Briefs

This Valentine’s Day, China will be extending an olive branch and lowering its punitive tariffs on American goods. China’s Ministry of Finance announced that it will be halving its tariffs on some US$75 billion ($103.5 billion) worth of imports from the US, effective from Feb 14.

The tariffs were implemented on Sept 1 last year. Some of the rates will be dropped to 5% from 10%, while others will be lowered to 2.5% from 5%.

The move is in response to the US also implementing reductions in tariffs on Chinese products, as part of the ongoing interim trade deal between both countries. The two nations in January signed phase one of the deal, which brought a pause to the trade war and would cut tariffs on the others’ goods.

In the deal, China also agreed to increase its imports from the US, including agricultural products and services, from 2017 levels by no less than US$200 billion over the next two years.

Following the tariff reduction, China aims to lower retaliatory tariffs on US crude oil to 2.5% from 5%; soybeans to 27.5% from 30%; and pork, beef and chicken to 30% from 35%. These rates are higher as these goods were also hit with tariffs in 2018, which will remain in place.

The significance of the olive branch in the market eye is the announcement that comes a day after President Trump called the current US-China relationship “the best” in his State of the Union address, says Stephen Innes, chief market strategist at financial services firm AxiCorp.

“It is a good start but investors have an extreme marathon to endure before the finish line comes in sight," Innes adds. “Nonetheless, it seems like China is digging deep into its magic policy bag as a cure-all for the coronavirus knockdown.” — By Samantha Chiew

Analysts roll back GDP forecasts as virus spread intensifies

Although the easing of US-China trade tensions was a signal of “green shoots” in a troubled global economy, the novel coronavirus is now the latest threat to Singapore’s economic recovery, market watchers say.

With the Budget slated to be announced on Feb 18, the government is expected to implement measures to support businesses. In 2003, the SARS relief package had set the government back by some $230 million.

“Measures taken back then include property tax rebates, temporary bridging loans and lower foreign worker levies. Unlike the SARS period, we believe there is less urgent need for measures in the transport sector as yet with no evidence of community spread so far,” says Credit Suisse’s equity research team.

Similarly, OCBC’s treasury research team notes although the virus situation has not become as severe as SARS, it would not rule out some tourism-related assistance initiatives at the upcoming Budget. “[These] may go beyond what had already been planned to help SMEs tackle the challenge of a growth slowdown and the need for capability upgrading,” OCBC says in a recent report.

While analysts remain bullish on the Singapore government’s ability to deliver initiatives that can help the affected areas of the economy, they have taken to paring down their GDP forecasts to factor in the potential downside it could have on the Singapore economy.

Maybank Kim Eng has revised its 2020 GDP growth forecast to 1.1% from the previous 1.8% due primarily to the possible effects of the virus outbreak and border control measures on hospitality, travel and retail sectors.

“Disruptions to China’s supply chain will also have knock-on effects on manufacturing. China’s economy is much larger than during the 2003 SARS crisis ($14 trillion vs. $1.5 trillion in 2003) and the impact from a China slowdown will be magnified,” says Maybank analyst Chua Hak Bin. “China accounts for 19% of visitor arrivals and 17% of exports,” he adds.

Meanwhile, OCBC has widened its 1-2% GDP growth forecast to 0-2% to “accommodate any potential downside risks from the coronavirus. — By Uma Devi

MAS to maintain monetary policy stance amid coronavirus fears

Singapore’s central bank is keeping its monetary policy stance unchanged, amid worries over the weakening of economic conditions as a result of the novel coronavirus outbreak.

In a statement on Feb 5 in response to media queries, the Monetary Authority of Singapore (MAS) said there is “sufficient room” within the policy band to accommodate an easing of the Singapore dollar nominal effective exchange rate (S$NEER).

MAS has reduced slightly the rate of appreciation of the S$NEER policy band in October last year – the first monetary policy easing in three years. It notes that the currency gauge has been fluctuating near the upper bound of the policy band since then.

