Both issues offered at steep discounts; CapitaLand looking at acquisitions, CMT to pay off debt

By UMA SHANKARI

Singapore's biggest property developer CapitaLand and its listed retail trust CapitaMall Trust (CMT) yesterday announced two rights issues totalling some $3.07 billion.

CapitaLand said that it will raise $1.84 billion in a 1-for-2 rights issue to build up its war chest to $6 billion, from $4.2 billion now, as it remains on the lookout for acquisition opportunities in markets such as Singapore and China. The developer's fourth-quarter net profit slumped 88 per cent.

And CMT, Singapore's largest real estate investment trust which is 29.7 per cent owned by CapitaLand, will raise $1.23 billion in a 9-for-10 rights offer. It will use most of the proceeds to pay off $956.2 million of debt due this year.

Market rumour that CapitaLand was planning a rights issue first surfaced early last month, depressing the company's shares.

CapitaLand is the second major Singapore company to raise money through a rights issue in recent months. In late December, DBS Group said that it planned to raise about $4 billion to bulk up its capital base. Both CapitaLand and DBS count Singapore investment company Temasek Holdings as their largest shareholder.

'This year is turning out to be a race in raising funds through rights issues and has depressed CapitaLand's shares for a while,' Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co, told Bloomberg.

But while CapitaLand's rights issue was expected, CMT's announcement took some by surprise. Analysts were expecting it to just look for debt refinancing. Another one of CapitaLand's Reits, CapitaCommercial Trust, recently said that it had refinanced at attractive rates.

Another element that caught most analysts by surprise was the steep discounts at which the rights issues are being done.

CapitaLand's rights offer is priced at $1.30 a share, which represents a 45 per cent discount to its closing price of $2.36 a share last Friday, the last day that the stock was traded. The offer price is also at a 54 per cent discount to CapitaLand's post-rights issue net tangible asset (NTA) of $2.80 per share.

Likewise, CMT is making its rights offer at 82 cents a unit - 43.4 per cent lower than last Friday's closing price of $1.45 and also 50.3 per cent lower that CMT's expected net asset value per unit once the rights issue is completed.

'CapitaLand and CMT could be pricing the rights issues lower to entice their shareholders to take up their allotments in the current weak market,' said one analyst.

Both the developer and its trust are expected to be in a better position to grow once the rights issues are completed.

CapitaLand said that the 'pre-emptive' rights issue will provide it with 'greater financial capacity to pursue acquisitions and investment opportunities that may arise'.

'We will also be well-positioned for any mergers and acquisitions opportunities that might arise,' said CapitaLand chief executive Liew Mun Leong. 'We have a number of proposals on the table that we are studying but we are not ready to make any announcements yet.'

He identified Singapore, China and Japan as attractive markets for acquisitions, and also said that CapitaLand is on the lookout for distressed assets.

CMT, on the other hand, will use the bulk of the proceeds to repay borrowings due this year, which total $956.2 million. The balance will be used to pay for asset enhancement initiatives as well as for general corporate and working capital purposes.

DMG & Partners Securities analyst Brandon Lee said that the rights issue puts CMT 'in the clear when it comes to its debt' - which means that CMT will not have to compete with other property trusts for financing in the tight credit environment.

Lim Beng Chee, chief executive of CMT's manager, said that the trust chose to go with a rights issue rather than look for refinancing for its loans as it was looking at the 'longer-term'. The rights issue is expected to provide the trust with greater financial flexibility for future opportunities, such as asset enhancement works at Jurong Entertainment Centre and the newly-acquired The Atrium@Orchard, he said.

Analysts also said that the trust will be better positioned to make acquisitions after the rights issue as its gearing is expected to fall from 43.2 per cent to 29.1 per cent. This will make it easier for CMT to raise money in future. CapitaLand similarly said that its net gearing will be reduced from 0.47 times now to 0.28 times after the rights issue. But the developer's NTA per share will fall from $3.57 to $2.80.

CapitaLand has agreed to subscribe for up to 60 per cent of the total size of CMT's rights issue, including its rights entitlement based on its current 29.7 per cent stake. If CapitaLand takes up 60 per cent of the rights issue, its stake in CMT will climb to 44.1 per cent. The developer said that it will not use any proceeds from its own rights issue to buy any units in CMT's rights issue, and will instead use existing cash reserves.

CapitaLand also said that Temasek Holdings, which has a direct stake of 39.7 per cent in the company, will subscribe to all rights shares that it is entitled to.

