Merrill reveals $9b more in risky debts

NEW YORK – MERRILL Lynch said on Wednesday that its total exposure to risky collateralised debt obligations (CDOs) and sub-prime mortgages is US$27.2 billion (S$39.3 billion) – about US$6.3 billion (S$9.1 billion) more than the sum disclosed late last month.

The larger figure comes about mostly because of a deeper level of disclosure surrounding its banking operations.

For the first time, the world’s largest brokerage disclosed US$5.7 billion worth of exposure to sub-prime mortgages in the United States at Merrill Lynch Bank USA, a Utah-chartered industrial bank, and Merrill Lynch Bank & Trust, a full-service thrift institution.

Those operations file disclosures and financial statements with US banking regulators, which have not required details on sub-prime exposure.

In addition, Merrill said its exposure to CDOs is now US$15.82 billion, or about US$600 million more than what it had revealed in its third-quarter earnings release on Oct 24.

The figure is larger because a hedge against potential loss was terminated recently after a dispute with a counterparty, which Merrill declined to name.

CDOs and sub-prime mortgages were largely responsible for Merrill’s US$2.3 billion loss in the third quarter, the largest in the company’s history. An US$8.4 billion write-down, mostly related to sub-prime mortgages and CDOs, triggered the loss.

Analysts fear Merrill and other Wall Street banks will have to record further write-downs on their exposure because the market for CDOs and sub-prime mortgages remains in turmoil.

Source: REUTERS (The Straits Times 9 Nov 07)

Horizon Towers sale could be timed out by tribunal decision

STB says it is not bound to rule by sale completion date; lawsuit looms

(SINGAPORE) The Strata Titles Board (STB) tribunal has delivered a startling decision that could spell the end of the en bloc sale of Horizon Towers. The ruling could in turn resurrect the $1 billion lawsuit filed by the buyers against the sellers.

Tribunal chairman Philip Chan announced yesterday that the board was under no legal obligation to rule on whether to approve the collective sale on or before Dec 11, the sale completion date.

This means, if the tribunal chooses to make a decision only after Dec 11, the sale agreement between the buyers and the sellers will lapse – and the en bloc sale will collapse.

The decision took many observers by surprise since a ruling after the sale completion deadline would effectively render the role of the tribunal pointless.

Mr Chan said yesterday the board made its decision after considering the submissions made by all the parties involved: the majority owners who have applied for a collective sale order, and the minority owners who are opposing the sale.

The would-be buyers – Hotel Properties (HPL) and its partners – were not permitted to be parties to this hearing, and could not make any submissions on the matter.

The tribunal on Tuesday asked the relevant parties to submit their arguments on whether the board had a legal obligation to make a decision on the collective sale order on or before Dec 11.

Mr Chan announced yesterday that, as all parties were in agreement that the board was under no such obligation, the tribunal would not be bound to make a decision by Dec 11.

The position seemingly runs counter to the one taken by the tribunal at an earlier Horizon Towers hearing in June, when Mr Chan agreed to bring forward the hearing dates – so as to allow the tribunal to make its decision before the earlier sale completion deadline of Aug 11.

Mr Chan said then, as grounds for doing so, that ‘courts do not sit for futility’, adding: ‘Courts are here to make sure that if we do give an order, that order must stick. The order must be put into operation; otherwise it would be unproductive. It may even be silly for a court to sit.’

The tribunal’s decision yesterday has not gone down well with HPL and its partners.

HPL group executive director Christopher Lim told BT: ‘We are very concerned about this development. It is surprising that the tribunal took the view that it had no duty to make a ruling before Dec 11, as that may potentially scuttle the transaction.’

He added: ‘We are also very disappointed that the majority sellers did not take the position that the matter be dealt with expeditiously and before Dec 11. During the earlier hearings, we had made it clear that such conduct by the majority sellers is in breach of contract.

‘As a result of these developments, we are currently reviewing our position.’

HPL and its partners have already sued the majority owners for breach of contract – claiming damages of up to $1 billion – but that suit has been stayed, pending the outcome of this STB hearing.

But HPL and its partners earlier also made it clear that they will consider resurrecting the legal claim against the majority owners if the en bloc sale ultimately falls through.

The dramatic reaction sparked by this one announcement was in marked contrast to the humdrum proceedings of the rest of the day. Former sales committee member Wee Hian Siew spent a second day on the stand, being grilled on whether he did his utmost to act in the owners’ best interests in the en bloc sale.

The session also saw a few laughs, as Mr Chan quipped that he would refrain from making any more jokes during the hearing – ‘in case I get reported’, he said. BT reported Mr Chan’s wisecrack about Mr Wee being a secretary ‘without a skirt’ yesterday.

The mood among the owners was generally upbeat, with some even distributing Deepavali sweets to those present.

 

Source: Business Times 8 Nov 07

Katong Hostel wins master lease tender for Tiong Bahru flats

THE Housing & Development Board (HDB) yesterday awarded the tender for the master lease of 120 three- and four-room vacated flats in Tiong Bahru to Katong Hostel at a tender price of $230,280 per month. The company was the highest of 15 bidders at the tender which closed on Oct 9.

Katong Hostel will be given a master lease on the flats on a 3+3-year tenancy. The flats were vacated under the Selective En bloc Redevelopment Scheme (Sers) and the tender to seek a master tenant was a pilot project by HDB to boost the supply of flats for rental housing.

‘This will put these flats to better use in the interim period, pending their redevelopment,’ HDB said. ‘HDB will assess the response to this pilot project before deciding whether to expand the scheme in future. If needed, HDB has a potential supply of about 4,000 to 5,000 units that can be introduced to bolster rental supply in the HDB market over the next three years.’

 

Source: Business Times 8 Nov 07

Climate Change plans ‘green buildings’ fund

It will start meeting investors in Q12008 to raise ‘hundreds of millions’ of dollars

(SINGAPORE) Climate Change Capital, a London-based fund manager and adviser on global warming, plans to start a fund to invest in properties that use energy more efficiently.

Climate Change, which manages about US$1.6 billion, will start meeting investors in the first quarter of 2008 and aims to raise ‘hundreds of millions’, said James Cameron, vice- chairman. So-called green buildings cut energy usage and reduce carbon dioxide emissions.

‘We will build a portfolio of properties, either retrofitted or improved, and buildings built from scratch or those that already meet the high standards that we would like to own a piece of,’ Mr Cameron said in an interview in Singapore yesterday. ‘It is not yet proven but perhaps we will get more value because it’s green.’

Scientists say carbon dioxide is one of the main emissions causing temperatures to rise, which may lead to potentially irreversible climate shifts and rising sea levels that would threaten world economies, ecosystems and human health.

The Kyoto Protocol binds 35 industrialised nations to curb carbon emissions by 5.2 per cent from 1990 levels by 2012. Developing nations including China and India are not required to cut emissions.

The United Nations’ climate change body will host its annual meeting in Bali next month to discuss a successor to the Kyoto Protocol. The European Union (EU) introduced ‘The Directive on the Energy Performance of Buildings’ in January 2003, to increase awareness of energy use in buildings and result in a substantial increase in investments in energy efficiency measures, according to Frost & Sullivan, a research company.

European countries wasted at least 20 per cent of their energy due to inefficiency in 2006 and applying more stringent standards to new buildings and renovations will enable the EU to reduce greenhouse gas emissions and realise an energy-saving potential of more than 20 per cent by 2020, Frost & Sullivan said.

‘The case is not proven that we will get a premium at all, but what we are sure about is that the changes that are taking place in Europe will stratify the market,’ Mr Cameron said. ‘There will be winners and losers and there will be value shift in the property sector and we want to be on the right side of that value shift.’

 

Source: Bloomberg (Business Times 8 Nov 07)

HSBC raises US$1.5b for fund, eyes Indian realty

(MUMBAI) Hongkong and Shanghai Banking Corp (HSBC), which recently raised US$1.5 billion, aims to invest 40 per cent of that in Indian realty, the Business Standard reported yesterday. This is in addition to its growth fund investments of about US$600 million in India, it said. ‘At the Asia PE (private equity) fund level, we have recently closed a US$1.5 billion fund. According to our estimates, 40 per cent of that is expected to be committed to India,’ HSBC India country head Naina Lal Kidwai told the paper.

Private equity firms The Carlyle Group, JP Morgan Chase & Co, and the private equity arms of Citigroup and Morgan Stanley have poured money into Indian property since rules on inbound investment were eased in 2005.

Ms Kidwai also told the paper the bank was in talks to lend US$500 million to Wipro Ltd, India’s third biggest software services exporter. HSBC and Citibank were expected to do the deal, the paper said, citing industry sources.

 

Source: Reuters (Business Times 7 Nov 07)

Ciputra Property slumps on trading debut

(JAKARTA) Shares in Indonesian property firm PT Ciputra Property Tbk plunged nearly 13 per cent on their debut yesterday, wiping out early gains, as investors feared interest rates might have reached bottom, dampening demand for new homes.

The stock hit an intraday low of 600 rupiah, compared to an initial public offering (IPO) price of 700 rupiah, before ending the session around 610 rupiah in a broader market that gained 1.2 per cent.

The stock had risen to a high of 750 rupiah at the opening.

Ciputra Property raised 2.11 trillion rupiah (S$336 million) by offering around 3 billion of its shares, with the proceeds earmarked to acquire a number of companies and fund new projects.

At its IPO price, Ciputra Property was valued at US$472.8 million, making it the sixth-largest property company by market capitalisation on the Jakarta bourse.

Investors grew cautious on interest-rate-sensitive stocks after Indonesia’s central bank on Tuesday left its key interest rate unchanged at 8.25 per cent for the fourth month in a row, wary that surging oil prices could spur inflation.

The central bank cut its benchmark rate from 12.75 per cent in early 2006 to 8.25 per cent earlier this year, supporting growth in the Indonesian housing and property sector.

‘Valuation-wise, it’s expensive. People are cutting their losses and moving to more attractive sectors such as commodities. Banking sectors and shares which are sensitive to interest rates like properties are going down today,’ one trader at a foreign brokerage house said.

Other firms in the Ciputra Group also succumbed to selling pressure, with Ciputra Development Tbk falling around 8 per cent and Ciputra Surya Tbk dropping about 2 per cent.

But the poor first-day showing did not worry the company, which said it expected a stronger performance in 2008 to help its shares.

Candra Ciputra, president director of Ciputra Property, said he expected sales to soar to 840 billion rupiah in 2008 from a forecast 278 billion this year, with net profit climbing to 230 billion rupiah next year from a forecast 48 billion rupiah in 2007.

‘The improvement will be supported by a higher number of property sales next year, with more properties being constructed,’ Mr Candra Ciputra told reporters. ‘I’m still confident with the current price. I believe in no time it can return to the IPO price or even reach 800.’

Indonesian companies have raised more than US$3 billion so far this year in IPOs and follow-on equity sales, according to Thomson Financial, marking a record for Jakarta’s stock market.

 

Source: Reuters (Business Times 8 Nov 07)

VastNed rejects IEF Capital bid

(AMSTERDAM) Dutch property group VastNed Retail rejected a 70 euro per share, 1.15 billion euro (S$2.4 billion) intended bid from a group led by IEF Capital, saying that it was well below its real value.

VastNed Retail said in a statement that it saw no reason for further talks with IEF Capital about its plans for a bid, which was 24 per cent above VastNed’s closing price of 56.65 euros on Tuesday.

VastNed shares jumped to just above the bid price at 70.02 euros in early trade before easing, and were up 19.4 per cent at 67.65 euros by 0845 GMT, making them the biggest gainer on the Amsterdam exchange.

IEF Capital said late on Tuesday that it was preparing a bid for VastNed Retail and said that Dutch pension fund PGGM, which holds more than 20 per cent of VastNed shares, was willing to support the offer and pledge its shares under certain conditions.

IEF Capital said that it expected to get financing for the bid and needed to do only limited due diligence on the target.

