A phase of ‘heightened uncertainty’ for Asia

A phase of ‘heightened uncertainty’ for Asia

 

Exporters of high technology products ‘most vulnerable’, says United Nations report

 

Friday • March 28, 2008

 

Asia-Pacific economies are entering a phase of “heightened uncertainty” with export-led countries to be hardest hit by the ongoing financial turmoil in the United States, a United Nations report said.

 

“In the worst case scenario of a recession in the US and a deeper depreciation of the dollar, the impact in much of the region would be harsh. Most vulnerable will be the exporters of high-technology products, such as electronics, to the US: Singapore, South Korea and Taiwan,” said the report, outlining the economic and social situation for the region this year.

 

Exporters would face a double whammy of a weakening dollar due to sharply lowered interest rates in the US and slowing demand.

 

But even with the credit crunch casting a pall over export-led economies in the region, the financial turmoil is also throwing up opportunities, the report said.

 

“Interest in Asia-Pacific assets may increase because of the strong growth projections for the region,” said the report by the UN Economic and Social Commission for Asia and the Pacific.

 

In addition, regional sovereign wealth funds are increasingly being tapped to help bolster weakened US and European banks. “That shifting balance of financial power is also evident in the dramatic rise in the overseas investment of Asia-Pacific corporations,” it said.

 

The region’s corporations, being “cash rich and not highly leveraged” have been largely resilient to the US credit crunch, it said.

 

Meanwhile, the economic locomotives of China and India are expected to boost the resilience of the region, as their economies continue chugging along, offering opportunities to other export-led economies.

 

India is expected to maintain growth at 9 per cent this year while in China, government spending increases will spur domestic demand.

 

Overall, developing economies in the region are projected to grow 7.7 per cent this year, while its developed countries are projected to expand at 1.6 per cent, slowing from 2 per cent last year. — AFP

 

Source: TodayOnline

Hotel room rates set to hit record high during F1 race

Hotel room rates set to hit record high during F1 race

By Wong Siew Ying, Channel NewsAsia | Posted: 28 March 2008 1804 hrs

 

  

SINGAPORE : Hotel room rates are set to hit an all-time high when the Formula One Grand Prix comes roaring into Singapore this September.

 

Visitors can expect to pay nearly 100 percent more, even if they are staying at a mid-range hotel.

 

Over 90,000 die-hard fans are expected to catch Singapore‘s first Formula One Grand Prix from the race ground.

 

But as the speed demons burn up the asphalt, the accommodation may burn a hole in their pocket.

 

Some mid-range hotels which Channel NewsAsia approached declined to be interviewed, but a check showed that room rates during the tail-end of September are set to double.

 

And they will be the highest ever seen in Singapore, according to the National Association of Travel Agents.

 

However, some hotels said it is hard to price rooms because the race organiser has not released figures for its ticket sales so far.

 

Robert Khoo, CEO, NATAS, said, “It’s hard for them to gauge at this moment what is the actual price that the public will pay, so in order not to lose out, they are currently pegging their price at quite an unrealistic level to make sure that they don’t lose out, in the event that demand is really high. So I think along the way, I hope they can do some adjustment to react to the actual booking situation.”

 

For instance, a standard room at Furama City Centre hotel in Chinatown costs S$350 (plus taxes) during peak period.

 

But come end September, it will shoot up to S$488 a night (excluding taxes) from September 22 to 26; and S$888 a night (excluding taxes) from September 26 to 29 – with a clause of a minimum three nights’ stay.

 

At Bayview Hotel near Bencoolen Street, a standard room which goes for S$300 (plus taxes) per night will cost S$800 (excluding taxes) from September 24 to 29. And guests will have to stay for at least five nights.

 

It will also be more expensive to put up at Hotel 81 branches in Chinatown, Bugis and Bencoolen.

 

Prices will jump from between S$149 and S$189 a night to about S$450 – from September 26 to 29 – with a minimum stay of three nights.

 

Meanwhile, rooms at Allson Hotel along Victoria Street will go up from S$300 a night (excluding taxes) to S$700 (excluding taxes), from September 24 to 29.

 

On top of that, guests will have to stay for at least five nights, and pay an extra 20 percent for CESS tax which will be imposed on hotels near the racing ground.

 

NATAS acknowledged the acute shortage of rooms in Singapore, but said that on the whole, hotels should raise their rates gradually.

