Builders must be licensed by June 2009 to carry out building works

Builders must be licensed by June 2009 to carry out building works

By Hetty Musfirah Abdul Khamid,

SINGAPORE: All builders in Singapore must apply for builder’s licence by June 16 next year to carry out building works here. This requirement under the Building Control Act came into effect on December 16.

The Building and Construction Authority (BCA) is giving builders a grace period of six months to submit their requests to facilitate the application process for two types of licences.

General Builder licences are for those who undertake general building works where plans are required to be approved by the Commissioner of Building Control.

Depending on conditions such as the scope and value of building works to be carried out, builders can be issued with either Class 1 or Class 2 general licences.

The other type of licence is the Specialist Builder licence, which is meant for those who work in specialist areas that have a high impact on public safety and require specific expertise.

Under the new licensing scheme, every builder must appoint two key personnel – the Approved Person, who will direct the management of the business in Singapore, and a Technical Controller who will personally supervise the execution and performance of building works.

BCA said the new licensing regime aims to raise professionalism among builders by requiring them to meet minimum standards of management, safety record and financial solvency.

Source : Channel NewsAsia - 23 Dec 2008

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Business travellers may opt for budget hotels with economic crunch

Business travellers may opt for budget hotels with economic crunch

By Cheryl Frois,

SINGAPORE: Budget may be the new buzzword for business travellers to Singapore as an internationally branded economy hotel prepares to open at a time when the industry is likely to be facing an oversupply of rooms.

The year-end festive period usually translates to booming business at hotels. But this year, some are trying to attract more patrons with perks from F&B credits to spa vouchers and even free parking and bubbly.

Lau Ler Ling, assistant manager, Marketing Communications, Marina Mandarin Singapore, said: “Compared to last year, our hotel business pick-up is considered relatively slow.”

Even luxury chains are using words like value.

Burhan Culculoglu, director, F&B, The Fairmont Singapore, said: “We are very price sensitive to our guests’ needs and when they come to our restaurants like Pregos, they find value on the menu.”

The Fairmont Singapore may not have seen a drop in business this year, but neither has it seen a 5 per cent increase in turnover, which is usual at this time of the year.

For Ibis Hotel, which is scheduled to open in Singapore in February next year, the term “economic downturn” is anything but terrifying.

Puneet Dhawan, general manager, Ibis Hotel, said: “A brand like Ibis typically gains in economic times like these because people still have to travel for work, business and to a certain extent, for leisure.

“People tend to step down – so instead of staying in a five-star, they go to a four-star, and from four-star to three-star.”

The hotel in Singapore will be the largest Ibis Hotel outside of Europe with more than 500 rooms. Ibis has trimmed costs by advertising solely online, with F&B outlets offering value-for-money dining.

In fact, five more hotels will be opening their doors in Singapore next year. These are Quincy Hotel, Capella Singapore, Park Hotel Clarke Quay, Marina Bay Sands Integrated Resort and the Carlton Hotel Extension.

Singapore already has over 200 hotels and some 37,000 rooms.

Visitor arrivals dipped 8 per cent in October – its fifth straight monthly drop this year and the biggest decline since SARS hit the Asian region in 2003.

- CNA/so

Source : Channel NewsAsia - 23 Dec 2008

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Rents to hold steady despite en bloc influx - Singapore

Rents to hold steady despite en bloc influx - Singapore

Supply limited and not all are fit to be rented out, say consultants

By Joyce Teo

Airview Towers at St Thomas Walk in River Valley is one of a number of collective sale developments that would be put back onto the rental market next year.

MORE units at developments sold enbloc are expected to be released onto the rental market, as developers look to ride out the market downcycle by renting them out, instead of leaving them empty.
But the additional supply of apartments from these developments should not weigh heavily on an already falling rental market, property consultants said.

Several developments that were sold en bloc last year and intended for demolition and redevelopment were put back onto the rental market this year, following the deterioration of market sentiment.

There has been a thin but regular stream of such developments since early this year. They are typically leased out at rents that are at least about 20 per cent below market level, said Knight Frank director of research and consultancy Nicholas Mak.

More will follow next year as some developers have yet to take possession of their collective sale properties. For instance, Airview Towers in the River Valley area will be leased out from February next year, for a one-year period.

