Tuesday, December 21, 2010

Ex Brigadier General Now CEO of GLC Engineering Subsidiary

Keppel Integrated Engineering Ltd (KIE), the wholly-owned environmental engineering arm of Keppel Corporation Limited, has appointed BG (NS) Tay Lim Heng (郑林兴) as its Chief Executive Officer with effect from 1 January 2011.

Prior to joining KIE in June this year (barely 6 months ago), Tay had absolutely zero experience in the field of environmental engineering, which includes Waste-to-Energy (Incineration) engineering and Water/Wastewater engineering. Instead, BG (NS) Tay was the Deputy Secretary (Development) of the Ministry of National Development (MND). Prior to that he was the Chief Executive of the Maritime and Port Authority of Singapore and had held various key appointments in the Singapore Armed Forces (SAF).

The construction of Waste-to-Energy plants involves intricate knowledge of civil, mechanical and electrical engineering. Meanwhile, the field of water & wastewater engineering requires intricate knowledge of chemical & water engineering. It is challenging enough for engineers to master ONE of those two businesses, let alone both. Witness, for example, Hyflux's single-minded focus on membrane-based water purification technologies.

Yet, amazingly, according to outgoing CEO Michael Chia, Tay Lim Heng has managed to "[adapt] very quickly to the environmental engineering business" and master both fields within a short span of 6 months, something that would normally take others a life time to do.

KIE is indeed privileged to have an esteemed member of Lee Kuan Yew's "intellectual class" as its captain going forward. I personally look forward to seeing what Scholar-General Tay has up his sleeve as he brings KIE into the 21st century.

Tuesday, October 19, 2010

Time for Lee Kuan Yew to learn from Deng Xiaoping's Legacy

Singapore has been touted around the world as an economic miracle. Lee Kuan Yew, the CEO and Chief Marketing Officer of the country, has been held up high as a model statesman of the island state and Asian Economic Tiger. The PAP government likes to boast about how Chinese officials come to Singapore to learn from the ruling party about how to run a nation. Lee Kuan Yew was not afraid to boast about Chinese officials wanting to run their country the way Singapore does [link].

Yet, Lee knew that China would soon rise to the world stage and surpass what little Singapore could ever accomplish. Instead of China learning from Singapore, Singapore would be learning from China. The elder Lee once said to Deng Xiaoping [link],
‘Whatever we can do, you will do better. We are the descendants of the landless peasants of South China, you have the literati, you have the top brains, you have the poets, the artists.’
Indeed, the time has come for Singapore's political elite to take a page out of China's economic leadership.

Tuesday, September 07, 2010

Behavioural Psychology Proves that Greed-Driven PAP Ministers' Compensation System is Fundamentally Flawed!!!

The following short video is an animation of Dan Pink's talk on motivation and what drives people. It is based on the discoveries of Behavioural Economists and is key to this post so please take a moment to watch it. It is fantastic to say the least.



The key discovery by the Behavioural Economists is that:
  1. As long as a task involves only mechanical skill, monetary incentives correlate with performance i.e. higher the pay the better the performance.
  2. Once a task involves even rudimentary cognitive skill, a larger reward leads to poorer performance !!!

Tuesday, August 31, 2010

Measures that PM Lee SHOULD Have Announced, But Didn't

There's a huge hulabaloo on the internet about PM Lee's national day rally speech and the measures he has announced and why they are crappy and inadequate. I agree generally that it was quite a crappy speech and some of the measures announced were silly and reveal that even right now with all the clanging on the internet and the growing resentment on the ground, the PAP still has no clue.

But instead of criticising PM Lee and joining in the chorus of why the PAP is fucked up, I shall instead propose SOLUTIONS to the problems facing our society today.


Friday, August 13, 2010

$387m Budget Understates Cost of YOG to Singapore Society

It has been widely reported that the original $104m budget for the YOG ballooned to a massive $387m. These are the direct financial costs of the YOG. However, the following are a few hidden costs of the YOG that, if we were to estimate and put a monetary value on them, could significantly blow up the total cost of the YOG to Singapore Society as a whole.

Firstly, if we were to calculate and add the monetary value of the thousands of man-hours of unpaid forced labour that Secondary, JC and Polytechnic students, as well as their teachers, have to contribute to the YOG, that would add a significant sum to the YOG black hole.

Secondly, consider the opportunity cost of the time spent by these students in the YOG, which they could have spent studying or other productive activity. Some students' grades will definitely suffer because of the time they have to spend on this event. This cost of the YOG has obviously not been factored in.

Thursday, August 12, 2010

SMRT Cares About the YOG, But Not About You

I could barely believe my eyes when I saw this news report on Channelnewsasia:

SMRT to add over 300 more train trips for YOG opening, closing ceremonies
Posted: 12 August 2010 1315 hrs

SINGAPORE: SMRT says it will add over 300 more train trips on August 14 and 26 - the opening and closing ceremonies of the Youth Olympic Games - to bring spectators and participants home after the events.

For the Opening Ceremony on Saturday, close to 200 train trips will be added along the North-South, East-West and Circle Lines after 10pm to shorten waiting time.

Train services will also be extended that day, with the last northbound, eastbound and westbound trains leaving City Hall MRT Station at 1.30am.

The last trains towards Dhoby Ghaut and Marymount on the Circle Line will be adjusted accordingly, to allow commuters to make their transfers at Bishan interchange station.

Likewise, the last Bukit Panjang LRT trains will be adjusted to allow commuters to make their transfers from Choa Chu Kang MRT Station.

For the Closing Ceremony on August 26, more than 100 train trips will be added on the North-South, East-West and Circle Lines after 9.30pm.

- CNA/jm

Why is it that SMRT can bend over backwards to add 300 additional train trips during the Youth Olympic Games, and yet during normal off-peak periods the train stations are over crowded and over packed? (see for example this report on Jurong East, where the trains were coming about every 5-7 minutes - or 12 trains per hour)

Does Singapore YOG Violate ILO Forced Labour Convention?

The following news story was in the Straits Times earlier this year:

Jun 15, 2010
S'pore to ratify ILO Convention
By Lee Jia Xin

SINGAPORE will ratify the International Labour Organisation (ILO) Convention on Tripartite Consultation.

This announcement was made by Minister for Manpower Gan Kim Yong at the ILO in Geneva, Switzerland, on Tuesday.

Convention 144 aims to establish national tripartite consultations in ILO member states to promote the implementation of international labour standards. It requires ratifying ILO members to undertake effective consultations on matters pertaining to ILO activities between representatives of the government, employers and workers.

With the ratification of Convention 144, Singapore has ratified seven ILO Core and Priority Conventions. One of the core conventions is the Forced Labour Convention (No. 29).

The International Labor Organisation, in C29 Forced Labour Convention, 1930, defines forced labour as follows:
Article 2

1. For the purposes of this Convention the term forced or compulsory labour shall mean all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily.

Let's break down this definition and apply it to what is happening to secondary, JC and polytechnic students during this Youth Olympic Games

Wednesday, August 11, 2010

Maybe Pole Dancing Isn't So Bad After All...!!

When the news first broke that a stripper from Sydney would be choreographing the opening pole dancing act of the Youth Olympic Games, there was a major uproar from the online community. Some slammed the inappropriateness of pole dancing for a global youth sporting event, because of its association with sleazy strip clubs. Meanwhile, more open-minded commentators noted that pole dancing was a competitive sport in and of itself and did not necessarily have to be associated with the sex industry.

The recent economic crisis emerging from the United States, however, could put the skill of pole-dancing in a positive light for young girls in Singapore. Consider the following news article:

Stripper Finds Degree Profitable for Goldman Wasn't Worth It
By John Hechinger - Aug 6, 2010

Carrianne Howard dreamed of designing video games, so she enrolled in a program at the Art Institute of Fort Lauderdale, a for-profit college part-owned by Goldman Sachs Group Inc. Her bachelor’s degree in game art and design cost $70,000 in tuition and fees. After she graduated in December 2007, she found a job that paid $12 an hour recruiting employees for video game companies. She lost that job a year later when her department was shuttered.

These days, Howard, 26, makes her living in a way that doesn’t require a college diploma: by stripping at the Lido Cabaret, a topless club in Cocoa Beach, Florida. “I didn’t know what else to do,” she says. “I’ve got a worthless degree. It’s like I didn’t attend school at all.”

Tuesday, August 10, 2010

Does PAP Government Work for Singaporeans or Foreigners?

