The Star Online: Business
The Star Online: Business |
- Ding dong dung, wake up Vietnam
- Brahim’s sees flight catering revenue doubling up
- Masteel Q3 earnings lower due to rising production costs
| Ding dong dung, wake up Vietnam Posted: 30 Nov 2012 05:33 PM PST I WAS back in Hanoi in early October after a long absence. Change is all over, reflecting the impact of breakneck growth. It so happens my re-visit coincided with the Vietnam Communist Party's (VCP) 175-member central committee (CC) meeting, preoccupied with two main issues: the political future of its Prime Minister (PM) Nguyen Ten Dung, and what to do with recent financial scandals amid slackening of its once red-hot economy in the face of its depreciating dong. Word around Hanoi was that Dung, generally regarded as a pro-West liberal, was under immense pressure to convince his CC colleagues that he deserves a second chance to put the nation back on a firm footing and get the economy on to high-gear once again. Dung is a survivor. A former governor of the State Bank (Vietnam's central bank), Dung is a street smart politician, having fought with Vietcong guerrillas against the United States, and who once served as the nation's public security chief. He was first appointed PM in 2006 and charged with continuing economic reforms that pushed the war-torn backwater nation into a promising emerging economy. In 2007, he steered the nation into World Trade Organisation, which triggered a new wave of foreign direct investment inflows. Unfortunately, the nation was caught in an inflationary spiral (reaching a high of 23% in August 2011) and that drove the government to tighten policies, slow growth and force a series of devaluations of the dong. Dung stood for re-election to the CC and political bureau, the nation's top policy making body, and was re-appointed PM for a second term in May 2011. He survived it all despite the damaging Political Report and Socio-Economic Report containing "criticism and self-criticism, as part of the party's rectification campaign" against poor economic management; both of which were nevertheless approved at the 11th Party National Congress in January 2011. The politics Vietnam politics is unique. I sense from talking to friends in Hanoi at the time of its CC meeting that (i) top leaders from the PM to VCP president to its party chief all acknowledge the government's shortcomings in managing the economy in recent years; (ii) specifically, they all talk openly of the slowest pace of economic growth in 13 years, amid signs of unease over high levels of bad debts in banks and a widening wealth gap; (iii) as a result of poor supervision, some of the largest and most influential state owned enterprises (SOEs) racked-up multi-billion losses, e.g. Vinashin, a vast government-owned shipbuilding group which almost sank in 2010 after straying far from its core business; (iv) growing corruption leading to loss of confidence following a recent series of arrests (and some convictions) of financial executives for wrongdoing, including a prominent tycoon at Asia Commercial Bank close to Dung; and (v) exposure of a series of long-simmering political tensions within the highest echelons of the ruling VCP. All these serve to underscore why top officials are getting increasingly concerned and sensitive to how they are being perceived by investors and an economically anxious public, especially its growing middle class. Indeed, signs are everywhere: (a) new rules on "no more lavish weddings" to the extent of limiting the number of guests allowed to be present and avoiding hosting banquets in luxury hotels; (b) new laws (for the first time) empowering the National Assembly to force incompetent leaders to step down or face a vote of no confidence; (c) recent convictions against bloggers (and songwriters) for online "anti-government propaganda"; and (d) crackdown on new popular Internet sites in recent months (Vietnam has 34% Internet penetration) viz, quan lam bao or officials doing journalism its anonymous contributors purportedly provide inside "going-ons" information at the highest echelons of power. All these point to the lack of transparency and accountability in public governance. I am told the prime minister managed to survive because: ● He has enough "support votes" at CC; ● There is no credible successor in sight; ● His ouster would destabilise the Party; so best not to allow "enemy forces to exploit regimes' current problems"; ● The government team bears collective responsibility for poor management; ● Best to retain the PM to correct mistakes and move forward. I am also told "repeated forgiveness" is a commonly accepted way to settle complex problems as Vietnamese as a bowl of pho. Forgiveness heals and prevents the party from splitting. The show must go on. But for how long, where corruption poses a major threat to the legitimacy of one-party politics? The economy Vietnam was Asia's new poster child for development. With the war a distant memory, progress achieved since 1986 when it first embarked on the new path of doi moi (reform) has been nothing but spectacular. It has well surpassed the milestone per capita income of US$1,000. Vietnamese now enjoy their new-found wealth. Until lately, Vietnam was among the least impacted by the second round global crisis, with private consumption and diversified exports driving domestic activity. Retail experience in Hanoi and Ho Chi Minh City includes shopping in malls, like Malaysia's Parkson, for Gucci, Louis Vuitton, Channel, etc and relaxing with refreshments at Starbuck or Circle K, and dinner at Hard Rock Caf The lifestyle is fast changing. But all have not been rosy this hyperactivity came with a cost: high inflation and a growing trade deficit. But Vietnamese learn swiftly from past mistakes and they now appear to be addressing growing pains with the needed commitment, slowly but surely. Four compelling forces help drive the current revival:- ● Political stability, it's ahead of the BRICS (Brazil, Russia, India, China and South Africa) according to the World Bank. ● Attractive demography with a population close to 95 million; low labour cost, high literacy (93%) and 65% within the working age. ● Domestic demand driven economy its large, young population riding on rapid early stage industrialisation, realising its new-found wealth, with a deep thirst for housing and consumption. ● Resource rich with a large agricultural base; exports account for up to 70% of gross domestic product or GDP (having risen 2 times in 2004-08). It's the world's largest rice and coffee exporter, a net exporter of crude oil and gas, and exports a wide range of minerals including bauxite, coal, nickel, iron-ore, gold and tungsten. No wonder it's labelled the "next China" or sometimes, "China plus One" (it's like China but is one-up with cheaper labour) to attract multi-nationals to spread their bets. But it badly needs more physical infrastructure (power, water, highways and, ports); diversified social infrastructure (education, hospitals, housing and welfare safety-net); sound financial infrastructure (money and capital markets); and a strong commitment to realistic macro-economic planning. Struggling again Today, Vietnam's economy remains weak and needs additional stimulus and "easier" policies to get back on tract. Its first-quarter growth at only 4% was the weakest in three years, slowing from 6.1% in the preceding quarter and an average annual 7.7% from 2003-2008 period. Latest indicators point to GDP growth in the first half of 4.4% (4.7% in the second quarter), well below the government's 6% full-year target. FDI was down nearly 30% in the first half and toxic "non-performing loans" in the fragile banking system is at 8.82% as at end-September (up from 6% at end-2011). Independent analysts place the ratio at as high as 15% in the face of 8%-10% suggested by the State Bank in August. For the year as a whole, GDP growth is now expected at 5.2% (against 5.9% in 2011). No doubt, the economy is much weaker but the International Monetary Fund anticipates it to rise to 5.9% next year. Following a series of determined monetary policy moves to contain inflation, consumer prices rose 7% in October, against 6.5% in September having dropped to a three-year low of 5.04% in August (well off its 23% peak a year earlier). With growth slackening, the government appears determined to keep inflation below 8% for the whole of this year. "We have learned our lesson," declared the PM. In October, Fitch Ratings maintained its rating for Vietnam's major banks at B (junk status) with a stable outlook among the lowest in Asia. The ranking "reflects difficult domestic operating conditions and other structural issues typically found in low-income emerging markets," Fitch says. Moody's Investors Service downgraded the nation's rating in late September citing moral hazard risks requiring government to pump-in substantial bank capital. Standard & Poor's talks of the need for fewer but stronger banks with credible risk management and a need for greater foreign participation to facilitate transfer of best practices and processes to strengthen domestic banks. Moving forward To reset its growth path moving forward, Vietnam needs a second doi moi moving away from reliance on cheap labour and capital and big government, towards serious reforms focusing on banks, SOEs and public spending. The challenges will be absorbing inflation has surged above 20% twice in the past three years, while foreign exchange reserves have slumped and the ding-dong dong has lost more than 20% against the US dollar. Its external debt is more than 40% of GDP and bank credit to GDP is 125%. Excessive investment in inefficient SOEs has misdirected capital, straying wildly into non-core activities such as property and stocks, both of which have badly faltered. Many of their problems can be traced to the mismanagement of SOEs: 10 largest SOEs ran up debts of US$50bil, or about 50% of GDP in 2010. It is obvious they need more robust and rigorous supervision. Getting the party and politics out of the management and SOEs is the answer. It's about time to experience "creative destruction". The path back requires the restoration of "the people's faith". Vietnam's 1% interest rate cut in June for the fourth time this year reflects the government's determination to revive the economy. This meant refinancing rate falls to 11%, discount rate to 9% and overnight rate for interbank electronic payments to 12% still high by international standards but leaves much room for further cuts. Slackening growth will make the fight to contain inflation easier. With determined efforts, inflation will slowdown over time. But the economy needs basic reform in major policy areas like health care and education, jobs creation, industrial policy, privatisation (they call it "equitisation"), social safety-net, housing and anti-corruption efforts through "smaller but smarter" government. In conversations with friends in Hanoi, I sense investors and the public have become more impatient as the government is too slow in delivering. Hence, their economic advancement since has been slow and hesitant. Yet, there is not a cohesive and united group of leaders to bring about the change which everyone talks about so passionately this desire to re-start serious reforms. What, then, are we to do? I first visited both Hanoi and Ho Chi Minh City in the early 1980s. One thing hasn't changed over 30 years: then, I hear of the Vietnamese dream for a strong, authoritarian, benevolent and fair leader who can deliver to the nation its past glory. Today, they are still dreaming the same dream. Nothing has changed except the capital cities are buzzing with energy, swarmed by tourists and plagued with convoluted traffic jams signs of growing vitality. But it masks symptoms of a nation with deep rooted woes, desperately in need of firm and honest leadership. The young now find it harder to get jobs; small businesses have a tough time coping and public projects are often delayed or cancelled. It's curious, when I was there, the best the CC, PB and the party could do was to adopt a new motto for planning future weddings: playful, healthy, thrifty. What a shame they are still dancing around the peripheral. Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who speaks, writes and consults on economic and financial issues. Feedback is most welcome; email starbiz@thestar.com.my. |