Units there will be rented out at more than $2,000 to less than $4,000 a month.

An owner there said their rent-free period will end in February, but a few units are already being leased out to quite a number of foreigners on work permits.

Two other developments, Spottiswoode Park and Oakswood Heights, on Spottiswoode Park Road are also likely to be put on the rental market early next year, said a market watcher.

Mr Mak said these developments are unlikely to add much downward pressure on rents as there are not many of such developments, which come with just basic facilities and a short lease.

Secondly, they are mostly rented out to existing tenants or ex-owners of the development, he said. ‘Thirdly, not all the units in the developments are fit for rental. One reason why these developments went for en-bloc sale is because they are rundown,’ said Mr Mak.

Also, as the projects are meant for redevelopment eventually, developers are unlikely to spend a lot of money to spruce them up, consultants said.

‘Rents in general, like capital values, reflect the physical condition of the stock, the tenure, location et cetera,’ said Jones Lang LaSalle’s South-east Asia research head, Dr Chua Yang Liang.

As the reported rents must also account for the transient nature of the leases, the depressive effect of such rents on the general market is marginal, he said.

Rents of private residential properties here have fallen and are expected to fall further next year. Average prime rents are now at $4 to $4.40 psf, slightly down from $4.20 to $4.60 psf in the third quarter, according to CB Richard Ellis.

Other collective sale developments being leased out include Fairways in Telok Blangah, Grangeford at Leonie Hill, Lucky Tower in Grange Road and even Merlin Mansion in the East Coast Road area.

Fairways is offering a one-year lease at rents from $1,900 a month while rents at Grangeford start from about $3,500 for a two-bedroom unit. Both were bought around the middle of last year.

Developments that have already been in the rental market for months include Leedon Heights off Holland Road, Sophia Court in Adis Road and Lincoln Lodge off Newton Road.

Source : Straits Times - 23 Dec 2008

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Singapore DBS raising $4b with rights issue

Singapore DBS raising $4b with rights issue

Like banks worldwide, it aims to boost balance sheets amid turmoil

By Francis Chan

DBS chief executive Richard Stanley said yesterday that the rights issue will enable DBS to capture opportunities to entrench its market position in key Asian markets and weather the economic uncertainties ahead. — ST FILE PHOTO

DBS Group Holdings is aiming to bolster its balance sheet by raising a further $4 billion through a rights issue - one of the biggest such exercises mounted in Singapore.
The step mirrors similar moves by banks worldwide, which want to beef up their balance sheets amid financial turmoil and market volatility.

Chief executive Richard Stanley said yesterday that the bank was raising the capital from a ‘position of strength’.

He added that the rights issue ‘will enable DBS to capture opportunities to entrench our market position in key Asian markets and confidently weather the economic uncertainties ahead’.

The announcement by DBS yesterday also follows a similar exercise in May when it raised $1.5 billion through a sale of preference shares.

Local rivals OCBC Bank followed, raising $1 billion in July and a further $1.5 billion in August. In September, United Overseas Bank also raised $1.32 billion.

The latest fund raising by DBS will be on a basis of one new ordinary share for every two existing shares held at close of trading on Dec 31.

Priced at $5.42 per share, the issue represents a 45 per cent discount to the bank’s last traded share price of $9.85 last Friday.

Temasek Holdings, DBS’s largest shareholder, will tap up a third of the issue.

DBS said the fund raising was aimed at giving it a stronger capital position and was not intended to pay for any merger and acquisitions or to meet any extraordinary provisions that might be looming.

However, the bank faces one-time provisions in the fourth quarter, including $45 million for the recent layoffs and an undetermined amount for an impairment to its investment in ailing Thai lender TMB Bank.

DBS is also reviewing its investment in Cholamandalam DBS Finance to determine if a provision is required in view of the liquidity stress experienced by non-bank financial companies in India.

Last month, the bank reported a 38 per cent fall in third-quarter net profit to $379 million and announced 900 job cuts - or about 6 per cent of its staff - in Singapore and Hong Kong.

The extra cash on its books will lift Tier-1 capital - a sign of how cashed up a bank is - from 9.7 per cent to 11.8 per cent. This is well over the minimum regulatory requirement here.

DBS shares closed 48 cents or 4.87 per cent down at $9.37 yesterday.

