CapitaMall To Raise $500m In Share Sale

Source : The Business Times, October 31, 2007

CAPITAMALL Trust, Singapore's largest real estate investment trust (Reit), may raise as much as $500 million in a share sale to pay debt and fund acquisitions.

'The funds provide financial flexibility to pursue yield accretive acquisition opportunities.' - Pua Seck Guan

CapitaMall will sell as many as 137.7 million new shares to institutional investors at between $3.63 and $3.70 apiece, it said in a statement late on Monday, representing a discount of as much as 3.5 per cent from Monday's closing price of $3.76.

The trust will reduce its debt to 33 per cent of assets from 41 per cent, allowing it to borrow more as it seeks out acquisitions in the city's shopping mall industry.

Singapore's central bank allows Reits with a credit rating to raise debt to 60 per cent of assets.

The funds 'provide greater financial flexibility to pursue yield accretive acquisition opportunities in Singapore', Pua Seck Guan, chief executive officer at the trust's management company, said in the statement.

The trust said that it will repay its debt of $453.6 million, which it took to buy bonds for three Singapore malls and a 20 per cent share of CapitaRetail China Trust, a property trust that owns shopping centres in China.

CapitaMall plans to raise $350 million in the initial sale, and may issue a further $150 million of shares 'in the event of a favourable response', it said in the statement.

'It's getting quite challenging to buy good shopping malls in Singapore,' said Nicholas Mak, Singapore-based research director at Knight Frank, a property consulting company. 'Most of them have already been acquired. Others are owned by listed property funds or the owners are simply not that keen to sell.'

The stock has risen 29 per cent this year, the second-best performing Reit among 17 trusts traded on the Singapore exchange, which have an average return of 6.8 per cent this year.

CapitaMall is 'refinancing its higher-cost debt due to still-strong demand for the shares', said David Lum, an analyst at Daiwa Institute of Research Singapore. He does not expect the trust to pursue acquisitions 'in the immediate future'.

CapitaMall's shares were suspended from trading for the announcement. The share sale is being managed by DBS Group Holdings and UBS, CapitaMall said. -- Bloomberg

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UOB Meets Forecasts With 8.2% Rise In Q3 Profit

Source : The Business Times, October 31, 2007

Loans grow 15.6% from a year ago to $85.2b but just 3.3% since end-June

UNITED Overseas Bank's third-quarter net profit rose 8.2 per cent to $501 million from a year ago, broadly in line with analysts' expectations.

Mr Wee: Despite uncertainties in the financial market, our core business remains strong

Compared with the second quarter, net profit for the three months ended Sept 30 fell 14.4 per cent, mainly due to lower trading and investment income resulting from mark-to- market losses from widening credit spreads triggered by the US sub-prime crisis, said the group.

'The negative credit impact should reverse once the market regains its confidence or when the debt securities mature,' it said.

The Q3 net profit fell below the mean forecast of $516 million by analysts polled by Reuters, but beat the $480 million median estimate of analysts surveyed by Bloomberg.

Annualised basic earnings per share for the quarter was 129.3 cents, up 9.1 per cent from a year ago.

For the first nine months of the year, the group's net profit fell 21.2 per cent to $1.6 billion from the previous corresponding period's $2.03 billion, which included a one-time gain of $689 million comprising a special dividend from Overseas Union Enterprise (OUE) and gains from divestment of OUE and Hotel Negara.

Excluding the one-time gain, nine-month net profit rose 19.2 per cent. Nine-month total income was 19.7 per cent higher at $3.6 billion.

Net customer loans grew 15.6 per cent from a year ago to $85.2 billion at end-September, but just 3.3 per cent since the end of June.

Rival DBS Group, which reported its earnings last Friday, saw its net customer loans grow 22.8 per cent from a year ago and 5.8 per cent over the quarter to $104.7 billion at end-September. But UOB saw more rapid growth than DBS over both periods in housing loans - the largest component of the banks' loan books by industry sector, comprising a quarter of total customer loans.