I decided to delve into an analysis of some of Singapore's Economic statistics today. I did a bit of sleuthing around and some analysis of our GDP data, and what follows below is the results of my analysis. All the data below is publicly available from Singstat. (all charts clickable for full version)


The chart above shows the nominal GDP breakdown from 1999-2009. From the chart we can see that GDP has been steadily on the rise, apart from the recent dip following the financial crisis. The chart also breaks down the GDP into the Foreign Resident share and the indigenous share of GDP.


This chart performs a statistical analysis on the first chart above. As can be seen, the % share of GDP that went to Foreign Residents increased consistently from 37.85% in 1999 to 42.58% in 2009. In other words, a progressively larger proportion of our economy belongs to foreigners. Correspondingly, the indigenous share of GDP has declined from 62.15% to 57.42% from 1999-2009.

Friday, August 06, 2010

Why Do We Care About Mr Ng's PRC Workers when Our Elderly Struggle to Survive?

TOC has recently run a piece on Aug 5 on Singapore's foreign worker policy "MOM policy change creating problems for employers". In the piece, TOC features an interview of a business owner, Mr Ng, who describes how he is facing problems renewing the work permits for 2 of his PRC workers. The MOM recently shifted its policy stance to tighten its foreign worker quota.
“With the pick-up [in the economy], unless they quickly revise this policy, a lot of employers will face the same problem that I’m facing now,” he said. Indeed, several other employers and business owners have told TOC they too face the same problems.
Here are a few important points from the interview of Mr Ng
  • Mr Ng has 29 total staff, of which 2 of them who are PRCs face non-renewal of work permit
  • Mr Ng claims that if MOM does not renew the PRC workers' permits he will have "a lot of problems recruiting locals ... to fill their gap", and says that that no Singaporeans want to work in a restaurant
  • Mr Ng pays the PRC workers around $800-$1000 a month
On March 29, TOC also published a piece by Gilbert Goh, titled "Employers still discriminating against older workers". Mr Goh pointed out the following:
"A weekend visit to Han’s restaurant at Harbourfront shocked me as the four staff working there were all Filipinos. From the person that took my order to the cashier and chefs, they were all foreigners happily going about their jobs. The only thing that stood them out from the former Han’s staff that I had seen previously, was the age difference. All of them appeared to be in their twenties. I found myself paying for my order grudgingly.

MAS Capital Charge on DBS a Mere Slap on the Wrist

Yesterday, it was reported that the MAS (Monetary Authority of Singapore) had slapped a $230m capital charge on DBS as a 'penalty' for the massive systems failure that occurred last month and that affected more than 1,000 DBS and POSB automated teller machines, Internet and mobile banking services, as well as Nets and credit card transactions.


The MAS required DBS to set aside S$230 million additional regulatory capital for operational risk and told it to improve customer communications procedures. This was widely noted in the press that MAS as a 'censure'. Teo Swee Lian, deputy managing director, financial supervision, MAS, was recorded as having said: 
"We expect all financial institutions to put in place a robust technology risk management framework that will ensure the reliability, resiliency and speedy recoverability of the institution's IT systems and infrastructure, whether outsourced or in-house. We have recently written to the CEOs of all financial institutions to remind them of this."

But does this set of measures on the part of the MAS constitute a real 'censure'? And does the $230m capital charge amount to much of a 'penalty'? Not according to research analysts who have been covering DBS stock.

Thursday, August 05, 2010

Why I Would Like to Leave, by Kitana [Classic]

This was perhaps the best piece I found during my tenure at IS. Kitana was a prolific writer when she burst onto the blogging scene and wrote many fantastic pieces. Unfortunately, she has deleted her blog completely, and the following piece is pretty much all of her writing that is left. Kitana, despite the contents of this piece below, I hope you are still in Singapore and that you will start writing again.

----------------------
Why I Would Like to Leave, by Kitana

Before I went to Canada for a year, I had to go for a medical check-up. During that check-up, the doctor told me that I would love Canada. And he had said that most of the people he knew that went to Canada, either never came back; or when they did, they’d returned to Canada shortly after. Few ever stayed in Singapore.

At the time, I wondered why. I don’t anymore.

The government asks us why we leave. They calls us quitters and deserters, for leaving our country, our homeland, for some other place that we perceive to be greener pastures. Why leave Singapore, where we rank tops for good governance (save for voice and accountability, where we scored a low of 38.2% this year), where we are so clean and safe and secure, and where we are so efficient?

The fact of the matter is, that there are people who will give up all of the above, for more freedom.

Wednesday, August 04, 2010

National Identity, by Solitaire Joker [Classic]

This piece was written by Solitaire Joker back in 2006. He has since made his blog private and inaccessible to the public. But this is a piece I found really meaningful back then, and is still very meaningful today.

-----------------
National Identity, by Solitaire Joker

Today, the green and secure island of shining domes, skyscrapers, and machine-like efficiency that we call Singapore is the place I call home.

I remember the burning sense of patriotism that I had when I was young. In the heyday of Singapore soccer, when half the citizens were cheering heart and soul for Singapore in the Tiger Cup, I remember the exultant and jubilant talk about Singapore’s stellar wins over Malaysia’s teams. I remember feeling very strongly for Singapore then, when I was still an innocent child who concerned myself only with the TV guide, soccer, and books. I remember, as if it was yesterday, making 22 cardboard flip-outs, naming 11 of the pieces after all the Brazilian World Cup players, and naming the rest of the pieces after the Singapore team (yes, I could practically tell you the name of every single player on the Singapore team then) and playing them against each other with a squashed-up paper ball on a large cardboard that was used as the soccer pitch.

And Singapore always won in my memory.

Singapore soccer then was a great way to gel the country together. But it went downhill soon after the Abbas Saad match-fixing scandal.

But as I grew into maturity, and losing my innocence along the way, I began to see the flaws of the Singapore system and began to feel disenchantment and disillusionment. My current position in a policy branch where much policy information runs through my hands is not helping either, being exposed to the inner workings of how government policy think-tanks work.

How did Singapore first start out as a nation?

PAP Government Abuses its Monopoly Power to Suck the People Dry

In Economics, a Monopoly exists when a specific individual or an enterprise has sole control over the supply of a particular product or service, and hence is able to determine significantly the terms on which other individuals shall have access to it. The concept of Monopoly is typically applied to corporations and businesses, and one example of corporate monopoly in Singapore is SMRT, which has the sole operating rights to the North-South and East-West lines in Singapore. Lucky Tan has recently written a good piece on how SMRT is abusing its monopoly, I will not elaborate on this here.

The concept of Monopoly can also be applied to groups other than corporations. It can be applied to Governments, which have a de facto monopoly over the provision of public services. This monopoly of government is not good or bad in and of itself, and in fact can be a very good thing when public services are provided cheaply, efficiently, and to the public benefit. This is because governments are not ordinarly profit seeking operations, but instead are institutions created to serve the public interest, unlike businesses and corporations.

In Singapore, however, there is little acknowledgement of the concept of 'public interest' when it comes to how the government is run. Indeed, the PAP has been explicit in years past about how Singapore should be run like a corporation: Singapore Inc. This profit-seeking mentality means that the PAP has not been shy about abusing the monopoly power inherent in Government, to suck as much 'profit' out of Singaporeans as possible. Here are some examples in which it does so.

I am a Singaporean, by Dan E [Classic]

I used to run a blog several years back, called "The Intelligent Singaporean" Back then, the Singaporean political blogosphere (plogosphere) was small, young and fledgling, and there were only a few voices out in the internet who dared to write and criticise the government. Most were anonymous - including Mr Wang (who actually helped me kickstart IS). Only a couple used their real names to write, like Mr Alex Au of Yawning Bread.

While I was running IS, there was still intense skepticism from many parts of society towards the plogosphere. ST Journalists were very critical of bloggers and generally looked down on us. Society at large viewed us with suspicion, and I'm sure the PAP was watching us with a close eye. No one thought we had a chance to make a difference, no one thought we would succeed.

I closed down IS on August 25, 2007, almost 3 full years ago. I had just finished my studies and had other priorities in life, and couldn't afford the time that IS required. Since then, the plogosphere has exploded.

Monday, August 02, 2010

Darth Zorro Lim Swee Say - Liar Or A Fool?


'When times are good, we work hard together to build up ... social capital, by being one of the most pro-worker nations in the world'
- Minister Lim Swee Say, National Day Message 2010

Not content with leading his storm troopers and clowning about in his Darth Zorro suit to the entertainment of Singapore's nurses and the ire of Singaporean netizens, the NTUC Secretary General has now set his sights on perpetuating the insidious mistruth that Singapore is "one of the most pro-worker nations in the world".


