Securities Commission of Malaysia August 2007 Day 1
0807
<ul><li>Confidently able to discharge their duties as evaluation officers </li></ul><ul><li>Competent in the use of financ...
<ul><li>4. Competent in their understanding of practical issues in the areas  such as: </li></ul><ul><ul><li>Evaluating Bu...
<ul><li>DAY ONE </li></ul><ul><ul><li>Global Financial Markets </li></ul></ul><ul><ul><li>Business Strategy </li></ul></ul...
<ul><li>Global Financial Markets </li></ul><ul><ul><li>Update on contemporary trends in Global Financial Markets </li></ul...
0807
0807
0807
<ul><li>Headline inflation remained unchanged at 1.4% in June.  </li></ul><ul><li>Higher gross private sector financing du...
0807
0807
0807
0807
0807
0807 Discussion Q :  WHY ARE LISTED COMPANIES NOT COMING INTO THE EQUITIES MARKET  ?
0807
0807 WHERE THE BORROWED MONEY GOES … SECTORAL ANALYSIS 1 2 6 1 6
0807
0807
<ul><li>GLOBAL </li></ul><ul><li>MARKETS </li></ul><ul><li>INDICES </li></ul>0807
0807 The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip  stocks that are generally the leaders i...
0807 Standard and Poor's 500 Index is a capitalization-weighted index of 500 stocks.  The index is designed to measure per...
0807
0807
0807 The FTSE 100 Index is a capitalization-weighted index of the 100 most highly  capitalized companies traded on the Lon...
0807 The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated  Japanese companies listed in the First Sec...
0807
0807
0807
0807
<ul><li>GLOBAL </li></ul><ul><li>CURRENCIES </li></ul>0807
0807
0807 The Yen and Yuan Could do with some Upward revision In value Against the US – UK Markets ….
<ul><li>In the period 1 June – 27 July 2006, the ringgit depreciated against the US dollar. The ringgit’s depreciation aga...
0807
0807
0807
0807
0807
<ul><li>Malaysian Resources Corporation Bhd (MRCB) is awaiting the government's response to its bid for the Bakun undersea...
<ul><li>He said the company had spoken to the government, via presentations, of how its expertise as the country’s largest...
<ul><li>KUALA LUMPUR: Some 600,000 tourists visited Malaysia in the first fifteen days of the month.  </li></ul><ul><li>To...
0807
<ul><li>AUGUST 4 TH  2007 </li></ul><ul><li>KUALA LUMPUR : While Malaysia’s economy is expected to grow at 6.5% next year,...
<ul><li>ABOLISHING the real property gains tax (RPGT) will definitely help kick start the sluggish property market in Mala...
<ul><li>KUALA LUMPUR: SP Setia Bhd is targeting for new property sales to hit RM1.2bil in the financial year ending Dec 31...
<ul><li>KUALA LUMPUR: The Iskandar Development Region (IDR) is finalising a RM4bil investment for one of its zones and det...
<ul><li>The Government also announced a slew of incentives for qualified companies and this include corporate tax exemptio...
0807
0807 Mission Vision Goals Objectives Measures How will we get there What we want to be Indicators and  Monitors of success...
<ul><li>WHERE WE ARE  (Assessment  -  SWOT) </li></ul><ul><li>WHERE DO WE WANT TO GO  (Gap Analysis between where we are a...
0807 <ul><li>Strength’s – Those things that you do well, the </li></ul><ul><li>high value or performance points </li></ul>...
0807 <ul><li>Weaknesses – Those things that prevent you  from doing what you really need to do </li></ul><ul><li>Since wea...
0807 <ul><li>Opportunities – Potential areas for growth and </li></ul><ul><li>higher performance </li></ul><ul><li>Externa...
0807 <ul><li>Threats – Challenges confronting the organization, external in nature </li></ul><ul><li>Threats can take a wi...
0807 <ul><li>Address critical performance issues </li></ul><ul><li>Create the right balance between what the </li></ul><ul...
0807
Financial Processes of Scheme <ul><li>Write off the P & L </li></ul><ul><li>Write off any and all </li></ul><ul><ul><li>Fi...
