Congratulations to the People of Thailand


December 3, 2016

Congratulations to the People of Thailand

by AFP

Crown Prince Vajiralongkorn becomes Rama X of Thailand’s Chakri Dynasty, but will not formally be crowned until after his father’s cremation, which is expected next year.

King-Rama

Crown Prince Maha Vajiralongkorn became the King of Thailand late Thursday, opening a new chapter for the powerful monarchy in a country still mourning the death of his father.

The 64-year-old Prince inherits one of the world’s richest monarchies as well as a politically febrile nation, 50 days after King Bhumibol Adulyadej’s death.

After weeks of complex palace protocols the Prince was invited by the head of the National Legislative Assembly (NLA) to ascend the throne in an event broadcast on all Thai television channels.

“I agree to accept the wishes of the late King… for the benefit of the entire Thai people,” said Vajiralongkorn, wearing an official white tunic decorated with medals and a pink sash.

The sombre, ritual-heavy ceremony at his Bangkok palace was attended by the Chief of the NLA, junta leader Prayut Chan-O-Cha, and the powerful 96-year-old head of the privy council, Prem Tinsulanonda.

Red-jacketed courtiers looked on as a palace staff member, shuffling on his knees, presented the new King with a microphone through which he delivered his few words of acceptance.

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His Majesty King Vajiralongkorn then prostrated himself, hands pressed together in respect, to a small shrine topped by a picture of his father and mother —Her Majesty Queen Sirikit Kitiyakara.

He becomes Rama X of Thailand’s Chakri dynasty, but will not formally be crowned until after his father’s cremation, which is expected next year.

Bhumibol’s reign, which ended on October 13, spanned a tumultuous period of Thai history pockmarked by a communist insurgency, coups and street protests.

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It also saw breakneck development which has resulted in a huge wealth disparity between a Bangkok-centric elite and the rural poor.To many Thais, Bhumibol was the only consistent force in a politically combustible country, his image burnished by ritual and shielded by a harsh royal defamation law.

The United States offered its congratulations to the new King, saying it looked forward to strengthening ties with Thailand. “We offer our best wishes to his majesty and all of the Thai people,” the State Department said.

“His father, King Bhumibol, ruled the Kingdom of Thailand with vision and compassion for 70 years and was a great friend of the United States. The United States and Thailand enjoy a longstanding, strong, and multifaceted bilateral relationship, and we look forward to deepening that relationship and strengthening the bonds between our two countries and peoples going forward.”

Into the limelight

Monks chanted blessings at Buddhist temples to mark the new monarch’s ascension — an era-defining moment for most Thais who for seven decades knew only Bhumibol as their King.

His Majesty Vajiralongkorn does not yet enjoy the same level of popularity.He spends much of his time outside of the public eye, particularly in southern Germany where he owns property.

He has had three high-profile divorces, while a recent police corruption scandal linked to the family of his previous wife allowed the public a rare glimpse of palace affairs.

Thursday’s ascension ends a period of uncertainty since Bhumibol’s death prompted by the Prince’s request to delay his official proclamation so he could mourn with the Thai people.

Thailand’s constitutional monarchy has limited formal powers but it draws the loyalty of much of the kingdom’s business elite as well as a military that dominates politics through its regular coups.

Analysts say  His Majesty King Vajiralongkorn, untested until now, will have to manage competing military cliques.

In a brief televised address after the ceremony, Prime Minister Prayut Chan-O-Cha, who as army chief led the 2014 coup, praised the new King “as the head of the Thai state and heart of the Thai people.”

The Thai monarchy is protected from criticism by one of the world’s strictest lese majeste laws, carrying up to 15 years in jail for every charge of defaming the King, Queen, heir or regent.

That law makes open discussion about the Royal Family’s role all but impossible inside the Kingdom and means all media based inside the country routinely self-censor. Convictions for so-called “112” offences — named after its criminal code — have skyrocketed since the Generals seized power in 2014.

Experts say most have targeted the junta’s political opponents, many of whom support the toppled civilian government of Yingluck Shinawatra.

The emergence of Yingluck’s brother Thaksin in 2001, a vote-winning billionaire seen by many of the rural poor as their champion, prompted the recent round of political conflict. The army and royalist establishment have toppled two governments led by the siblings, accusing them of nepotism and corruption.