 

Source: Reuters (Business Times 8 Nov 07)

Value of Liberty’s malls slides in Q3

Higher borrowing costs and stricter credit controls hurt commercial property

(LONDON) Liberty International plc, owner of MetroCentre and other UK malls, says the value of these properties fell in the third quarter as higher borrowing costs and stricter credit controls hurt the commercial property market.

The London-based company’s 14 shopping centres were valued at £6.11 billion (S$18.5 billion) as at Sept 30, down from £6.12 billion three months earlier, according to a statement on Tuesday. Net asset value dropped to 1,369 pence a share from 1,385 pence, said Liberty, which owns eight of Britain’s 21 largest retail centres.

The decline in the value of Liberty’s properties was less than the 2.9 per cent drop for UK retail-related real estate in the third quarter, according to figures compiled by Investment Property Databank Ltd. Retail property prices in the UK may drop in 2007 for the first time in 12 years.

‘The commercial market is getting some of the backwash of the problems in the banking sector and the domestic US housing market,’ CEO David Fischel said on a conference call.

Liberty shares declined 8 pence to 1,119 pence in London. The stock has fallen almost 20 per cent this year, reducing the company’s market value to about £4 billion. The FTSE 350 Real Estate Index has dropped 34 per cent during that period.

Profit excluding the value of Liberty’s properties and derivatives declined to £28.5 million in the third quarter from £32.1 million in the previous three months. Net rental income gained 6 per cent to £87.3 million in the third quarter from three months earlier.

Liberty’s British shopping centres, which account for three quarters of its assets and have a vacancy rate of 1.5 per cent, would generate an annual rental income of £303 million if they were leased at current market rates. That’s a 0.4 per cent increase in estimated rental value since June 30.

‘The key, going forward, is going to be rental growth and these were quite weak,’ said Harm Meijer, an analyst at JPMorgan Chase & Co. Mr Meijer said he expects no more rental growth and further declines in values of UK shopping centres.

Nine-month net income amounted to £407 million, Liberty said, without providing a comparable figure for the year-earlier period, which included the value of its real estate investments. It was the first time Liberty released third-quarter figures.

Mr Fischel took advantage of the peak in property prices in the second quarter to sell a 36 per cent stake in the Gateshead MetroCentre, Europe’s largest mall, to the Government of Singapore Investment Corporation (GIC).

That provided additional funds for acquisitions in London and other cities.

Liberty acquired Covent Garden in August 2006, a 50 per cent stake in London’s Earls Court and Olympia exhibition centres, and formed a venture to develop offices in London’s West End district, the world’s most expensive business location.

 

Source: Bloomberg (Business Times 8 Nov 07)

US$ slumps as China looks to park reserves elsewhere

Greenback is losing status as world currency, says China central bank official

THE US dollar slumped to a record low against the euro after Chinese officials signalled plans to diversify the nation’s US$1.43 trillion of foreign exchange reserves in response to a falling US currency.

‘We will favour stronger currencies over weaker ones, and will readjust accordingly,’ Cheng Siwei, vice-chairman of China’s National People’s Congress, told a conference in Beijing.

The US dollar is ‘losing its status as the world currency’, Xu Jian, a central bank vice-director, said at the same meeting.

The US dollar fell against all 16 of the most active currencies, declining to the weakest versus the Canadian dollar since the end of a fixed exchange rate in 1950, a 26-year low against the pound and a 23-year low versus the Australian dollar.

‘We’re likely to see further pressure on the dollar,’ said Thomas Harr, senior foreign exchange strategist in Singapore at Standard Chartered. ‘The potential for diversification is quite big.’

The US currency slumped to US$1.4666 per euro, the lowest since the 13-nation currency made its debut in January 1999. The US dollar traded as low as 113.69 yen, the lowest since Oct 22. The euro was little changed at 166.87 yen.

In Singapore, the US dollar ended half a per cent lower at S$1.4412 yesterday.

Chinese investors have reduced their holdings of US Treasuries by 5 per cent to US$400 billion in the five months to August. China Investment Corp, which manages the nation’s US$200 billion sovereign wealth fund, said last month that it may get more of the nation’s reserves to invest to improve returns.

‘The world’s currency structure has changed; the dollar is losing its status as the world currency,’ Mr Xu from the People’s Bank of China said at the conference.

Mr Cheng, speaking to reporters after his speech, said that his comments do not mean that China will buy more euros.

Gains in the euro may be limited by speculation that European economic growth may slow, reducing the need for higher interest rates. Europe’s single currency will trade at US$1.43 versus the US dollar by year-end, according to the median forecast of 42 analysts and brokerages surveyed by Bloomberg News.

The US dollar’s decline helped to drive the price of crude oil to a record and gold to a 27-year high, encouraging investors to buy assets in commodity- producing nations. The US dollar’s 9.8 per cent drop against the euro this year boosted the competitiveness of US exports, helping to shrink the nation’s trade deficit to US$57.6 billion in August, the smallest since January.

Against the pound, the US dollar declined to US$2.0955, the lowest since May 1981. It fell to US$1.1010 per Canadian dollar. The currency slid against the Australian dollar to 93.89 US cents, the lowest since April 1984, from 92.87 US cents.

‘This is an asset story and shows sentiment for the dollar continues to be quite negative,’ said David Forrester, currency economist at Barclays Capital in Singapore.

The US dollar also fell as losses from sub-prime mortgage defaults added to pressure on the Federal Reserve to lower its target for the overnight lending rate between banks to 4.25 per cent next month.

‘The interest-rate outlook is dragging down the dollar against major currencies such as the euro and the Australian dollar,’ said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world’s second largest currency trader. ‘I cannot see the bottom of the dollar depreciation yet.’

 

Source: Bloomberg (Business Times 8 Nov 07)

Raffles Place retailers face space crunch, soaring rents

Rent may double for some, with near full occupancy and no fresh supply of space in the short term

SOARING rents for retail office space at Raffles Place have stunned Ms Yeap Cheng Guat, the executive director of Cedele By Bakery Depot, which has two outlets in the major office hub.

‘Rents have gone up by 100 per cent. It’s that crazy,’ she said.

The bakery cafe chain has operated at Republic Plaza for about eight years now and has a newer outlet at One Raffles Quay.

Singapore’s office space crunch is spilling over to tenants like Cedele in office districts such as Raffles Place.

‘When they told me about the increase, I nearly fell off my chair,’ Ms Yeap said.

‘If my rentals rise by 100 per cent, can my food price increase by the same?

‘Then the tenant can sell only bird’s nest and abalone,’ she said, referring to expensive delicacies.

Occupancy levels for retail space such as cafes and fashion outlets in Raffles Place are close to 100 per cent.

A recent study by property consultant Cushman & Wakefield found rent rises of up to 24 per cent over the past two years in the area.

Supply of shop space is tight with no major new retail space expected for the financial district in the short term.

That means retail rents there will keep rising by another 10 to 15 per cent in the year ahead, the firm’s managing director here, Mr Donald Han, told The Straits Times. This is up from about 14 per cent in the last 12 months, he said.

The rise is relatively high, considering that rentals in the traditional shopping belt of Orchard Road have experienced single- digit rises in recent years.

Overall, rentals for prime retail space are expected to climb by 15 to 20 per cent year on year, with capital values up by 10 to 15 per cent, according to Knight Frank.

Ms Maye Kwok, 32, who sells bags and shoes from a ground-level shop at The Arcade, is convinced she will soon be paying higher rent.

‘Across the board, rents have gone up. My neighbours here have paid higher rents. I am 100 per cent sure they will raise the rent when my lease is up for revision.’

Mr Han said the office space crunch was affecting nearby retail space.

‘Most developers within the financial district prefer to maximise office use rather than retail,’ he said.

‘The irony is that when more offices are built, retail demand from the office population will grow in tandem.’

Most retail centres in Raffles Place such as OUB Centre, Raffles Xchange, One Fullerton and Republic Plaza are enjoying full occupancy.

Average gross rent for Raffles Place ground-level shops is between $18 and $35 per sq ft (psf) a month – well up from $13 to $25 psf two years ago.

Basement level space is between $12 and $25 psf a month, again well up from $9 to $18 psf two years back.

On the upper floors, which have less pedestrian traffic, rents hover between $8 and $14 psf a month, up from $6 to $9 psf a month two years ago.

As Raffles Place’s retail rents rise, several landlords have already started to either reposition their retail developments or add new retail supply, said Cushman & Wakefield.

Sino Land, the Hong Kong-based sister firm of property developer Far East Organization, recently announced plans to revamp a 26,000 sq ft retail and entertainment complex at Clifford Pier, a site that it had obtained late last year.

At OUB Centre, an additional 32,000 sq ft of retail space will be added, said Cushman & Wakefield.

It noted that newly retrofitted projects like the Market Street carpark have done well, with space nearly fully leased out at $10 to $25 psf a month.

‘The retail market situation in Raffles Place is coming to a level where nothing is available. This sub-market is being ignored when there is demand,’ said Mr Han.

 

Source: The Straits Times 8 Nov 07

Tiong Bahru Sers flats to be rented for up to $4,500

Winning bidder in HDB pilot scheme aims to target foreign students, expatriates

A COMPANY that has just won an HDB tender in a pilot scheme plans to rent out 120 flats at Tiong Bahru for up to $4,500 a month to foreign students and expatriates.

It is the first step to boost the supply of flats in the rental market amid growing demand. It aims to put flats vacated under the Selective En Bloc Redevelopment Scheme to better use.

Former residents of the 120 flats have moved to new and better flats nearby.

The HDB said the flats that had been vacated were identified for its rental scheme, pending long-term development plans.

The Tiong Bahru flats will get a $3 million facelift and be ready for tenants by the year’s end.

The winning tenderer, Katong Hostel, which provides international student housing, will be the managing agent for the 60 three-room and 60 four-room walk-up flats.

The firm, part of the privately-held Vita Group of hostels, plans to rent out at least two blocks to students and possibly the rest as service apartments to expatriates.

Katong Hostel won the tender with the highest bid of $230,280 a month, 22 per cent above the next bid of $188,000 a month.

That price is the sum the firm will pay HDB to lease the flats for three years, with an option for three more years.

Katong Hostel aims to rent out these flats – Blocks 1, 3, 5, 7 and 9 in Tiong Bahru Road – at a relatively high price of between $3,500 and $4,500 a month.

While rents in the Tiong Bahru area have risen significantly, the HDB flats there have so far achieved only up to $2,500 a month in rent, said HSR property group’s executive director Eric Cheng.

But the Tiong Bahru flats are different in that they will be managed and aimed at a specific clientele, said Ms Joyce Sim, 25, a Vita group director.

She said the student housing – to be charged on a per person basis with two to a flat – is aimed at those looking for quality housing.

These could be doctorate students, for instance, who could be paying their own fees or sponsored by firms.

‘These Tiong Bahru flats are among the early batches of flats,’ Ms Sim said. ‘We will preserve the heritage of the buildings, which have a unique design.’

 

Source: The Straits Times 8 Nov 07

Cost of building Sentosa IR may climb to $6b

Resorts World factors in rising construction costs, new attractions, improved designs

(SINGAPORE) The cost of the integrated resort (IR) on Sentosa could climb to as much as $6 billion – from an original $5.2 billion – as building costs escalate and more attractions are added.

Resorts World at Sentosa (RWS) yesterday said that it has revised its budget to $5.75 billion and made a further contingency provision of $250 million, taking the overall budget to some $6 billion.

$275 million of the confirmed $550 million budget increase can be attributed to new rides and attractions, improved hotel and resort designs and better transport and infrastructure. The other $275 million increase is due to rising construction costs, said Justin Tan, managing director of Genting International, which won the bid for the resort in December 2006.

The announcement by RWS comes after Marina Bay Sands said in August this year that its cost could escalate to $5.2 billion, from an original $5.05 billion.

