Singapore Business Review ( October - November 2015)

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coes to soar

to $200k by 2025

losing out on mega vessels Rail financing reforms

get derailed Singapore’s manufacturing malaise Plus:

Asia gears up for another

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FROM THE EDITOR About Us

For our annual property issue, we talked to analysts and industry consultants to give you a guide to finding the perfect deal in bargain hunting season. Find out what’s happening in the market and then decide if now is the right time for you to snap up the bargains, or if you should apply the wait-and-see approach.

The Singapore Business Review is the highest circulating and best read business magazine in Singapore with a circulation of 24,688 copies audited by the Audit Bureau of Circulations Singapore. Our online readership is an average of 215,000 monthly unique viewers according to Google Analytics. Do reach out to us if you would like us to tell your story to our readers via print & online advertising or events.

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We also delved into the Lion City’s retail industry and discovered how e-commerce is changing the way businesses operate. For instance, we talked to a French-based sporting goods giant and found out that while their usual strategy when entering a new market is opening a store, in Singapore, they had to start with an e-commerce site.

We also report on the city’s debt capital markets, rail financing reforms, mega vessel wars, and the possibility of COEs reaching $200,000 by 2025.

Enjoy the issue!

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Singapore Business Review erred in its August-September issue by publishing outdated information regarding two general managers (GM) in the latest listing of 50 largest hotels. The list indicated Riaz Mahmood and Winston Reinboth as GMs for Orchard Hotel and Grand Copthorne Waterfront Hotel, respectively. Both men already left the hotels. Richard Ong was named GM for Orchard Hotel in May this year while Benedict Ng took over the GM position for Grand Copthorne Waterfront Hotel last March.

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SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 1

CONTENTS

CoVER STORY

30 A guide to finding the perfect deal in Singapore’s bargain hunting season FIRST 08 Singapore rail financing reforms get derailed

09 Losing the mega vessel war

21

abacus Olam getting back on track post-Muddy Waters saga

ANALYSIS

REGULAR 24 Financial Insight 26 Economic Insight

10 COEs to soar to $200k by 2025

38 Legal Briefing

12 Office landlords woo tenants with

40 CMO Briefing

sweeter, more creative deals

34

RANKING: Singapore banks hit by depressed business loans

28 Who’s winning in Singapore’s

e-commerce wars?

42 Is Asia headed for another meltdown?

46 Asia gears up for another 1997-style crisis

14 Singapore to overtake HK by 2025

Published Bi-monthly on the Second week of the Month by Charlton Media Group 101 Cecil St. #17-09 Tong Eng Building 2 Singapore SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 069533

For the latest business news from Singapore visit the website

www.sbr.com.sg

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News from sbr.com.sg Daily news from Singapore most read

SHIPPING & MARINE

How badly will Singapore be hurt by the new shipping regulations?

According to BMI, stricter environmental regulations on the shipping sector will see Singapore’s consumption of middle-distillates increase over the next decade at the expense of heavy fuel oil.

They expect residual fuel oil to retain its dominant share of refined fuels consumption in Singapore up to 2024 due to the country’s position as one of the world’s busiest ports.

MARKETS & INVESTING

MARKETS & INVESTING, STOCKS

Think twice before snapping up cheap Singapore stocks, analysts warn Singapore is generally considered a defensive, resilient, and relatively inexpensive equity market. However, Maybank Kim Eng analysts warn that low stock valuations in the local bourse might not be worth it if equity markets come under severe stress.

Maybank Kim Eng used a worstcase scenario of a 10% cut in revenue, 10% FX depreciation and 100bp hike in interest rates.

There’s still a reason to be bullish on extremely cheap Singapore equities Singapore’s stock market has been swimming in a sea of red in recent weeks, but Morgan Stanley believes that there are still plenty of reasons to remain upbeat on local equities.

They said that cheap stock valuations in Singapore do not accurately reflect companies’ sound fundamentals.

“We believe that stock valuations in Singapore, have undershot fundamentals,” they said.

Bursting bubbles: Graduates’ askewed job expectations

BY ADRIAN TAN Career service and guidance is becoming a big emphasis for many tertiary schools in Singapore. In fact if you take a look at Gebiz (Singapore government procurement portal), many schools at the secondary level have already done their fair share of career workshops in one form or another.

This is very much in line with the ECG initiative by the Ministry of Education.

Foreign talent in Singapore: A win-win

BY LYNNE ROEDER The recent celebration of Singapore’s 50th anniversary, or SG50, provides us with a timely opportunity to reflect on the decades of success that the Lion City has experienced and remind ourselves why it’s such a popular destination for foreign talent.

It’s no wonder that Singapore remains one of Asia’s most sought after destinations for foreign talent considering new career horizons abroad.

MOST READ COMMENTARY Should you invest in Singapore property now?

BY ISTVAN LOH A slew of property cooling measures introduced by the Singapore government over the last few years have taken a toll in the Singapore property market. Not that potential investors are complaining, as take-up rates in Q2 of 2015 continue to inch up a substantial 61%, according to statistics by the Urban Redevelopment Authority.

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Transamerica Life Bermuda: Tailored insurance solutions at the highest standard

Transamerica Life Bermuda takes pride in delivering the finest products for its valued HNW customers.

I

n Singapore, which has one of the region’s most highly developed insurance industries, it is surprising to know that many Singaporeans do not seek any of the retirement or insurance options available to them. Rather, they focus on the steady accumulation of wealth during their lifetime; as their net worth increases, so does the need for proper insurance plans in preparation for their future. In fact, this is a trend that is visible in many parts of Asia apart from Singapore.

As Singaporeans remain substantially uninsured, it is crucial that they secure insurance coverage as their assets increase.

High quality insurance services For example, one customer may have a child, a spouse and a business valued at $20 million and may decide to bequeath their business to their child. How can the customer ensure that his or her spouse is taken care of if something happens? “The customer can create a life insurance policy, with their spouse as the beneficiary of a policy offering $20 million of coverage, equating to the customer’s bequest.

Subject to the terms of the policy, their spouse would receive $20 million cash upon the customer’s death without any impact on the child’s inheritance,” says Paul Courtney, Chief Executive Officer of Transamerica Life Bermuda (Singapore branch office).

“To meet the changing needs and expectations of high net worth individuals in the region, we offer a variety of universal life and term life insurance to ensure our

8 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

customers’ wealth legacies are protected. We see a rapidly growing market in the high net worth insurance sector, and increasing wealth mobility both for diversification and lifestyle reasons,” he adds.

As with all businesses in the digital age, Transamerica Life Bermuda must also work to adjust its services in order to meet the growing demands of customers who wish to access their services through various digital channels, whether for communication purposes or simply to research information.

The trend will also mark an increase in business volume as information on insurance coverage becomes more accessible to the public. Because of this, Transamerica Life Bermuda ensures that all customers receive the same high-quality service standards and commitments that they have always provided in the past, despite increased customer expectation.

“To meet these challenges, in the last 24 months, we have upgraded internal systems to improve the efficiency in processing new applications and provide timely status updates to our distribution partners and customers.

Next year, we plan to introduce a new point of sales system to improve experience and efficiency in submission of applications and related documents,” notes Paul. “Moving forward, we also have plans to upgrade our customer and distributor portals to improve user friendliness and accessibility to cope

Paul Courtney Chief Executive Officer of Transamerica Life (Bermuda) Ltd. (Transamerica Life Bermuda) (Singapore branch office)

with mobile technology,” says Paul of the company’s plans to ensure reliable service for their customers in the near future.

Improving standards It is clear that Transamerica Life Bermuda is aware of the challenges that are being posed to the company, and use the challenge as an opportunity to further improve Transamerica Life Bermuda’s service standards. “We offer innovative insurance solutions tailored specifically for high net worth individuals.

Throughout our time, our core aim has been to deliver the highest standard of service with the finest, innovative products. This is something we take pride in and want to share with our customers,” says Paul.

“It is key that Singaporeans continue to actively pursue financial literacy and seek quality advice from a knowledgeable financial advisor,” he continues. As a top insurance provider across Asia for high net worth individuals, families, and businesses, Transamerica Life Bermuda is committed to helping customers protect their wealth legacies, and preserve their hard-earned assets, for generations to come.

“Life insurance is an effective and flexible wealth planning tool that safeguards families and loved ones during unforeseen circumstances. It is not about the highest returns, but rather about wealth protection and providing peace of mind.”

“It is not about the highest returns, but rather about wealth protection and providing peace of mind.”

FIRST Happy workers

Over half of Singaporeans are happy in their respective workplaces, and generous compensation isn’t necessarily the reason. A majority attributed their happiness in their workplace to good relationships with their colleagues and bosses, while good salaries and company benefits only came in second.

On the other side of the coin, however, the main source of job dissatisfaction for Singaporeans stems from the lack of definite career growth and inadequate learning and development programmes at their respective workplaces, according to a survey

by JobsDB entitled “Happy is a better job.”

The survey says many also reported having an unsatisfying working environment and the lack of work-life balance as sources of frustration.

Switching jobs Meanwhile, the survey says 64% of Singaporean respondents are planning to change jobs within the next 12 months.

“This may be due to the progressive perceptions of candidates with regard to changing jobs as at least 85% of respondents in all four countries claimed that changing jobs is a good thing, while those who viewed the move as bad only account for 15% or below,” says JobsDB. Meanwhile, a majority of Singaporean respondents say a low salary will drive them to change jobs, “While many intend to change jobs within the year, there are factors that hold them back from doing so. Primarily, uncertainty over the new work environment as well as a perceived lack of jobs in the market prevents the respondents from seeking out new careers,” JobsDB adds.

10 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Commuters are left waiting for delayed reforms

Singapore rail financing reforms get derailed

W

hen comparing the progress of reforms in the rail and bus sectors, most analysts can only shake their heads at the night-and-day difference. The proposed shift to a new rail financing model, one that is asset light, has all but stalled as the Land Transport Authority and SMRT Corporation butt heads on reform terms.

“We were hopeful a conclusion would have been reached over the last 15 months, but differences in expectations from both sides of the table have led to delays,” says Somesh Kumar Agarwal, analyst at Macquarie Capital Securities in Singapore. Agarwal argues that several factors have contributed to the malaise of rail reforms, including a “stark disparity” in the expectations on the price of asset buy-backs, with both sides appearing to lean towards different computations. He also cites as a complicating variable the sizable profit stream that SMRT generates from renting spaces at train stations while paying only a nominal amount to the government.

Given the lack of progress in rail reforms, Agarwal reckons the new rail policy could be delayed to 201819 which is when the Thomson line winner is likely to be announced.

The current negotiations can be

The new rail policy could be delayed to 2018-19 which is when the Thomson line winner is likely to be announced.

seen as a delicate dance with both the SMRT and the Singapore government looking to lock in more positives than negatives.

Agarwal says that for SMRT, the new rail policy’s asset-light model would lower depreciation expense and possibly improve profitability for the transport company. SMRT’s free cash flow will also improve given the lower CAPEX requirements outlined in the new model, which Agarwal believes will result in larger dividend payouts.

On the other hand, SMRT will face a more onerous new license charge, which includes fixed and variable components, and Agarwal is not putting it past the government to use this mechanism to regulate the public transport operator’s profit, possibly even to a point where it offsets the gains from lower depreciation expenses.

Cause for optimism Still, in spite of all its perceived disadvantages, some analysts view the new rail financing framework as a positive catalyst for SMRT in the long-term. “We remain positive over the transition to the new rail financing framework that will eventually occur,” says Eugene Chua, analyst at OCBC Investment Research.

While Chua acknowledges that it could take at least two to three years before a transition can take place, there is also a possibility that the transition could be pushed earlier “as it puts SMRT in a better position to perform the rail network renewal,” especially since SMRT and LTA have a common interest to reduce the disruption of rail services.

SMRT’s CAPEX to stay high in transition to new rail financing model

Source: SMRT, Macquarie Research, August 2015

FIRST Asian Port Infrastructure Rankings, out of 100

Source: World Economic Forum’s Global Competitiveness Index, 2013-14

The city-state’s ports are struggling to adapt

Losing the mega vessel war

A

t a time when container ships are ramping up in size, Singapore seems stuck at the harbor while its regional rivals have set sail towards building larger ports to accommodate mega container ships. “The port of Singapore has been slow to adapt to the latest container shipping trend of ‘bigger is better,’” says BMI Research.

“This could damage the port’s role globally as it will not be able to handle the new class of mega vessels that are coming online.”

Singapore’s chances of reclaiming its reputation as the premier port destination in Asia from Shanghai

will remain slim if it continues to ignore this shipping container trend, BMI warns further.

The research firm cited how Singapore’s port had been left out on the rotation of the 18,000TEU capacity Triple E-Type vessel, the first of which was launched by Maersk Line in July 2013. Instead, Hong Kong is emerging as the preferred Asian transhipment point for this vessel.

The Singapore port operator PSA is investing US$3.5 billion to develop two new terminals at Pasir Panjang that will be able to handle mega vessels.

Singapore tries to catch up In order to win back larger shipping vessels that have been passing on Singapore for fear that their

size might be too much for the country’s smaller ports to handle, the Singapore port operator PSA is investing US$3.5 billion to develop two new terminals at Pasir Panjang that will be able to handle mega vessels and which are expected to be fully operational by 2017.

The new terminal will boast a draught of between 16m to 18m and 6,000m quay length which will enable this new fleet of mega vessels to dock, says BMI Research.

The investment appears to be a wise move for Singapore as the mega vessels trend should continue in the coming years. OCBC notes that this year, some of the smaller Asian companies also took the plunge in ordering ultra large container ships. For example, Japanese carrier MOL, Chinese carrier OOCL and the conservative Korean container carrier, Evergreen are lining up for ship sizes of up to 20,000 TEUs or more.

The Chartist: Voice revenue fades away for Singapore’s telcos Singapore’s telcos are being bombarded with flattish revenues across all of their services due to slowing mobile service revenue growth and fixed-line revenues.

According to a report by Barclays Research, industry mobile service revenue could only muster a 1.1% growth despite the recent price increase and the fact that 60-70% of post-paid subscribers have already opted for data plans and are using more than their allowed data bundles.

“We believe that (still rapidly) declining voice revenue is the main reason for this lacklustre service revenue trend. From an operator perspective, SingTel appears to come with the best momentum from 1H15 and StarHub saw modest declines,” says Barclays.

Singapore- total telecom service revenue trend

Singapore- total service revenue growth by operators

Source: Barclays Research

Source: Barclays Research

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 11

FIRST

COEs to soar to $200k by 2025

Survey

Status seekers are out

M

ore Singaporeans are likely to abandon the notion of driving their own cars, with COE prices predicted to quadruple by 2025. CLSA predicts COE prices will be around $200,000 in ten years, thereby discouraging people from buying their own vehicles. In light of higher COE prices, CLSA says the government could announce “a major reform to the taxi network in an effort to increase supply, promote affordability and improve service quality.”

The privatisation of the taxi network may then be on the horizon, where each operator will be given “a set fleet and then incentivising and penalising them for kilometres per day travelled.”

“The government aims to increase the supply of taxis to 50,000 (from 28,000 in 2015) post 2025 by issuing more licences. The ultimate goal is to reduce the demand for private vehicles and potentiallly reduce COE costs,” notes CLSA. BMI Research agrees and says that rising congestion on roads, higher down-payment requirements, together with rising parking and electronic road pricing charges, may cause some consumers to completely abandon the notion of car ownership, causing dealerships to lose sales. “As the government remains committed to contin-

CDL’s fleet grew to 17,000 in 1H15

ued investment in public transport, Singaporeans may have a lesser need to own a vehicle in the future.”

