensitivity of the issue with the public.
Projono also mentioned the challenge automotive factories in Indonesia, which assemble cars, will have in dealing with the impact of minimum wage increases at the provincial level.
In the capital city of Jakarta, the new governor Joko Widodo has approved a wage increase of 44 percent to Rp 2.2 million next year.
Meanwhile, according to research from financial giant Morgan Stanley, companies can expect an average 18 percent rise in wages in the 23 provinces that have announced minimum wage increases.
“We’ll see whether productivity can be pushed [after the wage increase] and efficiency can be leveraged. Save here and there. For sure, job terminations shall be the last choice that will be taken. In Astra, we had our last massive job cuts in 1998,” Prijono said.
Other challenges include weakening commodity prices due to the global economic slowdown, which will hurt the economy in some commodity-exporting regions in Indonesia. He said this will then weaken demand for cars.
On the regulatory side, Bank Indonesia on June 15 increased the required down payment for purchasing cars and motorcycles.
However, Indonesia’s strong economic growth and rising purchasing power will likely continue to fuel car sales.
Astra’s earnings rose by almost 10 percent in the first nine months from a year earlier. Its n et income rose 9 percent to Rp 14.7 trillion ($1.5 billion) in the January-September period, while revenue increased 20 percent to Rp 143.1 trillion.
Used oil recyclers Hiap Huat Holdings Bhd's share price continued to see some selling pressure as it hovered below its offer price of 20 sen.
At 4.33pm on Monday, it was down one sen to 17 sen. There were 14 million shares transacted.
The FBM KLCI was down 3.35 points to 1,607.48. Turnover was 625.81 million shares valued at RM1bil. Declining stocks led advancers 406 to 242 while 306 counters were unchanged.
Hiap Huat was listed on Nov 26 and it opened 62.5% higher at 32.5 sen. But the weaker market had weighed down its share price since then.
Universal and commercial banks in the country remain capable to absorb risks, with their capitalization in the first quarter staying well above the regulatory requirement.
This was according to the Bangko Sentral ng Pilipinas, which reported on Monday that the average capital adequacy ratio (CAR) of universal and commercial banks reached 16.85 percent as of the end of the first quarter compared with the minimum 10 percent imposed by the BSP.
The latest CAR was higher than the 16.66 percent registered in the fourth quarter of last year and the 16.42 percent in the first quarter of 2011.
If the capitalization of the subsidiaries of the banks is taken into account, the average “consolidated CAR” stood at 18.01 percent in the first quarter, higher than the 17.72 percent in the fourth quarter of last year and the 17.42 percent as of the end of the first quarter of 2011.
CAR, one of the key indicators of the financial health of banks, is the proportion of capital to the value of assets that are measured using risk weights.
“The risk-based CARs of universal and commercial banks and their subsidiary banks and quasi-banks continued to grow and remained well above the minimum ratio,” the BSP said in a statement.
“The expansion in the industry’s capital base was mainly driven by the banks’ net profit and some additional issuances of capital instruments,” the BSP also said.
The higher-than-required CAR means banks will not have problems complying with the additional capital requirements that will be imposed in 2014 under the Basel 3.
Consistent with the Basel 3, which is an updated internationally accepted standards on bank regulation, the BSP will impose an additional 2.5 percent capital requirement on banks on top of the 10 percent CAR.
With their sufficient capitalization, the BSP said the banks were expected to remain healthy and to continue servicing the funding needs of businesses and consumers in the country, despite the prolonged crisis in the euro zone.
Regulators said banks were expected to extend more loans, which should aid in efforts to sustain a robust economic growth.
The BSP said the favorable performance of the Philippine economy so far this year could be partly attributed to the higher lending by banks.
The economy grew by 7.1 percent in the third quarter from a year ago, the fastest growth rate in Southeast Asia in the period.
Shayne Heffernan Ph.D.
Economist/Hedge Fund Manager
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Heffernan Capital Management
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Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
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