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Monday, August 19, 2013

Take a hard look at Reit sponsors

Published on Aug 19, 2013

Beware of those that jump on the bandwagon but lack strong brand

By Goh Eng Yeow Senior Correspondent

FOR yield-hungry investors, the big draw with real estate investment trusts (Reits) is their headline- grabbing projected dividend yields.

But one lesson which many investors have yet to grasp fully is that the eye-catching high yields offered by Reits do not come risk-free - especially for Reits with sponsors that are relatively unknown in Singapore's corporate landscape.

Reits are "closed-end" funds that operate in a similar manner to unit trusts.

But unlike unit trusts, which raise funds to invest in shares, Reits specialise in income-generating real estate assets, such as shopping malls, offices, industrial buildings and warehouses.

As a Reit is structured like a unit trust, its assets are held by an independent trustee.

But the trustee does not manage the assets.

That job is handled by a separate management company.

What makes Reits attractive in Singapore is their tax-efficient structure.

In order to be exempt from paying any income tax, Reits have to pay out at least 90 per cent of their income as dividends.

Individual investors are also exempt from paying tax on the dividends they receive.

That makes Reits the perfect corporate vehicle to raise cash for companies that want to divest themselves of their real estate assets, which generate steady income but lack a sexy growth story.
In such an instance, a company may set up a Reit to hold the assets it is selling.

The Reit will then finance the purchase of those assets through an initial public offering (IPO), with the original company retaining a substantial stake as the Reit's sponsor.

But here lies the catch: As far as some Reit sponsors are concerned, they are simply shareholders like any other investor, collecting income from the Reit in the form of dividends.

If the Reit gets mired in any corporate malfeasance, the only possible recourse for an investor is to seek redress from the management company set up by the sponsor to manage the assets.

However, Reit management companies are often thinly capitalised, with many having a paid-up capital of only $1 million each.

This is unlikely to be an issue for investors in Reits that ultimately enjoy the backing of well-known sponsors. CapitaLand and Singapore Press Holdings are among the Reit sponsors included in the Straits Times Index of blue-chip companies.

But as more and more Reit IPO hopefuls make a beeline here, with the bulk of their assets outside Singapore's jurisdiction, some market watchers would like the sponsor - rather than the Reit manager appointed to manage the assets - to be ultimately answerable for any mis-steps that may occur.

This is to safeguard the sterling reputation that Reits have painstakingly built up here, turning Singapore into a destination of choice for investors planning to invest in such instruments.

One corporate lawyer noted: "A number of transactions now have sponsors with unknown names with no financial substantiveness relative to the size of the IPOs which they have launched."

Another worry is that a company may use a special purpose vehicle as the sponsor to get the Reit off the ground, only to wind it up after it distributes the IPO proceeds to its shareholders.

The lawyer said: "Surely this isn't the best position for the retail investor. For corporate governance and investor protection, the sponsor who reaps all the benefit of the IPO should step up and be liable for any misrepresentation that may occur."

This harks back to a point often raised in this column - that investors should look beyond a Reit's mouth-watering yield and check out its sponsor's financial health and ability to inject fresh money into the Reit if it is hit by a credit crunch.

Sure, Reits are enjoying a boom right now, with high rents and low loan-servicing costs.

But there was a brief period in 2009 when there was a real worry that banks might be unwilling to roll over the huge sums owed by Reits to finance their property purchases as the global credit crunch hit Singapore.

Since then, Reits have not become any less immune to such a threat. In May, their share prices fell by as much as 18 per cent on concerns that the US central bank might tighten the ample credit it has unleashed on the world's banking system.

As such, it may be timely for investors to tackle the question of whether sponsors should take on more accountability for their Reits, rather than being merely passive shareholders.

Saturday, August 17, 2013

More investors putting their money into Reits

Published on Aug 17, 2013

Compared with banks, S'pore Reits seen to give 'decent returns'

By Jonathan Kwok

THE local real estate investment trust (Reit) market has grown strongly in recent years, with 25 Reits now listed on the Singapore Exchange (SGX).

The newest addition is Soilbuild Business Space Reit, which made its debut yesterday. Two other recently listed ones which have also yet to pay out a distribution are SPH Reit and Mapletree Greater China Commercial Trust.

As for the other 22 vehicles, the average yield was 6.4 per cent, according to a note this week by SGX My Gateway, the bourse operator's investor education portal.

That is considered a decent return, market watchers said, with bank deposit rates still at ultra-low levels.

"The number of Reits listed on SGX has grown eightfold over the past 10 years, with Fortune Reit (becoming) the third Reit to reach a 10 year anniversary of listing on SGX," said the SGX My Gateway note. Fortune Reit, which trades in Hong Kong dollars, holds a portfolio of retail malls in Hong Kong.

The two older Reits are Singapore-focused shopping mall owner CapitaMall Trust, and Ascendas Reit, which owns business park and industrial space.

Reits, however, operate under a host of regulations and limitations. For instance, they face restrictions on the level of debt gearing they can undertake. And no more than 10 per cent of the properties in a Reit can be under development at any one time.

But it is such rules that have made them popular to investors who want peace of mind and a regular distribution income. This has helped to expand the Reit market dramatically.

For instance, the limit on the amount of assets that can be under development helps assure investors that they are buying into a portfolio comprising mostly completed properties. This would shield investors from the risks of having to depend on future returns from properties that are yet to be completed.

Also, Reits enjoy tax benefits if they pay out at least 90 per cent of income as distributions. They mostly keep to this payout ratio, assuring investors of a regular flow of income.

In contrast, while business trusts such as Forterra Trust, Perennial China Retail Trust and Croesus Retail Trust also hold properties, they are structured differently from Reits.

The rules governing business trusts are much less restrictive - in theory, a business trust can develop far more properties or distribute less than 90 per cent of income.

The SGX My Gateway data showed that Reit yields ranged from 4.4 per cent for Parkway Life Reit, to 8.5 per cent for Sabana Shari'ah Compliant Industrial Reit.

Yields tend to be lower for health-care Reits like Parkway Life Reit and shopping mall owners like CapitaMall Trust. This is because incomes for these assets are considered to be more stable and resilient, so the risk is lower.