 

Mr Khoo said, “Hoteliers have the tendency to keep rates high and at the last moment, when they can’t sell the rooms, they will lower the rates and throw all these rooms out for the travel agents, but sometimes these happen too late and agents are not able to utilise these rooms, so it’s a waste actually.”

 

NATAS expects many hotels to hire more staff to cope with the increase in occupancy rate, from the current average of over 70 percent to about 90 percent. And it said many of these workers are likely to be foreigners.

 

Therein lies another concern that service standards may be affected.

 

In the long run, as room rates trend up, the other worry is that this might deter travellers from visiting Singapore altogether. – CNA/ms

 

Source: Channel News Asia

Terror tenant burns walls, smashes ceiling

Terror tenant burns walls, smashes ceiling

 

HK landlord earlier demanded 4 years’ unpaid rental

 

ALL this middle-aged woman wanted was a monthly stream of income.

 

29 March 2008

 

ALL this middle-aged woman wanted was a monthly stream of income.

 

What Ms Chen Yan Qun got instead was a tenant from hell who took her on a four-year ride.

 

He allegedly owed her 52 months’ worth of rent, totalling HK$198,000 ($35,000).

 

Out of spite, he mashed the ceiling and walls until the steel girdles peeked out of the gaping holes, and he also set fire to part of the door and the walls, Hong Kong‘s Apple Daily reported.

 

It didn’t start out this way.

 

In 1999, Ms Chen had bought the 1,200 sq ft flat with her life savings, hoping the rent would give her an easier life from then on.

 

She partitioned the flat into two units – a 700 sq ft unit and a 500 sq ft unit.

 

At the start of 2003, the tenant of the larger unit moved out. In May of that same year, Ms Chen then leased it to a tenant, Mr Huang, for a monthly rent of HK$3,800 ($674).

 

The problems began soon after.

 

As early as that December, Mr Huang started forfeiting on his payments.

 

Ms Chen said: ‘When I called, he would not pick up the phone. When I came to look for him, he would insist he had no money.’

 

Out of exasperation, Ms Chen hired a lawyer to help resolve the matter.

 

She wanted the rent owed her and the flat back.

 

In December last year, the court finally ruled in her favour, ordering Mr Huang to vacate the flat.

 

But that was when her second nightmare started.

 

On 13 Mar, when Ms Chen went to take over the flat from Mr Huang, she was greeted by an unexpected sight.

 

‘The ceiling and walls were shattered, and even the door was burnt black!’ she said.

 

The tenant was nowhere to be seen, but Ms Chen shrugged that aside, saying that was already expected.

 

What irked her more, she said, was the wanton destruction the tenant had wrought on her flat.

 

Ms Chen made a police report on the matter yesterday.

 

A Hong Kong landlord association chairman, Mr She Qing Yun, essentially said that Ms Chen was on her own.

 

He explained that the authorities can only help landlords get their property back, but cannot help with rent owed to them.

 

He said landlords should always remember the golden rule: Always make background checks and meet prospective tenants face to face.

 

Source: The New Paper

 

Prudential and SingPost launch property fund

Prudential and SingPost launch property fund

 

By JOANNE CHIEW

 

SINGAPORE Post and Prudential Singapore Asset Management (Singapore) have launched an International Opportunities Fund (IOF) – Asian Property Securities, exclusive to SingPost customers.

 

The fund, offered from yesterday, will invest mainly in closed-end real estate investment trusts (Reits) and property-related securities of companies incorporated, listed in or focused on the Asia-Pacific region.

 

Asia‘s concrete long-term growth, large population and growing middle-class fuel demand for commercial and residential properties,’ said Jene Lua, general manager of Prudential Singapore.

 

SingPost and Prudential Singapore said the fund may also invest in depository receipts including American Depository Receipts and Global Depository Receipts, as well as debt securities convertible into common shares, preference shares and warrants.

 

A minimum investment of $1,000 is required for Class F shares, while $5,000 is the minimum for Class Fd shares. The fund aims to make one per cent payout every quarter for Fd shares.

 

The initiative is the result of the growing partnership between SingPost and Prudential Singapore since 2006. For SingPost, the fund increases the range of investment products under its Care for Life Portfolio.

 

‘The synergy between the two companies can create value to customers,’ Prudential’s Ms Lua said. ‘The partnership allows SingPost customers direct access to Prudential’s range of funds. The investment products we offer via the branches are funds with established track records, spread across a spectrum of asset classes.’

