Docpepz From Singapore, joined May 2001, 1786 posts, RR: 5 Posted (9 months 8 hours ago) and read 2232 times:
Some of us may have read the news yesterday that SIA's 4th quarter profit plunged 92%. Instead of the usual S$1 dividend that SIA has given for the past few years, SIA is offering a full year dividend of 40 cents, PLUS 0.73 SATS share for every SIA share that shareholders have.
Singapore Airport Terminal Services (SATS) is the ground handling and catering subsidiary of SIA, and is 80% held by SIA, with the remaining floated on the Singapore Exchange.
So what SIA is doing is distributing their existing stake in SATS (80%) to the existing shareholders of SIA, of which Temasek Holdings holds 55%, in lieu of a larger dividend. As such, the dividend yield for SIA this year is 13%, taking the 40c + SATS shares, making it one of the highest on the Singapore market.
For some background, on 10 Jan this year, SATS acquired Temasek Holdings' 70% stake in Singapore Food Industries (SFI) for S$500 million. It was seen as a good fit for SATS to expand out of the airport catering/ground handling business into more non-cyclical businesses. Singapore Food Industries supplies food to major UK supermarket chains, as well as Singapore supermarket chains and most importantly, the Singapore military.
Analysts though, did question whether the deal would have gone ahead if SATS wasn't a subsidiary of a Temasek company, and SFI also wasn't a Temasek subsidiary. Looking at the economic climate of Dec to Jan last year, analysts said it was very unlikely that M&A work would have gone on if SATS and SFI weren't indirectly related to each other. However, Temasek came out as the winner, with S$500 million booked in as revenue.
Fastfoward to now, and SATS and SFI are one company. SIA now announces that they will distrubte SATS shares to existing shareholders. Of course, Temasek is the largest shareholder - which means Temasek gets 55% of 80% which is 44% of SATS - becoming the single largest shareholder. So what has happened is Temasek "divested" off SFI for $500 million, and have now become the direct single largest shareholder in SATS - For free!
SIA has gained absolutely *nothing* from this SATS "divestment" - they just redistributed this subsidiary as a dividend. Temasek holdings divested of SFI and gets it back for free through SATS - which means that Temasek Holdings can, at its own time and bidding, sell SATS off at a much higher price when the market recovers.
I am no conspiracy theorist but it seems that:
1) SATS minority shareholders have been screwed because they overpaid for SFI
2) SATS loses SIA as its parent company
3) SIA gains nothing from this "divestment" of SATS
4) SIA can no longer book SATS revenue as consolidated group revenue
Temasek is the winner because:
1) They get $500 million from divesting off 70% of SFI to SATS, but get it back for nothing through SIA "divesting" 44% of SATS to them
2) Because of the seemingly high dividend yield (SATS shares + 40c) the SIA shareprice doesn't plunge in response to horrific 4th quarter earnings. In fact SIA is up 2% on the Singapore exchange today.
3) At a later date, Temasek can divest its stake in SATS at a much higher price.
Should minority shareholders in SIA and SATS be concerned about this development?
Docpepz From Singapore, joined May 2001, 1786 posts, RR: 5 Reply 3, posted (9 months 6 hours ago) and read 2098 times:
Quoting Olympic472 (Reply 2): Wow, based on the information here, it looks like you fit the pieces together pretty good.
Is this legal in Singapore? Is this ethical?
Nothing illegal about it. The market of course loves it because they're getting a 13% dividend yield. Existing SIA shareholders won't complain because they are basically getting SATS for free. SATS shareholders though would be somewhat shortchanged in this arrangement.
In the long run though, SIA no longer has a ground handling and catering company in its home base. SATS has over 80% of the ground handling and catering market share in Changi Airport (The SIA Group makes up 60% of this 80%). This means that SATS will have ENORMOUS pricing power over SIA once SIA divests them.
SIA also loses out potentially through not getting a higher price for SATS through some sort of competitive bidding process.
In the short term, Temasek Holdings will no doubt be the single largest shareholder of SATS but I can't see them holding on to SATS for long. They will surely sell it off at a much higher price in the future, since SATS doesn't really fit in with Temasek's main businesses.
Following the enormous losses Temasek incurred last year based on their disastrous investments in Citigroup, Barclays, Merrill Lynch and a whole lot of Western banks that have since nearly gone bankrupt, I can understand why they are desperate to raise cash. But doesn't it look like minority shareholders in SIA and SATS have been shortchanged, further taking into consideration the SFI sale?
Despite my feelings towards SIA which you know, one does feel a smidgeon of sympathy for their situation.
If anyone thinks that being majority-owned by Temasek Holdings and hence the Singapore Government was beneficial for SIA, they are sorely mistaken and ignorant of so many situations in which having the horrid Temasek as a shareholder is to the detriment of SIA.
SIA's problem is that it thinks it's a business. No, it's not. Airlines are capital-destroying entities that happen to fly things about.
Quoting Warren Buffet: If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money. But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in.
To that end, it keeps striving to please its shareholders with dividends so that it doesn't look bad on the Temasek Annual Report as giving a crap return to shareholders.
