Singapore fund still haunted by risky credit crisis investments

Residential mortgage-backed securities and collateralised loan obligations didn't turn out to be very good investments during the global financial crisis. 

PHOTO: BLOOMBERG

OCT 6, 20156:47 AM

[SINGAPORE] Residential mortgage-backed securities and collateralised loan obligations didn't turn out to be very good investments during the global financial crisis. For one Singapore-listed mutual fund, they still aren't.

Six years on and Global Investments Ltd continues to pay the price for buying the riskiest parcels of RMBS in Australia and junk-rated loan tranches in Europe. The fund is trading at an about 38 per cent discount to its S$291.8 million in net assets, the steepest since mid 2013, and Chairman Boon Swan Foo admits it's been a "massive struggle."

"It was extremely difficult not only in the management but also in the restructuring side of it," he said in an interview from Global Investments' head office near Orchard Road, Singapore's shopping mecca. "We've had to change the board and of course, we had to do a lot of cleaning up in the legacy assets." Global Investments can trace its origins back to a fund structured and managed by Babcock & Brown Ltd, the Australian global investment and advisory firm that collapsed in 2009 with a balance sheet full of debt. Mr Boon, a senior adviser to Singapore's state-owned investment company Temasek Holdings Pte, took over the company and in September of that year appointed ST Asset Management Ltd, a wholly-owned unit of Temasek, to manage the portfolio.

Global Investments owned A$46.1 million (S$46.5 million) in face value of securities backed by residential and commercial mortgages in Australia, according to its June 30 report. That included some unrated classes of Seiza 2006 Trust notes, which have suffered A$23.3 million in impairment value.

The mutual fund also held 19 million euros (S$30.3 million) in face value of a basket of CLOs packaged and sold by Ireland's Avoca Capital Holdings, an investment company that specialises in leveraged loan management. They carried a cumulative impairment value of 9.44 million euros, the accounts show.

"This pool of assets has deteriorated over time because of delinquencies and ratings downgrade," Jason See, the managing director of ST Asset Management, said in an interview. "There's impairment and the trend is still going on. We continue to evaluate and monitor the situation, whether to divest or hold on for the future cash flows."

The RMBS and CLOs are among so-called hard-to-value Level 3 assets that made up about 23 per cent of Global Investments' portfolio as at the end of June. The mutual fund held 35 per cent of its assets in bonds, 28 per cent in listed equities and 8 per cent in cash and other net assets.

Despite everything, Global Investments hasn't posted a loss since an initial S$33.9 million setback in 2009. It recorded net income of S$24.3 million in 2014 and a S$28.8 million profit the year before that. Dividend payouts have also increased every year since 2010.

The fund booked an S$8.25 million net gain by selling down its holdings of listed equities to S$80.53 million in the second quarter. Between June 30 and July 7, it trimmed its holdings of Shanghai-listed shares to less than S$1 million from S$18.5 million, sidestepping a deeper stock market rout over July and August.

Its debt holdings increased by S$27.05 million in the second quarter to S$103 million. The rated portion of those securities had a weighted average score of Ba3, or three levels below investment grade. The debt holdings had an average annual coupon of about 7.2 per cent. As of December, they included notes issued by Unicredit SpA, Societe Generale SA and Barclays Plc, as well as Li Ka-Shing's Cheung Kong Holdings Ltd, according to its 2014 annual report.

Mr Boon, who owns about 11 per cent of Global Investments, also sits on the boards of China National Offshore Oil Corp and Dongfeng Motor Corp. Because the fund doesn't manage the underlying assets directly, he relies on trustee reports to evaluate his next course of action.

"It depends on the value of the market, and markets change from time to time," he said. "We're holding on in the expectation that if we're lucky, we'll be able to get good buyers at the right price."

BLOOMBERG

      

Singapore haze prompts banks to debate rainforest loan standards

A Singapore banking group has embarked on a review of ethical lending practices as haze caused by forest fires in Indonesia envelops the city for a fifth week. 

PHOTO: EPA

OCT 6, 20157:05 AM

[SINGAPORE] A Singapore banking group has embarked on a review of ethical lending practices as haze caused by forest fires in Indonesia envelops the city for a fifth week.

The Association of Banks in Singapore said Monday its members are working on measures that will improve responsible lending, without spelling out specifics, while the central bank said those guidelines will be issued "soon." Only four major banks in Indonesia, Malaysia and Singapore have embedded environmental factors as part of their credit-decision process, the World Wildlife Fund said in a May report.