 

Source: Business Times

Sim Lian clinches bid for Ubi industrial site

Sim Lian clinches bid for Ubi industrial site

 

PRIVATELY-HELD Sim Lian Development’s unit 3 Link Development emerged the highest bidder for a 60-year leasehold industrial site at Ubi Avenue 4/Ubi Road 2 at a state tender yesterday.

 

Its top bid of $23.9 million reflects a unit land price of $88.74 per square foot per plot ratio (psf ppr).

 

‘Most likely, we’ll build a seven/eight storey flatted factory development,’ said Sim Lian Development executive director Ken Kuik.

 

‘The breakeven cost would be around $270 psf of net saleable area.’

 

The group is keeping its options open on whether to sell strata-titled units in the project or hold the asset for long-term investment.

 

Just across the road, Sim Lian is developing Vertex, an eight-storey development comprising 552 strata-titled flatted and ramp-up factories.

 

So far, the group has released about 200 units – about 80 per cent of which has been sold at an average price of around $330 psf.

 

Last month, Sim Lian unit Trio Link Development paid $142 psf ppr for a 60-year leasehold plot at Playfair Road – setting a record price for such a site in the Ubi/Paya Lebar/Eunos area. All three sites – Playfair Road, the Vertex project and the Ubi Ave 4/Ubi Rd 2 plot – are zoned as Business 1, allowing clean and light industrial and warehouse use.

 

Yesterday’s tender drew four bids. Orion-Three-Development bid $21.9 million (around $81 psf ppr), Soilbuild Group offered almost $16.2 million ($60 psf ppr) and See Young Investments Holdings, $15.9 million ($59 psf ppr).

 

Colliers International director for research and consultancy Tay Huey Ying said: ‘The level of competition among the four bidders for this industrial site is considered healthy. This reflects developers’ optimistic outlook on the industrial market in the medium term, especially since the top two bids are within a higher range of price expectations.’

 

Separately, the Urban Redevelopment Authority yesterday also awarded the tender for a 99-year leasehold condo site at West Coast Crescent to Cheung Kong unit Billion Rise. Its winning bid was $110.44 million or $305 psf ppr.

 

Source: Business Times

Distortions behind some statistics

Distortions behind some statistics

 

By TEH HOOI LING

SENIOR CORRESPONDENT

 

TWO weeks ago, The Economist ran an article headlined ‘Grossly distorted picture’. Basically, it argued that headline numbers of a country’s economic growth, usually measured by year-on-year growth in gross domestic product (GDP), are misleading because they don’t take population changes into consideration.

 

According to the article, a more accurate picture would be given by GDP growth per person, uneven distribution of the economic pie notwithstanding. Such a figure would give a rough idea of average living standards, it was suggested.

 

If GDP per capita growth is used as the measurement, the picture of which country is seeing increasing wealth, and at what rate, is quite different.

 

Take Japan and the US. Which country registered the better economic performance over the past five years? Most people would say the US, imagining a younger and more vibrant nation. Japan conjures up an image of an ageing population whose economy is crawling at a barely noticeable rate.

 

The headline numbers do bear that out. America‘s average annual real GDP growth was 2.9 per cent in the past five years, whereas Japan‘s was only 2.1 per cent.

 

But America‘s population is growing, while Japan‘s is declining. Thanks to immigration and a higher birth rate, the US population is expanding one per cent a year. In contrast, the number of Japanese has been shrinking since 2005.

 

But the overall GDP growth figures flatter America‘s relative performance, said The Economist.

 

Population factor

 

Once population is taken into account, Japan‘s GDP per head increased at an annual rate of 2.1 per cent in the five years to 2007. And that was slightly faster than America‘s 1.9 per cent and much better than Germany‘s 1.4 per cent.

 

‘In other words, contrary to the popular pessimism about Japan‘s economy, it has actually enjoyed the biggest gain in average income among the big three rich economies. Among all the G7 economies it ranks second only to Britain,’ The Economist said.

 

Using GDP growth per head rather than crude GDP growth reveals a strikingly different picture of other countries too.

 

For example, Australian politicians often say their economy has had one of the fastest growth rates among major developed nations – an average of 3.3 per cent over the past five years, says The Economist. But Australia has also had one of the biggest increases in population – its GDP per head has grown no faster than Japan‘s over this period.

