The Contrarian Winner

A year ago,in November 2009,two of the richest men indicated that the global economic panic was over and it was time to start going into quality stocks.

Despite lingering shocks from the  longest, deepest recession since the Great Depression, they vouched that capitalism is still alive and well.

Warren Buffet assured us that "The financial panic is behind us," and recently called for an "all-in wager" on the U.S. economy by acquiring railroad Burlington Northern Santa Fe.

He added that "The bottom has come in stocks. Don't pass on something that's attractive today."

Sitting facing each other in an auditorium filled with nearly 1,000 cheering people at Columbia University in New York, the CEO of Berkshire Hathaway Inc. and Microsoft founder Bill Gates fielded questions from Columbia Business School students on the recession, investing and what's the next Microsoft.

They were the two to provide the first reassurances that the U.S. economy had not collapsed since the last time the two sat in front of a student audience, in Nebraska in 2005.

"We proved that we can make mistakes," said Gates.

"But the fundamentals of the system, a marketplace-driven system where we invest in education and a great infrastructure for the long-term, that's continued."

Even in the country's "darkest hour," he said, American businesses were still innovating.

"Last fall was really blindsiding," Buffett said later.

Still, "I did not worry about the overall survival of our economy."

The worst recession since the 1930s may be over, but the recovery isn't expected to be strong enough to stem job losses and get businesses hiring again.

Employers shed a net total of 190,000 jobs in October, a government survey showed Thursday.

It was the 22nd straight month of losses.

And the unemployment rate jumped last month to 10.2 percent, a 26-year high.

Buffett also commended the Bush administration's actions last September, saying "only the government could have saved things" after the collapse of Lehman Brothers triggered the freeze-up in credit markets and panic on Wall Street.

In the future, however, Buffett said "there should be more downside to the head of any institution that has to go to the federal government to be saved for reasons of the greater society. And so far, we have been better at carrots and sticks in rewarding CEOs at the top. But I think some more sticks are called for."

The two endeared themselves to the audience with tips.

Buffett exhorted students to "marry the right person" and said, "The worst investment you can have is cash."

Gates, meanwhile, said he sees big opportunities in environmentally friendly energy and medicine.

"Capitalism is great," he said.

So,those who heard their advice have definitely made a pile despite the sovereign debt issue in Europe and the silly fracas between the two Koreas.


Did you?

KFC-Two Bidders Come Awooing

Fast on the heels of the Idaman bid for QSR, came Carlyle, a private equity fund is offering a whopping RM1.9b for QSR.

Kulim said this private equity firm had offered to acquire QSR Brands for about RM1.94 billion, topping a previous offer from a company linked to tycoon Tan Sri Halim Saad.

Carlyle Asia’s offer of RM6.70 a share for the majority owner of KFC and Pizza Hut in Malaysia is 20 per cent more than Idaman Saga’s offer of RM5.60 a share earlier this week and QSR’s current stock price.

Kulim, which gets about 60 per cent of its profits from its plantations business, holds a 55 per cent stake in QSR Brands.

The sale of QSR Brands will provide a quick injection of about RM1.07 billion for Kulim, which is owned by the debt-laden state investment arm, Johor Corp.

QSR’s sale will automatically trigger a general offer for KFC Holdings, the jewel in QSR’s stable of companies. KFC, the 51 per cent-owned subsidiary of QSR, is the present holder of the Kentucky Fried Chicken franchises in Malaysia and Singapore.

In a statement to the local bourse, Kulim said QSR and its subsidiaries will not raise capital or declare dividend, while  Carlyle conducts due diligence on the company.

Carlyle, a US buyout fund with US$90.9 billion (RM281 billion) in assets under management, has been eyeing deals in emerging markets of Asia and Africa.

Earlier this year, it had raised an additional US$2.55 billion for deals in Asia, taking the total of Carlyle capital committed to Asia outside of Japan to more than US$5 billion.

So, is the Colonel crowing for a better price offer apart from these two suitors?

YTL Corp, the Juggernaut

In an interesting corporate development,YTL Corp has divested all its assets and property projects in Malaysia and Singapore to its its 60.72%-owned unit, YTL Land. The disposal will bring in a substantial RM476.05mil to YTL Corp.