 

1MDB Chairman Lok Wok Kamaruddin Explains


December 22, 2014

1MDB Chairman Lok Wok Kamaruddin Explains

lodin-wok-kamaruddinAs the Chairman of the Board of Directors of 1MDB, I have viewed with surprise recent statements, both in the media and by certain individuals, suggesting that the company has failed to respond to various questions that have been directed at it over the past months.

As the Board of Directors, we welcome debate, and as a company that is wholly-owned by the Ministry of Finance – and by extension, the people – we believe that public scrutiny of 1MDB is a good thing, and will only serve to strengthen the company and its governance.

In the interests of increasing the company’s transparency, I have held meetings with members of the media where I listened to and responded to their concerns.

Furthermore, the company has taken various other measures such as issuing multiple statements responding to allegations directed at the company, publishing a detailed document answering frequently asked questions, and releasing a public statement outlining key highlights from 1MDB’s last financial results – the first time 1MDB has done so since the company’s inception in 2009.

All of this information is freely available on 1MDB’s website, and we believe that these actions reflect our efforts to engage in a more open and constructive dialogue than has perhaps been the case in the past.

Despite this, issues that have previously been raised and, subsequently, addressed by the company continues to be regurgitated by certain individuals. In the interests of providing clarity, we would once again like to respond to the various concerns.

1MDB’s funding and debt levels

Contrary to claims, 1MDB is not a sovereign wealth fund but rather a strategic development company. In practice, this translates into a company that is independently run and funded, but one whose investment decisions are driven by the interests of the national economy.

Whilst a sovereign wealth fund and a strategic development company may not sound very different, there is an important distinction between the two: whereas a sovereign wealth fund is directly funded by the government and invests on its behalf, 1MDB raises and invest its own capital.

In fact, in terms of actual funding, the company has only ever received RM1 million in equity, which was provided by the Ministry of Finance at the time of its inception.

Given that 1MDB does not receiving any funding from the government, it is therefore simply not true to claim that the company is investing or worse, wasting, the state’s – or the people’s – money.

As 1MDB funds its own operations, it should not be surprising that, from time to time, the company raises capital on the international debt markets in order to finance some of its projects. However, all of this debt is backed by solid assets.

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At present, this includes the 15 power and desalination plants in five countries that comprise our energy business, as well as our extensive property portfolio which includes 70 acres of prime real estate currently being developed as TRX – Kuala Lumpur’s first dedicated financial district, 495 acres of land on the site of the old airport in Sultan Besi earmarked for Bandar Malaysia – a mixed-use urban development, and 234 acres of land in the centre of Air Itam, Penang.

The total value of the company’s assets (RM51.4 billion as at the financial year end of March 2014) comfortably exceeds the value of its total debts (RM41.9 billion for the same period). This means that the company has net assets of close to RM10 billion, representing the value it has created since its inception five years ago.

Furthermore, this does not take into account the expected benefit to be realised from the initial public offering of the group’s energy portfolio, which will help de-leverage the group and contribute towards reducing its debt profile.

Finance costs and interest rates paid by 1MDB

Like any business, 1MDB attempts to secure the lowest rate of interest and finance costs when taking out a loan or conducting a bond issue. However, in certain instances, these interest rates and finance costs have been towards the higher end of the market rate.

It has to be understood that, when it comes to raising debt on the financial markets, there is no one size fits all solution.A number of factors determine the finance costs and the interest rate applied to a loan or bond issuance. These include the length of maturity, whether the loans are underwritten or guaranteed, macro-economic factors, and many more.

To take one example, we are aware that concerns have been raised about the 5.75% interest rate assigned to a RM5.0 billion Islamic bond that was issued by 1MDB in 2009. As a comparison, it has been noted that another government-linked company PETRONAS paid an interest rate of 3.60% on a bond at the same time.

This is an unfair comparison that does not take into account a number of important factors. To highlight just one: when subscribing to a bond, lenders take on a certain degree of risk and the longer the tenure, the higher the risk for the bondholder. Therefore, bonds that have a longer maturity period typically have a higher interest rate.