The black-masked member of Lee Kuan Yew's elite "Intellectual Class," who infamously coined the term "cheaper, better, faster" and sang the song "upturn the downturn" (see below), incidentally is paid more than $2 million a year for his costume-bearing antics and pretensions to the Singapore idol crown. Yet, Lim's assertion that Singapore is 'pro-worker' could hardly be further from the truth.

Friday, July 30, 2010

Lee Kuan Yew's "Intellectual Class" will Run Singapore Into the Ground

“We are going to have an intellectual class, about maybe three times as big as what you have now and that will give us the dynamism, the powerful engine to carry us forward faster.” 
- Lee Kuan Yew, 28th July, 2010
Just take a look at Singapore's recent history to see what Lee Kuan Yew's "Intellectual Class" has delivered. Led by none other than his own son, PM Lee Hsien Loong, Singapore's "elite intellectuals" have bandied about policies which are slowly eating away at Singapore's social fabric and which are systematically undoing years of hard work and the foundation upon which this country has arisen.

A senseless growth-at-all-costs mentality and narrow minded focus on GDP growth has led to an open-door immigration policy which is testing the limits of this country. Due to the sudden population shock to the system, transportation, healthcare and housing infrastructure is bursting at the seams. Trains are overcrowded and overpacked, and the roads are chock full of cars. Our hospitals are showing capacity strains, with waiting times for hospital beds raising to all time highs, and doctors being overworked and underpaid. Housing price inflation in Singapore is shooting through the roof due to a lack of common sense on the part of of the Government to provide and plan for adequate housing infrastructure to accommodate the influx of foreign migrants. And while the cost of living continues to soar, incomes for most of Singapore society have either stagnated or fallen. Ostensibly, Singaporeans can now never ever retire.

Thursday, July 29, 2010

Singapore Economy Would Suffer if China Property Boom Collapses

One of the hot topics circling in the global financial news and blogosphere is the potential overheating of the Chinese economy and property market bubble. Home prices in Beijing, for example, have risen to 22 times income levels, a new high that exacerbates housing affordability problems and that raises serious questions about the sustainability of housing prices on the basis of fundamental valuations.

At the same time, reports of China's shadow banking system have started to emerge. A recent video report by TheStreet talks about the "Shark Loan" phenomenon in China. The "Shark Loan" process typically starts with a homeowner taking out a loan on the equity of his house, from a commercial bank, based on the appreciation in the market value of the house due to the booming property market. The homeowner then re-lends the proceeds from the loan to a Shark-Loan operation at a substantially higher interest rate than the homeowner is paying the bank. The Shark-Loan operation, in turn, lends the money it has borrowed from the homeowner, at an even higher interest rate, to a speculator who then bets on the housing market once again. In effect, the Shark-Loan operators are acting as "shadow bankers" in the provision of credit to speculators who would not otherwise get access to capital through traditional funding sources.

The impact of the "Shark-Loan" operations is to circumvent the constraints on credit imposed by the state that are designed to cool the credit bubble that is fueling the property boom. The Shark-loan Shadow Bankers allow the housing bubble to continue its inflation by channeling credit around the legal banking system from homeowners into the hands of speculators, who then further inflate housing prices with their purchases of property. The whole system works beautifully for everybody as long as housing prices continue to rise. But once housing prices fall and the bubble bursts, the entire system of ponzi finance will come crashing down like a house of cards.

Wednesday, July 28, 2010

A Rebuttal to Robert Reich's "Great Decoupling"

Former US Secretary of Labor Robert Reich has recently written a piece titled "The Great Decoupling of Corporate Profits from Jobs" - asserting that the US is entering into a jobless recovery which will see profits being created but not jobs.

There are several problems with Reich's analysis.

In his blog post, Reich is hypersensationalising America's structural weakness in manufacturing, and conflating it with the cyclical unemployment associated with the credit cycle. He is also (wrongly) demonising the Automakers' foreign capital investments and blaming it for the lack of job creation in the US.

As regards the credit cycle - what we are seeing now in the US economy is the deleveraging of the consumer. This deleveraging is going to take some time before it bottoms and stabilises or resumes its upward trend. Meanwhile, companies which underwent restructuring to minimise excess capacity during the downturn, are still sitting on excess capacity which are adequate to meet current levels of demand. The deleveraging of the consumer puts a downward pressure on aggregate demand. And as long as demand stays at levels that does not exceed existing production capacity, companies will not invest in new capacity (and new jobs).

Monday, July 26, 2010

Mah Bow Tan is Either Disingenuous, or Stupid (Maybe Both)

I simply do not understand how Mr Mah can make some of the statements he made that have been reported in the press today.

Dufus Statement No. 1:
"If you're a first-time buyer, there's more than enough flats for you."

Mr Mah claims that HDB is rolling out thousands of BTO flats this year. But how on earth can there be 'more than enough flats' when the flats are only going to be built in 3-4 years? A couple that is going to be married within the next 12 months needs the flats NOW, not in 3-4 years!

This is precisely what is happening to my sister-in-law. She is getting married early next year. But her BTO flat will only be completed around 2014/2015. In the mean time, she and her husband have to share a room with her relatives.

This is a ridiculous state of affairs and it is fundamentally disingenuous for Mah to state that there is adequate housing, when it is precisely the case that there IS NOT ENOUGH HOUSING to meet demand NOW, when it is needed the most. Mr Mah Bow Tan's statement is both insensitive and insulting to the many young Singaporeans trying to start a family in Singapore.

Sunday, July 25, 2010

HDB Unaffordability Exposes Economic Policy Failures - Housing Bubble to Grow and Pop

HDB officially released its 2010 Q2 housing price statistics. Key highlights from the latest housing statistics are as follows:
HDB’s Resale Price Index (RPI) rose by 4.1% in 2nd Quarter 2010 over the previous quarter, as compared to the increase of 2.8% in 1st Quarter 2010 and 3.9% in 4th Quarter 2009.

The median Cash-Over-Valuation (COV) amount amongst all resale transactions increased to $30,000 in 2nd Quarter 2010 (see Annex D (PDF 37KB)). The proportion of resale cases transacting above valuation also increased to 96%.

Singapore's HDB resale market is now out of reach of average Singaporeans. The median COV of $30,000 is now more than the annual take-home salary of an average Singaporean. Assuming that a person earning $3150 a month (gross) takes home $2500 a month (after CPF), this person would take 6 years to save up the median COV if he saved 20% of his income every month.

This means young, newly-wed Singaporeans who have been working for less than 5 years, and who are looking for housing when they are married, are effectively priced out of the resale market. The only way they would be able to afford the housing is if they were to borrow money from their parents to afford the COV to buy a resale flat.

Tuesday, July 20, 2010

Great Flood Fiasco: "Intense Storms" or Sinking Sampan?

When a major unexpected event with severe deleterious consequences occurs, those who were responsible for preventing it from happening, or were supposed to have seen it coming and have dome something about it, often give similar types of excuses for its occurrence. The typical excuse given is that the event that occurred was an event of such low probability or such low frequency that there was nothing really that could be done to prevent it or to foresee its occurrence.

There are several names given to such events... "Perfect Storms", "Once-in-a-million year event", "Outlier", "Freak Event"... all give the connotation that there was nothing that could have been done to prepare for it, and hence those who should have seen it coming should be absolved from any blame or responsibility since there is nothing they could have done in the first place.

There are a couple of notable events in recent history that have been attempted to be explained away as "perfect storms" or "outliers". These include events such as the Great Financial Crisis, which brought the entire US banking system to its knees, the Deepwater Horizon Oil Spill disaster, which is the single largest and most damaging oil spill in US history, and the recent stock market blip that resulted in the biggest intraday point drop ever in the Dow Jones Industrial Average.

In close examination, history will find that these events were actually results of Systemic Failures, rather than "outlier" events. The Great financial crisis was caused by systemic failure across the entire financial system - from excessively low interest rates by the central bank, to over-deregulation of the banking system, to overly lax lending by commercial banks, to greedy investment bankers. The Deepwater horizon spill was caused by executive decisions which put cost-cutting ahead of safety, by complacency and hubris.

Closer to home here in Singapore, Yaacob Ibrahim has attempted to explain away the recent flash floods as "intense storms" and "freak events." The most famous quote he has given Singaporeans is that floods of this magnitude happen "once in 50 years". In short, Yaacob Ibrahim is basically trying to say that the flooding is caused by outliers and perfect storms, not by a faulty drainage system.