Rising construction costs have affected developers island-wide. ‘We have been able to lock in the prices of concrete and structural steel at very competitive prices,’ said RWS senior director of projects Michael Chin.

‘Labour costs and margins of contractors, however, have risen significantly.’

Developers have also reported that projects are being delayed because by a shortage of contractors. Despite this, RWS yesterday said that construction is on track for the resort’s soft opening in early 2010.

More than 50 per cent of the overall excavation, piling and reclamation work has been completed and more than $600 million of construction contracts awarded, it said. Another $1 billion of contracts will be awarded by early 2008.

Mr Tan does not expect the new contracts to hold up the project’s completion. ‘At this point in time, we are in negotiations with some of these contractors,’ he said. ‘They have not indicated that (possible delay) to us.’ He also said that with the new attractions, plans for the resort are now final.

RWS yesterday announced six new attractions – two new rides at Universal Studios Singapore and four new performances that will be open to visitors free of charge.

Separately, Genting International reported a third-quarter loss because of an ‘impairment’ charge as a result of its acquisition of a UK casino group. Genting International lost $393.4 million in the three months ended Sept 30, compared with a profit of $86.9 million a year earlier.

 

Source: Business Times 7 Nov 07

Grange Heights tender opens

THE tender for the collective sale of Grange Heights has been launched. And sources say the reserve price could be around $845 million, or $2,200 psf per plot ratio (ppr).

No development charge is payable for the 136,678 sq ft freehold plot, according to marketing agent Jones Lang LaSalle.

Owners controlling more than 80 per cent of share values in the estate have signed the collective sale agreement. In March this year an expression of interest exercise was launched before the minimum consent level had been secured.

The price expectation then was ‘upwards of $1,700 psf ppr’, according to a BT report at the time.

Grange Heights has been zoned for ‘permanent residential’ use with a 2.8 maximum plot ratio and a height of up to 36 storeys. The current development has access from three entrances – Grange Road, River Valley Grove and St Thomas Walk. The existing development comprises three blocks with a total of 120 apartments. The tender closes on Nov 28.

 

Source: Business Times 7 Nov 07

Tampines office site attracts just one bid

Property consultants wonder if caution is creeping into this sector

(SINGAPORE) In a possible reflection that caution among developers may be extending to the office sector, a tender for a transitional office site in Tampines yesterday drew just one bid – from City Developments Ltd’s (CDL) unit Glades Properties.

And its bid of $10 million, which worked out to $80.65 psf per plot ratio (ppr), was lower than the $100 psf ppr region that most property consultants had expected the 15-year leasehold site to fetch.

The government has indicated recently that it will inject more office space into the market soon – a step that could cool prices. Some felt that yesterday’s bidding reflected caution on part of the developers while others suggested Tampines may not be a popular location among office investors.

They pointed out that the next-door 99-year leasehold office site offered through a tender that closed in May this year had also drawn just one bid, again from CityDev, although at a more substantial price of $622 psf ppr.

The maiden 15-year leasehold transitional office plot next to Newton MRT station attracted a whopping 11 bids with a top price of $219 psf ppr in August.

Whether the weaker sentiment among office investors is confined to Tampines or is spreading to the Central Business District (CBD) as well will be seen in a tender closing on Nov 13 for Marina View Land Parcel B, a 99-year leasehold site with stipulated minimum office and hotel components.

Property consultants polled by BT unanimously expect URA to award the 124,000 sq ft transitional office site at Tampines Ave 5 to CDL, despite its bid being the sole offer and that too at a price lower than expected.

‘Government should make the award since as a transitional office site, it is part of the interim solution to the acute office shortage here. Otherwise, the government objective would not be met,’ Knight Frank managing director Tan Tiong Cheng reasoned.

The Urban Redevelopment Authority said yesterday in response to a query by BT that ‘the government will continue to release more transitional office sites to meet business needs; details on these sites will be released shortly’.

Colliers International director (research and consultancy) Tay Huey Ying said: ‘If the government releases more transitional office sites in or near the CBD, I believe demand will be healthy.’

She reckons the thin bidding for the Tampines plot yesterday may be due to concern among developers that strong office demand currently outside the CBD is the result of an overflow of demand from the CBD.

‘There may be concern that post-2010, when there will be a large influx of new office space being completed within the CBD, the spillover demand for suburban offices may recede,’ she added.

‘Next week’s tender for Marina View Land Parcel B will be interesting to watch, to see whether developers are also concerned about office supply in the CBD itself,’ she added.

CB Richard Ellis executive director Li Hiaw Ho said: ‘That is a much better site (than today’s Tampines plot), although I do not expect a lot of bidders because it is a huge site with a substantial outlay.’

 

Source: Business Times 7 Nov 07

HORIZON TOWERS HEARING – ‘I don’t believe anything in the papers’

Sales committee member grilled on why he didn’t take heed of rising prices

(SINGAPORE) Suggestions that the Horizon Towers sales committee failed to act in owners’ best interests took centrestage when the Strata Titles Board (STB) hearing resumed yesterday.

The serious mien of the session was, however, periodically broken by moments of frivolity – some more tasteful than others.

Former sales committee secretary Wee Hian Siew spent a tough full day on the stand, as lawyers for the minority owners – those who didn’t agree to the collective sale – grilled him on how he and the sales committee handled the sale.

It is the minorities’ contention that the en bloc sale of Horizon Towers – to Hotel Properties and its partners for $500 million – was carried out in bad faith and should not be approved by the STB.

Philip Fong of Harry Elias Partnership questioned Mr Wee for almost three hours on the collective sale procedures carried out by the sales committee.

Mr Fong cited specific instances of when key procedures were not followed – such as when notices and circulars to owners on the collective sale were insufficient, untimely or inaccurate.

Mr Fong also asked why Mr Wee didn’t try to get a better sale price when it became known that residential property prices were beginning to soar; he referred Mr Wee to a Jan 11 Business Times article, ‘Developers revive interest in unsold collective sale sites’, reporting just such a surge in home prices.

Mr Wee’s response – ‘I don’t believe anything in the papers.’ – drew sniggers from the crowd.

When Mr Fong pressed on, saying that BT was ‘a respectable daily’, Mr Wee clarified his comment to mean that he felt ‘we should not take everything at face value’.

The protracted session, however, prompted several abrupt remarks from the tribunal’s chairman Philip Chan, who interrupted Mr Fong on more than one occasion – once, for an early lunch break and a second time to tell the senior lawyer that his allotted time was up.

Kannan Ramesh of Tan Kok Quan Partnership also subjected Mr Wee to a lengthy cross-examination.

He focused on the promise made to owners that they would get an 80 per cent premium if they sold their unit in an en bloc sale than if they were to sell them individually.

Referring again to the Jan 11 BT article – and the fact that neighbouring development, The Grangeford, had upped its minimum asking price by a quarter – Mr Ramesh said these should have alerted the Horizon Towers’ sales committee to the fact that property prices were rising, that the promised premium had been ’significantly eroded’ and that they should have done more to get a higher price.

Mr Wee said the sales committee did try but relied on the expert advice of their sales agent, Alvin Er, that $500 million was the best price they could get. He said it never occurred to him that he could seek advice from other experts.

The tribunal’s chairman, Mr Chan, then asked Mr Wee if he felt he had carried out the duties expected of a secretary of the sales committee.

That prompted Mr Wee to ask, ‘What do you mean by a secretary?’, to which Mr Chan retorted ‘without a skirt’ – a comment that drew an audible objection from some members of the viewing public.

The STB also rejected one majority owner’s application to have separate representation in this hearing.

Susanna Rusli had applied last week to participate in the hearing, separately from the other majority owners – but the board yesterday dismissed her arguments.

The hearing continues today with a second former sales committee member, Henry Lim, on the stand.

 

Source: Business Times 7 Nov 07

Cost of building Sentosa IR may climb to $6b

Resorts World factors in rising construction costs, new attractions, improved designs

(SINGAPORE) The cost of the integrated resort (IR) on Sentosa could climb to as much as $6 billion – from an original $5.2 billion – as building costs escalate and more attractions are added.

Resorts World at Sentosa (RWS) yesterday said that it has revised its budget to $5.75 billion and made a further contingency provision of $250 million, taking the overall budget to some $6 billion.

$275 million of the confirmed $550 million budget increase can be attributed to new rides and attractions, improved hotel and resort designs and better transport and infrastructure. The other $275 million increase is due to rising construction costs, said Justin Tan, managing director of Genting International, which won the bid for the resort in December 2006.

The announcement by RWS comes after Marina Bay Sands said in August this year that its cost could escalate to $5.2 billion, from an original $5.05 billion.

Rising construction costs have affected developers island-wide. ‘We have been able to lock in the prices of concrete and structural steel at very competitive prices,’ said RWS senior director of projects Michael Chin.

‘Labour costs and margins of contractors, however, have risen significantly.’

Developers have also reported that projects are being delayed because by a shortage of contractors. Despite this, RWS yesterday said that construction is on track for the resort’s soft opening in early 2010.

More than 50 per cent of the overall excavation, piling and reclamation work has been completed and more than $600 million of construction contracts awarded, it said. Another $1 billion of contracts will be awarded by early 2008.

Mr Tan does not expect the new contracts to hold up the project’s completion. ‘At this point in time, we are in negotiations with some of these contractors,’ he said. ‘They have not indicated that (possible delay) to us.’ He also said that with the new attractions, plans for the resort are now final.

RWS yesterday announced six new attractions – two new rides at Universal Studios Singapore and four new performances that will be open to visitors free of charge.

Separately, Genting International reported a third-quarter loss because of an ‘impairment’ charge as a result of its acquisition of a UK casino group. Genting International lost $393.4 million in the three months ended Sept 30, compared with a profit of $86.9 million a year earlier.

 

Source: Business Times 7 Nov 07

OCBC’s $221m writedown to cut CDO losses

Bank hopes aggressive move will lift shadow from future earnings as market for ABS CDOs dries up

(SINGAPORE) The market for some debt instruments linked to US sub-prime mortgages that were popular with banks worldwide ‘has come to a virtual standstill’, said OCBC Bank yesterday.

This led it to slash the value of its portfolio of ABS CDOs, or collateralised debt obligations comprising pools of asset-backed securities (ABS) from $270 million to just $48 million – less than a fifth of their original value.

Its $221 million writedown of its CDO holdings is the most aggressive so far among the three Singapore-listed banks.

‘We can’t predict the future, but what we’ve done this quarter is prepare for the worst and there logically is not going to be any future earnings impact from this portfolio,’ said chief executive David Conner at a media briefing yesterday after the bank released its third-quarter results.

He said the bank decided in September and early October to value these ABS CDOs using a model from ‘one of the global banks’ after the market for the ABS CDOs became so illiquid that market quotations were no longer a reliable measure of their value. ‘The ABS CDO market is effectively closed.’

Based on the model, OCBC wrote down the value of its ABS CDO portfolio by 82 per cent. Had the bank continued to rely on market quotes, the value of the ABS CDOs would have been $65 million, instead of the $48 million suggested by the model, said the bank. Inputs to the model are based on observable US housing market data, including delinquency rates and foreclosures, it said, although it did not name the bank that provided the model.

OCBC has another $372 million invested in corporate CDOs – those backed by corporate bonds – that are not exposed to the US sub-prime market. For these corporate CDOs, ‘the market is still open and operating, it has not declined dramatically, so we’re still marking those to market’, said Mr Conner. The fair value of the corporate CDO portfolio at end-September was $357 million, said the bank.

He stressed that even with recent downgrades in the credit ratings of some of the CDO tranches, ‘the portfolio that we have is still rated investment grade’ and there had been no defaults on payments to the bank.

In its third-quarter earnings release on Oct 26, DBS Group said it made $70 million in allowances for its $275 million in CDOs that were exposed to US sub-prime assets.

