FMT: Asia’s wealthy acquire expensive taste.... Reuters

Asia’s wealthy acquire expensive taste

August 20, 2011

Demand is booming in Asia for luxury cars, upmarket properties, art and jewellery, driven by a seismic shift in wealth from West to East.

SINGAPORE: Adrian Tan owns two Mercedes sedans and is looking to buy a third car. The 36-year-old financial trader was shopping with his wife on a Singapore street lined with luxury car dealerships and said he may stick with Mercedes or go for an Audi or a BMW.

In Singapore, those cars don’t come cheap, selling for upwards of S$150,000 with taxes thrown in, but Tan said he was being relatively frugal.

“The younger ones who have more disposable income and are doing so much better than before, their willingness to spend dwarfs me all the time. I have peers in their 20s buying high-end Porsches, Lamborghinis and so on.”

It’s a trend being repeated across much of the region despite sluggish markets and worries about a double-dip recession.

Demand is booming in Asia for luxury cars, upmarket properties, art and jewellery, driven by a seismic shift in wealth from West to East.

In their latest annual wealth report, Capgemini/Merrill Lynch said the number of Asian high net-worth individuals, defined as having over US$1million in disposable income, soared to 3.3 million in 2010, while their wealth surged to US$10.8 trillion.

Europe had 3.1 million millionaires last year with US$10.2 trillion in disposable income, while North America had 3.4 million with US$11.6 trillion.

With more wealthy Asians than ever before, sales of luxury goods, properties and cars are soaring.

In Singapore, just one BMW dealership in the city sells around 350 cars a month. In Greater China, which includes Hong Kong, Macau and Taiwan, BMW said it sold a total of 130,659 cars in the first six months of the year, up 60% from a year earlier.

Christie’s, the auction house, says Asian sales of art, fine wine, jewellery and porcelain in the first half of 2011 were 68% above the previous year at US$515 million.

“There is US$13-US$14 trillion spend in the region, one quarter of the world’s wealth,” said Porush Singh, senior vice-president at MasterCard Worldwide. “The global financial balance is shifting toward Asia.”

First, buy property

The rout in global markets last week may have changed the total numbers of Asia’s wealthy, but the region’s rich appear to have weathered the storm better than their Western peers.

“Asia’s wealthy are relatively insulated from global financial swings,” said Mark Matthews, Asia head of research at the private bank Julius Baer. “Asia is very wealthy, but the wealth has not been (fully) institutionalised. It is first generation wealth, it is largely uninvested.”

As a result of that uninvested wealth, banks and money managers are beating a path to the doors of Asia’s wealthy to enroll them as clients and help them put their money to work.

The first port of call for many newly rich Asians is property. Tales abound of Singaporeans going to Australia for a holiday and coming back as apartment owners after spotting a bargain.

The city-state has the highest concentration of millionaire households in the world, with 15.5% having more thanUS $1 million in assets under management.

In recent months London property has emerged as a favourite choice of wealthy Asians because of the weak pound and sky-high real estate prices in their own countries.

In the first six months of 2011, Asians have already spent more than 1 billion pound (US$1.6 billion) in new developments in central London, up from around 1 billion pounds for the whole of 2010, say realtors Knight Frank.

“The exchange rate from Asia to the UK is very favourable, whether that’s China renminbi, Hong Kong, Singapore or Kuala Lumpur,” said Sebastian Warner, regional director for Asia-Pacific at Knight Frank.

“The view is investors want another option and they see London traditionally as a very safe market and a market that provides very good returns in terms of yield and capital growth in property.”

Consumption and investment by Asia’s wealthy are being boosted both by low interest rates and high inflation.

“If you stay to cash, you lose purchasing power,” said Dominic Schnider, head of Asia-Pacific macroeconomics at UBS.

“So you either consume it or invest. Staying with it you lose. So that is why you are seeing, or you have seen, investors gearing up their exposure toward more risky assets to try to avoid loss in purchasing power.”

Wealth managers say Asians overall appear to have more appetite for risk than their Western counterparts.

