Sunday, November 11th, 2018


Petronas: We’ll ensure payouts do not affect cash flow, prospects

PETALING JAYA: Petroliam Nasional Bhd (Petronas) has reassured the investing public of its commitment towards ensuring that any dividends paid or to be paid in future will not affect its cash flow or its prospects, after Moody’s rating agency cited a negative outlook on the oil company due to more hefty dividend payouts.

“Petronas would like to clearly emphasise that all its dividend payments, including the one-off special dividend and any future dividends, will take into account its ability to service debts, fund its ongoing operations and invest in future growth,” it said in a statement issued today.

Moody’s and S&P had premised their outlook on the supposition that Petronas may be tapped for more dividends in the future to support government finances.

The state-owned oil company said the credit ratings affirmation by both ratings agencies reflect its solid financial position that remains robust supported by strong fundamentals, sizeable net cash and ample liquidity position, driven by the transformation efforts in the past few years in the areas of operational efficiency, cost reduction and portfolio optimisation, and supported by improved oil prices.

It also noted the change of Moody’s ratings outlook from stable to negative. In this regard, it was stated that the outlook change was due to Moody’s view that the financial profile of Petronas would be at risk of deteriorating if dividend payments remain high in the future.

Earlier, on Saturday, Petronas said it is assessing the impact of a proposal by the Sarawak state government to impose sales tax of 5% on petroleum products in 2019.
“Petronas will continue to monitor developments on this matter and engage with both the Federal and Sarawak state governments,” it said in a statement.

Great Eastern confirms it will contribute RM2 billion to B40 health insurance scheme

PETALING JAYA: Great Eastern Holdings Ltd (GEH) told the Singapore Exchange on Friday that it will contribute RM2 billion as seed funding for the Malaysian government's pilot B40 Health Protection Fund to provide free protection against top four critical illness starting Jan 1, 2019.

The coverage will be for up to RM8,000 and 14 days of hospitalisation income cover at RM50 per day.

The announcement came five days after it told the stock exchange that it had not decided on its contribution to the fund and was still in talks about it, after Finance Minister Lim Guan Eng announced GEH's participation in his Budget 2019 speech.

“(GEH) wishes to update that as part of its corporate social responsibility efforts and in line with the objectives of the Malaysian authorities, it has decided on the option to make a contribution to the B40 Health Protection Fund, as announced by the Minister of Finance of Malaysia in his Budget Speech on Nov 2, 2018. Details are being finalised with the relevant parties in Malaysia,” the group said.

GEH cautioned shareholders to refrain from taking any action in connection with this matter in respect of their shares in GEH which may be prejudicial to their interests, and to exercise caution when dealing in the shares of GEH.

GEH's share price closed S$26.13 (RM78.39) on Friday, giving it a market capitalisation of S$12.368 billion (RM37.1 billion).

MAS, SGX develop blockchain technology for tokenised assets trading settlement

SINGAPORE: The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) have successfully developed delivery versus payment (DvP) capabilities to allow for the simultaneous exchange of tokenised assets across different blockchain platforms for securities.

The move helps simplify post-trade processes and further shorten settlement cycles.

The DvP prototypes, developed with technology partners Anquan, Deloitte and Nasdaq, demonstrated that financial institutions and corporate investors are able to carry out simultaneous exchange and final settlement of tokenised digital currencies and securities assets on different blockchain platforms.

The project is a collaboration MAS and SGX announced in August this year, one of two spin-offs from Project Ubin, to explore the use of Distributed Ledger Technology for clearing and settlement of payments and securities.

The collaboration also demonstrated that DvP settlement finality, interledger interoperability and investor protection can be achieved through specific solutions designed and built on blockchain technology.

MAS and SGX have jointly published an industry report which provides a comprehensive view of automating DvP settlement processes with Smart Contracts, or self-executing contracts upon the fulfilment of predefined conditions.