UOB said there had been 'no change' to its position in collateralised debt obligations or CDOs compared with the second quarter.

Total direct investments in CDOs by the group remains at $388 million, after adjusting exchange translation. None of these is in default, it said.

The group made an additional provision of $20 million for these CDO investments, bringing its total provision to $55 million. Another $46 million provision for mark-to-market losses was taken to the bank's reserves.

CDO investments managed on behalf of clients by UOB Asset Management (UOBAM) - the bank's asset management arm - dipped slightly to $11.4 billion from $11.7 billion in the second quarter. The decline was mainly due to the maturity of a CDO and currency translation effects, said the group.

Among the CDO investments managed by UOBAM, one CDO tranche had its credit rating downgraded in September and another this month. A third tranche was upgraded this month.

And last week, four tranches of a CDO launched by UOBAM late last year, Raffles Place II Funding Ltd, were put on negative watch by ratings agency Standard & Poor's. The four tranches had a combined principal value of US$57 million when first launched. UOBAM itself does not own any CDOs, including any tranches in Raffles Place II Funding.

Group chief executive Wee Ee Cheong said he was 'pleased' with the results achieved. 'Despite uncertainties in the financial market, our core business remains strong.'

Net interest income for the quarter rose 4.4 per cent over the year to $714 million. But compared to the second quarter, it was down 6.2 per cent.

The fall was due to the weakening of regional currencies against the Sing dollar and narrower interest margins as the group moved more of its funds into short-term investments 'in view of the volatile and uncertain market conditions'.

Its net interest margin fell to 1.93 per cent, down from 1.97 per cent a year ago and 2.04 per cent in the second quarter.

Non-interest income for the quarter was $393 million, up 16.5 per cent from a year ago but 26.7 per cent lower than in the second quarter.

Its share price fell after the earnings release at mid-day, ending the day 50 cents or 2.3 per cent lower at $21.50.

Get the link to UOB's financial results at www.businesstimes.com.sg

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Rising Inflation A Major Risk In Emerging Markets: Economist

Source : The Business Times, October 31, 2007

Currencies, property, stocks may become more attractive than debt for investors

Rising price inflation is fast becoming a major risk in emerging markets around the world due to surging food, oil and asset prices, according to a senior economist.

On the rise: Rising food and fuel prices are sending inflation higher in most emerging economies.

For investors, the inflationary pressures building up in these countries and the likely response of central banks means that emerging market currencies, equities, property and commodities are likely to become more attractive than debt - the traditionally favoured emerging market investment, Philip Poole, HSBC's chief emerging markets economist, said recently.

Investment in new production capacity 'has not kept pace' with the recent rapid growth seen in most emerging economies, he said.

As a result, countries such as India - which now has very little spare productive capacity according to some estimates - are likely to experience increasingly severe price inflation as their economies continue to expand.

Elsewhere too, spare productive capacity has been falling, adding to inflationary pressures, except in China where investment in building more capacity has been consistently high, he said.

Food prices, traditionally accorded a high weight in consumer price inflation measures, have also surged due to unstable weather patterns, stronger demand from a growing middle class and a shift in land use away from agriculture to biofuels due to soaring oil prices, he said.

The combination of rising food and fuel prices is sending inflation higher in most emerging economies, he said.

He expects governments and central banks in these countries to step up their fight against inflation in the coming months, using a mix of policy tools, including allowing their domestic currencies to strengthen against the US dollar.

Part of the inflationary pressure build-up has been due to the actions of central banks themselves, he said.

When central banks intervene in financial markets to keep their domestic currencies low in order to maintain the competitiveness of their labour market and exports relative to their peers, they often do this by printing more local currency to buy foreign currencies such as the US dollar.

The new money then gets channelled into domestic assets such as property, contributing to price increases in these assets instead of the currency itself, he said.

