BUSINESS: SPH returns capital
Far Eastern Economic Review
Aug 20, 1998


Singapore:
 Trendsetter?

  * By Salil Tripathi
    443 Words
* 08/20/98
p56    

Singapore Press Holdings did something on August 6 that large,
cash-rich companies in Singapore don't typically do: It returned money
it didn't need to its shareholders. SPH said it will reduce its
outstanding shares by 10% and compensate shareholders with S$1.22 a
share, or about S$500 million ($290 million) in total. It called the
move a capital-reduction exercise, thus staying within Singaporean
regulations that prohibit share buy-backs.
   Analysts estimate that even after the exercise, SPH will hold more
than S$1.2 billion in cash. With investment projects in Singapore and
the region drying up, analysts have repeatedly said SPH doesn't need a
cash pile.
 In bouncier times, the company ignored such comments and did what
many large Asian groups did: It dabbled in property. In the last two
years, SPH has acquired two shopping centres in the Orchard Road retail
belt, exasperating analysts who cautioned the media group against
investing beyond its core business. The company made the purchases when
prices for retailing space were near their peak. Those prices have since
declined amid a general downturn that has also forced several large
retailers to close their doors.
   By dispersing some of its cash holdings, the company is telling
shareholders they can invest it themselves to seek better returns, says
Sunil Gupta, an executive director in Singapore with Morgan Stanley Dean
Witter. (Large shareholders include the OCBC banking group, with just
over 5%, and the government's investment arm, Temasek Holdings, with
just under 5%.) The reduced number of shares will also benefit investors
when future earnings are spread among fewer pockets. That boosts
shareholder value. Gupta says the move should increase the stock's
return on equity by 2 percentage points. He figures the measure enhances
the value of each share by 44 Singapore cents.
   The move comes at the right time. SPH's main source of income,
advertising, is under strain. Ad revenue in the fiscal third quarter was
down 12% compared with the first half of the year, due largely to a fall
in employment ads as staff cuts and hiring freezes become more common.
   In their glum mood, few market players have realized that the SPH
move could prove trendsetting. An analyst at an American brokerage names
Singapore Telecommunications and ST Engineering as large, cash-rich
companies that may soon follow SPH's lead. SingTel has more than S$4
billion in cash, and is considering restructuring its capital. Chong
Yoon Chou, an investment manager at Aberdeen Asset Management Asia, says
companies holding cash earning rates similar to a bank fixed deposit
should pass that money to shareholders. Indeed, investors are now
increasingly likely to question companies with large cash holdings and
no immediate investment plans.