| Brahim’s sees flight catering revenue doubling up Posted: 30 Nov 2012 05:31 PM PST KUALA LUMPUR: Brahim's Holdings Bhd could double the revenue of its flight catering division to more than RM300mil once the acquisition of the remaining 49% stake in Brahim's-LSG Sky Chef Holdings Sdn Bhd (BLSG) is completed. At the memorandum of understanding (MoU) signing between Brahim's and Standard Chartered Bank yesterday, Brahim's executive chairman Datuk Ibrahim Ahmad said post the 100% consolidation of the company and revenue: "We would expect and increase in topline revenue of more than RM300mil." Brahim's is buying out LSG Asia GmbH's 49% stake for a total of RM130mil, which will be fully funded via a fully underwritten financing commitment with Standard Chartered Bank. Standard Chartered Bank director of leveraged finance Royswati Pimal said the bank was providing Brahim's with an RM160mil loan. "The RM160mil loan comprises of bridge and longer-term notice, meant to finance the acquisition and also refinance the existing indebtness of Brahim's," she said. BLSG is the holding company of LSG Sky Chef-Brahim's Sdn Bhd (LSGB), which is the operating unit of its in-flight catering business. Brahim's currently has a 51% controlling equity stake in the 70% stake that it holds in LSGB. The remaining 30% stake in LSGB is held by Malaysian Airline System Bhd (MAS). "Upon the completion of the acquisition, Brahim's and its partner MAS would have fully Malaysianised the operating company of the world's largest halal flight kitchen. "This is in line with the national aspiration of positioning the aviation food services sector as a wholly Malaysian-owned business in order to explore opportunities in this growing niche market," he said. He added that the company would work closely with MAS to enhance new menus and presentation in the in-flight meals, particularly for the A380 aircrafts. Present at the signing was Deputy Finance Minister Datuk Donald Lim, who said: "Prospects in our aviation industry remain exciting. "There is a lot of scope for us to tap into the more resilient economic growth in the Asia region, especially when open skies policy comes into play in 2015." Ibrahim expects the acquisition to be complete by year-end. "The acquisition is in its final stages. The delayed EGM (extraordinary general meeting) will be conducted on Dec 5. "On completion, we would be able to recognise the whole 70% of LSGB's earnings," Ibrahim said. "The imminent privatisation of the QSR group presents an opportunity for Brhim's to raise its profile as amongst the selected few F&B companies that are syariah-compliant," he added. The food and beverage (F&B) manufacturer and outlet operator caters to more than 30 international airlines out of Kuala Lumpur International Airport (KLIA), with MAS as its biggest customer. On a separate note, Ibrahim said the company could see an additional 10% in revenue contribution in the future from its F&B division, with the opening of KLIA 2. Brahim's 51% subsidiary Dewina Host Sdn Bhd had won the tender by Malaysia Airports (Sepang) Sdn Bhd to operate a premium food court and a separate fast food outlet at the new airport. "As it is now, the F&B contributes about 3% to 4% in terms of revenue. But now with these new locations that we are getting, there will be an increase of about 10%," he said. |
| Masteel Q3 earnings lower due to rising production costs Posted: 30 Nov 2012 05:30 PM PST PETALING JAYA: Malaysia Steel Works Bhd (Masteel) sees a 56.5% decline in earnings to RM7.04mil for its financial year 2012 third quarter results due to rising production costs and weaker selling prices. Masteel recorded a net profit of RM16.2mil in the corresponding period a year ago. The integrated steel manufacturer achieved better revenue, however, at RM312.9mil or 4.2% higher than RM300.3mil in the third quarter last year. Managing director and chief executive officer Datuk Seri Tai Hean Leng said the company was pleased with what it was able to achieve despite the challenges. "The group has been able to benefit strongly thanks to our strategic location within the Klang Valley to meet the demand for high tensile steel bars from private, public and private-public works that are currently being undertaken," he said in a statement. Tai added that with more Economic Transformation Programme projects in the pipeline and the seasonal upswing trend expected from the export markets, "we are optimistic that we will end the year on a positive note". For its nine-month period, Masteel posted a 44.2% drop in earnings to RM21.2mil from RM37.9mil. Its revenue was 8.8% higher from RM916.7mil a year ago to RM997mil. Tai said 85.3% of the third quarter sales of steel billets and bars were to local customers. "While this increase in local demand is welcomed, we know we cannot depend entirely on the domestic market, especially when our increased capacity comes on-stream." Going forward, Masteel will continue to actively grow its export orders, both in markets it already has a foothold and new markets. Masteel currently operates a 350,000-tonnes-per-annum rolling mill in Petaling Jaya and a 550,000 tonne per annum steel billet melt shop in Bukit Raja. The group is building a second rolling mill in Bukit Raja that, once completed at the end of 2013 or early 2014, will increase Masteel's high-tensile steel bars production by 180,000 tonnes per annum. Masteel has also landed orders to supply steel bars for the Klang Valley Mass Rapid Transit rail project recently. |
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