China July official PMI falls to 51.2 vs 52.1 in June

BEIJING: China's official purchasing managers' index (PMI) fell to 51.2 in July from 52.1 in June, the China Federation of Logistics and Purchasing (CFLP) said on Sunday, Aug 1.

The federation compiles the index on behalf of the National Bureau of Statistics.

The reading was close to the median forecast of 51.1 in a Reuters poll of 11 economists.

It was the 17th straight month that the official PMI stood above the threshold of 50 that demarcates expansion from contraction.

The index hit a record low of 38.8 in November 2008 and was last below 50 in February 2009. - Reuters

UK's Osborne urges banks to lend, restrain bonuses

LONDON: British finance minister George Osborne urged the country's banks to use strong first-half profits to boost business lending rather than pay large bonuses, in an interview published late on Saturday.

Barclays, Lloyds Banking Group and Royal Bank of Scotland are all due to report first-half earnings next week, and many analysts expect hefty profits as the banks begin to put the financial crisis behind them.

In an interview with the Sunday Telegraph newspaper, Osborne said on Aug 1'' his stance was backed by the Bank of England, which has called on banks to set aside profits in preparation for the repayment of emergency central bank loans due next year.

"We have got to be pretty clear with the banks, as I was when I got them into my office a couple of weeks ago, that we will not tolerate banks piling the pressure on SMEs (small- and medium-sized enterprises). They have an economic obligation to assist that sector and give it all the assistance that they got," Osborne continued.

"If you maintain the remuneration and dividend levels of what they were a year or two ago then that would allow additional borrowing capacity," he said.

Britain's government owns large stakes in Lloyds and RBS, which together with Barclays and HSBC dominate the country's banking landscape. However, the bank stakes are held at arm's length and Osborne does not have direct control over Lloyds' and RBS's pay and lending policies.

The BoE lent British banks almost 200 billion pounds ($312 billion) during the height of the financial crisis in 2008 which they must repay next year. If banks reduce lending to businesses in order to make these repayments, this could derail Britain's private-sector economic recovery just at the time when sharp public-sector cuts will start to bite.

Osborne said banks' business lending was already highly restrictive, echoing recent comments from business minister Vince Cable.

"Every small and medium-sized company that I have visited in recent weeks has had some problem with their bank -- either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house," Osborne said.

"The danger is that, particularly next year, when there is a huge amount of refinancing required, that the small and medium-sized businesses suffer from a lack of access to working capital." - Reuters

UAE to suspend Blackberry service on security fears

DUBAI: The United Arab Emirates will suspend use of Blackberry services in October, citing concerns about security risks, and affecting half a million users in the Gulf Arab state.

The UAE said on Sunday, Aug 1 it would halt Blackberry services on October 11 until an "acceptable solution" is developed and applied.

"It's a final decision but we are continuing discussions with them," Mohammed Al Ghanem, director general of the UAE's Telecommunications Regulatory Authority (TRA) told Reuters.

"Censorship has got nothing to do with this. What we are talking about is suspension due to the lack of compliance with UAE telecommunications regulations."

The UAE objects to Blackberry data being exported offshore and managed by a "foreign, commercial operation". The regulator said Blackberry data services are the only ones operating in that method. The decision will not affect users of rival Nokia and Apple's iPhone smartphones.

"Today's decision is based on the fact that, in their current form, certain Blackberry services allow users to act without any legal accountability, causing judicial, social and national security concerns for the UAE," the TRA said.

Officials at Blackberry manufacturer Research In Motion in Canada were not immediately available for comment.

The suspension of Blackberry Messenger, email and web browsing services comes after attempts dating back to 2007 to bring the service into line with regulations, the TRA said.

The UAE expressed concern last week that the device is open to misuse that poses security risks -- a move some took as dissatisfaction with the inability to monitor the popular Blackberry Messenger service.

"The government regards the services offered by BlackBerry, especially its instant messaging, as an obstacle to its goal of reinforcing censorship, filtering and surveillance," Reporters Without Borders said in a statement on July 26.

