A Stake in Sime Darby for China?Possible ?

Sime Darby Berhad, the plantation-to-power conglomerate that is one of the world’s largest palm oil companies and also with extensive interests in the Middle Kingdom.

This unprecedented step was taken recently by the Najib administration and signals a move by the government to sell down its holdings in government-linked companies (GLCs) as well as to strengthen strategic ties with certain countries by allowing them or their investment arms to hold equity in Malaysian blue-chip GLCs.

The Malaysian Insider has learnt from government sources that Prime Minister Najib discussed the plan to offer up to 10 per cent of Sime Darby for sale to China at a recent Cabinet meeting.

There was strong support for the idea, seen as a move to firm up linkages between Malaysia and the powerhouse economy.

Following the Cabinet meeting, the government informed the Chinese government officially of its intent to offer it a stake in Sime Darby. It is unclear if the targeted buyer is China’s investment agency or any particular state-owned company.

Government sources said they do not expect Sime Darby’s major shareholders — Permodalan Nasional Berhad or the Employees Provident Fund (EPF) — to sell down their stakes. Instead, it is believed Sime Darby will issue new shares.

Listed in the Bursa Malaysia, Sime Darby shares closed 3 sen higher to RM8.23 yesterday (9 September 2009).

For the diversified multinational, selling a small stake of the company to a heavy hitter investor comes at a good time for its plantations, property, industrial, motors, and energy and utilities divisions. It also has interests in health-care.

The Group recently recorded a steep 41 per cent drop in profits and analysts have been asking serious questions about whether the group should shed some of its divisions and focus more on its staple palm oil business. Having an influential Chinese company as a shareholder will be especially helpful as it tries to expand its footprint in China.

Sime Darby counts China as one of its top markets for palm oil and has significant interests in motor, industrial equipment and ports in China.

The addition of a cash-rich investor will also help Sime Darby fund the expansion of its oil palm acreage. More importantly, the strategic tie-up will give the company a much needed boost.

For Malaysia, the decision to offer a stake in its prized corporate jewel signals a willingness by the government to open up its GLCs to foreign ownership. Its banking conglomerates have gone the other way with both CIMB and Malayan Banking aggressively expanding throughout Southeast Asia.

The current Sime Darby is from an early 2007 merger of Sime Darby Berhad, Kumpulan Guthrie and Golden Hope, all units within the Permodalan Nasional Berhad group of companies.

The original Sime, Darby & Co, was established in 1910 by European businessmen William Sime and Henry Darby, to dabble in the lucrative rubber industry before diversifying to cultivating oil palm and cocoa.

I think this story is palatable even though Sime Darby has earlier on denied it.

Top Jokes from All Over

Let's have some fun, okay?

Top Joke-Anywhere

A young man went to his father one day to tell him that
he wanted to get married.

His father was happy for him. He asked his son who the
girl was, and he told him that it was Samantha, a girl from
the neighborhood.

With a sad face the old man said to his son,
''I'm sorry to say this son but I have to. The
girl you want to marry is your sister, but please don't tell your mother.''

The young man again brought three more names to his
father but ended up frustrated because the response was
still the same.

So he decides to go to his mother.
''Mom I want to get married but all the girls that
I love, dad said they are my sisters and I mustn't tell you.''

His mother smiling said to him,
''Don't worry my son, you can marry any of
those girls. You're not his son.

Top Joke in Northern Ireland

A doctor says to his patient, 'I have bad news and worse news'.
'Oh dear, what's the bad news?' asks the patient.
The doctor replies, 'You only have 24 hours to live'..
'That's terrible', said the patient. 'How can the news possibly be worse?'
The doctor replies, 'I've been trying to contact you since yesterday'.

Top Joke in UK

A woman gets on a bus with her baby.
The bus driver says: 'That's the ugliest baby that I've ever seen. Ugh!'
The woman goes to the rear of the bus and sits down, fuming.
She says to a man next to her: 'The driver just insulted me!'
The man says: 'You go right up there and tell him off, go ahead,
I'll hold your monkey for you.

Top Joke in USA

A man and a friend are playing golf one day at the ir local golf course.
One of the guys is about to chip onto the green when he sees a long funeral procession on the road next to the course. He stops in mid-swing, takes off his golf cap, closes his eyes, and bows down in prayer.
His friend says: 'Wow, that is the most thoughtful and touching thing I have ever seen.. You truly are a kind man.'
The man then replies: 'Yeah, well we were married for 35 years.'

