Aug 11, 2011

MAS and AirAsia in Business Partnership

Azman Mokhtar and Fernandes at the collaboration signing
The collaboration agreement would not be committed upon once an anti-trust analysis had been completed

The Collaboration

It has been rumoured that Malaysian Airline System (MAS) and budget carrier AirAsia Bhd will form a working relationship. This is finally taking place with shareholding changes in both airlines.

On August 10, 2011 both airlines inked a landmark deal that is set up to reshape the aviation industry. By cooperating to leverage on their core strengths and expertise, the two carriers plan to lower competition and cut costs in the areas of aircraft purchases, engineering ground support services, cargo services, catering and training.

The whole idea of the collaboration is to salvage MAS and realign its business to become a truly premium carrier along the likes of Singapore Airlines (SIA) and Emirates.

A joint collaboration committee chaired by Azman Yahya will be set up to ensure that the collaboration goes according to plan. The other committee members include Mohd Rashdan, Fernandes and Kamarudin.

Share Swap

Tune Air Sdn Bhd which is owned by Tan Sri Tony Fernandes and Datuk Kamarudin Meranun, via a share swap, will end up with 20.5% equity in MAS. In turn, MAS’s parent, Khazanah Nasional Bhd, will take up a 10% stake in AirAsia Bhd. This brings the investment arm’s stake in MAS down to 49% from 69%. The government also retains its golden share in MAS, whereas Tune Air Sdn Bhd reduce its stake in AirAsia from 23% to 10% after the share swap.

The deal is said to be to be valued closed to RM2 billion based on Friday’s (August 5, 2011) closing, with MAS closing at RM1.60 a share and AirAsia at RM3.95 per share.

The Board

As part of the deal, Tony Fernandes and Datuk Kamarudin Meranun from AirAsia will sit on the MAS board, and Datuk Azman Yahya, MAS director will join the AirAsia board.

The collaboration of AirAsia and MAS saw the appointment of several corporate figures with financial background and the founders of AirAsia being appointed to the MAS board.

Tony Fernandes and Kamarudin Meranum were appointed as non-independent non-executive directors of MAS. Tan Sri Krishnan Tan, former IJM Corp Bhd managing director and Tan Sri Wan Azmi Wan Hamzah, former Land & General Bhd have been appointed to the board of MAS as independent non-executive directors. Two other independent non-executive directors are Datuk Rohana Rozhan Astro, CEO of Malaysia Holdings Sdn Bhd and David Lau Nai Pek of Celcom Axiata Bhd.

Meanwhile, Azman Yahya has been appointed as the non-independent non-executive director of AirAsia Bhd.

The Management

Mohammed Rashdan Mohd Yusof, seconded from Khazanah, has been appointed as executive director of MAS. While, MAS’s managing director Tengku Datuk Seri Azmil Zahruddin stepped down to join Khazanah Nasional as its executive director for investment.

MAS’s board has established an Executive Committee (exco), that will oversee the management of the company until a new managing director is appointed. The exco will be chaired by chairman Tan Sri Md Nor Yusof. Members will include Datuk Mohamed Azman Yahya, Mohammed Rashdan, Tony Fernandes and Kamarudin Meranun.

The Business

The deal struck between Air Asia Bhd and Khazanah Nasional Bhd will not see AirAsia or MAS cut back on neither routes nor plane orders. AirAsia recently made an order for another 200 aircraft while MAS  added another 10 aircraft to its ongoing fleet renewal programme. Its order of six A380s is also part of MAS’s fleet renewal programme.

The turboprop operations of Firefly, MAS’s low-cost unit, will become a fully service carrier to ply regional flights. Both AirAsia and sister airline AirAsia X will stick with low-cost airline model for short, mid and long-haul routes.


What Tony Fernandes said: “There’s no need for AirAsia and MAS to cut back on any routes. There are five-star hotels and there are three-star hotels, this is not about rationalization and cutting back. This is about growth.”

What Tan Sri Azman Mokhtar, CEO of Khazahah said: “There are many ways to structure this, particularly for aviation, but we structured this in such a way that the two airlines remain distinct and separate. Separate brands, separate business models, separate governance, separate board, separate cultures even, and the idea is to focus on the core competencies."

Abd Rahaman Rasid
Felda, August 11, 2011

Aug 8, 2011

Natural Rubber Price Hike

 ...because of slow supply growth and stronger regional currencies boost rubber price

The Association of Natural Rubber Producing Countries (ANRPC) has estimated total world natural rubber (NR) production this year to be at 9.95 million tonnes, up by 4.9% from 9.49 million tonnes last year. In spite of the higher forecast, the association expected NR supply was seen moving up slowly over the past quarters, thus triggering continued recovery in rubber prices.

Members of ANRPC Thailand, Indonesia, Malaysia, India, Vietnam, China, Sri Lanka, the Philippines and Cambodia controlled about 92% of the commodity's global supply.