On the other hand, yields tend to be slightly higher for office space Reits, and even higher for owners of industrial space like Sabana Reit, as these are perceived to be less resilient to downturns.

SGX My Gateway calculated the yields using "indicative dividend yields". This involved taking the most recent dividend, and annualising this amount to provide a yield for the whole year.

Tuesday, August 13, 2013

Yield-seekers take offshore hospitality route

The Business Times
Ng Zhuo Yang

[SINGAPORE] As the Singapore real estate investment scene gets more challenging, potential investors here are eyeing offshore sale-and-leaseback properties in the hospitality sector.

In recent months, many yield-hungry investors have been turning towards these investments, which typically guarantee returns of around 6 per cent per annum for up to a decade or so.

According to Isabelle de Wavrechin, chief executive of French tourism management company Pierre & Vacances, the biggest benefit of investing in offshore sale-and-leaseback hospitality projects - mainly in Europe and Asia - is the comfort of hassle-free property management.

These investments also offer numerous sweeteners to further entice retail investors.

Buyers of Pierre & Vacances' latest project in the vicinity of Disneyland Paris - Villages Nature - receive a VAT refund of 19.6 per cent, which has been put in place by the French government to encourage investments in tourism residences.

Still, the sale-and-leaseback of hospitality properties to retail buyers is not new, said Joe Kwan, director of Asia-Pacific real estate research & strategy at UBS Global Asset Management.

"The restrictive domestic residential market, coupled with the weight of capital currently operating in the market, means that demand for offshore real estate opportunities has been on the upswing. This includes deals that have a sale-and-leaseback component."

In the past, these attracted a select group of retail investors who were typically seeking to diversify their portfolio and in some cases, to own a holiday home. But more recently, developers have been seeking to take advantage of an environment of high cash liquidity among retail investors, coupled with restrictions in the domestic property market, added Dr Kwan.

The result has been numerous opportunities in the largely fragmented marketplace for various forms of hospitality properties in Europe and Asia.

Singapore-listed Banyan Tree Group, for example, has retail projects in Lijiang, China; Lang Co, Vietnam; as well as Cabo Marques and Mayakoba in distant Mexico. Closer to home, there have also been opportunities in the sale-and-leaseback of hotel rooms in nearby tourism hotspots such as Malacca, Malaysia and Phuket, Thailand.

The Business Times understands that a launch by The Chedi Andermatt - a sale-and-leaseback property in Switzerland - has attracted at least five on-site visits since its release in late-June.

All these are emerging as popular alternatives to traditional buy-to-let retail investments in markets such as the United Kingdom, as investors do not need to worry about maintaining the property, yet receive a higher rental income each month.

Banyan Tree Residences assistant vice-president for property sales Roy Lau said: "Developing residences that are part of a professionally managed resort meets the needs of property investors."

But retail investors should consider the risks before hopping on to the hospitality sale-and-leaseback bandwagon, added Dr Kwan.

For one thing, they should expect pricing to be on the higher side because the flight to income will probably come with a pricing premium. Pointing out that institutional investors of sale-and-leaseback properties typically pay a premium, he suggested that retail investors should first compare the initial pricing of these properties on the market to avoid overpaying.

Moreover, complications could arise due to the longer sale-and-leaseback period in the hospitality segment, compared to residential or commercial underlying.

Besides considering asset management issues beyond the lease term, retail buyers should also be mindful that they are effectively buying into the strength of the operator, with little room for legal recourse in the event that problems occur later.

Likening the nature of some deals in the market to offshore investment funds that are focused on real estate development overseas, Rodyk & Davidson real estate practice partner Lee Liat Yeang told BT that he does not know of any laws in Singapore that protect local retail investors in such cases. "If there are disputes or if the developer gets into problems, the investor will have to take legal suits against the developer on foreign soils, and this can be costly and time consuming if it is even worth pursuing in the first place."

Other than operator risks, Dr Kwan noted that offshore investments also typically carry market, liquidity and currency risks. It is thus a "big mistake" to directly compare the yield in overseas markets with domestic yields.

He suggested that retail buyers should gain an understanding of the market that they are entering, and target a risk premium of 1-3 per cent for the additional risk of investing abroad.

Nevertheless, retail investors who are prepared to hold out over a long-term lease can typically take on risks of greater volatility. Hence, they should fully understand their own risk profile before committing to what offshore sale-and- leaseback hospitality properties have to offer.

Monday, August 12, 2013

Dealing with market bubbles

Poon How Ee

A CONTRARIAN approach to deal with bubbles and exploit market inefficiencies is through the deceptively simple strategy of value investing.

Perhaps the most delighted of investors when markets crash are value investors like Warren Buffett. They see crashes as opportune moments to pick up stocks cheaply, way below their "intrinsic value".

Booms, or periods of irrational exuberance, are extremely frustrating for risk-averse value investors, who find it hard to identify undervalued stocks in the face of soaring stock prices.

Many opt to hold cash or invest in fixed income assets, reduce their exposure to stocks, and just wait for that "Minsky moment" before striking like bargain hunters in a discount store.

Timing the market during boom-bust cycles is not easy. Nevertheless, empirical evidence shows that even without market timing, value investing outperforms the market if investors are willing to take a long-term perspective.

Sticking to the principle of buying cheap stocks and avoiding popular growth stocks usually protects conservative value investors from the worst crashes and puts them in a good position to recover from the positive correction afterwards.

Three critical factors are then necessary for value investors to avoid these bubbles:

The first is to avoid leverage. As mentioned above, having a long-term perspective is integral in value investing and that requires strong holding power. There can be nothing worse than being forced to liquidate your positions when they are least favourable and during times that you should be buying.

The second is to have a margin of safety. Following Benjamin Graham's instructions, buying a stock only when it is way below its intrinsic value is the best way to manage risk and protect investors from mistakes in valuations.

In times of bubbles, it will also steer investors clear of overvalued stocks.

The third tip is patience. Indeed, the investor's worse enemy is often himself. Not following the market when everyone is exuberantly buying and making heaps requires great fortitude and patience, knowing that the market will eventually correct itself.