Analysts said the dip may have been due to the large discount of the rights issue.

‘I think the issue price, at just over $5, was very low and that probably caused a bit of nervousness,’ said a veteran banking analyst who wanted to remained anonymous.

‘But DBS will raise the funds and that will effectively be their war chest which they can use if they identify any good opportunities ahead.

‘If so, then that will be a positive point for them but whether it will reduce their volatility going forward, I don’t think so.’

UOB Kay-Hian’s Jonathan Koh added: ‘This possibility of DBS having to raise equity has kept the share price suppressed, but now that the rights issue has been announced, maybe we have the possibility of the overhang being removed.’

Source : Straits Times - 23 Dec 2008

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Singapore CPF cut not needed for now

Singapore CPF cut not needed for now

Other tools available with Singapore’s flexible wage system

By Zakir Hussain

FORMER labour chief Lim Boon Heng has ruled out cuts to Central Provident Fund contribution rates for now, saying that a range of measures already in place can be used to trim wage and business costs here.
Chief among them is the flexible wage system, which allows firms to keep salaries in line with economic conditions and avoid layoffs by adjusting the variable components and bonuses.

He told some 800 unionists on Friday that the wage system had been made more flexible precisely to help firms and workers in dire times like the present.

‘We have learnt from past recessions that the use of the CPF cut is a blunt instrument,’ said Mr Lim, who is Minister in the Prime Minister’s Office, referring to how employers’ contribution rates had been slashed in previous severe downturns.

His remarks, released to the media yesterday, came after the National Wages Council (NWC) said last Tuesday that in the light of the worsening global economic crisis, it would reconvene next month to revise guidelines it set earlier this year.

That announcement prompted speculation among some economists that measures such as a cut in contribution rates to the CPF, the national social security savings plan, might not be far behind.

‘I have a view on this,’ Mr Lim said when he quashed speculation about a rate cut at the 27th anniversary dinner of the Singapore Industrial & Services Employees’ Union (Siseu), the second-largest union here with 55,000 members.

A flexible wage system had been developed over the years, he noted. For rank-and-file workers, 20 per cent of their annual pay was in flexible bonuses and 10 per cent was in the monthly variable component (MVC) that can be cut in difficult times.

For executives and managers, the flexible component is even higher, he noted.

‘Therefore, there is already a lot that can be done to trim wage costs. Apart from using the flexible wage system, companies can also use a shorter work-week,’ he argued.

‘We developed this flexibility so that we do not need to use the CPF cut. We should therefore see how the flexible wage system works in this downturn. A CPF cut is not justified at this point in time.’

The total CPF contribution rate for employees aged 35 and below is 34.5 per cent, with employers putting in 14.5 per cent.

Thereafter, contribution rates on both sides vary according to age and income.

The last time the employers’ contribution rate was cut was in October 2003 after the Sars crisis. It was reduced from 16 per cent to 13 per cent. This was then restored to 14.5 per cent in July last year.

Mr Lim acknowledged that companies need to trim costs to survive the downturn, but said Singapore was fortunate to have built up a flexible wage system.

‘Bonuses can be cut. The MVC can also be cut if needed. Other measures include a shorter work-week with corresponding reductions in wages,’ he said.

‘This is our advantage. There is no other country I know that has such a range of options open to employers, with unions that are willing to support such measures.’

His view on CPF cuts was acknowledged by Siseu general secretary Lim Kuang Beng, and Singapore National Employers Federation executive director Koh Juan Kiat.

Siseu’s Mr Lim, addressing the point that a CPF cut was a blunt instrument, said that when employers’ contributions were cut previously, workers had to fork out extra cash to pay their mortgages, while others saw a shortfall in their retirement savings.

‘Cutting CPF does not make sense. In fact everything will go haywire especially in a recession,’ he said.

Mr Koh said that the variable components now constitute ‘a significant portion’ of total salaries: ‘We have built these up over the years precisely for times like these.’

According to the NWC, 84 per cent of private sector workers are under some form of flexible wage system.

Citigroup economist Kit Wei Zheng said policymakers were more aware that while past CPF cuts may have saved jobs, they can hurt consumption even more because homeowners who rely on CPF for their home loans would have to use more cash and thus have less to spend.