To the best of our knowledge, the only PETRONAS-related bond issued in 2009 that carried a coupon rate of 3.6% was for a RM100 million bond with the tenure of only three years, whereas the 1MDB bond had a tenure of 30 years. As such, given the significant difference between the maturity periods, it should not be surprising that the bond issued by 1MDB had a higher interest rate.

More broadly, it is important to note that the bond issued by 1MDB in 2009 was the first Malaysian bond with a 30-year tenure, and the first Islamic bond to be issued with a maturity period of that length. Given the economic climate at the time, the fact that 1MDB successfully managed to raise this amount of capital reflects the support, goodwill and confidence placed in the company.

Funds regulated by the Cayman Monetary Authority

There has also been substantial debate about funds invested by the company regulated by the Cayman Monetary Authority. However, anyone familiar with the financial world should be able to confirm that there is nothing unusual about companies of this size investing their funds in the Cayman Islands, which is one of the largest registered fund jurisdictions internationally, with the Cayman Monetary Authority recognised as one of the leading fund regulators in the world.

Thousands of international blue-chip companies have funds regulated by the Cayman Monetary Authority, including over 200 Malaysian companies, many of which are household names.

To provide some background with respect to 1MDB’s investment: in 2009, 1MDB and a Saudi Arabian company entered into a joint venture to facilitate long-term economic cooperation between Malaysia and Saudi Arabia. As part of this, a joint-venture fund was set up to undertake investments on projects which would generate financial and strategic benefits to both countries.

However, due to various factors, both parties eventually decided not to proceed with these plans. As a consequence, 1MDB’s investment in the company was converted into a fixed income instrument in the form of Murahaba notes, essentially a loan, with an annual interest rate of 8.75%. This loan was paid back in full, for US$2.318 billion with a profit of US$488 million, in 2013.

Repatriating these funds to Malaysia would have exposed them to fluctuations on the foreign exchange market, as being witnessed at the moment. In order to ensure that 1MDB maintained a strong liquidity position with a truly diversified global portfolio, these funds were invested in a 1MDB subsidiary that was registered in the Cayman Islands. However, the company has already redeemed a significant portion, US$1.4 billion, of the fund and expects to redeem the remaining amount in the coming months.

Overpaying for power assets

In line with the government’s strategic aim of ensuring Malaysia’s energy security, 1MDB has acquired a number of energy assets since 2012. These acquisitions have allowed the company to diversify its fuel mix and country risks, as well as benefit from healthy cash flows and the expertise of their excellent management teams.

The claims relating to the amounts 1MDB paid for its energy assets revolve around values that were attributed to the assets at the time they were acquired and on the basis of certain assumptions made by external parties.

However, the company takes a long term view and consider broader synergies for the group, as well as the social and economic impact on the country, when we evaluate assets and forecast economic returns.

As such, it is the management team’s strong belief that the value paid for these assets, which may have involved a premium in certain instances – as is common when acquiring another business, is commensurate with their existing and future potential.

It is also important to note that since acquiring its first energy assets in 2012, 1MDB has built this into the second largest independent power producer in Malaysia, with a strong presence in international markets within three years.

In total, 1MDB’s energy business has consolidated 5594MW of net capacity, comprising both gas and coal fired plants. This portfolio provides the business with healthy cash flows and enables 1MDB to participate in bids for coal and gas fired plants, the two primary fuel source for power generation assets in the markets that the company operates in, allowing it to create further value and drive future growth.

As such, the economic benefit gained from these assets means that the company has recuperated any excess value it may have paid at the time of the acquisitions.

Overpaying for land

Any decision the company makes to invest in real estate is reached following an extensive period of due diligence, which includes the appointment of independent appraisers to determine the value of the land at the time of the acquisition, whilst also taking into account the value the company can add to it.

All of 1MDB’s investments are undertaken in line with the best interests of the business, and with a view to stimulating economic growth and prosperity in Malaysia.

We understand that there has been some speculation about the value paid by 1MDB for a land parcel in Penang. This land is located in the centre of the town of Air Itam, a much sought after area where property prices have seen a substantial increase in recent years.

This is reflected in the prices that other developers have paid to acquire land in neighbouring areas which, at over RM200 per sq ft, is substantially higher than what 1MDB paid.