The disposal consideration and settlement of the outstanding intercompany balances of RM476.05mil is to be satisfied by the issuance by YTL Land of RM253.03mil nominal value of 10-year 3% stepping up to 6% irredeemable convertible unsecured loan stocks (Iculs) at 100% of nominal value of RM0.50 per Iculs and the remaining RM223.02 in cash.

In tandem, YTL Land would also undertake a renounceable rights issue of Iculs to raise funds to partly satisfy the cash portion. YTL Corp would subscribe in full for its entitlement under the proposed rights issue of Iculs.

The conversion price of the Iculs has not been fixed. The Iculs and the new YTL Land shares to be issued arising from the conversion of the Iculs would be listed and quoted on the Main Market of Bursa Securities.

Under the share sale agreements, YTL Corp would dispose of its 100% stakes in Arah Asas Sdn Bhd, Satria Sewira Sdn Bhd, Pinnacle Trend Sdn Bhd, Trend Acres Sdn Bhd and its entire 70% stake in Emerald Hectares Sdn Bhd to YTL Land.

Meanwhile, YTL Corp's wholly-owned units YTL Singapore Pte Ltd, Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd also entered into share sale agreements with YTL Land.

YTL Land had also entered into a land deal with YTL Land Sdn Bhd.This is in line possibly with YTL Corp's ongoing strategy for its principal business arms to own and operate the relevant assets within their business spheres in order to leverage on operational and developmental efficiencies and synergies.

Accordingly, the disposals are aimed at unlocking the value of YTL Corp's investments in its property units and projects.

YTL Corp would continue to participate in and benefit from the development, potential earnings and capital appreciation of the land owned by the disposed firms through its existing shareholding in YTL Land and its interest in the Iculs and/or the YTL Land shares arising from the conversion of the Iculs.

YTL Corp said the net cash proceeds from the proposed disposal and the settlement of outstanding intercompany balance would be utilised for general working capital purposes.

Until such time as the net cash proceeds are utilised, they will be held in interest-bearing bank deposits, money market instruments, deposits and/or other realisable short-term investments pending further evaluation of the strategic options and opportunities of YTL Corp and its subsidiaries, it said.

So, it looks like the biggest non-GLC on Bursar just got bigger.......and this elephant may just fly soon.

MRCB's Anti-climax Merger

Just when you thought that MRCB has finally came out on its own to be a branded corporate entity,  a merger is now on the card  to create a mega property company by fusing it with IJMLand.

The market did not like it and shunned the so-called corporate development. Instead prices of both IJMLand and MRCB fell when they resume trading.

Investbank Bank OSK has reduced MRCB to a 'neutral' recommendation on the basis that the details of the proposed merger with IJM Land Bhd have yet to be finalised. If so, I think OSK is merely jumping the gun with this silly pre-judgment.

The new MRCB and IJM Land proposed merger will make it the second largest property player with revalued asset of  RM6.5 billion.

According to OSK, there has yet to be a decision on whether the proposed merger will be satisfied via a purely share swap for shares in the newly incorporated company (newco) or a combination of both shares in newco and cash,

According to the OSK report,"The RM2.30 offer price for MRCB offers only seven per cent and 12.2 per cent upside from the last closing price and our previous fair value respectively.As such, it is viewed that the  offer price as somewhat fair and yet not that attractive, owing to the rather limited premium or upside."

Nevertheless, it did not rule out the possibility of MRCB's share price overshooting the offer price over the short term, driven by the excitement over the proposed merger.

Both parties are expected to enter into a definitive merger agreement within three weeks from the date of the MoU.

On the longer perspective, I think the EPF strategists  are gunning for a large hoard of cash before they embark on the Sungai Buluh mixed development property land development scheme and this could be one of its proposed pipeline..

Fund Inflows to Bursar to come from the US?

I append an online news item by Lee Wei Lian of Malaysia Insider. I think this is important for those who still wants to dabble in the stock market.

"Bank Negara said it is not currently considering implementing capital controls to deal with inflows of funds due to massive liquidity in western economies that are seeking higher returns in faster growing emerging markets.

Bank Negara Governor Tan Sri Zeti Akhtar Aziz noted today that large and volatile capital flows into regional economies could pose risks to macroeconomic policies and financial stability but said that Malaysia was in the position to intermediate the flows and had also gained experience from the 1997 Asian financial crisis.

“We are not considering any kinds of restrictive measures,” she said. “If the need arises, we will act collaboratively with other central banks in the region.”

