February 25, 2019

You are staring in trepidation at the ERP gantry at exactly 8am, stuck at a red light as the gantry lights up leeringly. And oh yes, we all have to do our part of plugging that Budget 2019 deficit and try to go to work later than 8am every day.

Not many people we know had anything much to say about Budget 2019 except for the usual gripes of not enough handouts whilst others are just plain glad that taxes are not heading higher this time around.

The only ones who had plenty to say would be the media outlets, jostling for public engagement and airtime with speculation that this could be an election year (elections are not due till April 2021) or not an election year and others wondering about the curious case of missing wealth taxes in Singapore, especially when the country is spending more and more on healthcare.

The wilting mind, crippled by the unusually hot spell that has gripped Singapore starts to think of ways the government could conjure more revenue, big tickets one at that, like the US$7.5 billion that Malaysia would potentially stand to reap from Goldman Sachs for the 1MDB scandal, which would be enough to finance their MYR 30 billion deficit for the year.

Stanchart is separately setting aside US$900 million over US and UK fines this year which is “revenue” for the respective countries.

We would beg to be excused for our lack of interest in Budget 2019 with the overload of information in our lives and having to choose between 13 energy retailers! Come this May, which is a painful job that used to be done for us by the State and it makes us a little irate knowing that we could end up paying more if we made the wrong choice—and even more irate knowing that a wrong choice will still save us money because our future bills will still be cheaper than what we are paying now.

That begs the question of why did we have to pay so much in the first place, if the cost was cheaper, and who decided it and if Hyflux miscalculated all that? And we rest our case.

Spare a Thought for Hyflux Senior Bondholders, the Vickers Remisiers

The bigger news this week would be the DBS bombshell on Vickers remisiers on the overhaul of DBS Vickers which will affect the livelihoods of several hundred employees from brokers and remisiers to operation staff.

It is mainly the retail business of the brokerage firm and industry pundits say the writing has been on the wall for a while although it is somewhat of a shocker that DBS did not try to even hawk Vickers off to a Chinese buyer.

We can also excuse those Hyflux senior bondholders too, if they are not bothered by Budget 2019, some are busy taking out those Bond 101 guides, struggling to find the chapter that says senior bondholders will get paid less because subordinated debt holders will need to be paid too which is a lesson in bond restructuring as opposed to company liquidation.

We can bet they would be feeling the most irate given they had accepted lower coupons of 4+% percent for years against the 6% that subordinated bond holders were paid and totaling those up, maybe they could have gone for the riskier perpetual bond bet for less investment quantum?

And thus it has been decreed that the 5th of April would be the date where creditors get to vote on the company’s do-or-die restructuring plan which will then have to get shareholder consent before anyone sees any of their money or what’s left of it.

Can Someone Give Warren Buffet A Call?

It could go something like this…

Dear Mr Buffet, we have read your latest annual letter noting that you have few investment opportunities.

That is why we would like to welcome you to take a look at Singapore’s little stock exchange that is made up of safe and steady companies that are mostly not very expensive.

One potentially cheap deal which is probably a little too small on the bite-size for you would be Hyflux, which runs Singapore’s largest desalination plant. The company has been grossly mismanaged over the years and perhaps this could a potential project when you send your lieutenants or even intern to turn the place around like what you did with See’s Candy?

The business is relatively easy to understand but their operating model is somewhat suspect. How about a convertible loan like the one you did with Bank of America that reaped that $ 12 billion dollar return in 2017?

There is no one else who could do it over here, not even our sovereign…

And SGX has Problems too

SGX, as the stock exchange, cannot do much, really, for the Vickers remisiers and Hyflux bondholders. It is a for-profit, publicly-listed company that is majority owned by—the general public (>50%).

As it is, one of the most read local market articles so far has been The Incredible Shrinking Singapore Stock Market, a tribute or rather, elegy, to the SGX.

Budget-2019-Aside-Art-1Source: Bloomberg

With just 15 IPO listings in 2018 for just S$710.6 mio, 19 companies delisted for a new outflow of S$19.2 bio, Singapore has fallen behind the Vietnam and Thai exchanges as former SGX companies successfully relist themselves in Hong Kong for 8 times their former value.

40% of the STI index comprises of 3 local banks and the rest of the index is made up of government-linked companies and real estate firms with Temasek Holdings holding around 7% or more of the total market capitalisation.

It is not important that Singapore needs more listings and a vibrant stock market to be a financial centre.

Think about it. The Swiss Exchange is not known to have an aggressive IPO culture, instead choosing to focus on derivatives and offering other financial services like running the clearing system on behalf of the central bank. It is much like the SGX which gets “40% of its revenue from futures and options from Sept 30 2017, to June 30,2018, compared to 26% from cash equities”, according to the Morningstar.

It is ridiculous to be in the business of equity these days, when a recent global survey conducted by Dimensional Research through 2019, found that “nearly 2/3 of corporate controllers feel pressure to ‘cook the books’” to misrepresent company performance as part of their job.

The main grumble local investors we spoke to regarding the situation of the stagnating stock market is that punters have been in a stranglehold since the SGX took a sterner stance on policing the markets, to the extent of hiving off its regulations unit, SGX Regco, in 2017 to vet listing applications and to punish wrong-doings by companies besides catching all the naughty stock riggers and making an example of them. And Asian bourses are known to be all about the “pump and dump” windfalls that keep the IPO spirit alive.

Isn’t that a good thing? To eliminate any conflict of interest? To leave the SGX open to other profitable opportunities?

The SGX stock price is up over 8% in 2019 and there are rumours swirling around. And it would be a laugh if SGX queries itself one day!

Budget-2019-Aside-Art-2Source: SGX

And our final say remains the same as 5 years ago, “a consolidated stock market has much less to lose in a crash than a bloated one”.

Fingers Crossed

Thanks for Budget 2019. Now, let’s spare a thought for those Hyflux investors, Vickers’ employees, the SGX and pray Warren Buffet responds to make the Singapore market a better place.