Top Joke in Canada

When NASA first started sending up astronauts, they quickly discovered that ballpoint pens would not work in zero gravity. To combat the problem, NASA scientists spent a decade and $12 billion to develop a pen that writes in zero gravity, upside down, underwater, on almost any surface including glass and at temperatures ranging from below freezing to 300 C.

The Russians used a pencil.

Top Joke in England

Two weasels are sitting on a barstool. One starts to insult the other one.
He screams, 'I slept with your mother!'
The bar gets quiet as everyone listens to see what the other weasel will do.
The first again yells, 'I SLEPT WITH YOUR MOTHER!'
The other says, 'Go home dad you're drunk.'

Genting Rights-Intended Application

Gaming operator Genting Singapore which announced plans of a rights issue to raise 1.63 billion Singapore dollars to would use 60 percent of the funds to pursue future expansion in the leisure, hospitality and gaming sectors.The rest of the money will be set aside for working capital purposes."The rights issue will strengthen the company's financials and put us in a strong position to tap strategic opportunities," said managing director Justin Tan.

Existing Genting Singapore shareholders can subscribe for new shares at 80 cents each, which represents a discount of 32.8 percent to the company's closing price of 1.19 dollars Tuesday on the local exchange.

Genting Singapore, which has a market capitalisation of 11.5 billion dollars, is building a casino resort in the city-state's Sentosa island.

It said the 6.59-billion-dollar Resorts World at Sentosa is scheduled for a soft opening in early 2010.

PS:

RHB Research Institute Sdn Bhd has said Genting Singapore Plc’s plan to raise as much as S$1.63 billion in a rights offer will have “minimal” impact on Malaysian parent Genting.

At 9.15am on 10 September 2009, on the Bursar, the shares of Genting Bhd, advanced 1.8 per cent to RM6.99, rebounding from yesterday’s 4.2 per cent decline.

So, who has 2020 vision?

Can You Read This?

I can read it, can you?

fi yuo cna raed tihs, yuo hvae a sgtrane mnid too. Cna yuo raed tihs? Olny 55 plepoe out of 100 can.

i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg. The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a wrod are, the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset can be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mni d deos not raed ervey lteter by istlef, but the wrod as a wlohe. Azanmig huh? yaeh and I awlyas tghuhot slpeling was ipmorantt! if you can raed tihs forwrad it.

The Genting Rights Dampener

Just when you are about to go ballistic on Genting's stable of shares,they throw you a dampener spanner! So, there is cost overrun after all. And they not only gamble, but lie as well.

The latest Reuter Report has this to tell.

Casino operator Genting Singapore plans to raise more than $1 billion through a rights issue to help fund its upcoming casino as well as build a war chest for possible acquisitions.It's a big issue.

Genting Singapore, which is about 54 percent held by Malaysian casino operator Genting Bhd, has almost completed building one of the city-state's two integrated casino resorts. It is also the largest casino operator in the United Kingdom.

The rights issue will be underwritten by a group of about eight banks, including UBS, JPMorgan, DBS and Deutsche.

Genting's Resorts World at Sentosa casino has been plagued by cost overruns due to the escalating price of steel and other building materials.The latest cost estimate for the casino is about S$6.59 billion ($4.63 billion), up from the S$5.2 billion price tag cited shortly after the firm won the Singapore bid in December 2006.

Genting Singapore's share price has more than doubled this year. It closed at S$1.19 on Tuesday, up from 45 cents at the end of 2008. Genting has reported losses since it listed in Singapore in December 2005 due to the cost of building its Singapore casino and write-downs related to its purchase of casinos in Britain.

For the second quarter ended June, the firm reported a net loss of S$50.7 million compared with a loss of S$1.8 million a year ago.

Oh, what a gamble. I do hope these Genting chaps know what they are doing.

Bring in the High-rollers!

Salvatore Dali has a take on Genting Singapore and the Resort world Sentosa today. A really auspicious day; 9th September in the Year of our Lord 2009.

He wrote:

Genting Singapore has had a tremendous run over the past few weeks, so much so that it even dragged Genting Berhad higher as some analysts think its a cheaper way to play Genting Singapore.

Testing of some of the Universal Studio rides have already begun while 4 hotels scheduled for opening in phase 1 have been topped up. Resorts World Sentosa (RWS) should be able to open on time, if not earlier. A sly indication, there is a charity concert to be held at the Festive Hotel, and that has been been scheduled for December 19th - that would surely steal some thunder from Marina Bay Sands.