Source : Straits Times - 23 Dec 2008

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From Wall St to Singapore Bukit Merah

From Wall St to Singapore Bukit Merah

Hsuan Owyang considers his work done in Singapore’s public sector among his greatest achievements, reports UMA SHANKARI

HIS stint of more than four decades in Singapore has bought him a lot of experience. Hsuan Owyang has been chairman of the Housing and Development Board (HDB), sat on the boards of the Monetary Authority of Singapore (MAS) and Temasek Holdings, and also had a role in running some of Singapore’s best-known companies such as Overseas Union Bank (OUB), POSB and Singapore’s largest property company CapitaLand.

Mr Owyang: Has been very fortunate in being in two vastly different places but always at a time of great growth - Wall Street in the 1950s and 1960s, and Singapore over the last 40 years
But the 80-year-old Mr Owyang, who has retired from the public and private sectors in Singapore and relocated to the US, is just thankful to have been at the right place at the right time.

‘I have been very fortunate to see it (the growth of Singapore) from day one,’ says Mr Owyang, who arrived in Singapore in early 1965 - just months before the nation gained its independence. He is broadly acknowledged for his part in building Singapore Inc.

Born in Guangzhou, China in 1928, Mr Owyang hails from a family that has a record of public service. His father, Chi Owyang, was Singapore’s ambassador to Thailand for 17 years and a co-founder of OUB.

The younger Mr Owyang himself has gained public recognition - and a Meritorious Service Medal - for his work at HDB. He served on the board for 21 years - 15 of them as chairman - until he retired in 1998.

He has also contributed with his his lesser known role in Singapore’s Film Appeal Committee, where he advocated a loosening of censorship rules. While Mr Owyang believes that a censorship policy is necessary to reconcile the more liberal elements in Singapore’s society with the more conservative factions, he was against mindless censorship. Mr Owyang has also chaired two think tanks - the Institute of Policy Studies (IPS) and the East Asian Institute - and served as pro-chancellor of Nanyang Technological University.

Mr Owyang’s first calling, however, was the world of stockbroking and finance. Armed with an MBA from Harvard, Mr Owyang joined Wall Street in 1952 as an investment councillor in the broking firm of Thomson & Mckinnon.

‘When I joined Wall Street in 1952, it was still suffering from the aftermath of the Depression,’ Mr Owyang recalls. ‘Wall Street was neglected at that time.’

Merril Lynch was then the biggest firm on Wall Street. Goldman Sachs had less than 200 employees. Whenever trading volume on the New York Stock Exchange crossed the four million mark, stockbrokers would celebrate by opening a bottle of champagne, Mr Owyang says with a laugh. ‘Now, just one company can easily cross the four million mark!’

His 12 years (1952-1964) on Wall Street coincided with a period of electrifying growth. When Mr Owyang entered the industry, The Dow Jones Industrial Average stood at around 200. By end-1964, it had crossed the 900 mark. It would take another 18 years for the index to cross the 1,000 mark.

‘It was practically the golden age of the US in the 20th century,’ recalls Mr Owyang. ‘It was just after the war (World War II) and America pretty much had the whole field to itself.’

So when OUB asked him to relocate to Singapore to help run the rapidly expanding bank, Mr Owyang was understandably unsure: ‘The future of Singapore was very uncertain . . . I took more than a year to think about whether I should stay or make a move. New York, after all, was the place where everything was happening.’

But he finally decided to come to Singapore to put some of his management training, which was not utilised in Wall Street, into use. He took a big pay cut (making just one-third of his previous salary) and arrived in Singapore - open to change and determined to succeed.

To understand Mr Owyang, one has to look to his childhood. Born in China a few years before the country was plunged into the Sino-Japanese war, Mr Owyang had survived typhoid fever, malaria, hepatitis and several bouts of the flu by the time he was 20. His family was also forced to keep relocating to stay ahead of the Japanese. ‘Because of the war, we had to move around a lot to be one step ahead of the Japanese,’ Mr Owyang says. To complete his six years of high school, he had to go to six different schools in six different cities.

The Sino-Japanese war ended in 1945, but China was in for another challenge - a civil war. ‘The civil war in China had started by 1949. China was in an extremely chaotic situation, and it was practically impossible to finish school,’ says Mr Owyang. In 1949, he left for the US to finish his final year of university.

