Thursday, April 18th, 2019


US wins WTO ruling against China grain import quotas

GENEVA, April 18 — The United States won a World Trade Organisation (WTO) ruling today against China’s use of tariff-rate quotas for rice, wheat and corn, which it successfully argued limited market access for US grain exports. The case, lodged…

Wall Street slips as healthcare slumps again

NEW YORK, April 18 — US stocks dipped in volatile trading today, ahead of a long Easter weekend, as another drop in healthcare stocks overshadowed gains from industrials after upbeat earnings. In a bright spot, US retail sales increased by the…

Stock markets ‘checked out’ ahead of Easter break

LONDON, April 18 — Stock markets were mixed today as investors wound down their positions before the Easter break, with positivity surrounding China-US trade talks and healthy Chinese growth failing to fire much buying activity. After Wall Street…

Moody’s says RM6.2b govt aid for Felda credit negative

PETALING JAYA: The RM6.2 billion financial assistance to ailing Federal Land Development Authority (Felda) will add to the government’s debt burden, which is already significantly above the median of A-rated sovereigns, a credit negative, said Moody’s Investors Service.

“We estimate that the assistance will raise the government’s debt burden by 0.3% of GDP to 56.0% in 2019, substantially higher than median debt ratio for A-rated sovereigns of 37.8%, and up from 50.7% in 2017,“ it said in a report today.

In its estimates, Moody’s included the debt of state-owned investment fund 1Malaysia Development Bhd and the RM20 billion of funding provided to state-owned pilgrimage fund Tabung Haji at the end of last year through an asset-backed sukuk.

“A higher debt burden will weigh on Malaysia’s debt affordability, particularly because the share of revenue to GDP, at 16.3% in 2018, is likely remain at or near record lows. Interest payments account for 13.3% of revenue, significantly higher than the A-rated median of 4.0%.”

Felda was established in 1956 to manage the resettlement of the rural poor and employ them in Malaysia’s palm oil industry, but it has evolved into a financially independent statutory body supporting broader socio-economic development.

Its financial performance has been deteriorating since 2013. In 2017, its losses reached RM4.9 billion, compared to an average profit of RM700 million in the five years leading up to the listing of its commercial arm, FGV Holdings Bhd, in 2012, because of declining operating income from plantations due to lower palm oil prices, financially unviable investment decisions, alleged corruption and weak governance practices. Since then, its total liabilities have more than doubled to RM14.4 billion from RM6.5 billion.

Former Felda chairman Tan Sri Isa Samad has been charged with bribery linked to a hotel purchase and FGV Holdings has sued Isa and former CEO Datuk Mohd Emir Mavani Abdullah over the purchase of two luxury condominium units allegedly for above market price.

With its cash balance shrinking, Felda is unlikely to be able to meet its debt obligations without the government’s assistance. It recorded a loss of RM4.6 billion in earnings before interest and tax in 2017.

The financial aid announcement followed the release of a white paper that detailed the company’s deteriorating financial performance, and outlined plans to restore its viability and strengthen its governance practices.

The government plans to spread its aid over seven years. Felda will raise about half of this, which will be backed by government guarantees, while the remainder will come from loans and grants.

RHB says ringgit sell-off overdone, unit remains attractive in medium term

PETALING JAYA: The ringgit’s current sell-off is overdone and any removal of Malaysia from the FTSE World Government Bond Index (WGBI) will not impact the country’s fundamentals and credit rating, according to RHB Group Treasury & Global Markets.

Despite that, the local unit extended its losses for the third day to a low of 4.1495 against the dollar today. At 5pm, it was 0.27% lower at 4.1475 to the greenback.

The selling pressure was triggered by the Norway Government Pension Fund Global’s plan to slash emerging market (EM) bonds in early April, as well as FTSE Russell’s announcement that it may drop Malaysian debt from the WGBI on accessibility and liquidity concerns.

“Both headlines disproportionally hit Malaysian assets, with the US dollar/ringgit touching an intraday high of 4.1455, short of the psychological 4.15 handle. We hold the view that markets panicked and overreacted to the news,” the research house said in a note today.

Nonetheless, RHB said Malaysia’s strengthened defences against external volatility should bode well for the ringgit’s medium-term attractiveness, attributed to the improving mix of external debt, robust domestic foreign exchange markets for trading and hedging, consistent current account surplus and far sufficient foreign reserves than recommended by the International Monetary Fund (7.4 months of retained imports).

It sees several factors that can potentially restore confidence in the ringgit over the short term, which include Brent crude prices remaining supported north of US$70 a barrel; improvement in EM sentiment; current account surplus; robust domestic foreign exchange markets enabled by foreign exchange administration rules continuing to offer confidence and stability to real stakeholders of the economy in ringgit trading and hedging; as well as Malaysian bonds to remain underpinned by these factors.

