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The Edge Singapore
The Edge Singapore7/9/2020 07:00 AM GMT+08  • 8 min read
Quoteworthy: "Donald learned long ago how to pick his targets." — Mary Trump, niece of the US president, in her upcoming tell-all family memoir, “Too Much and Never Enough: How My Family Created the World’s Most Dangerous Man”.
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Quoteworthy: "Donald learned long ago how to pick his targets." — Mary Trump, niece of the US president, in her upcoming tell-all family memoir, “Too Much and Never Enough: How My Family Created the World’s Most Dangerous Man”

AirAsia’s future in ‘significant doubt’, warns EY
The ability of AirAsia Group to continue as a going concern may be in “significant doubt” because of the impact the coronavirus is having on the indebted carrier, auditor EY says.

The airline’s current liabilities already exceeded its current assets by RM1.84 billion ($600 million) at the end of 2019, a year when it posted a RM283 million net loss, EY said in a statement to the Kuala Lumpur Stock Exchange on July 8. The financial performance and cash flow have now been further hit by virus-related travel restrictions.

The slump in air travel and the carrier’s financial performance “indicate existence of material uncertainties that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern”, EY says in its unqualified audit opinion statement.

Covid-19 plunged the aviation industry globally into crisis as border controls and health concerns vapourised demand for air travel. AirAsia on July 6 reported a record quarterly loss of RM803.8 million. It wasn’t until late March and the end of the quarter that the budget airline suspended flights. “This is by far the biggest challenge we have faced since we began in 2001,” said CEO Tony Fernandes.

He said the carrier is in talks for joint ventures and collaborations that may result in additional investment, and it has also applied for bank loans and is weighing proposals to raise capital.

See also: The tough choices facing the world’s central banks

AirAsia needs at least RM2 billion this year to stay afloat, according to K Ajith, an aviation analyst at UOB Kay Hian. “There’s not a lot of options, and the best one could be the government stepping in but seeking a rights offering by the company in exchange,” he says.

Despite the warnings, there are signs of improvement with the gradual lifting of restrictions on interstate travel and domestic tourism activities in the countries where AirAsia and its units operate, EY says.

The airline’s recovery depends on government policies on travel, discussions with financial institutions and investors and its ability to address concerns of its liabilities, the auditor says. — Bloomberg

See also: Briefs: New entrants to SGX's watchlist; Surbana Jurong's SMEC may back US$150 bil plan to build 123 new African cities

Interactive Brokers offers trading platform to wealth managers in Singapore
Interactive Brokers Group, a global brokerage firm that was founded in the US, has now made its trading platform available to institutional investors here — especially wealth managers.

This comes as the brokerage opens its local branch — Interactive Brokers Singapore — in the CBD, offering trading services for local and global stocks, as well as options, futures, currencies, bonds and funds from a single integrated investment account.

Clients can benefit from its superior pricing on other products, industry-low margin rates and strong spot foreign exchange conversion rates, the brokerage says. Interactive Brokers previously operated as a market-maker in Singapore for over two decades.

The brokerage actively participated on the Singapore Exchange (SGX) derivatives committee and has supported the exchange’s new initiatives such as the single stock futures. But “as our client base continues to rapidly increase in Singapore, it was important to create a presence on the ground to support and service active traders and the wealth management community”, says David Friedland, managing director of the Asia Pacific region for Interactive Brokers.

“As a critical wealth management and financial hub in Asia, our expansion in the region reflects that importance and keeps up with account growth,” he adds.

Chew Sutat, senior managing director, global sales & origination, at SGX, says: “We have worked closely with Interactive Brokers for many years promoting the Singapore markets to international customers.”

“[The brokerage] has been a pioneer in developing global electronic trading and we are delighted to have them on the ground to partner for growth together,” he adds. — Jeffrey Tan

To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section

TE Capital Partners and Roxy Pacific acquire Melbourne office for A$145 mil
Singapore-based property players TE Capital Partners and Roxy-Pacific Holdings have agreed to acquire 350 Queen Street in Melbourne’s CBD for A$145 million ($140.3 million), with the parties holding 60% and 40% interests in the asset respectively.

The office property spans 20 storeys, and comprises a commercial tower with offices, retail offerings and community amenities. It occupies 21,914 sq m (235,880 sq ft) of office and retail net lettable area. It is currently 87% occupied and has an average lease expiry of about four years.