ComfortDelGro, one of the largest transport companies in Singapore, seems to prepare itself for this trend.

According to UOB Kay Hian, the group’s gross capital expenditure jumped 74% year-on-year in the second quarter of this year after purchasing over 200 new taxis. Its taxi fleet then grew to almost 17,000 in the first half of 2015. ComfortDelGro is expected to replace 2000-3000 of its taxis annually and has an average taxi age profile of 4.7 years, shorter than a taxi’s useful life span of 7.5 years.

CLSA predicts COE prices will be around $200,000 in ten years.

Mobile App Watch

Easier access to the most up-­to­-date credit card deals Trying to manage several credit cards while staying on the lookout for great deals for each card can be overwhelming. To make it easier for cardholders, GET.com, a personal financial comparison startup, has launched what it claims to be the first and only mobile application in Singapore showing the widest range of credit card deals - the GETdeals.

Founded by Pedro Pla and Grace Cheng, GETdeals is an all-­in-­one app which allows cardholders to enjoy the ease and convenience of locating relevant credit card discounts and privileges. The app features more than 2,300 credit card deals from all major banks in Singapore, making it easy and convenient for consumers to locate deals on the go. With Getdeals, cardholders no longer need to download multiple banking apps or log on to several websites to look for credit card deals that they are entitled to.

12 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Singapore’s affluent are buying more into the allure of luxury products, with 27% labelling themselves as “status seekers” and admitting that they take pleasure in the attention that luxury brands attract.

According to a survey conducted by Visa, 19% of cash-rich Singaporeans are also giving importance to achieving a sense of “self-satisfaction” or fulfilment through the purchase of luxury goods and services.

At the same time, 22% of those polled cited exclusivity of products, services and experiences as a key motivator to how they choose luxury products.

“What drives Asia Pacific’s affluent in making luxury purchase decisions varies across the region, but the common factor is the search for unique products and services that give a sense of status and exclusivity,” says Ruben Salazar, vice president for products at Visa Asia Pacific.

Meanwhile, product quality and durability took the back seat for the island nation’s elite when considering the purchase of luxury items, as only 15% of those surveyed in the city-state agreed to this criterion.

“While quality remains important for most consumers, Asia Pacific’s affluent are continuously looking to go beyond quality guarantees to find that special product or experience that stands out from the crowd and that gives a sense of self-satisfaction,” Salazar added.

“According to the study, top spending categories reported for Asia Pacific Affluent “status seekers” include designer items, luxury weekend holidays, and fine dining,” Visa says.

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FIRST

Office landlords woo tenants with sweeter, more creative deals

W

ith Singapore developers launching an unprecedented amount of office space, the pipeline has begun to outpace the market’s ability to absorb it. Rental rates, a lagging indicator of tenant appetite or absorptive capacity of the market, have shown that the supply glut expected in 2016 has begun to manifest itself. According to RHB property analyst Ivan Looi, the year-on-year increase in rent per square meter of Grade A Singapore office space has begun to cool, slowing to almost 5% from three times that amount a few quarters previously.

According to the Urban Redevelopment Authority (URA), the annual demand for space stood at 1.2mn sqm versus the 3.85mn sqm of space coming online in 2016.

This increasing gap in the supply-demand situation, coupled with faltering yields, has put pressure on Singapore’s office landlords to become more proactive in their marketing efforts to fill up available space.

According to Savills, landlords have begun to offer numerous incentives to tenants, in an attempt to offset the thinning space inquiries and slowing renewals. They have seen cases of rental adjustments and concessions offered to both tenants and agents, as landlords attempt to lower overall occupancy costs. Savills senior director, Alan

Cheong, notes that these concessions include free rent periods, which can be extended in proportion to the amount of space that a tenant occupies. He also notes that some landlords have also begun to subsidise the fit-out of newly leased offices, sharing the capex for the renovation with the tenant.

“Most landlords would prefer to have such incentives than to adjust the face rents if they can,” says Cheong. “Nevertheless, in a competitive environment moving forward, face rents will still be moderate down to reflect the market condition.“ Supply surplus woes The office property sector is likely to face headwinds given the supply glut likely to be faced over the next three years, combined with the fragile Asian economic environment. Savills notes that a large portion of recent leasing activity was due to relocation rather than new tenants signing up spaces. Financial institutions have also been returning excess space given the sectoral consolidation currently playing out, and the winding down of many business lines. Savills also notes that the anemic growth of Singapore’s economy is likely to put downward pressure on the need for office space. They explain that hiring sentiment has been continuously on

The glut has landlords scratching their heads

the decline in recent quarters. The S-REIT market has been downgraded to “Neutral” at RHB, with Looi negative on office REITs. He notes that the elevated rates over the past few years was mainly driven by the lack of space coming to market. While occupancy has been healthily above 95%, there are concerns that this number may come down as new supply comes online. Looi expects that occupancy will fall, and that with this, some landlords may begin to see negative rental reversion in the near future.

OFFICE WATCH

Sleeping pods and more at Garena’s new office Located on levels 16 and 17 of Galaxis Building, 1 Fusionopolis Place, Garena’s new office covers a total space of 7,500 sqm. It can house up to 1,000 employees but to ensure maximum comfort for its employees, it plans to keep the employee size to a maximum of 500.

In contrast to other office spaces where workplace is a serious business, Garena broke that rule and installed massage services where employees can receive a relaxing 30min massage from the in-house masseuse anytime between 12-7pm. It also built sleeping pods with proper beds and pillows where employees can catch a power nap throughout the day. Its entertainment corner is also furnished with an air hockey table, pool table, and foosball table, where employees can engage in friendly competition . Of course, a fully-stocked café completes the experience.

14 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Entertainment corner

Cafe

Massage room

Sleeping pods

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FIRST NUMBERS

the value of education

The Lion City roars back to life

Singapore to overtake HK by 2025

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ingapore and Hong Kong have been in a constant rivalry when it comes to being Asia’s top financial hub. Early this year, Hong Kong overtook Singapore and was ranked as the third most important city in global finance at the Global Financial Cities Index. However, analysts say there is so much more to be told in this tale of two cities, and that Singapore may just have its own share of a happy ending.

The Lion City roars back Asheefa Sarangi, senior banks analyst at CLSA, predicts that Singapore will overtake Hong Kong to become the third largest financial centre in the world behind New York and London by 2025. She notes that assets under management could increase almost five-fold to S$10 trillion, and that digital capabilities could help banks lure more new money to Singapore to establish it as the premier wealth hub in Asia.

“Singapore [will] become the centre for financial technology in Asia and strong collaboration between startups, universities and local banks [will lead] to worldleading digital-banking franchises.

Corporations around the region [will] continue to move their treasury and trading desks to the 16 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Red Dot, helping to enhance the vibrant and competitive financial sector,” adds Sarangi.

More ultra-rich inflows David Ji, head of research & consultancy for Greater China at Knight Frank, says over the next 10 years, Singapore is set to gain the most ultra-high net worth individuals with 1,752 new residents compared to only 1,251 in Hong Kong.

“Looking to the future, one constant remains: the rise of the Asian powerhouse cities, the relative decline of the European centres and the tussle between the two global behemoths – New York and London, with New York expected to be the most important city for global UHNWIs in 2025,” adds Ji.

Singapore will overtake Hong Kong to become the third largest financial centre in the world behind New York and London by 2025.

Countries with the biggest inflows of HNWIs (past 10 years)

Source: Fragomen using data from New World Wealth survey

Source: Ipsos MORI

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FIRST 5 Strengthened digital marketing Naouri of Savills believes that digital marketing is an area where hotels can improve competitiveness as hotels and flights are some of the largest purchases a consumer will make online.

“Strengthening online marketing is a strategy for operators to win back market share from Organized Team Activities.”

6 Human resource cost-cutting According to Naouri, some hotels are providing check-in kiosks to free up human resources and provide more meaningful customer care, or purely to decrease human resource costs.

The 10 things hoteliers do to stay upbeat in down times

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ata from Savills show that hotel occupancy rates as of June 2015 dropped by 2.5% compared to a year ago while the average daily rate was down 4.5%. As a result, profitability as measured by revenue per available room tumbled by 6.9%.

According to Rachel Grier, IDeaS managing director in APAC, given the challenging operating conditions faced by local hoteliers, it is vital that Singaporean hoteliers implement advanced operating processes and technologies to maximise revenue in times of growing competition and dynamic marketplaces.

As such, Singapore Business Review looked into various strategies hoteliers employ to stay upbeat in down times.

1 Adoption of new technology innovations for customized stay The Singapore hotel industry has embraced technology innovations such as the development of apps which allow guests to use their mobile phone, PC or tablet to book appointments or order food from their rooms, says Grier.

Ong Huey Hong, Director, Hotels & Sector Manpower, Singapore Tourism Board (STB), meanwhile adds that hotels are increasing their focus on tourism software, building relationships with guests and engaging them on a more personal level.

“With mobile technology reshaping the hospitality industry in terms of consumer touchpoints, hotels are now harnessing this 18 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

technology to enhance guest services and allow guests to personalise their in-hotel experiences,” she notes.

Greater levels of adoption of sophisticated analytics technology To maximise revenue and profitability, Grier also believes that the local hotel industry will see greater levels of adoption (both independent and branded) of sophisticated analytics technology in 2016 and beyond.

“The industry has recognised that an excel spreadsheet is no longer enough – complex and robust systems are required in order to aggregate and transform large, disparate datasets into meaningful intelligence required for making accurate demand forecasts and strategic pricing decisions in an actionable timeframe,” he explains.

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7 Increasing popularity of Singapore staycation Naouri says most upscale and luxury hotels are providing deals which make it attractive to spend money and not go through the additional burden of travel airport immigration etc. None of these are issues at Changi but most other airports can be challenging at times.

8 Unique experiences for tourists According to Ong of STB, some hotels strive to create unique experiences for tourists, such as through walking and cycling tours. “Capri by Fraser at Changi City is one such example, where hotel guests can enjoy cycling tours of the east of Singapore led by its general manager.

He goes further to share personal anecdotes of his life in the city too.”

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9 Custom-designed spaces STB’s Ong also notes that boutique hotels are rising to meet the growing demand of customers seeking authentic and experiential stays. These hotels offer exclusive and differentiated experiences in custom-designed spaces, from naturethemed rooms to nostalgic vintage suites.

Stronger ties with airlines Savills’ Naouri also noticed increased use of partnerships with airlines to capture repeat visits through loyalty schemes.

10 Great deals for the Golden Jubilee Year According to Ong, STB and the hotel industry are intensifying marketing efforts to reach out to a wider audience.

These include initiatives such as the S$20 million global marketing campaign to help attract visitors and drive spend during the Golden Jubilee year, a S$35 million partnership with the Changi Airport Group for joint marketing initiatives and expanding into Tier 2 cities in China and India.

Innovations catering to tastes of the Chinese tourists Julien Naouri, Associate Director, Hotels, Asia Pacific of Savills Singapore observes that many hotels are increasingly catering to tastes of the Chinese tourist, and providing products that are popular with Chinese tourists. “Some hotels have even redesigned rooms to allow for more shopping bags.”

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co-published Corporate profile

Veolia: Providing advanced solutions to a constantly growing and evolving market Veolia rolls out a new product as it moves towards resourcing the world.

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s the global leader in water treatment, Veolia Water Technologies has consistently designed innovative, wastewater and energy management solutions that jumpstart the development of communities and industries.

True to Veolia’s corporate brand tagline “Resourcing the World”, the company has held steadfast to this belief by preserving, replenishing, and developing access to resources. In 2014, Veolia supplied 96 million people with drinking water and provided 60 million people with wastewater services.

Veolia continues to strive for greater efficiency by rolling out breakthrough products and investing in research and development activities to refine and develop new water and wastewater technologies.

Meeting demands As the only global company to provide a full range of solutions in the fields of water management, Veolia aims to increase Client productivity (efficiency), reduce fresh water use, while using the most cost effective process in terms of life cycle investment.

“Our proposals are focused in helping our clients to meet their environmental goals. Veolia’s expertise lies in resource planning and our team of experts will assess the existing water and wastewater challenges, before recommending tailormade solutions that will meet local regulations and clients’ expectations,” says Carlo Patteri, Veolia’s Business Development Director, Southeast Asia.

At the forefront Earlier in September, Veolia unveiled a new product at Power-Gen Asia 2015.

The Hydrotech DiscfilterTM HSF2200-1C compact unit is a mechanical and selfcleaning filter that offers a large filter area in a small footprint.

The latest Discfilter HSF2200-1C promises superb performance, reliability and safety, and an ability to withstand a higher differential pressure than its

Carlo Patteri Business Development Director, Southeast Asia

Bill Willersdorf Global Market Director for Power

predecessor. Possessing a more efficient design, Veolia’s new filter system is the choice filter system for retrofitting purposes as its maximum capacity is set at 200 l/s, representing 10-15% additional filtration capacity while occupying a 20% smaller footprint.

Additional benefits of the new Discfilter include a lower investment cost and total ownership cost, as well as minimized maintenance and flexibility in construction materials.

“We are continuously pushing technological boundaries to create more value for our clients. “Flexibility is a strong highlight for this Discfilter, allowing Clients to retrofit a unit for suspended solids removal in the cooling tower, thereby improving cooling efficiency. Discfilter’s gravity operation and ability to provide continuous filtration using low backwash rates, with a high water recovery makes it perfect for any industry’s cooling tower treatment.” says Bill Willersdorf, Global Market Director for Power at Veolia Water Technologies.

Veolia has also recently pushed for condensate polishing, a key solution which acts as a safety net to protect the

boiler and turbine of a power station, which are the most expensive parts.

Both of these technologies can improve heat rate, thereby increasing power unit efficiency. In addition, Veolia offers its consultation services that clients can take advantage of when considering the implementation of the water treatment process.

Expanding its reach Veolia has since achieved its goal of cementing its presence in Southeast Asia.

In 2014, Veolia installed a wastewater treatment plant upon a floating platform in Singapore. The project shouldered an integrated solution comprising of Veolia’s technologies such as the Actiflo® Turbo clarifier, Discfilters, and HydrexTM coagulation and flocculation chemicals to treat lead and brackish water before it is disposed into the sea.

With this, Veolia was able to offer a win-win solution by providing crucial wastewater technology while addressing Singapore’s land scarcity concerns.

Standardisation of its suite of water and wastewater solutions also stands as one of Veolia’s priorities. wastewater technologies,” says Patteri.

“Our proposals are focused in helping our clients to meet their environmental goals.”

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 19

startups

WeInvest.net simplifies hunting for investment opportunities

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hen Bhaskar Prabhakara arrived in Singapore from India more than 3.5 years ago, he and his wife explored many investment opportunities. Along the way, they found out that the investment information available was fragmented over various sources and is overall very messy and confusing.

Thus, they decided to bring together available investment opportunities with the platform called Welnvest. net, making it easy to understand, searchable and comparable—so that investors can make better investment decisions.

WeInvest.net bills itself as the world’s first platform to offer a

searchable database of restricted funds. It claims to have the largest resource of investment opportunities in Singapore, and of investment product data from different asset classes including Real Estate, Restricted Funds, Mutual Funds and Time Deposits.

Backed by his seven years of experience in the financial services industry, Bhaskar built WeInvest. net to help investors track, analyse and find investments that fit their investment appetite using smart technology, in a simple and unbiased manner. Bhaskar explained that in traditional wealth management relationships, the investor relies on the banker/broker to recommend a limited list of products in their portfolio. WeInvest empowers investors with information to manage their wealth with 20,000 investment products around the world.

