Genting Berhad: Robbing Genm?

Salvatore Dali in his blog has provided some more details on the mother GenB) and daughter(GenM)transaction.

Along the eay, are they screwing up the 'minority interests'

Let us read what Salvatore has to say. I append from his blog.

GenM had entered into S&P agreements with parent GenB to acquire to wit:

a) 25-storey Wisma Genting office building for RM259.6m (including RM46.9m debt owed to Genting Berhad) ; and
b) Segambut land comprising 2 adjoining land parcels with total area of 380,906 sq ft for RM24.6m (including RM8.6m debt owed to Genting Berhad) .

Both acquisitions will be financed from Genting Malaysia's cash reserves ofRM5.2b as of 30 Sept 09. Independent market valuation for Wisma Genting and Segambut Land at RM277m and RM25.8m respectively puts this at a discount of 6.3% and 4.7% of market valuation respectively.That works out to RM635 per sq ft for Wisma Genting and RM65 per sq ft for the Segambut Land.

Genting Malaysia is currently the single largest tenant for Wisma Genting, occupying 8 floors and 2 basement levels for an annual rental of about RM3.0m. Apart from the rental savings, the group will also receive an annual rental income of RM17.3m from other tenants. Together with the savings, investment in Wisma Genting will provides a decent yield of 0.7%. Annual rental savings of about RM0.3m is also expected from the Segambut land as the group is the sole tenant renting part of the land as storage area for its buses and limousines . As the Segambut land is only 12% occupied as storage, there is potential to convert the remaining land for new property development.

Salvatore's contentions:

Firstly, he believes the transaction is not transparent. Most related party transactions aren't nor are they above board. In this case the same valuer was used for the transaction by both companies.

Secondly, he touches on the Board composition of Gen M. He listed the directors as:

Alwi bin Jantan - Independent director
Wan Sidek Rahman - Independent director
Mohd Haniff Omar (on Genting Bhd board)
Lim Kok Thay (on Genting Bhd board)
Clifford Herbert - Independent director
Loh Bee Hong (on Genting Bhd board)
Lin See Yan - Independent director - (on Genting Bhd board as Independent director as well)
Quah Chek Tin - Independent director - (on Genting Bhd board as Independent director as well)
Mohd Zahidi Zainuddin - Independent director
Thillainathan Ramasamy - Genting Bhd's Independent director
Chin Kwai Yoong - Genting Bhd's Independent director
Nik Hashim Nik Yusoff - Genting Bhd's Independent director

He thought it ludicrous that 2 same independent directors should sit on both companies. This certainly make them hardly independent, so he claimed.

According to Salvatore,dealings but must appear to be transparent as well. The board's composition for both boards have more double counts than really independent directors. Something needs to be done already with regards to the board's composition, because if not, every single related party transaction now and in the future will ALWAYS be seen in a "conspiratorial" manner. For such an important and visible and international listed company, professionalism and global best practices should be adopted. The company should try to shed its "family company" image if it's to continue to appeal to global investors respect and recognition for being a well run, transparent, professional and 'above board at all times' kind of company.

Thirdly, he took a shot at the cash extraction - The move may be interpreted as the parent extracting cash from GenM. Technically, the move actually provides good yields to Genting Malaysia. Questions will surface as to why GenM is being used to keep properties and land? Is that a long term strategy to accumulate properties or an ad hoc move? Why is GenB hiving off assets? Does it mark their refocus in the long term strategy to be purely gaming. If so,there are a lot of shedding to be done.

GenB has a varied portfolio.

a) Genting Malaysia 47%
b) Genting Singapore 54.3%
c) Genting Plantations 54.7%
d) Landmarks: 30.3%
e) Oil & Gas ?? (RM1.9bn market value)
f) Power ?? (RM3.0bn market value)
g) Licensing & mgmt fees ?? (RM5.7bn market value)"

I guess Salvatore is unhappy at the way GenB is 'playing out' minority shareholders of Gen M by hiving away its assets to its subsidiary to tap on its huge cash hoardings. That may well deprive GenM to take advantage of profitable future corporate projects as well as the realization of a potential 'super'dividend payout to minority shareholders.

Japan: Gloomy GDP Data

Seems there is no end to the tales of woe for Japan these days.

The Business Times of Singapore dated 10 December 2009 has this sad story of challenges and fears for the second largest economy of the world.

The size of the challenge facing Japan in seeking to ward off renewed economic recession became more apparent yesterday as revised data showed that gross domestic product expanded by a fractional 0.3 per cent in the third quarter of this year rather than by the 1.2 per cent previously announced. [What a shortfall!]

This means that on an annualised basis, the growth of the world’s second largest economy was just 1.3 per cent during the July to September period rather than the robust 4.8 per cent stated originally.{Robust?]

A major factor behind the downgrade was a 2.8 per cent drop in private capital expenditures during the third quarter whereas initial data had suggested that spending grew by 1.6 per cent during the period.[Private sector is profit driven as so perhaps this gloom doom economy has made them more risk-averse.]