“There is therefore sufficient room in the band for the S$NEER to ease in line with any weakness in the Singapore economy in the coming months,” MAS said.

A key policy tool for MAS, the S$NEER is the trade-weighted basket of currencies against the Singapore dollar.

The central bank said it is “monitoring economic developments closely”. The next policy review, it added, will be in April as scheduled.

The Singapore dollar tumbled to a four-month low against the greenback following the announcement. — By Stanislaus Jude Chan

Sembcorp Industries to sink into the red in 4Q on impairment losses

Sembcorp Industries expects to book a net loss for 4QFY2019 ended December on the back of impairment losses worth $245 million.

In a regulatory filing on Feb 6, the group says that the impairment losses arose from its periodic assessment of the recoverable amounts based on expected future cash flows of its energy assets.

One of the contributors to these losses includes a $64 million impairment from the group’s divestment of its water business in Chile, which was also reported in a separate announcement on the same day.

Sembcorp Utilities, a wholly-owned subsidiary of Sembcorp Industries, agreed to sell 100% of their interests in the water business for a total consideration of 27.8 billion Chilean peso ($49 million). The net asset value of the assets involved in the divestment was noted to be $107 million.

The group notes that impairment is due to the difference between the sale and net asset values of the business. In addition, a foreign currency translation loss, which stood at $30 million as at end-December last year, will be recognised upon the completion of the sale.

The divestment is expected to be completed by mid2020, subject to the satisfaction of certain conditions precedent, including merger control clearance in Chile.

“Realisable value for the assets has been impacted by escalating operational and regulatory costs as well as the deterioration of Chile’s economic, social and regulatory environment since October 2019,” says Sembcorp Industries.

“The business is also facing increasing uncertainty and risks in the Chilean water sector including the potential reduction of regulated returns,” it adds.

Apart from the divestment in Chile, Sembcorp Industries’ impairment losses include a $158 million impairment of UK Power Reserve (UKPR) assets, as well as a $23 million impairment in China for its wastewater treatment assets. — By Uma Devi

The Hour Glass makes foray into New Zealand

Luxury watch retailer The Hour Glass is venturing into New Zealand with the purchase of Auckland-based Mansors Jewellers, as well as two prime corner retail and commercial properties in the city.

The Hour Glass is investing more than NZ$80 million ($71.8 million) in these three purchases to mark its entry into New Zealand via its largest city, the group reported on Feb 6.

The group, which already has a combined network of 43 boutiques throughout the Asia Pacific, views New Zealand as a greenfield luxury watch market.

“The move into New Zealand is demonstrative of the group’s desire to broaden its business in the Oceania region after having committed itself to the development of the luxury watch markets in Sydney, Melbourne and Brisbane over the last 30 years,” says The Hour Glass.

As part of these fresh investments, the group purchased the entire operation of Mansors Jewellers, a family-owned business managed by three generations since it began in 1953.

The business, which is located at 154 Queen Street, currently represents a curated selection of luxury brands including Rolex, Cartier and Chopard. It also manages New Zealand’s only officially certified Rolex service centre.

“The Hour Glass’ core mission is to advance watch culture around the world. Recognising the burgeoning community of watch enthusiasts in New Zealand, we are delighted with this opportunity to acquire stewardship of Mansors, a key historic player in Auckland’s fine watch and jewellery sector,” says Michael Tay, group managing director of The Hour Glass. – By Uma Devi

Sim Leisure to bring ESCAPE theme parks to Sri Lanka Catalist-listed theme park developer and operator

Sim Leisure Group is marking its foray into new geographic regions with an entry into Sri Lanka.

The Penang-based group on Feb 4 announced the signing of a non-binding memorandum of understanding with Elpitiya Plantations to bring its ESCAPE theme parks to Sri Lanka.

Elpitiya is an associated company of blue chip conglomerate Aitken Spence. Both companies are listed in Sri Lanka. Under the agreement, Elpitiya will sublease land for the project while Sim Leisure will develop and operate theme parks under its ESCAPE brand.