Balance Sheet Pre - Construction <ul><li>Set time line for events and action </li></ul><ul><li>Compute holding cost per pe...
Sources of new money <ul><li>Unbundling and de-merger </li></ul><ul><li>MBOs </li></ul><ul><li>VC </li></ul><ul><li>White ...
New Balance Sheet KPIs <ul><li>Revenue generation </li></ul><ul><li>Margins </li></ul><ul><li>Gearing & Target Interest Co...
<ul><li>Lets Evaluate this case based on: </li></ul><ul><li>STRENGTHS & WEAKNESSES </li></ul><ul><li>WHY THINGS MIGHT HAVE...
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Corporate Finance For Bankers & Regulators

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Slides showing Day 1 of presentation to the Securities Commission of Malaysia. Target audience was senior regulators in New Issues Department, Market surveillance and others.

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Corporate Finance For Bankers & Regulators

  1. 1. Securities Commission of Malaysia August 2007 Day 1
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  3. 3. <ul><li>Confidently able to discharge their duties as evaluation officers </li></ul><ul><li>Competent in the use of financial models to evaluate proposals </li></ul><ul><li>Knowledgeable in contemporary issues </li></ul>0807
  4. 4. <ul><li>4. Competent in their understanding of practical issues in the areas such as: </li></ul><ul><ul><li>Evaluating Business Strategy </li></ul></ul><ul><ul><li>Reconstructions </li></ul></ul><ul><ul><li>M & A and divestments </li></ul></ul><ul><ul><li>Pricing of Issues and Shareholder Value creation </li></ul></ul>0807
  5. 5. <ul><li>DAY ONE </li></ul><ul><ul><li>Global Financial Markets </li></ul></ul><ul><ul><li>Business Strategy </li></ul></ul><ul><li>DAY TWO </li></ul><ul><ul><li>Valuation Bases </li></ul></ul><ul><ul><li>Pricing Issues </li></ul></ul><ul><li>DAY THREE </li></ul><ul><ul><li>Reconstruction </li></ul></ul><ul><ul><li>Industry & Sector Analysis </li></ul></ul><ul><ul><li>Presentation of Case Study </li></ul></ul>0807
  6. 6. <ul><li>Global Financial Markets </li></ul><ul><ul><li>Update on contemporary trends in Global Financial Markets </li></ul></ul><ul><ul><li>Tracking Regional and Malaysian Market </li></ul></ul><ul><ul><li>Quiz on Market Intelligence </li></ul></ul><ul><li>Business Strategy </li></ul><ul><ul><li>Evaluation of Strategy Application </li></ul></ul><ul><ul><li>Creating Actionable Grid from SWOT and Strategy Statement </li></ul></ul><ul><ul><li>Establishing KPIs </li></ul></ul><ul><ul><li>Evaluating business projections against the KPIs </li></ul></ul>0807 Day 1
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  10. 10. <ul><li>Headline inflation remained unchanged at 1.4% in June. </li></ul><ul><li>Higher gross private sector financing during the month was supported by increases in loan disbursements and new PDS issuances. </li></ul><ul><li>Net funds raised in the capital market were significantly higher at RM8.9 billion in June. </li></ul><ul><li>The net NPL ratio of banking institutions improved further to 4.1% in June. </li></ul>0807
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  16. 16. 0807 Discussion Q : WHY ARE LISTED COMPANIES NOT COMING INTO THE EQUITIES MARKET ?
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  18. 18. 0807 WHERE THE BORROWED MONEY GOES … SECTORAL ANALYSIS 1 2 6 1 6
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  21. 21. <ul><li>GLOBAL </li></ul><ul><li>MARKETS </li></ul><ul><li>INDICES </li></ul>0807
  22. 22. 0807 The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
  23. 23. 0807 Standard and Poor's 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941- 43 base period.
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  26. 26. 0807 The FTSE 100 Index is a capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange. The equities use an investibility weighting in the index calculation. The index was developed with a base level of 1000 as of January 3, 1984.
  27. 27. 0807 The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. The Nikkei Stock Average was first published on May 16, 1949, where the average price was ¥176.21 with a divisor of 225.