WeInvest has USD 240,000 in funding and is currently in the process of speaking with several investors to raise SGD 1.5million for its next stage of growth. With this funding, the company is looking to bring into action such key activities as doubling the size of the team.

Dropout built his company and made $2m in 2 years

Varun Chandran was born and raised in a farming village in India but has been living in Singapore since 2008.

During college, he dropped out of school to find a suitable work to support his family but that didn’t stop him dreaming.

At 22, he learnt the English language and worked with global tech companies such as SAP and Oracle in India, US, and Singapore. Little did he know that the experiences he accumulated from joining these big tech companies would soon bring 20 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

him better fortunes. In 2012, Varun founded Corporate360 or C360, a Big Data software company offering SaaS based marketing data cloud software to help B2B marketers discover sales leads, ideal buyer profiles and competitive intelligence. The company which prides itself as Asia’s first company to offer Data-as-a-Service marketing cloud software for global markets, helps B2B sales reps close deals faster, eliminate sales research, accelerate pipeline creation, beat competition and maintain CRM data accuracy.

The company started with only one staff member for 3 quarters and an initial investment of $10,000.

Eventually, he reinvested the profits of $300,000 into the business. As of today, C360 has revenues near 2 million with its services being offered at flexible, low cost subscription plans coupled with global coverage.

Beating quarter-life crisis online

Will and Fei, both from Sydney, Australia, have worked together for a few years in a management consulting company. When they were invited to participate in a pre-accelerator programme, they quit their consulting jobs, packed their bags and moved to Singapore overnight with an idea.

After spending their first two months living in hostels while supporting themselves with credit cards, everything eventually paid off. They took advantage of the accelerator programme to start transforming their idea into a business which is now called, QLC.io.

What is QLC.io?

QLC.io or Quarter Life Crisis, is an online platform for education and practical upskilling destination for millennials. It aims to help ambitious and curious people to explore their passions and aspirations by offering ideas, learning projects and new opportunities through mentorship and training so that they are ready for the ‘next thing’.

Fei explained that while there are many people who earned good grades, learned from the best universities and went on to get jobs at top-tier firms, some will eventually crave a different sense of purpose and personal achievement and start looking for something else after a few years of working 9 to 5 and beyond. Certainly, the smartest young people are rewarded with money, promotions, training and a strong sense of prestige, but these aren’t enough.

“They start thinking about extended travel, social work, trying a start-up, changing industries or even starting their own venture. But this jump is hard for them. The fear of failing is strong, not having the right network of people to talk to is restrictive and the resources online are scattered,” said Fei. Tracing their footsteps, Fei said that they started QLC.io because they were scratching their own itch. She realised that while she was having a great work experience, she felt that it wasn’t “for her”. As for Will, he was keen to start his own venture and teamed up with Fei. Will also felt unfulfilled and had already been through a few bouts of extended travel, volunteering and a multitude of after-work interest classes.

“We spent nearly a year building our first startup (a furniture marketplace in Australia) while still holding day jobs. It wasn’t easy. We didn’t know what our options were, and who to talk to about it,” Fei added.

co-published Corporate profile

Why investors shouldn’t ignore Astana’s allure Astana, the capital of Kazakhstan, starts to make a convincing case as an attractive destination for Singaporean investors.

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hen Singaporean investors scan Asia for the cities that will bring them their next pot of gold, the glittering metros of Shanghai and Tokyo present themselves as obvious choices, but in the northwest lies Kazakhstan and its city of Astana, which proponents believe is an investment diamond in the making.

Brisk economic and infrastructure development, not to mention a strategic location in the crossroads of Europe and Asia are raising the status of Astana among investors. The government is also rolling out an assortment of investor perks to further boost confidence in Kazakhstan and Astana. “Kazakhstan is a country which creates the most favourable conditions for investors,” says Marat Tlubayev, director at the “Locomotive Kurastyruzauyty” JSC, a company operating a plant in Astana’s special economic zone and produces fifth generation diesel locomotives. One of main partners of Lokomotive Kurastyruzauyty is General Electric company.

“The stable political system makes doing business easy, protects investors and creates tax incentives. In Kazakhstan investors in priority sectors are exempt from corporate income tax, land tax for 10 years and property taxes,” adds Mr Tleubayev.

“The government has made a special decision to compensate for up to 30% of the capital costs after commissioning. You

can also involve foreign labour force for the entire duration of the project without any quotas or permits. In our opinion, these are the best conditions that not every country can offer. That is why we can assure all foreign investors that doing business in Kazakhstan is profitable and enjoyable,” adds Mr Tleubayev.

Favourable investor conditions The government also continues to listen to the needs of investors to make sure that their needs are met. “Every year the government of Kazakhstan improves the investment climate,” says Torres Duarte Pascal, director at “Tulpar-Talgo,” one of Kazakhstan’s main plants that produces high-speed trains.

“In my opinion, every investor, who is now working in Astana, can say with confidence that today there are all conditions necessary for new projects. The Government exempts investors from many taxes, thus they can use the saved money in production,” adds Pascal.

Investors looking into long-term plays in Kazakhstan should appreciate Astana’s strategic location in the middle of Kazakhstan, a vast land-locked territory that makes the country the 9th biggest in the world. “The perfect blend of political power, futuristic cityscape and growth outlooks of the nation concentrated in this once small

“Brisk economic development and a strategic location in the crossroads of Europe and Asia are raising the status of Astana among investors.”

Nurali Aliyev Deputy Mayor of Astana

provincial capital makes Astana the magnet for investors and entrepreneurs,” says Nurali Aliyev, Deputy Mayor of Astana.

The government is rolling out transportation upgrades to help Astana keep up with its exploding population and economic expansion, as seen in the city population’s eightfold growth in the last 15 years and nominal gross regional product expanding by 24 times in the same period.

Rising international financial center Singapore investors looking to dip into the Astana market can ride along as the city transforms into the preeminent international financial center in Kazakhstan.

Astana is attracting a host of heavyweights in the financial services industry, and will see a landmark building rise in its skyline.

“Astana is becoming the nation’s most important financial center as several major banks are moving their head offices from Almaty,” says Mr Aliyev. “This progress is going to be accelerated after the establishment of International Financial Center which will be founded in the way Dubai International Financial Center was created.”

Nurali Aliyev also reckons that Astana as an international financial center holds a special advantage for investors due to its time zone which offers a smoother handover of the global markets trading hours between Singapore and major Eastern European financial centres.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 21

FIRST The Analysts’ call

Any bright spots for Raffles medical?

Staff costs are aggravating weak demand

Raffles Med overdoses on staff costs

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hen Raffles Medical Group (RMG) went on a hiring spree in the recent months, it knew that higher staff costs would shrink profits, but questions have arisen on whether the company can handle more bottom line pressure when healthcare revenues were already slowing down.

RMG’s net profit came in at S$30.9 million in the first half of 2015, a 3% increase from the previous year that disappointed market expectations.

Holland V Medical Centre may need time to ramp up. In addition, the group will have to continue hiring ahead of new openings of its medical centre at Holland V and the new extension at its flagship hospital,” says Chow.

“We cut 2015-17 forecasts by 4-8% to factor in higher staff costs ahead of its new capacity increase and depreciation,” adds Chow.

Dampened healthcare demand By frontloading the staff costs for its expansion plans, RMG is willing to take the profit pinch, but the company also has to watch out for a decline in healthcare revenues amid a medical tourism slump. The weakening of currencies “We cut 2015-17 forecasts against the Singapore dollar and by 4-8% to factor in higher staff costs tepid economic growth in the ahead of its new capacity increase.” region has curtailed RMG revenues, says Kenneth Ng, analyst at CIMB. RMG’s healthcare services “The main culprit was staff costs, which revenue slowed to 5.7% growth in the grew 12% year-on-year, exceeding top-line second quarter of 2015 from the same growth of 8% year-on-year,” says Andrew period last year, and the company can Chow, analyst at UOB Kay Hian. “This is thank robust domestic volume for keeping attributable to new hirings for the new and revenues afloat. expanded operations at Raffles Hospital and Still, it seems like RMG is viewing the medical centres at Shaw Centre, Orchard, moderation in healthcare revenues as a small which opened in June.” speed bump to an otherwise lucrative future There is no arguing that RMG’s expansion for healthcare services in Asia. RMG has not plans will bode well for the company in the only been keen on expanding its clinics in long term, according to Chow, but the cost Singapore, but it has also entered into a share pressure should be quite palpable until 2017 purchase agreement with AEA International as the medical group waits for new clinic Holdings to acquire a 55% stake in contributions to kick in.

International SOS (MC Holdings) (MCH), “Contributions from new facilities such which operates clinics in China, Vietnam as its medical centres at Shaw Centre and and Cambodia, for US$24.5 million.

22 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Andrew Chow, analyst at UOB Kay Hian Reasonable growth has been seen from the healthcare and hospital segment. Both the healthcare and hospital segments registered decent 2Q15 turnover growth of 5.7% year-on-year and 6.6% year-onyear respectively. The latter was a pleasant surprise as there were concerns about the admission of foreign patients given the headwinds of moderating economic growth and the strong Singapore dollar. However, RMG’s diversified base of foreign patients is paying off.

Jodie Foo, research analyst at OCBC Raffles Medical Group has made its first foray into operating clinical facilities in Japan by opening a medical centre at Herbis Osaka, Kitaku in Osaka City. The 5,400 square feet medical centre is located in the prime central business district at the downtown Osaka/Umeda station, and offers a range of services to local Japanese and expatriate patients. This announcement comes after the group had recently acquired International SOS (MC Holdings) Pte Ltd, which operates ten clinics in China, Vietnam and Cambodia. While these clinics may not contribute substantially to earnings, the clinics will facilitate the group in gaining a foothold in new growth areas.

Kenneth Ng, analyst at CIMB Due to the group’s expansion plans, coupled with its recent Shaw Centre opening in June 2015, RMG’s 2Q15 EBIT margins were down slightly at 19.3%, but we note the quarter-onquarter improvement and believe that staff costs will begin to stabilise and margins will improve as RMG ramps up operating leverage.

abacus

movements at Changi Airport continue to be impacted by the regional supply glut.

According to OCBC analyst Eugene Chua, SATS generates 82% of its total revenue from Changi. The airport, however, has lagged behind its peers in terms of passenger growth: From January to July this year, passenger numbers at Changi grew at a mere 0.7%, compared the regional average of 7.1% The company recently got a confidence boost with to for Asia Pacific.

Mitsubishi Corporation’s $1.5m investment.

Chua notes that SATS’ core will offer Mitsubishi immediate t looks like Olam is slowly business segments include exposure to these markets. getting over the Muddy Food Solutions, which provides Moreover, the new partnership inflight meals, and Gateway Waters attack that started will see additional income through Services, which provides services in late 2012 when the shortthe formation of a JV in Japan selling firm questioned Olam’s such as baggage handling, which will act as an importer and depend on the number of accounting methods. Olam was rescued by Temasek last year, and marketer of various agricultural passenger movements, airfreight products, according to DBS, now the company gets another movements as well as number confidence boost with Mitsubishi Mervin Song. of aircraft movements at Changi “In addition, it provides Corporation’s investment of Airport. confidence over the ability of around S$1.5m.

Despite domestic headwinds, Mitsubishi bought a 20% stake Olam’s management team he expects SATS to continue its at Olam for a total of S$1.5b. The to generate positive free cash drive to increase market share by Japanese conglomerate acquired flows and maximise the value of investing in automation.

S$3.2bn worth of immature assets 332.7m new shares from Olam “[Automation] allows for which are generating suboptimal sustainable reduction in staff and 220m vendor shares from Kewalram Chanrai Group, Olam’s returns at the moment. Finally, costs, which also leads to increase the S$915m raised should reduce in operating leverage. Even second largest shareholder. the pressure on Olam’s balance Olam will then be 51% owned though overall airfreight industry sheet, given that the company is

by Temasek, 20% by Mitsubishi, growth is still relatively muted, 6% by management and 4.8% by due to complete the US$1.3bn SATS has been recording an acquisition of ADM Cocoa in KCG. increase in its market share in 4Q15 and provides dry powder Clearly, both companies cargos which commands higher for any potential opportunistic will benefit from lucrative margins,” Chua adds. acquisitions.” collaborations across regions.

Another positive driver for According to Maybank Kim SATS is its Japanese subsidiary, Higher earnings elude SATS as Eng analyst, Wei Bin, the JV TFK. UOB analyst K Ajith notes Changi Airport’s outlook dims with Mitsubishi will enable that TFK’s revenue should rise in As goes Changi Airport, so goes Olam to leverage the latter’s 2HFY16 and losses could reverse.

SATS. The gateway solutions strong distribution network for “Management specifically expansion in Japan, while Olam’s provider should brace for muted indicated that TFK’s earnings earnings growth for the rest of strong sourcing and distribution should improve in 2HFY16 due to the year, as passenger and cargo an earlier restructuring as well as ability in emerging markets

Olam getting back on track post-Muddy Waters saga

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maiden contribution from Delta Airlines.” TFK had signed a multiyear S$325m contract with Delta Airlines, which has started to contribute in September 2015.

Sheng Siong’s hybrid system lacks efficiency Having self checkout facilities in supermarkets is a relatively new concept in Singapore.

Supermarket operators NTUC FairPrice, Cold Storage, and Giant now have self checkout counters, with Sheng Siong being the last one to join in the fray and targets to increase its stores with selfcheckout to seven from just one by the end of 2015, according to James Koh, regional consumer head at RHB. In the case of Sheng Siong’s hybrid system, Koh notes that the cashiers still scan and pack, but as they no longer need to collect payment, they can serve customers 25% faster. This efficiency, however, is mostly negated by the cost of the higher number of self-checkout machines and the additional staff assisting customers.

“We believe Sheng Siong may have to fine-tune its system, which is still in the early stages, to achieve greater efficiency. On the other hand, the company’s system is the least disruptive to customers’ experience and, accordingly, consumers are less reluctant to check out at these new counters,” he adds.

According to Maybank Kim Eng analyst Truong Thanh Hang, Sheng Siong is working to reduce its cashiers by about 130, by replacing a third of its check-out counters with self-payment ones.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 23

FINANCIAL INSIGHT: debt capital markets

Singapore DCM not kind on limping industries

Flailing industries struggle to raise funds in Singapore The debt capital market is showing two faces, a gracious one for surefooted firms, and a forbidding one for limping industries.

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hen market volatility hit Asia this year, Singapore DCM investors responded with a level of cool: Pick high-grade bonds and ride out the current economic roller coaster until they land at cushy payday.

Local bond investors have been displaying patience for longterm plays despite the spooky financial headlines and stock market declines, says Ashok Lalwani, head of Asia Pacific capital markets group at Baker & McKenzie.

“The local bond market has remained strong even with the current stock market rout. A key contributing factor could be that local bond investors tend to be individuals who have holding power, and who are familiar with the issuers,” says Lalwani. “This

24 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

The Singapore DCM market has also seen lower demand for new issues partly due to the increasing interest-rate environment.

means they are more likely to hold on to their Singapore dollar (SGD) bonds even when market conditions become uncertain, which in turn translates into less panic and less volatility.”

But Lalwani notes that while bonds from high quality issuers have been relatively resilient, weaker issuers have experienced a bigger sell off.

Given this behavior among issuers, the Singapore DCM market has not been too kind on flailing industries. Issuers in the offshore marine sectors and the oil and gas sectors, for example, are finding it very difficult to raise funds in the DCM markets this year, says Sin Teck Lim, partner at Morgan Lewis Stamford.

