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ASEAN STOCK WATCH Asean Affairs   20 November 2012

ASEAN Market Preview

Monday's advance marked the biggest percentage gain for the S&P 500 since November 6, when the European Central Bank announced a new bond-buying program aimed at containing the region's debt crisis.

Stronger-than-expected earnings from Lowe's and Tyson Foods, as well as encouraging housing data, also contributed to the market's advance. Tyson and Lowe's were the top two percentage gainers on the S&P 500.

The S&P 500 is up more than 2 percent in the last two sessions as rhetoric from legislators over the weekend suggests a deal could be reached to stave off the looming "fiscal cliff," a series of tax and spending changes that will begin to take effect in the new year. The two sides are still far apart in negotiations, however.

The benchmark S&P index had fallen 5.3 percent between Election Day and Friday's rebound, as investors took the opportunity to sell stocks - including some of the year's best performers - just in case Washington cannot come to an agreement and taxes on dividends and capital gains rise in 2013.

Keppel REIT

Standard & Poor's Ratings Services affirmed its 'BBB' long-term corporate credit rating on Singapore-based REIT, Keppel REIT Management Ltd. The outlook is stable. At the same time, we affirmed our 'axA' long-term ASEAN regional scale rating on the company.


We affirmed the rating because we expect Keppel REIT to maintain its stable cash flow, based on high occupancies in all its properties, despite the weaker leasing outlook for the office sector in Singapore. As of Sept. 30, 2012, the REIT's office properties in Singapore's central business district have 98% occupancy despite significant new supply in 2012. This reflects Keppel REIT's properties of above-average quality, good locations, and long weighted-average lease expiry profile of 7.2 years, compared with the industry average of three to four years. We expect Keppel REIT to be resilient even though leasing rates may come under pressure in the next six to 12 months.

We also affirmed the ratings as Keppel REIT will likely maintain its leverage below 45%, despite increasing its borrowing more than we expected. We assumed that the REIT will take on additional borrowing of Singapore dollar (S$) 280 million to S$300 million in the next 12 to 18 months, to complete the acquisitions of Chifley Square in Sydney and Old Treasury Building in Perth. The debt increase will weaken the leverage and cash flow coverage, pushing the credit ratios closer to the threshold for an "intermediate" financial risk profile. We also expect the trust will have adequate facilities and a refinancing plan in place to meet its large maturities coming due in 2014.

In our base-case scenario, we assume the acquisitions will be fully debt-funded. Hence, leverage could range from 42% to 45% by the end of 2014. We have defined leverage as the ratio of adjusted debt to total assets. The debt and total assets include Keppel REIT's proportionate share of debt and assets in its associate, One Raffles Quay Pte. Ltd. (unrated). Despite our estimation that debt could rise to S$3.1 billion by the end of 2014, projected leverage still remains within the range for an intermediate financial risk profile because we have assumed a slight upward revaluation of Keppel REIT's property portfolio in the next six months.

Our assumption is anchored on Keppel REIT's stable cash flow generation, backed by good-quality tenants with long-term leases. In our projections, we have not factored in fresh equity injections or sale of older assets by Keppel REIT to reduce debt. However, the company has a record of raising equity in 2011 and 2010 for asset acquisitions, such as Ocean Financial Centre. At the end of September 2012, Keppel REIT's leverage was 44.1% and ratio of funds from operations (FFO) to interest was 5.2x.

In our view, Keppel REIT's business risk profile remains "satisfactory," but will not be significantly enhanced with the completion of redevelopment of Chifley Square and Old Treasury Building in the third quarters of 2013 and 2015, respectively. We expect both assets to form about 6% of Keppel REIT's enlarged asset portfolio and about 8% of net property income by the end of 2014. Nevertheless, with the completion of Old Treasury Building, which has been leased for 25 years to the government of Western Australia, we expect Keppel REIT's top 10 tenants' weighted-average lease expiry to extend to 9.7 years from 7.5 years as of Sept. 30, 2012, further supporting our view of Keppel REIT's stable cash flow generation.