 

Likewise, Spain has been one of the euro area’s star performers in terms of GDP growth – but over the past three years, output per person has grown more slowly than in Germany, which like Japan, has a shrinking population.

 

Some emerging economies also look less impressive when growth is measured on a per-person basis. The GDP of one of the supposedly booming BRIC countries, Brazil, has increased only 2.3 per cent per year since 2003, barely faster than Japan‘s.

 

Russia, by contrast, enjoyed annual average growth in GDP per head of 7.4 per cent because its population is falling faster than of any other large country (by 0.5 per cent a year).

 

Indians love to tell you that their economy’s growth rate has almost caught up with China‘s, but India‘s population is also expanding much faster. Over the past five years, the 10.2 per cent average increase in China‘s income per head dwarfed India‘s 6.8 per cent gain, according to The Economist.

 

Focusing on GDP per person also affects comparisons of economic health over time. During the past five years, world GDP has grown by an average of 4.5 per cent a year – the fastest pace in more than three decades, though not as fast as during the golden age of the 1960s when annual growth exceeded 5 per cent. But the world’s population is now growing at half the the pace it was in the 1960s, and so world income per head has increased more over the past five years than during any other period on record. Mankind has never had it so good.

 

Redefining recession

 

If you accept that growth in GDP per head is the best way to measure economic performance, the standard definition of a recession – a decline in real GDP over some period – for example, two consecutive quarters or year on year – also seems flawed.

 

For example, zero GDP growth in Japan, where the population is declining, would still leave the average citizen better off. But in America, the average person would be worse off. A better definition of recession, surely, would be a fall in average income per person, The Economist argued. And on this basis, America has been in recession since the fourth quarter of last year when its GDP rose by an annualised 0.6 per cent, implying that real income per head fell by 0.4 per cent.

 

The article aroused my curiosity. What about Singapore‘s GDP. Over the past four years, the economy has raced ahead by an average of more than 7 per cent a year based on real prices.

 

But of course, anyone can see there are a lot more foreigners in the city state now – from those working in Raffles Place to those in our neighbourhood coffee shops.

 

During the past 12 years, the number of professional expatriates in Singapore has tripled to 90,000. Overall, foreigners now number one million, up from 600,000 in 1995-96.

 

So how much would Singapore‘s GDP growth be shaved if we looked at it on a per capita basis? Well, by about 2 percentage points, from the 7.1 average real GDP growth of the past five years, which means average per capita GDP growth between 2003 and 2007 would have been 5.1 per cent a year.

 

But of course, a lot of foreigners are doing relatively low-paid jobs. So if we look at GDP growth per resident, taking into account only citizens and permanent residents, the number is 5.9 per cent. And that’s still a very decent number, albeit 1.2 percentage points lower than the headline number.

 

For 2007, Singapore‘s GDP per resident grew 6 per cent compared with the overall GDP growth of 7.7 per cent.

 

A survey of household income by the Department of Statistics (DOS) showed the average household income in Singapore rose 6.9 per cent after adjusting for inflation last year.

 

But averages are inflated by outliers. In this case, the higher-income group has seen its income expand much faster than the lower-income group for a number of years now. Indeed, according to DOS, higher-income employed households registered relatively higher income growth rates of about 6-11 per cent for the top 20 per cent last year. This compared with just 3-4 per cent for the lowest 20 per cent.

 

While the residents number is more steady, growing between 1.4 per cent and 1.7 per cent a year in the past four years (it actually shrank by half a per cent in 2003), the overall population tends to swing more widely in line with the economic activity.

 

Last year it increased 4.3 per cent. The last time the population expanded more than 4 per cent in a year was in 1996, at 4.1 per cent. And before that, it was 4 per cent in 1990.

 

In 2003, when Asian economies were hit by Sars and concerns about the Iraq war, Singapore‘s overall population fell 1.5 per cent. That would be one reason for the low apartment occupancy and rents at that time.

 

Meanwhile, during recessions, when overall GDP shrank, per resident GDP fell by an even bigger margin, given the increasing population.

 

So which is the better measure – overall GDP growth or the per head number?

 

According to The Economist, many Americans, especially politicians who believe the prime goal of policy is to retain economic and military dominance over the world, see the size of a country’s GDP as the best measure of its economic clout. As such, the absolute rate of GDP growth matters more than growth in income per head.

 

‘Europeans seem less bothered about global dominance – although they are sure to gloat about the fact that the weakening dollar means the euro area could overtake America as the world’s biggest economy this year,’ The Economist quipped.