And buying when the market is continuously falling to levels below its intrinsic value requires confidence that it will eventually rise and patience to wait it out.

Sir John Templeton, founder of the Templeton funds, summed up this investment philosophy well when he said: "To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest rewards."

At this stage, proponents of the Efficient Market Hypothesis (EMH) can no longer deny the existence of bubbles and its implications for certain assumptions of the EMH.

Their arguments that market participants are rational and that they make decisions independent of each other are seriously flawed, especially during times of exuberance and panic.

However, some still hold on to the EMH, insisting that the disproof of the capital asset pricing model (CAPM) and Fama French multi-factor models do not prove that EMH fails, but merely that these models are still insufficient in capturing all possible risk factors.

Some have moved on to try to propose new models that try to account for systematic deviations from rationality, which is an approach that looks promising.

Sunday, August 11, 2013

Cabby donates liver to stranger after reading Facebook appeal

Published on Aug 11, 2013

Sick civil servant was counting his last days when cabby responded to an appeal for help

By Radha Basu Senior Correspondent

Mr Tong Ming Ming, 34, was on a tea break during reservist training in early March when an SMS and a Facebook post by his secondary school friend Regina Lim caught his eye.

She wrote that a mutual friend's colleague was likely to die within days if he did not receive a liver transplant. The family was urgently looking for a living donor who, among other things, had to weigh 80kg or more. Could anyone please help?

Mr Tong, a big, burly cabby and former police officer, messaged his old friend immediately to find out more.

The patient, civil servant Toh Lai Keng, 43, from the Ministry of Home Affairs (MHA), was a colleague of their mutual friend from their Peicai Secondary School days, Ms Leow Shee Yin.

Within minutes, Mr Tong was on the line with Ms Leow. "She was in tears, saying the illness was very sudden and that he had a very young son," recalled Mr Tong.

By then, Mr Toh's wife, Samantha, 40, and brother, Jeffrey, 42, had failed the tests to be donors.
"Time was running out. I just knew that I had to help," Mr Tong recalled.

He made that decision on March 11. After four days of tests, checks and interviews, he underwent a nine-hour operation at the National University Hospital (NUH) to donate most of his liver to Mr Toh on March 15.

Today, nearly five months on, both donor and recipient are doing well.

The Ministry of Health confirmed that this was the first altruistic liver donation here by an unrelated living donor - someone with no blood or emotional ties to the patient.

To most people, including the man who received the gift of life, the genial, soft-spoken bachelor's generosity is beyond comprehension.

"What can I say? He's a great man," said Mr Toh, his voice tinged with emotion. "Human beings are selfish. I can't think of anyone else who would do this for a stranger."

Sudden illness
Before his brush with death in March, Mr Toh, a food-loving father of a three-year-old son, had no history of liver problems. In fact, when he first fell ill with high fever and was hospitalised at Tan Tock Seng Hospital in early March, he thought he had dengue fever.

But tests showed his liver was failing rapidly. By March 7 - a Thursday evening - he was transferred to NUH which has liver transplant facilities. By the following Tuesday, he was in a coma.

The cause of his liver failure remains unknown. "They told my wife I had a week to live," said Mr Toh.

It was serendipitous that his colleague, Ms Leow, confided in her friend Ms Lim about his desperate situation, and that Ms Lim in turn went on Facebook, and her post touched Mr Tong.

The cabby needed extensive tests and interviews, including one with an independent ethics committee, to ensure he was psychologically sound, not coerced and no money had changed hands, before the operation on March 15. The risks of the procedure were also explained to him.

"Things just fell in place when Ming Ming came on the scene," said Mr Toh, a deputy director at MHA. "I guess it was a miracle."

Both men hope their experience will show others that much-needed organs can come from people who are not friends or family. "With his kindness and generosity, Ming Ming has shown that even strangers can step forward to save lives," said Mr Toh.

Since the operation, the men have visited each other at home, shared meals and are now friends.

They also discovered a long-lost kampung connection - the extended Toh and Tong families used to live near each other in the Braddell area when they were children. "It's really unbelievable," marvelled Mr Toh.

Ask Mr Tong why he stepped forward and he points heavenwards. "It's a calling," he said with a laugh, referring to his Christian faith.

But dig deeper and other reasons pour forth.

Having grown up with an absent father, he kept thinking of Mr Toh's wife and young son, Terence, who could have lost his dad before even getting to know him.

Also, he was satisfied that the procedure would be safe. "The liver can grow back, so I will be fine," he said.

"As a cabby, there is probably a greater chance of dying in a road accident," he added with a laugh.
Friends like Ms Lim and Ms Leow, both 34-year-old mothers who met Mr Tong in school more than two decades ago, are not surprised by his large-heartedness.

"When we were urgently looking for a donor, I did not think of Ming Ming," said Ms Leow. "But in hindsight, if anyone could have done this, it was him."

She remembers his zeal to help others during the compulsory community involvement programmes of their schooldays. "Most of us stopped volunteering after secondary school, but Ming Ming never gave up. He really, really wants to help others," she said.

A graduate of Temasek Polytechnic, Mr Tong has long been hooked on helping. As a taxi driver since January, he has ferried amputees for medical appointments, kidney patients for dialysis and poor older folk to church.

He said he usually waives the fare, but some regular passengers pay a token sum.

He has donated blood in response to urgent appeals, helps to clean homes of the elderly in one- room rental flats in Upper Boon Keng, and leaves food packets for immobile old people in Chinatown.

"There is a lot of need in Singapore if you know where to look," he said. "I do what I can to help."

His choice of jobs so far also reflects his passion to do good. As a boy, he saw police officers coming to his family's three-room Hougang home when they were harassed by loan sharks. His cabby father, a gambler, would chalk up huge debts.

"The officers were kind and would protect us. From then on, I always wanted to be an officer," he said.

He joined the police force after graduation in 1998. He has also worked in the social service sector, looking after abandoned, abused and delinquent children.

The youngest of three sons also recalled how his parents and grandparents were forced to sell their adjacent HDB flats to settle his father's gambling debts.