PROXY SERVER

BlackBerry, which holds around 20 percent of the global smartphone market behind Nokia but ahead of Apple, has an estimated 500,000 users in the UAE.

Blackberry is carried in the UAE by du telecom and Emirates Telecommunications (Etisalat), which said it would find an alternative for its clients.

Last year, RIM said a software upgrade distributed by Etisalat to Blackberry users was in fact "a telecommunications surveillance application."

"I think there will be such an uproar, it probably won't happen and a solution will be found," said Irfan Ellam, Al Mal Capital telecoms analyst, referring to the mooted Blackberry services ban.

He said RIM had been asked to set up a proxy server in India to allow the government there to monitor traffic from a security perspective and the same approach might resolve the issue in the UAE and elsewhere.

"Blackberry is seen as essential by many companies, so if you want to attract business to your country it doesn't make much sense to ban these Blackberry services," said Ellam.

Etisalat, with the lion's share of Blackberry users in the UAE, and du said they will offer alternative services to clients but did not elaborate. Shares in du fell nearly 1 percent on Dubai's main index and Etisalat slipped 0.5 percent in Abu Dhabi .

Bahrain in April warned against the use of Blackberry Messenger software to distribute local news and India raised security concerns with the Canadian company last week.

India's Internal Security Chief U.K. Bansal told reporters that maker RIM had said Indian concerns that militants may use the BlackBerry data services would be resolved soon.

A spokesman for Bahrain's Telecommunications Regulatory Authority (TRA) said on Sunday there was no action to suspend Blackberry services in the Gulf island kingdom.

RIM shares rose last week on speculation that it might unveil a new touchscreen BlackBerry 9800 this week to compete more effectively with the iPhone and models. - Reuters

Steel market demand to be flat in 3Q

KUALA LUMPUR: The global market demand for steel is expected to be flat in the third quarter after the MEPS global steel price fell in July for the second consecutive month.

MEPS (International) Ltd, a leading consultancy company operating in the steel sector worldwide, said the threat of higher iron ore costs, in the July to September period, prompted steel buyers to build up inventories in the second trimester.

'The build up was a hedge against the steelmakers imposing increased selling values for finished products,' it said in a note issued on Friday, July 30.

MEPS said most mills are attempting to operate with low order books. This weak demand is forcing steel prices down as customers have little business to place. In addition, fiscal tightening in much of the western world and China is stifling consumption of steel for infrastructure projects.

'The iron ore mining companies misread future steel market demand early in 2010. The housing boom in China was not sustainable. Government spending in most industrialised countries needed to be curtailed.

'Higher steel prices from increasing input costs were translated into a reduction in the rate of growth in steel production in the second half of this year,' it said.

MEPS said changing from annual to quarterly iron ore contracts has not provided more stability for the industry.

The reduction in steel demand in the third quarter this year is testament to this statement. If local/national governments have limited budgets then higher steel prices, as a result of increased input costs, lead to less demand for the product.

MEPS said the steel sector needs a period of stability and realistic medium term pricing policies in order to develop the market.

'Shutting down blast furnaces for several months and starting them up, only to close them down again, as is likely in Europe and the US this year, is no way to operate an industry successfully,' it said.

However, MEPS said iron ore and coal mining companies are not entirely to blame for the current difficulties in the steel industry.

It highlighted that these companies were asked to shoulder the cost of investment in new mines required by the Chinese steel mills in the drive to build up their steel industry.

MEPS said, however, it would appear that the miners took on the task quite willingly as they saw the potential for substantial profits from the sale of iron ore.

With hindsight, the Chinese mills would not have left themselves at the mercy of a few mining companies with the ability to drive coal and ore prices upwards.

Steel will continue to be a growth industry, particularly for the developing and emerging nations. It has very little competition from other materials for use in CONSTRUCTION []. Price is, however, an important factor.

'Budgets are set well in advance of the building work. Rapidly rising steel selling values usually lead to cutbacks in the number of projects which go ahead,' it said.

#Stocks to watch:* Tanjong, IJM, Zelan, Ngiu Kee

KUALA LUMPUR: After notching gains for the sixth-straight day and pushing the FBM KLCI past the 1,360 level on Friday, July 30, the market may take a breather before attempting to climb further. The cautious sentiment could be due to the lacklustre close on Wall Street on Friday.

