Dispatch (Asia version)
| by Peta Tomlinson, Nazatul Izma Abdullah, Sonia Kolesnikov-Jessop 04 Feb 2008 Topic: News |
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Prime Hong Kong office rentals may be almost the highest in the world, but banks still see dollar signs in the profits to be made. The city is increasingly the place to be in the financial market hot spot of the Asia Pacific region, where investment banking fees rose 36% in 2007 to a record US$11.7bn, according to data from Thompson Financial. The growth was spurred by a flurry of merger and acquisition (M&A) deals, which reportedly accounted for over half of the banks' profits. PricewaterhouseCoopers announced that last year in China, including Hong Kong and Macau, the value of M&A activity jumped 53% to US$50.6bn, and more of the same is predicted this year. Christopher Chan, PricewaterhouseCoopers' transaction partner in Hong Kong, said growth was evident both in current business and in the pipeline. 'Our transactions and corporate finance teams in China and Hong Kong work on hundreds of deals in China and, as we head into 2008, we are more in demand than ever before,' he said. In the clamour for a piece of the action, the expansion needs of financial institutions, in particular investment banks and hedge funds, have pushed the price of premium Hong Kong corporate space to an all-time high. Global real estate adviser DTZ says rents for grade A offices in the traditional financial district of Central jumped more than 40% last year, pushing through the HK$110 per sq ft benchmark for the first time in history. The most prestigious buildings such as the International Financial Centre can command over HK$156 per square foot (or US$20), equivalent to the world's most expensive office market, London's West End. Mark Price, DTZ's head of business space in Hong Kong, said 'unrelenting demand' was the driver, adding that 'some Central-specific companies are willing to absorb record-high occupancy costs as a result of the recent financial market boom'. Some, however, are looking to cheaper pastures - among them JP Morgan. The investment bank plans to boost its Asia Pacific headquarters in Hong Kong by an extra 700 staff over the next three years, accommodating them in the new, cheaper One Island East building outside of the Central nerve centre. Morgan Stanley and Credit Suisse are venturing even further afield, crossing the harbour to West Kowloon later this year to take space at the new International Commerce Centre - a move expected to halve their rent bill. The Bull remained alive and kicking in Malaysian equities as it entered 2008, with the Kuala Lumpur Composite Index (KLCI) breaching the historic barrier of 1,500 points in January before consolidating downwards as nervous investors spooked by US recession fears and lingering subprime woes took profit. The new milestone was set in the wake of a record-breaking 2007, which saw the KLCI posting a second straight year of double-digit gains and its biggest annual rise since 1999. The index gained 31.8% for the year, while total market capitalisation rose to a record RM1.1 trillion (£0.17 trillion) as of the end of December, up from RM850bn (£133.1bn) a year ago. Plantation companies were the flavour of the year, riding on the oil palm boom which spurred crude palm oil (CPO) prices to gains of over 50% for 2007. The world's largest palm oil plantation company, Sime Darby Bhd, ended 2007 as the largest listed entity with a market cap of RM71.5bn (£11.2bn). Traditional heavyweights Telekom Malaysia Berhad (communications behemoth), Malayan Banking Bhd (Malaysia's largest bank) and Tenaga Nasional Bhd (the national power company), however, underperformed the market. The market punished suspect corporate ethics: Transmile Group lost 81% for the year and erased about RM3.3bn in market cap following allegations of a substantial accounting fraud. Going forward into 2008, the prevailing mood is one of cautious optimism. Positive drivers for equities include strong domestic expansion, high commodity prices, election fever, the strengthening ringgit and decent dividend yields, but these are leavened by slowing exports, regional and local asset inflation and US weakness. Jurong Shipyard, a subsidiary of SembCorp Marine, is facing what is likely to be a long legal battle as the company and its creditors are locked into a tussle over a forex liability incurred by its former group finance director. The Singapore company suffered losses of US$303m as a result of what it says were unauthorised foreign exchange transactions by its former group finance director, Wee Sing Guan, over several years. Wee is alleged by the company to have entered into speculative forex transactions without its permission only to incur losses when the market turned against him. According to local newspaper reports, BNP Paribas, one of the 11 banks involved in the forex transactions, has asked for a winding-up petition of the Singaporean company in order to collect US$50.72m that it says the company owes the bank. Jurong Shipyard, in turn, has filed an application to restrain BNP's winding-up application. While the company is disputing the validity of the transactions, saying that non-financial institutions do not mark-to-market the value of their forward positions, and only recognise cash profits and losses, BNP has been arguing in court that it would not have been possible to conceal or defer losses from dealing in financial derivatives given that Singapore's accounting rules (Singapore Reporting Financial Standard 39) apply to financial and non-financial institutions. BNP also argues that the nature and extent of its forward transactions were openly reported by the bank to Jurong's external auditors. The company argues that the bank helped conceal Wee's trades, instead of bringing the situation to the attention of Wee's senior management, while the bank contends that it was up to the board of directors to ensure that the forex transactions were entered into for purposes it had authorised, the newspaper said. SembMarine and Jurong have vowed to fight the claims of all 11 banks - even the one that has been paid off - as it believes that the trades were unauthorised. Jurong has already paid Société Générale US$198.45m as a close-out condition between the two parties, but has reserved its right to recover the payments in the event it succeeds in its claims against BNP. 2007 was a banner year for Malaysia's exports