ANRC in July report said the slow growth in supply, high oil price and strengthening of the baht, rupiah and ringgit can help NR prices to stay strong but the short-term outlook is clouded by uncertainties from the debt crisis in the United States and the eurozone.

However, there are limitations in estimating the area to be uprooted each year from 2012 through 2018. This is because farmers individually make the decision on replanting, and their decision is influenced by factors such as age structure of existing trees, current price and short-term expected prices of rubber and rubber wood, prevailing cost of planting materials and labour and incentives for replanting.

It noted that from 2005 to 2010, the uprooting rate varied from 1.5% to 2.5% of the previous year's yielding areas.

ANRPC expects the uprooting rate from 2012 to be higher, given the low uprooting rate from 2005 to 2010. Farmers largely retained aged trees to take advantage of high NR prices. ANRPC pointed out that a large extent of existing yielding trees were planted during 1980s, which was a boom period of planting. Inevitably, trees planted during that period will have to be uprooted during 2012-2018. On the other hand, it said it was unlikely for the uprooting rate to exceed 5%.

Therefore, the yielding areas from 2012 to 2018 are projected against four different replanting rates, namely 2%, 3%, 4% and 5%. The most likely rates are 3% and 4%. The association added a high rate of uprooting implies that a larger extent of existing yielding areas would be entering the gestation phase spanning seven years. The resultant reduction in yielding areas will be pushing the supply down. On the other hand, a low uprooting rate can minimise the reduction in yielding areas and can contribute to supply.

Other constraints for average yield to improve further, with the exception of the Philippines and Cambodia, include a marked increase in the share of low-yielding non-traditional regions in Thailand, India and Vietnam. (Non-traditional regions are agro-climatically less suitable for growing rubber trees and farmers in those regions are generally new to rubber cultivation and hence unskilled).

Even if rubber prices reach abnormally high levels, there would be limited space to improve yield from existing trees, said ANRPC. This is because farmers have exploited available options as the price has stayed abnormally high in the last couple of years.

ANRPC said there are limits to enhancing the yield in the short term. There have also been reports that yield potential of trees in some regions has been damaged due to unscientific overexploitation of trees in the backdrop of high prices.

Source: TheStarBiz, Monday, August 8, 2011.

Jul 30, 2011

Malaysia’s Population Stood at 28.3 Million

Map of Malaysia
 Slightly more men than women in Malaysian population

Malaysia now has a population of 28.3 million at the end of 2010 compared with 23.3 million in 2010 according to the Malaysian Population and Housing Census 2010. The average annual population growth rate was 2% from 2000 to 2010, declining from 2.6% from 1991 to 2000.
Of 28.3 million people in the country, Malaysian citizens accounted for 91.8 percent and non-citizens 8.2 percent. Male’s population is more than female. The male population is 14.6 million while female is 13.8 million.
Bumiputera accounted for 67.4% of Malaysian citizens followed by Chinese (24.6%), Indians (7.3%), others (0.7%). In the peninsular, the Malays accounted for 63.1% of the population while in Sarawak, the Ibans (30.3%) and in Sabah, the Kadazan/Dusun (24.5 %).
Selangor registered the highest population with 5.46 million followed by Johor (3.35 million) and Sabah (3.21 million) while Putrajaya had the smallest with 72,413 people followed by Labuan (86,908). Kuala Lumpur was the most densely populated area with 6,891 people per sq km followed by Penang (1,490) and (1,478).
Source: TheStar, Saturday, July 30, 2011

Jul 19, 2011

Gold is Still the Best Investment

No one will deny that gold is still the best and safest investment. Off all the precious metals, gold is the most popular as an investment.

Investors generally buy gold as a hedge against economic, political, or currency crises (including investment market declines, burden of national debt, currency failure, inflation and war). The gold market is subject to speculation especially in the futures contracts and derivatives. The history of the gold standard, the role of gold reserves in central banking, gold's low correlation with other commodity prices, and its pricing in relation to currencies during the financial crisis of 2007–2010, suggest that gold behaves like a currency than a commodity.

According to an article published in the NST (Friday 8, July 2011) titled "Good Gains from Gold" investment in gold seems to provide an annualized return of 13% over the next three years and should peak at US$2,100 per ounce in 2014.

Economists are bullish on the outlook for gold and there are a few factors contributed to this sentiment. An expected of stronger of  economic growth in China and India providing a boost in consumers demand for gold.

Another reason for this bullish was the global central banks are increasing their gold reserves and become net buyers of gold whereas in the past they are net supplier of gold.

Abd Rahaman Rasid

Jun 10, 2011

Sime Darby to Fight Corruption

As a principle of corporate Governance, it should start at the top and may or may not end at the top. The tone at the top helps to shape up strong corporate governance.