Last year they promised to spend S$1.18B in dividends. Considering the circumstances that have ensued since the previous financial year 07/08, I'm not accountant and I am not au fait with corporate finance but surely the company could have gone to its shareholders and asked them to suspend the FY0708 divdend in part to preserve cash?
And you are right Docpepz to highlight the sats situation. FOCUS? We need to divest sats to FOCUS on the airline? What a load of s-word. Again, I am no accountant but the beneficial effect on SIA's gearing appears marginal while SIA loses out on a profit stream which has been relatively smooth.
Temasek seem to be in it for themselves and are deluded as to the problems at SIA.
01 OCTOBER 2009: This user has retired from aviation to the status of lurker. Thanks Airliners.net for some great times
Docpepz From Singapore, joined May 2001, 1786 posts, RR: 5 Reply 6, posted (9 months 2 hours ago) and read 1820 times:
SATS operating margin is 15% compared to SIA's operating margin which is less than 10%. I think SIA having a stake in SATS (combined with SFI) which now will derive more than 65% of its revenue from non aviation sources will help SIA through tough times. The same reason why airports try to derive more and more revenue from non-aeronautical sources such as retail, which is less cyclical in nature.
May 15 (Bloomberg) -- temasek Holdings Pte sold its 3.8 percent stake in Bank of America Corp. at a loss that may total $4.6 billion, as the Singapore state-owned fund shifts bets from Wall Street to emerging markets.
The sale may have raised about $1.27 billion, based on the average price of Bank of America stock in the first quarter. The divestment was completed by March 31, according to a U.S. filing. temasek declined to comment on the price.
temasek, whose investments shrank 31 percent in the eight months through Nov. 30, raised its stake in China Construction Bank Corp. this week, and Chief Executive Officer Ho Ching said yesterday the fund would reduce exposure to developed economies. temasek had spent about $5.9 billion since 2007 buying shares in Merrill Lynch & Co., acquired by Bank of America on Jan. 1 after the stock slid 78 percent last year.
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Since 31 Mar, BoA shares have soared 66%. So temasek lost out on that!
Anyway the sale of BoA means that temasek lost what, over US$3 billion in the Merill Lynch purchase. Obviously they need cash to recover and recover quick. They have chosen to plunder the SIA Group as a means to get cash. Why are minority shareholders of SIA not pissed yet? Because of the huge dividend they are getting. But come next year and 2011, and 2020, what will SIA have left to "sell" to distribute as fat dividends to its shareholders?
To all of you who even think that SIA gets preferential treatment from the Singapore government, it is clearer than ever that is very, very far from the truth.
Very, very disappointing decision. A pity the SIA Group has had to pay for temasek's blunders in Citi and Merill.
Docpepz From Singapore, joined May 2001, 1786 posts, RR: 5 Reply 8, posted (8 months 4 weeks 1 day 21 hours ago) and read 1626 times:
Quoting Coal (Reply 7): Erm... Everything in Singapore is owned by Temasek or GIC, so what's new?
Cheers
Coal
SIA and SATS have minority shareholders. As an SATS shareholder, I would not stand to gain from this "unlocking" of shareholder value. Instead, I would have seen SATS overpay for SFI for Temasek's gain. As a SATS shareholder, I now lose SIA as my parent company.
Winner = Temasek
As an SIA shareholder, yes I would get a great dividend yield this year (SIA announces a halving in profit but doubles their dividends through cash + SATS shares - is that irresponsible or what?) However, SIA could have spun SATS off at a much higher price in the future. Instead, it is Temasek, which owns 44% of SATS, that is in the dominant position to spin SATS off some years down the road at a much higher price.
Winner = Temasek
If SIA cut their dividends to 40c from $1 and left it there, their share price would have plunged. So SIA redistributes SATS to its shareholders, of which Temasek holds a 55% stake. SIA share price doesn't plunge.
Winner = Temasek
Minority shareholders, SIA itself and SATS itself? They get a raw deal. SIA loses a subsidiary without getting any money for it, and SATS loses its parent after having overpaid for an asset from its parent's parent!
Olympic472 From United States of America, joined Jun 2008, 342 posts, RR: 0 Reply 9, posted (8 months 4 weeks 1 day 21 hours ago) and read 1571 times:
Quoting SInGAPORE_AIR (Reply 5): To that end, it keeps striving to please its shareholders with dividends so that it doesn't look bad on the Temasek Annual Report as giving a crap return to shareholders.
Last year they promised to spend S$1.18B in dividends - - - in part to preserve cash?
And you are right Docpepz to highlight the sats situation. FOCUS? We need to divest sats to FOCUS on the airline? What a load of s-word. Again, I am no accountant but the beneficial effect on SIA's gearing appears marginal while SIA loses out on a profit stream which has been relatively smooth.
Temasek seem to be in it for themselves and are deluded as to the problems at SIA.
What is that word - ponzi ?
Quoting Docpepz (Reply 6): Very, very disappointing decision. A pity the SIA Group has had to pay for Temasek's blunders in Citi and Merill.
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