Thursday, January 22, 2009

Daily news - 22 Jan

Reits seek cut in payout to as low as 50%
Some Reit managers have urged the government to reduce the minimum payout ratio to Reit unitholders to as low as 50 per cent, from 90 per cent now, while still allowing the trusts to enjoy tax concessions. And they have even proposed a tax holiday on distributable income that they do not pay out. The suggestions are aimed at helping Reits conserve cash to get them through today's tight credit market conditions. Addressing concerns about a substantial loss of tax revenue, some Reit managers have suggested that the tax holiday on income that is not distributed could be limited to two years to help Reits ride out the current tough environment. Among the issues is also fairness in tax treatment in relation to other listed and non-listed entities. Some Reit unitholders may not be happy with a lower distribution payout ratio, as it will create more uncertainty about returns. This could be a bugbear, especially for corporate investors such as funds and insurance companies that have obligations to achieve target returns for their own investors and policy holders. (BT)

Analyst Comment:
The proposal to reduce minimum payout ratio to Reit unitholders and still retain tax concessions is one option that many Reit managers are exploring to gain more flexibility and build up its cash reserves under the current tough credit conditions. However, we believe that not all Reit managers would be willing or would need to substantially to adopt this measure. Firstly, some Reits had just ironed out the near term refinancing issues, such as Ascendas-Reit, which had done a placement and has obtained sufficient credit facilities to refinance its loans for the next two years; and Suntec Reit and CCT which had highlighted their strong relationship with banks. Secondly, reducing the minimum payout ratio will remove the basic premise for investing in Reits. Thirdly, reducing the payout ratio may also not help the Reits to build up its cash reserves in any big and meaningful way. In relation to the proposal to keep the tax exemptions even after cutting the payout, we believe the government will face a big hurdle as it will have to grapple with the issue of fairness to other listed and non-listed. (Anni Kum)

Gallant loses final appeal on disputed land
Gallant Venture – The Business Times has reported that Gallant Venture's subsidiaries have lost the final appeal to PT Rafflesia Matrawisatra over a land dispute. This has been an ongoing dispute for the last two years, with the Supreme Court of Indonesia in Jakarta pronouncing PT Rafflesia as the owners of the disputed lands of about 963,353 square metres. This judgment represents a sharp turnaround from previous legal proceedings, where PT Rafflesia's claims were earlier rejected by Bintan's Tanjung Pinang District Court in June 2007. The Riau High Court subsequently also affirmed the decision of the Tanjung Pinang District Court in January 2008.

To recap, in April 2006, PT Rafflesia sued Gallant's subsidiaries the ownership over 963,353 sq m of land on Bintan Resorts. Gallant , however, claims that it has land titles certifying that it owns some 863,353 sq m of the land in dispute. The outstanding 100,000 sq m was the subject of dispute between PT Rafflesia and BLR. This land is now occupied by part of the Resort. The court has ordered that the defendants relinquish their rights over the disputed lands within 14 days from the publication of the judgment and demolish any buildings on the lands. Gallant’s subsidiaries were also ordered to pay Rafflesia compensation of Rp. 33.25m for survey fee, Rp. 57.54bn (or S$7.7 million) for loss of income, and a cash charge of Rp 500,000, according to BT.

This dispute represents the sometimes murky nature of property transactions, in particular undeveloped land, which we have previously cited as a risk to Gallant’s land development plans. However, this dispute represents less than 0.5% of Gallant’s land portfolio in Bintan. While Gallant had previously said that it has no adverse financial exposure to the lawsuit because shareholder Parallax Venture Partners XXX Ltd (PVP) has agreed to indemnify in full any losses or damages as a result of this suit, the result of this lawsuit further highlights the risk of land development that Gallant faces. We will seek further clarification from the company.

Source: Kim Eng

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