On Oct 30, United Overseas Bank (UOB) said it had made an additional provision of $20 million for its CDO investments, bringing its total provision to $55 million so far. UOB has total CDO investments of $388 million, of which $90 million is in ABS CDOs.

Yesterday’s writedown by OCBC came at a trying time for banks elsewhere. In the US and Europe, large financial groups such as Citigroup, Merrill Lynch and Credit Suisse recently said they had suffered much bigger losses from the credit market turmoil than earlier estimates had suggested. The chief executives of both Citigroup and Merrill Lynch have since been forced out.

 

Source: Business Times 7 Nov 07

Soros warns of ’serious’ US economic correction

He says things are worse than what Fed chief sees

(NEW YORK) Billionaire investor George Soros has forecast that the US economy is ‘on the verge of a very serious economic correction’ after decades of overspending.

‘We have borrowed an awful lot of money and now the bill is coming to us,’ he said during a lecture at the New York University, adding that the war on terror ‘has thrown America out of the rails’.

Asked whether a recession was inevitable, Mr Soros said: ‘I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing.’

On the same note, David Rosenberg, chief economist for North America at Merrill Lynch & Co in New York, forecast that the US economy will come close to stalling in the fourth quarter.

The economy will probably grow at an annual rate of between zero per cent and one per cent, Mr Rosenberg said in his weekly report to clients dated Nov 2. He currently forecasts a 0.7 per cent pace of expansion this quarter.

The third-quarter’s 3.9 per cent growth rate was artificially boosted by ‘non-recurring factors’ that will disappear in the last three months of the year, Mr Rosenberg said.

Add to that the collapse in sub-prime-mortgage lending and a worsening housing slump and the expansion will slow, he said in an interview on Monday.

‘This is by far the most leveraged economic expansion in modern history,’ Mr Rosenberg said in the interview.

Parts of the mortgage market ‘just aren’t coming back. This is going to have a deleterious impact on growth.’

A drop in gasoline prices even as oil prices jumped, a surge in auto inventories before threatened strikes and an increase in defence spending propelled third-quarter growth and won’t be repeated, Mr Rosenberg’s report said.

On the forex market, Mr Soros, famous for his speculative attack on the Bank of England that made him more than US$1 billion, declined to nominate which currencies were more vulnerable currently. He also declined to comment specifically on the dollar.

‘I know exactly where the currencies are going to but I’m not going to tell that to you,’ he told the audience.

Last week, investment guru Jim Rogers, who co-founded the Quantum Fund with Mr Soros in the 1970s, recommended selling the dollar as well as US investment banks and US housing stocks.

In an interview with Bloomberg News Agency, Mr Rogers said that US credit markets are enduring their worst bubble ever and forecast that it may take six years for them to return to normal.

‘Never in American history have people been able to buy a house with no money down,’ Mr Rogers said. ‘We have the worst credit bubble, and it’s going to take a long time to work its way out. You don’t cure a bubble in five or six months. It takes five or six years.’

Mr Rogers, the chairman of Beeland Interests Inc, also said he’s pessimistic on the US dollar. He said he hoped the Fed raises interest rates to stem inflation, but if it does ‘the dollar is going to collapse’.

 

Source: Reuters, Bloomberg (BusinessTimes 7 Nov 07)

US$ won’t fall further against euro: Greenspan

But greenback will weaken against Asian units over the long term, he says

(TOKYO) Former Federal Reserve chairman Alan Greenspan said the US currency is unlikely to weaken further against the euro, though over the long term it will fall against Asian currencies.

‘The euro-US currency adjustment is already finished,’ Mr Greenspan said at a forum in Tokyo via satellite, according to Richard Tabor Greene, a professor at Kwansei Gakuin University in Osaka, who attended the event.

‘The East Asian adjustment hasn’t happened yet,’ Mr Greenspan said, according to Mr Tabor Greene.

The dollar is the worst performer of the world’s 16 most-traded currencies this year, falling 8.8 per cent against the euro.

The US currency has also fallen this year against nine of the 10 most traded currencies in Asia outside Japan, losing 11.1 per cent against the Indian rupee and 10.6 per cent versus the Philippine peso.

Mr Greenspan said the US current-account deficit has already been factored into the euro-dollar exchange rate, according to V Sriram, senior vice-president at Infosys Technologies Ltd in Tokyo.

The comments echoed those from a month ago when Mr Greenspan said it would be a mistake to conclude that the US current account deficit, which fell to US$190.8 billion in the second quarter, would continue to push the dollar lower.

The dollar traded at US$1.4475 per euro as of 12:34pm in Tokyo after declining as low as US$1.4528 on Nov 2, the weakest since the European currency’s debut in January 1999.

Mr Greenspan told the audience Asian currencies would keep rising against the dollar because their economies are growing faster and living standards are improving, Mr Sriram said.

On the US housing recession, Mr Greenspan said there was an ‘overhang of supply’ and that home prices would have to fall further before the market settles. He said that cutting excess home inventories in the United States was key to stabilise the financial system at home and the rest of the world.

‘The critical issue on the whole sub-prime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory,’ Mr Greenspan told the business leaders’ forum.

The former Fed chairman urged central banks to avoid suppressing asset bubbles, which is ‘exceptionally difficult’ to do.

Mr Greenspan also said that the global economy can handle higher commodity prices through strong monetary policies by central banks and that he expected major increases in commodity demand from rapidly developing nations.

Central banks avoid worldwide inflation by maintaining monetary tightness at appropriate levels, he said.

‘I’m concerned that we were moving from this 20- to 18-year disinflationary period and beginning to move in the other direction,’ Mr Greenspan pointed out.

Despite crude oil prices being above US$90 a barrel, the global economy is still functioning, he said, indicating that the ‘underlying structure is doing well’.

 

Source: Bloomberg, AP (Business Times 7 Nov 07)

Jump in number of new PRs, citizens

Record number likely this year; upswing will help tackle population problem

THE number of foreigners becoming either Singapore citizens or permanent residents will likely hit a new record this year.

And the upswing will go some way in tackling Singapore’s population problem, a key long-term challenge.

About 7,300 Singapore citizenships were granted in the first half of this year, Deputy Prime Minister Wong Kan Seng told The Straits Times.

If the trend continues, Singapore will have 14,600 new citizens this year.

The figure is about 10 per cent higher than the record 13,200 citizenships granted last year. In 2005, 12,900 citizenships were given.

These numbers are a big jump from the typical tally of 8,000 becoming citizens annually in the previous four years.

More foreigners are also seeking the benefits of permanent residence. Some 46,900 of them were granted PR status in the first nine months of this year, compared to 57,300 for all of last year.

With falling birth rates and an ageing population, Singapore has been trying to attract foreigners to settle here.

As chairman of the National Population Committee, Mr Wong has been tasked with tackling the problem.

He said the new immigrants hail predominantly from South-east Asia, as well as South and East Asia, an ‘understandable’ pattern as they tend to share similar linguistic and cultural backgrounds with Singaporeans.

One such new citizen is former Chinese national Wang Jie, 43, who took up citizenship this year, together with her university lecturer husband and their 17-year-old son.

The main draw for them: Singapore’s education system.

‘My son’s studies have improved since we came here because the teachers are much better,’ said Madam Wang.

She is also getting a second wind in her career as a Chinese language tutor thanks to strong demand. ‘I even have plans to open my own tuition centre,’ she said.

The new citizens and PRs add to a pool of Singapore residents whose number stands at 3.68 million as of June. This is out of a total population of 4.68 million.

The remaining one million foreigners include 756,000 who are working. There are 110,000 here on an Employment Pass or S-Pass, and 646,000 on Work Permits.

While the newcomers add to the much-needed population numbers, social stresses have also resulted.

For instance, property agents have noted the formation of ethnic enclaves in certain housing estates.

Singaporeans have also complained about competition for jobs.

But Mr Wong said Singaporeans should recognise that immigrants are part of a diverse workforce that will enhance Singapore’s standing in the global economy.

‘Our challenge is not the number of jobs available; it is that we do not have enough people to match the current rate of job creation,’ he added, pointing to full employment numbers here.

On whether more could be done to inculcate in foreigners the ways of Singapore, he said he believed Singaporeans generally welcomed them. ‘While there is no need to pretend that there are no differences between new immigrants and native Singaporeans, we should recognise that and accept that integration takes time and effort.’

He cited ongoing outreach efforts by schools, grassroots groups and expatriate bodies but added that there was also ‘only so much the Government can do on its own’.

‘Integration is a dynamic process that requires sustained efforts across all segments of society,’ he said.

Sociologist Tan Ern Ser is sanguine about the challenges of integration. ‘My sense is there is already a process of self-selection in that only those who could adapt and integrate would choose to settle down in Singapore.’

 

Source: The Straits Times 7 Nov 07

JOINT OFFICE-TOWER PROJECT – Lum Chang in venture to develop Anson site

A PROPERTY fund that won the tender for a leasehold office plot on Anson Road has roped in construction group Lum Chang Holdings to jointly develop the site.

Lum Chang will take a 5 per cent stake in Firstoffice, a vehicle set up to develop the land.

The remaining 95 per cent is held by Homerun 28, a wholly-owned subsidiary of LaSalle Asia Opportunity Fund III.

The total development cost, including the land, is estimated at $379.2 million.

Lum Chang has been appointed the main contractor for the $82.5 million contract to build a 20-storey office tower on the land next to International Plaza.

When completed by end-2009, the 99-year leasehold property is expected to yield 200,208 sq ft of net lettable office space and 1,668 sq ft of carpark space.

Given the rising demand and shortage of prime office space, the project is expected to draw keen interest from multinational tenants looking for Grade A offices near the Tanjong Pagar MRT station, said Lum Chang in a statement.

LaSalle won the tender with a top offer of $237.2 million in a government tender in August.

The Anson Road site is the maiden Singapore investment for LaSalle Asia Opportunity Fund III, which is planning to make about US$12 billion (S$17.4 billion) worth of acquisitions over the next three to four years.

The fund is part of the Jones Lang LaSalle group.

 

Source: The Straits Times 7 Nov 07

Horizon Towers owners renew objections to sale at hearing

THE home owners opposed to the $500 million collective sale of Horizon Towers have renewed their complaints that the sale was not handled properly, resulting in a price that was too low given a fast-rising market.

They were opening their case to stop the sale in front of the Strata Titles Board (STB) yesterday with a barrage of arguments.

They claimed that the sale committee and the property agent had mismanaged the sale process of the condominium.

It was the second day of the resumed STB hearing in which the majority owners are seeking approval to have the sale approved, after it was thrown out on a technicality in August.

They are battling it out with the minority owners who have filed objections to the sale. These objectors include three groups, each represented by different lawyers, along with two sets of owners representing themselves.

Hotel Properties (HPL) and its two partners have been trying to buy the 99-year leasehold Horizon Towers for $500 million, the estate’s reserve price that was set in April or May last year.

Opponents of the sale argued that by the time the deal was signed, that reserve price was too low, and out of date.

They said the $500 million price came with an 80 per cent premium – an inducement that had shrunk significantly by the time the estate was sold to the HPL consortium in January this year, due to a fast-rising market.

One witness, Mr Wee Hian Siew, who was the secretary of Horizon Towers’ first sale committee and one of the first to moot the idea of a sale, was called at the STB hearing yesterday.

He was asked numerous questions, including whether he knew about the rising market and why he did not ask for a fresh mandate for the $500 million offer from the owners, many of whom were said to have learnt of the sale via a newspaper report.

Mr Wee said he knew about the rising market and insisted that he was under the impression that the collective sale premium had slipped to about 40 per cent to 50 per cent, which he was happy with.

Earlier, one of the three minority owners’ lawyers, Mr Philip Fong of Harry Elias partnership, had asked if Mr Wee knew that Horizon Towers’ agent First Tree Properties was a tiny company with a paid-up capital of $50,000 for instance.

Also, he asked if he knew that the company had agreed to take a commission from the purchaser, instead of the owners as with usual practice. Mr Wee said he knew about it.