RHB noted that the medium-term outlook of Malaysian bonds remains intact, which should eventually drive foreign inflows into the space.

Meanwhile, Kenanga Research foresees risks of capital flight to be rather contained, with outflow of foreign funds estimated to possibly be anywhere between US$3 billion and US$5 billion, in part due to FTSE Russell’s emphasis that “inclusion on our Watch List is not a guarantee of future action”.

It said this should somewhat help soften the damage to investors’ sentiment, given that the statement suggests enhanced engagement with the government, central bank and regulators in adressing investors’ concerns in the interim period.

“In this regard, we expect the government will do whatever is necessary, regulatory and policy-wise, to ensure its bonds remain in the WGBI and hopefully send a positive signal to the global market in terms of quality of its debt instruments,“ Kenanga explained.

However, its expectation of a rate cut of 25 basis points in 2019 remains intact, though the window to cut may have narrowed marginally given the additional outflow at hand arising from the FTSE Russell’s announcement.

Ireka takes UEM Land to arbitration, seeks RM29 million

PETALING JAYA: Ireka Corp Bhd has served a notice of arbitration against UEM Sunrise Bhd’s wholly owned subsidiary UEM Land Bhd on disputes and differences arising from the contract finalisation of a project in Johor Baru.

In a filing with Bursa Malaysia, Ireka said the notice was served by its wholly owned subsidiary Ireka Engineering & Construction Sdn Bhd (IECSB) on Wednesday, under The Asian International Arbitration Centre Rules 2018.

IECSB is seeking reliefs and/or remedies against UEM Land, which include but are not limited to, inter alia, declarations of final account in the amount of RM29.25 million, further extension of time or time at large, loss and expense awards, interest and costs.

IECSB’s claims against UEM Land are premised on the breach of contract and outstanding payment due in relation to the contract.

In a separate filing, UEM Sunrise said IECSB’s claims are without merits and UEM Land will vigorously defend its position accordingly.

“The company believes that the notice of arbitration and potential arbitration proceedings are not expected to have material financial and operational impact on the company for the financial year ending Dec 31,” it said.

To recap, UEM Land issued a letter of award dated June 15, 2012 to IECSB for the construction of Imperia, a mixed development located in Puteri Harbour, Iskandar Puteri, Johor Baru.

IECSB was appointed by UEM Land as the main contractor for the construction of the project under the contract, at a sum of RM268.6 million.

The scope of works include overall main works, main switch station (stesen suis utama) and main division substation (pencawang pembahagian utama), and construction of mock-up units.

In August last year, IECSB initiated a pre-commencement arbitration against UEM Land arising from disputes and differences over the finalisation for a contract dated April 3, 2014 on the construction of the project.

Jaks proposes another fundraising exercise

PETALING JAYA: Jaks Resources Bhd has proposed another round of fund raising exercise to raise maximum gross proceeds of RM54.97 million through a private placement as it did not able to raise sufficient funding for its power plant project.

Earlier the company had in December 2018 raised RM25.61 million from its rights issue of warrants.

However, as the warrants were undersubscribed by 62.48%, the proceeds raised were prioritised towards the repayment of bank borrowings, Vietnam power plant project, and to defray the relevant expenses relating to the exercise.

“The proposed private placement will enable Jaks to raise proceeds to bridge the gap for existing expenditure required for the Vietnam power plant project (such as the construction and engineering works for the jetty and administration building, and fabrication of additional equipment by contractors, as well as consultancy costs for project coordination management and advisory services) which were unable to be funded from the rights issue of warrants,“ it said in a filing with Bursa Malaysia.

Besides that, the proceeds will also be utilised for the repayment of bank borrowings and renewable energy projects.

The indicative issue price for the placement shares is assumed to be 80 sen and the placement shares will be placed out to third party investor(s) to be identified at a later date.

Jaks said there will be a corresponding dilution in the earnings per share of the group as a result of the increase in the number of shares issued.

The exercise is expected to be completed by the second quarter of 2019.

‘No negative impact from cancellation of Vietnam JV’

PETALING JAYA: The cancellation of the joint venture (JV) to form a low cost carrier in Vietnam will not negatively affect AirAsia Group Bhd’s expansion plan, said MIDF Research.

“While the cancellation of the JV may appear to negatively impact AirAsia’s expansion plan, we do not think that this is the case. In early April 2019, AirAsia introduced Can Tho to its network of routes with a weekly frequency of four flights. In fact, this is the first ever international flight to Can Tho, indicating AirAsia’s lead as an international airline for that destination,” it said in its report today.

It noted that Can Tho is AirAsia’s sixth destination in Vietnam while new services between Bangkok and Can Tho are set to commence in May 2019.