This marked a sixth consecutive quarterly decline in investment.

Most of the revised third-quarter GDP growth came from exports.

The government on Tuesday announced a 7.2 trillion yen (RM276 billion) package of measures to help shore up the economy, even though the level of government debt makes it increasingly precarious to launch such stimulus.

The package was equal to 1.5 per cent of GDP and centered on steps to boost purchases of fuel-efficient cars and consumer electrical equipment as well as aids to house purchases and employment subsidies as well as grants to local governments to offset a drop in revenues.

Public subsidies for the purchase of certain goods helped maintain third-quarter consumption but at the cost of raising the fiscal burden of the government whose outstanding debt to GDP is now close to 200 per cent. Employment subsidies are another source of fiscal strain.[Imagine 200% of GDP!]

Including financial guarantees for smaller firms, the total package was worth some 24 trillion yen but the reaction of business leaders and others has been to suggest that the stimulus was not big enough to counter downward pressure on the economy.

The Bank of Japan appears almost certain to come under increased political pressure to step up monetary easing as a result of the sharp downgrade of third-quarter GDP figures, analysts suggested yesterday.

Banking Minister Shizuka Kamei, who heads the small New People’s Party,demanded yesterday that the government avoid spending cuts next year despite burgeoning public debt.

Kamei has also demanded that the BOJ step up purchases of Japanese Government Bonds (JGBs) to help finance public spending.

The OECD is also urging the central bank to step up JGB purchases as a means to inject more financial liquidity into the economy and to counter deflation.[Yes, get the people to buy bonds that pay good dividends. That's the way to take act inactive funds being hoarded away in the bank's fixed deposit accounts!]

The BOJ’s latest quarterly survey of business conditions in Japan — known as the tankan — is due to be published next Monday and is expected to show that the rate of improvement in business confidence revealed by recent tankan surveys is weakening.'

How sad!

Singapore: Expecting Faster Growth in 2010

Singapore's growth rate in 2010 is expected to accelerate.So says some private sector economists eying signs that the economy is returning to normal.

Let us look at their predictions.

The Singapore Straits Times circa 9 December 2009.

'Growth is tipped to hit 5.5 per cent next year after a 2 per cent contraction this year — based on the median expectations of 20 economists, released yesterday by the Monetary Authority of Singapore (MAS).

This is better than the 4.5 per cent growth they predicted in September, and beats the Government’s official forecast of 3 per cent to 5 per cent growth in 2010.

“The official view tends to be more conservative. This is natural as from a policymaker’s perspective, it is always safer to stay on the cautious end of a forecast,” said DBS Bank economist Irvin Seah.

“But from the private sector perspective, many recent indicators continue to point to a recovery in the global economy.”

Economists are looking at the low base from early this year, when the economy had contracted drastically, to give a boost in growth numbers in the first half of next year.

They are also counting on major economies stabilising so that consumer confidence can rebound and support manufacturing and export activity here.

“While we are not expecting demand to come back in roaring fashion next year, we do expect demand to be good and orders stable,” said Credit Suisse economist Joseph Tan.

Next year, the two integrated resorts will open, which should boost tourism-related sectors. Financial activity and trade are also expected to pick up and in turn make the service economy a stronger engine of growth.

The survey showed that economists are bullish on growth prospects, with most predicting between 5 per cent and 7 per cent growth next year.

But OCBC’s Selena Ling, for one, is still cautious, given that many countries have yet to halt their fiscal and monetary stimulus measures.

“Coming out of the recession, there is still a fair bit of uncertainty about how strong and sustained the recovery will be,” she said.

The Government said last month that the outlook for the second half of next year remains uncertain, although a return to recessionary conditions is not expected.

The survey expects first quarter gross domestic product (GDP) to shoot up 9.6 per cent compared with the same quarter this year, before moderating to between 3.7 per cent and 6 per cent in the following quarters.

Inflation for next year was revised upwards to 2.8 per cent after edging up 0.3 per cent this year, very much in line with the 2.5 per cent to 3.5 per cent the MAS expects.

Economists also expect the local currency to strengthen from S$1.382 (RM3.371) against the greenback at the end of 2009 to S$1.35 by the end of next year. The MAS has kept its exchange rate policy unchanged.

The latest revision caps a wild year that has presented professional forecasters with one of their most challenging times guessing where the economy will go.

In January, economists were predicting the very worst for Singapore, expecting anything from a 5 per cent to 10 per cent contraction as the global economy teetered on the brink of collapse.

But a 2 per cent contraction for the year and 5.5 per cent growth next year now puts the size of the recession in Singapore on a par with the dot.com bust, when the economy shrank 2.4 per cent and then grew 4.1 per cent the following year.

Economists like Seah admitted that the crisis threw assumptions made in forecasting models out the window.

“But we are now going through a state of normalisation, so that’s when we will see forecasting models hopefully starting to work again as the economic relationships return to normal,” he said.

We do hope these economists are right in their crystal-gazing.