Last Friday, the 30-stock FBM KLCI closed at 1,360.92, another new high since February 2008.'' For July, it chalked up 46.90 points or 3.57%.

Global stocks and the U.S. dollar slid on Friday, July 30 as investors trimmed risk exposure on data showing the U.S. economy slowing a bit more than expected even as other news suggested a slow, steady recovery.

Reuters reported Wall Street closed little changed to wrap up its best month in a year after another week of strong corporate results that offset the impact of lackluster economic data.

The 7% gain in July for the S&P 500 and Dow was on low volume and followed an almost 14% decline through May and June.

The Dow Jones industrial average closed down 1.22 points, or 0.01%, at 10,465.94. The Standard & Poor's 500 Index gained 0.07 point, or 0.01%, at 1,101.60. The Nasdaq Composite Index rose 3.01 points, or 0.13%, to 2,254.70.

Stocks to watch on Monday include Tanjong plc, ZELAN BHD [] and Ngiu Kee Corp (M) Bhd.

Billionaire T. Ananda Krishnan's Usaha Tegas Sdn Bhd, which controls 46.96% of Tanjong plc, has served a take-over on the power-gaming company at RM21.80 per share or for RM4.7 billion. The offer price is RM4.22 or 24% above its pre-suspension price of RM17.58.

Zelan has proposed to dispose of 30 million shares in IJM Corp Bhd, or 2.23% on IJM Corp at an assumed price of RMM5.80 each.

'The proposed disposal would raise gross proceeds of up to RM152.4 million,' Zelan said, as it seeks to obtain the shareholders' mandate for the disposal.

As at July 15, Zelan's total borrowings were RM291.98 million. Possible annual savings in interest payment arising from part repayment of about RM50 million of such borrowings (estimated based on the average interests cost of the said borrowings of about 7% per annum) could be about RM3.50 million per annum.

In Ngiu Kee, the company said there was a deviation of 109% between the unaudited net profit for the year ended March 31, 2010 of RM2.48 million and the audited net loss of RM5.93 million. The bigger losses followed an impairment review in accordance with FRS 136, the company said.

Meanwhile HIROTAKO HOLDINGS BHD [] has emerged as a major shareholder in PA Resources Bhd with a 15.99% stake or 30.65 million shares after it subscribed'' for the shares to rights issue and allotment of excess shares.

The investment in PA Resources could be a bid to enter the aluminium industry at low cost, according to a report by The Edge weekly.

BP to try well kill Tuesday, House passes reforms

BILOXI, Miss.: BP Plc said on Friday, July 30 it could seal its ruptured Gulf of Mexico oil well by next week as the U.S. House of Representatives voted to toughen regulation of offshore energy drilling.

Incoming BP Chief Executive Bob Dudley said the British energy giant would attempt a "static kill" operation on Tuesday to try to plug the blown-out deep-sea well that caused the worst offshore oil spill in U.S. history.

This marks a slight delay. The U.S. official overseeing the spill response, retired Coast Guard Admiral Thad Allen, had said on Thursday he hoped the operation to pump mud and cement into the well could be performed as early as this weekend.

As BP moved ahead with its plans, U.S. government scientists said South Florida, the Florida Keys and the U.S. East Coast likely will be spared from oil pollution from the spill despite earlier dire warnings.

The House, by a vote of 209-193, passed reforms to offshore drilling practices in response to the spill, which caused an economic and environmental disaster along the U.S. Gulf Coast. President Barack Obama supports the bill.

Gulf Coast Democrats secured an amendment to the legislation to end Obama's moratorium on deepwater drilling for oil companies that meet new federal safety requirements. The current moratorium runs through the end of November.

By the time the full Congress completes action on the offshore drilling bill -- and it is uncertain that it will -- it could be November or later. The Senate has not yet acted on its version of the legislation.

Obama's fellow Democrats in the House rejected Republican warnings that the bill would slash U.S. oil and gas production in the Gulf of Mexico, a major supplier of domestic energy, and cut high-paying drilling jobs.

