Malaysians capitalising on London’s property investment

Malaysia is among the countries that is capitalising the lucrative and transparent real estate market in London, United Kingdom. “Clarity in British rules and regulations has made it easy for foreign investors to transact in the United Kingdom,” said Knight Frank LLP, a leading independent global property consultancy, in a statement today.

Among the recent Malaysia-related deals was the sale of the Employees Provident Fund’s prime office – One Sheldon Square - in Paddington to a UK REIT British Land for £210 million (RM1.14 billion) at a 4.5 per cent yield.

In 2013, Kumpulan Wang Persaraan bought the Richard Rogers-designed skyscraper, 88 Wood Street, from the National Pension Service of Korea for £200 million (RM927.11 million) reflecting a 5.8 per cent yield.

Others included the purchase of a government building by Tabung Haji for £205 million (RM1.11 billion). In addition, tax regime and long lease terms in the United Kingdom gives investors a more secured investment environment, it said, adding that investors were able to access accurate market information about particular assets.

“London is one of the largest and most dynamic cities in the world, and therefore offers a wide range of investment opportunities. It has the ability to evolve and create new submarkets,” the statement added.

Economic risk for Malaysia's banking sector revised to stable: S&P's

Standard & Poor's Ratings revised its economic risk trend for Malaysia's banking sector to stable from negative, saying the industry risk trend remains stable. It also revised the outlook for AmBank, RHB Bank and RHB Investment Bank to stable from negative.



"Our stable outlooks on Malaysian banks factor in our expectation that these banks will maintain their satisfactory financial profiles even as the domestic economy slows," the rating agency said. It added that successive government measures since 2010 to counteract the stimulatory effect of low interest rates on consumer borrowing and home prices have been effective.

"In particular, the more stringent measures introduced in 2014 to curb property speculation have reined in prices. "In our base case, we expect these steps to help keep the year-on-year inflation-adjusted rise in property prices to 4 per cent or less over the next 18-24 months.

" S&P's said the Malaysian economy has lost some momentum due to a weak energy sector, tighter domestic spending due to the implementation of goods and services tax (GST), and uncertainties in global demand. It expects an increase in credit losses from historically low levels but overall, it expects the credit risk of Malaysian banks to remain manageable.

"Malaysian banks have been building up capital and provisioning buffers in the good years, which will mitigate some downside risks." The outlook action today was from BBB+ negative to stable for AmBank (BBB+), RHB Bank (BBB+) and RHB Investment (BBB+). S&P's also affirmed the stable ratings on four other banks – Public Bank (A-), Malayan Banking Bhd (A-), CIMB Bank (A-) and CIMB Investment Bank (A-).

In assessing Malaysia's potential exposure to economic imbalances due to household debt and the property market, Standard & Poor's looked for ‘consistent indications’ that increases in housing prices and consumer debt are moderating. "In our view, the impact of recent government and regulatory policy initiatives will curtail potential systemic risk arising from the household sector. " It expects the unemployment rate to remain slow and policy rates to remain stable, which would support the debt repayment ability of the household sector.

AirAsia shares drop to five-year low

AirAsia Bhd’s (AirAsia) shares tumbled to the lows of RM1.73 region yesterday over concerns about overdue payments by related parties.

At closing it reached RM1.81 with 33.09 million shares traded.

Nevertheless, AirAsia Bhd’s (AirAsia) fundamentals has been viewed as intact and its operations are expected perform well, buoyed by better supply-demand balance and the restructuring at Malaysian Airlines, analysts
say.

Despite being the weakest performing Asia Pacific airline stock for the week, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) remains confident that AirAsia’s Malaysian operations will perform well; buoyed by better supply-demand balance.

It also pointed out the restructuring at Malaysian Airlines will provide significant benefits to AirAsia.

Meanwhile, AirAsia saw its share price declining during the week, due to talks of an independent report that accuses AirAsia of accounting anomalies and values the company at RM1.20 per share.

“None of the issues raised in the report is new and we and the analyst community have already deliberated it meticulously. Nonetheless, the market panic has set in,” Maybank IB Research commented.

“We believe AirAsia’s accounts are transparent and Pricewaterhouse Coopers (PwC) is a respectable auditing firm.

“The auditors have approved the latest 2014 accounts without any qualification. Separately, we have always highlighted our concerns regarding the RM2,862 million owed by related parties – some of which are overdue.

“These are mostly aircraft lease payments owed to the parent in addition to working capital,” the research team added.

It retained its ‘buy’ call for the stock as well as its earnings forecasts and target price of RM2.45 (pegged to nine-folds FY15 price earnings ratio, 30 per cent discount to global LCC average).

It noted, “We have conducted a worse-case scenario analysis, which are to write off the loans to related parties.

“This is to establish a floor valuation for the stock.

“The total loan to related parties was RM2,862 million as at end of March-2015. This equates to RM1.03 per share or 61 per cent of shareholders equity.

“Assuming the entire amount is written off – an outcome that we deem improbable – this will cut shareholders equity to RM1,804 million or a book value (BV) of RM0.65 per share.

“This will also push up AirAsia’s net gearing level to 6.1-folds from 2.5-folds currently, surpassing the previous peak of 4.4-folds during the stormy 2008 global financial crisis (GFC).

“At such stretched levels, it may potentially trigger debt covenants and become an impediment to future borrowings.”