His role model is his mother, Madam Neo Teng Huay, 63, who raised her sons by working 12 hours a day selling curry puffs in a coffee shop. "She has faced hardship, but is never bitter. She always helps others."

Mr Tong said that although the family always had food on the table, his hardscrabble childhood has helped him form lasting bonds with some of the bruised and broken boys he encountered while working in youth homes.

Many may think that with so much hardship and suffering, it is impossible to change the world, but Mr Tong said: "If you can help even one person in need, you would have done just that."


The Straits Times, Razor TV

Transcript from RazorTV:

Cabby donates liver to stranger

Liver donor, Mr Tong Ming Ming, 34:

I'm a taxi driver. I used to be a police officer for 10 years. I decided to drive a taxi because I needed the free time. I need to juggle between earning a decent income and also to do my volunteer work.

So what I do, when I have the time, is to pick and send amputees to Tan Tock Seng Hospital. I would send and pick retirees to and from church, and I also organise meet-ups, as I mentor a group of boys who are ex-probationers. When I cover my (taxi) rental and my petrol, I would go and do my volunteer work.

I got to know the amputees from Chinatown when they play mahjong. The retirees are also from Chinatown, Lavender and Jalan Minyak who live in the one-room rental flats. The kids, they are my boys from Gracehaven Children's Home and also the Singapore Boys' Hostel.

As and when they need me to ferry them, I will go, regardless of distance. Usually, I don't collect a fare from them.

I was doing my reservist, and I saw this post on Facebook. Somebody needed an urgent liver transplant, and I don't even know that somebody. Later, I found out it was a friend's friend's friend. Quite complicated. But somehow, I felt a prompting in my heart that I needed to respond to this call for donation, this appeal for donation.

I think it's not easy for the family, especially when it's declared that he has only 7 days left (to live). So there was this prompting, this heavy burden on me that I needed to respond, even though it is a stranger.

When I went for the briefing thing by the surgeons, they told me the risk that I had to take out 70 per cent of my liver, (and) my gall bladder will be removed. That means I cannot store bile juice. Bile is needed to digest fats, so post-op, I will somehow put on weight, because the gall bladder is removed. And then, there's a 1 per cent mortality rate. That means one person out a hundred will die on the operating table.

There are also side effects with medication. Some people will become bald - botak, and then, some people will also have diabetes and high blood pressure.
'I wanted to help someone'

But I went with the peace of God. But I had to bring my mum down, because I needed to next-of-kin's consent to this. My mum was ok, she knows that since young, I wanted to help someone. I told when I was very young, if I died, to donate all my organs. So she knows that I had to do this. So I got the full support from my mum.

It was very tiring for my mum. She had to be grilled by the interviewers, because according to the ethics committee, according to the HOTA - the Human Organ Transplant Act - there shouldn't be any money involved in this. So they were very careful in the selection process, that I'm not selling my liver for profit.

There wasn't any fear, because 1 per cent is not very high. To me, I needed to do what was more important, to save a life, and not be so concerned about the side effects and the mortality rate.

The operation itself was on Friday. Mine was about 9 hours. They had to open me up, take out my liver and then, while I'm being stitched back, operate on Mr Toh (the liver recipient), so it was side-by-side.

The whole operation lasted about 20 hours.

After that, post-op, I became good friends with Mr Toh. I was invited to his home a few times, and then we became quite close. I think naturally, because a part of me is in him.

He started sharing about his family, and coincidentally, before the operation, I found out - my mum found out - that my mum and his dad - they used to stay in the same kampung. So it's a very small world.

And for Mr Toh, it was very urgent. He needed a transplant in 7 days, if not, he will be gone.

I came from a broken family, so I can imagine a 3-year-old boy (Mr Toh's son) growing up without his dad. Maybe that was what prompted me to respond to this.

Since secondary school days, my form teacher - Miss Yap - she was very active in volunteer work. So she will bring us to children's homes, to old folks' homes. That's where I learnt about helping others.

I came from a very broken family. My dad, because of his own problems, we had to sell 2 flats to help him settle his problems.

I don't want other people to go through what I went through. I know I cannot help a lot of people, I cannot help the entire world, but if I can just help one, make a difference in one, to me, that's enough.

A lot of people think I had a good job in police force, why did I leave to become a social worker, to become a volunteer? I think the priorities are different in my life. It's not about getting cash and cars and everything. I think it's beyond that. There's a purpose in all our lives

Lee Kuan Yew on fate of Singapore in 100 years' time

Published Aug 11, 2013

On Aug 22, 2012, I received a thank-you card from a Singaporean by the name of James Ow-
Yeong Keen Hoy.

From his elegant, cursive handwriting, I guess he must at least be in his 50s. Young
people these days prefer to type, and when they do write, they simply do not write as

He wrote: "My family is deeply grateful and has benefited from your magnificent
leadership and solid contributions that have enabled our nation to achieve peace,
happiness, progress, prosperity, solidarity and security all these good years. A big
thank you!

"May we have the honour to sincerely wish you, Sir, peace and joy, wisdom and longevity
and all the very best in the coming good years. And may our beloved country be blissfully
and richly blessed and be mercifully safeguarded now and always. God bless."

I quote at length from this card to highlight the enormity of the mindset shift, from an
older generation, including this writer, his peers and his seniors, to a younger one that
takes for granted Singapore's affluence.

People like Mr Ow-Yeong have seen Singapore develop from the unsettling 1960s, when
hardship and poverty were still the rule rather than the exception, to today's vibrant
and cosmopolitan Singapore, providing well-paying jobs to a highly educated population.
Many older Singaporeans also progressed from living in shanty huts to high-rise
apartments with present-day conveniences and surrounded by safe neighbourhoods.

They have a good understanding of the nation's imperatives - what it took for us to get
here and what it would take to keep up our success - as well as its vulnerabilities.

The younger voters do not share those views. Having been born into a Singapore that had
in many ways already arrived, they see all that is around them - a working system
generating stability and wealth - and they ask: "Where is the miracle?"...

Even as things stand, we have regretfully shifted the system away from attracting the
best talent through reductions to ministerial pay.

