Monday, June 25th, 2018


Advent to acquire GE’s distributed power business for US$3.25b

FRANKFURT, June 25 — US buyout group Advent has agreed to buy General Electric’s (GE) distributed power operations for US$3.25 billion, the companies said today. GE had put the unit, which includes the reciprocating gas engine brands GE…

Argentina paralysed by anti-IMF deal strike

BUENOS AIRES, June 25 — Argentina’s unions paralysed the country with a 24-hour strike today in protest at the government’s latest deal with the International Monetary Fund. With no trains, subways, buses or flights in service, organisers…

Tehran’s Grand Bazaar strikes in protest at rial collapse

TEHRAN, June 25 — Traders in the Iranian capital’s Grand Bazaar held a rare protest strike today against the collapse of the rial on the foreign exchange market as demonstrators also took to the streets. At a crossroads in central Tehran, police…

East Coast Rail Line – a necessary evil?

PETALING JAYA: Industry observers believe the government feels it is necessary to keep the East Coast Rail Line (ECRL) not only to manage the costs associated with it but also to maintain relations with the Asian powerhouse, China, despite the controversies surrounding the project.

Prime Minister Tun Mahathir Mohamad said today that if the ECRL has to be built and the contract cannot be broken, the government will have to reduce the cost, noting that it should not cost RM55 billion and that the terms of the contract are not favourable to Malaysia.

Last week Finance Minister Lim Guan Eng said the ECRL would proceed as RM20 billion of the project cost had already been paid.

“Given the strain on the current fiscal position, the government has to choose either one of the two projects. Perhaps they could shorten the ECRL and delay the HSR for five years. The important thing now is to focus on paring down the debt first,” Sunway University Business School Professor of Economics Dr Yeah Kim Leng told SunBiz, referring to the postponed Kuala Lumpur-Singapore High Speed Rail project.

He also said that being a government-to-government project which was already signed off, keeping the ECRL is really about maintaining commitment to the contract, noting that the government is in negotiations to reduce the overall cost of the project.

KAF-Seagroatt & Campbell Securities Sdn Bhd analyst Mak Hoy Ken said he is not surprised with the latest development on the ECRL and views it as slightly positive for the construction sector.

“We previously wrote that the Council of Eminent Persons would likely recommend to the government that Phase 1 be continued, albeit at a reduced scale. Furthermore, the government may need to pay RM22 billion in compensation and penalty charges if it calls off the project,” he said in his report today.

The compensation package includes payment to suppliers, dismantling costs, loan principal, interest and committed orders for supplies and services.

“In addition, if the ECRL contract is terminated, it will trigger a default that requires the government to repay the project's loans within a month. For the record, EXIM Bank of China is funding 85% of the ECRL's needs,” Mak said.

In comparison, the compensation for cancelling the HSR is RM500 million.
Mak noted that the turnkey contractor, China Communications Construction Co, has completed work for an estimated RM9 billion and is claiming RM10 billion more that is yet to be certified.

Work on Phase 1 has reached 20% or an overall progress about 14%, based on the entire project's last indicative value of RM66 billion.

Yeah, however, opined that more can be done to ensure that the ECRL is effectively utilised to justify its cost.

He said while the ECRL will benefit the East Coast in terms of connectivity, especially to areas currently inaccessible, the government could look at economic opportunities to attract more Chinese investments to the industrial parks along the ECRL route, and to develop Terengganu and Pahang ports.

“This will increase the volume on the ECRL and make the project more viable. The government should take a closer look at the economic spinoffs,” Yeah said of the rail link, which is part of China's Belt and Road Initiative.

MBSB assets conversion on track

KUALA LUMPUR: Malaysia Building Society Bhd (MBSB) is on track to dispose of or convert the remaining 10% of its conventional assets worth RM1 billion to Islamic assets over the next three years to April 2021, in line with its position as a full-fledged Islamic bank now.

“Right now, the group is only doing Islamic, which is at the MBSB Bank Bhd side. Whatever remnants on conventional at the holding company level, we need to sell down or convert. We're given three years (by the central bank) to do it,” president and CEO Datuk Seri Ahmad Zaini Othman told a press conference after MBSB's AGM today.

He explained that once it has disposed of all non-Islamic assets, and technically becomes an Islamic entity, it can then move the bank to the holding company level, and list MBSB Bank.