The group has been granted preliminary approval to commence construction on the theme park. Barring unforeseen circumstances, Sim Leisure aims to commence construction of ESCAPE Sri Lanka in March 2020.

Sim Leisure and Elpitiya expect to sign a definitive agreement in relation to ESCAPE Sri Lanka later this month, including the entry into a strategic joint venture partnership.

ESCAPE Sri Lanka will be located halfway between Colombo city and the main beach resort of Galle, a city on the Southwest coast of Sri Lanka.

Sri Lanka's Tourism Ministry is aiming to attract four million tourists to the island-nation in 2020 – more than double the number of arrivals in 2019. The country is also eyeing tourism revenue of US$5 billion ($6.8 billion) this year to spearhead an overall economic revival.

“I see tremendous opportunity in the Sri Lankan market with its population of over 20 million,” says Sim Choo Kheng, CEO of Sim Leisure. “We will have the first-mover advantage of building the first world-class attraction in Sri Lanka. Unlike many parts of East Asia, Sri Lanka has tremendous untapped potential for family leisure and a highly-educated population hungry for success.” — By Stanislaus Jude Chan

Genting Singapore will not tap shareholders for Japan IR bid

Genting Singapore has won overwhelming approval from shareholders to spend up to US$10 billion ($14 billion) to invest in a possible new project in Japan.

The integrated resort (IR) operator has also reiterated that if it wins the project, funding will come from existing cash, borrowings, and potential local partners. Genting Singapore will not tap existing shareholders to fund the project.

Genting Singapore has also stated its “target” to maintain its dividend payout, which was 3.5 cents for both FY2018 and FY2017.

The company has been prepping for the possible IR in Japan for years. It might answer “request for proposals” to be put out by Osaka and Yokohama. It has yet to decide which location it will bid for.

Genting Singapore is drawn by the large local population in Japan, as well as the growing number of tourists to the country.

The company has flagged that Japan’s gaming market – which includes horse-racing, pachinko parlours – is between US$20 billion and $30 billion a year.

In contrast, earnings from Resorts World Sentosa, which is operated by Genting Singapore, while profitable, has limited opportunities for “very significant” growth, said president and COO Tan Hee Teck at the company’s EGM on Feb 4.

For the 3Q ended Sept 30, 2019, the company reported a 24% y-o-y drop in earnings to $158.9 million. Revenue in the same period was down 7% y-o-y to $596 million.

“We need to venture forward, we need also geographical diversification. We need to reduce Singapore country risk, and help us be more efficient using our capital,” said Tan. — By Chan Chao Peh

SGX RegCo orders 109 companies to perform quarterly reporting

Effective Feb 7, SGX-listed companies on the whole will do away with the existing quarterly reporting (QR) under a new risk-based approach adopted by the stock exchange.

However, companies that have a modified opinion from its auditors on its latest financial statements will have to continue with QR. This includes those where auditors have expressed a material uncertainty relating to going concern based on its latest financial statements.

And if Singapore Exchange Regulation (SGX RegCo) has regulatory concerns with a particular company, the latter will also have to report its financials on a quarterly basis.

Based on these criteria, 109 companies will have to undertake QR, according to June Sim, SGX RegCo’s head of listing compliance.

They comprised 61 Mainboard-listed companies and 48 Catalist-listed companies.

Of these, Sim noted that 94 companies are required to undertake QR due to a modified audit opinion on their latest financial statements, while six companies are due to regulatory concerns.

The remaining nine companies are required to report their financials on a quarterly basis, due to both audit and regulatory concerns.

Sim explained that regulatory concerns must relate to company matters that will have a “significant financial impact”.

This means that companies with non-significant financial impact will not be addressed via QR.

A case in point is Datapulse Technology, which is facing issues surrounding its hospitality agreements with a related party, she said.

“In other words, in determining whether a company has to do QR, we would have to look at firstly the severity of the matters, and the matters must have significant financial impact,” Sim told reporters on Feb 6.

“Even if it is an omission of information that leads to an establishment of a false market, we have the discretion to place them under QR,” she added. — By Jeffrey Tan