Global Investments

Earnings out yesterday too...
http://info.sgx.com/webcoranncatth.nsf/V...6003922CA/$file/34b_20121114_SGXQuarterlyReport3Q2012.pdf?openelement

The Company and its subsidiaries (the “Group”) recorded a profit after tax of S$5.1 million compared to the loss after tax of S$1.4 million in the same quarter of 2011 mainly due to the unrealised foreign exchange gains of S$1.1 million (attributed to the strengthening of Australian dollar and Euro against the United States dollar) in this quarter versus the unrealised foreign exchange loss of S$5.2 million recorded in 3Q 2011.
The Group reported higher revenue of S$6.1 million for this quarter compared to S$5.2 million registered in the same quarter of 2011. Dividend income for this quarter was higher mainly due to the dividends distribution from the listed equities in which the Group has invested during the quarter. Interest income was lower in this quarter when compared to 3Q 2011 mainly as a result of overall decline in interest rates globally.


Seems like their equity investments did well in Q3. But not too sure how they will do given the recent sell-off. The other bond portfolios did fairly well though...

Regarding the equity investments, this is all that is mentioned:
• During the quarter, GIL purchased a total of S$30.65 million in listed shares, of which S$5.88 million was subsequently sold. The net profit on the sale of shares amounted to about S$286,000. In addition, the total dividends received from the portfolio was approximately S$172,000.
• As at 30 September 2012, the carrying value of the listed equity portfolio was S$24.95 million. About 46.3% of the portfolio was
invested in companies listed in Hong Kong, 33.5% in Singapore, 13.2% in Japan, and 7.0% in South Korea. In terms of sector distribution, the highest weighting was in Finance Related (18.25%), followed by Real Estate (16.80%), Oil and Gas (12.79%), and Diversified (8.96%).
• The weighted annual dividend yield of the portfolio was about 4.0%. The listed equities are liquid assets which can be divested easily to fund investments in other asset classes when opportunities arise.

Sounds like China banks and REITs to me...lol. I wonder where they invested to achieve an average dividend yield of 4.0%. Guess no Noble Group, but maybe STX OSV. oops.

In any case.. dividend of 0.75cents guided for H2 2012, so maintaining the 10% dividend yield. Wonder if they can continue doing that given the current market.

(15-11-2012, 09:37 PM)l0nEr Wrote: • The weighted annual dividend yield of the portfolio was about 4.0%. The listed equities are liquid assets which can be divested easily to fund investments in other asset classes when opportunities arise.

Sounds like China banks and REITs to me...lol. I wonder where they invested to achieve an average dividend yield of 4.0%. Guess no Noble Group, but maybe STX OSV. oops.

In any case.. dividend of 0.75cents guided for H2 2012, so maintaining the 10% dividend yield. Wonder if they can continue doing that given the current market.

Kudos to GIL management who is very transparent.

Can some1 enlighten me, portfolio dividend is 4%. Investment in GIL pays a dividend of 10%. Is this 6% premium paid out from consistent capital gains yearly or somewhere other sources I am not aware of? I am not seeing the full picture... please pardon my ignorance

(18-11-2012, 11:21 AM)Contrarian Wrote:

(15-11-2012, 09:37 PM)l0nEr Wrote: • The weighted annual dividend yield of the portfolio was about 4.0%. The listed equities are liquid assets which can be divested easily to fund investments in other asset classes when opportunities arise.

Sounds like China banks and REITs to me...lol. I wonder where they invested to achieve an average dividend yield of 4.0%. Guess no Noble Group, but maybe STX OSV. oops.

In any case.. dividend of 0.75cents guided for H2 2012, so maintaining the 10% dividend yield. Wonder if they can continue doing that given the current market.

Kudos to GIL management who is very transparent.

Can some1 enlighten me, portfolio dividend is 4%. Investment in GIL pays a dividend of 10%. Is this 6% premium paid out from consistent capital gains yearly or somewhere other sources I am not aware of? I am not seeing the full picture... please pardon my ignorance

The average dividend yield of 4.0% refers to the portfolio of listed Asian equities amounting to $24.95 million. Some of the Notes are high yielding (Sealane), some are amortizing but bought below par value (RMBS), the operating lease assets gives good returns though leveraged etc. But they have substantial cash pile exceeding $51 million and some of their investments seems to be parking cash rather than investing them (CLOs and Asian equities).