As Indonesian farmers burn some of the world's oldest rainforest, the pollutant standards index at Palangkaraya in central Kalimantan province reached 1,990 two weeks ago, while Singapore's air quality hit "hazardous" levels around the same time. The moves by banks would mirror efforts by regional companies to clean up their act, after a consumer backlash against using palm oil in Europe and other developed economies.

"The idea is appealing but it would probably have to be on a voluntary basis similar to some institutional investors having environmental, social and governance criteria as part of the investment decision," said Mak Yuen Teen, an associate professor in accounting at the National University of Singapore. "Certainly, the government can encourage lenders and investors to do so, but it may be difficult to make it mandatory as many of the irresponsible practices occur further down the supply chain."

 

The WWF said that, unlike regulators in Brazil and China, there are no "green" guidelines for lending in Singapore, Malaysia and Indonesia.

"Earlier this year, the association, together with several banks, formed a task force to develop a set of industry guidelines that will provide a framework for banks in Singapore to advance responsible financing through a more structured and transparent approach," said Ong-Ang Ai Boon, a director of the association, adding that details will be announced Thursday. Its 158 members include the three largest Singapore banks and most international lenders operating in the city.

According to the US National Aeronautics & Space Administration, the fires are set to become the worst on record, surpassing 1997 when forest burning caused an environmental disaster that cost an estimated US$9 billion.

"If companies involved in the haze - either doing the burning themselves, or trading or buying commodities from operators using open burning - find themselves shut out from certain pools of capital" they may act quicker, said Jeanne Stampe, a finance and commodities specialist at the WWF in Singapore.

DBS Group Holdings Ltd's Indonesian unit is the biggest lender to Jakarta-based palm plantation company PT Provident Agro, followed by PT Bank Mandiri Persero, the company's semi annual report shows. Provident Agro is the majority owner of PT Langgam Inti Hibrindo, which had its permit suspended last month pending an investigation into forest fires.  "When making loans to companies, we do conduct assessments of how such companies address material risks, including where relevant, their exposure to environmental or social risks," DBS said Monday in an e-mailed response to queries. "Of the palm oil plantation companies we bank, all have zero burning policies. In the event they are found to be in breach, we are prepared to re- assess the banking relationship." DBS declined to comment on loans specifically to Provident Agro, citing client confidentiality. The lender said it doesn't finance paper, pulp and logging companies in Indonesia. It has some palm-oil companies as customers, mostly processors, mills and refineries, it said. The bank plans to enhance disclosure on responsible financing and is evaluating adopting Equator Principles Association practices.

Officials at Jakarta-based Bank Mandiri didn't immediately respond to two e-mails seeking comment. Langgam Inti Hibrindo has issued a statement to say it wasn't responsible for the fires and will cooperate with the authorities.

Some 100 other companies are being investigated by the Indonesian government for blazes found on their land and authorities last month named four, freezing or revoking their permits. Commodities trader Wilmar International Ltd. said last week it continues to review its links with two palm oil suppliers that are being probed for their participation in the blazes. Two years ago, Wilmar said it was cutting ties with Indonesian suppliers that clear land using illegal fires.

Wilmar said via e-mail Oct 2 it has engaged auditors to visit one concession and is awaiting a report, while it's seeking information from the other supplier. Wilmar also said it has seen "increased interest from the financial community on sustainability issues," though obtaining loans or funding isn't a concern.

Wilmar has two Singapore dollar-denominated bonds outstanding - a S$250 million 3.5 per cent note due 2017 and a S$100 million 4.1 per cent debenture that matures in 2019, according to data compiled by Bloomberg. Both were arranged by DBS. Wilmar also has a US$730 million revolving US currency loan facility due March 2017 that was led by Oversea-Chinese Banking Corp. The 2017 notes, sold to investors at par in 2012, are trading at 99.239, down from 101.189 per cent at the start of the year.

OCBC does "consider environment, social and governance factors in our lending," Vincent Choo, the bank's chief risk officer, said in an e-mailed statement on Monday. "We have, in instances, turned down opportunities in financing companies." Indonesian President Joko Widodo said his firefighters might not be able to put out the blazes before November, and it could take three years before any regulatory efforts to stop the burning take effect. The nation is the world's biggest palm oil producer and the government predicts 33.5 million metric tons of production this year, doubling since 2007.

"Financial institutions have a role to play in supporting efforts to promote sustainable development," the Monetary Authority of Singapore said in an e-mailed response to queries on Monday, adding that progress is being made.