The "static kill" process will involve pumping drilling mud and cement into the well from the top to plug it. A relief well is intended to intersect the ruptured well deep under the seabed to allow mud and cement to be pumped from the bottom to provide a permanent fix.

No new oil has leaked since BP installed a tight-fitting containment cap atop the well on July 15 as a temporary fix.

"We want to absolutely kill this well. The static kill will be attempted on Tuesday. The relief well by the end of the month (August)," said Dudley, BP's top executive on the Gulf oil spill who will replace Tony Hayward as CEO on Oct. 1.

At a briefing on Friday, Allen said "static kill" would be delayed until Tuesday to clean out debris and sediment found in the relief well, which has bored deep into the earth and is intended to plug the leak from the bottom.

Once cleaned out, BP can finish cementing the pipe into the relief well and move forward with a static kill, Allen said.

In his first news conference on the Gulf since being named to replace the much-criticized Hayward, Dudley stressed BP's commitment to restoring the coast.

"We are scaling back the number of vessels offshore but we are not stopping cleanup operations by any means," he said. "We are not complacent about this at all."

Millions of gallons (litres) of oil have poured into the Gulf since April, when a rig exploded and sank, killing 11 workers and triggering the leak from the BP-owned well.

Officials have expressed cautious optimism the oil already spilled into the ocean is dissipating. The spill has hurt the livelihoods of fishermen and other business owners along the Gulf Coast and presented a challenge to BP and to Obama.

HOUSE PASSAGE

The legislation passed by the House would eliminate the current $75 million liability cap for offshore operations. It also would prohibit oil companies with poor safety records from bidding for new offshore drilling leases, effectively barring BP from starting new U.S. offshore operations.

The measure would impose tighter requirements for well design and well cementing for offshore projects and on equipment known as blowout preventers intended to prevent well ruptures like the one that occurred at BP's well in April.

The Senate is considering a similar bill, but senators are unlikely to pass it before their summer recess on Aug. 6. If the Senate passes a bill, the two chambers would have to resolve any differences between their versions and pass a compromise one before Obama could sign it into law.

Democrats said the bill would make offshore drilling safer for workers and protect the environment from future spills.

"If you want to apologize for Big Oil, go right ahead, but the American people are not on your side on this one," Democratic Representative Jim McGovern told his Republican colleagues.

Scientists had issued dire warnings that oil from the spill would float into the loop current in the gulf and ride the powerful Gulf Stream current around the fragile islands at the southern tip of Florida and up the Atlantic Coast as far as North Carolina. But the U.S. National Oceanic and Atmospheric Administration said that was now unlikely.

The oil that remains in the Gulf is hundreds of miles (km) from the loop current. That oil is in the process of breaking down and will not travel far, NOAA said. - Reuters

Stocks, dollar ease as soft U.S. economic data

NEW YORK: Global stocks and the U.S. dollar slid on Friday, July 30 ''as investors trimmed risk exposure on data showing the U.S. economy slowing a bit more than expected even as other news suggested a slow, steady recovery. The dollar hit its lowest since November against the Japanese yen as data showing U.S. gross domestic product slowed in the second quarter reinforced expectations for low U.S. interest rates well into next year.

The dollar's weakness helped crude oil to rebound and drive strong rallies in wheat and sugar, which lifted the Reuters-Jefferies CRB index, a global commodities benchmark, to its biggest monthly gain in July in 14 months.

The U.S. Commerce Department said GDP expanded at a 2.4 percent annual rate in the second quarter, less than the 2.5 percent pace analysts polled by Reuters had expected.

But European stocks recovered from a sharp fall to close only slightly lower and U.S. stocks pared losses on separate, mixed signals from U.S. data to close flat.

A jump in the Chicago Purchasing Managers Index to 62.3 in July suggested a slow but steady economic recovery was spurring buying. Analysts expected a reading of 56.5.

A separate report showed consumer sentiment slumped to an 8-month low, emblematic of a fragile economy.

Global stocks as measured by MSCI's all-country world index and its emerging market index both pared losses to fall about 0.2 percent.