He enrolled in the University of Dubuque, a small liberal arts college in Iowa. After graduating, he applied to several universities to do his MBA, and received acceptances from most of them, including Harvard and the Wharton School of the University of Pennsylvania. He chose to go to Harvard.

In his second book published in 1998 (the first was a biography of his father) - From Wall Street to Bukit Merah - Mr Owyang shared lessons learnt in a career which started in Wall Street and culminated in the Bukit Merah head office of the HDB. Along the way, he had spent 18 years at OUB, and also sat on the boards of DBS Land, TLB Land, General Securities Investments and Transpac.

But he considers his work done in Singapore’s public sector among his greatest achievements. Mr Owyang entered the public sector in Singapore in 1977, when he was appointed as a member of HDB’s board.

‘I enjoyed the public sector work,’ he recalls. During his time at HDB, he worked to introduce some private sector concepts into the organisation. ‘I told them, you should not treat the resident as just a resident. The resident is your customer.’ He also streamlined operations and tried to create a culture of getting HDB to better its own record year after year, rather than resorting to complacency in the face of no competition.

But HDB, he concedes, was already a well-run organisation when he took over. ‘Some CEOs want to re-invent the wheel when they come in,’ says Mr Owyang. ‘That might not be a good thing. But you should make a difference between the time you come in and before you leave.’ During the time he was in charge, the number of letters to the press complaining about HDB’s service fell sharply, he says.

For the entire decade of 1988-1998, Mr Owyang was occupied mostly with the public sector. ‘I missed the period where the private sector was booming, but I have no regrets, I would do it all over again,’ he says. ‘I think a person’s life will only be complete when he has contributed to society.’

Throughout the interview, Mr Owyang reiterates that he has been very fortunate in being in two vastly different places but always at a time of great growth - Wall Street in the 1950s and 1960s, and Singapore over the last 40 years. ‘I’ve always considered Singapore a man-made miracle,’ he says. The country’s success, he says, could be attributed to its political leadership. ‘This is the biggest lesson I have learnt from Singapore, that the political leadership leads the way.’

But now, Mr Owyang is retiring to to San Diego, a city which he says has the ‘best climate in the world’. ‘I have done as much as I could for the public and private sectors in Singapore,’ he says. ‘I have to think about the quality of my life in my remaining years.’ Moving to the US will allow him to be closer to his family, Mr Owyang, a US citizen, says.

Source : Business Times - 23 Dec 2008

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Tapping market indices to signal office rental swings

Tapping market indices to signal office rental swings

DTZ system predicts chance of office market correcting or recovering

By KALPANA RASHIWALA

(SINGAPORE) In Singapore as well as Hong Kong, stock market indices lead official office rental indices between two and five quarters before correction or recovery sets in, property consultancy DTZ observes in a report issued yesterday.

Office vacancy rates in these two Asian cities also led office rent correction and recovery by a few quarters. Guided by this finding, DTZ has developed an in-house early warning system to predict the probability of office markets in both cities entering correction or recovery phase within the next three to six months.

This will use the stock index and vacancy rate as leading predictors. These indicators are based on the probability concept and expressed in percentage terms.

Figures exceeding 50 per cent indicate that the probability of entering the correction phase in the next three to six months is high, and vice-versa.

As at end-Q3 2008, the Singapore office probability indicator reached 65 per cent while that of Hong Kong hit 63 per cent. ‘The risk reflected for Singapore matched the official pronouncement by the Urban Redevelopment Authority,’ DTZ says.

As at end-Q3 2008, the Singapore office probability indicator reached 65 per cent while that of Hong Kong hit 63 per cent.

The URA office market rental index for Q4 2008 will be released only in late January.

DTZ, in its report, does not give latest Q4 office rents for Singapore.

However, BT reported recently that, according to latest estimates by rival property consulting group CB Richard Ellis, average Grade A and prime office rental values in Singapore have slipped about 20 per cent in the fourth quarter of this year over the preceding quarter - after rising steadily for nearly four years.

The rents for these two categories of office space peaked in Q3 this year. DTZ evaluated the quarterly movements of the STI against URA’s office market rental index as far back as 1993.

For Hong Kong, it mapped the official office rental index against the Hang Seng Index as far back as Q1 1997.

