Singapore Corporate News - 18 Mar 2008

Jet fuel prices set to stay high: SIA chief

AIRLINES have to get used to expensive jet fuel prices for the foreseeable future, Singapore Airlines chief executive Chew Choon Seng said yesterday.

'The fundamentals of supply-and-demand conditions have not changed and there remains shortage of refining capacity around the world which will take some time to sort itself out,' he told BT.

Given the weak US dollar and production conditions, jet fuel will likely be range-bound at current levels for a while, he said. And if the price does drop, it won't fall any lower than US$90 a barrel.

Jet kerosene now costs about US$120 a barrel.

Mr Chew said that under such conditions, SIA is trying to raise operational efficiency at every level.

'Currently, jet fuel accounts for 40 per cent of our operating cost,' he said. The airline has hedged 50 per cent of its volume requirements at an average of US$85-US$95 per barrel.

SIA posted a group net profit of $1.52 billion for the nine months ended December 2007, up from $1.46 billion a year earlier.

Stripping out exceptional gains of $421 million during the previous year from the sale of SIA Building and the divestment of its stake in Singapore Aircraft Leasing Enterprise, net profit attributable to equity holders for the latest nine months was 46.8 per cent or $485 million higher.

Mr Chew said SIA's efforts to upgrade to more fuel-efficient new-generation planes such as the Airbus A380, A350XEWB and the Boeing 787, will help mitigate fuel costs.

'The fact that we operate a fleet that is five-and-a-half years old gives us an edge over our competitors,' he said.

SIA has ordered 19 A380s, 20 A350XWBs and 20 B787s. The arrival of these planes, plus the A330s and full complement of B777-300ERs, will boost SIA's fleet to about 140 aircraft in five years, from around 100 now.

Besides fuel, the other development SIA is closely watching is the potential impact of a global economic slowdown on air travel.

Because SIA gets almost half its revenue and earnings from premium seats, it is thought to be better positioned than its competitors to ride out a slowdown, as premium seats tend to be less sensitive to market swings.

The airline recently announced the conversion of its five A340-500 planes, which operate the non-stop Singapore-Los Angeles and Singapore-Newark routes, to an all-business class service.

Mr Chew is confident about the long-term health of SIA. 'The company is in an area of business that has a fundamentally strong future,' he said. 'The way the global economy is intertwined means people need to travel.'

According to him, the greatest threat for successful carriers like SIA is complacency.

'While recognising we are good, we also have to be aware of the competition nipping at our heels,' he said. 'The airline business is a dynamic one and barriers to entry are low. What defines winners from the also-rans are the people, the systems and the management organisation. These are difficult to replicate.'

Asked about the recent performance of SIA's stock price, Mr Chew conceded that it is now trading at close to its net tangible asset backing of about $13. SIA's shares closed at $14.14 yesterday, up two cents.

Little wonder then, that the company has been aggressively buying back its stock lately.

Bharti does not plan to make steep tariff cuts

Bharti Airtel Ltd, India's top mobile services firm and an associate company of Singapore Telecom, said yesterday that it does not expect to make any aggressive tariff cuts to maintain its share in a market that is becoming extremely competitive.

'Looking at the low level of tariffs, we do not expect any significant downward trend,' Akhil Gupta, a joint managing director at Bharti Airtel, said in an interview on the sidelines of a conference in Singapore.

'Some tariff reduction is possible as we save on costs, and those benefits will be passed on to the customer. But we do not expect to make any aggressive cuts,' he said.

Analysts have been expecting Bharti to make steep tariff cuts to keep its market share in light of increasing competition.

Its stock price has also been battered by uncertainties over spectrum allocation and fears of a market share battle after the government allowed key rival Reliance Communications to start GSM-based mobile services.

One of the earliest mobile operators after India opened the sector in the 1990s, Bharti provides services on the popular GSM platform in all of India's 23 telecom circles, or service areas.

The government recently awarded licences to many new players, raising the prospect of more competition for the 12 firms that now operate in some or all service areas.

Mr Gupta said that there was every reason to believe that the growth rate for Bharti's new subscribers, and for India as a whole, would be sustainable.

'We've been adding about 2.25 million (subscribers in January and February) - we expect that trend to be sustained.' Last month, Bharti, India's fourth-most valuable firm, said its number of users had reached 60 million, including fixed-line and broadband.

India's operators have been adding about eight million subscribers each month, making India the world's fastest-growing mobile market, helped by cheaper handsets, networks expanding into rural areas and call tariffs as low as one US cent a minute.

Meanwhile, Bharti expects to get additional spectrum in a total of 13 circles soon, Mr Gupta said.