The US government has announced plans to pump US$600 billion (RM1.86 trillion) in liquidity into its economy by June next year in a bid to boost its economy.

Critics of the plan contend that much of that money will find its way to emerging markets due to higher interest rates and better performing stock markets, potentially creating asset bubbles in those countries.

Gross inflows of foreign direct investment grew to RM8.9 billion in the third quarter from RM5.3 billion in the second quarter, reflecting larger inflows of equity capital and drawdown of intercompany loans, Bank Negara said today.

It added that portfolio investment in the third quarter registered a larger net inflow of RM9.3 billion compared with RM6.2 billion in the previous quarter due to foreign interest in the local capital market, particularly the equity market.

The Advent of Spoonerism

Have you ever notice that sometimes we say words wrongly by swapping initial consonants or syllables? For instance, instead of saying ‘slip of the tongue; we say instead, ‘tip of the slung’. Similarly, you may have heard friends saying ‘nix the muts’ when they actually wanted to say, ‘mix the nuts’

This kind of oral abberation is called spoonerism in English. Spoonerism was named after Reverend William Archibald Spooner who was prone to muddle up his words while giving sermons as he could not see properly. Some of his fumbles were extremely laughable. 

He was heard once to have said ‘It is kisstomary to cuss the bride.’ Then there was that time when he said 'Pardon me, padam, this pie is occupewed. Can I sew you to another sheet?’

Then there was this lecturer in college who was also into spoonerism. There was a time when he said to a student, "You have hissed all my mystery lectures!’ Having tasted two worms, you will have to leave by the next town drain".

Thent there was that school disciplinary teacher who chastised two boys ‘for fighting a liar’ when he actually meant ‘lighting a fire!’

And what about some people  who habitually said raining ‘dats and cogs’ when they could not attend classes at college or go out?

So, have you heard of any good spoonerisms lately?

Capital Market:A Better 2011

The outlook for fund raising activity in the capital market looks promising in the first-half of next year, so says Maybank Investment Bank . 

“Judging from the last two quarters and going forward, the next first-half of 2011 is promising. We have seen the success of the recent new listings or initial public offerings (IPOs),” its Chief Executive Officer Tengku Datuk Zafrul Tengku Abdul Aziz said.

The new listing are that of Malaysia Marine And Heavy Engineering Holdings Bhd on October 29, and Petronas Chemicals Group Bhd which is scheduled for listing on November 26.

Tengku Zafrul said the local stock market is active based on the market volume and value traded, and also the high level of investments from foreign investors, in terms in foreign shareholdings and participation.

“Fund raising activity would continue in the first-half of 2011 based on new IPOs in the pipeline. We expect positive growth as the pipeline is better than what we have done so far this year,” he said.

Tengku Zafrul also said there are several new listings in the pipeline and this is healthy, adding that the trend would likely to continue.

He said the market also saw placement activities taking place this year namely the Telekom Malaysia Bhd and Malaysia Airports Holdings Bhd, adding that placement exercises would boost trading activity.

“Hopefully, with the continuation of these placements by Khazanah or other bigger investment companies, will create a bigger free float for investors to come in and trade in the stock market.

“The liquidity is there but free float is not as big as other developed countries because our shares are tightly held by big institutions. So there are no opportunities for foreigners or private investors,” Tengku Zafrul said.

He said with these kind of placements in the market, it will not only offer an opportunity to foreigners and private investors, but will also boost the share price of the company.

Tengku Zafrul said the local stock market continued to be strong not only in volume but also the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) was at a healthy level. “Reaching 1,600 is not impossible,” he said.

The FBM KLCI closed 6.24 points higher at 1,506.05 yesterday compared with last week’s 1,499.81.

Tengku Zafrul said among the factors that would continue to support the local bourse are rising foreign liquidity inflow, particularly, from the United States, Europe as well as Asia, amid a higher return in this region.

On the Malaysian economy, Tengku Zafrul said the Gross Domestic Product (GDP) for this year would be around seven per cent and growth would moderate next year at six per cent. Bank Negara Malaysia is scheduled to release third-quarter GDP figures next Monday.

“Looking at that, the market will consolidate. But for the first six-months it still looks strong. I do not think there will be a double-dip recession as the economy is growing and the market is performing well,” he added.