Go-ahead for Sunway merger

High on its post-merger to-do list will be expanding big into China and Singapore as it expects these two countries to contribute 30 per cent to its earnings by 2015.
PETALING JAYA: The proposed merger of Sunway City and Sunway Holdings got the green light from minority shareholders yesterday, and the new bigger Sunway Bhd (Sunway) is expected to be listed on Bursa Malaysia in the third quarter.

High on its post-merger to-do list will be expanding big into China and Singapore as it expects these two countries to contribute 30 per cent to its earnings by 2015.

"The larger group will allow us to realign our investor base and renew fo-reign investors' interest, and an improved and stronger perception of the brand internationally," said its founder and executive chairman Tan Sri Dr Jeffrey Cheah.

Speaking after both companies' extraordinary general meetings, he said Sunway expects to see more suitors from India and Viet-nam who have always been interested in its success in developing Bandar Sunway into "what we believed as the most integrated township in the region, if not the world."

"But our focus will be in the two premium markets of Singapore and China," he said.

With the merger, Sunway will have assets worth RM2 billion, landbank size of 880ha with total gross development value of about RM25 billion, construction order book of RM2.4 billion, and a potential market capi-talisation of over RM3.5 billion.

Currently, 65 per cent of its landbank is in Malaysia, followed by China (22 per cent) and Singapore (6 per cent).

Cheah said following the EGMs, Sunway Holdings and Sunway City will seek court approvals for a capital reduction and repayment exercise, after which the Sunway prospectus will be issued.

He said the issue price of RM2.80 represents a price-earnings ratio (PER) of 11.72 times and 14.02 times respectively and "based on our business strategies and future plans and prospects, there may be potential upside to the PER."

"Our peers in the property and construction sector are currently trading at an ave-rage PER of 19.11 times and if we apply the same PER Sunway's share will trade at about RM3.82 to RM4.58," said Cheah.

He added that Sunway expects to benefit from merger synergies of about 1 to 2 per cent of the overall re-venue. The group pro forma revenue last year was RM3.13 billion.

Cheah also said that in the pipeline is a teaching hospital next to the Sunway Medical Centre but it is still in the planning stage.

"We are developing a business model for this and there is no rush because we want to do it properly and be internationally recognised."

Asked if Sunway plans to launch a project under the Economic Transformation Programme, he said the company will announce a big project sometime this year.