In fact, in one instance dating back to 2013, approximately 9.8 hectares in Air Itam were purchased for RM267.4 million, about RM251 per sq ft, for a mixed-use development. In another, approximately RM251 per sq ft was paid for a mixed development project near the Kek Lok Si Temple.

Given the general difficulty companies face in finding sizeable plots of land in prime areas of Penang, that are suitable for carrying out large-tier development projects, the amount paid by 1MDB for this land was not only commensurate with its value but highly attractive.

Preferential treatment on power contracts

Any award takes a number of factors into consideration: the technical standards of the bid, the track record of the company, the bidding price, the urgency of the project and the whole systems cost of the bid to name a few. The projects that 1MDB have been awarded, in Malaysia and abroad, have been on this basis.

Earlier this year, a joint consortium consisting of 1MDB and Mitsui & Co, Japan’s second-largest general trading company, participated in an open and competitive tender exercise for a 2,000MW coal-fired power plant known as Project 3B. Following due consideration of the various bids, the Energy Commission announced that the joint 1MDB-Mitsui consortium had been chosen as the preferred bidder.

Subsequently, there have been suggestions that 1MDB received preferential treatment, and the basis of these claims is that the company’s bid was not the lowest offered. This rationale is flawed as it fails to take into account the fact that any award is based on a number of considerations, not just the tariff.

Whilst there was a bid that was slightly lower than the one presented by 1MDB, the fact is that 1MDB’s was the lowest compliant bid, with a proposed levelised tariff of 25.33 sen/kWh. There was a bid that was fractionally lower, of 25.12 sen/kWh, but this proposal did not comply with a number of requirements set out by the Energy Commission, key amongst which was their lack of experience operating a coal plant.

As the Energy Commission announced in a public statement, the 1MDB-Mitsui Consortium won the bidding exercise “in a fair and square manner with a well-proven technology that would enhance security of supply expected of a 2000MW coal-fired power plant operating in a grid system of our size”.

It is also important to note that there are other tenders that 1MDB has participated in where the contract has been awarded to other parties.

For example, despite 1MDB offering the lowest bid for a gas-fired plant in Prai, another company was deemed as offering a better overall package and awarded the contract on that basis. – December 22, 2014.

*Tan Sri Lodin Wok Kamaruddin is Chairman of the Board of Directors, 1MDB.

 

Tan Sri Halim Saad set to take Sumatec up the corporate ladder


July 31, 2014

Tan Sri Halim Saad set to take Sumatec up the corporate ladder

by Sharen Kaur@www.nst.com.my – 31 July 2014 @ 1:15 AM

ASSET INJECTION: Firm targeting more than RM1b profit by 2018, say sources

FORMER Renong Bhd Executive Chairman Tan Sri Halim Saad is scaling up Sumatec Resources Bhd, which is set to make more than RM1 billion in net profit by 2018.

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Halim controls 24.9 per cent of Sumatec and has been maintaining his shares since last November as he believes that the company can grow fast. “He is not selling his shares any time soon. He plans to build up the company by injecting more assets into it. He is eyeing some oil and gas (O&G) assets in Central Asia,” said a source.

Sumatec expects to produce 30,000 barrels of oil a day in Kazakhstan by 2018. Sources say the company is targeting an average net profit of US$30 (RM95.30) per barrel. “This means it will make around US$900,000 a day from 30,000 barrels, or more than US$328.5 million a year, compared with less than US$20 million currently from existing operations,” said the source.

For the financial year ending December 31 2014, Sumatec is projecting RM69 million in profits. The firm is producing oil at the Rakuschechnoye field with Markmore Energy (Labuan) Ltd, which is 99 per cent-owned by Halim.

Sumatec expects to produce 5,000 barrels of oil and gas a day from this field in the next three years. It is also acquiring Borneo Energy Oil and Gas Ltd, which owns 100 per cent of Buzachi Neft LLP, for US$250 million in cash and shares.

Buzachi has two 25-year contracts  to explore and produce oil and gas in the Karaturun Vostochnyi and Karaturun Morskoi fields, also known as Buzachi Fields.