As reported in today newspaper, Sime Darby Berhad signed and handed its Corporate Integrity Pledge for the initiative to the Malaysian Anti-Corruption Commission (MACC) to formalize its commitment in fighting corruption.

The pledge is in accordance with the second initiative of the Government Transformation Programme to fight corruption.

In this area, Sime Darby will work closely with MACC on fine-tuning its internal processes and improve its corporate governance and also to curb bribery and corruption especially among its stakeholders, including suppliers and staff. MACC will act as a secretariat to co-ordinate and assist in the implementation of the pledge. Sime Darby will work with MACC to organize courses for its suppliers pertaining to law and better conduct in doing business.

Abu Kassim, the chief of MACC said Sime Darby had undergone a self-regulating process and it would report to the MACC on efforts it had taken by the end of the year (2011).

Source: TheStar and NST, June 10, 2011

Jun 3, 2011

Demand for Condominiums in Kuala Lumpur

The market for high-end condominiums and serviced residences in Kuala Lumpur is still very strong, according to CB Richard Ellis (Malaysia) executive chairman Christopher Boyd. Boyd said high-end condominiums and serviced residences launched in the city last year had seen strong sales. Take-up rates range from 65%-88% as of the end of the first quarter of 2011.

One example Boyd provided was SohoKLCC (85% take-up rate), with 300 units of between 601 and 877 sq ft, and average selling prices of RM700 to RM850 per sq ft. Another example was M Suites serviced apartments, Ampang Hilir (70% take-up rate), with 442 units of between 502 and 1,630 sq ft, and an average selling price of RM850 per sq ft.

A recent CB Richard Ellis report said that in the first quarter of this year, the total supply of existing condominiums and serviced residences (mid-range and above, with average prices of RM350 per sq ft or higher) in Kuala Lumpur was 32,742 units, representing a 4% increase since the end of last year. Of these, about 44% or 14,514 units were located in the Golden Triangle, central business district and Ampang areas, with 34% or 11,121 units in Mont'Kiara and Sri Hartamas.

About 38% of the supply of condominiums and serviced residences were tagged at between RM350 and RM499 per sq ft, with a further 38.6% priced at between RM500 and RM799 per sq ft. The remainder, or 24% of the units, were priced at RM800 per sq ft onwards and categorised as luxury residential units.

Most of these luxury residential units were located in the vicinity of the Suria KLCC shopping centre. According to Boyd, average capital values in the three main condominium markets (KLCC, Bangsar and Mont Kiara) in Kuala Lumpur had remained relatively steady since the 2008 global financial crisis.

The CB Richard Ellis report said that last year, there were 2,156 transactions for high-end condominiums in Kuala Lumpur with an average value per transaction of RM1.09mil. Boyd said that about 76% of buyers of luxury condominiums and serviced residences in Kuala Lumpur were Malaysians. Less than a quarter of Kuala Lumpur luxury condominium buyers are foreigners. Also, most of the local buyers are not highly leveraged and they are not buying for speculative purposes.

The average prime capital values for condominiums in Kuala Lumpur are among the lowest in the region (compared with Bangkok, Guangzhou, Ho Chi Minh City, Shanghai, Beijing, Singapore and Hong Kong) while average gross rental yields are among the highest (hovering around 5.8%).

Eastern & Oriental Bhd head of sales (property division) Fionna Chuah said the company's high-end projects such as Dua Residency condominiums in the Kuala Lumpur embassy enclave, and IdamansaraDamansara Heights gated and guarded landed development, had seen strong capital appreciation ranging from 50% to 60% in the last few years.

A few years ago, prices for Dua Residency were around RM600 per sq ft. Today, it is approaching RM1,000 per sq ft. As for Idamansara, a semi-detached house sold for RM3mil can fetch RM4.5mil today. Chuah said another of the company's prime projects was St Mary Residences, which is a three-tower freehold condominium development (located adjacent to the The Weld shopping mall). The project's developer is Mergexcel Property Development Sdn Bhd, a joint venture between Lion Group and E&O Property Development.

Source: StarBiz, 16/5/2011.

Jun 1, 2011

Macro Economic Justification for New Power Tariffs

On 30th May 2011, the Government announced that consumers will pay 2.23 sen per kilowatt hour (kWh) more for electricity, or 33.54 sen per kWh effective June 1, 2011. This follows the revision of gas prices for the power sector from RM10.70 per Million Metric British Thermal unit (MMBtu) to RM13.70/MMBtu.

On average, the electricity tariff would be raised by 7.12% from June 1, 2011. The increase was composed of a 5.12% hike to reflect the upward revision of natural gas price to the power sector, and a 2% rise in base tariff for TNB to partly recover from the higher cost of power supply since June 2006.