After the deal has gone through, TE Capital will undertake a 12-month asset enhancement programme to reconfigure the ground-floor layout, retail offerings and lift lobbies, and upgrade key building services.

“We are positive about the robust fundamentals that Melbourne’s CBD office market offers in the medium to long term,” says TE Capital’s managing director Emilia Teo. — Charlene Chin

SEA investment activity in 1Q2020 falls 65% to US$1.4 bil: EY
Private equity (PE) and venture capital (VC) investment activity across Southeast Asia (SEA) reported a slowdown in 1Q2020 amid the Covid-19 pandemic.

According to EY’s “Private equity briefing: Southeast Asia (June 2020)” report, a total of 141 deals worth US$1.4 billion ($1.95 billion) were announced, representing a 9% and a 65% dip y-o-y in the total number of deals and value respectively.

Announced PE and VC-backed exits declined to six deals in 1Q2020 from nine in 1Q2019.

The report, which provides a roundup of the PE and VC deals, as well as capital activities across major sectors in the quarter, also found that dry powder reached record levels of US$439 billion by the middle of May 2020.

EY says 2Q2020 is expected to be a slow quarter as well. In light of the Covid-19 outbreak over the past eight to 12 weeks, the report says that PE funds have focused on dealing with issues and making short-term adjustments to ensure the business has sufficient resources and support to weather the storm.

Issues include liquidity, protecting employees, and accessing incentives.

Following these issues, PE funds are increasingly transitioning to dealing with post-Covid issues such as resumption of trading and making operating adjustments to the business.

The top five focus areas PE firms are working with their portfolio companies are liquidity management, strategy and business model validation, supply chain assessment, tax impact, and value creation with a strong focus on technology.

“There is a lot of uncertainty in the market. However, fund managers are now more prepared to encounter a recession than they were a decade ago. While the full-blown impact of the Covid-19 pandemic is yet to be seen with disruption continuing to unfold, we strongly believe that the industry is well-positioned to adapt and respond. We expect activity to pick up pace by the last quarter of 2020,” says Luke Pais, Asean M&A and private equity leader at EY.

“Having taken stock of the liquidity position and scenario planning for their portfolio over the past couple of months, PE funds are also now actively assessing new opportunities ... We expect to see activity in the areas of structured finance, public to private, capital recycling, non-core divestments, and sector and segment consolidation,” he adds. — Felicia Tan

Analysts’ confidence in SGX shares restored
Analysts’ confidence in Singapore Exchange (SGX) is gradually being restored after the bourse operator lost all of its “buy” recommendations over a month ago.

Jefferies Financial Group and RHB Securities Singapore have lifted the stock to “buy” in the past week. CGS-CIMB and Macquarie Group also recently upgraded the shares, to the equivalent of a “hold” rating. The brokers cited reasons including the exchange’s acquisition of a foreign exchange trading platform and strong trading volumes amid volatility related to the Covid-19 pandemic.

Ratings for the bourse operator had suffered a blow after MSCI Inc moved its index-licensing franchise for most derivative products from Singapore to Hong Kong in late May. Multiple downgrades left the stock with zero “buys” for the first time on record, according to data compiled by Bloomberg. The stock is down 17% since the announcement while the benchmark Straits Times Index has climbed over 5%.

SGX has moved quickly on new initiatives since the MSCI announcement. Last month it introduced futures contracts on individual stocks listed in Singapore, delivering on plans announced earlier in the year. The bourse also announced it will acquire the remaining 80% stake in BidFX for a cash consideration of US$128 million ($178.6 million).

The latter deal “provides an entry point into the global OTC FX market and brings together the growing and mutually reinforcing pools of liquidity in listed and OTC markets”, Jefferies analyst Krishna Guha wrote in a note in June. The acquisition “enhances the exchange’s multi-asset capabilities” and will boost per-share profits in the fiscal year ending June 2021, he added.

The BidFX deal, coupled with other recent and future moves, could see the bourse’s contribution from fixed income, currency and commodities plus data, connectivity and indexes grow to one-third of total revenue over the next three to four years, according to a note by CGS-CIMB analyst Ngoh Yi Sin. The two segments combined accounted for just over a quarter of the company’s top line in the March-ended quarter, with equities contributing the rest. — Bloomberg

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