If I were a Cabinet minister at the time the change came up for discussion, I would have
stood firm. But the younger generation of ministers decided to go with the trend.

It is true that no country in the world pays ministers as we do. But it is also true that
no other island has developed like Singapore: sparkling, clean, safe, with no corruption
and low crime rates.

You can walk the streets or jog at night. Women will not be mugged. Police do not take
bribes, and if they are offered bribes, there are consequences for the ones offering.

None of this came about by coincidence. It took the construction of an ecosystem that
requires highly paid ministers.

With every pay reduction, the sacrifice that a minister makes - giving up his profession
or his banking job - becomes greater.

Some will eventually tell themselves: "I don't mind doing this for half a term, 21/2
years, as a form of national service. But beyond that, it has to be: thanks but no

The final outcome would be a revolving-door government, which will inevitably lack a deep
understanding of the issues or the incentive to think about problems in a long-term

Will Singapore be around in 100 years? I am not so sure. America, China, Britain,
Australia - these countries will be around in 100 years. But Singapore was never a nation
until recently.

An earlier generation of Singaporeans had to build this place from scratch - and what a
fine job we have done.

When I led the country, I did what I could to consolidate our gains. So too did Goh Chok

And now, under Lee Hsien Loong and his team, the country will do well for at least the
next 10 to 15 years.

But after that, the trajectory that we take will depend on the choices made by a younger
generation of Singaporeans.

Whatever those choices are, I am absolutely sure that if Singapore gets a dumb
government, we are done for. This country will sink into nothingness.

Tuesday, August 6, 2013

Money won’t solve low birth rate problem: Mr Lee

Rachel Chang

IF FORMER prime minister Lee Kuan Yew were in charge of Singapore today, he would introduce a baby bonus equal to two years of the average Singaporean's salary.

This is not to boost the country's abysmal total fertility rate of 1.2. Rather, Mr Lee would do it to "prove that super-sized monetary incentives would only have a marginal effect on fertility rates".

Writing in his new book, One Man's View Of The World, Mr Lee makes clear he would offer this huge baby bonus for at least a year.

The experiment will "prove beyond any doubt that our low birth rates have nothing to do with economic or financial factors, such as high cost of living or lack of government help for parents", he says.

Instead, it is due to transformed lifestyles and mindsets which the Government is relatively powerless against, he argues in the 400-page book that is due to be launched today.

Declining fertility is the biggest threat to Singapore's survival, he says.

But, Mr Lee adds: "I cannot solve the problem, and I have given up. I have given the job to another generation of leaders. Hopefully, they or their successors will eventually find a way out."

In a chapter on Singapore, he also says the suggestion that the "Stop at Two" population campaign of the 1970s played a part in bringing fertility rates down is "absurd".

Rather, falling fertility is a global phenomenon due primarily to women's emancipation and participation in the workplace, he says.

The chapter on Singapore is one of 11 in the new book, which focuses largely on foreign affairs.

Mr Lee covers regions including the Middle East and superpowers such as the United States and China, as well as issues like the future of the global economy and climate change.

He also writes candidly about his past encounters with world leaders and impressions of countries, but the bulk of the book looks forwards as he sizes up these countries' strengths, weaknesses and chances of success.

In the Singapore chapter, Mr Lee also reflects on the historic 2011 General Election, young Singaporeans' desire for a two-party system, and Workers' Party MP Chen Show Mao.

He returns to the issue of low fertility often, pointing to it as the reason Japan, a country he once considered "peerless", is now on what he calls a "stroll into mediocrity".

The demographic changes in Singapore and Japan are similar, he notes; the difference lies in the unwillingness of the Japanese to "shade (the) problem with immigrants" like Singapore has done.

It is this intransigence about accepting foreigners and the deeply ingrained idea that the Japanese race must be kept "pure" that makes their continued decline inevitable, he says.

"If I were a young Japanese and I could speak English, I would probably choose to emigrate," he concludes bluntly.

Mr Lee's new book was written with the research and editorial assistance of a team of Straits Times journalists. They are managing editor Han Fook Kwang, deputy editor Zuraidah Ibrahim, Opinion editor Chua Mui Hoong and political reporter Elgin Toh.

Also in the team was a civil servant seconded to the Lee Kuan Yew School of Public Policy, Mr Shashi Jayakumar.

Mr Lee is due to launch the book officially today at the Istana. About 20,000 copies will be on sale at $39.90 (including GST) at leading bookstores from 5pm today.

Online shoppers can order it at

Background story


I cannot solve the problem, and I have given up. I have given the job to another generation of leaders. Hopefully, they or their successors will eventually find a way out.

- Mr Lee, on declining fertility being the biggest threat to Singapore's survival

82% of asset values ’based on estimates’

Jonathan Kwok

INVESTORS may treat a company's financial statements as the truth, but a new study shows that most asset values listed in them rely on estimation, which may have a significant impact on the bottom line if the estimates are off the mark.

About 82 per cent of the asset values in the balance sheets of Singapore-listed firms are based on estimates and these must be re-calculated in the next financial year, according to KPMG's study of 200 firms listed on the Singapore Exchange released yesterday.

And a 1 per cent change in the total asset value of the firm can result in a change in net profit by as much as 38 per cent, according to the accounting and professional services giant.

Much of the estimation involves trying to update a firm's asset values from year to year. By contrast, only 10 per cent of its liabilities are based on estimates - most of the liabilities are carried "at cost" in the books, without yearly adjustments.

A company's assets include its property, plant and equipment. Estimates by its management may be needed to assess the assets' useful lives and residual values. As for the investment properties in its books, the firm could be engaging external experts to estimate the value of these properties from year to year.

Auditors have for some time known that many of the asset value figures have to be derived via estimates - and the KPMG study quantifies the extent of this.

"Estimates are by their very nature subjective," said Mr Ong Pang Thye, head of audit at KPMG in Singapore. "They are underpinned by the nature and reliability of the information used to form these accounting estimates, which can vary widely."

The study showed that a significant proportion of total asset values in financial statements is based on judgment calls. As such, they are susceptible to bias, errors and mis-statement.