Lim reckons that the Singapore DCM market has also seen lower demand for new issues partly due

to the increasing interest-rate environment, which makes it more expensive to issue new debt securities.

In response to the prevailing DCM environment, Singapore small and medium enterprises (SMEs) have begun turning to the bank loan market for financing in the $20 to $100 million range.

“In Singapore, SMEs have preferred to expand their banking relationships, and are therefore increasingly working with independent debt advisors to source competitive pricing and covenants from lenders,” says Girish Sahajwalla, managing director at PwC Corporate Finance. “The lender universe includes local, regional and international banks with mandates to grow their loan books in specific sectors across in key growth markets, including Singapore.”

Sahajwalla expects this trend to grow as corporates continue to focus on running more financially optimised businesses and become more comfortable in using debt to finance their growth requirements.

FINANCIAL INSIGHT: debt capital markets Given this investing backdrop, three major trends are emerging in the Singapore DCM, according to analysts.

Three big trends The first is the launch of the Singapore Savings Bonds or SSBs, a new type of Singapore Government Securities which should attract a lot of retail investors when it begins to be issued starting October this year.

“The SSBs provide retail investors in Singapore with a much-needed alternative DCM product, and we expect this to be very popular among retail investors,” says Lim. SSBs have a 10-year tenor and offer a step-up rate of interest, and may be redeemed at the option of the holder in any given month before maturity at their principal amount. Lim says the Singapore government plans to issue S$2 to S$4 billion of SSBs in 2015 with a new SSB to be issued every month for at least 5 years.

The second major trend in Singapore DCM is the rising role of Singapore-based lenders in providing structured financing for Southeast Asian SMEs. “In Southeast Asia, besides conventional corporate lending, there has been an increase in the structured financing from Singapore-based lenders to help unlock value in subsidiaries or operations located outside Singapore. This is a growing trend among small and medium-sized enterprises that are becoming increasingly more comfortable with financing regional market

expansion with bank debt,” says Sahajwalla.

The third trend is the stronger influx of foreign companies tapping the SGD bond market.

“In the past, the SGD bonds were mainly through standalone issuances. However, in 2015, we are increasingly seeing Singapore Medium Term Note (MTN) programmes being established or guaranteed by foreign issuers or guarantors,” says Lim. Lim notes that the countries driving this trend this year are concentrated in Cayman Islands and Southeast Asia such as Thailand (Precious Shipping Public Company Limited in July 2015), Malaysia (KNM Group Berhad in June 2015), Australia (AVJennings Limited in April 2015) and Indonesia (PT Medco Energi Internasional Tbk).

Notable deals With investors leaning towards high grade issues, the Singapore DCM scene was able to successfully raise funds for the S$5 billion MTN programme by the Land Transport Authority in August, as well as the two subsequent simultaneous drawdowns of S$600 million each drawdown.

Lim, whose firm advised on the deals, reckons these were notable by virtue of the deal size as the largest Singapore bond offering in 2015, and the known name of the issuer. Healthy appetite among fund managers and financial institutions led to enlarged tranches from the original S$500 million each.

Singapore debt capital market volume First quarter volume

Source: Thomson Reuters

hong kong view

Dim sum bond market stales When the yuan devaluation began in August, the currency’s value plummeted together with confidence in the offshore yuan, or dim sum, bond market in Hong Kong. Not only was the market facing an exodus of Chinese issuers who were beginning to look onshore for financing, but it was also feeling pressure from the rising popularity of the US dollar and Euro as issuing currencies.

“While Asia’s bond markets have proved somewhat resilient compared with the equities markets, the devaluation of the yuan in early August did not leave Hong Kong’s bonds market unscathed,” says Ashok Lalwani, head of Asia Pacific capital markets group at Baker & McKenzie. “Although the recent turmoil in the Chinese stock market might have prompted investors to turn to bonds, the offshore yuan bond market in Hong Kong is suffering as Chinese companies that used to be dominant issuers have left.”

Lalwani says Chinese companies are starting to flock to the onshore market where funding costs are declining due, in part, to the Chinese central bank’s moves to depreciate the yuan. The onshore market has also become more attractive after the China Securities Regulatory Commission began allowing unlisted companies to issue corporate bonds on exchanges this year.

“The dim sum bond market has significantly slowed down over the past 12 months primarily as a result of the changed expectation of renminbi (RMB) appreciation,” says Hao Zhou, partner at King & Wood Mallesons. “Most People’s Republic of China (PRC) corporate issuers have opted for issuances denominated in US dollar or Euro instead.”

High yield issuances, in particular, have been subdued, according to Zhou, with some of the deals having failed to launch due to heightened investor caution.

Keepwell deals As the offshore yuan bond market suffers some weakness, keepwell supported deals could gain strength as a preferred option among issuers.

“Many PRC issuers continue to use alternative credit enhancement structure with keepwell undertakings to tap the international bond markets in order to remit funds back to China subsequently.

Since keepwell is not technically a guarantee, the ratings agencies typically will notch down the issue ratings from the issuer’s corporate ratings due to potential subordination in case of winding-up or insolvency,” says Zhou.

“We are currently working on some transactions which we hope, by implementing some additional credit protection features in the structure, will satisfy the rating agencies in a way that they could treat keepwell supported deals almost equal to those guaranteed deals credit wise.”

Zhou further notes that if successful, he expects many, if not all future keepwell structure will follow.

“More issuers will turn to such structure due to the flexibility of transferring proceeds back onshore,” adds Zhou.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 25

economic INSIGHT: manufacturing quarter - which is partly a logistical issue as drug production lines are replaced. Transport engineering is the other manufacturing component that registered particularly weak growth in 2Q,” says the HSBC economist.

Weak demand plagues manufacturers

A manufacturing malaise

The city-state could be teetering on the edge of technical recession if its manufacturing sector remains down and out for the growth count.

W

hen the Singapore economy started the year with solid first-quarter growth, little did cheerleaders know that the momentum would reverse to the point where the country could risk falling into technical recession. The second quarter of 2015 (2Q15) saw the Singapore manufacturing sector languish amid weak external demand, and early third-quarter data does not provide comfort that this key sector would recover, according to analysts.

Much of Singapore’s growth woes and recession fears began to emerge after manufacturing output fell 18.3% in 2Q15 from the previous quarter, which largely contributed to the 4% contraction in gross domestic product (GDP) in 2Q15.

“Following strong growth in 1Q, Singapore’s gross domestic product (GDP) was hit by a confluence of factors in 2Q. First and foremost, the soft external environment and slowdown in global trade had a broad impact on Singapore’s external sectors 26 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Much of Singapore’s growth woes and recession fears began to emerge after manufacturing output fell 18.3% in 2Q15 from the previous quarter.

– particularly manufacturing, which was responsible for most of the drag on growth,” says Joseph Incalcaterra, economist at HSBC. Incalcaterra reckons that while subdued external demand has indeed punished Singapore’s manufacturing sector, other factors have also chipped in to the sector’s sharp contraction. “For example, the biomedical engineering cluster registered negative payback following the surge in production and exports in the first

Fears of technical recession Given the 2Q contraction and faint signs of recovery in 3Q, pessimistic analysts are beginning to consider the possibility of a technical recession for Singapore. “We now think that the odds are more than even that the Singapore economy slipped into a technical recession in the third quarter, as defined by two consecutive quarter-on-quarter contractions,” says Hak Bin Chua, ASEAN economist at Bank of America Merrill Lynch in Singapore.

Chua points to the deeper-than-expected 6.1% decline in July industrial production, a poorer performance from the 4% contraction in June. This was due to almost all sub-sectors sinking in July from biomedical (-13.4%), precision engineering (-6.2%), transport engineering (-6.1%), electronics (-5.8%) to general manufacturing (-3.2%). Only chemicals grew in that month at 4.4%.

He blames the weak manufacturing performance in July on sluggish external demand and domestic restructuring, including stricter foreign manpower policies. The sector has been struggling with the foreign labor quotas and restrictions, and the government has so far been reluctant in giving some breathing room. “Gloomy July industrial production suggests that the manufacturing contraction likely deepened in 3Q,” says Chua, with August looking gloomy as well.

“We doubt August industrial

2015 sequential growth was the weakest in almost 3 years

Source: MTI, HSBC

economic INSIGHT: manufacturing production will recover significantly, especially given recent weak China purchasing managers’ indices (PMI) and market conditions. Both the recent Singapore PMI and Electronics PMI also reverted to below 50 in August,” he adds.

Dragged by China The anaemic China PMI hurts Singapore because China is its largest market for non-oil domestic exports (NODX), a key driver in manufacturing output, accounting for 15.3% of total NODX in 2014, according to Irvin Seah, analyst at DBS. Similarly, Incalcaterra expects NODX to remain subdued and deprive manufacturing of any substantial rebound. “We think Singapore’s NODX will see tepid sequential growth at best in the second half of 2015, which will keep manufacturing output depressed. The renewed downturn in oil prices implies new risks to energy-related exports: in particular to petrochemicals in the short-term and marine and offshore engineering in the longer term,” says Incalcaterra.

There is also little chance that Singapore’s services sector can offset the manufacturing sector contraction, with Chua forecasting services growth to continue moderating in 3Q15, after slowing down to +3.4% in 2Q from +4.2% in 1Q. In response to the turbulent 2Q, the Singapore Ministry of Trade and Industry has downgraded and narrowed their 2015 GDP growth forecast to a more modest 2% - 2.5% range, from 2% - 4%. “A technical recession will mean that GDP growth probably fell below that revised range, probably around 1% - 1.5% for the full year,” says Chua. “Our GDP growth cur-

rently stands at 2% in 2015 and 2.2% in 2016, with risks on the downside.”

Yuan devaluation further stokes fears As if the manufacturing-led growth slowdown is not enough, China’s central bank, the PBOC, also moved to devalue the yuan, which has further increased fears of a Singapore technical recession. “The move spooked markets and raised concerns about Singapore’s economy after the poor growth in the second quarter,” says Seah. “The worry is that yuan devaluation might tip the economy closer toward a technical recession.”

As an immediate reaction following the yuan devaluation, the Straits Times Index fell by about 4% in the course of a few days and the Singapore dollar depreciated by about 2% against the US dollar.

But looking at the broader impact on trade, Seah says the yuan devaluation is a lower threat at least compared to a continued feebleness in global demand. “The unanticipated devaluation of the yuan has certainly taken investors aback. But Singapore’s basket currency policy means that any trade-diverting impacts are likely to be small and remain less important to the economy than a pickup in global demand more broadly,” says Seah.

“The key risk for Singapore continues to stem from a demand/income perspective,” he adds. “Slower growth in the region, which has been ongoing for the past year, is having a bigger impact on Singapore than any trade diversion effects that may or may not follow from a weaker yuan.”

a more palpable threat and emerging, analysts reckon there is strong pressure for the Monetary Authority of Singapore (MAS) to ease its policy stance. But where there is disagreement is whether the MAS will swerve direction or continue along its merry path.

“Sharply slowing growth has led many to question whether MAS will alter its currency appreciation policy,” says Incalcaterra. “Such voices could grow louder following the PBoC’s sharp oneoff depreciation of the onshore RMB (renminbi) fixing rate as a part of FX (foreign exchange) reforms, considering that China is Singapore’s largest export market.” adds Incalcaterra.

Banking on the MAS policy Incalcaterra believes the MAS policy will remain on hold, based on repeated policymaker comments focusing on Singapore’s “fundamentally” tight labour markets and expectations for wage passthrough to consumer price index (CPI). This is despite expectations that core CPI will come in at the bottom end of the MAS forecast range in 2015.

“The faster rise in unit labour costs in 2Q could be used as evidence to support the MAS argument that tight labour markets may lead to wage-induced inflation in 2016,” says Incalcaterra, in explaining why the MAS will hold firm.

On the other hand, Chua expects the MAS to ease monetary policy again at the October policy meeting in order to cope with a technical recession scenario.

“This follows the easing move in January, when the MAS reduced the slope of the appreciation bias,” says Chua. “We think MAS will likely shift its current weak appreciation bias to a neutral bias and/or re-centre the S$NEER band downwards in October, if a technical recession is confirmed for 3Q.” he adds.

All eyes on policy response With technical recession becoming

The contraction in labour productivity worsened in 2015

Source: MTI, HSBC

The anaemic China PMI hurts Singapore because China is its largest market for nonoil domestic exports (NODX), a key driver in manufacturing output, accounting for 15.3% of total NODX in 2014.

GDP contracted sharply in 2Q, although there was a slight upward revision

Source: MTI, CEIC, HSBC

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 27

Analysis: e-commerce in RETAIL

E-commerce is shaping the retail landscape

Who’s winning in Singapore’s e-commerce wars?

Retailers in Singapore are embracing e-commerce to improve sales. What to do next is an entirely different strategy.

W

hen sporting goods giant Decathlon decided to test if the French-based company was ready to take on the Singaporean market, the company knew it couldn’t just rely on its usual playbook.

“Traditionally, Decathlon would always enter a market by opening a store first. In Europe our retail stores are large (minimum 1,000 square meters), and we are able to build them on the outskirts of major towns and cities,” says Clarence Chew, Decathlon’s head of marketing for Southeast Asia.

The city-state, however, was an entirely different frontier that required another approach.

“For obvious spatial reasons, finding land to build such a large Decathlon outlet is not as easy in Singapore,” he says. Singapore is

28 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Consumer spending in Singapore averaged S$15,760.97 million from 1975 until 2015, and reached an all-time high of S$33,338.10 million in the first quarter of 2015.

decidedly small unlike countries in Europe, but its highly educated citizens, with strong purchasing power and huge shopping appetite were something the company wasn’t willing to ignore.

Embracing technology For a company such as Decathlon, the city-state is actually one of the most ideal countries to operate in, Chew says.

So how did Decathlon enter Singapore? The company took a cue from the country’s strong Internet connectivity, and started from there. “Despite being a multibillion dollar company, we entered this market with the mind-set of a start-up, or entrepreneur. The initial team was two people, a colleague and I, and we decided to start with an e-commerce site thanks to the very high Internet

and smartphone penetration that exists in Singapore,” Chew says. “This approach allowed us to test the market, and refine our offerings without significant upfront capital expenditure.”

From there, the company identified a demand for affordable yet quality sports equipment and apparel, and slowly established itself and grew as any start-up would. This included the creation of a hybrid digital-physical showroom called the Decathlon eXperience, where customers could view their products and purchase online. The strategy paid off.

“The benefits, two years later, include accurate data on the Singaporean market, including their preferences and habits that have influenced the way we have built our first physical store, due to open in December 2015,” Chew says.

Decathlon wasn’t alone in its decision to embrace e-commerce and make the most out of digital technology to overcome the challenges posed by expansion.

“Similar to most retailers, we faced a series of challenges such as securing reasonable rental fees and optimal size for our retail stores,” says Doy Teo, director of underwear and lingerie manufacturer Triumph Singapore and Malaysia.

Triumph also recognized that in order to grow, the company needed to optimise the power of technology. “Most consumers would now prefer to make their purchases on-the-go or at any time of the day in the comfort of their home. Therefore, I believe that you can either take advantage of such opportunities to drive your online business to in-stores or vice versa.”

UPS Singapore Managing Director Ingrid Sidiadinoto says that with an e-commerce industry projected to reach S$4.4 billion in 2015, retailers and e-tailers around town are battling it out to capture those shopping dollars. It’s not enough that retailers know how to make the

Analysis: e-commerce in RETAIL most out of technology; they also need to have a relationship with the market bridge the gap between what the people need and what they can offer.