Oil drops, biggest weekly slide since May

NEW YORK: Oil prices fell on Friday, June 17 with U.S. crude slumping to a four-month low under $93 as a dimmer economic outlook and the European debt crisis drove crude to its biggest weekly loss since early May.
U.S. futures fell more than $3 a barrel as momentum sellers piled into the slide. U.S. crude's discount to Brent widened by more than $1 to $19.90 a barrel.
Oil broke away from familiar correlations, diving in tandem with the dollar and despite gains for many commodities. Some oil analysts appeared more pessimistic about Greece than those in the foreign exchange market, where the dollar fell by nearly 1 percent on hopes for a debt deal.
U.S. crude futures for July settled at $93.01 a barrel, down $1.94, or 2.04 percent, its lowest since the February 18. It traded from $91.84 to $95.40 Friday. U.S. crude fell below the 200-day moving average for the first time since September, drawing additional selling.
Brent crude for August settled at $113.21 a barrel, dropping 81 cents, or 0.71 percent, the lowest settlement since May 24, when front-month Brent closed at $112.53. Trading volume was about 20 percent below the 30-day average.
For the week, front-month Brent fell 4.7 percent, the biggest weekly loss since the week to May 6. Brent is up 19 percent this year, while U.S. futures are up less than 2 percent as the European market rose to a record premium.
"The predominant problem here is that traders own too much oil. They bought too much in anticipation of market tightness and now they have to adjust their positions," said Tim Evans of Citi Futures Perspective.
The current July contract for U.S. crude is set to expire on Tuesday, June 21.
Prices slumped early in the European day, and made new lows in mid-afternoon as a downturn in stocks following Research In Motion's (RIMM.O) disappointing results weighed.
"The stock market and euro have come off a bit and that has added pressure on oil and some sell stops have been triggered. People just continue to be nervous about the economy," said Phillip Streible, senior market strategist at Lind-Waldock.
GREEK DRAMA
The euro gained on the day as the embattled Greek prime minister sacrificed his finance minister to force through an unpopular austerity plan, while Germany and France promised to go on funding Athens.
The euro pared those gains slightly in the afternoon when Moody's Investors Service said it may cut Italy's sovereign credit rating from AA2, citing challenges ahead for economic growth due to structural weaknesses and a likely rise in interest rates.
Oil's slump broke its inverse correlation with the dollar, which has eased to its weakest since mid-April at just 22 percent, based on the average of the past 25 days.
"U.S. crude has broken below the recent range of $95-$105 and looks like it will shortly tack another $5 to the downside," said Gene McGillian, analyst at Tradition Energy.
"The fear of the fallout from the Greek debt crisis continues to impact the oil markets. Indications of a possible resolution of the crisis have helped pare some of oil's losses but investors worry about the stalling pace of U.S. economic recovery."
The International Monetary Fund cut its estimate for U.S. gross domestic product. This also weighed on U.S. crude prices. The IMF now projects an anemic 2.5 percent growth this year and 2.7 percent in 2012.
Brent was also under pressure from news that this week's relative strength for the European benchmark was drawing physical crude from far afield, with news that traders were offering Russian Pacific Rim ESPO in the Mediterranean.
Data from the Commodity Futures Trading Commission that showed large hedge funds and other speculators raised their net long U.S. crude futures and options positions slightly in the week to June 14. - Reuters

Malaysia targets to have 4 co-op banks

The government is targeting to have four cooperative banks which are on par with Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat) by 2020.

Deputy Minister of Domestic Trade, Cooperatives and Consumerism, Datuk Rohani Abdul Karim, said one of them, Bank Persatuan Malaysia Bhd (BPMB), was now in operation and had been recommended to follow the Bank Rakyat model.

"The process to establish a second cooperative bank is being worked out with Angkatan Koperasi Kebangsaan Malaysia Berhad (Angkasa) and has been approved by the Malaysian Cooperatives Commission.

"It is just that Bank Negara Malaysia has yet to give its approval to operate as a cooperative bank. So, for the time being, it will operate as a Syariah financing cooperative, he told reporters after opening the BPMB Cooperative annual general meeting in Kepala Batas today.

He said with BPMB being accorded a cooperative bank status last year, it would provide a positive competition for Bank Rakyat. -- Bernama

EPF investment income jumps 19.8pc in Q1

KUALA LUMPUR: The Employees Provident Fund (EPF) registered a 19.76 per cent year-on-year growth in investment income to RM6.53 billion in the first quarter of 2011.
This was primarily due to encouraging equity performance on the back of stronger corporate earnings and resilient economic fundamentals.

In the first quarter, investment in equities contributed RM3.23 billion or 49.44 per cent of EPF's total investment income, representing a 20.24 per cent increase compared with the RM2.69 billion recorded in the previous corresponding quarter.

In a statement yesterday, EPF chief executive officer Tan Sri Azlan Zainol said: "Equity prices were further boosted by strong performance across all key sectors, primarily benefiting from higher global commodity prices, while construction-related stocks strengthened with the announcement of several major projects under the government's Economic Transformation Programme.

"The favourable trade volume had facilitated EPF to capitalise on profit-taking."

The loans and bonds segment was the second largest contributor to EPF's investment income, with a return of RM1.77 billion in the first quarter. This represented an increase of 32.66 per cent from RM1.34 billion in the same period 2010.