Monday, July 19, 2010

Massive Flood Cockup Exposes Cracks in the Political System

When everything is going fine and there are no major cockups, it is easy to for a single-party state and all its institutions and appendages to give the appearance of unity and strength, and for the ruling party to cling onto totalitarian political power. However, when something major goes very wrong, such incidents tend to expose the cracks, flaws and fragilities in the system.

What used to look like a unified front starts to turn into infighting and bickering as the little generals start defending their own turf and try to push the blame for the cockup to one another. This happens when the dominant personality at the top - who previously held the system together and imposed discipline on the ranks - starts to fade from power. This also happens when the cockup was clearly part of the system, and when the blame cannot be pushed to the public.

Here is the low down of the turf clashes that have emerged in the aftermath of the flood cockup


Thursday, July 15, 2010

Singapore's Addiction to Gambling - in More Ways than One

In the news recently:

MORE problem gamblers sought medical treatment and help last year compared to three years ago.

Fresh figures from the National Addictions Management Service (Nams) showed that 17 per cent of patients seen in 2009 were gambling addicts, compared to 5 per cent in 2007. Nams treats about 2,000 patients a year.

Gambling addiction cases are among the top three form of addictions treated by Nams. Drug and alcohol addiction cases make up about 80 per cent of Nams case workload.

Speaking at the official launch of the Nams clinic at Buangkok Green Medical Park on Wednesday, Associate Professor Wong Kim Eng, Clinical Director of Nams, said the rise in gambling addiction cases is likely due to the increased awareness of Nams and its treatment programmes.

Nams has been operating from its dedicated outpatient clinic since June last year and provides services such as psychiatric assessment, counselling, and support groups for patients and families.

Singapore is getting more and more addicted to gambling in more ways than one.

Firstly, you have the obvious rise of problem gamblers as part of the social cost of the newly opened integrated resorts. While the IRs may have helped Singapore to post record-breaking GDP growth numbers this year, more and more Singaporeans are facing gambling addiction. Anecdotally, a friend of mine working in the psychiatric ward of NUH reports that there has been a massive jump in problem gambling cases being admitted to the hospital.

It is not just the gamblers themselves who suffer, the families of the gamblers pay an even higher social cost. Mothers have to suffer to pay the debts of their husbands, children have to drop out of school because their parents cannot afford school fees. Families break down and social cohesion is weakened.


Pioneer JC Girls' Deaths - The Cost of Singapore's SocioEconomic System

The straits times story of the suicides of 2 JC girls from Pioneer JC is depressing to read and is sad indeed.

TWO Pioneer Junior College classmates died within three weeks of one another by leaping from high-rise blocks of flats about a year ago, a coroner's court heard on Thursday.

Ho Yi Xin, 17, was described as a hard-working student with high expectations of herself. Her ambition was to be a doctor.

The second-year Pioneer Junior College student had been seeing a private psychiatrist since June last year as she was feeling anxious in school and at home. She had problems sleeping and could not concentrate on her studies.

Her last visit to the psychiatrist was on July 3 - the day she was found dead at the foot of Block 533 Jelapang Road in Bukit Panjang. She was believed to have fallen from the 24th storey of the block as her silver-coloured bag was found there.

At an inquiry into her death, the court heard that Yi Xin, an introvert, had confided in her classmate around May last year that she was depressed over a detention form given by her favourite teacher for being late.

Seventeen days later, her classmate, Wong Peek Yian, leapt to her death from her seventh-floor bedroom window at Jurong West Street 81. Peek Yian had found out that she had done badly in her mid-year examination and dreaded to see her vice-principal over her poor performance.

A few hours before her death leap, she had sent text messages to her boyfriend, full-time national serviceman Valentino Lee, 19, telling him that her teacher had advised her not to see him too often.

Our education system, as everybody knows, is a pressure cooker in which Singaporean students face immense social pressures to conform to society's standards.

These social pressures come from multiple angles - from parents who want their children to be doctors, lawyers, bankers or scholars. From the government, which places pressures on teachers to churn out A grades from their students. And from their peers, where everybody is competing to outperform and outscore their fellow students in order to emerge at the top of this rat race, which begins the moment a 7 year old child steps into primary school, and only ends when the child has ended his or her working career (now pegged at 65 years, according to the PAP system)

These immense pressures have a huge psychological and human cost on Singapore's young people, most of whom were never designed to take some pressures. Indeed, how is it possible for every person to be a lawyer, doctor, banker, or scholar?


Singapore Economy is Booming but Guess who is Benefiting? Duh... Foreigners!!!!

Associated Press reports that Singapore's economy expanded at a 18% annual rate in the first half of the year.

Who, however, is the main beneficiary of all this economic growth?

But of course! Foreigners!!! LOL, what is new?

SINGAPORE can expect the number of foreign workers to increase by at least 100,000 this year in response to the demands of the booming economy, said Prime Minister Lee Hsien Loong.

Speaking to the Singapore media here on Tuesday as he wrapped up a six-day visit to the United States, Mr Lee said the government had taken steps to moderate the number of foreign workers, but a rise was inevitable given the strong growth.

He added: 'It cannot be helped because with the market so tight, if we don't allow the foreign workers in, you are going to have overheating.

'But we are managing the number of foreign workers. Their levies are being calibrated to moderate the inflow.

'But even with that, I would imagine there would be more than 100,000 extra foreign workers this year. I cannot see it otherwise. We have to accept that.'

 Have Singaporeans' wages risen at an 18% annual rate this year? Are you 18% more productive than the year before?

Of course not!!!

The only way for the PAP to deliver its economic growth numbers is to do what it has been doing all along - bring in foreign capital and foreign labour. The PAP is doing exactly what it has been doing since it came to power - increase factor inputs, without increasing factor productivity.

Thursday, July 08, 2010

Straits Times World Cup Cockup - What Happened to the Sports Editor???

I found this on the Straits Times website sports section today.





Seriously, I think the editor had too many beers watching the match last night.


LOL!!!

Tuesday, July 06, 2010

IRS Money Laundering Investigation Comes to Singapore

Just reported in the news today, "HSBC Clients With Singapore, India Accounts Said to Face U.S. Tax Probe". The IRS is investigating possible tax evasion by American citizens through bank accounts in Singapore. This follows a major crackdown on the Swiss private bank UBS for abetting tax evasion.

Just over a year ago, yours truly pointed out the risks that Singapore faced by positioning itself as a low-tax, private banking jurisdiction. I analyzed the UBS tax fraud case, and Andy Xie's accusation of Singapore being a high-rolling money laundering center. I noted that Singapore was rushing headlong into the private banking and casino business, businesses that depend on a sustained influx of large amounts of private capital, that often comes from illegally derived sources, or that is seeking to evade taxes.

The bloomberg article notes:
Several weeks ago, Downing toured Singapore, Hong Kong and Beijing, meeting with regulators and bankers about offshore tax prosecutions. He spoke to tax lawyers at a conference sponsored by New York University on June 18.

“We just took down the largest private wealth management bank in the world,” Downing said, referring to UBS. “Do you really think we’re going to have trouble doing the next one?”


The Problem with the US Economy

In his latest Op-Ed column in the New York Times, Paul Krugman makes the point that the US needs to continue transfer payments and extension of unemployment benefits to those who are suffering the worst of this economic recession (the poor AND jobless). Krugman is right that engaging in "austerity" by cutting these transfer payments is "penny-pinching in the midst of a severely depressed economy" and "is no way to deal with our long-run budget problems."

Krugman is addressing that group of Republicans who dogmatically oppose everything that the Democrats bring to the table (including financial regulation) simply because they are Republicans and that is what Republicans do (oppose the democrats) and not because they have any genuine understanding of what "Austerity" is. That word has been bandied about too much and has been misunderstood and conflated (wrongly) with genuine fiscal conservatives (like Roubini) who understand that releasing life support too quickly will plunge the economy back into depression (unlike the phony republican 'austerians', who ran massive budget deficits during times of prosperity with their misguided wars, and who pushed for the kind of deregulation that got us into the GFC in the first place). It is unfortunate that the Republicans have hijacked and adulterated the fiscal consolidation argument to further their dogmatic agenda (and have fooled many people in the process), but at least in the context of this blog post we can call them out on their bullshit.

Wednesday, June 30, 2010

Nouriel Roubini is Wise. Listen to Him.

Nouriel Roubini has some of the wisest words I've heard on how to fix the banking system. Too bad congress is too dumb and too powerless to do what needs to be done.



And, some journalists just don't get it.