BLOOMBERG

    
 

Vietnam weathers, Indonesia suffers fallout from commodity rout

Vietnam and the Philippines are set to reap the rewards of diversifying their exports, helping fireproof the two economies from plunging commodity prices. 

PHOTO: REUTERS

OCT 6, 20156:35 AM

[HANOI] Vietnam and the Philippines are set to reap the rewards of diversifying their exports, helping fireproof the two economies from plunging commodity prices. Indonesia and Malaysia's failure to do so now represents a risk to Asia's 2016 outlook.

Two decades ago, commodities were about 50 per cent of overseas shipments for both Vietnam and Indonesia. By 2014, Vietnam had cut that to less than 30 per cent while Indonesia's was almost 60 per cent. In the Philippines, a net commodity importer, the ratio was about 20 per cent last year.

Vietnam managed to reduce its commodity export dependence by boosting sales of electronics, mobile phones, textiles and footwear via a broader manufacturing base.

Global commodity prices from oil to copper to coal have declined as demand from China wanes in response to an economic slowdown. The intensifying El Nino weather pattern could also result in the prices of natural gas and oil staying weak - due to warmer winters in North America -  putting renewed pressure on Malaysia's and Indonesia's exports, HSBC Holdings Plc said.

"The commodity environment is going to drag on growth through 2016," HSBC economists led by Joseph Incalcaterra said in a Sept 30 research report. "The Philippines should benefit the most, while Vietnam seems to be holding up well given the lack of crop disruptions. We continue to see the highest risks to Indonesia, where the effect on the real economy and consumption has yet to be fully felt." Gross domestic product in Vietnam and the Philippines will expand by more than 6 per cent this year and next, the fastest among major economies in Southeast Asia, the Asian Development Bank forecast last month. Indonesia's economy will probably grow 5.4 per cent in 2016, while Malaysia's economy is seen expanding 4.9 per cent.

Vietnam's GDP per capita was US$2,052 in 2014, compared with Indonesia's US$3,492, according to World Bank data. 

BLOOMBERG

    

Historic Pacific trade deal faces skeptics in US Congress  

Twelve Pacific Rim countries on Monday reached the most ambitious trade pact in a generation, aiming to liberalise commerce in 40 per cent of the world's economy in a deal that faces skepticism from US lawmakers.

PHOTO: EPA

OCT 6, 20157:19 AM

[ATLANTA] Twelve Pacific Rim countries on Monday reached the most ambitious trade pact in a generation, aiming to liberalise commerce in 40 per cent of the world's economy in a deal that faces skepticism from US lawmakers.

The Trans-Pacific Partnership (TPP) pact struck in Atlanta after marathon talks could reshape industries, change the cost of products from cheese to cancer treatments and have repercussions for drug companies and automakers.

Tired negotiators worked round the clock over the weekend to settle tough issues such as monopoly rights for new biotech drugs. New Zealand's demand for greater access for its dairy exports was only settled at 5 am EDT (0900 GMT) on Monday.

If approved, the TPP pact would cut trade barriers and set common standards for a region stretching from Vietnam to Canada. It would also furnish a legacy-shaping victory for US President Barack Obama, who will further promote the agreement on Tuesday in remarks to business leaders in Washington.

The Obama administration hopes the pact will help the United States increase its influence in East Asia and help counter the rise of China, which is not one of the TPP nations.

Lawmakers in the United States and other TPP countries must approve the deal. Five years in the making, it would reduce or eliminate tariffs on almost 18,000 categories of goods.

Initial reaction from US Congress members, including Democrats and Republicans, ranged from cautious to skeptical.

Vermont Senator Bernie Sanders, a Democratic presidential candidate, warned the pact would cost jobs and hurt consumers."In the Senate, I will do all that I can to defeat the TPP agreement," he tweeted.

Many of Obama's Democrats, as well as labour groups, fear the TPP will cost manufacturing jobs and weaken environmental laws.

Senator Orrin Hatch, a powerful Republican who heads the Senate Finance Committee, was wary. "I am afraid this deal appears to fall woefully short," said Hatch, who had urged the administration to hold the line on intellectual property protections, including for drugs.

US lawmakers have the power to review the agreement and cast an up-or-down vote, but not amend it. "This is really a 2016 issue for Congress to consider, not a 2015 issue," US Trade Representative Michael Froman said.

