Keppel Limited

[specuvestor]

@GreedandFear... what I mean is the bonds that the company issued... if we MTM the asset side, shouldn't we also MTM the liability side? What is the principle? It is a current debate and it is interesting how that would play out say in the GFC if this was allowed back then

If you have an asset say a piece of land and machineries for building jackups, and now O&G collapse so your cashflow projections are out-of whack... do you impair those assets instead of depreciating them simplistically? Why do one only impair entities or MTM tradeable securities on the asset side? Why are they treated differently if they are not even considering them to be sold off?

Point here is not to defend Kris Energy or even Dyna-Mac but the principle behind these mark-downs are much more complicated than many assume, by just taking a simple price from Mr Market and input into the spreadsheet. Like Clement remarked... so long term business decisions will be basing on Mr Market or minority shareholders' greed&fear?

[GreedandFear]

Hi Specuvestor.

My view on the bonds issued by a company is that it is unlikely that the company can realise the MTM loss or gain for all but a small amount of the bonds issued. It is very rare for companies to buy back more than 5 - 10% of a bond issue for the simple reason that any refinancing is likely to be at similar prices to where the debt is trading and hence there is no benefit to the company. Typically you can use either equity, cash profits or asset sales as a source of cash to buy back debt. Raising equity is normally more expensive, so a non-starter. Cash profits can be used but normally, you wouldn't get such a huge jump in cash flow from operations that you can retire 50%+ of an outstanding bond. Asset sales could be a source. What I am trying to say is that it is unlikely that the debt will be retired (other than in small amounts) and hence I think that MTM of the liability side doesn't make sense. The other issue with bonds is that as soon the market knows that you have the cash, the price shoots up, making it unattractive for the company to buy back its own debt.

You may argue that a company intends to hold an asset for ever and hence MTM should also not be required to MTM the asset. My counter to that would be that business cycles go up and down and sometimes, you may be forced to sell an asset at the current MTM even though you think the asset should be worth far more (look at Noble selling its US energy business). Because you can be forced to sell an asset, I think assets should be MTM but only if there is an observable price (share price or a property valuation). I don't believe in MTM of contracts...

As others have pointed out, there is no perfect accounting but the closer we can get to real prices, the better it would be IMHO. If some investors respond only to headline losses caused by MTM then other investors will profit from stepping in and looking through the numbers. If the accounts overstate the value of an asset, then some investors will be burnt because they have bought shares in a company with inflated asset value accounting. That is not good. So, the more info that is available and the more the accounting approximates real market values, the more investors can make informed decisions.

I don't think that businesses will be run with a short term outlook just because of MTM but clearly everyone will have their own opinion on that :-)

[specuvestor]

Hi GreedandFear

I see your logic on the MTM of issued bonds though there are companies that buy back substantial amount of their bonds through a third party so that it is not so obvious. However if inaction means it should not be MTM, then inaction on asset sale should not be MTM either. Why would they be "forced" to sell asset in a distressed market?

If we come to the crux, it's about cashflow and leverage. Net cash companies will never have a run on their credibility. Leveraged companies, even healthy ones, is subject to the whims and mood of the lender. It's a business model issue. Hence it is complicated to apply a standard MTM requirement on all companies cause their models are different

Observable price is only useful for operational trades not assets. For example fuel price loss is very real to the operation of an airline, but aircraft price decline resulting in a MTM loss is not so consequential as long as they continue to use it through their projected period.

And business managers or owners are not the same as investors. Mr Market gives opportunities but Mr Market is not the business itself, unless the business is asset management or traders etc. Business owners look at strategic positioning, long term execution, SWOT etc rather than whether to buy or sell shares tomorrow. The time line and vested interest is as different as a citizen vs a tourist

Frankly I think managers and owners should give due respect to OPMI by explaining their business and why they do what, and to get feedback, as much as we give weight to tourists' feedback; but to formulate long term strategies based on what OPMI demands is actually quite foolhardy and a mistake of Finance 101. In fact I think for years Keppel has been complaining about the ill-timed sale of SPC from shareholder pressure.