In January, Bharti said that the government had agreed to give the firm additional radio waves in five service areas out of the 10 circles it had applied for.

'Five we have already got, five is likely to be given very soon, and three will be coming very shortly, so I think ... we will be getting more spectrum (for about 13 circles),' Mr Gupta said, adding that this would take place within the next few months.

At the end of last year, India had 233.63 million wireless users, up 56 per cent on the year - and more than the combined populations of France, Germany and Britain.

The outlook remains robust because only about a quarter of India's more than 1.1 billion people has a phone, and the government has a target of 500 million phones by 2020.

Mr Gupta said that mobile number portability - where subscribers can retain their mobile numbers when they switch operators - could boost Bharti's subscriber growth.

The move, which will be introduced by the government later this year, could put more downward pressure on tariffs as it would make it easier for customers to jump to another operator.

'Bharti will be one of the biggest gainers of mobile number portability because people have a choice to move, and they would usually want to move to the leader in the sector,' Mr Gupta said.

Swiber wins Thai job from CUEL

SWIBER Holdings Limited has been awarded a conditional letter of intent from offshore fabrication contractor CUEL Limited for the installation of platforms and pipelines in the Gulf of Thailand.

The contract is tenable for five years and is estimated to be worth US$50 million per year.

Swiber's project scope includes installation engineering, transportation and installation of jackets, piles, topsides and pipelines for offshore oil and gas facilities in Thailand. The company will supply all required personnel, equipment and services for the project, which begins in the first quarter of 2009.

In 2007, Swiber saw a 309 per cent increase in earnings to US$49.7 million. It also doubled its revenue to US$151.2 million.

This year, Swiber announced a string of new contract wins in the region. They include a US$35 million project for the transportation and installation of three pipelines totalling 84 km in Indonesia; a US$29 million contract for the offshore installation and engineering of pipelines in Malaysia; two projects for the design and fabrication of three offshore oil and gas marine assets worth more than US$20 million; and a US$127 million contract for engineering, procurement, construction, installation, and commission (EPCIC) work in the Indian market.

The latest contract win in Thailand is a welcome addition to Swiber's swelling order book. Raymond Goh, Swiber's chief executive officer, said, 'We are honoured to be the contractor of choice of field contracting specialist CUEL Limited. This project, along with our other first quarter 2008 bookings, will substantially improve Swiber's order book.'

Mr Goh believes that Swiber's rapid pace of project wins in 2008 illustrates the strong market demand for high quality offshore marine and EPCIC services.

'Oil prices and demand are hitting record highs, encouraging higher levels of capital expenditure by oil companies in offshore exploration, development and production of oil and gas. This can mean only good things for us,' said Mr Goh.

DBS rolls out deal for social enterprises

IN a first move among banks to reach out to some 150 social enterprises (SEs) in Singapore, DBS Bank yesterday launched a banking package tailored to provide the financing that is often lacking for these organisations.

DBS Bank is also setting up business mentoring clinics, where experienced bankers at DBS would provide social enterprises with the financial and business know-how.

The SEs that qualify for the DBS Social Enterprise Special Package would have to fall under the SE definition by the MCYS and achieve double bottom lines - social dividends and profits, said DBS Bank's managing director for enterprise banking Lim Chu Chong.

This, he noted, is an extension of DBS' enterprise banking, which currently serves commercial enterprises.

The special package offers social enterprises preferential rates on business loans and unsecured overdrafts as well as fee waivers for a slew of services, among other benefits.

The interest rate payable by social enterprises on secured overdrafts and business loans is 10.5 per cent a year, at least two percentage points lower than comparable rates charged to commercial borrowers.

DBS Bank would also waive fees for the use of its cash management services for the first year for SEs under this package. Employees of social enterprises can enjoy special privileges for a whole range of personal banking services, including mortgage loans, renovation loans, auto loans, credit cards and general insurance.

DBS Bank head of business solutions group, enterprise banking, Davy Goh, said this standard package is appropriate for most social enterprises but looking ahead, the bank will seek to provide customised packages .

In a study conducted by the Social Enterprise Committee chaired by by Spring Singapore chairman Philip Yeo, social enterprises would benefit from more financing options, business mentoring and training. A key recommendation of the SE Committee in December last year was to encourage diversified sources of funding beyond grants, from private companies, venture capitalists and banks.

Mr Lim said that while the banking services are available to all SEs, the eligibility of SEs for DBS corporate loans will be assessed in the same way as commercial small and medium enterprises.

For instance, DBS Bank will assess an SE's years of operation and profitability, account integrity and credit history.

