Monday, October 25, 2010
Under the terms of the Scheme, ASX shareholders as at a record date to be determined will be paid, in relation to each ASX Share, a combination of:
• A$22.00 (approximately S$28.04) in cash (the “Cash Consideration”); and
• 3.473 new SGX Shares (the “Share Consideration”).
The aggregate value of the Share Consideration is S$5.8 billion (approximately A$4.6 billion), based on the last traded price of SGX Shares as at the Latest Practicable Date, and S$5.8 billion (approximately A$4.6 billion), based on the volume-weighted average price (“VWAP”) of SGX Shares transacted on the Latest Practicable Date.
Accordingly, the value of the aggregate consideration payable for the Proposed Combination (the “Scheme Consideration”), based on the aggregate Cash Consideration and the aggregate value of the Share Consideration (determined by reference to the last traded price of SGX Shares as at the Latest Practicable Date), is approximately A$8.4 billion (approximately S$10.7 billion), or approximately A$48.00 approximately S$61.17) for each ASX Share.
The value of the Scheme Consideration based on the aggregate Cash Consideration and the aggregate value of the Share Consideration (determined by reference to the VWAP of SGX Shares transacted on the Latest Practicable Date), is approximately A$8.4 billion (approximately S$10.8 billion).
The move will see SGX coughing up about S$4.9 billion in cash, which will inevitably see the combined entity take on between S$3-4 billion in debt. Depending on the cost of debt, we estimate that interest could cost SGX as much as $150 million a year, which will eat into earnings (and dividends!).
We have maintained that SGX looks terribly expensive at current levels, and it is fantastic that management can utilise the expensive stock to purchase a choice asset (ASX in this case) to benefit shareholders. However, the deal would have made much more sense if an all-stock offer was utilised. By offering cash and taking on debt, it appears that the EPS-accretion (as SGX touts the deal to be, EPS of $0.3008 to $0.3612) will be difficult to achieve after factoring in interest payments.
Friday, October 22, 2010
On a price basis, the US$180 million per rig price tag appears substantially lower (a 30.5% discount) compared to the US$259 million average paid by other customers from 2005 to 2010. Relative to the price of WTI Crude oil (taken as a simple ratio of rig price in USD millions to oil price in USD), the low ratio for the AOD deal suggests that Mermaid got a good deal on this one. We are slightly puzzled by the disparity in the contract value; the rig appears to be of the same make (under Keppel FELS’ Class B design) as others detailed in prior contracts. With oil prices above US$80, we would also assume that Keppel Corp would have more pricing power.
Thursday, October 21, 2010
Tuesday, October 19, 2010
The current situation: while developed economies (most notably the US) are required to keep interest rates low to stimulate their domestic economies, the emerging markets (and Asia in particular) are booming once again. Output is at record-high levels, while consumers on the ground hardly feel the recessionary chill of the Western world.
A quick look around us in Singapore emphasises this: Bustling car showrooms, packed shopping malls, an extremely tight labour market (a JobsDB email I receive daily highlighting jobs in the financial sector is noticeably longer, compared to a year ago). The IPO market is booming once again, with the latest IPO of GIobal Logistic Properties 12 times subscribed, and Mapletree Industrial Trust set to join in the fray. These are all indications that sentiment is turning positive again, with the STI recently climbing to new 2-year highs.
With Asia and Emerging Markets the obvious forerunners in the post-Lehman world, investors in the US are more than happy to borrow at near-zero rates to participate in the tremendous growth opportunities in the emerging market regions. The expected appreciation of Asian currencies is an added bonus, and also the result of strong inflows of capital into the region. Singapore recently tightened monetary policy further, which will add to upward pressure on the SGD against the USD.
As with all asset bubbles, the flight of capital will be swift, and many investors will be left nursing their wounds in the aftermath. Fortunately, stock market valuations still appear fair at the moment, despite the onslaught of new capital inflows from the West into Asia. Several segments of the Asian stock market appear slightly expensive (Indonesian and Indian equities, consumer discretionary stocks in China and India, as well as hospitality/leisure plays in Singapore), but the overall market is generally fairly valued at present. We will maintain our exposure to the stock market within the portfolio, but will be keenly watching out for bubble-like symptoms which we expect to develop at some stage over the next few years.
CNBC.com Article: Foreclosed Homeowners Break Into Former Home
The investors sold the home, but before the new owner could move in, the Earls had the locks changed and moved back in themselves. "Why should we lay down?" she says her husband asked her. "We need to fight back."
Foreclosure woes have hit US bank stocks (and notably our holding in WFC) as investors worry that banks will have problems evicting homeowners due to a lack of proper paperwork.
It appears ridiculous that some homeowners believe they should be allowed to stay in their homes after failing to service their mortgages, on the basis of legal technicalities. If the courts ultimately rule that banks cannot foreclose the majority of properties due to improper paperwork, we may be looking at mass mayhem. Why should anyone pay their mortgages then?
More likely, some punitive action will be taken on improper bank practices. People who have borrowed money to buy a home MUST service their mortgage; there is no free lunch here
Wednesday, October 13, 2010
The company's massive 18,200 ha landbank in Bintan is carried on the books at about $541 million, which works out to about $0.28 psf. While land sales in Bintan have been rather slow, the selling prices have been in the region of between $6 to $29 psf, representing 22-100 fold increases in realisable value. Obviously, there are costs involved in the development of the land into habitable living space, and Bintan is hardly the most popular or sought-after resort destination. We admit that there are huge risks in our investment - much of the land may never be sold. However, we think that with the stock trading at half of an understated book value, we are getting the landbank cheap and are prepared to wait for potential catalysts for a stock re-rating.