He pointed out that all MBSB's deposits are already Islamic, and that there are minimal conventional deposits.

This year, Zaini said, MBSB plans to sell its hardcore non-performing loans (NPL) of RM600 million, which would conclude its entire impairment programme that started in the fourth quarter of 2014.

According to him, these NPLs are facilities and loans of retail assets of more than 12 months, specifically personal finance and mortgage (shortfall accounts), which are legacy assets mainly from MBSB. The sale of the NPLs will reduce its gross NPL ratio to below the current 4%, depending on the sale amount, placing its closer to the industry benchmark.

Citing no impact on profit, Zaini said the NPLs will be sold to companies that buy distressed assets, adding that the demand is there because of the pricing.
“These are things that we just need to get rid of. It (losses) has been provided for. Anything we sell will be booked as profit.”

On another note, Zaini said MBSB will spend RM250 million over the next 18 months on its IT infrastructure, for the upgrading of its systems and digitalisation programme for MBSB Bank, which will allow it to roll out new products and services.

MBSB is expected to have its internet banking system by year-end.

“In March next year, we should have a full-blown Islamic platform for MBSB Bank,” said Zaini.

MBSB Bank will be working on 22 key initiatives until April 2019. These initiatives are in three main phases that focus on growing current business, empowering the business as well as venturing into new markets.

Zaini said the new markets link back to the new products that it wants to go into, including transactional banking, fee-based income opportunities, trade finance and a series of other cross-selling products and services under the banking platform.

MBSB Bank projects loan growth of 3-5% this year, driven by affordable home financing and business financing.

Foreign selling on Bursa tops RM1b for fifth time this year

PETALING JAYA: The net value of Malaysian equities offloaded by foreign investors last week stood above the RM1 billion level for the fifth time this year at RM1.89 billion.

“Stocks listed on Bursa have been subjected to foreign selling for the past eight uninterrupted weeks,” MIDF Research said in its weekly funds flow report today.
As of June 22, offshore investors have been withdrawing Malaysian equities for 33 consecutive days since May 2, surpassing the 29-day selling streak recorded in early January to mid-February 2014.

Global funds sold the most on Tuesday at RM555 million net, coinciding with the FBM KLCI's largest decline in 13 trading days at 1.61% as the US-China trade friction intensified.

Selling activity thereafter tapered below the RM400 million level on Wednesday and Thursday at RM384 million and RM264.9 million net respectively.

In spite of the gradual decline in attrition, Bursa Malaysia's key index moved in an opposite direction to slide further to the lowest close since February 2017 at 1,692 points on Thursday and marked its 9th straight day of losses as Telekom Malaysia led decliners, dropping as much as 12% amid worries over a slash in broadband prices.

The FBM KLCI inched higher by 0.11% on Friday amid window-dressing activities before the second quarter of the year ends. However, foreign selling was seen at RM444 million on the same day, as trade friction between Beijing and Washington continued to be the biggest worry among investors. These external developments are expected to continue to affect the pace of flows into and out of Malaysia.

Foreign participation remained active despite the 23% decline in foreign average daily trade value (ADTV) as the value stood above RM1 billion for the 12th week running.

Although the retail ADTV was below RM1 billion for the second week at RM865 million, retailers have been entering the market for the past six consecutive weeks.

US stocks stumble on trade war fears

NEW YORK, June 25 — Wall Street stocks tumbled early today, joining a global selloff amid expectation President Donald Trump plans new measures to limit Chinese investments in US companies. About 25 minutes into trading, the Dow Jones Industrial…

US Supreme Court backs American Express in merchant fee dispute

WASHINGTON, June 25 — The US Supreme Court on today sided with American Express Co, ruling that the company’s policy of forbidding merchants from encouraging customers to use rival credit cards with lower fees does not violate federal antitrust…

Harley-Davidson moves some work from US due to tariffs

NEW YORK, June 25 — Harley-Davidson plans to shift some manufacturing of the iconic motorcycles overseas to avoid retaliatory European tariffs imposed last week, the company said today. The European Union hit the American motorcycles with duties…

Thailand eyes private investors’ help for US$40b rail upgrade

BANGKOK, June 25 — Thailand is seeking private investors’ help for a US$40 billion upgrade of its rail network aimed at reducing logistics costs and boosting trade, Minister of Transport Arkhom Termpittayapaisith told Reuters today. Lowering…