Keppel REIT's liquidity is "adequate," as defined under our criteria. We expect the REIT to refinance S$598 million in debt ahead of its maturity in December 2012 and this could extend its average debt maturity profile to 3.4 years, compared with 3.1 years as of Dec. 31, 2011.

We estimate Keppel REIT's liquidity sources will exceed uses by about 1.2x in the next 12 months, based on the following major assumptions:

-- We expect the REIT to generate FFO of S$200 million-S$210 million.

-- The REIT had unrestricted cash balance of S$104.6 million as of Sept. 30, 2012.

-- We expect the REIT's cash uses in the next 12 months to include distributions of S$190 million-S$200 million and interest expenses of S$52 million.

-- Debt of S$155 million due in 2013 will be successfully refinanced in a timely manner.

-- Keppel REIT has committed undrawn facilities of S$360 million as of Sept. 30, 2012.

We also expect Keppel REIT to commence refinancing plans for the S$775 million debt falling due in 2014, about six months ahead of maturity. We have assumed successful refinancing of this significant maturity (about 28% of total debt as of Sept. 30, 2012), based on Keppel REIT's satisfactory relationships with its 12 lenders and its strong financial flexibility, backed by unencumbered assets of S$4.7 billion. Based on these expectations, we believe Keppel REIT will continue to benefit from the low borrowing cost of 2% in the next 12-18 months at least.


The stable outlook reflects our expectation that Keppel REIT's leverage will remain below 45% for the next two years and that the REIT will maintain:

-- its property portfolio with an emphasis on the 'A' to prime-grade office assets;

-- its intermediate financial risk profile; and

-- its adequate liquidity.

We may lower the rating if the value of Keppel REIT's property portfolio substantially declines, interest rates rise, or rental income falls. A combination of these factors could cause the FFO-to-interest coverage ratio to weaken to 3x or the leverage to exceed 45% for a prolonged period. Our downgrade trigger is an FFO-to-interest coverage ratio of 4x. We may lower the rating if Keppel REIT's acquisition appetite is more aggressive than we expected.

Upward rating potential is limited in the next 12 months as the trust's leverage will be near to the ceiling of our downgrade triggers. We could review the rating if Keppel REIT meaningfully expands its portfolio of high-quality office properties, backed by equity issuances, or if the company adopts a more conservative financial policy.

Related Criteria And Research

-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012

-- Key Credit Factors: Global Criteria For Rating Real Estate Companies, June 21 2011

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List

Ratings Affirmed

Keppel REIT Management Ltd.

Corporate Credit Rating BBB/Stable/--

ASEAN Rating Scale axA/--/--

PTT Global Chemical

PTT Global Chemical Pcl rose 1.67 percent to 61 baht, outperforming a 0.06 percent loss in the main index.

Broker Kasikorn Securities rated the shares a 'buy' with target price at 79 baht, citing added production capacity to boost the petrochemical industry's growth.

"Management said they will expand debottleneck production for olefins by 10 to 30 percent as well as a 10 to 15 percent increase in paraxylene production," Kasikorn said in a note.

"Results from the added capacity should be realised by the end of this year, while expansion will be completed with two years".

Fourth-quarter's production capacity for olefins is expected to be at 91 percent, the same as the previous quarter.


Scomi Engineering Bhd (SEB) is expected to bid for two more monorail projects in Brazil with a combined contract value of between US$2.5bil (RM7.7bil) and US$3bil (RM9.2bil) in the first half of next year, according to a source familiar with the matter.

The source said SEB stood a good chance of clinching one of the two projects due to its track record, supported by its rolling stock manufacturing facility in the country.

SEB had a few months ago started work on a RM2.7bil monorail project in Sao Paolo, where the company's portion of the project is about RM600mil.

