Short Position

by **Cals** Mon 21 Dec 2015, 00:03

Saturday, 19 December 2015
Short Position

BLand’s great mall sale
NOBODY said it was easy to do business in China. Those who went in early have made a pile, but the latecomers are feeling the heat.
Earlier this week, Berjaya Land Bhd (BLand) followed the footsteps of Guocoland Ltd of Singapore to exit the business of building a retail mall in China.
In an announcement earlier this week, BLand said it would dispose its 51% interest in a development in Hebei Province, China, for 2.08 billion yuan (RM1.39bil). The development, which is under construction, has been acquired by Beijing SkyOcean International Holdings Ltd.

The project, spanning 1.21 million sq m of gross floor area, is to be developed over several phases consisting of retail outlets, three indoor theme parks, a conference and exhibition centre, hotel and service apartments and office lots.
BLand said that of the proceeds, RM743.05mil would be used to repay borrowings, creditors and contractors, and to defray taxes on the sale of the mall project and cover any incidental expenses. The rest would be distributed back to the shareholders of the project.
Whether BLand makes any money from its venture is uncertain. However, it is common knowledge that a project when completed offers higher premium. So, it is not often that developers cash out when a project is under development.
BLand’s exit from a project under construction suggests that it is tough doing business in China. The outlook may not be good enough for it to hang on and complete the project.
It is not alone. In August this year, Singapore-listed Guocoland also exited a massive property project under construction in Beijing. It comprised a retail mall, hotels, apartments and office space. It was a big project in a prime location in the city.
One of the reasons for the move is due to difficulty in completing the project due to differences among shareholders and with the authorities.
Is government intervention the answer?
HIAP Teck Venture Bhd has bitten the bullet for its unprofitable upstream operations. The steel company announced that it had made an RM55mil provision for the impairment of its investment in upstream activities in the financial year ended July 31, 2015 (FY15).
It registered a net loss of RM76.81mil for FY15 on a revenue of RM1.26bil.
The company has also suspended its upstream production since October as overheads are fixed.
Hiap Teck is not alone. Analysts expect losses at Lion Industries Corp Bhd to potentially extend to FY16 on fast-declining steel prices, before the company breaks even in the following year. Similarly, Ann Joo Resources Bhd’s already thin margins are being weighed down by weak steel prices and rampant competition from imported steel.
Local steel players, especially those focused on upstream activities, face a cocktail of challenges due to soft demand, depressed market prices of steel and the increased volatility of foreign exchange rates. Their universe of stocks has largely been out of investors’ radars for some time now.
In early November, a research firm ceased coverage on several steel stocks it had been covering, suggesting a continued bleak outlook for the industry at least for the next one year.
The supply glut is also casting a shadow over companies all around the world. The Financial Times recently reported that sales have come under pressure at US Steel, Luxembourg-based ArcelorMittal and South Korea’s Posco from a 25% fall in prices that has made the metal cheaper than at any time in the past decade.
Amidst all this, a spat has broken out between the Malaysian Iron and Steel Industry Federation (Misif) and Megasteel Sdn Bhd.
Megasteel, the biggest hot-rolled coil (HRC) producer, is of the opinion that the Government needs to protect local steel producers to prevent job losses from the closure of steel mills. The company also contends that it is also not a monopoly producing HRC locally and other steel players have also sent in petitions for protection.
At the other end of the spectrum, Misif is against a proposal by Megasteel to set up a special-purpose vehicle to import HRC and downstream products into Malaysia.
Megasteel has been protected by import duties for over a decade now, with duties having been raised from 25% in 1999 to 50% in 2002. It has been reported that Misif members are forced to buy at least half of their HRC needs from Megasteel.
Steel is a competitive business and there has been a call by certain quarters for the Government to step in.
The Government had stepped in numerous times to help local car manufacturer Proton Holdings Bhd before it was finally sold to a private entity.
Is the Government’s intervention the answer, or should the steel industry find its own solution to remain sustainable and competitive?
The natural law of karma
ETHICS is very important in life, even more so in business.
Companies not only have to make a profit, but also make sure that their products meet the appropriate standards and quality. After all, selling products to customers, be it planes, phones or food items, means that they will end up being the property of someone else and should, therefore, be safe to use. Even more stringent ethics is required if the product is meant for consumption.
Ensuring such standards means that corporates and their executives have to think of more than just the bottomline. Being a good corporate citizen is the new norm in the modern world.
This is why there was universal shock and condemnation when Martin Shkreli, a whizz-kid in the United States, bought over the rights of a drug called Daraprim used by cancer and Aids patients, and raised the price of the drug it makes from US$13.50 to US$750 a pill - a whopping 5,500% increase!
His justification for raising the price of the drug was, at best, shallow. The drug has been manufactured since 1953 and there is no generic substitute. It is essential for victims of such diseases. In raising the price of Daraprim, he incurred the wrath of just about everyone.
But now, the shoe is on the other foot. In a reversal of fortune, Shkreli has been arrested for securities fraud during his time in companies he had worked in before. Shkreli, who lavishly spent millions on a one-of-a-kind album, has to answer for allegations that he engaged in a ponzi scheme.
This goes to show that in the world of business, making a profit is as important as giving people a fair deal. Raising prices indiscriminately and bringing suffering to many has its repercussions, especially for those in the east who believe in karma.