‘The results . . . clearly show that such a delayed effect is not a one-off event. It had occurred in the past during the Asian financial crisis in 1998 and the tech bubble crisis in 2001,’ DTZ says.

The Straits Times Index peaked at 3,900 points on Oct 10, 2007, while the Hang Seng Index peaked at 32,000 on Oct 30 last year, DTZ notes

Source : Business Times - 23 Dec 2008

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Opportunities in crisis for start-ups, investors

Opportunities in crisis for start-ups, investors

By CHEN XUIFEN

BOTH start-ups and angel investors should make hay during the current financial meltdown as it presents opportunities for both parties, said Boon Swan Foo, executive chairman of Exploit Technologies, the Agency For Science, Technology And Research’s (A*Star) commercialisation unit.

Mr Boon: Promising start-ups that are funded now could ride the upward trend by 2011 and 2012
‘For the start-ups, it is good news, ironically though, that the stock market has become rather volatile, and safe investments like T-Bills (Treasury Bills) and bonds have interest rates hovering just above zero per cent right now,’ said Mr Boon.

‘This means that many wealthy individuals and angel investors are putting their money to work in private equity markets. Start-ups with a good plan and solid executions should be able to find money out there.’

On the other hand, angel investors will find valuations facing downward pressure, and there is greater availability of talent which they can use at the start-ups, as a result of contractions in the job market.

To facilitate links between start-ups and angel investors, Mr Boon’s organisation tied up with Nanyang Technological University (NTU) Alumni Club yesterday to collaborate on networking activities.

Under the Exploit Technologies Angel Investment Management initiative (AIM), NTU Alumni Club will provide the links with members and associates who are keen to be angel investors, through its recently set up angel networking group.

At the same time, Exploit Technologies will channel a pipeline of start-ups and potential start-ups to regular pitching sessions, coordinated luncheons and tea receptions.

These new firms or aspiring spin-offs could come from A*Star or Exploit Technologies’ contacts at tertiary institutions here.

Mr Boon added that there is a good chance of 2011 and 2012 being bull run years, which means that promising start-ups that are funded now could ride the upward trend by then.

‘The fact remains that returns to early-stage venture funds will only materialise some three to six years later,’ said Mr Boon. ‘Promising start-ups that are funded now will be ripe for success just in time, right when the crisis is over, and the economy picks up.’

Source : Business Times - 23 Dec 2008

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3 insurance brokers stripped of advisory services rights - Singapore

3 insurance brokers stripped of advisory services rights - Singapore

MAS takes action after finding breaches of the law

By JAMIE LEE

(SINGAPORE) Three insurance brokers - Acclaim Insurance Brokers, Leadenhall Insurance Brokers and Magnetron Insurance & Financial Services - have been told by the central bank to stop offering advisory services by today.

And come Jan 22 next year, they will also lose their exemption from a financial adviser’s licence requirement.

‘This means that they will no longer be permitted to provide financial advisory services in Singapore,’ said the Monetary Authority of Singapore (MAS) yesterday.

Following an inspection of how the three firms provided financial advisory services, the central bank found contraventions of the Financial Advisers Act.

‘Further, MAS found that they did not have adequate management oversight or control policies and procedures for their financial advisory operations.’

This included the monitoring of the conduct of their representatives or introducers, as well as complaint investigation and resolution process.

As the three firms are registered insurance brokers under the Insurance Act, they were exempted from the requirement to hold a financial adviser’s license.

MAS said that it was ‘withdrawing (their) exempt status . . . on the grounds of their contraventions of the FAA and in the public interest’.

It has instructed the three firms to ensure that all outstanding orders from clients and their monies are forwarded to relevant parties. It added that the firms must inform their customers that they are no longer allowed to provide such services; explain any effect on their investments or insurance policies; as well as provide contact persons to handle queries relating to their loss of exemption.

But the status of life insurance policies of clients under these firms and premiums paid under such policies will not be affected, said MAS.

Acclaim had faced police investigations a year ago over claims that clients’ funds were channelled to Leadenhall without their permission. Some $57 million from 2,000 clients was allegedly transferred, The Straits Times reported.