Malaysian government securities, meanwhile, generated an income of RM1.35 billion, up RM71.54 million.

Returns from money market instruments recorded double-digit growth, increasing 14.61 per cent to RM153.09 million from RM133.58 million in the first quarter of 2010.

Investment income from properties grew by 29.76 per cent to RM28.12 million from RM21.67 million during the same quarter last year.

As at March 31 2011, EPF's total investment fund stood at RM450.26 billion.

Of the total, equities were allocated 35.55 per cent, loans and bonds 32.32 per cent, Malaysian government securities 27.79 per cent, money market instruments 3.93 per cent and properties 0.41 per cent. - Bernama

Mega deals with Abu Dhabi

Putrajaya: Abu Dhabi's investment arm, Mubadala, will partner 1Malaysia Development Bhd (1MDB) to build a US$4.2 billion (RM12.7 billion) aluminium smelter in Sarawak.
The two will also rope in other strategic partners to develop downstream industries valued at about US$1.8 billion (RM5.4 billion).

These industries include a rolling mill, a wire cabling plant, a wheel casting facility and up to 10 extrusion plants.

Prime Minister Datuk Seri Najib Razak said the project will be fast-tracked and will contribute "significantly" to the national economy.

It is expected to create more than 40,000 skilled jobs once the cluster is mature, generate US$3 billion (RM9.05 billion) of incremental gross domestic product and contribute US$2.6 billion (RM7.8 billion) to trade balance, he said.

1MDB is a strategic development company that is fully owned by the government.

Najib announced the government's approval for the project here yesterday after a meeting with Abu Dhabi's Crown Prince Sheikh Mohammed Zayed Al Nahyan, who was in Malaysia for a one-day visit.

The oil-rich state affirmed plans to keep a stake in Malaysia's fifth largest banking group, RHB Capital Bhd (RHBCap).

The RHB group is in discussions with 1MDB and Mubadala to be the first major financial institution to set up presence in the Kuala Lumpur International Financial District (KLFID), Najib said.

The group is planning for a modern, energy-efficient building.

The US$8 billion (RM24 billion) KLIFD, to be set up by a Mubadala-1MDB joint venture, is intended to tightly cluster banking and financial entities.

Construction is expected to take off in June, according to reports earlier this year.

Najib also said that oil-rich Abu Dhabi was collaborating with state oil firm Petroliam Nasional Bhd to develop a block in Sarawak.

He said investments were coming in from Abu Dhabi as the latter wanted to be a long-term investor in Malaysia.

"All this is a strong signal of Abu Dhabi's confidence in Malaysia as a growth enabler. It opens the way for more investments from the Middle East pouring into Malaysia," he remarked.

By Adeline Paul Raj

IPO WATCH ---Eversendai Corp Bhd

KUALA LUMPUR: Eversendai Corp Bhd, enroute to a listing on the Main Market of Bursa Malaysia on July 1, is upgrading itself to become a main contractor for high-rise iconic buildings and infrastructure projects.
"We are targeting projects which have high components of steel so we can handle the whole works. This will give us better margins," founder and group managing di-rector Datuk AK Nathan said yesterday at the company's prospectus launch.

Eversendai, a structural steel contractor and fabricator, is bidding for RM1.5 billion worth of infrastructure, high-rise building and power plant projects in Southeast Asia (SEA), India and the Middle East after being invited by the public and private sectors.

Nathan said this year alone, Eversendai expects to win between RM1 billion and RM1.5 billion worth of new jobs. It has so far won close to RM350 million worth of new jobs, increasing its order book to RM1.4 billion.

Eversendai is also looking at gro-wing its power plant construction business and is eyeing several projects in Malaysia, Indonesia, Vietnam and India.

Nathan said the company is aiming for steel structural contracts for power plant construction.

In Malaysia, it is looking at the construction of a 1,000 megawatt coal-fired power plant, which is an extension of the existing Tanjung Bin power plant owned by Malakoff Bhd. The government had approved the project on Tuesday.