Beyond e-commerce “Fierce competition, rapid technological change, and the emergence of “flex shoppers” that use multiple channels (online and in-store) and devices (laptops and smartphones) to research and purchase products, are making it more difficult than ever for retailers to attract customers and keep them there long enough to complete the checkout process. A deep dive into the latest research shows that the key to winning the hearts of Singapore’s online shoppers is adapting to recent changes in consumer behaviour,” Sidiadinoto says.

Christine Li, director and head of Singapore research at Cushman & Wakefield agrees. “I would say retailers should leverage on social media for their holistic marketing campaign. They also need to be innovative when it comes to ideas, not just a generic SG50 or GSS sales,” Li says.

Sidiadinoto says smart retailers know to create a seamless experience between browsing online and in-store, which means providing enough information so shoppers can make informed decisions. Investments in online content must be made alongside salesperson training.

“The price-conscious, tech-savvy nature of Singaporean shoppers is revealed as 51 percent compare prices and 45 percent read product Retail space per capita

Source: CEIC, RHB

Fredrik Famm

Clarence Chew

reviews on their smartphones while in store, according to the 2015 UPS Pulse of the Online Shopper™ Asia Study.

Of shoppers across Asia that eventually buy online, approximately one-third will opt for ship-to-store for pickup at some point,” she says. These store visits are invaluable, as more than half of Asian consumers buy additional items during these trips.

With the highest smartphone penetration rate in the world at 85 percent it comes as no surprise that Singaporeans use their mobiles to do everything from paying bills (47 percent), to finding coupons (42 percent) and using loyalty cards (33 percent), data from UPS show.

However, the same study reveals that despite the prevalence of smartphones, half of online shoppers in Singapore abandon their mobile shopping carts because the product image is unclear or too small, product information is not available, or comparing products is difficult.

Sweet spot for shopping “Singapore is a very developed and mature retail market, yet still attracts global brands from around the world, with 58 new retail brands entering the market last year alone,” Chew says.

Clothing brand H&M, for example, has opened a total of eight stores in Singapore under five years, with a ninth store scheduled to open in the last quarter of 2015 in Tampines Mall. “Our

store opening was greeted with overwhelming support from fans of the brand, with more than 1,500 people queuing outside the store before we opened,” says Fredrik Famm, country manager of H&M Southeast Asia.

Goh Weiying, content manager for ShopBack Singapore, says it’s no secret that Singaporeans are the most voracious shoppers in Southeast Asia. “Despite age-old complaints about the high costs of living, our shopping malls see a throng of eager shoppers every weekend,” Goh says.

Citing data from Trading Economics, Goh says consumer spending in Singapore averaged S$15,760.97 million from 1975 until 2015, and reached an all-time high of S$33,338.10 million in the first quarter of 2015.

The city-state is also known for the Great Singapore Sale, an annual shopping event organised by the Singapore Retailers Organisation in cooperation with stores and malls in the country.

The event pitches Singapore as an attractive shopping mecca to locals and foreigners alike, providing a boost to the country’s retail tourism industry. “Each country will have to find its own strengths for selected products and services.

Should that be the case, Singapore will still hold an advantage for some products and services whilst regional cities will have theirs,” says Alan Cheong, senior director of Savills Singapore.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 29

COVER STORY

An even bigger decline in home prices is looming

A guide to finding the perfect deal in Singapore’s bargain hunting season With home prices under pressure, analysts offer a list of tasty targets for buyers.

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hen the Singapore government rolled out measures to cool property demand, it created a basket of sweet bargains as private homes and other segments saw price declines, but hungry home owners and investors may want to resist these temptations for now. That’s because property prices could still fall by as much as 30% in the next two years, warn some analysts, which would make waiting a wiser decision for those that can afford to do so.

Singapore should continue to see a decline in home prices, especially in the mass market segment, as a result of continued after effects from government measures and the glut of supply about to come out of the pipeline.

Other pockets of buying opportunities can be found in the secondary market and even niche spaces such as high-end Sentosa bungalows, although some deft negotiation may be required on the part of buyers to draw out lower prices.

Cooling measures drive down prices The current bargain hunting season has been partly triggered by the Singapore government as it rolled out a slew of property cooling measures that sought to dampen home sales.

“After the implementation of a series of macro-pru30 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

dential measures by the government including higher transaction costs and more prudent debt servicing measures, demand for residential property has weakened. This, coupled with a slow rental market and rising incoming supply, has led to higher vacancies and deteriorating private home prices,” says Mun Yee Lock, analyst at CIMB. Singapore rolled out property cooling measures as well as the Total Debt Servicing Ratio framework, which, in tandem, have discouraged home sales. With demand down and supply up - Lock says the peak of housing inventory growth is expected to be felt in 2016, and the market will spend the next two years digesting this new inventory - some analysts believe there will be a downward pressure on prices in the coming years.

Data from the Urban Redevelopment Authority showed that in the second quarter of 2015 (2Q15), the non-landed, private residential property index fell 0.8% from the previous quarter, its seventh consecutive quarterly decline, notes Alan Cheong, senior director at Savills Research.

Should you buy now?

With prices falling, it could be tempting for investors to snap up the apparent bargains, believing that the Singa-

“Analysts expect prices to decline a further 10% to 30% in the next two years; so it makes sense to hold that money in the pocket for now.”

COVER STORY pore government could be looking to reverse its cooling measures and trigger a rebound in prices.

But Istvan Loh Wye Lung, a professional FX trader, believes investors that wait a little bit longer before buying will be rewarded handsomely for their patience.

“Falling property prices, increasing vacancy rates, declining rental index are all signs of a cooling property market. But is it time to start buying, or to wait a little longer?” says Loh. “Not according to analysts, as they expect prices to decline a further 10% to 30% in the next two years; so it makes sense to hold that money in the pocket for now.”

Loh acknowledges the onslaught of data suggesting that now is the opportune time to invest while prices remain low. For some investors, the shock of low prices and threat of being beaten to the punch could prove irresistible, as he saw in the recent launch of High Park residences at Sengkang.

“It’s hard to imagine the property market is cooling if you were right there at the sales gallery,” says Loh. “Buyers wrote cheques on the spot as being able to buy a studio apartment at just over $500,000 looks like a bargain.”

Private mass market Home owners and investors that want to lock in a good deal may want to look into the private mass market.

Prime Minister Lee Hsien Loong recently announced a number of changes to the housing market in an attempt to make housing more affordable for the middle class.

PM Lee outlined four big changes during the during the National Day Rally, according to OCBC Investment Research, the first of which is to raise the income ceiling for HDB flats from S$10,000 to S$12,000, and likewise raise that of executive condominiums (ECs) from S$12,000 to S$14,000. The second is to raise the household income ceiling for the existing Special CPF Housing Grant to S$8,500, a move that is expected to cover two-thirds of all Singapore households.

PM Lee’s third policy change is to roll out a Fresh Start Housing Scheme that will help second-timer rental households own a two-room flat. Fourth and last in his list of property changes is a Proximity Housing Grant designed to assist couples who are looking to buy a resale flat with or near their parents, or for parents who wish to live near their married children, says OCBC. OCBC believes that this latest effort from the governPrimary private home sales volumes, 2008-Q2/2015

Source: Urban Redevelopment Authority (URA), Savills Research and Consultancy

Alan Cheong

Desmond Sim

Istvan Loh

Nai Jia Lee

ment to improve the affordability of housing for the middle-income group should create some impact on the private mass market segment, which buyers can then take advantage of.

The appeal of Singapore mass market property even extends abroad, reckons Nai Jia Lee, regional head (SEA), research at DTZ, with data showing that Malaysian buyers are targeting mass market condominiums.

In the second quarter of 2015, more Malaysian buyers were targeting mass market condominiums, and they were keen on snapping up units in Districts 19 and 27, with purchases from these two districts comprising around 40% of their total acquisitions.

“While depreciation of the Malaysian rupiah and ABSD made Singapore properties more expensive to purchase, Malaysian buyers may find Singapore residential properties a good store of value. The lower quantum of units in suburban areas further helped ameliorate the impact of ABSD for Malaysian buyers,” says Lee. Secondary market For some analysts, the secondary market is where bargains will likely be found due to a relative lack of options among sellers, which grants buyers more power in the negotiation process.

“It is in the secondary market that prices will remain under pressure as individuals selling their properties lack the clout to make their unit stand out among the sea of similar units in the secondary market,” says Cheong.

“The only tool that they have is the price. Consequently, the secondary market is expected to gain buying momentum as this is where buyers can actually sense a noticeable price correction.”

Sentosa bungalows Buyers are also advised to not home in hard on low prices when it comes to spotting bargains. Certain high end home segments have shown price resilience in the face of the cooling measures, but deft buyers could draw out lucrative deals with the right approach.

For example, sellers in the Sentosa Cove bungalow market, which is not expected to recover from its sales drag anytime soon, may be more flexible in lowering their price expectations, notes Desmond Sim, head of research, Singapore and SEA at CBRE. “Besides the barriers posed by property measures, locals are less keen to invest because they can buy a freehold bungalow on the mainland for the same price. As such, sellers should lower their price expectations when potential buyers come knocking on the door,” says Sim. In the whole of 2014, the Sentosa Cove bungalow market only saw three transactions. The depressed sales activity has continued in the first half of 2015 with only two sold, reflecting an average price of $2,011 psf, which is 20% higher than the $1,676 psf derived from the three bungalows sold in 2014, but is only 5.3% lower than the average price in 2013, notes Sim. “The price anomaly in 2014 was due to product attributes such as non-sea facing orientation, smaller land and built-up areas,” says Sim, adding that the low bungaSINGAPORE BUSINESS REVIEW | NOVEMBER 2015 31

COVER STORY low sales in Sentosa Cove could be attributed to the spate of cooling measures that have given local and foreign buyers some pause.

The dearth of Sentosa Cove bungalow sales is in stark contrast to the healthy interest in the overall Good Class Bungalows (GCB) market in the first half of 2015, where 15 bungalows were sold.

Cheap GCBs Smaller and less expensive GCBs proved more attractive for buyers, says Sim, with seven units sold with land areas less than 15,070 square feet. “These bungalows were more affordable because they cost $7.00 mil - $10.00 mil compared to larger GCBs which cost $20 mil - $30 mil each,” says Sim. When evaluating the greater GCB market, Sim says the cooling measures have not really managed to trigger a significant price correction, but what they have done is curb the exuberance in buying. The measures have also spooked investors from over-leveraging themselves in mortgages. “This has resulted in a stronger and healthier property market. GCB buyers are generally owneroccupiers or long-term investors with stronger financial muscle,” says Sim. Luxury apartments Similar to those of GCBs, prices of luxury apartments should remain resilient, primarily due to small supply and increasing interest from buyers. Sim expects developers with unsold luxury apartments to market their units’ activity.

“As there is no known new luxury supply beyond 2017, market confidence should gradually return and any downside in prices will be minimal,” says Sim. Sim cites how in the first half of the year, sales volume of apartments in the Core Central Region worth $5.00 mil and above was 45.7% higher than the volume in the second half of 2014.

“Developers stepped up efforts to market units in projects locally and overseas, particularly projects that were completed in the past 12-18 months,” Sim says, further noting that some new projects were even priced at around the $3,000 psf mark, above the general average of $2,600 psf.

Notable deals in the first half of 2015 included a 13,875-sf penthouse in Le Nouvel Ardmore which was sold at a record price of $51 million. The period also saw the sales of seven units of Tomlinson Heights at $7.6 to $11 million, 20 units of Goodwood Residence sold at $4.40 to $5.60 million, and 16 units of Marina Bay Suites sold at $2,100 to $2,500 psf.

Strong local demand is driving high-end home purchases above $2 million in recent months, reckons Lee. “Despite facing additional buyers’ stamp duties and an expected interest rate hike, Singaporean buyers continued to form the bulk of demand for high-end properties buyers in the second quarter of 2015,” says Lee. “Riding on Singapore’s stable economic fundamentals, local buyers are enticed by the lower prices of the high-end properties, especially in developments at choice 32 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

In the first half of the year, sales volume of apartments in the Core Central Region worth $5.00 mil and above was 45.7% higher than the volume in the second half of 2014.

locations.”

Looking forward and taking off from the behavior of the high-end property buyers, Lee says that developments that are priced attractively and at choice locations remain at the top of shopping list for both owner-occupiers and investors in the third quarter.

Overseas properties For investors that are willing to put in the extra work, overseas property purchases can yield promising returns.

“While the appetite for overseas property has reduced due to recent reports of scams as well as the poorer economic outlook for these popular investment destinations such as Australia, UK, and Malaysia, that does not mean there is no value to be found, but rather a matter of putting in the time to do your homework and due diligence,” says Loh. Loh says a key element in investing overseas is to take advantage of the weaker currency of the target country for investment, effectively making the investment cheaper in Singapore dollars. In this aspect, he says Japan, Australia, and Malaysia may post some bargains.

But in the same vein, Loh also warns about the exchange rate risk that can be quite unpredictable and can stymie a potential investment, although a prudent buyer has options to mitigate this risk.

A thorough understanding of the regulatory property regime and rigorous background checks on developer reputation are also standard actions for any buyer looking at overseas properties.

“Given that the mortgage loan amount will be huge, a single cent difference in exchange rate can make a few thousand dollars’ difference in the loan amount,” says Loh. “If this is not a risk you want to take, you can of course hedge your currency risk via investment instruments such as currency ETFs, futures, or options.”

“Buying a property overseas is a huge investment and can pose much risk, so make sure you understand the laws governing such investments in the country and check the reputation of the developers before jumping in.”

Buyers are thinking twice in purchasing a new home

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SINGAPORE’S 20 LARGEST COMMERCIAL BANKS

Businesses are thinking twice with loans

Singapore banks hit by depressed business loans

Analysts believe loan growth to remain subdued over the remaining quarter.

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hile Singapore banks may be feeling celebratory that loan growth has recovered somewhat from the first half of 2015, business loans will continue to be a party pooper. Singapore banks are expected to have a rough third quarter as business loans remain depressed amid slower economic growth locally and across Asia.

“With the economy mired in the doldrums – real GDP growth reflected a contraction of 4.6% in quarter-on-quarter, seasonally adjusted, annualized terms in the second quarter of 2015, we see little prospect of a significant pick-up in lending growth over the coming quarters,” says BMI Research.

Following a forecasted dip in loans in the second half of 2015, BMI Research forecasts overall loan growth to come in at just 34 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Macroeconomic headwinds in Singapore and regional countries have dampened business sentiment, causing system loan growth to slow to 3.5% YoY in May.

3.0% for the full-year compared to the faster 5.8% growth clip in 2014.

Analysts point to anemic business loan growth as a major headache for Singapore banks.

Business loan growth has been steadily moderating since last year’s double-digit pace.

“Macroeconomic headwinds in Singapore and regional countries have dampened business sentiment, causing system loan growth to slow to 3.5% YoY in May,” says the RHB Singapore Research team.

3Q15 forecast After a challenging second quarter in which Singapore banks saw slower loans and market-related fee income, and higher asset quality risk, the third quarter offers little comfort that a rebound will occur. “We expect 3Q15 to be tougher quarter-on-quarter for the

Singapore banks,” says Sharnie Wong, analyst at Barclays.

Wong cites slower loan growth, moderated market-related fee income and potentially higher credit costs to continue to act as headwinds for the sector.

While the rise in SIBOR could provide some breathing room for Singapore banks, Wong expects some asset quality deterioration in their ASEAN loan books.

DBS has already pointed to mild deterioration in Hong Kong and Singapore SMEs, and among the three banks, DBS seems to hold the rosiest prospects because of its dominant deposit franchise in Singapore, says Wong.

Singapore banks will also need to grapple with possible weakness in housing loans.