Genting Singapore's principal activities are in developing integrated resorts, operating casinos, offering international sales and marketing services to Genting Highlands Resorts and providing IT application related services. Genting Singapore is currently the largest casino operator in the UK.

Let us look at the share-holding spread of its majority shareholders:

Genting Singapore
Paid Up: 9.637bn shares

Genting Overseas Holdings (Genting Berhad) 54.44%
Resorts World Limited 6.16%
DBS Vickers Securities Pte. Ltd. 5.73%
DMG Pte. Ltd. 3.33%
UOB Kay Hian Pte. Ltd. 2.48%
Citibank Nominess Singapore Pte. Ltd. 2.06%
DBS Nominees Pte. Ltd. 1.63%

Free Float: 30%
Market Cap: S$11.2bn / RM27bn
52 week range: S#0.32-S$1.18

RWS is still targeting for a soft launch in 1Q10, but some talks have emerged that its casino may open before the end of 2009. RWS has increased its investment from S$6b to S$6.59b, but it expects the additional investment to be funded by operating cash flows once the IR opens. It has awarded over S$4.7b in project costs but it expects capex to remain under S$6.0b by the time of opening. Some of the attractions will only be opened by end 2011.

Management affirmed that the project remains on track for a 1Q2010 opening. But it is still unable to commit to an official opening date as yet given the uncertain time-line associated with the crucial testing and commissioning of Universal Studios Singapore’s (USS) attractions. Installation works for most of the rides are currently ongoing and testing and commissioning works are slated to begin in Oct-09.

The casino licence application in progress. Management reiterated that both international resorts would need to satisfy three criteria before submitting their respective casino licence application. Particularly, RWS would need to:

i) spend 50% of its committed investment amount
ii) build 50% of the gross floor area
iii) build 50% of the site area.

It is estimated that RWS would reach the necessary milestones by end-3Q09. The casino licence, upon award, is for 30 years with renewals required once in every three years. It must have a competitive edge to attract VIP players. With industry players expecting the Macau government to cap VIP gaming commission rates at 1.25% by year-end, this could be a blessing in disguise for Singapore’s two upcoming casino operators in an attempt to get a slice of the Mainland Chinese VIP gaming pie. Management acknowledged the need to be competitive regionally and depending on market conditions, it would not discount the possibility of paying more attractive commission rates to attract the high rollers. Singapore’s more favourable VIP gaming tax of 12% (including 7% value added tax) vs. Macau’s 39% also pave way for such a possibility.

Infrastructure has been put in place to cater for IR traffic. Completion of the 3rd lane (per direction) on the vehicle bridge linking mainland to Sentosa (from 2 lanes to 3) has been confirmed. Vehicles from mainland can also enter car park of RWS from the bridge without having to drive into Sentosa. A 620m pedestrian bridge with travellators (capacity of 8,000 guests / hour / direction) will also be constructed. Management is gunning for 13MM visitors in 1st year of operations. Universal Studios Sentosa (USS) will be a major draw. along with the casino business is a volume business and USS, the Resort World at Sentosa should draw the crowd. Of the 13MM visitors, 40% is expected to be locals and 60% foreigners.

What will be the expectation of the casino? For one, casino revenue is expected to contribute 70% of total revenue.It will open with slightly more than 500 tables, a little baove the number at Genting Highlands in Malaysia but less than the 1,000 tables indicated by Marina Sands.

What is i nstore for high rollers? What are the junkets? Junket commissions is one, naturally.The lower tax structure in Singapore should give operators the flexibility to be pay above Macau's commission rate of 1.25% if need be.Indonesia and Thailand are important markets for them. The Genting Group has long standing relationships with junket operators in the region.Singapore will have a formal process of registering the junkets but junket rules not out yet.

“The upside in Genting Berhad lies in two key angles. First,the explicit re-rating of Genting Singapore as a subsidiary and second, the narrowing of the “discount to entry” as a parent (company). The current share price is pricing in a value of S$0.63 per share for Genting Singapore and Salvador thus advocate a buy call on Genting Bhd on the premise that investors are paying around 50 per cent “discount to entry”

Malaysian gaming stocks are also playing catch-up with their regional peers, which rose sharply last week on reports gaming revenue in Macau, the world’s top gambling market, rose to a new high in August.

Genting Berhad is trading at 14x FY11F PE and 6x EV/EBITDA vs Genting Singapore's 29x and 11x respectively (strongest earnings growth in the sector). Every 1% rise in Genting Singapore's value would boost Genting Berhad's SOP valuation by 0.4%.