To complicate matters, methods and assumptions used to derive the estimates may also change each year. This could mean that asset values across a number of financial years may not be comparable, Mr Ong said.

KPMG suggested that firms' managers and audit committees should have strict internal frameworks to detect potential errors in estimation, and should continually assess and challenge estimates.

"It is also important to ensure that auditors spend sufficient time and effort, and have the necessary specialist knowledge, to challenge any estimates made by management," said the report.

Sunday, August 4, 2013


Here's a five-step guide on how to apply for local IPOs:

1. Open a broking account
 •The account will allow you to trade any shares you get in your IPO application.
 •You can open this account at one of these retail brokerages: AmFraser Securities, CIMB Securities, DBS Vickers, DMG & Partners Securities, Lim & Tan Securities, Maybank Kim Eng, OCBC Securities, Phillip Securities and UOB Kay Hian.
 •Most brokerages will require you to show up in person.

2. Open a CDP account
 •The CDP account is for trade settlement and it maintains all the securities you buy and sell on the SGX.
 •If you are over 18 and not an undischarged bankrupt, you can apply by filling in a form.
 •You can also apply for a CDP account at your broker's office.
 •The CDP account has to be linked to the investor's broking account if you want to trade. There is no limit as to the number of broking accounts that can be linked to the CDP.
 •There is no fee for opening and linking CDP accounts.

3. Check for new listings, read IPO prospectus
 •This can be done on the SGX website under the "Company Disclosure" section. You can also find out when the offer ends.
 •You can also view and download the IPO prospectus, which provides detailed information on the company seeking a listing.
 •The prospectus will list the size and price of the offer, as well as highlight potential risks. Bear in mind that some IPOs are not open to retail investors.

4. Apply for the IPO
 •This can be done via ATMs or Internet banking with the three local banks - DBS Bank, United Overseas Bank and OCBC Bank - or by submitting an application form.
 •An application must be made before the closing date and time - usually before noon on the day the offer ends.
 •The IPO application fee is $2 per transaction, and you must have enough cash to pay for all the shares you apply for.

5. Check IPO ballot results
 •You will not necessarily get the number of shares you want. This depends on the response to the IPO.
 •If an IPO has been substantially oversubscribed, you may receive a smaller number of shares or even end up with none.
 •Any shares you do get will be credited into your CDP account and you may start trading these on the listing date via your broking account.
 •If you are unsuccessful in the IPO, the amount that had been debited will be refunded to your bank account. This will occur within 24 hours of the balloting date for electronic applications and three market days from the balloting date for printed forms.


Watch the risks
“It’s crucial that an investor does not just focus on the revenue and profits, but also the potential operational or legal risks that may affect the financial performance of the company.”

MR KHONG CHOUN MUN, UOB’s head of corporate finance

Get set to make your money work

Published on Aug 04, 2013

Open broking and CDP accounts, then do the homework on how and what to invest in

By Jonathan Kwok

A friend of mine was keen to join the rush for a slice of the initial public offerings (IPOs) of SPH Reit and OUE Hospitality Trust but found herself frustrated and stranded.

It wasn't a case of being short of cash; she could have afforded a tranche of stock. Rather, she was held back because she had not opened an account with The Central Depository (CDP), which holds Singapore-listed shares for investors.

By the time my friend rushed down to the CDP to open an account it was too late, at least for these two trust offerings.

"I'll just have to miss these IPOs," she lamented.

Her predicament is actually rather common, from what I see of the people around me.

I'm often surprised by how many of my peers do not even have a broking or CDP account, even though it does not cost a cent to open and maintain the accounts.

These friends have been earning a graduate's salary for several years. It would be understandable if they were saddled with heavy student loans or needed to support their families, but some of them are relatively free of financial commitments.

Some say they have little money left over after spending on things like travel while others just leave their money idle in the bank, claiming they have no time to open their broking account or learn to invest.

The importance of investing was highlighted by several readers who wrote in after I outlined in this paper how we can limit spending to about $35 a day in order to grow our savings.

"Saving is one thing, but the more important thing is making your money work hard through investments," said former stockbrokers Lena Yong and Andrea Sankar.

It's a message that can't be emphasised enough - that while it's good to save more, it is of little point to young adults if your cash is not made to grow via investments.

Of course, stocks come with all sorts of risks.

Your shares may fall below the price you paid, leaving you in the red. In extreme circumstances, companies can collapse or scandals erupt, wiping out your cash.

The fickle nature of stock markets can be seen in their historical performance. Over the past six years, Singapore's Straits Times Index (STI) has actually lost an average of about 1 per cent per year. If you had bought shares in late 2007, you would have entered at the peak of the previous market cycle, and prices haven't fully recovered since.

But over the longer term, shares tend to trend upwards.

Over the past 10 years, the STI has gained an average of 6 per cent per year. The gains were made in the years before 2007 - after that it was basically a big crash during the financial crisis followed by years of recovery.

Economists Robert Barro and Sanjay Misra have calculated that stocks in the United States returned an average of 7.4 per cent annually from 1836 to 2011, even after adjusting for inflation.

Compare this to your savings losing 2 to 4 per cent of their value every year due to inflation.

Singapore's low bank deposit rates can't get near covering that.

The problem with cash is highlighted by investment guru Warren Buffett, who argues that money is extremely risky to keep because you are bound to lose purchasing power over time.

Using his reasoning, holding cash can be seen as more risky than stocks, which still have a good chance of beating inflation over time.

Open the accounts
The first move is to open your broking and CDP accounts.
Opening and maintaining the accounts is free so you can do so even if you do not have enough cash or are unsure of what stocks to buy.

The long list of broking firms includes CIMB Securities, DBS Vickers, Lim & Tan, Maybank Kim Eng, OCBC Securities, Phillip Securities and UOB Kay Hian. Any one of them can help you to open your CDP account as well.

You get one CDP account but can open accounts with multiple brokerages, all linked to this CDP account. You can then choose which broker to trade with.

You should also speak to the remisier - who helps you with your trades for a commission - assigned to you by the brokerage firm. He or she can explain basic trading and how to use the online trading platform for the brokerage.