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  32. 32. <ul><li>GLOBAL </li></ul><ul><li>CURRENCIES </li></ul>0807
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  34. 34. 0807 The Yen and Yuan Could do with some Upward revision In value Against the US – UK Markets ….
  35. 35. <ul><li>In the period 1 June – 27 July 2006, the ringgit depreciated against the US dollar. The ringgit’s depreciation against the US dollar was in line with the broad trend in regional currencies, which were weighed down mostly by the weakness in emerging market equities. </li></ul><ul><li>The US dollar, in turn, was supported by market expectations for further increases of US benchmark interest rates, as well as safehaven flows in reaction to geopolitical tensions in the Middle East. </li></ul><ul><li>The ringgit, however, appreciated against other major currencies, while depreciating against the regional currencies in the range of 0.5% - 3.4%. </li></ul>0807
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  41. 41. <ul><li>Malaysian Resources Corporation Bhd (MRCB) is awaiting the government's response to its bid for the Bakun undersea cable project, said its group managing director Shahril Ridza Ridzuan. </li></ul><ul><li>He said MRCB had proposed to the government to undertake the project ever since the Bakun dam project resumed construction in 2001. </li></ul><ul><li>Shahril said: “There has been no formal bid process for the project, but we have expressed interest to the government.” </li></ul>0807
  42. 42. <ul><li>He said the company had spoken to the government, via presentations, of how its expertise as the country’s largest transmission developer was right for the job. </li></ul><ul><li>MRCB’s subsidiary, Transmission Technology Sdn Bhd, provides transmission solutions for Tenaga Nasional Bhd. </li></ul><ul><li>Its current projects include the 500KV transmission development system in the development system in the peninsular and the Sabah East-West 275KV grid interconnection project. </li></ul>0807
  43. 43. <ul><li>KUALA LUMPUR: Some 600,000 tourists visited Malaysia in the first fifteen days of the month.  </li></ul><ul><li>Tourism Minister Datuk Seri Tengku Adnan Tengku Mansor said the tourists were mainly from Asian countries, and that the figures were very encouraging since the launch of Visit Malaysia Year 2007.  </li></ul><ul><li>He said tourists from Singapore, Thailand, China, Indonesia, Russia, Hong Kong, Japan, Korea and Taiwan visited mainly Kuala Lumpur, Langkawi and Kota Kinabalu.  </li></ul>0807
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  45. 45. <ul><li>AUGUST 4 TH 2007 </li></ul><ul><li>KUALA LUMPUR : While Malaysia’s economy is expected to grow at 6.5% next year, the stagnant unemployment rate must be addressed to prevent problems later on, an economist said.  </li></ul><ul><li>Malaysian Institute of Economic Research (MIER) executive director Dr Mohd Ariff said the country is now experiencing what he termed as a &quot;jobless growth,&quot; in which the economic growth is at 5.9% during the last five to six years, but 200,000 fewer jobs were created last year.  </li></ul><ul><li>He added one of the factors was because various sectors were moving from unskilled labour-intensive into more knowledge and technology-skilled intensive activities.  </li></ul><ul><li>The service sector had also become an important engine of growth for the Malaysian economy, which he said was contributing 32% to the country’s gross domestic product. </li></ul><ul><li>On the expectations for the local economy, he said it was expected to ease somewhat given the uncertainty for the global economic outlook for this year.  He also said Malaysia needs to join trade agreements and impart trade liberalisations policies to ensure good economic growth. </li></ul>0807