“Weakness in the residential property market continues to act as a key drag on demand for housing loans, and we expect the factors behind this correction to persist over the coming quarters,” says BMI Research.

“Both rental and purchase demand are likely to continue to weaken over the coming quarters, and a continued fall in the former will exacerbate the downturn in the latter,” it added.

BMI Research reckons that the onslaught of new units entering the market over the next two years coupled with the ongoing slowdown in skilled-labour immigration will lead to a soft rental market. This, in turn, will undermine demand for investment properties.

Who made it to the SBR’s list?

There are no significant changes in this year’s ranking of largest banks based on total number of employees, except for DBS Bank now tied with Citibank on the first spot with 10,000 employees.

From being ranked third with only 7,800 employees when SBR started the list in 2013, DBS gradually moved up the ladder in the succeeding years. It landed on the second spot last year with 8,000 employees, replacing UOB.

SINGAPORE’S 20 LARGEST COMMERCIAL BANKS 2015

BANK

2014

Number of Employees 2015

Number of Employees 2014

CEO/ Country Head

1

CITIBANK

1

10,000

10,000

Michael Zink

1

DBS BANK

2

10,000

8,800

Sim S. Lim

3

UNITED OVERSEAS BANK

3

8,000

8,000

Wee Ee Cheong

4

STANDARD CHARTERED BANK

4

7,000

7,400

Neeraj Swaroop

5

OVERSEA-CHINESE BANKING CORP

5

6,600

>6,000

Samuel N. Tsien

6

HONGKONG AND SHANGHAI BANKING CORPORATION*

6

3,077

3,048

Guy Harvey-Samuel

7

J.P. Morgan Chase & Co.*

-

3,000

3,000

Edmund Lee

8

AUSTRALIA & NEW ZEALAND BANKING GROUP*

7

2,300

2,300

Vishnu Shahaney

9

BNP PARIBAS

8

2,000

1,800

Pierre Veyres

10

MALAYAN BANKING (Maybank Singapore)

8

1,800

1,800

Datuk Lim Hong Tat

11

CIMB BANK

10

1,100

1,100

Mak Lye Mun

12

BANK OF CHINA*

11

580

580

Guo Ningning

13

MIZUHO BANK*

12

500

500

Katsuyuki Mizuma

13

RHB BANK*

12

500

500

Jason Wong

15

CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK

14

248

240

Pierre Finas

16

INDUSTRIAL AND COMMERCIAL BANK OF CHINA*

15

180

180

Zhang Weiwu

17

STATE BANK OF INDIA

16

144

143

Soma Sankara Prasad

18

ICICI Bank

18

102

85

Anupam Verma

19

BANK OF INDIA

17

79

86

C G Chaitanya

20

INDIAN BANK

19

64

66

A. Ramu

20

UCO BANK*

20

64

64

Ms Kalpana

TOTAL

57,338

49,692

Data provided by companies. Survey period: June-July 2015. *Obtained from company websites, media reports, annual reports and/or previous data.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 35

SPECIAL FEATuRE: german country report

German innovativeness in Singapore’s transportation industry

Find out what German companies such as Continental Automotive, MTU Friedrichshafen, and Schaeffler Asia Pacific are doing in Singapore.

A

s Singapore’s economic growth continues to climb, foreign investments are readily received in order to further increase the country’s revenue, especially in the transportation industry. Of these foreign companies establishing themselves in Singapore, three German businesses stand out in particular: Continental Automotive Singapore Pte Ltd, MTU Friedrichshafen, and Schaeffler Asia Pacific.

Exponential growth in automobile research and development Continental Automotive Singapore has shown great promise within a short timeframe of six years from 2009 to 2015, when they were first introduced to the local context. As an international automotive supplier, tire manufacturer, and industrial partner, the company has doubled their employee headcount with their rapid expansion, with over 1,000 employees in Singapore to date.

As a customer-focused company, one of their core commitments is to groom technically competent, broad-minded and well-trained engineers who have a firm and proficient grasp of technology advancements, know-how transfers and global project management skills.

Lo Kien Foh Managing Director Continental Automotive Singapore

36 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

“Singapore’s excellent infrastructure, strong government support, and talented workforce are key factors that drew Continental to setup its R&D building here in 2012, and later invest in a new R&D Extension building in 2014. The facility in Singapore is envisioned as a major R&D engineering core for Continental, both regionally and internationally,” says Lo Kien Foh, Managing Director of Continental Automotive Singapore.

In Singapore, Continental Automotive is mainly focused on designing and developing in-car information management systems. By optimizing internal information channels within a vehicle, there is room to develop new functions and services to create a better experience, further reinforced by the development of ergonomic control devices.

“We are constantly expanding our business and exploring new technology in areas such as the interior camera, Intelligent Transportation Systems (ITS), and Autonomous Vehicle (AV) which is in line with Singapore’s Smart Nation Vision,” says Lo of the company’s plans for development in the next decade.

Andreas Schick CEO of Schaeffler Asia Pacific

Continental’s largest Asian R&D centers, a strong foundation for the future of Continental Singapore.

From product manufacturer to technology leader Schaeffler started out manufacturing a unique product: needle bearings. Today, they are a global supplier and full range Unwavering commitment to growth bearing developer, thanks to their highly in Singapore innovative solutions for automotive “Continental is committed to Singapore powertrain. “We have a strong focus on in developing its capabilities as a leading manufacturing technology and processes R&D hub for the design and development of automobile electronics and technologies. and we combine this strongly with our engineering competence and power of Our expansion plans in Singapore strongly innovation. The spirit of entrepreneurship support Continental’s growth strategy and creativity is deeply rooted in our of deeper engagement with its Asian culture,” says Andreas Schick, CEO of automotive customers,” he says.

Schaeffler Asia “We at “In Singapore, Pacific, citing the Continental Continental importance of Singapore are Automotive is mainly their standardized constantly focused on designing processes and global expanding our manufacturing capabilities and developing infootprint in to meet the car information maintaining an edge growing demand management systems.” over their industry of engineering peers. capacities worldwide and serve as a major “This enables our engineers to develop engineering resource and competence pool products with the right manufacturing for Continental in the Asia-Pacific region,” and tooling while working as development he adds. Currently, Singapore is one of

SPECIAL FEATuRE: german country report viable high speed diesel engines and partners with our customers.” established as the main hub of the Asia gensets for the workboat and offshore “The strategic framework for Schaeffler Pacific. Today, MTU Asia is the Asia Pacific support vessel (OSV) market. Since actively is Mobility for Tomorrow where our main headquarters for all MTU and MTU Onsite pursuing the Asian OSV market, MTU focus is in four areas – eco-friendly drives, Energy products and services. MTU staff Asia has worked with prominent global urban mobility, in Singapore “Singapore is an important manages all and local customers including Swire interurban hub for research and Seabed, Royal Boskalis and Chellsea. mobility and the functions MTU’s portfolio in offshore also extends energy chain,” of a regional development in the to providing offshore diesel generator says Schick. headquarters: transportation and sets to Sembawang Marine Offshore & Schaeffler aims application logistics sector, which engineering, Engineering (SMOE). to develop new is the key focus area for sales and afterThe commercial success of MTU in systems that Schaeffler. ” the Asia Pacific could not have been optimize energy sales support, feasible without its early clients, which consumption distribution included among them the Republic of by enhancing efficiency, which in turn management, marketing and Singapore Navy, the Singapore Police contributes to the well-being of the communications.

Coast Guard and several ferry operators environment.

Today, the company continues to at the time. Simultaneously, the highly While the company may be currently supply engines to high speed naval, coast talented manpower in the field of marine underrepresented in Asia compared guard and commercial ships in order engineering in Singapore also made it an to others, there are definite plans to to strengthen Singapore’s shipbuilding achievable goal for MTU. increase investment in manufacturing sector. Most recently, MTU has provided Its development as a subsidiary and R&D. Despite some of the challenges propulsion and onboard power to eight is inextricably tied to its location in being faced – volatile markets, political locally-built Littoral Mission Vessels, the Singapore. In return, MTU was able fluctuations– Schaeffler sees this as an upgraded Victory Class Missile Corvettes, to become opportunity to explore the potentially high and one of the most “MTU continues to a major growth economies in the region. advanced surface supply engines to high contributor to “Our strategy is to become a truly global combatants in speed naval, coast the country’s player in line with our principle of ‘in the Southeast Asia, the region, for the region’. We are committed Formidable-class guard and commercial development through its to expanding our manufacturing and frigate. ships in order to and R&D footprint in Asia Pacific. With the MTU has diversified strengthen Singapore’s marine offshore regional headquarter based in Singapore, from its traditional shipbuilding sector.” industry. we have taken the first steps towards this business to provide goal with investments for a new factory in Thailand and expansion of the R&D center in Japan,” says Schick of Schaeffler’s vision for the next few years.

“Singapore is an important hub for research and development in the transportation and logistics sector, which is the key focus area for Schaeffler.

We have started our very first bearing remanufacturing hub for aerospace industry in Asia at Singapore and the next phase will be exploring opportunity for product development and manufacturing,” he says, adding that the highly competent pool of engineers in the country is a great advantage.

Revolutionizing shipbuilding in the Asian region MTU Friedrichshafen, a leading manufacturer of large diesel engines and propulsion systems, first selected Singapore in 1974 to be its first subsidiary outside of Germany. From a tiny workforce composed of just seven people, MTU expanded rapidly in just four decades, becoming MTU Asia in 1985 after being formally

MTU’s new premises in Singapore

SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 37

Legal briefing

New measures dissuade foreign hires Singaporean employers will need to put extra effort in hiring local talent first.

W

hen the Ministry of Manpower (MoM) announced new measures aimed at strengthening a core Singaporean workforce, hiring managers across the island likely began to question the necessity of their next planned foreign hire. Not only has it become more attractive for employers to hire and train Singaporeans, but foreign hires will attract more scrutiny from the government.

What are the new measures?

The new measures can be roughly divided into targeting two groups of employees, a set of measures for Singaporean Professionals, Managers and Executives (PME), and another for blue collar workers, says Daniel Chia, partner at Morgan Lewis Stamford.

Employers will receive incentives when hiring Singaporeans for PME jobs instead of hiring foreigners, and wage subsidies when they hire more mature Singaporeans. MoM has also proposed the setting up of the Employment Claims Tribunal (ECT), which Chia believes is a thrilling leap for PMEs. “The ECT will provide an accessible and expeditious avenue for PMEs (earning more than S$4,500 a month) to resolve their statutory and contractual salary-related disputes through adjudication. This is especially important because

“Instead of finding foreign hires, hiring managers will now have to heavily consider expanding their local search, re-training staff or even re-organisation.” this group of PMEs is not covered under the Employment Act,” says Chia.

The second set of measures targets blue collar workers, such as the new requirements for employers to issue itemised payslips and Key Employment Terms. Chia says this will lead to more transparency in the labour market as blue collar workers become more aware of their rights under their contract and the terms of their engagement.

How will this change employer hiring practices?

Instead of finding foreign hires to fulfill work needs that their current staff cannot fulfill, human resources (HR) and hiring managers will now have to heavily consider expanding their local search, retraining staff or even re-organising.

“Singapore employers must be willing to improve their HR practices and to promote, reward and 38 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Daniel Chia

Desmond Wee

Kaylee Kwok

Kelvin Poa

train their existing employees as a way of sustaining their manpower needs. Addressing productivity can no longer be an obscure theoretical concept for employers as they must now grapple with this in a practical way. Questions like: ‘How can I make my existing employees work more efficiently must be a fundamental question to ask,’” says Desmond Wee, head, general corporate commercial; employment & benefits at Rajah & Tann Singapore.

The measures will affect most employers in Singapore in four significant ways, says Kelvin Poa, principal, Baker & McKenzie.Wong & Leow. First, employers will be required to publish the salary range of the job vacancy they post in the Jobs Bank as part of the Fair Consideration Framework. Second, the MoM will increase scrutiny of Employment Pass (EP) applications for employers which have fewer Singaporean PMEs relative to other employers in their sector. Third, employers who hire mature Singaporean job-seekers for certain mid-level positions will be entitled to claim wage support. And fourth, there will be more stringent assessment of foreign PMEs who are applying for EPs, says Poa. What are possible challenges employers might face with these new measures?

Employers might not be able to properly assess their hiring options since MoM has not yet fully detailed how they will go about implementing the measures.

“It is hoped that the MoM will provide more clarity on certain measures such as how the comparison process will be carried out when assessing EP applications for firms with a weaker Singaporean core of PMEs,” says Kaylee Kwok, employment partner at RHTLaw Taylor Wessing.

Specifically, Kwok says it is still vague how MoM will compare firms in the same industry. And in sectors like IT, firms can range from multinational corporations, to small and medium enterprises to one-man start-up companies.

Poa, for his part, says employers who submit EP applications and have a lower number of Singaporean PMEs relative to other companies, may have to submit more information to check whether Singaporeans have been considered fairly.

“Such information may include, but is not limited to: the number of job applications submitted

by Singaporeans in response to the job vacancy advertisement; whether any Singaporeans have been interviewed for the relevant job vacancy; and a breakdown of the number of Singaporeans in PME positions at various levels,” says Poa. Chia says HR of companies will also likely have to bolster their level of manpower planning and consult with capable experts.

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SINGAPORE BUSINESS REVIEW | SEPTEMBER 2015 39

CMO Briefing

How mobile apps boost brand recognition Companies are tapping into the newfound potential of the mobile browsing trend to boost impressions.

W

hen Darren Neubronner, founder and director of Grabz, saw that the mobile browsing trend began eclipsing desktop and laptop usage, he immediately decided to shift fully to mobile. “This phenomenon brought about the dawn of mobile apps. This is why in July 2014, the Grabz team quickly shifted the business from a website to a mobile app and we never looked back,” says Neubronner.

Though it may seem rather extreme at first to shift an entire business concept onto a different medium from website to mobile application, it only goes to show that businesses must be capable – and willing – to quickly adopt new strategies to suit the rapid developments of the mobile trend in order to create and sustain growth. Here, we explore some of the different ways marketing professionals have taken the mobile trend in their stride, from tweaking relevant content to developing long-term brand loyalty.

What is the best way to effectively optimize a brand’s social media presence on mobile?

One rule of marketing that hasn’t changed – a brand’s content must always be worth the customer’s attention. However, a major challenge in the shift to mobile is the consumers’ shortening attention spans, a change made particularly apparent by social media: a flick of a finger is all it takes for a mobile user to completely skip over a brand’s post or paid ad. The effort to create great content can go to waste if it isn’t presented in an appealing way that is appropriate to a particular social media platform or app.

“With all of the changes to the consumer’s daily

40 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

It is no longer just creating content and information on digital and tweaking them on mobile platforms.

life due to their always-on connectedness brought about by mobile, there is another consideration… without context, brands aren’t providing the right content, at the right time, in the right channel, on the right device for a given consumer,” says Nicholas Kontopoulos, Global Head of Fast Growth Markets & Marketing Innovation for SAP hybris, citing the importance of ensuring that good content is always relevant to its target market.

For this reason, highly appealing visual content such as pictures and videos garner much more attention on social media than text-based content, especially since most mobile screens are not welladapted for prolonged reading.

At the same time, relevant information must also be provided in the form of timely updates for consumers who are constantly refreshing their social media newsfeeds while they are on the go. “Mobile user interface is the first line of persuasion [for brands] because it is the gadget that people have in their hands during leisure time,” says Shn Juay, regional marketing director for Paktor.

How can mobile marketing affect long-term brand loyalty and awareness?

