What Is Your Investing Values' System

Like it or not, we all practice some sort of value system when we buy and sell shares, knowingly or otherwise. If you have no value system, then you are among a small group of people, your mantra would be: "As long as I can make money, then its my value system".

At the one extreme is Zero Value System, whereby anything goes, you don't care whether its syndicated ramping or the owner is a bastard, or anything, as long as you can buy and sell at a profit, thats all that matters. Anything beyond that is superfluous to you.


Legality - This should be first level of screening. Most of us would not touch something even if it makes us money if its illegal, e.g. money laundering, Ponzi schemes, etc.


Religion - The most well known is the Shariah compliant investing, self explanatory, no harm industries. We may not see this is Asia but its popular in the US, Christian based funds. Generally, they stay away from porn, tobacco, liquor, gaming and firearms. There are also Catholic Funds, specifically, this means the fund never invests in companies involved in abortion or pornography, nor does it invest in any company that contributes to Planned Parenthood. The fund also screens out companies that offer nonmarital partner benefits. These funds certainly give a new meaning to the "value investing", or rather "values investing".

Green Values - So you may not be so religiously inclined, but you may feel strongly about investing in companies that "behaves properly" in terms of maintaining a sustainable ecosystem, minimal damage to the environment, green corporate philosophies, into renewable energies, promotes resource efficiencies, etc. 


Moralistic Fine Lines - Are you OK buying gaming companies, knowing full well that many families would have been wrecked by excessive gaming addiction, and these companies prey on these exact people to maintain their profits? How about if a a company operated brothels professionally, do you want to participate and support a company that reaps profits from "exploitation of the flesh"?


GLCs - Maybe this applies just to Malaysia, but Mr. Koon and I have the same "value system", we stay away from GLCs. This is because the whole structure of GLCs in Malaysia feeds mostly from patronage and contracts awardment. We have not seen a good display of management superiority or the ability to galvanise resources and advantages to move to the next level. So, generally we stay away from investing in GLCs.


Political - Obvious reasons. If you strongly political, you will not want to participate in the companies that benefit from the "ties and advantages" of being in bed with certain political heavyweights.

Syndicate Stocks - Most Malaysians have no qualms about touching syndicated stocks, they say that if they don't trade in them, there'd be nothing left to trade!!?? Then there are those who strongly abhor these stocks, by virtue of participating in them, you are akin to supporting their manipulative behaviour. Most Malaysians think this is a grey area or necessary evil, rather than a sinister behaviour.


Treatment of  Minority Interests - This one again eludes most Malaysians investors as an issue of concern. To me, this is a major concern. To cite examples, some may think that the privatisation and relisting of Bumi Armada  may have "over-trampled" on minority interests. Some would say the same for Felda Global Ventures. In my case, I won't be buying any of the two until I feel that MI has been properly treated. 


So, what is your personal investing values' system?

Slew Of Big IPOs In Asia

The following weeks will see some major names listing their shares in Asia. Generally, "good IPOs" will see big movements of funds into and out of these IPOs, which usually will create a vibrant market for most markets. The flip side is if a very big IPO is coming, there could a massive one way flow to subscribing for those IPOs thus causing a minor blip. So, which will eventuate. The following names are interesting but not excessively big, hence I would think a relatively vibrant market will be in store.

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

Finance Asia: The start of pre-marketing for Graff Diamonds' IPO this week marks the beginning of a series of billion dollar offerings that are expected to hit the market in the next few weeks.

By Anette Jönsson | 9 May 2012

It’s been a slow start to the year, but initial public offering activity in Asia is starting to pick up and the current pipeline suggests investors will have a healthy number of large deals to choose from around the region between late May and early July.

Graff is active across the value chain (except for the mining part) — from the sourcing of the rough through the cutting and polishing, design and manufacturing to the sale of the finished product to retail customers. It is well-known for its purchases of super expensive diamonds at auctions and has what analysts describe as an “impressive” inventory of diamonds and finished jewellery that, according to one syndicate analyst report, had a book value of $651 million at the end of last year.The first among these to hit the market is likely to be Graff Diamonds, which started pre-marketing on Monday this week and is planning to kick off its management roadshow on May 21. This should allow for a trading debut towards the end of the first week of June. The London-based diamond retailer that targets primarily the world’s ultra-rich — 47% of its sales last year came from items priced above $1 million — is expected to raise about $1 billion from the IPO, although that number is still a bit fluid as the issuer has yet to decide how big a portion of the company will be put up for sale. The size of the secondary portion is also still under discussion.



The main attraction for investors, however, is expected to be the company’s relatively low penetration in Asia — a region that is expected to be the top growth driver for most luxury goods companies going forward. As of the end of last year, Graff had only five stores in Asia, out of 18 directly operated stores and 13 franchises globally. This year it plans to open five new stores in total, all of which will be in Asia. This should lead to increased brand awareness and visibility in the region and help boost sales. In 2011, Asia accounted for 19% of the company’s retail sales, although the syndicate analyst report estimates the sale to Asian customers to be somewhat higher at 25% to 30% as many customers buy Graff diamonds when they travel to Europe.


Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley are joint global coordinators and bookrunners, while HSBC is a joint bookrunner.


Formula One
Lining up behind Graff is another headline-grabbing transaction — Formula One. The company, which owns the commercial rights to the 20 Grand Prix circuit that attracts hundreds of millions of TV viewers around the world every year, is looking to list in Singapore and is aiming for a deal size of as much as $2 billion to $3 billion, according to sources. Most of that — about two-thirds — will come from secondary shares sold by its existing shareholders, including private equity firm CVC Capital Partners, which currently owns 63.4%, and the administrators of the Lehman Brothers bankruptcy, which hold about 15%.


Befitting for a company that is a lot about horse power, the Formula One IPO is on an accelerated timetable with a targeted listing date at the end of June. The banks involved in the deal are currently running a cornerstone process to support what could become one of the largest IPOs in Asia this year. It is also the first company of its kind — a combination of sports branding, media content and advertising — to seek a listing in Asia. The company behind the Manchester United football club was supposed to test the market in the fourth quarter last year, but withdrew its IPO plans amid a highly volatile market and indications that investors viewed its targeted valuation as being too rich.
Goldman Sachs, Morgan Stanley and UBS are joint global coordinators and bookrunners for the Formula One offering. CIMB, DBS and Banco Santander are joint bookrunners.



Felda Global
Another multi-billion offering in the works is Felda Global Ventures, a Malaysian government-owned agricultural commodities company with a key focus on palm oil, rubber and sugar. The IPO could raise up to $3.5 billion, based on a maximum price of M$4.65 per share that was announced in a government notice late last week and a plan to sell up to 2.298 billion shares, including a 5% overallotment option. The max price could mark the top of the price range, but it is also possible for the bookrunners to set the range below the max price, sources say.


Bankers are currently building a cornerstone tranche for this deal too and official pre-marketing may start next week, one source said. The listing is targeted for the end of June. CIMB, Maybank and Morgan Stanley are joint global coordinators and Deutsche Bank and J.P. Morgan are joining them as bookrunners.


Chinalco
Staying on the commodities theme, sources say state-owned Aluminum Corp of China (Chinalco) is getting close to launching a Hong Kong IPO of its copper mining assets in Peru. The early-stage mining business is working towards a deal size of about $1 billion and is on a similar timetable to Felda and Formula One in the sense that bankers are currently doing some early cornerstone marketing. The business is a sister company to Hong Kong-listing Aluminum Corp of China Ltd (Chalco), which is the largest aluminium and alumina producer in China. BNP Paribas, CICC, Morgan Stanley and Standard Chartered are working on the transaction.

China Nonferrous Mining
Another Chinese copper mining company, China Nonferrous Mining Corp (CNMC), is also getting close to launching a Hong Kong IPO that is targeting at least $400 million. The company, which is part of the state-owned China Nonferrous Mining Corp Group, has been pre-marketing for a couple of weeks already but one source has said the company won’t launch a formal roadshow until it is comfortable with the level of demand from cornerstones or anchor investors.


The feedback so far suggests that investors like the asset but that the level of demand will come down to the valuation.


The company has producing mining assets that are already profitable, but its mines are all located in Zambia in Africa, which adds a risk element that investors who normally look at China may not be used to. This is believed to be the first time that major African mining assets will be listed in Hong Kong. CICC, J.P. Morgan and UBS are joint bookrunners.


Yongda Auto
Also pre-marketing at the moment is Yongda Auto, which may raise about $400 million to $500 million. The company is the biggest BMW dealership in China by sales volume and also sells other premium brands like Audi, Jaguar and Land Rover. HSBC and UBS are joint global coordinators and bookrunners. Bocom International has a junior bookrunner role.


Thai AirAsia
And in Thailand, Malaysian budget airline AirAsia is getting ready to spin off its Thai business. The company, Thai AirAsia, is expected to launch the institutional bookbuilding on Monday and is aiming to raise about $240 million, including a private placement of $90 million that will be completed the day after the listing. A private placement alongside an IPO is common practice in Thailand and is a way for the major shareholders to get around paying capital gains tax on their share sale.


The airline is being brought to market by CIMB, Credit Suisse and Thanachart Securities.


The Asian IPO market does typically pick up pace in May and June as issuers are rushing to complete their listings by early July, partly to get the deals done before the summer holidays, partly to be able to use their audited financials for the previous year. In most markets, including Hong Kong, the accounts listed in the prospectus cannot be older than six months.


However, this year the IPO activity has been particularly slow so far, which may put pressure on the banks to get a few deals done by the half-year mark. According to Dealogic, only $12.9 billion worth of IPOs has been completed in Asia ex-Japan year-to-date (including Haitong Securities, which is classified as a “new listing” since it is already listed in Shanghai). That compares with $35.2 billion in 2011 and $38.1 billion in 2010. Excluding deals done in China’s A-share market, there has only been $5.1 billion of new listings so far this year (versus $17.1 billion in 2011 and $15.1 billion in 2010) and aside from Haitong Securities, which raised $1.67 billion from its re-launched Hong Kong share sale in April, no other deal has fetched more than $1 billion.