Wall Street closed little changed to wrap up its best month in a year after another week of strong corporate results that offset the impact of lackluster economic data.

The 7 percent gain in July for the S&P 500 and Dow was on low volume and followed an almost 14 percent decline through May and June.

The Dow Jones industrial average closed down 1.22 points, or 0.01 percent, at 10,465.94. The Standard & Poor's 500 Index gained 0.07 point, or 0.01 percent, at 1,101.60. The Nasdaq Composite Index rose 3.01 points, or 0.13 percent, to 2,254.70.

"The market kind of stalled up the last couple of days," said Nick Kalivas, an analyst MF Global. "On the surface earnings numbers have been pretty strong but underneath there was a loss of momentum," he said.

The dollar fell 2.2 percent against the yen in July, the third straight month of declines, while the euro rose 6.7 percent against the dollar, its best month since May 2009.

"It's going to be very difficult for a (dollar) rally and people are going to get more risk averse. You could see euro go below $1.30 and the dollar fall below 86 yen," said Boris Schlossberg, director of FX research at GFT Forex in New York.

Copper led industrial commodities in July with a gain of 12.4 percent, its biggest in a year.

Money managers more than doubled their long, or bullish exposure, in U.S. copper futures this week as prices hit peaks last seen in May, trade data released on Friday showed.

Gold lost about 5 percent in July, its biggest monthly loss since December, as safe-haven demand fizzled on lessening fears over a euro zone sovereign debt crisis.

U.S. gold futures for December delivery settled up $12.70, or 1.1 percent, at $1,183.90 on Friday.

Oil rebounded from losses that pushed benchmark crude below $77 a barrel.

U.S. crude for September delivery rose 59 cents to settle at $78.95 a barrel. ICE Brent also rose 59 cents to settle at $78.18 a barrel.

U.S. Treasuries rose on growing expectations for more accommodative monetary policy, with the benchmark 10-year note yield falling within roughly two basis points of a 15-month low and the two-year yield setting a new record low.

Bond prices move inversely to their yield.

The 2-year Treasury note fell to a record low of 0.559 percent. The benchmark 10-year U.S. Treasury note was up 21/32 in price to yield 2.91 percent. - Reuters

Li Ka-shing team trumps Macquarie after week of wrangling

LONDON: Deutsche Bank, RBS, Barclays Capital and BNP Paribas will share in fees estimated at nearly $100 million after helping shepherd EDF's $9 billion sale of British power networks to Hong Kong billionaire Li Ka-shing.

Late on Thursday, July 29 the world's second-biggest utility reached a deal to sell its UK electricity distribution networks to Li's Cheung Kong Infrastructure <1038.HK (CKI) and Hongkong Electric (HKE).

Agreement on a sale -- the largest utility deal since February 2009 and one of the largest-ever Asian buys into Europe -- came hours before EDF was due to report its quarterly results.

It followed days of wrangling in London, with EDF and its advisers locked in parallel negotiations with CKI and a rival bidding group led by Macquarie, the Australian bank whose name is synonymous with infrastructure dealmaking. Both teams had submitted binding bids on Monday.

People familiar with the matter said Nigel Robinson, a former Goldman Sachs banker who focuses on natural resources deals, and sector specialist Alan Brown, led a Deutsche Bank team that was EDF's key financial adviser.

A Herbert Smith team under veteran energy lawyer Henry Davey provided legal advice. EDF finance chief Thomas Piquemal, the former Lazard banker brought in by new chief executive Henri Proglio, supervised the sale.

EDF was also advised by Barclays Capital and BNP Paribas, with BarCap's Paul Jeffery helping re-shape the financing of EDF's UK units ahead of the sale.

Leading the internal deal team for Li were CKI Deputy Managing Director Andrew Hunter and Basil Scarsella, the chief executive of Northern Gas Networks (NGN), the British utility bought by CKI in 2005.

CKI turned to Royal Bank of Scotland (RBS), which had helped finance the 2005 NGN takeover. It tapped utilities specialist Simon Wilde and merger expert Charles Roast, a former Merrill Lynch banker who helped oversee the sale of London's Gatwick airport last year.