SEB has partnered Montagens e Projetos Especiais SA for a monorail manufacturing facility in Brazil.

Wismilak Inti Makmur

PT Wismilak Inti Makmur, cigarette manufacturer, has decided to go public this month with a fundraising target of at least IDR 350 billion.

Wismilak Inti President Director Ronald Walla as quoted by Bisnis Indonesia said, the company would let go a maximum stake of 30% of the total holdings, or about 630 million shares, to investors.


Four license holders form the backbone of Philippine Amusement and Gaming Corp’s. (Pagcor) Entertainment City.

They are the SM group, through its gaming-and leisure-oriented unit, Belle Corp.; Japan’s Aruze Corp.; the Enrique Razon-owned Bloombury Corp.; and Travellers International Hotels.

Up to $4 billion in investments is expected to be poured into the project which will rise on a 120-hectare property reclaimed from Manila Bay.

Pagcor predicts that the fully operational development project would create direct and indirect employment for some 1 million Filipinos and generate gaming revenues of $11 billion a year.

The first of the four developments—Bloombury’s Solaire casino hotel—is slated for completion by the first quarter of 2013.

Yesterday in Asia

Tokyo climbed 1.43 percent, or 129.04 points, to end at 9,153.20, Sydney rose 0.57 percent, or 24.6 points, to 4,361.4, and Seoul was up 0.93 percent, or 17.27 points, to close at 1,878.10.

Hong Kong ended up 0.49 percent, or 103.35 points, at 21.262.36. Shanghai closed up 0.11 percent, or 2.25 points, at 2,016.98 after dipping below a key support level to a nearly four-year low earlier in the day.

In other markets:

– Wellington closed 0.13 percent, or 5.23 points, lower at 3,942.61.

Fletcher Building was off 0.94 percent at NZ$7.38, Telecom fell 0.42 percent to NZ$2.38 and Contact Energy slipped 0.39 percent to NZ$5.14.

– Taiwan fell 1.03 points, or 0.01 percent, to 7,129.04.

HTC dropped 2.01 percent to Tw$243.5 while Hon Hai Precision was 0.56 percent lower at Tw$89.2.

– Manila rose 10.27 points, or 0.19 percent, to close at 5,449.55.

Manila Electric Co. was 0.63 percent higher at 254.20 pesos, and Philippine National Bank jumped 4.6 percent to 75.30 pesos.

– Kuala Lumpur shares lost 5.97 points, or 0.37 percent, to end at 1,623.31.

Telekom Malaysia was down 1.1 percent at 5.45 ringgit while UEM Land shed 1.3 percent to 2.22.

– Bangkok gained 0.27 percent, or 3.52 points, to 1,283.65.

Banpu dropped 0.55 percent to 363 baht, while PTT lost 0.64 percent to 312 baht.

– Jakarta ended down 37.845 points, or 0.87 percent, at 4,313.439.

Aneka Tambang dropped 0.80 percent to 1,240 rupiah, Bank Permata slipped 0.71 percent to 1,390 rupiah, while Astra International climbed 0.65 percent to 7,800 rupiah.

– Singapore’s Straits Times Index closed up 0.18 percent, or 5.30 points, to 2,950.93.

City Developments fell 1.18 percent to Sg$10.87, while United Overseas Bank shed 0.33 percent to Sg$17.91.

–Mumbai rose 0.16 percent, or 29.63 points, at 18,339.0 points.

Maruti Suzuki rose 3.87 percent to 1,494.6 rupees, while Bharti Airtel rose 2.89 percent to 309.8 rupees.

Shayne Heffernan Ph.D.  
Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408 Fax: +65 6329 9699
Email :
Suite 53 Athenee Tower
63 Wireless Road, Lumpini, Pathumwan, Bangkok 10330
New York 347 5th Avenue, Suite 1402-508 NY, NY 10016


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This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More






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