  46. 46. <ul><li>ABOLISHING the real property gains tax (RPGT) will definitely help kick start the sluggish property market in Malaysia.   </li></ul><ul><li>This is the consensus of industry players as well as many house buyers who welcomed the news.   </li></ul><ul><li>The RPGT has long been seen as an “unnecessary” obstacle to the nation’s attempt to attract more foreign direct investment, particularly in our property sector.  </li></ul><ul><li>Although the tax might discourage rampant speculation in an over-heated economy, it is felt that having the RPGT in a not so robust economy would only add to the cost of purchasing property.  </li></ul><ul><li>As it is purchasers have to pay stamp duty that can amount to quite a large sum for upmarket properties like bungalows, semi-detached houses, villas and condominiums in prime locations.  </li></ul><ul><li>Doing away with the RPGT will spur foreigners to snap up our property as they would not have to worry about having to pay a flat 30% RPGT when they sell it off in say, one to five years’ time. </li></ul>0807
  47. 47. <ul><li>KUALA LUMPUR: SP Setia Bhd is targeting for new property sales to hit RM1.2bil in the financial year ending Dec 31.  </li></ul><ul><li>This will be achieved on an expected surge in demand for homes and commercial units in prime locations in the Klang Valley, south Johor and Penang, group managing director Tan Sri Liew Kee Sin said at the Invest Malaysia 2007 conference.  </li></ul><ul><li>A third of the sales would come from developments in Johor, where demand is expected to rise with the implementation of projects in the Iskandar Development Region, he added.  </li></ul><ul><li>Yesterday, the Government announced that it would scrap real property capital gains tax effective April 1.   </li></ul><ul><li>“ The new rules is a big boost to the property market,'' Liew, also SP Setia chief executive officer, said.   </li></ul>0807
  48. 48. <ul><li>KUALA LUMPUR: The Iskandar Development Region (IDR) is finalising a RM4bil investment for one of its zones and details would be announced in the third quarter.  </li></ul><ul><li>To spearhead the development of hubs within the IDR, certain zones within its flagship zones requiring billions of ringgit in investment will be granted special incentives.  </li></ul><ul><li>The location of those zones and other details would be announced by the Iskandar Regional Development Authority (IRDA) in the third quarter, an IRDA statement said yesterday.  </li></ul><ul><li>With IDR drawing foreign direct investments worth a projected US$40bil in the first seven years, the Government has committed more than RM4bil towards infrastructure development in the region.  </li></ul>0807
  49. 49. <ul><li>The Government also announced a slew of incentives for qualified companies and this include corporate tax exemption for 10 years.  </li></ul><ul><li>Foreign workers in IDR would be able to import or purchase a duty-free car for their personal use.   </li></ul><ul><li>While companies will be free to employ foreign workers within the IDR, IRDA expects Malaysians to make up the majority of the workforce there.  </li></ul><ul><li>“ The Comprehensive Development Plan projects that 817,500 jobs will be created in the region up to year 2025.  </li></ul><ul><li>“ Companies undertaking activities in sectors other than the targeted sectors will continue to be eligible for the existing incentives,'' IRDA said.  </li></ul>0807
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  51. 51. 0807 Mission Vision Goals Objectives Measures How will we get there What we want to be Indicators and Monitors of success Desired level of performance and timelines Planned Actions to Achieve Objectives O1 O2 AI1 AI2 AI3 M1 M2 M3 T1 T1 T1 Specific outcomes expressed in measurable terms (NOT activities) Targets Initiatives What we must achieve to be successful Strategic Plan Action Plans Evaluate Progress
  52. 52. <ul><li>WHERE WE ARE (Assessment - SWOT) </li></ul><ul><li>WHERE DO WE WANT TO GO (Gap Analysis between where we are and where we want to go) </li></ul><ul><li>HOW ARE WE GOING TO GET THERE </li></ul><ul><ul><li>The Roadmap </li></ul></ul><ul><ul><li>The Scorecard </li></ul></ul><ul><ul><li>Becoming a SFO </li></ul></ul>0807
  53. 53. 0807 <ul><li>Strength’s – Those things that you do well, the </li></ul><ul><li>high value or performance points </li></ul><ul><li>Strengths can be tangible: Loyal customers, </li></ul><ul><li>efficient distribution channels, very high quality </li></ul><ul><li>products, excellent financial condition </li></ul><ul><li>Strengths can be intangible: Good leadership, </li></ul><ul><li>strategic insights, customer intelligence, solid </li></ul><ul><li>reputation, high skilled workforce </li></ul><ul><li>Often considered “Core Competencies” – Best </li></ul><ul><li>leverage points for growth without draining your </li></ul><ul><li>resources </li></ul>