Key considerations
Next up, you should plan your finances and do your homework on what stocks to buy and when to buy.

It is unwise to put all your savings into shares. You should have an emergency fund of several months' worth of living expenses before you start investing, in case of a financial emergency.

In terms of stock selection, the local market has a number of large, well-known companies with long operating history that should provide some level of comfort.

Exchange-traded funds offer an even better alternative, allowing you to buy into a portfolio of stocks so the impact is limited if one or two stocks should collapse.

Investors typically tackle the question of "when to invest" via two methods.

One involves "timing the market" - trying to buy stocks when you assess that the price is low. You will need to judge whether the shares are under- or overpriced.

The second method uses the concept of "dollar-cost averaging". This involves setting aside a fixed amount of money to invest every month to buy a pre-set portfolio of stocks.

If prices are high, the money can buy fewer shares, but when the market falls, the same amount will be able to buy more.

Proponents say dollar-cost averaging takes the burden of timing the market off the investor. The price paid for your stock will be averaged over many months.

OCBC Bank, POSB Bank and brokerage Phillip Securities offer regular share investing plans utilising dollar-cost averaging.

POSB's plan involves investing in an exchange-traded fund that tracks the STI.

OCBC and Phillip Securities allow you to choose the STI exchange-traded fund, as well as some individual large stocks.

In any investment programme or stock trade, you should keep in mind the transaction costs imposed by the bank or brokerage.

Once you have bought the stocks, I recommend holding them for the longer term so they have time to appreciate in value.

The investment plans offered by the banks don't need you to have a broking and CDP account, but these are really the exception rather than the norm.

In general, these accounts are necessary before you can invest, so it is best to open them pronto, regardless of what shares you are eyeing or whether you prefer to time the market or use dollar-cost averaging.

With the trading infrastructure in place, you won't have to miss out on the next big investment opportunity - or the next red-hot IPO.

What to look up in IPO prospectus

Published on Aug 04, 2013

Five areas to focus on, to suss out if an offering will be a dud or a star performer

By Alvin Foo

Look at the personalities in the team
Here's a telltale sign of a red-hot initial public offering (IPO) as told by a banker - snaking queues at ATMs, especially in the Central Business District.

But that is hardly the best gauge of an IPO's popularity.

More information can be gleaned from the prospectus, which contains details on the company seeking a listing and claims that investors are drawn to it because of its sound fundamentals.

"Investors should do their homework to read the IPO prospectus and understand the company's fundamentals prior to subscribing to the offer," said Mr Khong Choun Mun, head of corporate finance at United Overseas Bank (UOB).

But making sense of this lengthy document may seem like rocket science at first glance.

That's because it typically stretches over several hundred pages long, and is plastered with financial and legal jargon.

For example, the IHH Healthcare prospectus issued last year was a mammoth 667-page document that was 7cm thick and weighed more than 3kg.

So it's no wonder that many retail investors choose to rely on word-of-mouth advice from remisiers or fellow investors to make their IPO decisions. Few will bother to study the prospectus before jumping in.

That's an irony, considering that part of the intention of having these documents is to aid investors in their decision-making by giving them material company information.

Market experts urge investors to look beyond the prospectus for a more thorough assessment.

"Other important factors to consider include market sentiment, timing of the IPO launch relative to the market conditions and the IPO issue price," said OCBC Investment Research head Carmen Lee.

The experts highlight the top five factors to note in a prospectus, and how to tell if an IPO will be a star performer or a dud.

1 Grasp the big picture
The listing document is usually made up of several sections, including the business overview, strategy, use of proceeds, management information, financial performance and dividend policy.
Brokerages may also come up with IPO factsheets, which give a snapshot summary of the offer such as the business strategy, dividend policy, risks and statistics.

An overview of the company's business, competitive strengths, financial highlights, investment merits, strategies and prospects can be obtained from the six- to eight-page gatefold cover of an IPO prospectus, said UOB's Mr Khong.

Investors should study the document to understand the company's nature of business.
"It's important to understand how the company derives its revenue, its business operations, customer mix, cost structure, competitive edge and business risks," said DBS Vickers analyst Ho Pei Hwa.

2 Scrutinise use of funds
A critical component is how the company intends to spend the money raised, which is covered in the "use of proceeds" section.

For instance, newly listed pawnshop operator MoneyMax stated in its prospectus that it plans to use about $4 million of its $14.4 million net proceeds to finance the opening of more outlets.

Analysts urge investors to pay extra attention to this section, as it will offer key clues to the long-term growth potential of the business and how well it is being run.

OCBC's Ms Lee said: "It's prudent to invest in companies that plan to use the proceeds to fund long-term growth or expansion plans."

She added that investors should pay more attention if the key purpose of funds raised is to pay off debt or to pay existing investors a huge pre-IPO dividend.

Sias Research lead analyst Ng Kian Teck said: "If the proceeds are used to pay off debts, we usually read it in a negative light as it suggests poor use of equity."

Investors should also take note if proceeds go to pre-IPO shareholders, as it suggests that they could be using the IPO as a means of cashing out, he added.

3 Buyers beware
Like all other investments, it's critical to evaluate the business risk before proceeding. This makes the "risk factors" section a must-read.

"It's crucial that an investor does not just focus on the revenue and profits, but also the potential operational or legal risks that may affect the financial performance of the company," said UOB's Mr Khong.

Examples of key risks include those associated with the countries in which the business operates, dependence on a single major customer, supplier or promoter, inability to obtain financing to support operations, and counterparty risk, noted the Singapore Exchange (SGX).

For instance, the prospectus of newly listed oil exploration firm Rex International clearly states that it has yet to locate oil in its concessions, as part of the section outlining its key risks.

Risk disclosures must be specific and not general in nature, SGX noted. "The lack of clear and quality disclosure should raise investors' concerns on whether the issuer is being upfront on the key risks associated with its business," it added.

Red flags include excessive debt or legal trouble.

OCBC's Ms Lee said: If a firm is undergoing legal disputes, the prospectus should indicate a sense of the (potential) monetary impact on the business as a result of legal actions."