Shares of both CapitaLand and CMT resume trading today.

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Full-year net profit halves to $1.26b after Q4 earnings plunge 88%
By KALPANA RASHIWALA

PROPERTY giant CapitaLand yesterday posted a score-card that was in eclipse, as even the bluest of bluechip players are being hit by the ongoing financial maelstrom.

The group's fourth quarter net earnings fell 88.4 per cent to $77.96 million, while full-year net profit slipped 54.3 per cent to $1.26 billion. Return on equity fell from 31.9 per cent in 2007 to 12.2 per cent last year.

However, CapitaLand Group president and CEO Liew Mun Leong was far from downcast over the poorer bottom line at a results briefing yesterday afternoon. Instead, he said: 'During this recessionary period, it is satisfying to be able to achieve more than a billion dollar profit after tax.'

He also pointed out that the full-year 2008 showing was the third consecutive year that the group has achieved net profit of above $1 billion.

Shareholders will receive a 1.5 cent per share special dividend in addition to a 5.5 cent per share first-and-final dividend, resulting in a total payout of seven cents for the year ended Dec 31, 2008, down from the 15-cent payout in the preceding year.

For Q4 ended Dec 31, 2008, earnings before interest and tax (Ebit) fell 77 per cent to $235 million. Revenue for the quarter also shrank 46.9 per cent to $703.7 million. A large part of the Ebit contraction was due to revaluation losses for the group's investment properties portfolio, plus the absence of writeback of provisions. The group booked a $103.9 million net revaluation loss for Q4 2008, as against a net revaluation gain of $470.1 million for Q4 2007 'as real estate property values came under pressure amidst the weakened economic conditions and gloomy outlook', CapitaLand said.

Full-year revenue declined 27.4 per cent to $2.8 billion. Total revenue under management (this covers revenue for all properties managed by the group, including revenue from associates, joint ventures and properties managed but not owned by CapitaLand) slipped about 16 per cent to $5.9 billion from 2007's $7 billion. For the full year, Ebit shrank 42.1 per cent to $2.2 billion, on the back of lower fair value gains from investment properties, lower development profits and the absence of writebacks of previous provisions.

Overseas Ebit contribution last year eased to $1.3 billion from nearly $1.5 billion for 2007. The drop was due mainly to lower contribution from Australia due to the provision for foreseeable losses on development projects and fair value losses on investment properties (against fair value gains in 2007), but this was partly mitigated by the recognition of negative goodwill.

While most of CapitaLand's strategic business units posted lower Ebit last year, two shining stars emerged. CapitaLand China Holdings achieved record earnings of $883.4 million, more than double the $403.4 million Ebit for 2007, thanks to divestment gains from the sale of Capital Tower Beijing and the Raffles City portfolio in China.

The group's funds management business was the other star performer. Total assets under management grew by $8.2 billion last year to $25.9 billion. CapitaLand Financial's full-year Ebit rose 29.6 per cent to $90.4 million. CapitaLand Group's fund management fees rose 53 per cent to $182 million. Property management fees increased 16 per cent to $231 million. As well, CapitaLand enjoyed a stable distribution of $131 million from its real estate investment trusts (Reits) last year, resulting in total income of over $500 million last year from its Reits and funds.

The group's finance costs rose 27.9 per cent last year to $516.3 million. It trimmed gross debt from $10.4 billion as at Sept 30, 2008, to $9.8 billion as at Dec 31, 2008. Net debt-to-equity ratio stood at 0.47 times as at end-2008, unchanged from the end-2007 figure. Interest cover ratio fell from 9.4 in 2007 to 5.0 in 2008, and interest service ratio declined from 6.2 to 3.9 over the same period.

The group's attributable share of debt for its 17 private equity funds was $580 million as at Dec 31, 2008.

CapitaLand Retail plans to open ION Orchard mall in mid-2009. In China, it has decided not to proceed with developing 12 malls signed under respective MOUs. It has also deferred the launch of its proposed Malaysia retail Reit.

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It has moved fast as it realises that markets now like deleveraged outfits
By SIOW LI SEN
Businesstimes.com

Slightly less than 12 months ago, CapitaLand boss Liew Mun Leong bragged about how the company still had access to the capital markets after selling $1.3 billion convertible bonds despite the credit crunch.


In a BT interview in March 2008, he said that the current credit crunch was making borrowing very difficult for real estate companies whose balance sheets were not too strong. 'If banks are now restricting their exposure to you in direct lending, and the capital market is now very cautious, then funding becomes a problem,' he said. 'For us, we are very well capitalised. Banks still trust us to do the normal borrowing.'

