Source: Theresa Baraclough / AFP

by Joseph Nathan

The ongoing COVID-19 pandemic has redefine the future of real estate development & management as MNCs, SMEs, business travellers, and home-owners adopt more cautionary approaches toward commercial, retail, hotel & residential leasing and sales.

The highly centralized office concept that was highly favoured before the pandemic will now give way to more decentralized arrangements, as more MNCs re-strategize their business continuity planning and incorporate working-from-home as part of their new business strategy.

So too will retailers be with commitment to long and expensive leases while residential buyers and business travellers will prefer developments with less centralized common facilities.

As such, CapitaLand’s existing assets will face serious pressure on its earnings, and any major retrofitting will means the need to provide for a more substantial increase in capital expenditure.

All these will hurt their earning and dividend payouts to their shareholders.

Instead of addressing these challenges holistically, CapitaLand’s latest restructuring tactically means that it is simply going to privatized its profitable development unit under CLA Real Estate Holdings (CLA) while ring-fencing and keeping listed their troubled assets under CapitaLand Investment Management (CLIM).

When new developments are undertaken by CLA, the buyer will generally be CLIM.

Being privatized, no one will now know the cost of development and the profit margin that CLA can exact out of CLIM. This makes shareholders of CLIM vulnerable to the exploits of CLA.

So why are our news media not questioning CapitaLand or analysts on this implication?

How can any credible analyst missed addressing such serious implications in their reports to stay credible?

Follies of unlocking values

How can CapitaLand or Temasek be talking about unlocking or creating values for their shareholders when CapitaLand’s latest restructuring plan does not create any real economic output in the first instance?

Merely flipping the books does not create any real value as we have already witnessed in the case of Keppel Corporation.

Unlocking or creating values for shareholders was used on Keppel Corporation when Lim Chee Onn took over the chairmanship from Sim Kee Boon in late 90s.

By cutting up Keppel Corporation to create “values” technically means the group can realized more inter-billings, and as a result, show a substantive increase in group revenue generated.

It was precisely such folly that caused the once dynamic Keppel Corporation to be reduced to its current sad state of affairs.

Such Wall Street accounting trickery destroy group dynamics, and forced the organisation to look inward.

It is the surest way to destroy any organisation as we can see in the case of Keppel Corporation.

Sembcorp Industries, another Temasek linked entity has recently done the same when it transfer its troubled O&M business to Sembcorp Marine.

There is no stopping of Temasek from taking Sembcorp Industries private as and when it wants.

As such, I was surprised that Monetary Authority of Singapore (MAS), Singapore Exchange (SGX), and Securities Investors Association Singapore (SIAS) had been quiet about it.

News is CDL is now contemplating on doing the same and more of such corporate maneuvers can be expected.

If our GLCs, under Temasek, are to set such questionable precedence by dumping troubled assets onto SGX while privatizing their profitable businesses, our stock market will soon become toxic.

This means the rich will become richer, and the poor will become poorer because our regulators are all either asleep or incompetent in regulating our stock exchange.

As countless more retail investors could get burned badly, is this even ethically acceptable to Temasek to be putting profit ahead of ethics?

Shouldn’t SGX implement a more transparent system so that analysts in support of such questionable restructuring are compelled to declare their vested interests in their reports?

As CapitaLand is an approved counter for CPF Investment Scheme (CPFIS), Singaporeans are allowed to invest part of their CPF saving in CapitaLand.

By merely assuming that just because a counter is approved under CPFIS is safe has taught many retirees a painful lesson when the embattled Hyflux was placed under judicial management, despite being an approved CPFIS counter.

As the assets of CapitaLand are likely to remain troubled for the foreseeable future, worse should we experience another pandemic, CLIM, the portion of CapitaLand to remain listed could just be as toxic as Hyflux, if not worse.

After Hyflux, how many more retirees must be hurt before MAS, SGX, SIAS, and CPF Board will act to protect the hard-earned savings of our retirees when they gullibility invest in these toxic equities?

Surely MAS, SGX, SIAS, and CPF Board should be alarmed by CapitaLand’s latest announcement and take the initiative to scrutinise CapitaLand’s latest restructuring and also initiate a total review of counters under the CPFIS before things get out of control.

Better still, review if CPFIS is still relevant since the performance of many of our GLCs have been disappointing these past years.

Ministry of Finance (MOF) and MAS ought to direct a full review of such practices by our GLCs if they still believe that Singapore and Singaporeans deserve better…

This was first published on Joseph Nathan – Hard Truths of SG’s Facebook page, and reproduced with permission.

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