“To stand out amongst other brands in this overcrowded space and to build closer relationships with customers, there is a need for innovation,” says Jian Yong Tan, chief marketing officer of Page Advisor. He emphasises that it is necessary to continuously develop content and upgrade systems to satisfy the fast-paced changes in consumer demands and needs.

“We learnt that it is no longer just creating content and information on digital and tweaking them on mobile platforms. Consumers use mobile because they want to access information in a quick and straightforward manner,” adds Tan. Along with the growing demand for instant gratification, diminishing attention spans have brought about difficulties in developing brand loyalty. This is significantly noticeable in the millennial generation, where greater importance is placed on trying everything new at least once.

“Forget information and knowledge economies – the ubiquity of mobile devices is fast ushering in a new “attention economy” where the most valuable currency for brands is how much attention consumers literally pay to them,” says Niamh Byrne, COO and CMO of iQNECT of the changing consumer habits brought about by mobile browsing.

“Brands will need to remain relevant and captivating if they’re to earn consumers’ attention and convert it into unshakeable loyalty… the brands which succeed can actually provide consumers with something that adds value,” she adds. Rather than for the sake of creating a flashy gimmick or feature, new technology must be adopted in ways that will make a brand’s product or service increasingly relevant to garner and sustain attention.

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for the Singapore Business Review Business Ranking Awards and Management Excellence Awards 2015 If your company or your team has a noteworthy initiative that deserves recognition, don’t miss your chance to nominate for this well-deserved accolade.

For more information, contact Julie Anne Nuñez at 6223 7660 ext 221 or email julie@charltonmediamail.com SINGAPORE BUSINESS REVIEW | SEPTEMBER 2015 41

analysis: Triangulating Asian Angst

Gatot Subroto Street in Jakarta, Indonesia

Is Asia headed for another meltdown?

DBS fears that the signs are all present for another full-blown crack-up as China weakens, rates go down, the rest of Asia is caught in the middle, and investors getting flashbacks of 1997.

A

t the end of the day, or maybe the start of it, most financial market turmoil owes to real economy factors and / or fears thereof. The 14-month ‘collapse’ in Asian currencies, the miniscule 2% devaluation of the RMB, the rout in global equity markets it wrought and the inevitable fears of another Asian financial crisis of 1997 – all owe to real economy fears and illusions. China is ‘weak’ and rates there are going down. The rest of Asia is caught in the middle and it’s 1997 all over again, should investors want out.

How weak is China? And how much does the rest of Asia today resemble the Asia of 1997? Our answers are straightforward: not very strong, not very weak and not very much. In China, the 50% crash in equity markets since June doesn’t reflect a crumbling economy any more than the 100% rise earlier this year reflected a booming one. Markets and the economy have never marched to same drum in China and they are no more correlated today. The economy has slowed to be sure. But the big downshift came three years ago. Since then, it’s run more sideways than downwards. Consumption (retail sales) continues to grow at a 12%-13% pace and, with inflation down by 2 percentage points in 2 years, it may have accelerated in real terms.

Measured against a simple basket of dollars, euros and yen – the only way that makes sense given the soaring dollar – China’s exports continue to grow at the same

42 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Consumption continues to grow at a 12%13% pace and, with inflation down by 2 percentage points in 2 years, it may have accelerated in real terms.

10% pace they have since early-2011. Real wages? They continue to grow at an 8% YoY pace. That’s down from the 10% pace of 2009-2011 but it’s consistent with today’s slower GDP growth and hardly suggests crisis. I’d be tickled pink by an 8% raise every year, after inflation, and suspect you would be too. What has slowed in China are fixed asset investment and industrial production.

How China deals with the bad debt – or, more precisely, how and whether it prevents such episodes from happening again – will have a direct impact on the quantity and quality of China’s longer-term growth. In the short-term, the debt is largely irrelevant. It will be written off – much of it paid for by the central bank – and fiscal policy will be expanded to take up whatever slack the government feels needs to be taken up. The main difference from before is that, in the short-run, fiscal expenditures will be driven centrally, from Beijing, rather than from / by local governments.

A 3% currency move and a 1.25% interest rate move are inadequate to stimulate anything. The moves are simply reasonable if all-too-modest responses to the prevailing macro environment. Ask yourself two questions: Faced with a debt overhang and falling inflation, does it make more sense to raise interest rates, leave them alone or lower them? Faced with a 15% trade-weighted currency appreciation in one year, does it make more sense to nudge the RMB back towards where it ought to be or to

analysis: Triangulating Asian Angst forget about it? The answers are plain. The authorities did little more than what policymakers anywhere else in the world would do. China’s probably did less. As always, when global risk comes off the table, investors want to know who’s vulnerable in Asia.

More often than not the question continues: is this 1997 again? The question was posed in 2008 when Lehman went down, in 2011 when Europe went down, in 2013 when QE taper tantrums first struck and it is being asked again today. The short answer is Asia looks less like 1997 every time the question comes up.

The main reason has to do with external balances. For the 10 years leading up to 1997, Asia ran large current account deficits – it borrowed a lot of money from abroad.

As most are aware, the money wasn’t all invested wisely and when it became apparent that some were not going to get their money back, everyone ran for the door and the rest is history. But here’s the thing. When the bubble blew in 1997, Asia’s big deficits turned immediately into big surpluses. Asia began paying down the debt built up prior to the crisis. For the last 18 years, all Asian countries, save for Indonesia and India, have continued to run large surpluses. Foreign debt has continued to fall.

In India and the Philippines, it has fallen top 6% of GDP from 35% in 1997. Even this understates the improvement in most countries’ external position, because “external debt” is a narrow term for a country in the same way that “automobile debt” is a narrow term for an individual. An individual may owe a lot on her car but have a high ‘networth’ because she owns four houses. Similarly, a country can have a high external debt that is offset by other foreign assets, leaving a large ‘net international investment position’ as the IMF prefers to call it.

While these latter data do not exist for most countries as far back as 1997, the improvement in external ‘net-wealth’ since 2001 has been even greater than the improvement in external debt per se, as discussed below. At the end of the day, though, it’s not about the current account surpluses or the external debt or any other statistic that says risk today is lower than it used to be.

The 1997 question is first and foremost a question of cyclical dynamics – ups and downs, inflows and outflows, inflation and deflation. Are economies careening ever faster towards a point of no return? Or are they quietly pulling back from one? From this perspective, the cycle is clear: for the past four years Asia’s economies, includAsia- current account balance % of GDP, simple avg

Source: DBS

In the Crisis-4 countries (TH, MY, ID, KR), external debt (less FX reserves) has dropped to 11% of GDP from 60% back in 1997.

ing China’s, have been backing away from the edge, not accelerating towards it. Risks remain, but the odds of 1997-style implosion are lower than they were four years ago, not higher.

Inflation The missteps continue. At the Fed’s Jackson Hole conference at end-August, Vice Chairman Fischer said there was “no clear evidence” of core inflation rising over the past two years. That’s because it’s been falling for 3.5 years. The Fed’s favorite inflation gauge – core PCE inflation – fell to 1.2% YoY in July. Six months ago it was 1.4%.

Six months before that, it was 1.7%. A year before that it was 2%. In all, core PCE inflation has been falling steadily since January 2012. Most officials blame low inflation on low oil prices. This is nonsense. The reason they call it ‘core’ inflation and a big reason why the Fed prefers it is because there’s no oil in it. The fact that it’s been falling for 3.5 years – while oil prices have been falling for only one – is another inconvenient truth that officials (and most analysts) prefer to ignore. Were Yellen grading exam papers at Harvard, Fed explanations for why inflation is low would get a D. There are two reasons why core PCE inflation is falling. First, the goods portion of it – representing onequarter of core consumption and 17% of GDP – has been in outright deflation for the past 2.5 years.

Durable goods like household furniture, recreation goods, computers and jewelry; non-durable goods like clothing and household supplies – all have experienced outright price declines of between 1.5%-8% per year since Jan-2013. That’s a lot of deflation. It has nothing to do with oil. And the Fed hasn’t mentioned it once. But falling core inflation isn’t just about goods. The service sector is now dis-inflating too. A year ago, services inflation was running at 2.4% YoY. Since then it’s fallen to 1.8% and it doesn’t matter whether one strips the few drops of oil out of the series or not. Until mid-2014, services had been propping up core PCE inflation. Today they are adding to the fall.

Fiscal spending and debt Truth be told, short-term cyclical growth has slowed by more than the authorities wished. And greater fiscal spending is likely on the cards. Doesn’t that just mean more debt and bigger problems down the road? It might.

Like any country, capitalist or otherwise, China needs to be careful how it cleans up its bad debt.

If it doesn’t take steps to prevent a recurrence, the quality and quantity of its long-term income growth will be impacted. In the short-run, however, the bad debt is largely irrelevant – it’s spilled milk, gone and best forgotten. The debt will be written off, paid for in part by bottom-fishing investors and in part by the central bank, which seems destined to take onto its books a large number of the CNY3.2 trn of bonds issued by local governments to clean up their books.

At the end of the day – at least from a technical perspective – fixing a debt problem is a simple task: you carve out the bad debt, you make someone pay for it and you fire the management. China has already carved out the bad debt SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 43

analysis: Triangulating Asian Angst happy they have. Officials are now tinkering with forward restrictions to prevent the RMB from barking so loudly the next time they free it up. Whether they succeed remains to be seen. The point is plain: the road to reform is never as quick or as easy as one might hope. Unintended consequences lurk behind most corners. Nothing is more important to the growth outlook than reform and structural change. Because it is so important yet so difficult, this is where the risks lie. If you want to worry about China, look here, not at last month’s PMI and whether it’s 47 or 57. Focus on the long-term -- that’s what the authorities are doing.

Asia- net foreign debt as % of GDP ext debt (public + priv) less FX reserves as % of GDP

Source: DBS

and the central bank will likely pay for most of it. Firing the management is all that’s left – and Xi Jinping’s anticorruption drive has already proved so vigorous that many think he’s over-stepping his bounds. Time will tell. What’s abundantly clear right now is that China has no intention of letting a simple debt problem hold back growth for 25 years like it did in Japan, or for 7 years like it has so far in the US. Fiscal investment spending will rise modestly over the coming year, filling in the cracks that officials and analysts had hoped might be filled by higher private consumption.

The main difference with the past few years is that the spending will be driven centrally from Beijing rather than by local governments. Local debts are still being written off and local management is still being fired. It will be a year, perhaps longer, before local governments regain their fiscal footing and if Xi Jinping’s anti-corruption drive is successful, they will look and operate differently when they have.

The real risk Short-term cyclical risks have been over-blown. That does not mean risks do not exist. There are plenty of things to worry about but most of them are long-term risks related to structural change and reform. Rooting out corruption and reforming investment incentives that led to debt problem discussed above are but one example. Even at a 6% or 7% growth rate, China is growing by leaps and bounds.

At this rate, it creates an entire Germany every 4.5 years. If this is to continue, much reform and structural change is required. The to-do list is long and wide. It entails macro reforms, micro reforms, the real sector, the financial sector, labor markets, insurance markets -- you name it, it’s on the list. The last time China attempted a reform program of this scale was in 1978, when Deng Xiaoping moved to free agriculture, and later industry, from state control.

But China today is 30 times larger than it was in 1978 and in a very real sense, that makes reform and structural 30 times harder to implement. Lots could go wrong. Take the simple change to the RMB fixing two weeks ago. The move was a trivial one, meant to give the market more say over the value of the RMB and was absolutely the right thing to do from a reform perspective. But when the market “devalued” the currency by 2% (a very small amount), the world went into convulsions. Since then, the authorities have put the clamps back on and most everyone seems 44 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

For the past 18 years, the Asia-10 countries have run surpluses averaging 6% of GDP.

Asia-vu?

Whenever Asia’s currencies weaken the question gets asked: are we looking at 1997 all over again? What’s changed? What hasn’t? So it is today, where the short answer is, almost everything has changed. Asia doesn’t look much like 1997, if at all. Most Asian currencies aren’t down against anything but the US dollar. When the euro plunged and the yen plunged, Asia’s currencies did precisely what you would want them to do: they swam down the middle -- they fell against the dollar, to be sure, but they rose against the euro and yen. ‘Swimming down the middle’ kept Asia’s currencies stable when dollar-euro and dollar-yen ran all over the road.

Capital outflow and current account surpluses But it’s true there have been significant capital outflows over the past year. Why haven’t Asia’s currencies fallen?

The biggest reason is all Asian countries, save for India and Indonesia, run current account surpluses today instead of deficits like they did back in 1988-1997. Those surpluses have offset much of the capital outflow and reserves have fallen by far less than the capital outflow per se. In the second quarter of 2015, net flows – current account surpluses less capital outflows – in the Asia-10 were

Jalan Tuanku Abdul Rahman in Kuala Lumpur, Malaysia

analysis: Triangulating Asian Angst square. But that doesn’t sell papers. The Asian crisis of 1997 was indeed an Asian crisis. The currency moves then were Asia moves. Today’s currency moves are not Asia moves, they are dollar moves. Asia-vu this isn’t.

Current account surpluses and external debt Current account balances are the real-economy measure of whether a country is borrowing or lending in international markets. If you’re exporting more than importing, you’re lending the difference to foreigners, or paying down old debts from an earlier time. No surprise then that the 1997 crisis owed first and foremost to having run large C/A deficits for a good many years. Asia borrowed a lot of money, it wasn’t all invested wisely, when it became clear that some investors weren’t going to get their money back, everyone ran for the door and that was that.

When the crisis hit, Asia swung from running deficits to running surpluses – overnight. At the drop of a hat, or maybe a baht, Asia flipped from deep red to deep black and never looked back. For the past 18 years, the Asia10 countries have run surpluses averaging 6% of GDP. These surpluses add up to 4.5 trillion dollars – an amount equivalent to one third of US GDP. This money was either lent outright to foreign countries or used to pay down old debts, or both.

Countries like Singapore, Hong Kong, Taiwan and China, which were mostly surplus countries to begin with, built up claims on the rest of the world equivalent to between 20% and 300% of a year’s GDP. The deficit countries, which had built up significant external debt by 1997, used their surpluses to pay down large portions of it. If one offsets external debt with holdings of foreign reserves, the ‘net external debt’ of Korea dropped to 3% of GDP from 29% back in 1997.

Indonesia’s net debt fell to 23% of GDP from 57% in 1997. Current account surpluses lowered the Philippines’ net external debt to 6% of GDP from 45% in 1997. And

Asia currency values versus US dollar - 1997 crisis and today increase = appreciation, crisis - 4 countries (TH, MY, KR, ID)

Source: DBS

Malaysia has run some of Asia’s largest current account surpluses since 1997 – 11% of GDP, on average – and those surpluses have wiped its overall liabilities clean.

Thailand, the symbol of it all? Reserves there now exceed gross debt; net external debt is negative. Malaysia’s numbers are interesting and show how external debt statistics can mislead. Just as an individual may have a large automobile debt that is offset by the ownership of 4-5 houses, a country may have a large foreign debt that is offset by ownership of other foreign assets (e.g., companies, stocks, US Treasury holdings). Malaysia’s net external debt has risen to 32% of GDP from 27% back in 1997. But Malaysia has run some of Asia’s largest current account surpluses since 1997 – 11% of GDP, on average – and those surpluses have wiped its overall liabilities clean.

Today, Malaysia holds as many claims on foreigners as foreigners hold on it. True external ‘debt’ is zero, or very nearly so. Korea’s is a net creditor in global markets when all assets and liabilities are counted rather than just ‘debt’.