Yesterday Mr Liew seemed to be turning his back on banks and tapping shareholders for funds. CapitaLand announced a $3 billion rights issuance and 30-per cent owned CapitaMall Trust launched its $1.2 billion rights.

While it would be impossible to get that amount of funding from international banks, a blue chip like CapitaLand should be able to borrow from the local banks which are flush with liquidity. In addition, the company has $4.2 billion cash, so why raise equity at a hefty 45 per cent discount, especially when there are no specific acquisitions in mind, were some of the questions asked.

In normal times, you don't raise equity which is expensive and scarce, unless needed.

But these being far from normal times, bankers say CapitaLand is reading the market correctly - which is that investors want deleveraged companies given that no one knows just how long the downturn will last.

Investors now want companies to have fortress balance sheets, to paraphrase JP Morgan's chief executive Jamie Dimon, and CapitaLand wants to be so strong that no one questions it, regardless of how bad the recession gets, said one banker.

'The view is that in Europe and US where things went bad first, banks which raise funds from shareholders earlier did better,' said another.

'In Asia, the downturn is hitting only now, there is a limited pool of capital and it makes sense to go first,' he said.

After the rights issue, CapitaLand's net debt-to- equity ratio will improve to 0.28 from the current 0.47. CapitaMall Trust said its aggregate leverage will reduce to 29.1 per cent from 43.2 per cent assuming it repays borrowings with the rights proceeds.

CapitaLand's move is seen as tactical, strengthening its balance sheet, preparing for the downturn and ready for opportunities which will come.

Mr Liew may not feel much like thumping his chest but one admirer said: 'By being the first, he's listening to the market.'

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This is a chart for Straits Asia first drawn on 2 January 2009. One month after the up and down of market, the movement of price is pretty much within the expectation.




As the Edge rightfully pointed out that the stock is currently "'just isn't enough volume or interest in the counter to trigger a breakout", their view point is quite neutral as published in Hot Stocks column.

My inclination is to believe that the price shall retreat to support at $0.835 before meaningful bounce up.

Comment welcome!

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I bought at 0.485. I believe the stock is ripe for a breakout. Even if the stock is trap within the triangle again, the support is likely to push it back to resistant at 60cents.

Albeit the profit margin is smaller then previous rebound, but still a clean signal.

The toy gal is belong to Hahalol, don't get distracted!

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Let the bull charge!

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Mid-term trendline support at 1,766
By KEN TAI,
senior technical strategist,
KELIVE RESEARCH
(part of the Kim Eng Group)

DESPITE the recent pullbacks, the local bourse remains within wave-4 of the primary downtrend. In a complex wave-4 structure like the current one, the Straits Times Index (STI) may stage a correction before pushing up to complete the formation.

Unless the STI falls below the 1,766 support trendline, we consider the bear rally to be intact. On this premise too, we see scope for the STI to recover this week as it is still trading above the mid- term support trendline established over the past two months.

We would advise investors to cut loss only if this mid-term support trendline is breached, a scenario that would negate the recovery view and one that could potentially send the market towards the next support at 1,711. Although the upcoming Jan 22 Budget remains a possible re-rating catalyst in the very short term, it would be prudent to hedge some risks by going long on Reits.

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You may dislike negative view during rally time. However, whoever long in 2008 during rally (except end Oct/ beginning Nov. rebound) will know what exactly is 'Bear Rally' (of course, after being trapped only!).

By R SIVANITHY
SENIOR CORRESPONDENT
Source: Businesstimes.com

FOR most of 2008, the advice given in this column was to selectively buy the dips but to always sell into strength because all bounces would eventually turn out to be bear traps.

As 2009 kicks off, we see no reason to change this - as the economic data worsens and it becomes clear that the recession could be worse than expected and last probably for most of this year. Investors will find it increasingly difficult to justify continued buying, especially as earnings head south and profit warnings become the norm.

One reason for this assertion is that 2008 demonstrated very graphically the folly in believing that the market discounts information efficiently. It does not. Every time there was a bounce there was no shortage of calls that the 'worst is over', only for this to be later proven wrong.

The main problem, of course, is asymmetrical bias introduced by analysts, most of whom always want to call a 'buy' because of momentum, fear of losing out, and a need to keep clients invested in order to generate business.

There's also bias introduced by the US government with its bailout packages that are funded by the printing presses. Goldman Sachs estimates that the Fed's balance sheet will be US$4 trillion-US$5 trillion when this is over, double the present figure.