At a recent media briefing, Sumatec Chief Executive Officer Chris Dalton said he expects the acquisition to be completed by October. He said the two assets will contribute US$1.62 million to Sumatec’s profits in the fourth quarter.

Sumatec is targeting to produce 25,000 barrels of oil and gas a day from the Buzachi Fields.  Meanwhile, Sumatec is expected to move out of its  PN17 status by next month and will submit its application to the Securities Commission soon.

The Story Behind CIMB’s Mega Islamic Bank Deal


July 13, 2014

The Story Behind CIMB’s Mega Islamic Bank Deal

by Yvonne Tan@www.thestar.com.my (07-12-14)

cimbmontagenazirzetishahril1207With Islamic finance gaining global acceptance, it’s only natural to set up the biggest Islamic bank in Malaysia.

INDIRECTLY, the seeds of the proposed merger between CIMB Group Holdings Bhd, RHB Capital Bhd (RHB Cap) and Malaysia Building Society Bhd (MBSB) were sown not in Kuala Lumpur but in the world’s financial centre – London.

When CIMB got the mandate to be one of the book runners for the first Islamic finance sukuk raised by a sovereign in the Western world, it was a sure sign that Islamic finance was gaining wider acceptance. Upon returning to Kuala Lumpur, CIMB’s Chairman Datuk Seri Nazir Razak spoke to a group of journalists during Invest Malaysia about how Islamic finance was at the tipping point for growth, considering that the Western world was embracing it.

 Malaysia has the cutting edge in Islamic finance but there have been no takers for a proposal by Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz to establish a mega Islamic bank with a capitalisation of US$1bil (RM3.2bil).

It’s easy to fathom why.

No bank would want to fork out US$1bil to establish a mega-Islamic bank as the returns are not there.But the landscape is fast changing and Nazir seized the moment.

On Thursday, he proposed the setting up of a mega-Islamic bank as part of a merger with RHB Cap and MBSB that would possibly create the largest bank in the country and one of the largest in the region. “The merger fulfils Bank Negara’s objective of the creation of a mega Islamic bank,” says an investment banker.

RHB Cap’s decision last month to call off its Indonesian PT Bank Mestika Dharma proposed buy, which it had been pursuing since 2009, as well as Nazir taking over as chairman effective September 1, were the telling signs of a much bigger plan that was brewing.

The three financial institutions announced this week that they had received the green light from Bank Negara to start exclusive talks for the proposed merger, which includes the formation of a mega-Islamic bank.

In this respect, MBSB, an Islamic financial institution, is slated to fill that role in the merger.Nazir says Islamic finance is at the tipping point for growth, considering that the Western world is embracing it. The parties have 90 days to decide on the pricing, structure and other relevant terms and conditions. Bank Negara’s approval is valid for six months from Thursday.

Amidst this, questions are being raised as to why there is an exclusivity clause in the 90-day agreement, which essentially means that there will not be any competing bids for RHB Cap during this period, suggesting that shareholders may be missing out on more competitive bids.

“There are two reasons for this. One is that RHB Cap is not being sold; it is a merger candidate, and secondly, it is to minimise disruptions,” says an official close to the Employees Provident Fund (EPF).

CIMB Deal

The fact that Bank Negara gave the three institutions approval in less than 24 hours after they wrote to it is a sure sign that it is not against the merger.If the mega-bank materialises, then it will not be difficult to see why it will easily give the country’s current largest bank – Malayan Banking Bhd (Maybank) – a run for its money.

Based on latest figures, the merged entity’s asset size is expected to be more than RM600bil, market value close to RM90bil and combined profits exceeding RM7bil.It will surpass Maybank, which had an asset size of RM578bil as of March 31.

CIMB has a strong commercial presence in Indonesia which is a major contributor to the group’s earnings. Operationally, RHB Cap and CIMB’s resources combined will give a boost to the merged entity’s regional presence.

For one, RHB Cap, which has a full banking licence in Singapore enabling it to venture into diverse businesses – consumer banking, business banking, corporate banking, treasury and investment banking – intends to grow this aggressively over the next few years. This will complement CIMB’s Singapore operations.

CIMB, meanwhile, has a strong commercial presence in Indonesia – something which RHB Cap is lacking – via its PT Bank CIMB Niaga Tbk, which is a major contributor to the group’s overall earnings.

