China Eastern retries the Singapore Airlines' bid, will they eventually succeed?




China Eastern Airlines said on Jan 28 that the company is striving to hold another shareholder meeting with the purpose of gaining shareholders’ support for the tie-up with Singapore Airlines, according to the company's chairman Li Fenghua.

There is no detailed meeting schedule yet, as it is still in a preliminary stage. Last year, Singapore Airlines and parent Temasek Holdings offered to buy 24% of China Eastern Airlines at a price of HK$3.8 per share, totalling HK$7.16 billion in order to expand their businesses in China's booming aviation market.

However, the bid was rejected earlier by China Eastern's shareholders while China National Aviation Corporation (Group) Limited (CNACG), the parent group of Air China offered to take the bid at a higher price and establish strategic partnership with China Eastern. China Eastern later refused to respond to CNACG's proposal, saying the offering was incomplete, insincere and lacked legal validity.

Singapore Airlines and its parent Temasek Holdings refused to raise the bid as they found "nothing is a must to get".

So what does the future bode for these companies?

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Will the governments “hands off” approach benefit GIC and Temasek Holdings?



Tharman Shanmugaratnam, Singapore's minister of finance, said the government will take a "hands off" approach to the investments of its sovereign wealth funds Temasek Holdings and Government of Singapore Investment. He made these comments to lawmakers in Parliament.


Temasek and GIC have invested about $23 billion in UBS AG, Citigroup and Merrill Lynch since mid-December as the banks turned to investors after record write downs and losses.



“Let me first state that GIC and Temasek make their investment decisions independent of each other, and of the government. They make these decisions for commercial reasons, based on their own calculations, free of any influence from government.”



GIC has explained the reasons why it made a major investment in UBS, and more recently in Citigroup. Likewise, Temasek has stated why it invested in Merrill Lynch. The U.S. subprime crisis has resulted in several global financial institutions facing large write downs of their assets, and requiring fresh capital. This presents opportunities for investors that are liquid, and able to take a long-term view. GIC and Temasek were among those approached.

“They assessed the proposals rigorously. In each instance, GIC and Temasek concluded that these were good, long-term investments and valuable additions to their overall portfolios. They considered each of the banks as having a strong business franchise and good long-term growth potential, across multiple businesses and multiple locations. Hence they negotiated terms which protected their interests and made financial sense, and entered into the deals.”

When asked to comment on the risks involved, they referred to the large investments as with all commercial investments, there will be some downside risk. It is up to GIC and Temasek to assess this risk, and decide if it is acceptable. Their responsibility is to accept prudent risks in order to earn good returns on their overall portfolios.

“It is not the government's role to comment on or second guess whether it was timely for GIC and Temasek to have made these two investments. It does not judge the performance of GIC and Temasek by their individual deals. Nevertheless the government is assured that both GIC and Temasek had thoroughly assessed the risks of each of these investments, and had made hard-headed commercial decisions after careful assessment of the risks and the prospects for returns over the long term.”

Albeit the government is assured, will GIC and Temasek actually manage to live up to what their expected of?

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What are some of the main factors for Singapore’s economic freedoms?


Singapore is catching up to Hong Kong in terms of economic freedom and could soon surpass the SAR. That was the message delivered at the Washington-based Heritage Foundation's 2008 Index of Economic Freedom. It shows Hong Kong's freedom decreasing and Singapore's increasing compared to last year's scores.

"The gap between Hong Kong and Singapore is shrinking," Heritage Foundation vice president Kim Holmes said. If the Singapore government lowers its amount of intervention in the banking industry, it "could very well end up giving Hong Kong a real competition," Holmes said.

Bank of East Asia chief economist Paul Tang Sai-on called the report "a wake-up call for Hong Kong."He added: "I think, for regulators as well as the SAR government, they should look into the report and see what areas we can further strengthen our lead."

Hong Kong was ranked first in the American think tank's ranking of economic freedom for the 14th year in a row. Singapore was second again. In its report, the Heritage Foundation criticized the Hong Kong government for the Scheme of Control regulation of electricity prices as well as the regulation of prices for public transport and some residential rents.

A government spokesperson explained the transportation price controls seek to "balance the interests of the public and the operators" and said affordable electricity is "vital." Singapore is already ranked higher than Hong Kong in terms of business, monetary and labor freedoms.

"We are determined to uphold Hong Kong's position as the freest economy in the world," said Financial Secretary John Tsang Chun-wah. "We see the role of the government as that of a facilitator."

Points were taken off Hong Kong's trade freedom score because of "restrictive" pharmaceuticals regulation, market access restrictions for legal services, limited import licensing, and issues involving intellectual property rights that add to the cost of trade.

Do differences in economic freedoms result in large differences in economic growth and prosperity, and why?

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Is it rivalry that made Singapore Airlines fail to investment in China Eastern Airlines?






Singapore Airlines (SIA) quickly expressed its disappointment over the shareholders' rejection of its investment in China Eastern Airlines (CEA). The Singapore flag carrier said in a statement that “Singapore Airlines is disappointed that the proposed transaction involving an equity stake in China Eastern Airlines did not receive the required level of support from independent shareholders EGM (extraordinary general meeting)."

