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Singapore Daily Bulletin – 14/12/12

SGX Cautious On Blanket Ruling Over Biological Assets
In the wake of the Olam-Muddy Waters saga, Singapore Exchange (SGX) plans to be cautious on whether it should follow Hong Kong exchange’s footsteps in banning companies seeking a listing from including unrealised gains on biological assets, according to SGX head of issuer regulation Mohamed Nasser Ismail. The Hong Kong exchange noted that agricultural companies could not rely on “unrealised fair value gains on valuation of biological assets” to demonstrate a trading and profitability track record when listing. This accounting practice is at the heart of accusations by Muddy Waters against the commodity firm to boost the latter’s bottom line. Olam’s defence is that its accounting was in line with Singapore financial standards, which is a requirement by SGX; to prepare the statements according to accounting standards at levels of the International Financial Reporting Standards (IFRS), Singapore Financial Reporting Standards (SFRS) and US Generally Accepted Accounting Principles.

Significance: SGX has not determined whether a blanket ruling that unrealised gains on biological assets to be excluded in all circumstances and will not hastily respond to the recent issues on the accounting standards. It will closely monitor international developments and listen to informed opinion.

Elektromotive Sells Stake In UK Subsidiary For $10.8m
Elektromotive Group, a leading provider of technology and engineering solutions for electric vehicle (EV) recharging stations, is proposing to sell its 55 percent stake in its UK subsidiary, Elektromotive (UK) (EUK) to Chargemaster Plc for $10.8 million. EUK’s managing director, Calvey-Taylor Haw will also be selling his 42 percent stake to the company. After the proposed divestment, Elektromotive will receive a royalty-free license to use various legacy technologies and solutions developed by EUK in the past in Asia and Australasia, excluding Japan. Notably, the company’s net cash position is expected to exceed $10 million following the transaction and will be used to fund the recharging business opportunities in fast-growing Asian markets, particularly China to ride on the strong emphasis by the Chinese government to encourage EV sales to reduce emissions and fossil fuel consumption.

Significance: Elektromotive notes that part of the proceeds will also go towards rewarding its shareholders in the form of dividends and a share buy-back plan and is positive on breaking into the Asian market as the next high growth area.

China Merchants Purchases Jiurui Expressway In Jiangxi Province
China Merchants Holdings (Pacific) (CMHP) has entered into a conditional share purchase agreement with Liu Qiang and Gong Xiaoping to acquire Jiurui Expressway in Jiangxi Province, China for a maximum purchase price of Rmb925 million ($179.5 million). For the past two years, CMHP has taken major steps to expand the scale of operations of its toll road business and to strengthen its toll road portfolio. Apart from the Jiurui Expressway, the other two major acquisitions include Yongtaiwen Expressway and Beilun Port Expressway which were acquired in August 2011 and November 2012 respectively. Meanwhile, CMHP also intends to dispose of its non-core property development business in New Zealand, positioning it as a pure player in the toll road business.

Significance: With the acquisition of the Jiurui Expressway, CMHP’s toll road portfolio will comprise five expressways, diversified in four provinces with the expiry dates of the respective toll concession periods ranging between March 2025 and November 2033. However, one point to note is that Jiurui Expressway is currently loss-making due to high finance costs from bank borrowings taken up to finance its construction.