According to Salvadore, much of what was written by him was a summary of what been printed in most research reports. He has this to say," I am beginning to like Genting Singapore but I frown on Genting Berhad being a tag along play. The big difference is that Kien Huat Realty holds only 32% of Genting Berhad. As usch. there is a humungous free float, while the shareholding is curiously tight in Genting Singapore. If one look closely at the substantial shareholders, there are plenty holding 2%-3% stakes but held under nominees. My view is that the Lim family and owner/managment probably think that Genting Singapore is the most exciting vehicle to be invested in (among the array of Genting companies) for now and over the next 2 years.

Genting Berhad is there as an anchor controlling the vast array of listed entities. I would stick with Genting Singapore. Many are already revising upwards their targets from the S$1.10-S$1.28 levels. It is too complicated to put the spreadsheet in this blog but at those levels, the visitors to RWS is more in the range of 10m a year, I think there is a good chance that it will be exceeded. I would not be surprised if Genting Singapore rides the wave to S$1.50, and even that is not terribly expensive, really.

Is he terribly optimistic?

YTL Power -Losing Power?

Shares in YTL Power have eroded more than 2 per cent during the past week.Why? Neddling worries that the cash-rich company could be using their money to fund the YTL Group's RM2.5 billion (S$1.02 billion) investment in its wireless telecommunications business in Malaysia could be one.

YTL Power, a 51 per cent subsidiary of YTL Corporation, is an institutional favourite among portfolio investors because of its high dividend payout - 6 per cent annual yield - and steady, recurring earnings from power generation and water and waste management services in Malaysia and elsewhere.

In June, the firm made what one analyst described as an 'inconspicuous' announcement to the stock exchange — that it was buying 60 per cent of private firm YTL Communications from a related YTL unit for RM300,000.

Given YTL Power's generally heroic standards, the scale of the purchase was laughably dismissive, but YTL Communications is one of three firms awarded Wimax (Worldwide Interoperability for Microwave Access) licences by the Malaysian government two years ago.

It is a known fact that the government is putting pressure on these firms awarded Wimax to start up quickly or earn its displeasure one of which is to revoke their licences if they do not increase broadband coverage quickly enough.

The sell-down of YTL Power's shares reflects the concerns of investors who worry that a perfectly sound company could dent its earnings by venturing into a risky and intensely competitive business that has never really taken off worldwide.

Even YTL's technology partner, US-based Clearwire Wireless, is currently loss-making. Meanwhile, Green Packet, another Malaysian firm that's been Wimax-licensed and has already rolled out a portion of its network, made a first-half 2009 loss of RM50 million. Analysts have also noted that the YTL Group's capital expenditure plans are 2.5 times those announced by Green Packet.

YTL Power has always grown through acquisitions, using the cash flows from its power generation businesses in Malaysia to buy steadily profitable utility assets in mature markets — power assets in Singapore and Australia and water plants in England, for example. In that context, its potential entry into a risky business in Malaysia runs counter to its proven business model.

Still, that is not to say the Wimax business, however risky, could profoundly damage the company. It is controlled and run by tycoon Francis Yeoh , who has turned the eponymously-named YTL — after his father Yeoh Tiong Lay's initials — from a RM200 million firm into a multi-billion dollar business. Yeoh is generally rated by analysts as a prudent manager.

Nor is the firm financially shaky. It made a net profit of over RM625 million on sales of RM6 billion in 2009. It has annual free cash flow of RM2 billion and a cash hoard of RM1.5 billion.

In downgrading YTL Power to a 'sell', however, Arab-Malaysian Bank's research unit said the group's potential entry into telecommunications is a 'negative development as it will be extending its business — which provides stable, incurring income streams — to the uncertain revenue of a technology that has yet to fully kick off even in developed countries.'

The bank estimated that with this potential development, the firm's fair value is RM2.05 — versus RM2.12 currently.

Meanwhile, Bloomberg reported that Calyon and Natixis are among seven banks that agreed to lend $1 billion to YTL Power International Bhd for its acquisition of PowerSeraya Ltd in Singapore.

Maybank Investment Bank, Oversea-Chinese Banking Corp, Bank of Tokyo-Mitsubishi UFJ, National Australia Bank and Sumitomo Mitsui Banking also contributed to the three- year loan, which was arranged by DBS Group.

DBS agreed to provide YTL with a $2.25 billion credit line in December after the Malaysian utility bought Singapore power generator PowerSeraya from Temasek Holdings for about $3.8 billion.

Looks like while one is calling it poison, the other is calling it manna, aren't they, Francis?