The package is expected to be profitable for DBS Bank, he added, though the basic banking services portion may not be profitable on a standalone basis.

DBS Bank is also seeking to engage like-minded customers to provide business mentoring to social entrepreneurs and supporting social enterprises in the bank's procurement of goods and services where appropriate, said Mr Lim.

Ex-APL man to head PST Management

PST MANAGEMENT, the trustee-manager of Pacific Shipping Trust, has appointed former APL Logistics director of corporate business planning Alvin Cheng its chief executive from May 1.

Mr Cheng takes over from Subhangshu Dutt, who goes back to Pacific International Lines, where he spent 18 years before joining PST Management.

Hong Kong-born Mr Cheng, 47, has more than 20 years' experience in the corporate and investment banking and shipping industries. Most recently, he was a member of APL Logistics' global management team, responsible for financial management, strategic business planning and mergers and acquisitions.

Mr Cheng was also based in Shanghai for APL and APL Logistics from 2002 to 2006, as director of strategy planning and business development for the Greater China region.

Mr Cheng has wide experience in shipping and transport finance. Before joining APL in 2002, he worked in Hong Kong for GE Capital Asia-Pacific. During his tenure, from 1999 to 2001, he was responsible for the origination, structuring and execution of finance lease transactions for maritime transport and intermodal equipment in the Asia-Pacific region.

Between 1993 and 1999, he worked at various financial institutions in London and Singapore such as Rabobank and Chemical Bank (which became JP Morgan Chase after mergers with Chase Manhattan Bank and JP Morgan), serving in senior investment banking positions where he handled different aspects of corporate finance, including the raising of equity and debt finance for major shipping companies.

Mr Cheng started his banking career as a management trainee at merchant bank Hill Samuel & Co and worked with Norwegian equity investor Torstein Hagen during the early 1990s.

'My fellow directors and I welcome Alvin on board,' said PST Management chairman Ben Kwek. 'We believe that with his wide international experience, expertise in ship financing as well as leadership and energy, he is well placed to take the business to the next stage of its growth.'

Novo, HG Metal in MOU on steel supply

MAINBOARD-LISTED steel stockist HG Metal yesterday entered into a memorandum of understanding with steel products trader Novo Group, which recently completed a reverse takeover of defunct construction company Neocorp International.

Under the MOU, Novo will supply HG Metal with at least 156,000 tonnes of steel products per year, about 9 per cent of Novo's reported steel supply.

The MOU is not legally binding and is subject to a definitive agreement to be executed within three months, the companies said in a joint statement.

Wee Piew, chief executive officer of HG Metal, said: 'This MOU will add to HG Metal's already expanding list of international steel suppliers. The current demand for steel products remains strong due to increased construction and shipbuilding activities.'

The trading volume for semi-finished and finished steel products is expected to rise 20 per cent to 480 million tonnes this year, from 400 million tonnes in 2006, according to the International Iron and Steel Institute. Steel prices have soared, driven by rising demand, higher prices for iron ore and coking coal and falling stocks.

HG Metal reported a 130.5 per cent increase in net profit to $8.5 million for Q1 2008.

The company said a construction boom and rising steel prices helped boost margins.

Novo Group, incorporated in Hong Kong in 2005, counts HG Metal and Lee Metal, another locally listed steel company, as customers.

Novo's backdoor listing on the Singapore mainboard is being completed and trading is targeted to begin on April 2.

For the first five months of FY2008, it posted a net profit of US$5.7 million on sales of US$211.5 million.

Chairman Dicky Yu said in an interview last week that the company has in place agreements to secure 1.76 million tonnes of steel products a year.

Nod for STATS ChipPac capital reduction

SEMICONDUCTOR testing and packaging firm STATS ChipPac has received the green light from its shareholders for its capital reduction exercise. Under the plan, first announced in January, up to $813 million in surplus capital could be returned to shareholders. The exact amount to be paid for each share held and the date of payment will be announced later.

Jacks International profit up 3% to $2.3m

JACKS International yesterday said profit for the year ended Jan 31 rose 3 per cent to $2.31 million. The improvement was driven largely by the company's health foods and supplements business, but this was offset by lower profitability from the engineering division. Turnover dropped 8 per cent to $27.5 million.

Sinopipe secures 3-year US$15m loan

SINOPIPE has secured a three-year US$15 million loan from three banks in Singapore - China Construction Bank, CIMB Bank and UOB. The interest rate is set at 1.5 per cent a year over and above the three-month US$ Libor. The move is aimed at locking in more favourable interest rates in Singapore in anticipation of a rate hike among Chinese lenders.