He later agreed that this would create a potential conflict but it was one that was not apparent to him when they were making the deal.

These were just some of the arguments brought up yesterday when the STB board also dismissed the case of a majority owner who wanted to participate in the hearing as an objector.

The hearing continues today.

 

Source: The Straits Times 7 Nov 07

Sentosa IR to cost $800m more, says Genting

Higher construction and labour costs and new attractions will bring the bill to $6b

THE price tag for Genting’s Resorts World at Sentosa will be bigger than expected as a result of higher construction costs and additional attractions, such as a new roller coaster, being lined up.

Genting International now expects to spend $6 billion on the project, 15 per cent more than its original budget of $5.2 billion, said its managing director Justin Tan.

Of that extra $800 million, $275 million will go into the higher-than-expected construction costs; another $275 million will pay for the added attractions, with the remaining $250 million being put aside for contingencies.

The company explained that while it had locked down the prices for concrete and steel, labour costs and contractors’ margins had shot up.

Mr Tan Hee Teck, the chief executive of Resorts World,said: ‘If you look at Singapore today, there is $20 billion worth of construction going on. And because resources are scarce, the cost has escalated by more than we had anticipated.’

Resorts World is not alone in being stung by the changing economics of the construction industry. Soaring demand and the high prices of sand and steel have also hit building projects across the island.

Just two months ago, the other integrated resort, Marina Bay Sands, also disclosed that it was ’struggling…to stay within budget’.

Las Vegas Sands president William Weidner reckoned in August that the project could cost up to US$1.4 billion (S$2.03 billion) more than expected as a result of higher construction costs, as well as refinements to the design.

The executive director of the Singapore Contractors Association Limited, Mr Simon Lee, noted that contractors were dealing with close-to-full order books and were therefore being ‘very selective’ about the projects they were taking on.

Projects are thus attracting fewer tenderers, he added – not good news for Resorts World, which will award about $1 billion in jobs by early next year.

But Mr Tan still expects the resort to be ready for a soft opening in early 2010.

Construction is on track, with more than half the excavation, piling and reclamation works already done.

Asked about the new attractions being planned, Mr Tan said that two new rides would be put into the Universal Studios theme park, including a new roller coaster.

He added that four new multimedia shows would also be added, some designed by Jeremy Railton, who was behind the 2002 Winter Olympic Games ceremonies in Salt Lake City in the United States.

Money was being put into these and design improvements, he said, in anticipation of a ‘bullish tourism outlook for Singapore and Asia in the next few years’.

Despite the higher budget, project returns to the resort are unlikely to be hit, the company said in its third-quarter results released yesterday.

It reported a loss of $393.4 million for the three months that ended on Sept 30, a reversal from the net profit of $86.9 million from a year earlier.

 

Source: The Straits Times 7 Nov 07

Ex-F&N chief joins Ng Teng Fong’s property business

Han Cheng Fong to head Sino Group’s China division, Far East International

JUST a month after his exit as chief executive officer (CEO) of Fraser & Neave (F&N) caused a swirl of controversy, Dr Han Cheng Fong has landed himself a new job.

Dr Han, 65, has joined the operations of property tycoon Ng Teng Fong – Singapore’s richest man, according to Forbes magazine.

His job will focus on expansion plans in China. This is right up his alley as the property heavyweight is said to have focused on property in China when he was at F&N, a property, publishing and beverage conglomerate.

F&N has service residences in China and is developing residential properties and shopping centres there as well.

Since Dr Han’s departure from F&N, there has been much speculation as to where he would go.

Prior to F&N, he was CEO at DBS Land but left after it merged with unlisted Pidemco Land to form CapitaLand.

In a statement issued on the day he quit F&N, Dr Han had said: ‘Yes, I have been in discussion with several organisations in the last few months and it is likely I will make up my mind on what my future will be after a break in Europe’.

Mr Ng’s Far East Organization (FEO) is Singapore’s largest unlisted property developer. His son, Philip, is the company’s CEO.

Hong Kong-based Sino Land is the listed arm of FEO. It ranks as Hong Kong’s fifth- largest property developer and has a market value of about HK$115 billion (S$21.5 billion). Mr Ng’s son, Robert, is the chairman of Sino Land.

When contacted yesterday, the Sino Group said: ‘We are delighted to welcome Dr Han as the chief executive officer of the Sino Group’s China division.’

Sino Group consists of listed Sino Land and the Ng family’s private group in Hong Kong.

Dr Han will also head a FEO unit, Far East International.

Sino Group said: ‘The job is to expand our real estate interests in China and other markets of interest.’ Dr Han will be doing likewise for the Fullerton Hotel brand.

Sino Land owns the Fullerton waterfront properties which comprise the Fullerton Waterboat House, The Fullerton Hotel, One Fullerton with its trendy restaurants, and the recently acquired Collyer Quay site.

Dr Han, who started his job last Thursday, is in Hong Kong and could not be contacted.

However, his appointment does not clear up the cloud of uncertainty that hangs over F&N’s business and future as a result of his departure.

There has been no elaboration on F&N’s statement that Dr Han’s departure resulted from ‘differences of opinion with the board’.

Just before he quit, F&N announced it had found a new chairman, former SingTel chief Lee Hsien Yang, to take over from Dr Michael Fam who has since retired. F&N took pains to emphasise that Dr Han’s departure had nothing to do with Mr Lee’s arrival.

Then there was talk that Mr Lee’s appointment as well as Temasek Holdings’ entrance early this year as a strategic investor were to fend off takeover plans by Heineken.

Heineken is F&N’s joint venture partner in its beverage business, which includes the famed Tiger Beer.

There was also talk that Dr Han, coming from a property background, was less keen on the traditional parts of the business such as the beer and dairy operations, than the rest of the board.

Property brought in about two-thirds of F&N’s profits last year.

 

Source: The Straits Times 7 Nov 07

Citi shares fall on mounting woes, downgrades

Bank fails to reassure investors; stocks down 5% on Monday at 4 1/2-year low

NEW YORK – CITIGROUP’S problems deepened, as its nearly pristine credit ratings were downgraded and with the United States banking giant unable to assure investors that a potential US$11 billion (S$16 billion) writedown for US sub-prime mortgages will not grow.

‘There’s no way I think anyone can give you an assurance of how things are going to move,’ Citigroup chief financial officer Gary Crittenden said at a conference call on Monday. ‘We’ve taken what we think is a reasonable stab.’

Citigroup’s struggles came as it faced a leadership void, following the resignation of chairman and chief executive Charles Prince on Sunday.

Mr Prince left after a four- year tenure during which the bank’s stock fell 17 per cent amid criticism that Citigroup had grown unwieldy and lacked direction. Some investors want the bank, which has US$2.35 trillion in assets, to be broken up.

Former US Treasury secretary Robert Rubin, who led the bank’s executive committee, was named chairman.

Sir Winfried Bischoff, head of the European business, became acting chief executive.

Citigroup shares closed down US$1.83, or 5 per cent, at US$35.90 on Monday on the New York Stock Exchange – a 4 1/2-year low.

News of the expected write- down of US$8 billion to US$11 billion, on top of an earlier US$6.5 billion, helped drag down shares of Bank of America, Goldman Sachs, Merrill Lynch and Morgan Stanley. Investors are worried that write-downs for US sub-prime mortgages and other debt may not be isolated.

Analysts said Merrill,which ousted its chief executive last week, may add to its own announced US$8.4 billion write- down.

Moody’s Investors Service cut Citigroup’s credit rating one notch to Aa2, its third-highest rating, from Aa1.

Fitch Ratings made a similar downgrade – to AA from AA-plus – citing ’severe pressure’ on capital markets operations and ‘an inhospitable consumer credit environment’ as mortgage delinquencies soar.

Both agencies’ rating outlooks are ‘negative’, meaning further cuts are possible within two years.

Much of Citigroup’s trouble is related to US$43 billion of collateralised debt obligations, which are linked to lower-quality mortgages. While the securities were once considered rock solid, Mr Crittenden said investors have stopped buying them.

Meanwhile, Saudi Prince Alwaleed bin Talal, Citigroup’s largest individual investor, endorsed bringing back Mr Sanford Weill, who built Citigroup and handpicked Mr Prince to succeed him, to run the company on an interim basis, CNBC television said.

Mr Weill said he was not interested, but will do what is needed to help.

Source: REUTERS (The Straits Times 7 Nov 07)

Citigroup’s losses are just the tip of the iceberg

Escalating fallout raises worries that investors do not have basic data to judge severity of crisis

NEW YORK – CITIGROUP’S bombshell that it faces as much as US$11 billion (S$16 million) more in credit losses has made one thing clear. No one really knows what evil lurks in the sub-prime bond basement.

JPMorgan thinks that total losses stemming from writing down the value of mortgage-linked securities could be as high as US$200 billion, with financial institutions sitting on at least US$60 billion in losses that have not yet been disclosed.

JPMorgan analyst Chistopher Flanagan said on Monday that only US$30 billion to US$40 billion has thus far been recognised in financial reporting.

Not all losses will be at financial companies, though banks, brokers, mortgage companies and insurers will bear the brunt of this loss recognition, he said.

In an interview on CNBC, Mr Bill Gross, manager of Pacific Investment Management, the world’s biggest bond fund, said the sub-prime mortgage market is a ‘US$1 trillion problem’ made up of ‘garbage loans’.

Whatever the number, the lack of clarity is raising worries that Wall Street and investors do not have the basic information to judge the severity of the current crisis.

Two massive write-downs by Citigroup since early last month and a rash of related losses for Merrill Lynch, the world’s biggest brokerage, illustrate how difficult it is to evaluate risky debt tied to sub-prime mortgages.

The write-downs stem from banks’ exposure to giant, complicated bonds. Many investors did not realise they could lose their entire investments due to a decline in sub-prime loan values that was largely masked by the repackaging of the bonds and opaque accounting.

Banks and brokerages generate fees for creating these structures, which they then sell to investors. As the sales dried up, they are forced to hold on to collateralised debt obligations (CDOs) that are rapidly losing their value.

Analysts and investors expect the situation to worsen, as banks reveal more losses and rating companies continue to downgrade some top bonds that trade like junk.

‘We will see a train wreck happening if the industry does not get together to develop a systematic way to deal with these distressed loans,’ Ms Sheila Bair, chairman of the Federal Deposit Insurance, said in an interview.

‘Right now, nobody knows what is going to happen,’ she said. ‘If this is a train wreck, you are just going to see greater scepticism about the value of these mortgages.’

Citigroup said on Sunday that it expected potentially US$11 billion in losses from its exposure to bad mortgages which banks had bundled together into CDOs. A month ago, Citigroup said it had cut the value of those assets by US$5.9 billion.

Merrill Lynch last month announced a US$7.9 billion write-down, up from US$4.5 billion just a few weeks earlier.

‘No one is going to believe anybody anymore about CDOs,’ said Cantor Fitzgerald chairman and chief executive (CEO) Howard Lutnick.

Mr Lutnick, whose firm controls one of the world’s largest bond brokerages, said the CDO market has shut down.

‘The big CDO market is gone,’ he told the Reuters Finance Summit. ‘The buyers are gone.’

Citigroup and Merrill’s revelations led to the departure of Citigroup CEO Charles Prince on Sunday, about a week after the resignation of Merrill chief Stanley O’Neal.

Of course, the market could recover and Citigroup could sell its positions. However, right now there are ‘no observable trades’ for the CDOs the company holds, according to its chief financial officer.

Source: REUTERS (The Straits Times 7 Nov 07)

US dollar’s fall expected to end next year

Investor appetite for greenback will return as growth outside the US slows: Lehman

THE US dollar’s tumble to a record low against the euro and its weakest in 26 years against the British pound will end next year, said Lehman Brothers head of currency research Jim McCormick.