 

However, there are several other reasons Americans can quibble over the use of GDP per head, especially with reference to Japan. First, Japan‘s shrinking population is also an ageing one in which the labour force will decline as a share of the population. And unless this is offset by more rapid productivity growth, it could become harder to maintain the same growth in output per person in future, and so harder to pay pension bills, the article argued.

 

Debt

 

Second, slower GDP growth makes it more difficult to reduce the ratio of existing public-sector debt to GDP, which stands at a hefty 180 per cent in Japan.

 

And last, but not least, investors care about GDP growth. Corporate profits depend upon the absolute rate of growth of an economy. And companies wanting to invest abroad will favour markets that are expanding more rapidly.

 

In any case, The Economist noted: ‘If Japan’s government had drawn attention to the sprightlier growth in income per head in recent years, in contrast to endless reports about its ‘under-performing’ economy, consumers may have felt cheerier and spent more – in other words, GDP growth would have been stronger.’

 

But here again, just like elsewhere in the world if not more so in Japan, companies are getting an increasing piece of the economic pie. Workers’ salaries are not rising anywhere near as fast.

 

So unless the Japanese actually see the yen in their pockets or their bank accounts, no amount of statistical mumbo-jumbo is going to make them feel any better.

 

Source: Business Times

Parking squeeze may take shine off new buildings

Parking squeeze may take shine off new buildings

 

Rules vastly reducing carpark lots in new office buildings and malls are poised to bite

 

By UMA SHANKARI

 

(SINGAPORE) New office buildings and shopping malls coming up in the central areas of Singapore – especially in new downtown Marina Bay – are likely to feel the full force of existing rules limiting the number of parking spots allowed for each building.

 

And with a whole slew of commercial buildings nearing completion over the next few years, a severe shortage of carpark lots is imminent. New ‘white’ sites, such as the Marina View land parcels, get just one carpark spot for every 425 sq m – or 4,575 sq ft – of commercial space. White sites can be developed into a combination of uses.

 

Developers are allowed to provide more spots, but at the expense of giving up office or retail space. As yields for commercial space are significantly higher than those for carpark lots, most will not do so.

 

What this translates to is quite startling – a company that takes up one entire floor in Marina Bay Financial Centre (MBFC) with a large floor plate of 25,000 sq ft could be entitled to just six carpark lots.

 

Similarly, in a medium- sized building, a company occupying an entire floor – or some 10,000 sq ft of space – will get just two parking spots.

 

And for the upcoming mega office building on the Marina View site, this means that the 1.7 million sq ft of office space the owner is required to provide would entitle the development to around just 380 parking spots.

 

While the rules have been in place for all new buildings since May 2002, the impact has not really been felt so far because in the old central business district (CBD), an excess of carpark lots in older buildings make up for the shortfall in newer ones.

 

Golden Shoe Car Park and Market Street Car Park also provide some much-needed supply.

 

But for new downtown Marina Bay, there will be no such buffers. Buildings in the area will mostly all be new – which means that they will not have excess carpark spaces.

 

‘The ruling is a bit harsh, especially if you look at all the big projects coming up in Marina Bay,’ said one local developer. ‘Those buildings will have thousands of workers, and only a few hundred carpark lots each.’

 

Singapore is trying to attract more financial institutions, which means that more professionals from the banking and financial services sectors are expected to relocate from abroad. But some of them may find that they cannot drive to work, the developer added.

 

Macquarie Global Property Advisors’ Marina View development – which combines two sites won in government land tenders – is one building that will likely be hit by the shortage, industry players said. The project is required to provide some 1.7 million sq ft of office space.

 

MBFC, on the other hand, is expected to fare slightly better. Although the building is a white site and therefore subject to the ‘one carpark lot for 425 sq m of commercial space’ rule, it also has ‘hub status’, which means that it is allowed to have slightly more carpark lots without having to sacrifice its commercial gross floor area (GFA). But while Marina Bay will likely be the first to be hit, the existing CBD is also going to face the same problem in the future, market watchers said.

 

‘Right now, the CBD is managing,’ said Nicholas Mak, director of research and consultancy at Knight Frank. ‘But if developers continue tearing down and then building new buildings, then we will have a problem.’ This is because new projects on the sites of old buildings are also subject to the newer guidelines.