The report also identifies key technology and operational considerations to ensure resilient operations, and defines a market framework that governs post-trade settlement processes such as arbitration.

“Blockchain technology and asset tokenisation are fuelling a new wave of innovation globally. This project has demonstrated the value of blockchain technology and the benefits it can bring to the financial industry in the short to medium term. The concept of asset tokenisation, as well as other learnings gleaned from this project, can potentially be applied to a broad spectrum of the economy, creating a whole new world of opportunities,” MAS chief fintech officer Sopnendu Mohanty said.

Mixed views on 2019 outlook for OPR

PETALING JAYA: CGS-CIMB retained its end-2019 Overnight Policy Rate (OPR) forecast of 3.5%, implying one 25bp increase in the second half of 2019, supported by inflation dynamics for 2019.

“The implementation of more targeted subsidies, selected tax and levy hikes, and a higher minimum wage of RM1,100 per month as announced in Budget 2019, presents upside risk to our headline inflation outlook next year,” it said in a report.

“That said, the absence of strong demand pressures should contain the increase in core inflation, requiring minor, data-driven OPR adjustments rather than sharp upturn in the interest rate cycle, in our view,” it added.

Despite the downgraded assessment of gross domestic product (GDP) growth and external demand, it believes economic conditions still warrant a resumption of slow and measured monetary policy normalisation next year due to higher domestic inflation and continued US interest rate hikes.

It noted that the Federal Reserve remains on course to raise the Fed Funds Rate for a fourth time this year at 25bp to 2.25-2.5% on Dec 18-19, with another three hikes penciled in for 2019.

However, PublicInvest Research does not expect any changes in the OPR next year.

“We don’t see the need to intervene in the policy rate in the near future given Malaysia’s steady growth prospects.

Financial imbalance risks are also seen to be muted amid lack of forceful drivers in some asset classes.

“Although inflation is most likely to be higher year-on-year, this is due to a low base effect and the likely floating of domestic fuel prices without demand pressures. Therefore, we cautiously expect OPR to remain unchanged in 2019,” it said.

On Thursday, Bank Negara Malaysia at its final Monetary Policy Committee meeting of the year decided to maintain the OPR at 3.25% with no changes in the statutory reserve requirement rate either.

“We are of the view that the economy is on an even keel with no undue stress that could jolt its prospects although the intensification of trade frictions remain a concern and this will be observed closely,” said PublicInvest Research.

The central bank reiterated its view that the balance of risks has tilted to the downside due to the failure of multilateral talks to stop the trade collision while heightened volatility arising from the upcoming interest rate adjustments in matured economies is another source of risk which may cause financial duress.

PublicInvest Research noted that the policy rate at this stage is seen as accommodative and supportive of the economy, with no hint of intervention in the near future.

Sugar tax won’t sour F&N’s ratings: RAM

PETALING JAYA: The excise duty on sweetened beverages will not have an immediate impact on Fraser & Neave Holdings Bhd’s (F&N) ratings although it is a negative development for the group.

As announced in Budget 2019, a 40 sen tax per litre will be imposed on drinks containing more than five grams of sugar or sugar-based sweetener per 100ml, as well as fruit and vegetable juices with sugar content of more than 12 grams per 100 ml.

“The sugar tax will take effect on April 1, 2019. This will affect F&N’s soft drinks operations, which contribute almost 30% of the group’s revenue,” RAM Ratings said in a statement.

It noted that most of F&N’s wide array of beverages in the ready-to-drink (RTD) market will be subject to the tax, including 100 Plus, which is the largest sales and profit contributor in the group’s soft drinks division.

F&N’s beverages in the RTD market include isotonic beverages, carbonated soft drinks, Asian soft drinks, tea, green tea, juice and water.

“The razor-thin operating margins of F&N’s soft drinks business leave little room for it to absorb cost increases without affecting its profitability. As such, we expect its heftier costs to be mostly passed on to consumers through higher product prices,” said RAM Ratings.