The main anti-inflation policy tool employed by developed economies such as the United States and the European Union - raising interest rate targets to discourage borrowing - may not work for emerging economies, he said.

'In an environment where you have open capital accounts and excess liquidity . . . it can be counter-productive to raise rates', as this makes the local currency even more attractive relative to the US dollar, prompting a greater inflow of funds and raising inflationary pressure on the local economy, he said.

Instead, he expects to see central banks employ a broader range of tools to combat inflation, such as raising the regulatory reserve requirements of banks as China did recently - 'effectively a tax on the private banking system' - and allowing their domestic currencies to strengthen against the US dollar. A stronger local currency makes imports cheaper, which helps moderate price inflation.

As a result, Mr Poole believes investors in emerging market currencies, stocks, commodities and property stand to benefit from the inflationary pressures and the likely policy response in the near future.

Just this month, the Monetary Authority of Singapore said it would allow the Singdollar to strengthen at a slightly faster pace than before to cap inflationary pressures, while maintaining its long-standing official policy of allowing a 'modest and gradual appreciation' of the currency.

CapitaLand Sells $250m In bonds: Source

Source : The Business Times, October 31, 2007

Singapore property developer CapitaLand has sold $250 million (US$172.4 million) in 12-year bonds to refinance debt, a source close to the deal told Reuters on Wednesday.

The bonds were sold at a coupon rate of 4.35 per cent, the source said. Citigroup was the sole lead manager, the source added. -- REUTERS

Using HDB Equity To Pay For Annuities

Source : The Business Times, October 31, 2007

The median CPF member holds three times more in HDB housing equity than CPF cash holdings

A NEW scheme making annuities compulsory for Central Provident Fund (CPF) members has been greeted quite negatively by the public.

A smoother road for retirees: HDB can play a financial intermediary role for the elderly and the government should also help citizens monetise their savings locked into HDB housing at the end of their working lives

The scheme involves setting aside a small portion of the Minimum Sum to buy the annuity. When the individual reaches a certain age, say 75 or 80, the annuity gives a monthly payout for the rest of his life. The annuity is a form of longevity insurance.

One option of making annuities more palatable is by allowing CPF members to finance the annuities with their HDB housing equity. The median CPF member holds about $145,000 in HDB housing equity, more than three times the $45,000 in CPF cash holdings.

Retirees are generally asset rich but cash poor. Using the cash portion to purchase annuities would leave even less cash for retirement. That may not be the most optimal financial solution for most CPF members who are already holding a large portion of illiquid assets, their HDB flats, at retirement.

By design, the government's social support and CPF system encourages citizens to invest their savings in housing during their working lives. We recommend that the government should also help citizens monetise their savings locked into HDB housing at the end of their working lives.

One option is for HDB to accept the pledging of the retiree's HDB flat as collateral for a loan to purchase the annuity. This would allow HDB owners to partly monetise their assets and leave them with more cash at retirement. Such flexibility on HDB refinancing would also allow CPF retirees to stay in their existing HDB homes without necessarily having to sell their homes for the purpose of realising their savings.

Moreover, moving or downgrading from their existing homes can be a stressful experience for the elderly.

HDB can clearly play a financial intermediary role for the elderly. Retirees are not able to secure housing finance from private banks because they no longer hold a job, have a stable monthly wage, or are simply too old.

Retirees do not, moreover, want to completely reverse mortgage their HDB homes as they may want to leave an endowment and pass on some residual housing equity for the next generation. The retiree can also live on in his existing home for the rest of his life, if some refinancing is allowed.

From the perspective of the government, lending to an individual for the purchase of an annuity is probably more acceptable.

The withdrawal of the HDB housing equity is not for cash that will be wastefully spent. Allowing the housing equity to be tapped for buying longevity insurance improves the welfare and financial security of the individual. Such an option might improve the public reception to the compulsory purchase of annuities.

The writer is an economist with Citigroup and chairperson of the Policy Study Workgroup on Economic and Employment Opportunities