Slowing economic growth will spread from the United States, curtailing demand for the euro and the pound, Mr McCormick, who is based in London, said in an interview during a visit to Singapore.

Investor appetite for the dollar will return as the pace of growth outside the US declines, he said.

‘The dollar has historically been used as the funding vehicle for financial market booms,’ Mr McCormick said.

‘When those booms are slowing, then the dollar tends to see a lot of that capital come back to the US.’

Mr McCormick joins former Federal Reserve chairman Alan Greenspan in predicting the US currency would not fall further versus the euro. The dollar slid 1.5 per cent against the euro last month after the Fed indicated it is reluctant to cut interest rates after two reductions so far this year.

‘The dollar’s going to remain weak for the rest of this year, but I would contemplate a dollar recovery some time in early to mid- 2008,’ Mr McCormick said.

The US currency traded at US$1.448 per euro as of 2.04pm in Tokyo (1.04pm Singapore time) yesterday, from US$1.4469 late on Monday in New York. It had weakened to US$1.4528 last Friday, the lowest since the euro’s debut in January 1999.

The euro will fall to a level in the high US$1.30s by the middle of next year while the pound will fall to US $1.85 by the end of next year, Mr McCormick said.

Debt-market traders are starting to prepare for a rate cut from the Bank of England, he said.

‘The British pound is the currency that is most vulnerable to the credit shocks of the past couple of months,’ he said. ‘The rate market has already started to price in some rate cuts. We see a lot of downside risks for sterling over the next six to 12 months.’

Among other Asian currencies, the South Korean won erased earlier declines as the benchmark Kospi Index approached its record high. Policymakers will meet tomorrow to decide on borrowing costs, which are at a six-year high of 5 per cent. ‘The surprise this year has been how strong the Korean economy has been,’ said Mr McCormick. ‘The won has outperformed our expectations.’

The won closed at 907.80 against the dollar, up from 908.00 late in Asian trading yesterday.

Source: BLOOMBERG NEWS (The Straits Times 7 Nov 07)

COMMENTARY – Bank’s explanation for sub-prime losses defies belief

NEW YORK – CITIGROUP says it isn’t sure how much its United States sub-prime-related assets have fallen in value this quarter. Maybe it is US$8 billion (S$11.6 billion). Maybe it is US$11 billion.

On one point, though, Citigroup is not budging: It says none of these declines began until after the last quarter ended.

The news from the nation’s biggest bank evokes memories of the scene from the 1984 hit comedy Beverly Hills Cop where Eddie Murphy’s character, detective Axel Foley, hands a valet the keys to his beat-up Chevy Nova at a pricey country club he’d never visited before. ‘Can you put this in a good spot? Cause all of this s*** happened the last time I parked here,’ Mr Foley said, straight-faced.

It is as if we are supposed to believe that all this stuff at Citigroup happened after September ended, notwithstanding the US$8.4 billion of bad US sub-prime mortgage stuff at Merrill Lynch that happened before September ended. And we are also supposed to believe that Citigroup’s brass did not have a clue any sooner.

In its Sunday press statement, issued the same day Mr Charles Prince resigned as chief executive officer, the company said: ‘These declines in the fair value of Citi’s sub-prime related direct exposures followed a series of rating agency downgrades of sub-prime US mortgage-related assets and other market developments, which occurred after the end of the third quarter.’

In other words: We did nothing wrong. And there is no reason to question the US$2.21 billion of net income Citigroup reported for the third quarter, down a mere 60 per cent from a year earlier.

As Citigroup chief financial officer Gary Crittenden said on Monday during a conference call with analysts, the declines were ‘driven by some events that have happened during the month of October’.

To believe Citigroup, until the rating companies’ post-Sept 30 downgrades, the US sub-prime holdings in its securities-and-banking business were still worth US$55 billion, as reflected on the company’s latest balance sheet.

Perhaps it is true. But Citigroup has given investors little evidence to believe it is.

Rather, the line that Citigroup has served up for investors is that it is the rating companies’ doing. Forget the year-long wave of articles chronicling how far behind Moody’s Investors Service and Standard & Poor’s (S&P) were in downgrading all the AAA-rated toxic waste that Citigroup and other banks gorged on during the US sub-prime mortgage binge.

Never mind that the downgrades came long after the values of so many of these collateralised debt obligations and other Wall Street exotica had plunged. And put aside the publicity about all the government investigations that began last quarter – the ones probing the degree to which the rating firms were either out to lunch or too close to the companies that paid them to size up their deals.

No, Citigroup’s faith in the rating companies’ abilities appears to have been so unshaken that it waited until Moody’s and S&P spoke before determining that its US sub- prime holdings had tumbled by an additional US $8 billion to US$11 billion.

For all the armies of employees at Citigroup whose job it is to monitor these assets’ values, the bank outsourced a large chunk of its critical-thinking skills to the numbers jockeys at the rating companies. And that is putting a positive spin on it.

What really should concern investors, though, is that Citigroup and Merrill can’t possibly be alone.

Source: BLOOMBERG NEWS (The Straits Times 7 Nov 07)

Hugo Boss leads the way with IR boutique

It’s the first luxury brand to confirm a space at Marina Bay Sands IR

LUXURY brand Hugo Boss will set up a 2,000 square feet boutique in the upcoming Marina Bay Sands integrated resort (IR) – the first luxury brand to confirm taking space there – as it seeks to grow its sales in Singapore by as much as 50 per cent over the next three years.

‘I see a potential upside for growth of about 50 per cent over the next few years, especially with the new stores,’ said Hugo Boss chief executive Bruno Salzer. ‘We will definitely have a presence in the two casinos.’

In addition to the Marina Bay Sands boutique and the one targeted for Genting’s Sentosa IR, Hugo Boss is also keen to have a presence in upcoming Orchard Road mall Ion Orchard, said Brian Ang, managing director for the Hugo Boss franchise in Singapore and Bangkok. ‘It is important for us to be in Ion Orchard,’ he said. ‘Most probably we will be somewhere prominent in the mall.’

Hugo Boss recently celebrated its 20th anniversary in Singapore, for which Dr Salzer flew into town. The upcoming boutiques in Singapore are part of Hugo Boss’s push to expand in the region at a fast clip.

The label has about 170 stores in Asia (excluding Japan) at present, but Dr Salzer wants to grow the number by about 15-20 stores yearly over the next few years, he said. ‘Asia now contributes about 10-11 per cent of total sales, and I expect double-digit growth over the next couple of years,’ said Dr Salzer.

Within the region, Japan and China are the biggest markets for the group. Of the 15-20 new stores the brand aims to add each year, the bulk are likely to be in China, he said. But Dr Salzer is also excited about the potential for growth in Singapore, especially with the new stores coming up.

Mr Ang said that in addition to the planned new stores, Hugo Boss is looking at revamping its existing boutiques.

Right now, the brand’s flagship boutiques in Ngee Ann City are split across two levels. But by the end of next year, the brand hopes to have its space all on one floor, – with a 7,000 sq ft floor plate – Mr Ang said. He did not specify if the boutique will be in Ngee Ann City as well. In addition, there are also plans to revamp Hugo Boss’s 1,600 sqft store in Paragon. Mr Ang is looking at taking up more space. The brand also has a boutique at Changi Airport.

The Boss boutique in Marina Bay IR will be ‘more luxurious’ and will be designed to appeal to high-rollers, Mr Ang said.

 

Source: Business Times 6 Nov07

Chinatown shophouse put up for auction at $3m

Price for the leasehold property works out to $4,274 psf

(SINGAPORE) A restored three-storey shophouse at the corner of Trengganu and Temple streets, often featured as an icon of Singapore’s Chinatown area, has been put up for auction.

The owner’s indicative price is $3 million for the property, which is on a site with a remaining lease of 65 years.

This works out to $4,274 per square foot based on the property’s 702 sq ft land area.

That sounds steep, considering that No 20 Trengganu Street nearby, comprising seven shophouses also with a remaining lease of 65 years, was sold earlier this year for $18 million, or $1,722 psf of land area, to Asok Kumar of Royal Brothers Group.

That property has a total land area of about 10,450 sq ft and a total lettable area of nearly 24,000 sq ft.

However, Knight Frank’s auctions director Mary Sai, whose firm is offering 15 Trengganu Street at its auction at Carlton Hotel on Nov 22, points to the property’s aesthetic appeal, with intricate arches and columns, and its historical background – it was an opera house in the 1930s/1940s.

‘It also has dual frontage along Trengganu Street and Temple Street,’ Ms Sai says.

The property is being put up for sale by its owner, a local businessman active in the Chinatown circle.

He occupies the building’s upper floors, according to Ms Sai. He will vacate the property for the new owner, although he has leased out the ground floor to a tenant until September 2008.

The property has about 2,200 sq ft of floor area.

Knight Frank is also offering at the same auction a two-storey pre-war intermediate terrace house at Lorong 40 Geylang. The freehold property has been put up for auction by the Inland Revenue Authority of Singapore to recover outstanding property taxes.

The property has the address Nos 17 and 17A Lorong 40 Geylang. No 17A is the second storey, which is served by a separate external staircase.

The property’s land area is 1,392 sq ft.

Knight Frank, which points out that the property is not part of the Geylang red light district, says the indicative price is $700,000 to $750,000. Surrounding uses include residential and associations.

IRAS auctions off properties only as a last resort to recover property tax – after the owner repeatedly fails to pay or defaults on his payment despite many reminders. IRAS will return any balance on the sum received to the owner, after recovering outstanding tax, penalty payment, interest, and the cost of recovery.

 

Source: Business Times 6 Nov 07

CDL-Wachovia JV buying two blocks at Cliveden at Grange

CDL hints it may retain units in some future residential developments

A JOINT venture between City Developments Ltd (CDL) and US-based Wachovia Development Corporation is buying two blocks at CDL’s Cliveden at Grange condo for $432.4 million or an average price of about $3,750 per sq ft (psf).

And according CDL executive chairman Kwek Leng Beng, the deal attests to the freehold project’s ‘high investment potential’ and reflects CDL’s ‘business strategy of leveraging on the capital appreciation potential of our developments’.

In an interview with BT in May this year, Mr Kwek said he was considering retaining a portion of some new residential developments for rental income and capital appreciation.

At CDL’s Q2 results briefing in August, he said he was considering retaining two blocks at Cliveden.

A Hock Lock Siew column in BT later that month speculated on whether CDL was mulling a residential real estate investment trust (Reit) to which it could spin off apartments held for investment.

CDL was silent on this in its statement to the Singapore Exchange yesterday. But market watchers reckon a possible exit strategy for the CDL-Wachovia joint venture for their investment in the two Cliveden blocks would be to divest them to a residential Reit.

Without elaborating, a CDL spokesman said yesterday: ‘We will look into this business model of retaining units in some of our future residential developments.’

CDL is taking a 40 per cent stake in the joint venture company Grange 100 Pte Ltd that is buying the Cliveden blocks, comprising 44 apartments. Wachovia holds the majority 60 per cent.

The 44 units are three and four-bedders, and two penthouses. The prices at which they were bought range from $3,392 psf to $4,313 psf.

Before the deal was announced yesterday, CDL had sold 42 units at Cliveden at an average price of $3,690 psf since the project’s soft launch in June. More than 90 per cent of these units were bought by foreign buyers from the UK, Australia, Hong Kong, China, Taiwan, Indonesia, France, Korea and Japan.

After the latest deal, only 24 apartments will be left at the 110-unit Cliveden, which is coming up on the former Kim Lin Mansion site.

Last year, CDL bought the Lucky Tower site, diagonally opposite the Kim Lin plot, for $1,134 psf per plot ratio.

 

Source: Business Times 6 Nov 07

Hoteliers targeting US$115b Asian market

Global operators on building spree to lure free-spending Asians abroad

(HONG KONG/MUMBAI) Global hoteliers are riding a building boom in Asia, and using plush new hotels as giant advertisements to lure newly rich Chinese and Indians to their US and European properties.