[GreedandFear]

Hi GreedandFear

I see your logic on the MTM of issued bonds though there are companies that buy back substantial amount of their bonds through a third party so that it is not so obvious. However if inaction means it should not be MTM, then inaction on asset sale should not be MTM either. Why would they be "forced" to sell asset in a distressed market?

If we come to the crux, it's about cashflow and leverage. Net cash companies will never have a run on their credibility. Leveraged companies, even healthy ones, is subject to the whims and mood of the lender. It's a business model issue. Hence it is complicated to apply a standard MTM requirement on all companies cause their models are different

Observable price is only useful for operational trades not assets. For example fuel price loss is very real to the operation of an airline, but aircraft price decline resulting in a MTM loss is not so consequential as long as they continue to use it through their projected period.

And business managers or owners are not the same as investors. Mr Market gives opportunities but Mr Market is not the business itself, unless the business is asset management or traders etc. Business owners look at strategic positioning, long term execution, SWOT etc rather than whether to buy or sell shares tomorrow. The time line and vested interest is as different as a citizen vs a tourist

Frankly I think managers and owners should give due respect to OPMI by explaining their business and why they do what, and to get feedback, as much as we give weight to tourists' feedback; but to formulate long term strategies based on what OPMI demands is actually quite foolhardy and a mistake of Finance 101. In fact I think for years Keppel has been complaining about the ill-timed sale of SPC from shareholder pressure.

Hi Specuvestor.

At the end of the day, it all boils down to disclosure and then you choose your data points to decide whether to invest or not. I still think that companies cannot predict when they might have to sell an asset because of cash flow issues / business cycles and hence I think that business managers and investors need to look at the market even if they may not be perfect. If you have the luxury of not having to sell at that price, that is great but you never know....I am not advocating quarter to quarter management but if Keppel thinks that Kris Energy is still a great investment that is worth far more than the current market value then I think they should highlight the difference and explain why they think the stake is worth more ....

[slowandsteady]

This must be as close to an admission of guilt, if ever?

"INVESTIGATIONS IN RELATION TO CONTRACTS ENTERED INTO WITH PETROBRAS
AND SETE BRASIL
Keppel refers to its earlier announcements on 9 February 2015, 23 February 2016, 29 April
2016, 5 May 2016, 24 July 2016 and 3 August 2016 in relation to allegations in Brazil that
illegal payments were made by Mr Zwi Skornicki in connection with contracts entered into
between certain Keppel entities with Petrobras and/or Sete Brasil.
Following further internal investigations, Keppel recognises that certain transactions
associated with Mr. Skornicki may be suspicious. Keppel has notified the authorities in the
relevant jurisdictions of its intention to cooperate and work towards the resolution of the
underlying issues arising from or in connection with the transactions.
The matter continues to be under review and Keppel will make further announcements as
appropriate. Shareholders are advised to exercise caution when dealing with the securities
of Keppel.
Keppel reiterates its zero-tolerance stance against any form of illegal activity, including
bribery and corruption, involving its employees or associates"

http://infopub.sgx.com/FileOpen/SGX%20An...eID=423303

[cfa]

Can't deny anymore ? Tamasek company involved in corruption ?

[corydorus]

What this means ? Will their be penalty in $. Mr Zwi Skornicki is an agent not Keppel employee. Seems still quite far to link them up.

[cfa]

The agent wanted to drag them in !

[LionFlyer]

I thought that is why u have an agent. They are the ones that take the fall in these investigation.

Let's be honest here, many Singaporean companies are doing this. They have a don't ask don't tell policy.

[brattzz]

I thought that is why u have an agent. They are the ones that take the fall in these investigation.

Let's be honest here, many Singaporean companies are doing this. They have a don't ask don't tell policy.

lolz!!  

agreed totally, that's why u PAID the agent, it's professional fees!!