CEA's minority shareholders voted against selling 24 percent stake for 7.2 billion Hong Kong dollars (about 923 million U.S. dollars) at 3.8 Hong Kong dollars per share to SIA and Temasek Holdings, Singapore's government-related investment firm. The China Eastern-SIA deal has been baffled by another Chinese airline giant Air China. Its parent company China National Aviation Holding Company, announced before the shareholders' meeting that it will make a counter-offer at least 32 percent higher than that of SIA's.

SIA maintained in the statement that its offer represents a “full and fair value for the equity injection to recapitalize the airline", and noted that the transaction “has also been approved in accordance with relevant laws and regulations." It reiterated, "The proposal is for a long-term strategic relationship with a willing partner." And its proposal would have brought international expertise from SIA's board and management to China Eastern, which, SIA said, would have helped CEA meet future challenges in a competitive aviation environment in China.

However, SIA said it respected the shareholders' vote and will continue to support the building of a relationship with China Eastern. On its part, Temasek Holdings said it remains open to future opportunities which make commercial sense, and that fall within Temasek's overall investment framework.

What are the future plans that Singapore Airlines look forward to?

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How long will Singapore take to recover from it’s slowing economy performance?




Singapore's economy unexpectedly contracted last quarter as factory output slowed, suggesting Asia's export-dependent markets may face increased risks from slower global growth. Gross domestic product shrank an annualized 3.2 percent after adjusting for inflation, the first decline in 18 quarters, and followed a revised 4.4 percent expansion in the third quarter, the trade ministry said. Economists were expecting a 3.1 percent gain. Singapore's figures give economists an insight into how turmoil in global markets and the subprime-mortgage crisis in the U.S., the region's biggest export destination, may affect Asia's expansion.

“We definitely should expect to see more softness in exports in the next couple of quarters, and that's bad news for electronics-heavy Asian economies,'' said Kit Wei Zheng, an economist at Citigroup in Singapore. “That means slower growth for Singapore and the rest of Asia.''

The Singapore dollar rose 0.1 percent to S$1.4406 per U.S. dollar as of 1 p.m. in Singapore. The benchmark Straits Times Index fell 0.8 percent to 3,453.15. China, South Korea and the Philippines are due to report fourth-quarter GDP numbers later this month, while Japan, Taiwan and Malaysia are scheduled to release theirs in February.

Manufacturing climbed 0.5 percent in the last three months of 2007 from a year earlier, the smallest increase in 4 1/2 years. Output growth slowed from a revised 10.3 percent in the July-September period as pharmaceutical plants produced fewer drugs, the trade ministry said.

The Asian Development Bank last month said growth in emerging East Asia in 2008 will be 8 percent, half a percentage point lower than last year. The region is twice as reliant on exports as the rest of the world, with 60 percent of overseas sales ultimately destined for the U.S., Europe and Japan.

From a year earlier, Singapore's $132 billion economy grew 6 percent in the fourth quarter after gaining a revised 9 percent in the previous three months. Economists were expecting 7.7 percent growth.

“There's no imminent turnaround in electronics and we're unlikely to see a recovery in the next six months,'' said Irvin Seah, an economist at DBS Group Holdings in Singapore. “Pharmaceuticals, a key support for manufacturing, has been losing steam.''

Singapore's electronic exports have dropped each month since February, mired in the worst slump in five years. South Korea yesterday lowered its growth forecast for 2008, pointing to the likelihood of slowing exports. Taiwan is also predicting an easing in overseas shipments this year which it said will make its growth target “highly challenging.''

Singapore's services industry climbed 8.3 percent from a year earlier, matching the growth rate in the previous three- month period. Economists said demand for financial services probably eased as the rout in global credit markets increased risk aversion and the city-state's government implemented measures to cool the property market.

Global stock markets have lost $1.6 trillion in value since October and the collapse of the subprime-mortgage market in the U.S. triggered more than $80 billion in writedowns among the world's largest banks.

“Singapore's financial services industry has been affected by the shadow of the subprime problem,'' Seah said. “Investors are more cautious and that has slowed down activity.''

The island's burgeoning construction industry prevented a wider contraction in the economy last quarter as companies such as Exxon Mobil set up new plants and property developers build new office towers and condominiums. Southeast Asia's fourth-largest economy reported a record S$16 billion ($11 billion) in fixed-asset investments last year. Construction surged 24.4 percent from a year earlier, after a revised 19.2 percent gain in the three months ended September.

The economy advanced 7.5 percent in 2007, easing from a 7.9 percent rate of expansion the year before. The government expects growth to be between 4.5 percent and 6.5 percent in 2008.

Singapore's growth had raised concern the economy is overheating, with consumer prices rising at the fastest pace in more than 25 years. Policy makers expect inflation to be between 3.5 percent and 4.5 percent this year, accelerating from a forecast average of 2 percent in 2007.

Will Singapore government implement strategies to overcome the slow growing economy?

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