At the moment, it is unlikely they can meet their dividend guidance with cash-flow alone.

Cash needed for 1.5 cents dividend: 825.3 x 0.015 = $12.4 mil
9M Net Operating Cash-flow: $5.9 mil (after debt repayment)

To fund the remaining, it will need to use its capital gains (amounting to $1 mil in 9M 12) and a portion of its cash. One can only hope that they deploy their cash better in the coming quarters and stop parking it in low yielding assets. Perhaps, the Management is very bearish and waiting for the big crash haha ! I don't think it reflects well that they launched a rights issue but didn't deploy it properly.

> To fund the remaining, it will need to use its capital gains (amounting to $1 mil in 9M 12) and a portion of its cash.
> One can only hope that they deploy their cash better in the coming quarters and stop parking it in low yielding assets.

Bro Nick, thanks for your answer.

So there is a shortfall of $6.5M cash to sustain the FY12 cash payout. I wonder if the spare cash comes from previous year's capital gains or if insufficient, from rights issue payout?

It is good to payout proceeds, but I will be very careful if it is left pocket, right pocket.

Historically, STAM has run GIL very conservatively both in terms of its investments and its dividend payouts. I like to gauge GIL recurring cash-flow by taking its operating cash-flow and deducting interest expense and regular loan amortization to derive its recurring free cash-flow. This excludes disposal gains since it wouldn't be placed in the operating cash-flow subsection (its in the investing cash-flow section instead).

FY 2010

Ops Cash-flow: $8.202 million
Interest Exp: $1.561 million
Debt Repayment: $1.859 million
Recurring Cash-Flow: $4.782 million
Dividends Paid: $3.930 million (1.0 SG cents for 393 mil units)

FY 2011

Ops Cash-flow: $12.560 million
Interest Exp: $1.302 million
Debt Repayment: $1,826 million
Recurring Cash-Flow: $9.432 million
Dividends Paid: $8.253 million (1.5 SG cents for 550 mil units)

9M 2012

Ops Cash-flow: $8.278 million
Interest Exp: $0.885 million
Debt Repayment: $1,475 million
Recurring Cash-Flow: $5.918 million
Dividends Paid: $6.190 million (0.75 SG cents for 825 mil units)

It is quite unlikely the recurring cash-flow from 4Q will be able to foot the dividend guidance completely. They will have to use their past recurring cash-flow retained in 2010 and 2011 of approx $2.0 mil and the profits from disposal amounting to $4.961 million to buffer the remaining. Highly doubt they can maintain the dividend guidance of 1.5 cents per year in 2013 onwards unless they invest the substantial cash proceeds (and even more so after the disposal of the aircraft in Apr 2013) in high yield cash generating assets. Or not, it will be an issue of returning the rights proceeds cash back to shareholders !

Thanks for the detailed calculations.

Actually one reason why i thought the fund is paying a 10% yield when the listed equities give a dividend yield of 4% is because the fund itself is currently trading at around 40% below NAV. Current NAV is about SGD 0.224.
If the fund is trading at par (100% of NAV), the dividend yield required of the assets would be 6%.

But yep, its more about whether they can sustain the 0.75cents semi-annual dividends.

(18-11-2012, 02:03 PM)Nick Wrote: Historically, STAM has run GIL very conservatively both in terms of its investments and its dividend payouts. I like to gauge GIL recurring cash-flow by taking its operating cash-flow and deducting interest expense and regular loan amortization to derive its recurring free cash-flow. This excludes disposal gains since it wouldn't be placed in the operating cash-flow subsection (its in the investing cash-flow section instead).