Eversendai's expertise in power plant was gained from the construction of the Tanjung Bin, Manjung and Jimah power plants se-veral years ago. In India, it has four on-going power plant projects.

Nathan, who pioneered Ever-sendai 27 years ago, is selling 30 per cent of the company to raise RM273.2 million for expansion into the Middle East, India and SEA, and setting up a fabrication plant in Tamil Nadu, India.

Eversendai plans to sell 232.2 million shares of 50 sen each in the company, of which 202 million will be set aside for institutions at an indicative price range of between RM1.66 and RM1.80.

Individual investors would be charged RM1.70 per share or 95 per cent of the institutional price.

Maybank Investment Bank Bhd is the sole adviser, underwriter and bookrunner for the IPO.

CIMB Research expects BNM to hike SRR to 4% in July

KUALA LUMPUR: CIMB Economics Research expects Bank Negara Malaysia (BNM) to raise the statutory reserve requirement (SRR) by another 100 basis points to 4% in July to absorb excess liquidity in the banking system as foreign exchange reserves increased to US$132.7 billion (RM401.4 billion) as at end-May.
It said on Wednesday, June 8 the managed float regime gives the ringgit the flexibility to adjust to two-way capital flows, lifting the ringgit by 1.9% year-to-date (YTD), to RM3.01/US$1 on June 7. In morning trade on Wednesday, the ringgit rose to as high as 2.9994 to the greenback.
“We think that BNM’s primary focus now is on managing the capital inflows as well as warding off the risk of a build-up in domestic liquidity,” it said.
Malaysia’s  foreign exchange reserves increased to US$132.7 billion (RM401.4 billion) as at end-May, up US$2.7 billion from end-April (US$130.0 billion or RM393.2 billion) and US$26.2 billion YTD.
CIMB Research said May’s international reserves marked a new high for the second straight month, with a cumulative US$18.9 billion increase (72.1% of total YTD hike) between end-March and end-May. The reserves position is sufficient to finance 9.3 months of retained imports and is 4.4 times the short-term external debt.
It also noted that to avoid excessive expansionary monetary conditions, the central bank had used a wide range of monetary instruments including direct borrowing, issuance of BNM securities and higher SRR to sterilise capital inflows.
“We continue to expect the SRR ratio to be raised by another 100bp to 4.0% in July to absorb excess liquidity in the banking system,” it said.
CIMB Research said besides the sustained trade surplus, capital inflows also helped to push foreign reserves to new highs in recent months.
“Capital and financial transactions are still expected to book a surplus in line with strong inflows of capital including direct investments. In 1Q11, net foreign direct investment was sustained at RM11.1 billlion while portfolio investment surged to RM8.4 billion for the seventh consecutive quarter.
“As at end-April, foreign investors have pumped RM173.1 billion into the debt market, with RM83.1 billion or 48.0% piled into Malaysian Government Securities (MGS), pushing foreigners' share of Malaysia’s outstanding MGS to 31.6% from 28.1% as at end-December 2010.
“In addition, foreign investors were net buyers of equities for the second straight month in May (US$29.8 million vs. US$201.3 million in April),” it said.
The research house also said Malaysia was in a far stronger position to manage capital flows including coping with a sudden capital reversal without affecting domestic liquidity.
It pointed out the strong reserves position will help accommodate the large capital outflows without causing a liquidity crunch. The amount of excess liquidity (RM292.1 billion as at end-May) absorbed by the central bank can be recycled back to the banking system should liquidity conditions tighten.
“The depth and width of the domestic financial markets, including the debt market, will lead to better absorption of capital flows. Sound financial policies and a strong banking system backed by a huge capital base and low exposure to foreign debt will provide flexibility for the financial system to intermediate volatile capital flows,” it pointed out.

Written by Joseph Chin of theedgemalaysia.com