Operators such as InterContinental Hotels Group and Hilton Hotels Corp are growing fast in an Asian market worth US$115 billion a year, spurred on by a regional travel craze.

But they also hope to lodge their brands in local minds. That’s because despite a reputation for cramming into cheap package tours, Chinese tourists spend an average US$3,786 on trips to the United States and US$5,253 in Europe.

The number of Chinese travelling to the US has jumped 44 per cent in four years to 320,000 last year, and Indian visitors increased nearly 60 per cent to 406,000, according to the Pacific Asia Travel Association.

InterContinental’s acting Asia head, Anthony South, said the chance to capture the outbound market was a motive in a deal to buy a controlling stake in the hotel management unit of Japan’s All Nippon Airways Co (ANA) last year.

ANA later sold its 13 hotels, jointly branded with InterContinental, to US investment bank Morgan Stanley.

‘Through good times and bad, the Japanese go to all corners of the globe and are very well-heeled,’ Mr South said.

‘The same applies to China, where the outbound market is growing off a small base very rapidly. If they identify with our brand at home, it’s good for our business.’

InterContinental, which like most hotel firms has eschewed ownership to only operate hotels, aims to add 130 new properties to its 190 in Asia over three years. And at its Holiday Inns outside China, the firm is starting to stock hard pillows popular with the Chinese and installing water boilers for instant noodles.

Asia’s hotel market is far from a sure bet, with the 1997 economic crisis and an outbreak of the Sars respiratory disease in 2003 each causing a 20 per cent drop in visitor arrivals. But the travel industry has a knack for bouncing back quickly so hotels are taking long-term views, focusing on the economic growth rates of around 10 per cent in India and China.

‘As the wealth in both countries increases, the first thing people want to do is travel,’ said Gerald Lawless, chief executive of Jumeirah, a hotel firm owned by the ruler of Dubai. Jumeirah aims to operate 60 hotels by 2011, with three or four each in India and China.

The company now runs 11 luxury hotels, including the sail-shaped Burj al-Arab in Dubai and the Jumeirah Essex House in New York. ‘The outbound market is vital for us,’ Mr Lawless said. ‘There’s been a surge in Chinese visitors at the Burj.’

China’s US$16 billion hotel market, growing at 15 per cent a year, is the main focus in Asia for most operators and investors.

The number of domestic trips per year has doubled since 2001, and domestic tourism is expected to rise to 8 per cent of gross domestic product within a decade, from 5.4 per cent in 2002.

And with the 2008 Olympic Games expected to put China on the world travel map, Hilton has clinched a deal to manage around 20 new hotels being built by Deutsche Bank’s property arm RREEF and private equity firm H&Q Asia Pacific.

Hilton, now with six hotels in China, has tied its loyalty programme to Air China and China Eastern Airlines to hook Chinese on its brand when they travel abroad.

India’s hotel market is even more lucrative, with US$300 room rates common because of a massive shortage. The country has only 110,000 hotel rooms, with internationally branded rooms making up less than 40,000 of the total – less than half on offer in tiny Singapore.

But the inflated prices could hurt the industry. Average room rates have risen 30 per cent in the last year. ‘Inflated room rates will have a severe negative effect on potential demand, especially in leisure destinations,’ said Manav Thadani, managing director of consultants HVS International.

Investors are keen to build more – Citigroup, for example, is building a luxury hotel in Bangalore with developer Nitesh Estates.

Around 100,000 rooms are forecast to enter the market over the next five years, but India’s creaking infrastructure could stall the plans. ‘Unless the airport situation is addressed and new ones opened, it’s going to be a barrier,’ said InterContinental’s Mr South. ‘Hotel development will be in a stop-start manner.’

 

Source: Reuters (Business Times 6 Nov 07)

Inflation risks remain high: Citigroup

CPI may not be capturing full extent of inflation pressures: report

OVERHEATING and inflation risks in Singapore remain high and further monetary tightening may be on the cards, says Citigroup.

While recent government remarks suggest that the economy is not overheating, the US bank – in a Singapore Market Weekly report published yesterday – is less sanguine. Indeed, it is ‘concerned that inflation pressures are accelerating and that the CPI (consumer price index) statistic may not be capturing the full extent of inflation pressures’.

At 0.4 per cent in September, the rise in the CPI’s housing component lags actual steep increases in property prices and rents, Citigroup economist Chua Hak Bin points out. ‘These housing costs will show up more visibly next year and could potentially lift CPI inflation sharply to 4 per cent or above in the first half of the year.’

There are also considerable upside risks from escalating energy, food and wage costs in an economy now at full employment.

Other economists have also pointed to rising price pressures and overheating concerns amid robust growth. But the government maintains that the recent spike in inflation to near-3 per cent is due primarily to July’s two-point Goods and Services Tax (GST) hike, and that the CPI rise is likely to ease to perhaps 2-2.5 per cent in the second half of 2008.

The Citigroup report concedes that slower global growth next year is likely to cool demand and ease inflation pressures. But for now, the biggest challenge facing the government is overcoming supply bottlenecks and containing overheating pressures, it says. And ‘more tightening measures may be in the pipeline’ as new data show up the price pressures. ‘Some prioritisation and deferment of investment projects may also be necessary to manage demand pressures.’

Citigroup reckons that there is a good chance of ‘another move’ by the Monetary Authority of Singapore (MAS) next April, as its recent ’slightly’ steeper Singdollar appreciation bias ‘may be too gentle a move’.

Dr Chua says: ‘Prospects of a stronger Singdollar appreciation are therefore likely next year.’

Citigroup also does not expect the Q3 9.4 per cent gross domestic product (GDP) flash growth estimate to be downgraded despite weaker-than-expected September manufacturing data. Stronger services and construction growth will probably provide some offset, it believes.

And despite concerns about the global economy, Singapore will most likely outperform the early official forecasts of 4-6 per cent growth in 2008 – as it has every year for the past four years.

 

Source: Business Times 6 Nov 07

Sports Hub may cost $1b

(SINGAPORE) The Sports Hub could cost as much as $1 billion to build, some $200 million more than the higher end of the original estimates, it was suggested yesterday.

The new costings emerged as the three bidders presented their proposals to build the nation’s mega-sports complex through a public-private partnership – said to be a world first.

To ensure its financial sustainability and funding of non-profitable community events, the contenders revealed funding plans which would result in ploughing back significant amounts of revenue and profits into the 25-year project. These range from initial seed money (SingaporeGold) to a percentage of commercial revenue (Singapore Sports Hub).

Sources told BT the construction cost of the Sports Hub would be around $1 billion. But Singapore Sports Council spokesman Alvin Hang yesterday said the initial cost estimate of $650 million to $800 million remains.

All three groups said the building cost would be met through bank loans, with the shareholders retaining a typical 10 per cent equity, which is how such projects are generally structured. Returns expected by the shareholders and investors for infrastructural projects would be between the high single digits and the midteens.

Lynn Tho, HSBC director of project and export finance, said the project met with enthusiastic response from banks when they were sounded out on financing the project. ‘We had a funding competition and received over 200 per cent funding commitment for our costs,’ she said.

HSBC Infrastructure Fund Management is the main shareholder of the Singapore Sports Hub Consortium, with 90 per cent equity. Dragages (Singapore) and United Premas each have 5 per cent.

Although this is said to be the world’s first public-private partnership sports complex, members of the consortiums were confident of financing support. Babcock & Brown Securities director Marc-Antoine Thiriez said: ‘A certain proportion of revenue will come from sports events which are volatile but our pool of banks have a level of tolerance for this.’

Much of the revenue model centres on retail and events.

The 50-50 Macquarie and John Laing Infrastructure-led SingaporeGold Consortium’s Sports Quay concept boasts 2.6 km of waterfront promenade. It says it is teaming up with the strong retail credentials of Australia’s Lend Lease, and the events management pedigree of IMG puts it in a good position.

The Alpine consortium, meanwhile, has a radical plan for a 7,000 sq metre lifestyle/sports hypermarket.

This will be similar to the Rebel chain of stores in Australia, said Stephen McMillan, managing director of Citta, a unit of major equity partner Babcock & Brown, which is in charge of the retail component.

The equity partners are Alpine (46 per cent), Babcock & Brown (48 per cent) and Woh Hup (6 per cent).

Singapore Sports Hub has Frasers Centrepoint as its retail partner. They will allocate about one-third of their 41,000 sq m gross floor area to food and beverage outlets and say they expect daily retail traffic of about 20,000. The consortium is counting on World Sport Group’s ability to bring in international cricket and Asian-level football as an advantage.

Alpine is partnering US-headquartered SMG.

 

Source: Business Times 6 Nov 07

Market hit by property, bank fears

ST Index suffers 1.2 per cent fall, due also to sharp plunge in Hang Seng Index

SINGAPORE stocks started the week yesterday on a sour note due to renewed fears in the property and financial sectors, and a sharp plunge in Hong Kong’s main share index.

The Straits Times Index (STI) ended 45.14 points or 1.2 per cent lower at 3,670.18. Earlier in the day, it fell as much as 2.2 per cent below Friday’s close. Around the region, most major share indices also ended lower.

Hong Kong’s Hang Seng Index plunged 5 per cent – the largest one-day fall in percentage terms since Sept 12, 2001, the day after the terrorist attacks in the US.

Investors in the Hong Kong market were reacting to Chinese Premier Wen Jiabao’s remarks over the weekend, dampening hopes that a plan announced in August to allow mainland Chinese to buy Hong Kong stocks would be approved by Beijing in the near future.

The effects were felt in Singapore, as Hong Kong-based companies in the STI made up three of the top six laggards dragging the index lower at yesterday’s close.

Property developer Hongkong Land fell 4.9 per cent to US$4.64, while conglomerates Jardine Matheson and Jardine Strategic fell 4.3 per cent and 4.2 per cent to US$29.20 and US$15.80 respectively.

Singapore-based developers were also hit yesterday, as worries persisted over the impact of the government’s withdrawal of the deferred payment scheme for property purchases on Oct 26 to discourage speculative buying.

Among the large developers, CapitaLand fell 20 cents or 2.5 per cent to $7.70, while City Developments finished 20 cents or 1.3 per cent lower at $14.90.

Wing Tai, another developer, saw its share price slide 5.8 per cent to $2.94. It was the largest percentage loser among the blue chips yesterday.

In the banking sector, United Overseas Bank (UOB) led the losses in the STI, falling 50 cents or 2.4 per cent to $20.30 and dragging the index down 8.9 points. UOB’s share price has fallen $1.70 or 7.7 per cent since the close of Monday last week, the day before the bank reported its third-quarter earnings.

Its rivals DBS Group and OCBC Bank also saw their share prices dip in intraday trading, as some analysts said they expected to see more dents in the banks’ earnings due to further write-downs in the value of their collateralised debt obligation or CDO holdings.

Last week saw a slew of bad news from several major international banks which said they had suffered much bigger losses from the recent credit market turmoil than earlier estimates had suggested. The revelations led to Citigroup chief executive Chuck Prince quitting on Sunday – the latest high-profile casualty of the problems that started in the US sub-prime mortgage market.

Here, DBS’s share price closed 20 cents or 0.9 per cent lower at $21.40, while OCBC’s share price ended unchanged.

Of the STI’s 47 members, 28 fell and nine rose. Technology stocks were among the large gainers. Creative Technology saw the largest percentage gain among the blue chips, ending 5.6 per cent higher at $6.60, while electronics contract manufacturer Venture Corp rose 2.3 per cent to $13.50.

In the broader market, stocks mostly ended lower, with all but one of the SGX market sub-indices registering losses including the UOB Sesdaq index, which fell 7.66 points or 3.3 per cent to 225.58. Only the electronics sector showed a slight gain.

Overall, falling counters outnumbered rising ones by 445-86, excluding warrants and bonds. Trading volume, including warrants and bonds but excluding shares traded in foreign currencies, was 2.24 billion units worth $2.4 billion.