Source : Business Times - 23 Dec 2008

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Singapore DBS grabs initiative with $4b cash call

Singapore DBS grabs initiative with $4b cash call

Move not unexpected, but size and pricing come as surprise to some

By EMILYN YAP

(SINGAPORE) Preparing for tougher times ahead, DBS Group yesterday launched a $4 billion rights issue priced at a steep discount to boost its balance sheet and pursue organic growth.

Already, the bank expects fourth-quarter net profit to drop from the previous quarter, and other one-time charges could hit the bottom line further.

While some analysts had expected several Asian banks to raise new capital as the financial crisis unfolds, the size and discount involved in DBS’s rights issue seemed to have caught the market off guard.

Reacting to the news, DBS shares fell as much as 10.6 per cent to an intraday low of $8.81, before closing at $9.37 for a 4.9 per cent or 48-cent loss.

The rights issue comes ‘at a time when investor preference globally has shifted in favour of banks with higher capital levels, especially core capital levels,’ DBS said.

To raise around $4 billion in net proceeds, DBS is offering 760.48 million rights shares on the basis of one rights share for every two existing held. The rights shares are priced at $5.42 each, at a whopping 45 per cent discount to the counter’s closing price of $9.85 last Friday.

Five banks - Citi, Goldman Sachs, JP Morgan, Morgan Stanley and UBS - are underwriting the rights issue in full. DBS’s directors plan to take up their entitlements under the rights issue fully.

DBS’s largest shareholder, Temasek Holdings, is also subscribing for up to 33.3 per cent of the rights issue through a sub-underwriting arrangement. This includes Temasek taking up its full rights entitlement of 27.6 per cent. Its aggregate shareholdings after the exercise will remain under 30 per cent.

The books closure date for the renounceable rights offering is Dec 31, 2008.

‘It came (as quite a surprise), that they are raising so much money . . . and at such a huge discount,’ said Phillip Securities analyst Brandon Ng.

Assuming that it raises $4 billion, DBS would have a pro forma consolidated core Tier 1 ratio of 9.9 per cent as of Sept 30, up from 7.8 per cent previously. According to DBS, this new ratio exceeds UOB’s 9.3 per cent, but remains below OCBC’s 10.6 per cent.

The new funds would also raise DBS’s pro forma consolidated Tier 1 ratio from 9.7 per cent to 11.8 per cent. Again, this is more than UOB’s 11.2 per cent but less than OCBC’s 14.4 per cent.

‘DBS’s Tier 1 ratio is lower than the other two banks’,’ said CIMB analyst Kenneth Ng. ‘It’s safe to assume that $4 billion puts their Tier 1 just above UOB’s, so they wouldn’t be the last.’

DBS chief executive Richard Stanley emphasised in a teleconference yesterday afternoon: ‘This rights issue is being initiated from a position of strength . . . It is not to support a kitchen-sinking or a clean-up of our balance sheet.’

The new funds will also be used for organic growth, but not mergers or acquisitions, he added. ‘The current environment presents both opportunities and challenges.’

DBS said that it will continue to build its businesses in Singapore and Hong Kong. Among other strategies, ‘we’ll do this by increasing high-quality corporate lending . . . cross-selling a wide array of products including cash management and other fee-based products,’ said Mr Stanley.

DBS will also continue to invest in China, Taiwan, India and Indonesia, he added.

The bank however, expects Q4 net profit to be moderately lower than the previous quarter’s. This does not take into account one-time charges, which include $45 million from the recent staff restructuring and more impairment of its investment in TMB Bank.

The bank’s rights issue comes on the back of fundraising exercises by other banks. Standard Chartered for instance, recently obtained £pounds;1.8 billion (S$3.9 billion) in a rights offer priced at a 49 per cent discount, reported Bloomberg.

Analysts from Morgan Stanley had said in a report last month that 39 banks in Asia may need to raise new share capital, cut dividends, or sell assets for cash in the next few months. DBS was among those that they thought were most likely to call for new capital, while OCBC and UOB were not on their list.

‘The question we should be asking now is, for the other two banks (OCBC and UOB) which did preference share issues - will that be enough, and will we see further capital raising?’ asked managing director of NetResearch Asia, Kevin Scully.

When asked by BT, a UOB spokesman said that its Tier 1 ratio as of Sept 30 is adequate, but ‘we continue to review our capital position and needs’.

OCBC did not specify if further fundraising plans were in the works.

Source : Business Times - 23 Dec 2008

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