RBS signs MOU with CIMB to sell part of Asia-Pacific business

CIMB continues to make the right moves to expand across the region. 

FINANCE ASIA:

The potential sale will include the UK bank's cash equities, ECM, M&A and corporate finance divisions in Asia and Australia.

After six weeks of trying to find a buyer for parts of its Asia-Pacific business, Royal Bank of Scotland yesterday signed a memorandum of understanding with Malaysia’s CIMB Group. The aim is to finalise a sale and purchase agreement during the next few weeks that will cover the cash equities, equity capital markets, M&A and corporate finance divisions in Asia-Pacific, including Australia, a source said.

The MOU was confirmed by CIMB and RBS in separate statements, but neither party provided any further details. CIMB said the MOU will allow it to negotiate exclusively with RBS to finalise the scope and terms of a sale.

There has been no information about what price CIMB may be paying or what kind of arrangement it is prepared to offer for the existing employees in these businesses, but the MOU suggests that RBS feels there is more value in selling these businesses than to close them down — which is what it has decided to do with these same divisions in Europe.

The main reason for the restructuring of RBS’s wholesale business and the decision to exit the cash equities, ECM and corporate finance businesses globally is clearly a need to cut costs and the management is believed to have come under a lot of pressure from the UK government, which owns 82% of the bank, to get this done quickly.

However, for the people negotiating a potential sale in Asia-Pacific, a key driver has been to enable a large portion of its employees to continue their work under a new roof. One source said that the businesses covered by the MOU employ about 600 people and at the moment the intention is for CIMB to buy the business with the employees. However, it is unlikely that it will end up keeping them all.

For CIMB, the most interesting part of RBS will be its businesses in North Asia and Australia, where the Malaysian bank has a limited presence but is keen to expand as it pushes ahead with its plans to become a regional investment bank. On the other hand, there is bound to be quite a bit of overlap with CIMB’s existing businesses in Southeast Asia and one can expect more job losses among the current RBS staff there.

Overall though, sources argue that the RBS business is a good fit for CIMB and one person noted that the two businesses combined would have ranked in the top 10 in ECM activity across Asia-Pacific last year and close to, if not inside, the top 10 in the brokerage of cash equities.

As with any merger, CIMB will have to work to realise the value of the business, but, assuming it does happen, the acquisition will give it the building blocks to become a competitive force in an Asia-Pacific context.

The MOU comes after RBS announced in mid-January that it would reorganise its wholesale business and close or sell its cash equities, mergers advisory, corporate broking and ECM operations in Europe, the Middle East and Africa, and Asia-Pacific as part of a plan to cut 3,500 investment banking jobs across the globe in the next three years.

Initially, the bank was hoping to find one buyer for the entire business across the three regions and sources said there were some potential buyers looking at that. However, quite quickly it became clear that the best option to find interested buyers would be to sell different regions separately.

On February 1, the bank announced that it had agreed to sell its RBS Hoare Govett corporate broking operations in the UK to Jefferies for a nominal cash consideration. The agreement also includes the transfer of “certain other cash equities professionals” to Jefferies. The sale is expected to complete by the end of the first quarter.

However, on February 11 — less than one month after the initial exit announcement — it told staff that it had decided to wind down parts of its ECM and cash equities business focusing on Europe, the Middle East and Africa (Emea) after failing to find a buyer. The closures will affect 200 to 300 employees and, if nothing else, they show the pressure the bank is under to get out of these businesses.

Aside from CIMB, there were a number of other interested parties for the Asia-Pacific businesses, including China International Capital Corp (CICC), but the Malaysian bank appears to have gained the advantage because of its ability to move quickly. Lazard is advising RBS on the sale.

As reported earlier, RBS is creating a new wholesale banking division out of its remaining businesses, called markets and international banking. The new division will incorporate debt capital markets and the financial institutions group, as well as the banking business that is currently part of global banking and markets (GBM) and the international arm of global transaction services (GTS), and will be led by John Hourican.

Most / Least Expensive Cities n Most / Least Livable Cities

FinanceAsia: In a Cost of Living survey involving 214 cities, Tokyo, Osaka and Hong Kong are among the top 10 most expensive cities in the world for corporations to fund their expatriates. Singapore is not far behind in 11th place.
By Mei Tuicolo | 30 June 2010



One only needs to do a Sunday drive around Hong Kong's Peak to see that big firms are paying top dollar to keep their expatriate employees happy and productive. Ranked as the eighth most expensive city out of a pool of 214 cities, Hong Kong maintains its affluent reputation in Mercer's most recent Cost of Living index, alongside Tokyo, Osaka and Singapore.

The index was created by consulting firm Mercer, and is an annual survey designed to be used as a tool to help develop compensation packages for expatriate employees among Mercer's corporate and government clients.

"In the past couple of years, corporate assignments have become truly global, with expatriates and 'global assignees' being transferred all over the world," said a Mercer spokesperson. "Global mobility is still an expensive undertaking for companies and a real understanding of the costs involved in relocating staff to other countries is essential," she added.