With the power rates going up, it is expected 75% of the 5.94 million households nationwide will not be affected. The Ministry of Energy, Green Technology and Water said 4.4 million of 5.94 million households which used less than 300kWh or RM77 a month, would not see any increase of their bills.

It is interesting to read a report written by Rupa Damodaran: "Energy rate hike to ease fiscal deficit ratio to GDP" which appeared in the Business Times today.

The move to raise energy rates will enable the government to reduce its fiscal deficit ratio to the GDP from 5.6% in 2010 to 5.4% in 2011 as targeted, economists said. An economist estimated that without subsidy rationalisation, the fiscal deficit may swell to 5.8% of the GDP this year. With the subsidy rationalisation plan in place,  it is expected the fiscal deficit to fall about 4% in 2012.

Economists have expressed concern with the high ratio, saying it would impact the country's sovereign ratings. Malaysia has one of the largest ratios of subsidies to total government spending, and it is one component that has to be reduced.

Malaysia is looking to achieve its target of reducing the budget deficit to less than 3% of the GDP by 2015, and one of the ways is to raise its competitiveness via cuts in subsidies and increased spending in quality investments.

Source: Business Times, June 1, 2011: "Energy rate hike to ease fiscal deficit ratio to GDP."

Abd Rahaman Rasid
FELDA, June 1, 2011.

CIMB and Maybank Bid for RHB Capital

Updated: June 23 2011

Both banks, CIMB Group and Maybank had dropped separate plans to acquire RHB Capital inlight of Abu Dhabi Commercial Bank setting a high valuation bar when it sold its 25% stake in RHB to Aabar Investment at RM10.80 a share last week.

The price paid by Aabar values RHB at around 23.7 billion ringgit ($7.8 billion), nearly 18 percent above the current market value. Other shareholders likely would also expect at least that much under a deal.  


The 2 largest bank--CIMB Group Holding and Maybank will fight each other to take control on RHB Capital which could cost over RM20 billion. A merger of either bank with RHBCap would create one of the largest banking group in South-east Asia.

Bank Negara Malaysia has given a greenlight to both banking groups for them to commence talks with RHB Capital and its substantial shareholders for a merger. CIMB and Maybank have made their attentions to do so to Bursa Malaysia.

In term of assets, Maybank is the largest bank in Malaysia which has a total assets of US$110.3 billion, followed by CIMB Group (US$88.3 billion)); whereas RHB is the 5th largest bank (US$42.4 billion). It means, with a merger exercise come true, if CIMB wins the battle, it automatically will become the largest bank in Malaysia. But, for Maybank, if it win the bid, Maybank will become the biggest bank in the region by market value, overtaking Singapore's DBS Bank.

RHBCap is controlled by the EPF with a 45% stake and its another shareholder, Abu Dhabi Commercial Bank (ADCB) is looking to sell its 25% stake in RHBCap.

The two banks have a equal chance to win the bid, now it is up to the Government to choose. But, if Malaysia really needs a very strong bank and based on a few factors such as Government's vision and mission, new economic policy and present leadership style,  I believe Maybank will win the bid.

Source: TheStar and NST, June 1, 2011

Abd Rahaman Rasid
FELDA, June 1, 2011

May 31, 2011

Malaysia's Economy Attains 7th Position

Malaysia's Economic Performance ranking improved to 7th place out of 59 economies this year compared with 12th position in 2007. It was acknowledged in the World Competitiveness Yearbook 2011 Report released by the Institute for Management Development (IMD) recently.

In the ranking for Economic Performance, Malaysia was headed of Taiwan, Sweden, Canada, Australia, the United Kingdom and Switzerland.

The IMD survey continued to rank Malaysia as among the top 5 most competitive nations in the Asia-Pacific region for the second year, taking 6th position in the 20 million population category and 2nd position after Taiwan in the GDP per capita less than US$20,000 category.

Malaysia was ranked 16th overall in terms of competitiveness among 59 economies, compared with 10th place in 2010.

Source: NST, May 20 2011: "Malaysia's economy attains 7th position"

CEO Air Asia: Malaysia Will Lose Out

It is interesting to read about Air Asia requests to the Transport Ministry for new routes.

AirAsia's CEO hopes that the Transport Ministry will be more accommodative on its request for new routes rights, following Singapore Airlines' announcement that it is launching a new budget carrier. AirAsia X is still waiting for the green light from the Ministry to fly into Beijing, Shanghai, Osaka and Jeddah. If the Ministry does not give Air Asia route rights, Singapore can do Jeddah, Beijing, Shanghai and Malaysia will lose out.

If the government continues to hold back new route approvals, Singapore will have an advantage to build a hub. Singapore has both long-and short-haul airlines, they have the advantage in building a hub. Singapore is competing with other airlines like Qantas, Jetstar and AirAsia X.

Source: Business Times, May 27 2011: "CEO: Malaysia will lose out by holding back routes.