The deal represents part-nationalised RBS's biggest-ever sole mandate, Thomson Reuters data shows, and is a boost to one of Europe's mergers and acquisitions (M&A) minnows.

Excluding EDF, RBS ranks just 18th for M&A announced this year with a European target, with $14.3 billion of deals, Thomson Reuters data shows. It has worked on barely a fifth of the deals by number or dollar value that market leader Morgan Stanley can claim.

Freeman & Co, a merger consultancy, estimates EDF's three advisers will earn $40 to $50 million in fees, while CKI's bank will make $30 to $40 million.

The four banks, plus units of Lloyds Banking Group, Mizuho and Santander, are also providing 665 million pounds of loans to help fund the acquisition, people familiar with the matter said. Freeman says those loans could garner another $5 to $8 million in fees.

The rival group -- Macquarie, Canada Pension Plan (CPP) and the Abu Dhabi Investment Authority (ADIA) -- had been working with Macquarie's own investment bankers, led by European utilities head Daniel Wong, and advisers from Goldman Sachs and boutique Lexicon Partners. - Reuters

US economic growth slowed in 2Q

WASHINGTON: U.S. economic growth slowed in the second quarter as companies invested heavily in equipment from abroad and the pace of consumer spending eased, raising concerns about the recovery in the rest of 2010, according to Reuters on Friday, July 30.

Gross domestic product expanded at a 2.4 percent annual rate, the Commerce Department said in its first estimate on Friday, after an upwardly revised 3.7 percent growth pace in the January-March quarter.

Financial markets had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 2.5 percent rate in the second quarter from a previously estimated a 2.7 percent rate for the first three months of this year.

"The anticipated slowdown in the economy is happening. Will business investment fall off a cliff next quarter if domestic consumer spending continues to flag?" said Lee Olver, managing director of financial strategies at Madison Williams & Co. in Houston.

A second report showed business activity in the nation's Midwest region expanded more than expected this month on strong orders. The Institute for Supply Management-Chicago business barometer rose to 62.3 from 59.1 in June and above market forecasts for reading of 56.5.

Separately, consumer sentiment dropped this month to a nine-month low, according to Thomson Reuters/University of Michigan's Surveys of Consumers.

U.S. stocks fell on the growth and confidence data, while prices for safe have government bonds rose. The U.S. dollar fell against the yen.

The economy, which is digging out of its longest and deepest recession since the 1930s, has now grown for four straight quarters. However, growth has been too tepid, making little impact on a high unemployment rate.

The sluggish economy and a 9.5 percent unemployment rate are eroding President Barack Obama's popularity and dimming Democrats' prospects in November's mid-term elections.

A Reuters-Ipsos poll this week showed only a 34 percent approval of Obama's handling of the economy and jobs compared to 46 percent who deemed it unsatisfactory.

This is a sharp decline from early 2009, shortly after he took office, when more than half of those surveyed approved of Obama's handling of the worst financial crisis in decades.

IMPORTS SURGE

Growth in the last quarter was held back by a 28.8 percent surge in imports, the fastest increase in 26 years, which eclipsed a 10.3 percent rise in exports. The widening trade deficit lopped off 2.78 percentage points from growth, the largest subtraction since the third quarter of 1982.

Outside the trade sector, however, there were some encouraging details in the report. Business investment rose at a 17 percent rate, the largest increase since the first quarter of 2006, after a 7.8 percent pace during the prior period.

Spending on equipment and software posted its strongest growth since the third quarter of 1997, while investment on structures rose for the first time since the third quarter of 2008, likely boosted by a rise in oil and gas drilling.

Economists worried businesses might have taken an overly optimistic view of the the recovery, given the pull back in consumer spending. They expect spending to slow down in the coming quarters.

"It's good to see they are putting their money into the economy, but just how sustainable are those numbers," said Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania.

"Businesses are making up for lost ground right now. Once they have made up for it and if they are looking at a more sluggish expansion, I think they will slow their investment activity."

Growth during the second quarter was also supported by new home CONSTRUCTION [], which surged at a 27.9 percent rate after being a drag on GDP in the first quarter, reflecting a spurt in building activity spurred by a popular home-buyer tax credit that has since expired.