CURRENCY, DRUG, DAIRY, AUTO POLICIES

Ministers said the agreement will include a forum for finance ministers from participating countries to discuss currency policy principles. This takes into account, in part, concerns among US manufacturers and critics who suggest Japan has unfairly driven the yen lower to the benefit of its car exporters and other companies.

But Democratic Representative Debbie Dingell from Michigan, home of the US auto industry, said currency has not been fully dealt with. "Nothing that we have heard indicates negotiators sufficiently addressed these issues," she said in a statement.

The United States and Australia negotiated a compromise on the minimum period of protection to the rights for data used to make biologic drugs. Companies such as Pfizer Inc, Roche Group's Genentech and Japan's Takeda Pharmaceutical Co could be affected.

Negotiators agreed on terms short of what the United States had sought. Under the deal, countries would give drugmakers at least five years of exclusive access to the clinical data used to win approval for new drugs. An additional several years of regulatory review would likely mean drug companies would have an effective monopoly for about eight years before facing lower-cost, generic competition, officials said.

Politically charged dairy farming issues were addressed in the final hours of talks, officials said. New Zealand, home to the world's biggest dairy exporter, Fonterra, wanted increased access to US, Canadian and Japanese markets.

New Zealand Prime Minister John Key said the deal would cut tariffs on 93 percent of New Zealand's exports to the United States, Japan, Canada, Mexico and Peru. "We're disappointed there wasn't agreement to eliminate all dairy tariffs but overall it's a very good deal for New Zealand," Mr Key said.

The United States, Mexico, Canada and Japan agreed to auto trade rules on how much of a vehicle must be made within the TPP region to qualify for duty-free status.

The TPP would give Japan's automakers, led by Toyota Motor Corp, a freer hand to buy parts from Asia for vehicles sold in the United States, but sets long phase-out periods for US tariffs on Japanese cars and light trucks.

The deal between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam also sets minimum standards on issues ranging from workers' rights to environmental protection.

Trade ministers said the TPP would be open to other countries in the future, including potentially China. "There is a real opportunity for China to be a part of this," Malaysian Trade Minister Mustapa Mohamed said.

REUTERS

      

Australia hails TPP as 'gigantic foundation stone'  

Australia on Tuesday hailed a deal to create the world's largest free trade area as a huge opportunity for businesses, farmers, and manufacturers to cash in on the burgeoning Asia-Pacific region. 

PHOTO: EPA

OCT 6, 20158:04 AM

[SYDNEY] Australia on Tuesday hailed a deal to create the world's largest free trade area as a huge opportunity for businesses, farmers, and manufacturers to cash in on the burgeoning Asia-Pacific region.

"Any deal like this is of enormous benefit to us," said Prime Minister Malcolm Turnbull in welcoming the agreement reached in Atlanta on Monday after five years of negotiation.

"It is a gigantic foundation stone for our future prosperity." Trade Minister Andrew Robb said the 12-nation Trans-Pacific Partnership agreement contained "pages and pages of benefits" and would make Australia's mining-driven economy more competitive, create jobs and boost living standards.

"The historic TPP will deliver enormous benefits to Australia, including unprecedented new opportunities in the rapidly growing-Asia Pacific region, with its rising middle class, for our businesses, farmers, manufacturers and service providers," he said.

"Combined with our landmark trade deals with Korea, Japan and China, the TPP forms part of the government's microeconomic reform strategy to support the diversification of our economy in this critical post-mining boom phase." As well as boosting trade with key partner the United States, the pact will open up new markets for Australia in Vietnam, Malaysia, Chile and Canada.

Under the deal, 98 percent of tariffs will be eliminated on everything from beef, dairy, wine, sugar, rice, horticulture and seafood, through to manufactured products, resources and energy.

Last year, about a third of Australian exports - worth A$109 billion (SS$109.4 billion) - went to TPP countries, which also include Brunei, Japan, Mexico, Peru, New Zealand, and Singapore.

Labor opposition trade spokeswoman Penny Wong said she was examining the details closely, and it was up to Robb to demonstrate that Australians would not be disadvantaged in any way.

"Mr Robb says he's put in place a range of carve-outs which protect Australia's health and environmental regulations, and also excluded tobacco companies, so we look forward to seeing how robust those protections are," she said.

While the National Farmers Federation welcomed the deal as more money in its members' pockets, cane-growers were unhappy they only got agreement to send an extra 65,000 tonnes of sugar to the US.

"That's not to be sneezed at, but I would be less than truthful in saying we are overall disappointed in the outcome," chairman Paul Schembri said.

The accord must still must be signed and ratified by the respective countries, including Australia.

AFP