of palm oil, oil and gas, and - wait for it - financial professionals. Although the brain drain cuts across all sectors, accountants are in hot demand. Since Malaysia is perceived as one of the most developed accounting regimes in the Asia Pacific, on a par with Singapore and Hong Kong, it makes sense that qualified Malaysian accountants are sought after for their skills and experience. Apart from professional qualifications and familiarity with IFRS, corporate governance and risk management, many Malaysian accountants are fluent in English, Mandarin and Malay, and are at home in a multicultural environment. China is a prime destination for Malaysian talent. Its scintillating boom has spawned a human resource shortage, and it makes sense for China to recruit talent from Malaysia, which boasts one of the largest pools of Mandarin-speaking accountants worldwide. Apart from China, scores of Malaysian financial professionals have moved on to jobs in Singapore, Hong Kong, the UK and the Middle East, particularly the Gulf Cooperation Council (GCC) nations. Carrots used to lure Malaysian accountants include the challenge of working abroad, an improved work-life balance, as well as compensation packages that can be up to three or four times more than what they were making previously. On the downside, the migration of Malaysia's accountants abroad has intensified the staffing shortage in key areas like audit and assurance, and in the financial industry. Whereas, on a holistic basis, the exodus contributes to the chronic shortage of qualified accountants who are needed to fuel a growing economy. It is estimated that, come 2020, Malaysia is likely to be short of 16,000 qualified accountants. In terms of freebies, it is an accountant's dream: an all expenses paid holiday in an exotic location, with no need to keep receipts, and no worrying what the catch is. Usually it is true that there is no such thing as a free lunch, but for staff at Western Australian accounting firm Gooding Pervan, an annual five-star jaunt overseas is just the boss' way of showing appreciation. The rationale is that the holiday allows colleagues to interact in a setting outside the workplace. Over the years the staff have visited Bali, Kuala Lumpur, Singapore and Broome, with the company paying for everything - except a few meals - including group activities like whitewater rafting. In an era where staff retention is, according to a recent Hudson Report, the number one issue keeping Australian employers awake at night, such are the innovative incentives firms are devising to earn loyalty. Richard Francis, head of ACCA Australia and New Zealand, agrees that, with accountants in hot demand, employers have to work harder to keep their talented staff. Strong economies, increased regulatory impacts, the introduction of IFRS and globalisation are all impacting, he says. 'The ACCA office in Sydney has, for example, been approached by a San Diego, US, accounting practice which wanted to attract members with audit experience and were willing to take care of the visa formalities,' said Francis. 'Even the Australian Taxation Office has run a scheme to attract ACCA members to work for them. Large corporate employers and accounting firms based in Singapore have organised presentations to graduates here extolling the virtues of working in Singapore. Demographics - an ageing population of Baby Boomers nearing retirement - is also increasing awareness of the need for accounting firms to become attractive places for the next generation to work for.' The accounting profession is struggling to attract talented graduates and to keep them in practice rather than losing them to other industries, Francis continued. Western Australia is at the top end of this demand, having had a shortage of auditors even before the recent resources boom boosted by China. 'It is therefore more likely there will be perks like overseas trips being offered in Western Australia. However, I believe all smart employers in Australia and New Zealand now realise they need strategies to attract and retain talent, and these include not only financial incentives but also lifestyle, and ethics need to be considered.' The big surge in Chinese IPOs (initial public offerings) activity may have passed, but another wave is building behind it. Though we may never again see the blockbuster deals like the 2006 listing of Industrial & Commercial Bank of China (ICBC), the nation's biggest bank, which raised a history-making US$19bn when dual-listed in Hong Kong and Shanghai, China still led global IPO activity to a new high in 2007. According to figures released by Ernst & Young, China set the pace as US$255bn was raised globally through 1,739 IPOs during the 11 months from January to November. This exceeded the US$246bn raised via 1,729 IPOs for the whole of 2006. China raised the most capital - US$52.6bn - and had the highest number of listings (209), ahead of Australia with 189, and the US with 178. It far outpaced Brazil, Russia and India, the so-called BRIC countries, which managed a combined total of only 173 IPOs. (BRIC is a term coined by Goldman Sachs to group Brazil, Russia, India and China, the developing economies most likely to eclipse the current world's richest by 2050.) Ringo Choi, partner and venture capital advisory services leader at Ernst & Young China, said the surge in IPO activity was a clear reflection of the confidence investors have about putting their money into China. Since many of China's largest state-owned enterprises (SOEs) have now been listed, the record-breaking IPO deals may be over. Yet Paul Go, partner and risk advisory services leader, said that, despite ongoing market uncertainty, there is a strong pipeline of IPO-ready companies planning to list in 2008. Coming largely from the private sector, this underscores the increasing role of small business in the Chinese economy. Ernst & Young expects more privately-owned enterprises (POEs) to replace the SOE mega listings - a trend which has been developing since 2007. This would influence the A share market value, helping to boost the overall figures. Go also expects that Hong Kong will continue to be the market of choice to float China companies internationally. 'We are seeing that the larger POEs have been listed in Hong Kong compared to the relatively smaller ones listed in Shenzhen Stock Exchange [in the Chinese mainland],' he said. in brief...
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