It’s unusual – but for some struggling investors somehow comforting – to see that occasionally, the Singaporeans make bum investment decisions and end up losing (a lot) of money.
Following earlier news that Australand Property Group, the Australian unit of Singapore’s CapitaLand, will seek as much as A$557m ($532m) from shareholders after first-half profit dropped 79 per cent amid plunging property values, it seems timely to examine the forays by various Singaporean entities into ventures Down Under.
While business media in Australia focused on the shock profit warning by ANZ bank, the bigger shock, according to Australian commentator Stephen Mayne, was Australand’s announcement of an emergency A$557m capital raising.
As Mayne noted in his daily blog The Mayne Report, Australand began the day with a market cap of A$905m and claimed net tangible assets of A$1.66 per share, despite the stock having tumbled from a December 2007 peak of A$2.60 to Friday’s close of just 98c.
Lo and behold, says Mayne, “today we get a one for one rights issue priced at just 60c, with Sing Inc only promising to step in for their share of $302m whilst the remaining $255m could fail if the stock tanks when trading resumes”.
If Singapore Inc wasn’t standing behind Australand, you have to wonder if the company would have even survived because for shock value today’s announcement is very similar to the surprising $500m capital raising that then-MFS chief executive Michael King unveiled on Friday, January 18, 2008, before he resigned the following Monday.
Australand’s chairman made the following statement at the April 17 AGM: “Our balance sheet and the facilities we have in place are well supported by quality assets and strong operating cash flows from the business.”
The company’s chief executive Bob Johnston also gave no hint of the coming drama, reassuring shareholders that gearing was only 40.4 per cent, net profit came in at A$269m in 2007 and distributions were a most impressive 17c a share.
The collapsing listed property trust sector has turned up some extraordinary developments but, as Mayne notes, “if even the Singapore government’s vehicle is in trouble with total debts of A$1.5bn, things must be really crook”.
And, when you sit down to tabulate the – er, less lucrative – among Singapore Inc’s Aussie experiences of late – “terrible” is Mayne’s word. Singapore Power laid out A$8.14bn in cash for the Alinta east coast assets last August and then failed to flip it into SP Ausnet. This has left Singapore Power lumbered with A$17bn in debt and the same power assets are today probably worth about A$6bn.
Singapore Inc’s Temasek meanwhile ploughed A$400m into ABC Learning at $7.30 a share 12 months ago and has watched almost 90 per cent of that evaporate.
Similarly, the decision to take a one third interest in the Myer Melbourne property play at a valuation of A$600m now looks ridiculous, as does the $717.5m purchase of a half share in Westfield Parramatta in April 2007 on a skinny yield of about 5 per cent.
On top of the recently not-so-profitable Singaporean investments in western banks, the shine is beginning to look distinctly duller on Singapore’s famed investment acumen.
Singapore GLC Australand profit drops 79%
Ausraland Property has reported a 79 per cent fall in first half profit after the company wrote down the value of some projects due to the downturn in the residential real estate market.
To help it through the downturn, the property developer and investor will now raise between $302 million and $557 million through an entitlement offer and use some of the proceeds to pay down debt.
Net profit for the six months ended June was $25.55 million, down from $119.6 million in the same period the year before.
The company wrote down a total of $34.7 million on the value of some projects, in light of the downturn in the residential market in New South Wales.
Australand follows companies such as Mirvac and GPT Group in being hurt by the downturn in the real estate market, as higher interest rates, stemming from the credit crisis and Reserve bank of Australia rate hikes, hurt the demand for property.
Contributing to the profit decline, the company also revalued down investment property assets by $7.3 million in the first half.
Before the writedown and revaluations, Australand’s operating profit was $67.5 million, up six per cent.
“Despite the volatile market and difficult trading conditions, Australand delivered solid operating performances from each of its businesses,” chief executive Bob Johnston said.
Australand is forecasting its full-year net profit to fall at least 34 per cent to between $171.6 million and $176.6 million, excluding property revaluations and one-off non cash items. Profit in 2007 was $269.2 million.
Its full-year operating profit will be around the lower end of February’s guidance of two per cent to three per cent growth, it said.
“Australand took the decision to write down because there’s absolutely no liquidity in the market at the moment,” Aegis Equities Research analyst Sam Haddad said.
“The raising is positive for their capital position and will put them in a better position to fund developments.”
Australand will raise will funds through a renounceable one-for-one share entitlement offer, which won’t be underwritten, at 60 cents per stapled security.
Australand’s key security holder CapitaLand has committed to take up its full entitlement.
Mr Haddad said investors were likely to be confidant in taking part because the major shareholder was taking up the offer.
Mr Johnston said the capital raising was a “pre-emptive move by Australand to strengthen its balance sheet and enable future development.”
It will cut the company’s gearing to between 29.9 per cent and 36.3 per cent, from 43.8 per cent, depending on investor takeup.
Australand chief financial officer Tiernan O’Rourke said the company is operating within all its debt covenants.
Australand also said revenue from continuing operations increased six per cent to $436 million in the half.
Mr Johnston said the commercial and industrial division, which increased profit before tax by 93 per cent to $46.4 million, was a standout.
The investment property division grew 20 per cent to $64 million while the residential division, excluding the writedown, was flat at $34.2 million.
Meanwhile, Australand has also cut the payout ratio of its development business zero to strengthen its capital management position, a policy to be reviewed at the end of 2009. It will maintain full distribution of its property trust earnings.
Australand maintained its interim distribution per stapled security at eight cents. Net tangible assets per security fell two per cent to $1.66.
Australand shares are in a trading halt after last trading at 97.5 cents. They reached a record low 89 cents on July 17, and have fallen 58 per cent this year.
Aegis’s Mr Haddad said the share price may fall further in the short term, to then recover over the longer term.
“The company has a good pipeline of projects. The business and the management are sound,” he said.