See also Financial Reforms 'Cosmetic,' Won't Stop More Crises: Roubini

Monday, June 21, 2010

A Trip Down Memory Lane

In October 2008, Warren Buffett wrote an article in the New York Times making a big buy call on the equities market.  In the article, Buffett said that he was buying American stocks, and that "my money and my mouth both say equities."

Fast forward one and a half years later. Singapore stocks have since gained > 50 % from the date of that article, and even more if you bought within the 6 months after its publication. Some non-blue chip stocks even surged multiples from their lows, gaining up to 10x their value.


How prescient that call turned out to be!

Friday, June 18, 2010

Keppel Appoints Tay Lim Heng as deputy CEO of KIE

In what must be a rather bizarre executive move, Keppel Corporation Limited claims that it is "beefing up its pool of senior management" by appointing BG (NS) Tay Lim Heng (郑林兴) as its Deputy Chief Executive Officer and Executive Director (Sustainable Development) of Keppel Integrated Enginering with effect from 15 June 2010.

Tay has absolutely no experience in the field of environmental engineering, KIE's core businesses, which include Waste-to-Energy engineering and Water/Wastewater engineering. Instead, Tay's experience has been in the army and the public sector where he held the administrative posts of Deputy Secretary (Development) of the Ministry of National Development (MND) and Chief Executive of the Maritime and Port Authority of Singapore.

Rationalising the appointment, Mr Tong Chong Heong, Chairman of KIE, said, “Lim Heng brings, to Keppel, his skills in organisational leadership. We are confident that given his wide experience, he will help to capture value in KIE’s environmental engineering businesses.

“One of Lim Heng’s tasks is to synergise Keppel’s environmental engineering and property development competencies to cater for the growing urban and increasingly affluent population in this region and beyond.”

Mr Tong did not make clear how exactly Tay's skills in "organisational leadership" would "capture value" in the environmental engineering business. One would imagine that instead of increasing fixed overheads with the appointment of an "organisational leader", KIE should instead be focusing on technology leadership by investing in engineering capability.

Tay's appointment to KIE comes after the departure of Chua Chee Wui as CEO in late 2009 and the appointment of Michael Chia as CEO in place of Chua Chee Wui. Ex-Minister Lee Boon Yang was appointed as Chairman of Keppel Corp in July 2009 despite having no experience in offshore engineering, civil engineering, or environmental engineering.

Thursday, June 17, 2010

GIC loses S$1.3b on BP Investment since Apr 20th, following Deepwater Horizon Disaster

GIC is one of BP's largest shareholders, holding more than a 1% stake in the company's shares.


On Apr 20, when the Deepwater Horizon oil rig exploded and sunk, GIC's stake was worth about US$1.9b. Since then, BP's share price has plummeted and GIC's stake is now worth about US$1b. This is a loss of about US$900b or S$1.3b of market value since the disaster began.


The Disaster was an unexpected by the oil industry, but in hindsight should have been avoided.

Wednesday, June 16, 2010

Deepwater Horizon Disaster is Oil Industry's Black Swan

Senator Edward Markey made the opening statement for the oil industry executives' testimony on Capitol Hill. As part of his opening statement, he made the following remarks:
For years, the oil industry swore this could never happen. We were told that technology had advanced, that offshore drilling was safe.

BP said they didn’t think the rig would sink. It did.

They said they could handle an Exxon Valdez-sized spill every day. They couldn’t.

BP said the spill was 1,000 barrels per day. It wasn’t. And they knew it.

Now the other companies here today will contend that this was an isolated incident. They will say a similar disaster could never happen to them.

And yet it is this kind of Blind Faith -- which is ironically the name of an actual rig in the Gulf -- that has led to this kind of disaster.
It so happens that I am reading a book called "The Black Swan", by Nassim Taleb. The coincidence couldn't come at a better time. Nassim Taleb in his book, describes these Black Swan Events as:
Firstly, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. ...
Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable. ...

A small number of Black Swans explain almost everything in our world ...

Consider that many Black Swans can be caused and exacerbated by their being unexpected ...

Isn't it strange to see an event happening precisely because it was not supposed to happen?
The Black Swan concept seems to apply to BP's Deepwater Horizon disaster perfectly. For years such an accident was thought by BP and the oil industry to be unimaginable. BP thought they had all the technology, know-how and experience that a disaster of such magnitude was completely inconceivable.
BP's US chief Lamar McKay has told a Congressional panel that there has been "tremendous shock that such an accident could happen", during his preliminary address to the House energy and commerce committee.
 Even the government agency tasked with oversight agreed with the oil industry, as Edward Markey further observed:
We now know the oil industry and the government agency tasked with regulating them determined that there was a zero chance that this kind of undersea disaster could ever happen.
When you believe that there is zero chance of a disaster happening, you do zero disaster planning. And the oil industry has invested nearly zero time and money into developing safety and response efforts.
In retrospect, we now know that BP should have seen it coming. Rigzone reports that the oil well had been described as a "nightmare" and that BP had taken safety shortcuts in order to cut costs, even having been warned of "severe" gas flow problems:
According to the letter from the panel, a BP drilling engineer told a colleague that the well had been a "nightmare well." But the same drilling engineer also emphasized the time and cost savings that would result from choosing the less-protective of two options for the casing in the well--using a single string of steel casing instead of hanging two steel liners, the letter said.

He also made a case for using six centralizers--devices to keep the casing centered--instead of the 21 called for by contractor Halliburton, according to the letter. In spite of warnings from Halliburton about a "SEVERE gas flow problem" stemming from the use of just six centralizers, BP went ahead, according to the letter, which was based on interviews with officials involved in activities on the Deepwater Horizon and documents provided to the committee
BBC also reports,
BP rejected Halliburton's recommendation to use 21 centralisers to make sure the casing ran down the centre of the well bore. Instead, BP used six.
In an e-mail on 16 April, a BP official involved in the decisions explained: "It will take 10 hours to install them. I do not like this."

Later on the same day, another official recognised the risks of proceeding with insufficient centralisers but added: "Who cares, it's done, end of story, will probably be fine."

"It appears that BP repeatedly chose risky procedures in order to reduce costs and save time and made minimal efforts to contain the added risk," the congressmen write.

"If this is what happened, BP's carelessness and complacency have inflicted a heavy toll on the Gulf, its inhabitants, and the workers on the rig," they say.
Indeed, in retrospect, it is clear that arrogance, complacency, and shortcuts are the reason that the disaster occurred. The disaster could have been avoided if BP and the oil industry were humble about their expertise and acknowledged that there were always risks of disasters happening at any time, and that maximum effort was required to minimise the risk of something going wrong. Indeed, BP has now paid the price for their arrogance.

Now that the Gulf of Mexico spill has occurred, everybody is questioning whether deep-sea drilling is safe at all, particularly Brazil, which is looking to exploit its Tupi oil field, the largest deep sea oil discovery in recent times.
Mr Lima says the accident in the Gulf of Mexico is a "general alert" to all countries with deep-water exploration off their coasts.

"Is it possible to drill in such challenging conditions with the confidence that everything is going to work fine? That's a very important question that we had to ask ourselves after the accident in the Gulf of Mexico," says Mr Lima.

"The fact that a serious company like BP was operating the field only makes this even more worrisome."
The oil industry's fundamental approach to deep-sea drilling will be changed forever, most likely with a deep seated paranoia and caution against any possible accident.

The Deepwater Horizon was previously outside the realm of regular expectations, because nothing in the past seemed to point to its possibility. However, its occurrence carried an extreme impact, all the more exacerbated by its being unexpected. Furthermore, in hindsight, we see that it occurred precisely because it was not supposed to happen.

The Deepwater Horizon Disaster is the Oil Industry's Black Swan.