If the sugar tax is fully passed on, the selling prices of the group’s key beverage products are estimated to rise between 10 sen and 60 sen, based on the existing prices of RM1.20 to RM3.40 for 250ml to 1.5 litre drinks.

Despite the fairly minimal quantum of price increases, RAM Ratings expect demand to be negatively affected in the near term amid consumers’ knee-jerk reaction and this will partly negate the impact from the generally more upbeat sentiment since Pakatan Harapan came into power in May 2018.

“Over the longer term, we expect the growth of the RTD market to stay subdued and largely driven by sales of bottled water, in line with consumers’ increasing health awareness. Notably, the bottled-water segment is the only RTD sub-segment that registered a positive volume growth (2.1% by litre) in 2017.

“This contrasts against the overall RTD market’s 5.5% contraction last year (compared with 3.8% growth in 2016) amid muted consumer sentiment and the spiralling cost of living,” it said.

According to RAM Ratings, F&N’s soft drinks operations have been significantly affected by the competitive operating landscape, weak consumer sentiment and rising living costs in the last two years.

“The implementation of the sugar tax may exacerbate competition; big players such as The Coca-Cola Company possess deep pockets and have launched aggressive campaigns to wrest market share in the last few years. Given this, we do not expect the operating performance of F&N Holdings’ soft-drinks division to improve meaningfully anytime soon,” it added.

Having said that, the group’s dairy operations in Malaysia and Thailand are anticipated to anchor its performance.

Despite further weakening of its soft drinks business, the group’s balance sheet and cash flow protection metrics are expected to remain strong, with a net-cash position and a funds from operations debt cover of close to one time.

“With this new development, we expect F&N to speed up its research and development efforts to reduce the sugar content in its beverages. In June 2018, the group launched a lower-sugar variant of 100 Plus (which falls outside the scope of the imminent sugar tax). Nonetheless, this variant accounts for just a small portion of its overall 100 Plus sales,” said RAM Ratings.

F&N’s RM750 million MTN Programme (2013/2028) and RM750 million CP Programme (2013/2020) are issued by its funding conduit (F&N Capital Sdn Bhd) and carry respective ratings of AA1(s)/Stable and P1(s).

The debt facilities are backed by full, unconditional and irrevocable corporate guarantees from F&N. As such, the issue ratings reflect the credit profile of the group.

HRDF issue finally in the hands of the police

WITH Human Resources Minister M. Kulasegaran committed to set things straight in the Human Resource Development Fund (HRDF), the alleged hanky-panky in the organisation is finally out and in the hands of the police.

HRDF has been mired in issues such as poor corporate governance, irregularities and training programmes which time and again drew flak from employers.

This newspaper has been reporting on the discrepancies surrounding the organisation meant to collect levy from employers to re-skill and up-skill employees since 2009.

On Saturday, the minister said police reports were lodged after investigations showed that funds amounting to a few millions were used to purchase properties, with extra bonuses or payments made to a few employees.

He added that both civil and criminal action will be taken after the details were revealed by the HRDF's Governance Oversight Committee (GOC) report.

Kulasegaran said the report showed that there were funds abused for the personal benefit of a few people.

On top of that, the GOC noted in its report that HRD Fund and the organisations financials was treated as one. This raises the question of how can the lines be blurred between levy collected and meant for disbursal to employees and organisations financials?.

Meanwhile, the GOC also observed that the board of directors was not involved in key decisions such as purchases of vehicles and properties, and was found to not have challenged to management's decisions. This was in addition to conflict of interest with training providers and the chief executive sitting on the board.

This goes to show that there was indeed an issue of poor governance and the lack of check balances on the decisions made in an government organisation. This to begin with is not a privately owned company, and public funds are being dealt with.

With the HRDF turning a new leaf with new hands steering it forward, one can hope that this organisation will be able to deliver its mandate by upgrading the skills of Malaysian employees in the most efficient, effective and rewarding manner.

Like the minister says, every ringgit has to be accounted for.

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