With 8.5 million visitors visiting the Mekong Delta in 2018, it opined that this destination has the potential to attract more visitors which will positively flow to AirAsia’s load factor thus, it is not imperative for AirAsia to set up a JV carrier in Vietnam.

Today, AirAsia told Bursa Malaysia that its wholly owned subsidiary AirAsia Investment Ltd, together with Gumin Company Ltd and Hai Au Aviation Joint Stock Company had amicably agreed to terminate and release each other from all obligations under the transaction agreements in relation to the proposed JV in Vietnam.

CIMB Thai posts 92% jump in Q1 net profit to 325m baht

PETALING JAYA: CIMB Thai Bank PCL recorded a consolidated net profit of 325 million baht (RM42.2 million) for the first quarter (Q1) ended March 31, an increase of 92.4% compared with the same period a year ago.

This was mainly attributed to a 3.4% growth in operating income and a 17.4% drop in provisions, partially offset by a 8.2% increase in operating expenses.

CIMB Thai acting president and CEO Omar Siddiq said operating income rose 3.4% to 3.5 billion baht from an increase of 4.3% in net interest income, mainly from loan expansion and higher interest income on investments.

Other operating income rose 3.4% from an increase in gains on sale of non-performing loans (NPLs) and higher gains on trading and foreign exchange transactions.

Its net interest margin over earning assets stood at 3.31% in Q1 2019 against 3.98% in Q1 2018, resulting from higher cost of funds.

As at March 31, total gross loans stood at 230.9 billion baht, an increase of 1.4% from Dec 31, 2018.

Deposits stood at 235 billion baht, a slight increase of 0.3% from 234.3 billion baht as at end of December 2018. The modified loan-to-deposit ratio rose to 98.3% compared to 97.2% as at Dec 31, 2018.

“The gross NPL stood at 10 billion baht, with a stable gross NPL ratio of 4.3%, unchanged from Dec 31, 2018. CIMB Thai continues to exercise high credit risk underwriting standards and risk management policies. The bank also focuses on improving productivity and monitoring collection,” it said in a statement.

CIMB Thai’s loan loss coverage ratio increased to 109.5% as at March 31 from 107% at the end of December 2018. As at March 31, total provisions stood at 11 billion baht, translating to a 5.4 billion baht excess over the Bank of Thailand’s reserve requirements.

Total consolidated capital funds as at March 31 stood at 48.1 billion baht. The BIS ratio stood at 18.9%, of which 13.8% comprised Tier-1-capital.

BAT awaiting approval for ‘alternative’ products launch

PETALING JAYA: British American Tobacco Bhd (BAT) is currently awaiting approval for its tobacco heating product (THP) and its flagship product Glo from the tobacco control sector and department director-general of health under the Health Ministry.

“We have submitted our application to the relevant authorities in December last year, the price of our THP will be subject to the regulatory bodies,” said BAT managing director Erik Stoek at a media briefing today.

He expects some consumers to adopt the risk reduced tobacco product as the vapour produced product has less harmful chemical compared with conventional cigarettes.

““The industry estimates that the global THP market to grow to £5 billion (RM27.1 billion) in the next four to five years,” he said.

In Malaysia, BAT’s competitor Phillip Morris Malaysia Bhd was the first big tobacco firm to introduce such product.

In addition, BAT is also conducting a pilot project to produce unprocessed tobacco product in East Malaysia.

“At the moment, we are two weeks in with our project, Dunhill HTL cigarillos in East Malaysia, which retails for RM9 for a pack of twenty.”

Stoek said affordability is one of the key factors in combating illicit cigarettes in Malaysia. A research by Nielsen ICS estimates that the volume share of illicit cigarette stands at 60%.

He estimates that the profit of illicit cigarette to be RM1.2 billion compared with RM700 million recorded by the legal trade. The prevalence of illicit cigarette was one of the decision for the company to close its Virgina Park factory in Petaling Jaya in 2016.

Currently, BAT is in its first year of full import business model, with 98% of their products manufactured in Indonesia. It has managed to reduce the lead times by ten days for finished goods and prepaid excise duties, from 26 days to 16 days and 21 days to 11 days, respectively.

However, the company retains a factory in Johor with an annual production capacity of 100 million sticks.

“The factory is in operation since December last year and it is a means to retain our manufacturing license. Should the situation with illicit cigarettes improve, we might expand our manufacturing capacity in Malaysia,” said Stoek.

“We welcome the government’s commitment in tackling this problem, especially with the increase of penalty related to illicit cigarette. The fine of RM100,000 and six months jail term show that the government is serious in their enforcement,” he added.

Last year, the authorities raided 325 outlets involving a total of 100 million cigarettes.