The US? It’s in hock to foreigners to the tune of 45% of a year’s GDP. That’s more than any country in the Asia-10, save for Indonesia. And even there it’s close. In some sense, a country’s net international investment position, as the IMF calls it, tells you how solvent it is when an external debt problem may simply be a shortterm liquidity problem. Of course markets don’t always distinguish between the two when sentiment turns sour. The good news is that, by either measure, 18 years of current account surpluses have turned Asia into a vastly different place from what it was in 1997.

His story Except for in the very short-run, where emotion dominates sense and sensibility and no one speaks with authority, the amount of capital that does or doesn’t flow out of Asia in the weeks ahead will depend on three things: the strength of the US, the weakness of China and how much Asia today resembles the Asia of 1997.

Fear not. The US is not as strong as many believe, China is not as weak. And Asia today looks nothing like 1997.

Outflows, therefore, should not be significant. And while past performance does not guarantee future results, it is worth considering what sort of capital flowed out of Asia during the last two Fed tightening cycles. In 1994, when the Fed embarked on its infamous tightening cycle, capital didn’t fly out of Asia, it flooded in like never before. Those inflows, in fact, were a large part of the liquidity bubble that culminated in the 1997 crisis. By David Carbon, DBS Group Research SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 45

analysis: financial market turmoil

Thailand had high current account deficits in 1997

Asia gears up for another 1997-style crisis While almost two decades have passed since the Asian financial crisis, analysts warn that the region must be prepared as the financial turmoil in East Asia closely rhymes the grim past.

T

he on-going financial market turmoil affecting East Asian emerging economies, particularly Indonesia and Malaysia, has revived grim memories of the 1997 Asian financial crisis (AFC) amongst investors.

The AFC was triggered by macroeconomic imbalances coupled with structural and policy distortions in ASEAN economies. Fragile initial conditions exacerbated the initial financial turmoil, leading to a plunge across asset classes while significantly hurting economic growth.

In a symptomatically similar reaction, exchange rates and equity markets have hit multi-year lows across major emerging market economies in East Asia today, dragged by the on-going financial market turmoil triggered by slowing global growth, the imminent Fed rate hike and most importantly concerns over financial fragilities and a sharp real economic slowdown in China. In this economic watch, we assess the state of ASEAN economies across two time frames, in 1997, during the Asian Financial Crisis, and in the present context.

In particular, we evaluate key structural factors - monetary, fiscal and exchange rate policy stance, political stability, growth inflation dynamics, investment efficiency, external balances, foreign indebtedness, banking system health and liquidity outlook – to ascertain if a repeat of the 1997 Asian Financial Crisis is in the offing for East Asian emerging market economies (EMEs) or is the economic block better placed this time to withstand challenges.

46 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

“Weak regulatory oversight, lax lending standards, issues of graft, and unhealthy relations between banks and firms led to tainted balance sheets of domestic banks and a rise in nonperforming loans.”

Southeast Asia’s ‘moral hazard’ problem At heart of the crisis was the ‘moral hazard’ problem in South East Asia, which exacerbated financial vulnerability in the region and magnified the impact of external shocks during the crisis. The moral hazard problem manifested itself across multiple levels. First, the corporate sector where public guarantees to private projects with several instances of favouritism and crony capitalism led to firms overlooking riskiness of underlying investment projects, lax credit risk standards, and a false presumption amongst corporates and investors that most private sector investments were insured by the government against shocks.

This led to a foreign debt overhang with underlying investment projects whose returns were substantially inflated. During this time, the Japanese zero interest rate policy aimed at tackling domestic deflation fuelled carry trades, in turn triggering huge capital inflows into ASEAN economies despite incipient signs of weakness in earnings growth and declining profitability for corporates in the region.

Second, a thrust on financial intermediation as domestic banks borrowed heavily from abroad to lend across domestic projects while overlooking their viability. Weak regulatory oversight, lax lending standards, issues of graft, and unhealthy relations between banks and firms led to tainted balance sheets of domestic banks and a rise in non-performing loans. To aid the supply of low cost

analysis: financial market turmoil capital inflows and boost economic growth, policymakers in East Asian EMEs initiated rapid capital account liberalization. Concomitant monetary policy accommodation led to excessive credit growth in the banking system during the pre-crisis years, which translated into a pile up of non-performing loans as banks down played credit risk.

Meanwhile, most followed a rigid exchange rate framework, with domestic currencies pegged closely to the US dollar, which helped them keep the risk premium on US dollar denominated debt low.

Third, international banks overlooked prudent risk assessment in their lending to domestic financial institutions. A pile up of short term unhedged foreign currency denominated liabilities jumped manifold for East Asian EMEs. Short term external debt to foreign exchange reserves surpassed 100% for Indonesia and Thailand.

A concomitant economic slowdown in Japan weighed on exports from Asia, in turn worsening trade balances while a sharp appreciation of US dollar against the yen made Asian currencies – which were pegged to the US dollar – uncompetitive. Political instability in key economies such as Indonesia coupled with the lack of structural reforms by domestic authorities and poor banking supervision further undermined investor confidence in the region. Amid heightened macro-instability, in 1997, real estate and equity markets in the region fell sharply, which triggered a contagion. The rapid reversal of foreign capital flows led to a collapse of currencies across the region, starting with the Thai Baht, and spreading on to Philippines, Indonesia, and Malaysia, which manifested itself into a broad-based liquidity and solvency crisis with chronic macroeconomic effects. Falling asset prices spiralled into a wave of corporate and banking sector defaults, which led to asset price deflation and undermined government’s ability to provide explicit guarantees, in turn triggering a vicious cycle of default, debt and depression.

Focus on quality of improvement During the early 1990s East Asian EMEs which allowed their current account deficits to balloon in excess of 3% worsened their ability to withstand rapid capital reversals and exacerbated devaluation expectations. In 1997, sharp currency depreciation pressures against the US dollar were seen across economies with high current account deficits such as Indonesia, Malaysia, Philippines, Thailand and Korea while others such as China, Hong Kong, Singapore Investment efficiency levels need to improve

Source: IMF, BBVA Research

The Philippines showed increased efficiency in resource use

“In the run up to the Asian Financial Crisis, between 1990 to 1997, Incremental Capital Output Ratios – a crude measure of productivity – had risen in several East Asian countries.”

and Taiwan saw relatively muted currency declines given their smaller deficits or surpluses. Reassuringly, we see a meaningful improvement in current account balances of the former economies in 2015.

That said, the notion of a sustainable level of current account deficit, can vary across economies and time period; and depends on a host of factors such as the stability of the foreign debt to GDP ratio over the long run, the rate and nature of economic growth, which can explain whether the fall in savings is transitory or permanent, and the level of investment efficiency as measured by the incremental capital output ratio (ICOR).

Ironically, mid 1990s saw robust GDP growth rates for most East Asian economies, averaging above 6% y/y. In contrast, these economies are growing at a much slower pace this year at an average 4% y/y.

Interestingly, investment rates in 1997 were above 30% of GDP for all economies in the region except Philippines (24%). However, bulk of these investments represented unproductive capital accumulation. In the run up to the Asian Financial Crisis, between 1990 to 1997, Incremental Capital Output Ratios – a crude measure of productivity – had risen in several East Asian countries such as Indonesia, Malaysia, Thailand and Korea, which indicated declines in the efficiency of investment. Comparing with recent estimates of ICOR by the IMF, Indonesia, Philippines and Malaysia have seen increase in the efficiency of resource use; while efficiency levels have declined in Thailand, Vietnam and Korea.

The risky combination Greater export orientation enhances an economy’s ability to service its debt by generating higher foreign currency receipts. On the flipside, however, it also makes the economy more vulnerable to a slowdown in its trading partners, deceleration in global growth, and other external shocks such as restrictive trade policies in foreign countries and geopolitical risks. Trade openness across East Asian economies was already significantly high in 1997. Measured as the share of exports and imports as a % SINGAPORE BUSINESS REVIEW | NOVEMBER 2015 47

analysis: financial market turmoil of GDP, Malaysia’s trade openness was the highest in the region at 94%, followed by Philippines (54%), Thailand (47%) and Indonesia (28%).

While these economies still remain highly open, their export dependence on China has increased considerably over the past decade compared to the early 1990s. Closer trade links to China makes East Asian economies a lot more vulnerable to a sharp slowdown in the Chinese economy. 23% of Philippines exports are to China, which this figure stands at roughly 12% each for Indonesia, Malaysia, Thailand and Vietnam. Beyond China, bulk of the exports for East Asian emerging economies is intraregional. For instance, key export destinations of Indonesia are Japan (13% of exports), China (10%), Singapore (9.5%) and the US (9.4%). In addition, a huge negative terms of trade shock has also hit economies in the region today through the slump in commodity prices including crude oil, coal, iron ore, rubber, and palm oil, which has hit trade realizations. Compared to the 1997 crisis, trade gains have eluded East Asian economies for a lot longer in the present context, with a painful protracted slowdown in exports since 2010.

Exchange rate frameworks are no longer rigid, willing to bend but won’t break. A rigid exchange rate policy pegged against the US dollar was one of the key contributing factors towards destabilizing macro balances in East Asian economies during the early 1990s. The Thai baht and Philippines peso were effectively fixed to the US dollar; Indonesia followed a real exchange rate targeting policy while the Malaysian ringgit moved in a 10% range to the US dollar. The policy of effective peg against US dollar was followed by East Asian countries so as to enable external financing of domestic projects through lower borrowing costs and a reduction in currency risk premium.

From a longer time frame since 1990 to end 1996, the real appreciation was much sharper at 23% in Philippines, 19% in Malaysia, 12% in Thailand and 8% in Indonesia. The misaligned exchange rates led to a loss of trade competitiveness in the region, aggravated current account imbalances and heightened pressure on policymakers to maintain currency stability; and ultimately leading to a collapse in currencies. Unlike 1997, emerging Asian economies have today adopted a managed float of its currency, which accords greater independence to monetary policy in achieving price stability and sustainable growth.

The flexible exchange rate would continue to help cushion GDP growth is visibly slower compared to 1997

Source: BBVA Research, Haver Analytics

48 SINGAPORE BUSINESS REVIEW | NOVEMBER 2015

Exchange rates hit multi-year lows in emerging Asia

Since 1990 to end 1996, the real appreciation was much sharper at 23% in Philippines, 19% in Malaysia, 12% in Thailand and 8% in Indonesia.

vulnerability of these economies to external shocks leading to shifts in investor sentiments.

Lesson learned?

On-going global economic turbulence affecting East Asian economies depicts peculiar similarities to the mid- 1990s in terms of external shocks. A less protracted yet significant slowdown in export growth was seen in 1997 for the region weighed by stagnation in the Japanese economy.

Japan’s growth slowdown was exacerbated by a consumption tax hike in 1997, and a slump in demand for semiconductors hit East Asian EMEs. The devaluation of the Chinese Yuan in 1994 added to competitiveness pressure on regional currencies while in mid-1997 expectations of a US monetary policy tightening further unnerved investor confidence across the region.

So are East Asian EMEs better placed to withstand the ongoing financial and macro-economic turbulence compared to 1997? We believe they have learnt their lessons.

However, governments’ in these economies still need to plug key economic gaps.

The spillover effects on East Asian EMEs from a spike in global financial market volatility are inevitable going forward given the disruptive effects of China’s economic transformation, US monetary tightening, lingering geopolitical risks and commodity currency interplay. Its impact across the region is likely to be disparate depending on respective state of economic fundamentals, depth of external linkages and domestic policy frameworks. As a group, these economies have seen a surge in long term foreign direct investments over the past decade, which echoes rising confidence of strategic investors, who look beyond shorter term shocks that trigger speculative capital outflows, while playing a key role in upholding the economy’s credit profile during times of extreme stress. By Sumedh Deorukhkar and Le Xia, analysts at BBVA Research

Abbott recognized for formulating

Singapore-made product to

fuel growing kids’ needs

The Singapore Business Review’s (SBR) International Business Awards 2015 has recognized GROW®, Abbott’s growing-up milk, as an innovative product in the Food & Beverage category. This award is given to celebrate trail-blazing innovations from the most outstanding and valuable companies in Singapore. SBR caught up with the team behind GROW® to learn the story behind the brand and its award-winning ways.

by the Singapore Institution of Food & Technology with the Healthier Choice Award for 2011-2013.

Abbott Nutrition’s Regional General Manager, Ms Hui Hwa Koh-Minjoot, said that when GROW® was first launched in 1998, it was with a view to providing a scientificallyformulated, nutrient-dense growingup milk for active, school-going children in Singapore. Since then, the brand has evolved to keep pace with Singapore’s transformation and changing nutritional needs.

It was in 2011 that Abbott seized an opportunity to reformulate GROW® in tune with the changing health needs of Singapore.

Mr Gary Fanjiang, Divisional Vice President of Asia-Pacific Research & Development at Abbott Nutrition, said that in line with a national campaign in 2002 to address the increasing risk of obesity among children, Abbott, partnered with the Health Promotion Board of Singapore to reformulate and develop two advanced growing-up milk formulas, GROW® PRESCHOOL for children three to six years and GROW SCHOOL® for children 6 to 12 years old. The two products were scientifically formulated with a nutrient system called IMMUNIGROWTM - which delivers 26 vitamins and minerals, DHA, choline, taurine and prebiotics to improve the nutritional intake of children.

To ensure that their innovative products penetrated the market while also serving broader public health needs, Ms Suzie Chiang, Business Unit Director at Abbott Nutrition, said the team designed campaigns aimed at educating parents about the daily recommended intake of two glasses of milk for children and milk as a better hydration beverage to fuel play and learning in school-going children.

“The food scientists at Abbott’s newly established research and development center in Singapore formulated both products to contain 25 per cent less sugar and saturated fat and with higher calcium content per serve in comparison to other brands in the category,” Mr Fanjiang said. The food scientists also introduced a vanilla flavor, reminiscent of vanilla ice cream to enhance children’s compliance to the daily recommendation of two servings of milk, he added.

Given the busy schedules of children in Singapore, Abbott decided to launch the GROW® Ready-to-Drink (RTD) variant in 2013. The tetra pack format, which is available in vanilla or chocolate flavors, makes it convenient for active kids to meet their nutritional needs even while they are on-the-go.

It was because of these efforts that GROW® earned the distinction of being the first growing-up milk to be awarded the prestigious Healthier Choice Award

by Singapore’s Health Promotion Board, and was further recognised

Ms Koh-Minjoot said this constant attention to changing needs is what drives the product’s continued success: “It is very rewarding to see how GROW® has over the years worked to educate consumers on the benefits of laying a good nutritional foundation for our children so that they can play, learn and grow healthily.”

Visit www.abbottfamily.com.sg for more information about GROW® and Abbott 1 Loke KY, Lin JB, Mabel DY. 3rd College of Pediatrics’ and Child Health Lecture-- The Past, the Present and the Shape of Things to Come, Ann Acad Med Singapore. 2008 May;37(5):429-34.

2 Based on Nielsen Market Share for Growing Up Milk Stage 5 as of Oct 2014.

the years r e v o W O GR 1998

Abbott Nutrition Singapore launched GROW® as growing-up milk for active children

2011

GROW® PRESCHOOL & GROW SCHOOL® launched. Reformulated with IMMUNIGROW to improve nutritional intake of children

2013

GROW® Ready-to-Drink in Vanilla and Chocolate flavour launched for active kids on-the-go

Awards 2011

Healthier Choice Award

by Singapore Health Promotion Board Healthier Choice Award 2011 by the Singapore Institution of 2013 Food & Technology

2012

Global Food Industry Award by the International Union of Food Science & Technology for Communicating Science Related Knowledge to Consumers Food & Beverage Award

by Singapore Business Review 2015

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