 

Source: Business Times 6 Nov 07

Gramercy stock sale raises US$100m

(EDINBURGH) Gramercy Capital Corp, a US investment trust that specialises in commercial loans, has raised US$100 million in a share sale to Morgan Stanley’s real estate unit.

Gramercy sold 3.81 million shares at US$26.25 to an affiliate of Morgan Stanley Real Estate Special Situations Fund III, New York-based Gramercy said in a statement yesterday. Gramercy plans to use the money for ‘additional investment activity and to fund its future growth’, according to the statement.

Gramercy agreed to buy American Financial Realty Trust, a real estate investment trust that specialises in property leased by financial institutions, for about US$1.1 billion in cash and stock, The Wall Street Journal reported yesterday, citing an unidentified American Financial executive.

 

Source: Bloomberg (Business Times 6 Nov 07)

SP Setia to go into commercial, luxury projects

Group to sell 15 high-end bungalows at RM30 million each next year

(KUALA LUMPUR) Property developer SP Setia Bhd, which currently has 2,160 hectares of undeveloped landbank worth RM30 billion (S$13 billion) in gross development value (GDV), plans to focus on luxury and commercial development projects.

Its group managing director and chief executive officer, Liew Kee Sin, said the company was now shifting from being a purely residential developer to a full-range developer.

Mr Liew said SP Setia had been involved in developing its normal housing and eco-focused branding over the years.

‘This can sustain us for only a number of years. We want to expand to other parts of the business cake. We want to go into condominiums, super high-end brands like bungalows and commercial developments, and venture into Vietnam,’ he said.

The company, he added, planned to sell 15 high-end bungalows valued at about RM30 million per unit next year.

He was speaking to reporters after a signing ceremony for the proposed issuance of RM500 million nominal redeemable serial bonds with 168.15 billion detachable warrants between SP Setia, Aseambankers Malaysia Bhd and United Overseas Bank (Malaysia) Bhd here yesterday.

On overseas ventures, Mr Liew said SP Setia had joined forces with Vietnam’s top state-owned conglomerate, Becamex IDC Corp, to undertake a residential project with a GDV of RM2.1 billion.

He said the proposed township involved 200 hectares of land located in Ho Chi Minh City and was expected to be launched next year.

According to him, the project is expected to contribute about 10 per cent of SP Setia’s profit by 2010.

For the RM500 million bonds, SP Setia plans to utilise it to repay existing borrowings and to finance its operating activities, capital expenditure and working capital requirements.

Mr Liew said the bonds would allow SP Setia to diversify its funding sources and lock in fixed interest rate to rebalance the group’s current financing portfolio, which is mainly based on floating interest rates.

 

Source: Bernama (Business Times 6 Nov 07)

Average UK lease term getting shorter

(LONDON) Challenging UK retail trading conditions have forced commercial real estate landlords to slash lease lengths to attract and keep tenants in their properties, data showed yesterday.

The 10th Annual Lease Review, published by the British Property Federation (BPF) and Investment Property Databank, showed that the average length of a lease fell from 6.2 years in 2005/2006 to 5.7 years in 2006/2007.

The survey draws from detailed evidence of 75,000 tenancies, encompassing a full analysis of lease lengths, break clauses, review cycles, rent free periods and income profiles.

The data showed that 67 per cent of leases struck in 2006/2007 were for five years or less, while less than 3 per cent of leases agreed in the same period were for more than 15 years. Retail leases fell from an average of 7.8 to seven years and office leases fell from an average of 5.7 to 5.2 years. Industrial leases remained the same as the previous year’s survey at 4.2 years.

The BPF said that the increase in shorter lease terms reflected the industry’s improved ability to offer flexible lease terms to occupiers.

 

Source: Reuters (Business Times 6 Nov 07)

London luxury home prices lose momentum

Homes worth at least £2.5m pounds up just 0.3% in Oct, slowest pace since July ‘05

(LONDON) Luxury-home prices in London rose last month at the slowest pace since July 2005 as the prospect of job cuts and smaller bonuses deterred investment bankers and other buyers, Knight Frank LLC said.

The average price of houses and apartments costing at least £2.5 million (S$7.55 million) increased 0.3 per cent in October from the previous month, according to an index compiled by the London-based property broker. Prices gained about 34 per cent from a year earlier.

Companies in the City of London financial district may cut 6,500 jobs and reduce bonuses by 16 per cent this year, the Centre for Economic and Business Research said on Oct 8. For the past two years, most of the bonuses have been spent on real estate, fuelling demand for apartments in London neighbourhoods such as Chelsea, Kensington and Notting Hill.

‘The impact of the credit crunch and a weaker City economy have contributed to a more sober market,’ said Liam Bailey, head of residential research at the London-based firm.

Bonus-earners in the city will invest only £2 billion in homes next year, compared with £5.5 billion this year, as they seek assets that offer higher returns, according to Savills plc estimates. Savills and Knight Frank are the biggest brokers for prime London properties, the most expensive in the world.

The lack of investment will restrict the gain in luxury-home prices to 3 per cent in 2008, less than a tenth of this year’s rate, Knight Frank forecast this week. The company cut its estimate from 10 per cent.

For homes costing more than £5 million, the average price increase will probably be about 8 per cent next year compared with the estimated 2007 gain of 34 per cent, Knight Frank said. The main customers for the most expensive houses and apartment are wealthy investors from Russia and the Middle East, according to the broker.

The contrast with the rest of the London market ‘illustrates the strength of the super-prime market with demand from international buyers remaining very strong,’ Mr Bailey said.

 

Source: Bloomberg (Business Times 6 Nov 07)

Sub-prime woes may hit 10-year Treasuries next

(NEW YORK) The US housing slowdown that propelled 10-year Treasuries to their biggest gains since 2002 may soon make the same securities laggards in the government bond market.

The notes returned 9.6 per cent since mid-June as investors sought a haven from credit market losses caused by sub-prime mortgages, Merrill Lynch index data shows. Sales of bonds backed by housing loans have dropped 20 per cent this year as home purchases fell, according to Citigroup, reducing the need for longer-maturity Treasuries as a hedge.

Fund managers may ‘no longer buy the 10-year Treasury’ to protect their holdings, said Ajay Rajadhyaksha, head of interest rate strategy in New York at Barclays Capital.

The mortgage market’s influence over Treasuries has increased as the amount of home loans quadrupled to US$10.9 trillion since 2001, according to the Mortgage Bankers Association. More than US$6 trillion of securities backed by home loans are outstanding, compared with US$4.5 trillion of US government debt securities, Treasury data shows.

About US$100 billion of 10-year Treasuries trade every week among the primary dealers. Hedging by owners of housing- related bonds surges to as much as 45 per cent of that amount when yields drop by about a quarter percentage point.

 

Source: Bloomberg (Business Times 6 Nov 07)

Markets shudder as Citigroup’s profit engine stalls, writedowns rise

CEO steps down; bank’s sub-prime hit may reach US$11b

(NEW YORK) Citigroup Inc, the profit engine built by Sanford ‘Sandy’ Weill, has seized up.

The biggest US bank by assets said yesterday that sub-prime mortgages and related securities lost as much as US $11 billion of their value in the past month, a decline that may wipe out half of the company’s profit so far this year.

The New York-based company also said in a statement that Charles Prince, Mr Weill’s hand-picked successor, has stepped down. Former Treasury Secretary Robert Rubin will become chairman and Citigroup’s most senior executive in Europe, Win Bischoff, will be interim CEO.

Citigroup’s woes left international banks and stock markets reeling yesterday, feeding fears that more banks will have to confess to major losses. British banks Barclays and Royal Bank of Scotland saw their stock shed about 3.0 per cent in value. In Tokyo, Mitsubishi UFJ Financial, Sumitomo Financial and Mizuho Financial fell by a similar amount.

The Morgan Stanley Capital International Asia Pacific Index lost 1.9 per cent to 165.43 as of 5:33 pm in Tokyo, having on Nov 2 slipped 2.2 per cent from a record close. Financial shares were the biggest drag among the benchmark’s 10 industry groups yesterday.

Japan’s Nikkei 225 Stock Average slid 1.5 per cent to 16,268.92 while Hong Kong’s Hang Seng Index slumped 5 per cent. Most South-east Asian stock markets also extended losses on credit fears. The Straits Times Index fell 45.14 points to close at 3,670.18.

Citigroup said that credit-market upheaval in October impaired by as much as a fifth its US$55 billion book of subprime mortgages and related bonds. The writedown costs, which will be recorded in the fourth quarter if markets do not recover, add to the almost US$7 billion of costs for bad debt, bond and loan losses recorded in the third quarter.

The fourth-quarter charges may leave the company with a loss of 26 cents a share, Punk Ziegel & Co analyst Dick Bove wrote in a Nov 5 report. It would be Citigroup’s first quarterly loss since at least 1998.

Before the announcement, the company was expected to report US$5.32 billion of profit in the fourth quarter, the average estimate of six analysts surveyed by Bloomberg.

‘Significant uncertainty continues to prevail in financial markets,’ Citigroup said in the statement. The company said that its capital ratios ‘will return within the range of targeted levels by the end of the second quarter of 2008′, allowing it to maintain the current dividend, the company said.

Citigroup is participating in a US$80 billion fund being set up by banks to draw investors back into the market for short-term debt. The fund, also backed by Bank of America and JPMorgan, was announced last month with the encouragement of Treasury Secretary and former Goldman Sachs CEO Henry Paulson.

The performance of remaining sub-prime investments, which totalled US$55 billion as of Sept 30, is partly dependent on ‘the underlying performance of the economy’, chief financial officer Gary Crittenden said in an interview.

Analysts at CIBC World Markets and Morgan Stanley told clients last week to get rid of Citigroup shares. CIBC’s Meredith Whitney said that Citigroup may have to sell assets because it needs to raise US$30 billion of capital.

The combination of US$25 billion of acquisitions in the past 19 months and the lowest cushion for losses ‘in decades’ increases the risk of owning the stock, she said.

Mr Prince, 57, is the third banking chief ousted amid a credit contraction that has saddled the world’s biggest lenders and securities firms with more than US$40 billion of writedowns during the past four months. The worst housing slump in 16 years has led to record US foreclosures and losses in the market for home loans to borrowers with poor credit histories or heavy debts.

Merrill Lynch & Co, the world’s biggest brokerage, ousted Stan O’Neal last week, after the New York-based firm disclosed US$8.4 billion of writedowns. UBS AG, the largest Swiss bank, fired CEO Peter Wuffli in July.

While the writedowns at Citigroup finally brought Mr Prince down, he had been under pressure for years because Citigroup’s performance under his leadership did not match what investors came to expect from Mr Weill, who demanded 15 per cent annual profit increases during his 17 years as CEO of Citigroup, Travelers Group and their predecessors. Powered by a series of blockbuster deals, climaxing with Travelers’ US$36 billion acquisition of Citicorp in 1998, Mr Weill delivered a 160 per cent stock gain during his last five years as CEO.

Mr Prince spent most of his career as Mr Weill’s top lawyer, advising on acquisitions. It was he who untangled Citigroup and Mr Weill from the federal and state probes of analysts who had allegedly talked up stocks to win underwriting business.

Mr Prince’s own stint has been hobbled by the sub-prime crisis. This year, he vowed to eliminate or reassign more than 26,500 jobs. Citigroup’s quarterly profit meanwhile has sunk to its lowest level in three years and the stock has plunged 32 per cent in 2007, twice as much as Bank of America and JPMorgan Chase.

‘I don’t think that all of a sudden, because of the credit crisis, the Citigroup model is broken,’ said Tim Ghriskey, cofounder of Solaris Asset Management in New York. ‘This isn’t a broken machine at all. It just needs some leadership that really understands the business.’

 

Bloomberg, Reuters, AFP (Business Times 6 Nov 07)