The rate of increase was the biggest since the third quarter of 1983. Residential investment had contracted at a 12.3 percent rate in the first quarter.

But there were some areas of concern. The report showed consumer spending was not robust. Consumer spending grew at a 1.6 percent rate in the second quarter after increasing at a revised 1.9 percent pace in the first quarter.

Consumer spending, which normally accounts for 70 percent of U.S. economic activity, had previously been estimated to have grown at a 3 percent rate in the first quarter. Spending added 1.15 percentage points to GDP last quarter.

With so much domestic demand sated by overseas production, U.S. businesses found stocks piling up on their shelves. Inventories increased $75.7 billion in the second quarter after a $44.1 billion rise in the first three months of the year.

Stripping out the rise in inventories, which could dampen future production, the economy would have expanded at only a 1.3 percent rate in the second quarter.

Separate reports showed current business conditions in New York City fell in July to its lowest level in 11 months, while employment costs in the second quarter rose a mild 0.5 percent as the soft economy kept a lid on wages and benefit costs slowed.

Usaha Tegas to take Tanjong private at RM21.80 per share

KUALA LUMPUR: Billionaire T. Ananda Krishnan's Usaha Tegas Sdn Bhd, which controls 46.96% of Tanjong plc, has served a take-over on the power-gaming company at RM21.80 per share or for RM4.7 billion.

This is the second company which Ananda Khrishan is taking private this week. Earlier ,MEASAT Global Network Systems Sdn Bhd (MGNS) launched a takeover of MEASAT GLOBAL BHD [] to acquire all the ordinary shares of 78 sen each not already held by MGNS at RM4.20 per share.

Tanjong Capital Sdn Bhd (TCSB), a special purpose vehicle set up by Usaha Tegas, and its concert parties, said on Friday, July 30 that based on the offer price of RM21.80 per Tanjong share, Tanjong is valued at RM8.8 billion. The minorities' shares are valued at RM4.7 billion.

The consortium collectively holds 46.96% of the total shares in Tanjong. The consortium has given irrevocable undertakings to TCSB to accept the offer.

"The offer price represents a premium of 21.92% over the closing price of Tanjong shares of RM17.88 per share on July 27 -- this being the last traded price prior to the announcement by TCSB of the conditional take-over offer of Tanjong," TCSB said.

Based on the 12-month rolling earnings before interest, tax, depreciation and amortisation (EBITDA) up to Jan 31, 2010 of Tanjong, the offer price of RM21.80 per Tanjong a share represents an implied enterprise value over EBITDA of 8.0 times.

TCSB said Tanjong's subsidiaries are involved in the power generation, gaming, leisure and property investment. The Tanjong Group has ambitions of being a global player in the power generation industry, by pursuing development opportunities in the Middle East and North Africa, South and South East Asia regions.

''

Tanjong as currently structured, will not have sufficient capacity to achieve these ambitions, and therefore will need to be restructured and recapitalised in order to meet the prospective long term investment and debt profile, which will result in higher borrowing costs and translate into medium term earnings volatility.

Additionally, TCSB said it believed that Tanjong which has a vast range of businesses including power and gaming, suffers from conglomerate discount valuation.

"Furthermore, Syariah-compliant and many Malaysia based institutional investors are not able to invest in the Tanjong Group's growing power assets, given the gaming business of the Tanjong Group.

"A privatised Tanjong will enable the business to seek out long-term capital providers, and where it serves the corporate objective, allow the introduction of strategic partners or undertaking of broader partnerships," it said.

TCSB said it was offering the minority shareholders of Tanjong the opportunity to exit at an attractive premium whilst not subjecting them to the associated risks of the company's next growth phase. The premium to be paid will represent a significant upfront cash yield to the shareholders.

''

CIMB Investment Bank Berhad and RHB Investment Bank Berhad have been appointed as joint financial advisers, whilst Standard Chartered Bank and RBS Asia Advisers (Malaysia) Sdn Bhd have been appointed as joint international financial advisers, to TCSB for the Offer.