To develop the scores, New York has been used as the base city, with each city then given a comparative weighting to New York. The survey weighs over 200 indicators, including the cost of housing, transport, food, clothing, household goods and entertainment. Currency movements that are calculated into the costs are measured against the US dollar. According to Mercer, it is currently the most comprehensive index of its kind in the market.

Globally, Mercer's top 10 and bottom 10 lists looks like this:

Top 10

Luanda, Angola

Tokyo, Japan

Ndjamena, Chad

Moscow, Russia

Geneva, Switzerland

Osaka, Japan

Libreville, Gabon

Zurich, Switzerland

Hong Kong, Hong Kong (tie for 8th with Zurich)

Copenhagen, Denmark




Bottom 10

Windhoek, Namibia
Tegucigalpa, Honduras
Kolkata, India
Addis Ababa, Ethiopia
Bishkek, Kyrgyztan
Ashkhabad, Turkmenistan
La Paz, Bolivia
Islamabad, Pakistan
Managua, Nicaragua
Karachi, Pakistan


Source: Mercer



Overall, the results are surprising, considering that three African cities rank among the top 10. The explanation for this is that in expatriate packages the big drawing card is ensuring that the lifestyle that expatriates experience once abroad does not deviate too much from the home lifestyle. In other words, packages are designed to protect the purchasing power of the employee.

In a circumstance where an employee and his/her family are all relocated to, say, Gabon, the costs to maintain a western lifestyle increases immensely as household goods and a similar home environment are deemed a luxury.

"Many people assume that cities in the developing world are cheap but that isn't necessarily true for the expatriates working there," stated a spokesperson from Mercer in a press release. "In some African cities, the cost [of living] can be extraordinarily high -- particularly the cost of secure accommodation."

The 214 cities assessed in the survey were selected based on Mercer's client feedback. All the data for the survey was attained during March 2010 and exchange rates from that month were used to determine relative value.



Excluding Australia and New Zealand, 33 of these cities are based in Asia. The 10 most expensive Asian cities were Tokyo, Osaka, Hong Kong, Singapore (ranked 11th overall), Seoul (14th), Beijing (16th), Nagoya (19th), Shanghai (25th), Guangzhou (38th) and Shenzhen (42nd).

In a comparative index put out by the Economic Intelligence Unit, which measures cost of living based on the liveability of each city, the results are very different, with the top 10 rankings being dominated by Western and developed cities.

Top 10

Vancouver, Canada

Vienna, Austria

Melbourne, Australia

Toronto, Canada

Calgary, Canada

Helsinki, Finland

Sydney, Australia

Perth, Australia

Adelaide, Australia

Auckland, New Zealand



Bottom 10

Dakar, Senegal
Colombo, Sri Lanka
Kathmandu, Nepal
Douala, Cameroon
Karachi, Pakistan
Port Moresby, Papua New Guinea
Algiers, Algeria
Dhaka, Bangladesh
Lagos, Nigeria
Harare, Zimbabwe


Source: Economics Intelligence Unit



EIU measured the cost of living across 140 cities with a focus on stability, healthcare, culture, environment, education and infrastructure.

The heavy dominance of Australian and Canadian cities in this index is a reflection of the standard of living for the general population and not just for expatriates who would experience a relatively on par standard of living (from the base city, New York) in any one of the above.

For example, Vancouver and Melbourne are ranked 75th and 33rd respectively in Mercer's index. Vienna is 28th.

However, Pakistan's Karachi is the cheapest city on Mercer's index and in the bottom 10 for the EIU.

Why I Like OFI (A Lot)

Oriental Food Industries is an investment holding company which manufactures, markets and sells snacks food and confectioneries. It is also engaged in the property development business. Brands include Rota, Fudo, Oriental and Jacker.

The group recorded revenues of MYR124.4 million in the fiscal year ended March 2008, a decrease of 0.9% compared to 2007.The group's operating profit was MYR5.5 million in fiscal 2008, a decrease of 50.4% compared to 2007. Its net profit was MYR4.6 million in fiscal 2008, a decrease of 44.6% compared to 2007. The figures for year ended March 2009 showed flat growth with revenue at MYR118m, but excellent margins management allowed them to record a nearly tripling of net profit to MYR8.19m.

The Company maintains a list of certifications which have been conferred by various certification and governmental bodies namely Hazard Analysis Critical Control Point (HACCP) System (potato crisps line only), MS ISO 9001:2000, “Super Brands” and “Halal” product certification for the entire snack food and confectionery products manufactured by OFISB. OFISB is currently working on incorporating HACCP System to its other products in due course. To date, they have secured customers and distributors in Thailand, Vietnam, France, Brazil and the US.

Catalyst #1: Why this company is going places - When you look at a growing company, the key is management's vision and execution, followed by a hawk-like focus on margins and cost of capital. Its gross margins have been averaging 28% for the past two years, and that is very comfortable. The net profit margins have improved from 6% in 2008 to above 8% in 2009.

