Sovereign funds' M&As drive surge in capital market deals: Duff & Phelps

By

Kenneth Limkenlim@sph.com.sg@KennethLimBT

DEC 10, 20151:46 PM

MERGERS and acquisitions (M&As) by sovereign wealth funds drove an almost doubling of capital market deals in Singapore in 2015, according to a report by corporate finance adviser Duff & Phelps.

There were 685 M&A, private-equity, venture-capital and initial public offering deals worth US$103.8 billion in Singapore this year, according to the report. That was almost twice the US$55.4 billion of deals in 2014.

M&A transactions accounted for US$101.2 billion of the 2015 total, which was twice the US$50.7 billion for 2014. The US$37 billion acquisition of Broadcom Corp by Singapore and California-based Avago Technologies was the biggest deal of the year, but Singapore government-controlled investors GIC and Temasek and companies linked to them were involved in the next six biggest M&A deals in Singapore.

The growth in deal volume was also present in the region. Total deal activity in Singapore, Malaysia and Indonesia rose 56 per cent to US$115.4 billion in 2015.

Looking ahead, Duff & Phelps said there were about 50 deals worth almost US$9.1 billion in the pipeline in which a buyer is already in negotiations.

"The rationale for such high level of deal activity have been the lower interest rates and the expectations of the same going up, coupled with the pick-up of economic activity in the US and sluggish growth in several other markets driving them towards inorganic growth, where organic growth is limited," Duff & Phelps managing director Srividya Gopalakrishnan said in a statement.

"We are also witnessing a considerable increase in the confidence level of Singapore companies as they start viewing the world as their global market and acquire large businesses across the world, which has led to this year seeing the outbound deal values more than double compared to last year."

    
 

Malaysia PM Najib vows 'no surrender' over 1MDB scandal

Malaysian Prime Minister Najib Razak on Thursday vowed "no surrender" as he fends off allegations of corruption and abuse of power over a political funding scandal that has prompted calls for his removal.

PHOTO: REUTERS

DEC 10, 20151:32 PM

[KUALA LUMPUR] Malaysian Prime Minister Najib Razak on Thursday vowed "no surrender" as he fends off allegations of corruption and abuse of power over a political funding scandal that has prompted calls for his removal.

"Even though there are traitors, and no matter how many times we are pushed to the ground, there shall be no retreat, no surrender," Mr Najib told more than 2,000 delegates to the United Malays National Organisation's (UMNO) annual assembly.

"No retreat! No surrender!" he repeated forcefully.

This week's annual gathering of the party which has ruled Malaysia for more than a half-century has been the most closely watched in years for signs of any revolt against Najib.

It was revealed in July that Mr Najib received nearly US$700 million in still unexplained "political donations", just as he was battling parallel allegations that hundreds of millions of dollars were missing from deals involving a state firm he launched.

Mr Najib and the company, 1Malaysia Development Berhad (1MDB), both vehemently deny any wrongdoing, but opponents say Mr Najib has moved to silence critics and has abused his office to hobble investigations and stay in power.

The turmoil has raised new questions over whether UMNO - which has suffered from steadily declining support in recent years - can survive the next elections, due by 2018, with Mr Najib at the helm.

But UMNO leaders have firmly rallied around Mr Najib at this week's assembly.

"In light of the challenges, no matter how big, I will not at all surrender," Mr Najib said in his yearly address as party president.

"Instead, with a brave heart I will resolve the problems we face and continue to lead UMNO towards victory."

AF
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China to grant residence rights to 13 million unregistered citizens

China will give household registration permits to its unregistered citizens and make medical insurance coverage more equal, the government said on Wednesday, as it looks to overhaul systems often under fire for failing those people most in need. 

PHOTO: AFP

DEC 10, 201512:57 PM

[BEIJING] China will give household registration permits to its unregistered citizens and make medical insurance coverage more equal, the government said on Wednesday, as it looks to overhaul systems often under fire for failing those people most in need.

The move on household registration - or "hukou" - will open access to basic rights such as schooling and healthcare for about 13 million people. Hukou are needed if a person wishes to marry, open a bank account, take out medical insurance and get access to basic education.

But many have been locked out of the system because their births flouted China's strict one-child policy, or they were orphans or homeless.

The Xinhua state news agency also said China had approved plans to merge its two medical insurance schemes for urban and rural residents, aiming to give more equal access to healthcare. Rural primary care currently lags far behind levels in major cities.

China says it offers health insurance to almost all of its near 1.4 billion people, but the schemes still often require patients to pay large amounts out of pocket, a major pressure on families, especially with major diseases such as cancer.

The ruling Chinese Communist Party announced in October it was reforming the family planning policy to allow couples to have two children after decades of the one-child policy, a move aimed at alleviating demographic strains on the economy.