The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility"

Monday, June 14, 2010

Keppel Corp's K-Green Trust: Things for Investors to Note

I previously made a brief post on the K-Green Trust, and this post has received a lot of hits since its publication. In this post, I will elaborate on some pointers for Keppel Corp investors to consider when they are thinking about the Infrastructure division of Keppel Corp and the K-Green Trust.
  1. Why Dividend-in-Specie and not IPO? When Keppel was announced as the winner of the NEA's tender to acquire the Senoko Incineration Plant (SIP), it was stated clearly in the Sep 2008 press release that the listing of the KGT was meant to be as an IPO. Later on, when the financial crisis hit, the IPO was shelved due to adverse market conditions. Since then the markets have returned to relative normalcy, however, instead of going ahead with the planned IPO, Keppel suddenly changed the listing structure to a dividend-in-specie and not an IPO. Why did Keppel not go ahead with the IPO? Wouldn't it have made sense to monetise the trust in the equity capital markets so that Keppel Corp would have cash, especially if the market valuation was going to be a higher one than the price Keppel originally paid for the assets? 
  2. What is the value of the Senoko Incineration Plant? The bulk of the value of the trust is in the value of the SIP. The value of the SIP as listed on Keppel's balance sheet is the purchase price that Keppel paid to NEA. "The purchase price of SIP was mutually agreed within the indicative price of S$462 million between KIE and the Singapore Government on a willing-buyer, willing-seller basis." (source: Keppel press releaseKeppel is also investing a further $48 million to upgrade the SIP, bring the net cost of the SIP to Keppel to $510million. This $510 million is for a 15 year PPP contract, meaning that at the end of the contract, subtrust will have ZERO residual value. In contrast, the government originally built by the government for $560 million in 1992 (17 years ago), expecting it to last about 30 years. (source: NEA) Does it make sense for an asset expected to last 30 years and costing $560m, to be worth $462m +$48m after 17yrs of depreciation?  Investors need to ask themselves whether the price that Keppel paid for the project assets is a fair price for the assets. If not, how to determine the value of the assets? 
  3. Independent valuation of the Trust. There is an independent valuation report in the prospectus for the KGT dividend-in-specie (see Appendix F of intro doc). They state that their valuation of the trust is in the range of $674-731 million on an aggregate basis i.e. they do not break down into the valuation of each of the sub-trusts, and that is all they say. They do not state their methodology of valuation (DCF, multiples, book etc.). They do not state the details of their methodology (if DCF, what is discount rate?) They do not break down the valuation into each of the 3 assets. Why? why? why?
  4. Is Yield the correct method for valuation? So far the analyst research reports (all bullish) state their valuation method as depending on the trust yield. Is this the correct method for valuing the underlying projects?
    • Finite life projects with zero terminal value The sub-trusts contain projects which have a finite lifespan with ZERO TERMINAL VALUE. Once the contracts expire, UNIT HOLDERS WILL BE LEFT WITH NOTHING. Is yield the correct method to value such assets? Yield was originally used as a concept to value stable blue chip companies with steady dividends that were expected to be around a long time. In contrast, the KGT has projects that last only 15,20 and 25 year with zero terminal value. Yield valuation was not meant for these kind of projects!
    • Mismatched Life of Assets The biggest project of the 3 is the Senoko plant which has a contract lifespan of only 15 years. The NEWater plant is contracted for 20, while the Tuas DBOO plant is contract for 25 years. That means that there will be a significant decline in the cash flows from the KGT in year 16 and year 21. And ultimately to zero after the Tuas project expires. Isn't the yield concept supposed to describe steady, consistent cashflows that do not diminish to zero???
  5. Capital structure of the Subtrusts The KGT prospectus doc describes the capital structure as "KGT will not have any debt as at the Listing Date which will provide it with an optimal debt financing capacity for future investment opportunities." Is zero debt = optimal capital structure??? LOL. Infrastructure projects backed by PPP contracts are usually leveraged to a significant level, up to 80%. Banks are willing to take this leverage levels because the counter-party to the contracts is the triple A rated Singapore government. So why is Keppel funding the KGT projects with 100% equity which usually has a required rate of return of 15%, when banks are willing to fund the AAA rated projects with term loans  that typically have a cost of debt of 5% max? Is the KGT's zero gearing structure really optimal? And if it isn't, who is getting the short end of the stick???
I could go on and on, but I think readers will get the point. I will not state my conclusions but I think the above questions are plentiful enough for readers to hunt for clues and come to their own conclusions.

Chinese Labour Strikes Put Singaporeans to Shame

The recent labour strikes in Honda factories by Chinese workers have been all over the global news. Chinese workers are demanding better work conditions and better wages, and they are willing to go on strike for their demands. The recent incidents have been reported by New York Times, Bloomberg Businessweek, EconomistAFP and many others. In one of the NYT article, was the following comments:

striking workers at another Honda plant less than 100 miles away in Zhongshan marched in the streets on Friday and made a new demand: the right to form an independent labor union.

“This is a remarkable development,” said Anita Chan, a labor expert at the University of Technology in Sydney. “Most strikes in China tend to be about not being paid or being mistreated. This was different. The workers were demanding very high salaries. And they want to elect union leaders democratically.”
In Singapore, workers have been intimidated and cowed into submission by the People's Action Party. They are told to be cheaper, better and faster. At the same time they have to accept competition from cheaper foreigners on their very own shores. And for the Singaporean men, they even have to sacrifice 2 years of their lives to protect the soil on which foreign labourers are working on. On top of that, Singaporean workers have to accept record housing prices, a congested transportation infrastructure, and even declining real wages.

They have to suck all of this in without a whimper or a sound. And they do.

Why?

Because they are pussies.

Singaporean workers would never dare to strike or speak out against the ministers. They would never dare stand up against an elite which pays itself millions of dollars in salaries while the aged uncles and aunties have to work in their 60s and 70s for subsistence pay.

Who says that democracy is not part of Asian values? Who says that strikes and democratically formed labour unions are not part of Chinese culture?

The Honda strikes in China have put an end to this utter nonsense.

Another NYT article reported:

Reports of the recent labor strikes have been unusually public here and have appeared largely uncensored in China’s state-run media.
Until now, the government has discouraged strikes and censored reports about labor unrest, apparently out of fear that the reports could fuel other strikes and lead to social unrest. But in the last few weeks, there have been reports — some in state newspapers — of several large strikes around the country.

This week, for instance, a local government-controlled union in the city of Shenyang has been negotiating with KFC, the fast-food giant, to secure a nearly 30 percent raise for workers.

Last Sunday, in another action, about 500 workers at Merry Electronics, a Taiwan-owned components maker, held a walkout that the company said was over a work dispute. Later that day, the company announced a 22 percent pay increase, though a spokesman said the raise was unrelated to the strike.
The PAP asks Singaporeans to be cheaper, better, faster. The PAP asks them to suck in the foreign cheap labour. Meanwhile,
The Chinese government has also encouraged local governments to raise minimum wage standards, and even called on companies to treat workers with more dignity. - NYT
Singaporeans vote in the PAP time and again with overwhelming majority - they keep in power the very hand that oppresses them. And they seem to love doing so.

The only possible reason is that this is because Singaporeans are cowards - sibei kia see!! Either that or they are bloody stupid to keep on believing Lee Kuan Yew's machinery which keeps them deceived with the propaganda straits times. Or they are masochists who love inflicting pain on themselves.

Which one is it???

Singaporean workers - time to wake up!!!!

Saturday, June 05, 2010

K-Green Trust: Keppel Corp pulls a fast one past the Research Analysts

A couple of research analysts have released their research notes on keppel corp's K-Green Trust. Keppel recently released the listing documents for the KGT, which you can find here. It is interesting to note that both the research reports I have found so far are bullish on the KGT, and both suggest significant upside to the listing valuation.

My personal take on the KGT is that it is a structured finance vehicle (not unlike a CDO) meant to house junk project assets that Keppel does not want to have on its balance sheet. By hiving off the 3 project assets (Senoko & Tuas Waste-to-energy plants, Ulu Pandan NEWater plant) into a business trust, Keppel can obfuscate the substance of the assets and divest it to the fools in the market who haven't got a clue what they are buying into.

And, judging by the comments of the research analysts, it appears they have been comprehensively fooled. They have completely missed the substance of what is going on here and are acting as cheerleaders to what in my opinion is fundamental destruction of shareholder value by the Keppel Corp management.

I am very interested to see what more analysts think of the KGT and if any of them will actually call Keppel out on what is actually going on here. But judging by what happened with structured finance vehicles in the USA in the years past, I doubt any of the analysts have the brains to figure it out. And even if they do, none of them will have the guts to call Keppel out on its bullshit.

Update: I have elaborated significantly on my thoughts of the KGT here.

-----------------------------

Lim & Tan Securities

Based on projected distribution of 3.91 cents for 6 months and 2 days in 2010, and 7.82 cents for ye Dec ’11, the yield at $1.13 would be 6.82% (annualized) and 6.95% respectively. As a comparison, City Spring offers a trading yield of 7% at 60 cents (DPU of 4.2 cents). Note however two key differences between the two:
  • KGT is Singapore-centric whereas 50% of City Spring is accounted for by Basslink in Australia;
  • KGT is debt free vs City Spring’s high gearing, which has implications for KGT’s growth strategy going forward.