Catalyst #2: Bearing in mind it made a net profit of MYR9.768m for year ended March 2009 - at 60m shares paid up, that is a net EPS of 16.3 sen. Now here is the exciting part, for the quarter ended June 2009, it made a net profit of MYR2.087m. For the quarter ended September 2009, if you were watching, its net profit jumped to MYR4.779. For the 6 months into the current financial year, it already made MYR6.866m, almost 70% of the whole of last year's figure.

When you annualise that, it comes to MYR13.73m or a net EPS of 22.8 sen. It has more than MYR31m in cash and a NAV of MYR1.83 per share. The other good sign is that all directors have been buying in small quantities, but repeatedly over the last 6 weeks - just go and look at the corporate announcements. Very comfortable positive net cash flow in 2009 of MYR11m.

Main Catalysts In The Works: When you ar a 60m paid up and earnings are growing, you can be assured that a share split and/or bonus from the reserves are in order, so that they can boost liquidity and improve visibility for the company. Distributable reserves and distributable retained earnings stand at MYR6,529,344 and MYR28,045,378 respectively. Looking for an easy MYR2.00 while awaiting their corporate exercises.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


p/s photos: Panward Hemmanee

HK Govenment Did The Smart Thing

Finance Asia: As the global economy twists and turns in a downward spiral, the Hong Kong government announced yesterday that it is appointing a task force to study the matter. Before you groan "we don’t need a task force, we need action", consider that if the government didn’t put together such a group to question how it should handle the global financial meltdown, observers would in hindsight question if the chief executive had done the right thing by his people.

In recent weeks, for example, Hong Kong’s regulators have been swamped by thousands of retail investor complaints that structured products backed by Lehman Brothers, which have since lost most of their value, were being misrepresented. A task force could help sort out what action, if any at all, needs to be taken in such situations – as well as a myriad of other potential problems that could crop up that need to balance out the rights of investors with the rights of financial institutions. And consider Bank of East Asia.

In late September, Hong Kong-listed mid-size lender Bank of East Asia had to stave off a run on deposits. Account holders rushed to withdraw their money despite continued assurances from regulators and management that the fifth largest bank in Hong Kong was financially stable. A task force can’t stop such a run per se, but it may help the government project a more assured voice that helps keep hysteria at bay and hopefully makes people think twice about taking banking advice from text messages, as many apparently did in the BEA case. But a task force is all about its members – and the list of enlisted folks is impressive.

The government has appointed 10 people, including Morgan Stanley Asia chairman Stephen Roach and Standard Chartered chairman Mervyn Davies, to the group assigned with the task of helping the city come to grips with the global financial crisis. Chief executive Donald Tsang will chair the first meeting, which will take place on November 3. Financial secretary John C Tsang will serve as deputy chairman. "The challenges ahead of us are daunting,” says chief executive Tsang in a press release. “The damage that the financial tsunami has inflicted on the global economy has yet to be fully revealed. We need to evaluate the situation, consider ways to respond, identify new opportunities, and ultimately enhance our international competitiveness." David Burton, the head of the International Monetary Fund in Asia Pacific, will attend the first meeting to update members on the global impact of the current financial crisis. The stated aims of the group are to assess the impact of what the government is calling “the financial tsunami” on the local economy and consider ways to respond. It will also formulate a work plan for the coming few months.

Other members of the task force make up a veritable Who’s Who of Hong Kong, including: Li & Fung’s chairman Victor Fung; HSBC's group general manager and global co-head of commercial banking Margaret Leung; KPMG partner Ayesha Macpherson; Johnson Electric Holdings chairman Patrick Wang; real estate agency Centaline's chairman Shih Wing-ching; the chairman of Roctec Futures Trading Co, K C Leong; Mathias Woo, the executive director of charitable international experimental theatre company Zuni Icosahedron; and Chinese University of Hong Kong vice-chancellor and president Lawrence J Lau.

It’s a balanced list spanning industry, real estate, the banking sector, charity, the government and academia. For sure, task forces are often known for simply presenting ideas that are never implemented, but they are also groups that simply by listening help the public vent frustration and they sometimes do actually come up with good policy ideas. Importantly, they can help bureaucrats think things through from more than just one perspective. Given the speed with which this financial crisis is unfolding, the proof of what type of task force this one will be will come soon enough.

Comments: Malaysia should learn to call upon "financial experts" and not just 4th floor or the same old same old.... there are plenty of financial strategists who can come up with solid solutions and ideas. You just need to also pay them, no national service mentality. Pay for quality and pay for insights. Or is it that vested interests are all over the place that we dare not recruit independent brilliant thinkers, as we cannot implement plans without ruining or stepping all over our vested interests? The smartest people in the world surround themselves with people smarter than themselves. Ronald Reagan was at best an actor but he had good oratory skills and recruited smart people - he was still the best US President for the last 40 years, though I really liked Bill Clinton as well.

p/s photos: Panward Hemmanee (you can catch her in Bangkok Dangerous with Nic Cage & Charlie Young)