So it is that a year after the market started correcting, it's very likely that urgings to buy will soon be issued based on the argument that after so long, the worst must surely be discounted because market inefficiency cannot last this long.

This is highly unlikely, with the present bounce being yet another bear market rally since it has come despite the Singapore government downgrading 2009's growth forecast to possibly as low as -2 per cent. There's also news that local property prices are in free fall (possibly as much as -30 to -35 per cent in the high end) and as US manufacturing chalked up its worst performance in 30 years.

On the latter point, it's also worth noting that the US Institute of Supply Management's estimate of national manufacturing conditions at 32.4 was way below the consensus estimate of 35.4, suggesting that the pace of contraction is accelerating and that analysts are still under- appreciating the risks to the US economy.

Unlike some of its competitors, research outfit Ideaglobal, however, has been consistently spot-on in its assessment of economic conditions, and over the weekend it pointed to a deterioration in most of the underlying components of the US manufacturing numbers as probably marking the next leg down for months to come.

'In our estimation, the data confirms that weakness in the domestic side of the ledger is complementing deteriorating global conditions. The weakness in new orders, alongside weakness in production, is another indication of the soft demand for new goods on the back of a deteriorating labour market ...' said Ideaglobal.

In its US Economics Analyst report dated Dec 31, Goldman Sachs said it expects the massive fiscal and monetary stimulus to end the technical recession some time in the second half of 2009.

'This should set the stage for a very sluggish recovery that keeps the unemployment rate on an upward trajectory and the federal funds rate near zero per cent through late 2010. But the uncertainty is large. In the housing and credit markets, our main questions are how far home prices will fall, what this means for credit losses and how far banks will reduce their leverage. Downside risks predominate in all of these areas.'

Most interestingly, Goldman said even if policymakers manage to stabilise economic activity in 2009-10, the risk of unwanted deflation is likely to be substantial thereafter.

Of course, the present play on the major indices could continue for a while longer. Much of the Straits Times Index's (STI) rise over the past week, however, has come from gains in a few large caps, in particular UOB whose gains illustrate perfectly the current disconnect between market sentiment and economic/earnings reality.

This disconnect, however, shouldn't last too long, so those who bought a fortnight ago when this column highlighted a possible window-dressing play on the STI should soon sell into strength - or risk being caught in yet another bear trap.

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Most of the over sold signal is present. Target set at $1.10.

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The uptrend is well supported and still young!

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The following paragraph is the best to sum up the great achievement of American in 2008. Indeed, we realized that American has channeled most if not all of their resources and effort in creative (but proven failure) financial engineering product. It is so complex that they themselves don’t even understand it.

We've cleaned the sewage system in the finance industry; we've purged the subprime mortgage bankers, brokers, and borrowers; we've blown open the biggest Ponzi scheme ever; we've uncloaked the automobile industry; we've admitted there never was nor is there a good reason for the war in Iraq; we've woken up to the war in Afghanistan; we've owned up to torture and unlawful rendition; we've discovered politicians' affairs, payoffs, and bribes; we've quashed gay marriage rights; we've unprotected protected parks and land areas; we've changed federal documents that show climate change is true; we've allowed genocide to rise and continue; we've been lied to (again) by a best-selling memoirist; we've experienced natural disasters and manmade ones; horses were slaughtered; bees went extinct; oceans suffocated; glaciers receded; and entire countries went bankrupt.

The full article link:
http://www.marketwatch.com/news/story/these-best-times----no/story.aspx?guid=%7BF38F005A%2D2759%2D48B3%2DA135%2DAB6F59E3AC19%7D&dist=TNMostRead

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SAIZEN Reit has proposed a renounceable non-underwritten rights issue with free detachable and transferrable warrants. All these hinge on the issue price of 9 cents each, which represents a discount of about 30% of last-traded price of 13 cents.

Saizen has top the reit in Singapore as the worst performing reit in share price. It dropped by 85% (from $0.89 to $0.13) and distributing historical dividend of more then 40% now.

It dropped further 7.37% this morning to $0.12, after the announcement made.
Any investor with sound mind will not expect a 40% dividend payout to be sustainable in long term. The high level of gearing is worrisome under credit crunch environment. A better development now is for Saizen to find a substantial shareholder to sponsor the reit instead of currently fragmented shareholding.

It may be good for it to crash below 9 cents and to force all committed shareholders to subscribe all rights shares to increase their stake.

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