  54. 54. 0807 <ul><li>Weaknesses – Those things that prevent you from doing what you really need to do </li></ul><ul><li>Since weaknesses are internal, they are within </li></ul><ul><li>your control </li></ul><ul><li>Weaknesses include: Bad leadership, unskilled </li></ul><ul><li>workforce, insufficient resources, poor product </li></ul><ul><li>quality, slow distribution and delivery channels, </li></ul><ul><li>outdated technologies, lack of planning, . . . </li></ul>
  55. 55. 0807 <ul><li>Opportunities – Potential areas for growth and </li></ul><ul><li>higher performance </li></ul><ul><li>External in nature – marketplace, unhappy </li></ul><ul><li>customers with competitor’s, better economic </li></ul><ul><li>conditions, more open trading policies, . . </li></ul><ul><li>Internal opportunities should be classified as </li></ul><ul><li>Strength’s </li></ul><ul><li>Timing may be important for capitalizing on </li></ul><ul><li>opportunities </li></ul>
  56. 56. 0807 <ul><li>Threats – Challenges confronting the organization, external in nature </li></ul><ul><li>Threats can take a wide range – bad press </li></ul><ul><li>coverage, shifts in consumer behavior, substitute </li></ul><ul><li>products, new regulations, . . . </li></ul><ul><li>May be useful to classify or assign probabilities to </li></ul><ul><li>threats </li></ul><ul><li>The more accurate you are in identifying threats, </li></ul><ul><li>the better position you are for dealing with the </li></ul><ul><li>“ sudden ripples” of change </li></ul>
  57. 57. 0807 <ul><li>Address critical performance issues </li></ul><ul><li>Create the right balance between what the </li></ul><ul><li>organization is capable of doing vs. what the </li></ul><ul><li>organization would like to do </li></ul><ul><li>Cover a sufficient time period to close the </li></ul><ul><li>performance gap </li></ul><ul><li>Visionary – convey a desired future end state </li></ul><ul><li>Flexible – allow and accommodate change </li></ul><ul><li>Guide decision making at lower levels – </li></ul><ul><li>operational, tactical, individual </li></ul>
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  59. 59. Financial Processes of Scheme <ul><li>Write off the P & L </li></ul><ul><li>Write off any and all </li></ul><ul><ul><li>Fictitious assets </li></ul></ul><ul><ul><li>Formation expenses still capitalised </li></ul></ul><ul><ul><li>Deferred Expenditures </li></ul></ul><ul><li>Revalue all assets </li></ul><ul><li>Select those that will be taken to ‘new’ Balance Sheet </li></ul><ul><li>Consider new capital structure </li></ul><ul><li>Work on new capital to be raised </li></ul>
  60. 60. Balance Sheet Pre - Construction <ul><li>Set time line for events and action </li></ul><ul><li>Compute holding cost per period = cost of maintaining downsized business </li></ul><ul><li>VIABILITY ASSESSMENT </li></ul><ul><ul><li>Determine Financing returns required by providers of new capital = TRR </li></ul></ul><ul><ul><li>Projected profits & Cash Flows </li></ul></ul><ul><ul><li>Determine Critical Mass of business volume </li></ul></ul><ul><ul><li>NPV > 0 </li></ul></ul>
  61. 61. Sources of new money <ul><li>Unbundling and de-merger </li></ul><ul><li>MBOs </li></ul><ul><li>VC </li></ul><ul><li>White knights </li></ul><ul><li>Merchant / Investment Banks </li></ul><ul><li>Other stakeholders </li></ul>
  62. 62. New Balance Sheet KPIs <ul><li>Revenue generation </li></ul><ul><li>Margins </li></ul><ul><li>Gearing & Target Interest Cover </li></ul><ul><li>FCFE returns </li></ul><ul><li>Time to get EVA to become (+) </li></ul>
  63. 63. <ul><li>Lets Evaluate this case based on: </li></ul><ul><li>STRENGTHS & WEAKNESSES </li></ul><ul><li>WHY THINGS MIGHT HAVE GONE WRONG IN TERMS OF </li></ul><ul><ul><li>Timing </li></ul></ul><ul><ul><li>Location </li></ul></ul><ul><ul><li>Strategy </li></ul></ul><ul><ul><li>Financials </li></ul></ul>0807 End of Day One

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