 

For some of these buildings, the number of parking spots will be reduced from one for every 400 sq m (4,306 sq ft) of office space to one for every 425 sq m (4,575 sq ft). Parking space was a lot more liberal in some older buildings.

 

Adding to the woes of drivers is also the impending loss of Market Street Car Park. CapitaCommercial Trust (CCT) recently said that it has been granted planning permission to redevelop the building into an office tower.

 

Other than office buildings, any upcoming new shopping malls, hotels, cinemas, theatres, restaurants and bars will also be affected. The impact will be greatest in the central areas, but are also being felt elsewhere – especially for white sites.

 

A retail development slated for a plum white site above Serangoon MRT Station will have only slightly over 200 carpark spots – which Danny Yeo, Knight Frank’s deputy managing director, said would be a ‘tricky situation’. The mall has a maximum permissible GFA of 942,132 sq ft.

 

By contrast, Singapore‘s now-largest suburban mall Causeway Point has a GFA of 629,160 sq ft of GFA and 915 carpark lots. Even then, it gets ‘pretty crowded’ during the weekends as the mall is the only shopping centre in Woodlands, a spokeswoman for Frasers Centrepoint said.

 

Industry players believe the squeeze is part of the government’s move to push more people to use public transport. But developers point out that the shortage of parking spaces will come at a time when the car population is climbing.

 

BT understands that for the Serangoon site, analysts recommended that the authorities provide close to 1,000 parking spots. But despite this, only over 200 units were allowed. ‘Shopping centres without enough carpark lots will suffer,’ said one property analyst. ‘There will be a complete change in shopping patterns.’

 

When contacted, the Land Transport Authority (LTA) said it currently regulates parking by stipulating the minimum number of car parking lots to be provided based on the given floor area of a development. ‘Developers may build more carpark lots but they have to balance them with the opportunity cost of the additional space.’

 

Source: Business Times

LTA awards site at Serangoon for transport hub development

LTA awards site at Serangoon for transport hub development

 

By KALPANA RASHIWALA

 

SINGAPORE will have 10 integrated public transport hubs in about 10 years.

 

The Land Transport Authority (LTA) yesterday awarded a ‘white’ site at Serangoon Central for an integrated development to a unit of Pramerica Real Estate Investors (Asia) and reiterated that four more integrated public transport hubs will be built – at Marina South, Jurong, Joo Koon and Bedok – over the next 10 years.

 

Typically, these developments comprise air-conditioned bus interchanges, MRT stations and retail/other developments.

 

So far, three such hubs have been completed – at Ang Mo Kio, Toa Payoh and Sengkang. Another two are being built – at Boon Lay and Clementi – slated for completion by 2009 and 2011 respectively, LTA announced.

 

‘Integrated public transport hubs will enhance connectivity by making our bus interchanges and MRT stations more accessible,’ LTA chief executive Yam Ah Mee said in a statement yesterday.

 

‘Residents have told us they enjoy the comfort and convenience of our air-conditioned bus interchanges at Ang Mo Kio, Toa Payoh and Sengkang. Public transport ridership at these areas has gone up steadily.’

 

Pramerica Asia will develop a mall on the Serangoon Central site, which it clinched for $800.9 million or $850 psf per plot ratio.

 

LTA said in its statement: ‘Under this tender, the developer will design and construct a development with a bus interchange, to be integrated with the Serangoon North-East Line MRT Station and the Serangoon Circle Line MRT Station.’

 

In its release yesterday, LTA did not give the locations of the four new integrated public transport hubs.

 

But market watchers reckon the ones in Jurong and Bedok are likely to be around the existing Jurong East and Bedok MRT stations.

 

The Marina South hub could be in the vicinity of a new station planned to serve the new cruise terminal at Marina South as part of an extension to the current North-South Line, which now ends at Marina Bay Station.

 

Source: Business Times

More worries on Wall Street over leveraged deals

More worries on Wall Street over leveraged deals

 

(NEW YORK) Wall Street firms are likely to face billions more in write-downs in the first quarter because of leveraged-buyout (LBO) deals.

 

Write-downs are expected to trigger quarterly losses at some banks and brokers, and as long as these companies are wrestling with bad assets, it will be difficult for their shares to rise much, analysts said.

 

Reports this week that a US$20 billion buyout of Clear Channel Communications was stalling underscored the problems that banks and brokers face by keeping leveraged loans on their books.

 

Clear Channel said on Thursday it had won a temporary restraining order from a Texas judge that prevents banks from reneging on their commitments to finance the deal.