We believe KGT is attractive. KGT’s listing is expected at end June, and results from the distribution-in-specie by Keppel Corp on the basis of 1 KGT unit for every 5 Kep C shares, valued at 22.6 cents per Kep C share.

Kim Eng Securities

The listing price for Keppel Corp’s Keppel Green Trust (KGT) has been set at $1.13 per unit. Keppel projects a DPU of 3.91 cts for the remainder of FY10and 7.82 cts for FY11. This generates a yield of 6.82% in FY10 (annualised) and 6.95% in FY11. We see fair value of KGT at $1.53, with the implied yield of 5% derived from a highly stable cash flow.

Morning Bulletin 27 January 2010
Top Ideas

23-ct dividend in specie from KGT distribution
Shareholders will receive one K-Green Trust (KGT) unit for every 5 shares as a dividend in
specie. 50.5% of the trust will be distributed to shareholders. The effective value per unit is
therefore S$1.16. Financial details such as expected DPU, earnings and yield will be
forthcoming over the next few weeks, with a listing by 2Q10. We expect the terms to be
attractive, and to provide long-term, regular and predictable distributions to its unitholders. We
also estimate that KGT’s listing could see up to 40% upside from its base NTA valuation of
S$750m. 

Tuesday, March 23, 2010

Nestle & Neste Oil Supplier IOI Group Accused of "Intentional Fraud" and Illegal Deforestation

Following work done by Greenpeace to expose the illegal deforestation perpetrated by Indonesian palm oil giant Sinar Mas, Friends of the Earth has released a report on Malaysian palm oil giant IOI Group, accusing it of illegal deforestation and "intentional fraud." This report follows major press coverage of Nestle's decision to drop Sinar Mas from its supply chain because of mounting evidence that the latter is engaging in irresponsible destruction of high conservation value rainforest.

IOI is a major supplier of palm oil. Amongst its high profile clients are Nestle, the world's largest consumer foods group known for its global brands such as Kit Kat, and Neste Oil, a leading oil refining and marketing company which recently built a major biofuels refinery in Singapore.

IOI expanded its operations to Indonesia in 2007 in order to meet the increasing demand. The company bought over 150,000 hectares of new concessions on Borneo and it is on these concessions that IOI is accused of illegally clearing rainforest, peat land and habitat of the endangered orangutans. IOI is also a palm oil intermediary in the sourcing of palm oil from other producers to meet the demand of its customers.

As a palm oil plantation developer and producer, IOI is accused of

"No approved environmental impact assessments ... Fraudulent statements ... Unauthorised plantation development in forestland ... Encroachment in forested land ... Fires on IOI concessions in Ketapang ... Land conflicts in the making"

As a palm oil trader, IOI is part of the "chain of destruction" from environmentally destructive palm oil producers to food products retailers:

(click image for full size picture)

Indeed, the pressure is mounting on the palm oil industry to put a halt to its corporate social hypocrisy. Two of the largest palm oil producers have been "Caught Red Handed" and it is time for the destruction to stop.

Monday, March 22, 2010

OCBC Supports Environmental Destruction and Socially Irresponsible Business Actions

OCBC investment research's Carey Wong recently released a research note in response to the latest action by Nestle to terminate its direct palm oil purchases with Sinar Mas, which operates palm plantations through its Singapore listed subsidiary Golden Agri Resources. In her research note (signed off by head of research, Carmen Lee), Carey said:


Financial impact likely limited. While SMART did not reveal how much Nestle contributed to its sales, we understand that it is likely pretty insignificant at less than 0.5% of overall sales; this as the group sells most of its CPO to customers in China and India, where demand for CPO is expected to track the rapid urbanization in these countries. As such, the financial impact from the latest development, if any, will probably be very limited for GAR, although SMART may suffer some minor setback to its reputation. On that note, we believe that the adherence to guidelines laid out by RSPO (Roundtable for Sustainable Palm Oil) will become more important as the Nestle development suggests that businesses are paying more attention to “green practices”.

Maintain BUY with S$0.66 fair value. However, the push for full RSPO-certified CPO is still expected to be quite gradual; a Dow Jones report estimates that the total amount produced through sustainable methods is still quite small at 1.5m tons, as compared to the 45m tons of annual CPO output globally. As such, we continue to remain upbeat about GAR’s medium-term prospects and maintain our BUY rating and S$0.66 fair value.

Indeed, it is true that the direct contracts with Nestle constitute but a tiny fraction of Sinar Mas' overall sales and the immediate short-term financial impact is likely to be negligible.

(click image for full size picture)

However, Carey has conveniently ignored the high probability of other customers and intermediaries cutting Sinar Mas from their value chains. Cargill and IOI, both major intermediaries and purchasers of palm oil from Sinar Mas, are coming under pressure from environmental groups and customers for not terminating their purchases from now notorious illegal deforester Sinar Mas. Indeed, Nestle itself is putting pressure on Cargill to ensure that Sinar Mas is eliminated completely from its value chain. IOI has also recently come under fire for its environmentally destructive practices in the development of Indonesian Palm Oil plantations. The chance of further financial impact is not insignificant.

In any case, whether or not Sinar Mas eventually suffers financially from its fracas, I find it distasteful and socially irresponsible for OCBC to promote a business that wilfully and illegally destroys high conservation value rainforest while claiming that it is a responsible member of the "Roundtable of Sustainable Palm Oil." Through the promotion of Golden Agri stock, OCBC shows that it is willing to turn a blind eye to environmentally destructive practices and corporate social hypocrisy, in the pursuit of profits.

And just a point of note - in a detailed comparative profitability analysis of the 5 SGX listed palm oil stocks, Golden Agri has come in last, by a mile.

Hence, how on earth can any analyst with a conscience consider Golden Agri to be a buy?

First Resources - FY 2009 Detailed Fundamental Analysis

First Resources Limited is one of the leading oil palm plantation companies in Indonesia. It is an upstream operator with primary business activities in the cultivation and harvesting of oil palms, and the processing of fresh fruit bunches into crude palm oil for local and export sales. Established in 1992, FR is one of the fastest-growing plantation companies in the region. It manages more than 100,000 hectares of planted oil palm plantations and operate 8 palm oil mills in Indonesia. FR's plantations produced approximately 1.4 million tons of fresh fruits bunches and 323,000 tons of crude palm oil in 2008.

Following my profitability analysis and valuation analysis, FR has proven to be one of the interesting stocks amongst the 5 palm oil listed business in SGX. The following charts are a detailed fundamental analysis of First Resources from FY 2006 - FY 2009. (click charts for full sized image)


First Resources scored very well on the comparative profitability analysis, coming in first amongst its peers. It is interesting to note that this is despite the fact that its profitability numbers actually declined from FY2008 to FY2009. Across the board FR shows consistently high profitability. It consistently posts ROE above 20% and ROA above 15%. FR's high profitability is not a flash in the pan.

FR's profit margins are also consistent. Even with the big fluctuations in CPO prices up and down, gains in biological assets appear to be quite consistent over time. Gross and operating margins are also fairly consistent. Net profit margin has been rising since FY 2007, it is likely to revert to the mean.


FR's leverage has been consistently improving over time since IPO. If the company keeps this up, this is good for shareholders as it means that financial risk is lowered.


Asset utilisation is fairly consistent. Good upward trend in the receivables turnover.

Fairly consistent asset composition.

All in all, nothing very alarming, in fact good profitability numbers over time are a good sign for prospective investors in this stock.

Palm Oil Stocks Valuation Multiples - Wilmar, Golden Agri, Indo Agri, First Res, Kencana Agri

Based on the latest FY 2009 earnings and balance sheets statements, here are the relative valuation multiples for the 5 SGX listed palm oil stocks. The relative valuation is based on 2 key multiples: the price/earnings ratio and the price/book ratio



Wilmar IntGolden AgriIndo AgriFirst ResKencana Agri
Price per Share (SGD)6.55 0.56 2.19 1.15 0.295
Price/Earnings Ratio15.58 8.01 9.98 9.30 12.60
Price/Book Ratio2.69 0.88 1.58 1.95 1.47



As can be seen, Wilmar has the highest P/E ratio. This is despite the fact that it is not the most profitable of all the companies. However, it is definitely the largest of all the companies. Its size and reputation definitely contributes to the fact that its P/E is the highest of all the 5 companies. In contrast, Golden Agri has the lowest valuation of all the 5 companies, and this is in line with its poor profitability.

Meanwhile, taking into consideration the profitability rankings, it seems that First Resources looks very reasonably valued on the basis of its P/E ratio, relative to its peers.