Encouragingly, Haitong has traded relatively well since its listing on April 27. By day three it closed 8.9% above the IPO price at HK$11.54, but for the past four sessions it has declined with the overall market and yesterday finished at HK$11. This is still 3.8% above the IPO price, however, which is a welcome change from 2011 when the majority of new listings fell in the secondary market. The fact that investors have made some money on Haitong should make them more comfortable to take a look at other IPOs as well.


Meanwhile, some bankers say that the downturn in global equity markets over the past few sessions and the renewed concerns about the eurozone debt crisis is making issuers less inclined to push for aggressive valuations, which should make the upcoming deals somewhat easier to sell. However, if the markets were to continue to trend lower, the current pipeline could turn out to be too much for the market to absorb in just a few weeks. High profile deals like Graff, Formula One and Felda should have no problem attracting investors, but smaller listing candidates could end up suffering if that was to be the case.

SC and The Upcoming Private Retirement Scheme

Managers can now apply for licences to provide products under Malaysia’s proposed private retirement scheme. The Securities Commission answers AsianInvestor's questions about how the system will work.

By Joe Marsh | 26 January 2012

In December, Malaysia’s Securities Commission published eligibility requirements for asset managers to gain a product provider licence under the country’s long-awaited private retirement scheme (PRS).

Ranjit Ajit Singh, managing director at the Securities Commission (SC), here confirms and clarifies some key points for AsianInvestor.

A feature looking at the PRS in detail will appear in the upcoming February issue of AsianInvestor magazine.

AsianInvestor: What does the SC see as the main reasons to set up a voluntary private retirement scheme? Why would (and should) people use the scheme in addition to the existing Employees Pension Fund?
Ranjit Ajit Singh: A well supervised and regulated private retirement scheme (PRS) that facilitates greater accumulation of post-retirement savings can play an important role within the overall pension landscape.

Malaysia’s PRS aims to promote the welfare of the population at retirement through a robust multi-pillar pension framework. The SC is reviewing the existing retirement landscape to make recommendations within the context of developing the private pension industry, which will complement the mandatory contribution to our existing Employees Provident Fund. 

Can you summarise the main points of the PRS? For example, rules on contributions, tax allowances, plus the main guidelines/requirements for asset managers providing products.

Private retirement schemes (PRSs) are long-term retirement schemes that contain a range of funds and are offered by approved PRS providers. The PRS framework is intended to provide flexible and convenient fund options for use, by both employers and individuals with different risk-return profiles.

Contributors will be able to control their private pension accounts in terms of investment diversification, portability between providers and flexible payout options. In this respect, the right to choose and to change investment options, as well as providers, is an integral element of the PRS framework.

The tax incentives provide personal tax relief of up to RM3,000 ($967) per annum on individual contributions to approved PRS schemes, as well as tax deductions for employers for contributions above the statutory rate, up to 19% of employees’ salaries. Tax exemption will also be provided on income received by funds within the PRS schemes.

It has been said that the SC will particularly want to see large, experienced asset managers applying to be part of the PRS. Do you have any comment on that?

Only quality private-sector entities with the required expertise in pension fund management or retail fund management entities that meet the relevant standards and requirements imposed will be approved. Eligibility requirements include capital requirements, track record, conduct history and risk management controls. 

Applicants will need to outline their business model, such as the proposed range of funds, indicative fees and the charges structure, as well as their resourcing capabilities, systems and process capabilities and member servicing.

Qualitative factors will also be taken into consideration, such as governance structure, reputation and professional standing, as well as track record and commitment to grow the PRS industry.

I understand that applications to obtain a licence to be a provider under the PRS must be in by February 15. What is the likely timeframe after that? 
The closing date for licence applications is February 15. The evaluation and selection process will include an examination of the proposed range of funds to be offered by each applicant. On approval as a PRS provider, the SC would then undertake a separate process to approve the PRS itself and to authorise all the funds under the scheme.

PRS providers would be required to offer dedicated retirement funds under the scheme. Other key steps towards full operation of the framework include approving the scheme trustees and the distribution framework to ensure professional conduct and suitability of recommendations made in respect of the PRS to members.  

How many provider licences will be approved under the scheme?
That will depend on the applicants and those who meet the criteria. Our primary objective is to have qualified and experienced providers, and these can be institutional or retail as long as they meet the criteria and demonstrate the capabilities to offer PRSs.  

The provider-eligibility guidelines are now largely final, but the investment guidelines are still to be finalised – what is still to be ironed out?
As part of the implementation process, sub-working groups have been formed and continuous engagement and consultations are being held with experts – local and foreign, government authorities and industry players. We will finalise the guidelines after this process is complete.

Does the PRS have to be set up as a trust structure?
The PRS will operate as a trust structure, with the scheme trustee having fiduciary duties towards the members, including ensuring that the assets of the funds are segregated from the PRS provider. The schemes will therefore be segregated from the fund provider to ensure that contributors’ assets are protected and under the control of the trustee. 

What are the rules on withdrawals from the PRS? 
These are being finalised in consultation with relevant parties, including the tax authorities.