4 Look at who's involved
Knowing who the main personalities are can offer key insights on whether the counter will soar or sink post-listing, and this can be found in the "management and corporate governance" section.

Investors should study the management team's biographies, including the companies they have worked for, and also look at the personality of the founder or key shareholder.

OCBC's Ms Lee said: "Be particularly wary if any of these companies has filed for bankruptcy or has encountered financial problems."

Investors should also take note of disclosures by directors and controlling shareholders to see if they were the subject of any past investigations or convictions.

SGX noted: "A history of poor compliance or disciplinary observance may suggest a lack of honesty or integrity."

For large IPOs, having reputable cornerstone investors listed in the prospectus and the subscription amount they undertake is a good indication of the support shown by institutional investors, said UOB's Mr Khong.

Sias Research's Mr Ng added: "Companies with reputable cornerstone investors or that have names that are of strong familiarity among the local investing community, such as SPH Reit and OUE Hospitality Trust, will tend to attract more investor attention."

SPH Reit attracted keen interest partly due to its having five prominent cornerstone investors, which include insurer Great Eastern Life and Morgan Stanley Investment Management.

5 Scrutinise its financial health
Finally, investors should take note of the financial statements, which are usually found in the appendix, and pay close attention to indicators which point to weak financial health.

DBS' Ms Ho said: "It's usually not a good sign to see accounts receivables or inventories rising more rapidly than the company's revenues, and the company paying off its existing debt with substantial IPO funds."

She added that investors should compare the company's revenue trend, profitability and cash flow to see how it fares against its peers.

They should also scrutinise the strength of its balance sheet, looking at the amount of debt versus its cash.

"Review the company's order book and cash flow statement to determine if the company generates significant free cash flow, which can be used to pay dividends," said OCBC's Ms Lee.

Gold's allure has not totally dimmed

Published on Aug 04, 2013

Holding small sliver of asset makes sense as part of long-term investment strategy

By N. Gregory Mankiw

"Should gold be a part of my portfolio?"

A friend posed that question to me a few weeks ago, after watching gold's wild ride over the last few years. The price of gold was less than US$500 an ounce in 2005, but soared to more than US$1,800 in 2011, before falling back to about US$1,300 (S$1,700) recently. He was not sure what to make of it all.

My instinct was to say no. Like most economists I know, I am a pretty boring investor. I hold 60 per cent stocks, 40 per cent bonds, mostly in low-cost index funds. Whenever I see those TV commercials with some actor hawking gold coins, I roll my eyes. Hoarding gold seems akin to stocking up on canned beans and ammo as you wait for the apocalypse in your fallout shelter.

But I was also wary of imposing my gut instinct on my friend, who was looking for a more reasoned judgment. I knew that some investors saw gold as a key part of a portfolio. The author Harry Browne, the one-time Libertarian presidential candidate, recommended a permanent 25 per cent allocation to gold. Last year, the US Federal Reserve reported that Mr Richard Fisher, president of the Federal Reserve Bank of Dallas, had more than US$1 million of gold in his personal portfolio.

So, before answering my friend's question, I dived into the small academic literature on gold as a portfolio investment. Here is what I learnt:

The World Gold Council estimates that all the gold ever mined amounts to 174,100 tonnes. If this supply was divided equally among the world's population, it would work out to less than one ounce a person.

Mr Warren Buffett has a good way to illustrate how little gold there is. He has calculated that if all the gold in the world were made into a cube, its edge would be only 21m long. So the cube would fit comfortably within a baseball infield.

Despite its small size, that cube would have substantial value. In a recent paper released by the National Bureau of Economic Research (NBER), Mr Claude Erb and Dr Campbell Harvey estimated that the value of gold makes up 9 per cent of the world's market capitalisation of stocks, bonds and gold.

Much of the world's gold, however, is out of the hands of private investors. About half of it is in the form of jewellery, and an additional 20 per cent is held by central banks. This means that if you were to hold the available market portfolio, your asset allocation to gold would be about 2 per cent.

Over the long run, gold's price has outpaced overall prices as measured by the consumer price index - but not by much. In another recent NBER paper, economists Robert Barro and Sanjay Misra reported that from 1836 to 2011, gold earned an average annual inflation- adjusted return of 1.1 per cent. By contrast, they estimated long-term returns to be 1 per cent for Treasury bills, 2.9 per cent for long-term bonds and 7.4 per cent for stocks.

Mr Erb and Dr Harvey presented a novel way of gauging gold's return in the very long run: They compared what the Roman emperor Augustus paid his soldiers, measured in units of gold, to what the US pays its military today.

They report remarkably little change over 2,000 years. The annual cost of one Roman legionary plus one Roman centurion was 40.9 ounces of gold. The annual cost of one United States Army private plus one Army captain has recently been 38.9 ounces of gold.

To be sure, military pay is a narrow measure, but this comparison offers some support for the view that, on average, gold should keep pace with wage inflation, which, thanks to productivity growth, runs slightly ahead of price inflation.

Gold may offer an average return near that of Treasury bills, but its volatility is closer to that of the stock market.

That has been especially true since former president Richard Nixon removed the last vestiges of the gold standard. Professor Barro and Mr Misra report that since 1975, the volatility of gold's return, as measured by standard deviation, has been about 50 per cent greater than the volatility of stocks.

Because gold is a small asset class with meagre returns and high volatility, an investor may be tempted to avoid it altogether. But not so fast. One last fact may turn the tables.

An important element of an investment portfolio is diversification, and here is where gold really shines - pun intended - because its price is largely uncorrelated with stocks and bonds. Despite gold's volatility, adding a little to a standard portfolio can reduce its overall risk.

How far should an investor go? It is hard to say, because optimal portfolios are so sensitive to expected returns on alternative assets, and expected returns are hard to measure precisely, even with a century or two of data. So it is not surprising that financial analysts reach widely varying conclusions.

In the end, I abandoned my initial aversion to holding gold. A small sliver, such as the 2 per cent weight in the world market portfolio, now makes sense to me as part of a long-term investment strategy. And with several gold bullion exchange-traded funds now available, investing in gold is easy and can be done at low cost.

I will continue, however, to pass on the canned beans and ammo.
New York Times