Based on the Price/Book ratio, Wilmar is again the most expensive. Golden Agri is the cheapest. However, this time First resources is not particularly cheap compared to the others. It has a high P/B, that partly reflects its high ROE.

Roundup: Based on all the profitability numbers and the valuation numbers, it seems that First Resources is the most reasonable buy amongst all the 5 SGX listed palm oil stocks, purely based on a financial analysis.

Friday, March 19, 2010

What is Cargill Waiting For? Cut Sinar Mas (Golden Agri Resources) Palm Oil Immediately!!

Unilever, Nestle, Kraft, Shell and Sainsbury have all cut notorious rainforest destroyer Sinar Mas from their list of palm oil suppliers. However, Cargill, the multinational commodities trading giant, is yet to follow the lead of its corporate peers in taking a firm stand on corporate social responsibility and environmental protection.

Despite clear evidence that Sinar Mas, the largest palm oil producer in Indonesia, is illegally logging and clearing high conservation value rainforest and peatlands, and in the process further threatening endagered species like the Orangutan, and contributing to greenhouse gas emissions, Cargill is still mucking around on the issue.

Cargill's role in the 'chain of destruction' is illustrated in the image below. The company is a middleman between the producers of the palm oil and the final users of the same.



The company has released a statement on the issue on its website, saying:

Cargill is keenly aware about the allegations made in December 2009 by Greenpeace about illegal forest clearance and the Indonesian palm oil company, Sinar Mas.

When we became aware of the Greenpeace report we contacted Sinar Mas’s senior management and we have communicated to them that we are looking to them to address the issues in the Greenpeace report. Additionally, we urged the RSPO board to review this issue. We are pleased the RSPO Board has instructed the RSPO Secretariat to get a response from Sinar Mas to the allegations in the Greenpeace report. We are continuing to follow this closely and hope to see a reply from Sinar Mas by the end of April 2010.

If the RSPO validates the allegations of improper land conversion or illegal planting in deep peat land as alleged in the Greenpeace report and Sinar Mas does not take corrective action, we will delist them.
The recent actions by Nestle and Unilever, however, demonstrate that Cargill's corporate peers have rejected the credibility of the RSPO. Indeed, the evidence of Sinar Mas' illegal and environmentally destructive activities comes in spite the fact that the company is supposedly 'certified' by the RSPO.



Forest4climate articulates the problem clearly:

So if within the palm oil industry there’s all this awareness of the potential damage they could cause to both people and the environment, why are we still finding evidence of wholesale forest destruction? Just a couple of weeks ago, we found bulldozers belonging to Sinar Mas clearing huge tracts near Jayapura in Papua, and yet Sinar Mas is an RSPO member. There’s obviously something wrong somewhere.

That something is the basic set-up of the RSPO itself. As it currently exists, its standards and principles are too vague and weak to really do any good and, as we’ve seen, some of its members are happily chewing their way through rainforests and carbon-rich peatlands. There’s no danger of actually being penalised in any way by the RSPO, even though they’re supposed to abide by the code of conduct which states “it is fundamental to the integrity, credibility and continued progress of the RSPO that every member supports, promotes and works towards the production, procurement and use of sustainable palm oil.” What kind of “integrity” or “credibility” does the RSPO have if it turns a blind eye when its members are clearing huge areas of forest or draining and burning peatlands?

Indeed, the whole point of the Greenpeace allegations is that RSPO is an organisation set up to give the palm oil producing industry merely the image of promoting corporate social responsibility, while at the same time engaging in corporate social hypocrisy. Going through the RSPO to hold Sinar Mas accountable completely misses the crux of the matter. It highly unlikely that the RSPO will ever "validate the allegations of improper land conversion or illegal planting in deep peat land"


Meanwhile, Sinar Mas continues to sidestep the issue and release more propaganda. There have been no statements coming directly from the company engaging directly the Greenpeace allegations. Instead, Bloomberg BusinessWeek reported:
PT Sinar Mas Agro Resources and Technology, Sinar Mas’s palm oil unit, is “committed in applying a responsible land clearing and the best practice of farming management in all of our plantations,” President Director Jo Daud Dharsono said by phone today. “We always maintain communication with Greenpeace and we will soon arrange a meeting and have a dialogue with them,” he said.. 

Sinar Mas is obviously denying the issue and trying to sidestep their way around it.


Cargill should stop depending on the RSPO to hold Sinar Mas accountable, and instead should conduct its own independent audit of Sinar Mas' environmental practices. It should demand a direct response from Sinar Mas to the allegations, rather than going through the dubious RSPO. Indeed, in the light of the undeniable evidence and the actions of Unilever, Nestle, and other food giants, Cargill should suspend all purchases of palm oil from Sinar Mas immediately until the latter is able to demonstrate that the allegations are false.

There is no excuse for Cargill to do otherwise. Cut Sinar Mas palm oil immediately!!!

Related: "Cargill's Legacy of Destruction"

Thursday, March 18, 2010

Golden Agri Resources - Nestle terminates palm oil contracts with GAR subsidiary SMART following Greenpeace evidence of illegal deforestation


Singapore listed Golden Agri Resources' (GAR) Indonesian plantation subsidiary PT Sinar Mas Agro Resources & Technology Tbk continues to come under pressure from multinational consumer goods giants. Following the lead of consumer good giant Unilever who cease purchasing palm oil from the group late in 2009, food products giant Nestle today announced that it had terminated its palm oil purchases from SMART following damning evidence released by the group Greenpeace that SMART is engaging in illegal and environmentally destructive deforestation.

Given the repeated track record of Sinar Mas businesses in flouting environmental regulations and its notoriety for illegal deforestation, it is not surprising that the GAR subsidiary is receiving similar bad press for its deforestation activities. It appears that Mr Franky Widjaja is following the footsteps of his father in the wanton destruction of rainforests in the pursuit of profits.

Franky Oesman Widjaja has been the Chief Executive Officer of Golden Agri-resources Ltd. since 1996. Mr. Widjaja serves as the head of the Agri-Business and Consumer Food Products Division of the Sinar Mas Group. Franky Widjaja is one of the sons of Eka Widjaja, founder of the Sinar Mas Group, which was one of the largest conglomerates during the Indonesian New Order period.

The Sinar Mas Group also owns Asian Pulp and Paper, a company that has been convicted of being involved in illegal logging in Cambodia, Yunnan Province, China , and the illegal felling of over 50,000 acres (200 km2) of forest in Bukit Tigapuluh national park.

Golden Agri Resources has yet to respond to the decision by Nestle. It earlier claimed that Greenpeace's assertions were "inaccurate and unbalanced allegations." In an announcement dated 15 Dec 2009, the company said:

Greenpeace’s allegations highlighted several issues related to the environmental irregularities and legality issues purported to have been committed by the Company. We regret that the report has published one-sided views using inaccurate, misleading, exaggerated and generalised data and claims. This can result in misconceptions among the general public as well as form an inaccurate basis for decision making by our business partners.

The Company appreciates every effort by all parties that encourage the oil palm industry to always adopt and adhere to the best agricultural practices. It has always been the focus of the Company to comply with all prevailing Indonesian laws and regulations as well as national and international environmental principles.

Since the beginning of its operations and especially during the last 15 years, the Company has committed to base its development on objective of sustainable palm oil production. Indeed, the Company believes that there is strong compatibility between environmental care and agricultural development.


Despite this announcement 3 months ago, it appears that its client Nestle remains unconvinced with the public statements of GAR and its subsidiary SMART. And despite the claims by GAR that Greenpeace's allegations are "one-sided views using inaccurate, misleading, exaggerated and generalised data," independent consultants of UniLever and Nestle have corroborated the Greenpeace claims.

It is highly unlikely that either of Unilever, Nestle, Sainsbury and Shell, who have all ceased buying palm oil from Sinar Mas, would have undertaken such drastic actions if there were poor bases to the allegations made by Greenpeace. Furthermore, apart from releasing press statements claiming that they have been falsely accused, GAR has yet to release a detailed rebuttal to the well constructed arguments and evidence as published by Greenpeace.

For now, the burden of proof remains on GAR to demonstrate that it is indeed taking steps to be socially and environmentally responsible in its business practices. The company's press released are unconvincing in light of all the available information.

"Under the Willow Tree" fully supports socially responsible development of palm oil plantations. Only companies that demonstrate that they produce palm oil sustainably will be endorsed as investments. Hence, in light of recent developments, GAR is not endorsed as an investment by this website. In any case, Golden Agri has not performed well in our recent comparative profitability analysis. In fact, it came in last of all the 5 sgx listed palm oil stocks.