FY 2010

Ops Cash-flow: $8.202 million
Interest Exp: $1.561 million
Debt Repayment: $1.859 million
Recurring Cash-Flow: $4.782 million
Dividends Paid: $3.930 million (1.0 SG cents for 393 mil units)

FY 2011

Ops Cash-flow: $12.560 million
Interest Exp: $1.302 million
Debt Repayment: $1,826 million
Recurring Cash-Flow: $9.432 million
Dividends Paid: $8.253 million (1.5 SG cents for 550 mil units)

9M 2012

Ops Cash-flow: $8.278 million
Interest Exp: $0.885 million
Debt Repayment: $1,475 million
Recurring Cash-Flow: $5.918 million
Dividends Paid: $6.190 million (0.75 SG cents for 825 mil units)

It is quite unlikely the recurring cash-flow from 4Q will be able to foot the dividend guidance completely. They will have to use their past recurring cash-flow retained in 2010 and 2011 of approx $2.0 mil and the profits from disposal amounting to $4.961 million to buffer the remaining. Highly doubt they can maintain the dividend guidance of 1.5 cents per year in 2013 onwards unless they invest the substantial cash proceeds (and even more so after the disposal of the aircraft in Apr 2013) in high yield cash generating assets. Or not, it will be an issue of returning the rights proceeds cash back to shareholders !

Nick,

How did you arrive at the figure of $4.961 million being profits from disposal of assets? Thanks.

Hi Boon,

I used the figures from FY 2010 till date since this represents the years which STAM took charge. Looking at the 4Q financial statements for each of these years, I extracted the gain on disposals from the P&L Statement:

FY 2010
Gain on Disposal: $0.100 million (Settlement of Cash-flow Finance Solution Ltd)

FY 2011
Gain on Disposal: $3.608 million (Divestment of Series Residual of Newgate Funding & RMBS Notes)

9M 2012
Gain on Disposal: $1.253 million (Sale of recently invested equities and partial sale of FLY Leasing shares)

Total: $4.961 million

(12-12-2012, 10:28 PM)Nick Wrote: Hi Boon,

I used the figures from FY 2010 till date since this represents the years which STAM took charge. Looking at the 4Q financial statements for each of these years, I extracted the gain on disposals from the P&L Statement:

FY 2010
Gain on Disposal: $0.100 million (Settlement of Cash-flow Finance Solution Ltd)

FY 2011
Gain on Disposal: $3.608 million (Divestment of Series Residual of Newgate Funding & RMBS Notes)

9M 2012
Gain on Disposal: $1.253 million (Sale of recently invested equities and partial sale of FLY Leasing shares)

Total: $4.961 million

Hi Nick,

To really gauge the performance and capability of the new management over the period from 2010 to now, for realized capital gains on divestment of investments, I would count only the following 2 disposals:

1) Gain on disposal of AHM 2005-4 1A3 RMBS in 2011 of SGD 1.105 million
2) Gain on disposal of recently invested listed equity in 3Q2012 of SGD 0.286 million

Strictly speaking, the other asset disposals were realized at a lost - these assets were bought at much higher costs by the previous management team B&B. Most of their values had been fully or partially impaired.

Hi Boon,

I was not using the accounting realized gains as a means to measure STAM performance - just pointing out that it could be considered as part of the cash economic income and hence be used to finance the dividends going forward since the recurring cash-flow is unable to finance it entirely. In the medium term, STAM needs to invest in more assets with appropriate yield and matching level of risk to generate incremental cash-flow. There is no way it can continue to maintain this level of distributions in 2014 onwards (assuming it continues to finance dividends with realized gains). The sale of the 2 aircraft will further reduce recurring cash-flow thereby reducing dividend visibility. Granted cash is highly fungible and indistinguishable so the idea of realized gain financing dividend or cash from the rights proceeds being returned to shareholders is essentially the same thing - but let's not argue about semantics !

With that being said, I don't think we should dismiss the realized gains from assets that were previously impaired. It certainly took time and effort to sell something that isn't generating much cash-flow at the moment. For example, Ascendos Rail is still valued below its original cost price but the Management did restructure the asset's management team and it turned profitable in 2011 resulting in reversal of the impairment. I would consider that fairly significant in assessing the managerial performance.

(Vested)