Xinhua put the number of unregistered people at around 13 million. "It is a basic legal right for Chinese citizens to lawfully register for hukou. It's also a premise for citizens to participate in social affairs, enjoy rights and fulfil duties,"state television CCTV reported, citing a statement released after a government meeting on reform.

Registration should take place irrespective of family planning and other policy limits, the statement said.

REUTERS

    
 

The Bank of Korea held its key rate at 1.50%

The Bank of Korea held its key rate at 1.50%. South Korea's central bank held its base rate at 1.50%, as expected. The central bank noted that the US economy continued to improve but that growth in China and other emerging markets remained slow. The bank said, "Looking at the Korean economy, although domestic demand activities have sustained their paces of recovery, driven by consumption, the trend of declining exports has persisted while the improvement in economic agents' sentiments has been inadequate." South Korea's won weakened by 0.2% to 1,181.53 per dollar.

The Swiss National Bank still thinks the franc is overvalued.

Press release Page 1/3 Communications P.O. Box, CH-8022 Zurich Telephone +41 58 631 00 00 communications@snb.ch Berne, 10 December 2015 Monetary policy assessment of 10 December 2015 Monetary policy remains expansionary


The Swiss National Bank (SNB) is maintaining its expansionary monetary policy. The target range for the three-month Libor remains at between –1.25% and –0.25%, and the interest rate on sight deposits with the SNB is unchanged at –0.75%. Despite depreciating somewhat in recent months, the Swiss franc is still significantly overvalued. The negative interest rate and the interest rate differential with other currencies make the Swiss franc less attractive, and continue to help weaken it. At the same time, the SNB will remain active in the foreign exchange market in order to influence the exchange rate situation, as necessary. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are intended to ease pressure on the Swiss franc. The SNB’s monetary policy thus helps to stabilise price developments and support economic activity. Overall, the new conditional inflation forecast differs little from that of September. It indicates slightly higher inflation in the short term, and that inflation had already bottomed out in the third quarter. Owing to a slight deterioration in the outlook for the global economy, medium-term inflation is somewhat lower than predicted in September. For the current year, inflation is forecast at –1.1%, a 0.1 percentage point rise on last quarter. For 2016, an inflation rate of –0.5% is expected, and for 2017, the forecast is now at 0.3% instead of 0.4%. The conditional inflation forecast is based on the assumption that the three-month Libor will remain at –0.75% over the entire forecast horizon. Global economic growth in the third quarter was below expectations, mainly due to weaker manufacturing activity around the globe and sluggish world trade. In contrast to manufacturing, the services sector performed well in most countries due to robust domestic demand. The SNB has revised its growth forecast for the global economy slightly downwards for the short term. Overall, its assessment of global economic prospects is cautiously optimistic. Nevertheless, there are significant risks. The structural change underway in China could Berne, 10 December 2015 Press release Page 2/3 continue to hold back global manufacturing and investment activity. Equally, structural weaknesses in Europe as well as current concerns about public safety could also weigh on economic developments. The slower pace of global economic growth was also felt in Switzerland, with the first official GDP estimate indicating stagnation in the third quarter. Economic performance thus came in below expectations. A close examination of a broad range of indicators leads to a somewhat more positive assessment of the economy. Nevertheless, capacity utilisation remains unsatisfactory, and demand for labour muted. For 2015, the SNB still anticipates real growth of just under 1% in Switzerland. The gradual improvement of the global economy is likely to further strengthen foreign demand for Swiss goods and services. Domestic demand also looks set to remain robust. For 2016, the SNB expects growth of approximately 1.5%. The past few months have seen mortgage volumes and prices for owner-occupied residential real estate grow roughly in line with fundamentals. Imbalances on these markets have therefore remained largely unchanged. The SNB will continue to monitor developments on the mortgage and real estate markets closely. Accordingly, it will regularly reassess the need for an adjustment of the countercyclical capital buffer. conditional inflation forecast of december 2015 Year-on-year change in Swiss consumer price index in percent % –1.5 –1.0 –0.5 0.0 0.5 1.0 1.5 2.0 2012 2013 2014 2015 2016 2017 2018 Inflation Forecast December 2015, with Libor at -0.75% Forecast September 2015, with Libor at -0.75% Berne, 10 December 2015 Press release

Jos. A. Bank sales are down 35%, and Men's Wearhouse shares are getting punished

• Sam Ro
 
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• 4m
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Thomson ReutersSign for clothing retailer Jos. A. Bank is pictured in the Manhattan borough of New York

Mens Wearhouse  $13.88

Sponsored by

MW

Change-4.65

%Change-25.1

Disclaimer

Men's Wearhouse is booking a $90.1 million charge for its failed investment in Jos. A. Bank.

Shares were down 23% in early trading on Thursday.

"Through the first week of December, the quarter-to-date comparable sales at Jos. A. Bank were down 35.1%," the company said in a press release.