Valuations

There is no doubt that the merged entity will be huge.Its market capitalisation will be more thanOctopus RM90bil, assuming the deal is concluded at about 1.70 to 1.75 times book value.

According to a source, the deal is likely to be done at 1.75 times book value based on CIMB’s current valuation of almost 1.70 times book and unlikely to be transacted at anything less.Recall, in 2012, RHB Cap had paid 1.77 times book value for OSK Investment Bank, lower than the 1.9 times book value Maybank had paid for Kim Eng Securities.

In this current merger deal, the EPF is said to be the main driver because it has significant stakes in all three entities.It is the major shareholder in RHB Cap with a 40.76% stake. The other major shareholders of RHB Cap are Aabar Investments PJSC with a 21.43% stake and OSK Holdings Bhd with a 9.91% stake.

The EPF has a 64.73% stake in MBSB and is the second-largest shareholder in CIMB with 14.46% after Khazanah Nasional Bhd.

It has been learned that the exercise would possibly involve a share swap between CIMB and RHB Cap at a book value of 1.75 times and an outright buyout of MBSB. The eventual merger will see the EPF emerge as the largest shareholder in the mega-bank, with a stake estimated to be more than 25%.

RHB Cap had been a takeover target as far back as three years ago, with both CIMB and Maybank being its suitors. However, the deal fell through because Aabar wanted a higher valuation. Nevertheless, RHB Cap has always been viewed as a takeover target even with the entry of OSK two years ago. This is because the block in RHB Cap that belongs to Aabar from Abu Dhabi has always been viewed as being up for sale and could be used as a launch pad to take over the bank.

Even in May, Taiwanese financial group Mega Financial Holding Co Ltd was reportedly in talks to buy into RHB Cap, leading to speculation that the interested seller was Aabar.

Aabar acquired its stake in RHB Cap from its sister company, Abu Dhabi Commercial Bank PJSC, for RM5.9bil or RM10.80 apiece in 2011, valuing RHB Cap at a hefty 2.25 times its book value then. The transaction between the two related companies was done to set the price for RHB Cap, should there be a takeover.

However, RHB Cap’s share price has never reached that price over the past few years.The counter was traded at RM8.72 on Wednesday before suspension.

Assuming the deal is concluded at 1.70 times, RHB Cap’s share will be worth RM11.40 per share, a 5.6 % premium to Aabar’s cost of RM10.80. But would Aabar be agreeable, or would it seek higher valuations?

Past Deals

RHB Cap, currently the fourth-largest banking group, is no stranger to banking deals.The latest is its merger with OSK Investment Bank that was completed about two years ago. However, its merger and acquisiton history goes back much further than this.

The RHB Banking group assumed its current name only in 1997.It came about via a merger between Kwong Yik Bank Bhd and DCB Bank Bhd (formerly known as Development and Commercial Bank Bhd) in 1997. That year saw entrepreneur Tan Sri Abdul Rashid Hussain emerge as the group’s executive chairman. The bank’s current initials are based on his name.

Kwong Yik Bank was founded by the Chinese community led by Wong Loke Yew, or better known as Loke Yew, in July 1913, while DCB Bank was established in 1966 by the-then Finance Minister Tun Sir Henry H S Lee.

In the aftermath of the 1997/98 Asian financial crisis, the troubled Sime Bank Bhd (formerly known as UMBC Bank) was merged into the RHB Banking group in 1999.Four years later, when Kuching-based Bank Utama Bhd, the banking arm of Cahya Mata Sarawak Bhd, became the latest bank to be merged into the RHB Banking group, Rashid made his exit from the group.

CIMB is also the result of a merger between CIMB, Bumiputra-Commerce Bank and Southern Bank Bhd which was completed in 2006. Both the RHB and CIMB groups have gone through more than their fair share of mergers. But this merger, if it happens, will probably be the last stop for RHB Cap, a bank founded by Rashid Hussain.

Between the two, CIMB Group has a bigger franchise in the region, a larger pool of tested managers and is likely to take the lead.This is something the EPF is not likely to object because it will enable the pension fund to go back to its role as a passive investor in financial institutions.