 

Banks once rushed to finance leveraged buyout deals, which can generate big fees and mountains of other investment banking business. Now these deals look increasingly toxic. The six banks involved in Clear Channel face potential losses of about US$3 billion to US$4 billion on the deal.

 

Trouble in the leveraged loan market hits Wall Street firms in at least two ways: Banks are having trouble selling or syndicating loans they have already funded, known as ‘hung loans’, and banks are also writing down loans they’ve committed to make, but have not yet funded.

 

One of the banks in the Clear Channel deal, Citigroup, has the most exposure to sub-prime assets and collateralised debt obligations of the Wall Street banks, at around US$37.3 billion, according to Oppenheimer & Co Inc, and so leveraged loan write-downs will magnify the pain.

 

But Citi is not alone. Bank of America, Goldman Sachs Group, JPMorgan Chase, Merrill Lynch, UBS and Wachovia Corp will all likely have to write down additional exposure to the leveraged loan market, a chilling prospect for the banks as the first quarter comes to a close.

 

‘Banks are not really that interested in holding this stuff. They were only interested in participating in LBO financing when they could sell it,’ said Christopher Whalen, managing director of risk research and consulting firm Institutional Risk Analytics.

 

Indeed, loans backing leveraged buyouts tumbled 88 per cent in the first quarter compared with a year ago to US$5.4 billion, according to Reuters Loan Pricing Corp. Syndicated loans dropped 55 per cent to US$166 billion, the biggest-ever annual decline.

 

Fitch Ratings said that there are US$150 billion to US$200 billion of hung loans currently on bank balance sheets and a pipeline of US$112.6 billion more to come. That includes a US$22.5 billion deal with BCE Inc and a US$14.6 billion deal with Lyondellbasell Industries. — Reuters

 

Source: Business Times

No regrets: En-bloc buyers, that is

No regrets: En-bloc buyers, that is

 

I REFER to Mr Lau Chee Kian’s ‘Sense of kampung in condos overstated’ (March 20) in response to Ms Susan Prior’s ‘En-bloc sales eroding our sense of kampung’ (March17). In almost all en-bloc sales, most owners wished they had not sold their homes because they realised too late.

 

Has no property developer, who has made purchases in hundreds of en-bloc sales so far, ever regretted its land-banking? For confirmation, we should hear from a horse’s mouth, as reported in the Business Times on Nov 15 last year, ‘S’pore home price gains set to slow’: ‘Mr Lim Ee Seng, chief executive officer of Frasers Centrepoint Group, one of the biggest buyers in en-bloc sales, says: ‘We are still looking to boost our land bank, but we are opportunistic and won’t pay current values because our costs would be too high.’ The price gain has helped the developer on earlier purchases of existing apartments, which are sold at a profit. An example is the St Thomas Suites development in the city’s downtown, where apartments were recently sold at $2,189 a square foot. ‘We bought the site of St Thomas Suites at $600 per square foot,’ said Mr Lim in the report. That’s a whopping 365 per cent profit that the Frasers Centrepoint Group has made. That’s why, with their ‘paltry windfall’, the majority owners will never be able to buy a replacement unit. Sad to say, they must regret and downgrade.

 

Mr Lau rightly points out: ‘The kampung era is long gone. The world has moved on.’ The tremendous advances in science and technology have transformed our way of life altogether, chief of which is changing us from a caring into an impersonal society. Fortunately, Singapore has led in the field of preserving our cultural heritage from being eroded by these negative influences. Singapore has, by and large, succeeded in preserving our core values shared by all in our multi-racial, multi-religious and multi-cultural society. And the ‘sense of kampung’ embodied in our core values is part and parcel of our rich cultural heritage.

 

Admittedly, it is an uphill task to mobilise every Singaporean to imbibe the kampung spirit of yesteryear, but it is not an impossible task. The majority owners in an en-bloc sale cannot be regarded as a litmus test of their view on the ‘sense of kampung’. Our uniquely Singapore has, against all odds, managed to accomplish almost everything that we have set our hearts and minds to do – most difficult of all is in uniting a people as pluralistic as Singapore into an almost homogenous nation in just 42 years. And it is a matter of time before the long and tedious process of re-moulding our people into this tremendous sense of kampung camaraderie bear fruits. Succeed we will.

 

Han Soon Juan

 

Germany

 

Source: Straits Times