For the third quarter, the company is reporting a net loss of $27.15 million or $0.56 per share.

For what it's worth, excluding the charge, Men's Wearhouse had adjusted earnings of $0.50 per share.

"When we acquired Joseph Bank, we knew that we needed to correct the promotional model," CEO Doug Ewert said. "However, we underestimated the impact to the near- term performance as we began to execute the difficult, but necessary, corrective steps. We remain confident that these steps will restore a long-term, sustainable, profit model and reshape the business for a healthy and growing Jos. A. Bank."

Jos. A. Bank was popular for its unusual and aggressive promotional model, sometimes offering 7 free items of clothing for every one sold.

The company was able to deliver a healthy profit because it employed higher initial markups. (The markup is the difference between the cost of a good and the price it's sold at.  The higher the markup, the more you can discount and still make a profit.)

On the plus side, management reports that comparable store sales at its Men's Wearhouse branded stores were up 5.3% during the quarter, a period when Jos. A. Bank comparable store sales were down 14.6%.

"We are challenging all assumptions and are fully focused on accelerating the Jos. A. Bank recovery," Ewert said.

Google Finance

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More: Men's Wearhouse Jos. A Bank

Glencore shares are jumping after it announced a drastic debt reduction plan

• Ben Moshinsky
 

• 8h
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REUTERS/Arnd WiegmannGlencore CEO Ivan Glasenberg smiles as he leaves after the company's annual shareholder meeting in the Swiss town of Zug May 9, 2012.

Glencore, the troubled mining and commodities trading company, is accelerating its programme to pay off a huge debt pile.

The company said it was targeting a total net debt of $18 billion (£12.8 billion) next year, trimming several billion dollars more debt from its pile than originally planned.

Chief executive Ivan Glasenberg said: "Glencore is well placed to continue to be cash generative in the current environment – and at even lower prices. We retain a high degree of flexibility and will continue to review the need to act further as required."

Glencore's shares have plummeted by more than 60% this year on investor concerns that falls in commodities prices and slowing demand in China would leave the company unable to pay its huge debts.

But the shares are flying on Thursday following the news of the debt reduction plan, up by almost 10%. 

Here's what that looks like:

Investing

To help hit its debt repayment target, Glencore is slashing its capital expenditure from $5 billion to $3.8 billion for 2016.

Last month the company paid three bonds worth around $2 billion and repurchased another $400 million of debt from creditors.

Here's a chart from the investor presentation that shows just how far Glencore hopes its debt will fall:

Glencore

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South Africa just fired its finance minister, and now its currency is crashing

• Akin Oyedele
 
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South Africa's rand fell to a record low against the dollar on Wednesday.

After touching a new low earlier in the day, it tanked again after the country's President Jacob Zuma issued an unexpected statement saying he was removing his finance minister, Nhlanhla Nene. 

In a statement on the presidency's website, which crashed shortly after the announcement crossed, Zuma said the minister had done well in a "difficult economic climate."

The rand plunged 3% to as low as 15.0563 against the dollar. The statement crossed after South African markets had closed.

Investing.com

Just like many other currencies used by countries that are big commodity exporters, the rand has been punished this year.

South Africa is a major producer of metals including platinum and gold. And as the prices of those commodities dropped with virtually everything else, the country's economy felt the pain.

On Tuesday, South Africa reported that its current account deficit — or the excess of imports over exports — widened to 4.1% of GDP in the third quarter. 

And it seems this announcement was just another reason for traders to be concerned about Africa's second-largest economy.

This week, the Australian dollar and the Canadian dollar also took a beating as crude oil fell to new six-year lows.

And across emerging-market currencies, the surging dollar has been a drag, as the Federal Reserve prepares to raise interest rates for the first time in nine years while many other central banks ease monetary policy. 

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More: South African Rand Emerging Markets South Africa Currencies

BANK OF ENGLAND HOLDS

• Mike Bird
 
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REUTERS/Guadalupe PardoBank of England's Governor Mark Carney gestures during the "Debate on the Global Economy" session during the 2015 IMF/World Bank Annual Meetings in Lima, Peru, October 8, 2015.

The Bank of England has voted to keep interest rates on hold once again in its December meeting — as analysts had expected.

The BoE has been on hold as far as interest rates are concerned since March 2009, when the monetary policy committee cut Bank Rate to 0.5%.

Once again, a single member of the 9-person MPC voted for a 0.25 percentage point rate hike, and 8 voted to keep the rate where it is for now.

What markets are looking for is any signal of how close the Bank is to raising interest rates. UK unemployment is now at just 5.3%, the lowest since 2008 and far from its crisis-period peak above 8%.

Real wage growth has also returned, and most members of the MPC (except BoE chief economist Andy Haldane) are clear in suggesting that the next move from the Bank will be a rate hike, which will begin a steady tightening cycle, raising interest rates slowly. 

Despite the lower unemployment and returning wage growth, there's no sign of any inflation — due to plunging oil prices, consumer prices have been bobbing along at around zero growth for most of 2015. 

The minutes of the latest MPC meeting give a bit of an indication into their thinking: Most notably, they say that pay growth appears to have plateaued. That could mean holding interest rates lower for even longer. 

After touching 1.52 to the dollar earlier in the day, the pound reacted a little after the announcement, slipping less than a cent downwards:

Investing.com

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More: Bank of England Mark Carney Bank of England minutes UK Economy

In smog-choked China, drivers check out electric cars

The heavy smog shrouding Beijing is proving to be a boon for China's nascent electric car market, with some dealers saying inquiries about all-electric models are up by almost a tenth. 

PHOTO: REUTERS

DEC 10, 201510:54 AM

[BEIJING] The heavy smog shrouding Beijing is proving to be a boon for China's nascent electric car market, with some dealers saying inquiries about all-electric models are up by almost a tenth.

Beijing issued a first pollution "red alert" on Monday, and set out measures to combat the hazardous smog, including limiting the use of conventional petrol-powered and hybrid cars to alternate days.

But all-electric vehicles are free to drive in the capital at any time. And that's prompted a rush of inquiries from would-be buyers, dealers and automakers say. "I'm considering (an electric car) as the new policy means electric cars aren't limited from driving on heavy pollution days while other types are," said Wang Chao, 26, sizing up electric vehicles at a BYD Co Ltd dealership on Wednesday.

Wang, who runs a Beijing food wholesale business, said the driving restrictions were yet another reason to think electric, noting the attraction also of government subsidies that would save him around 100,000 yuan (S$21,817) on a new electric model.

Those subsidies and other government measures have helped pure-electric car sales soar nearly five-fold to 113,810 nationwide in the first 10 months of the year, putting China on track to overtake the United States as the largest market for electric cars this year.

Automakers including Tesla Motors and Beijing Automotive Group's electric car subsidiary say they have seen an uptick in potential buyers asking about pure electric cars in Beijing because of the pollution - though many don't dare leave home to do so. "Recently, the smog is so serious that people aren't willing to go outside, so they call us to ask," said Li Hui, owner of several BYD dealerships, which focus on environmentally friendly cars. He said inquiries about the firm's e6 pure electric model were up by 8-9 per cent.

AD CAMPAIGN BYD, backed by Warren Buffett's Berkshire Hathaway, is also playing off the smog in its advertising. Posters on social media for the e6 carry a promotion offering free pollution masks for anyone visiting one of Li's dealerships. "Evil pollution invades, and you don't have a monkey king?" reads another advertisement on BYD's official microblog, showing a man in a cloud of pollution calling for help from China's fabled Monkey King hero. "Activate the green cleaning (system), make PM2.5 vanish in a puff of smoke," the ad continues, referring to particulate matter that forms the smog. It goes on to say the car's purifying system can "say goodbye to big city pollution".

Automakers said it was too early to say if the increase in inquiries would translate into actual sales.

And even if drivers switch to electric vehicles, it may not alleviate the pollution threat - assuming the cars are recharged using electricity generated by coal-burning power plants.

A recent study by Carnegie Mellon University found that a shift to electric cars in China might cause more air pollution because of the nation's emissions-intensive electricity grid.

Coal is responsible for around 75 per cent of power generation in China, though the government has said it would cut power sector emissions by 60 per cent by 2020.

REUTERS

    
 

China to merge health insurance for urban and rural residents

China plans to combine public health insurance schemes for urban and rural residents that are currently separate, a bid to equalise access to health care as the incidence of conditions like cancer and diabetes surge. 

PHOTO: REUTERS

DEC 10, 201511:35 AM

[BEIJING] China plans to combine public health insurance schemes for urban and rural residents that are currently separate, a bid to equalise access to health care as the incidence of conditions like cancer and diabetes surge.

The government-run insurance programmes will be consolidated in terms of fundraising, breadth of coverage and drug reimbursement, the official Xinhua news agency reported on Wednesday, citing decisions made at a meeting chaired by President Xi Jinping.

Private health insurance is rare in China and most patients rely on basic state-run programmes. Many patients struggle to make out-of-pocket payments for diseases like cancer, pushing the government to find new ways to broaden coverage.

Growth in pharmaceutical spending in China is set to slow to below 10 per cent through 2020 due to weaker economic growth and the substantial costs borne by patients, IMS Institute for Healthcare Informatics estimates.

China currently has three separate health insurance systems for employed urban residents, other city dwellers and rural residents that are managed by different government ministries, according to Xinhua.

Due to different sources of funding and regulations, the three schemes often have different reimbursement rates and coverage for diseases.

BLOOMBERG