“The willingness here to take a position in a risk asset tends to be higher and the ability and willingness to unwind that position and go onto the next trade seems to be higher here at the moment,” said John Woods, chief investment strategist for Asia-Pacific at Citi Private Bank.

Spend, spend, spend

Beyond investment, the outward trappings of wealth in Asia are also shifting.

Earlier generations saved cash. Now, Singapore’s wealthy can be defined by the property they own. In China, legions of newly rich are characterised by flashy, big-ticket spending.

“Conspicuous consumption is very much a part of this culture of mass affluence in China, which is now coming into India, but is still much less,” said Jahanzeb Naseer, product manager for Credit Suisse’s equity research in Asia.

“In India, the ultra-rich (the multi-millionaires) are doing that, but in China, even people below the millionaire category are doing that. That’s affected obviously retail sales and jewellery and all that. In Indonesia, anecdotal evidence shows that it is somewhere between India and China in terms of luxury goods spending.”

Porush at MasterCard said wealthy Asians in 14 countries spent more than US$1 trillion in discretionary consumption last year, on dining out, travel, luxury goods, vehicles and communications. Urban China accounted for about US$255 billion, or about one-quarter of that spending.

This will rise to US$1.8 trillion by 2015, with spending by China’s urban wealthy rising more than 20% per year to more than US$640 billion, MasterCard says.

Extravagance is apparently no longer the taboo it used to be in Asia.

“It used to be that when you’re working, you wouldn’t want to drive a flashy car because you’ll be afraid of putting people off,” said Tan, the Singaporean trader. “But now it’s different. It’s a flash game.”

- Reuters

Countries that still have the AAA rating

Countries that still have the AAA rating 11 Aug 2011 Safe AAA rating: 1. Australia GDP per capita: $39,699.358 Australia was a solid AAA earlier this year and nothing has changed. Sure, it faces pressure from floods earlier this year, but the country is rich in natural resources that have to be used to build the world whenever the economy rises again. The low population of 21.5 million, an $882.4 billion GDP in 2010 projections, vast resource reserves, lower labor costs, and a low unemployment rate all act as a shield of global woes. Its public debt for 2010 was only projected to be 22.4 percent of GDP. The AAA rating is stable at S&P, and at Moody’s it’s AAA with a stable outlook. 2. Canada GDP per capita: $39,057.444 Canada has a solid triple-A rating, and its deep trading ties to the U.S. does not jeopardize it, even if the U.S. has a troubled triple-A with a negative outlook. Canada has vast natural resources and its citizens mostly avoided the real estate and debt bubble that hurt the U.S. The population is under 34 million, its GDP is about $1.33 trillion, and public debt at the end of 2010 was a mere 34 percent or projected GDP. Neither Moody’s nor S&P have any issues with the triple-A ratings and stable outlook, and our take is that Canada is perhaps the safest triple-A rating of all nations in the Western Hemisphere. 3. Denmark GDP per capita: $36,449.554 Denmark has a relatively strong economy and claims a well-educated population. The nation has a large dependence on foreign trade for goods and services and a small population of just over 5.5 million. Revised GDP data was put at $201.7 billion. What helped Denmark so much is that it had a surplus in its balance of payments before the government started spending to drive the economy. Its high property prices are a concern, as is a slowing trade environment. S&P has a solid AAA with a stable outlook and Moody’s has a AAA with a stable outlook. The country has kept the Danish Kroner rather than offi! cially joining the euro. Low birth rates, an aging population, taxation, immigration trends, and climate change are all risks for the small country longer-term by our count. However, Denmark has a sub-5 percent unemployment rate and a 2010 debt to GDP of only 46.6 percent. Denmark’s triple-A status remains firm here unless its services sector gets hit too hard with land prices all over again. 4. Germany GDP per capita: $36,033.284 Germany is still what we call “King of the Euro” with what is now just an undervalued Deutsche mark. With a population of 81.4 million and having the No.5 global economy, it cannot avoid leading the eurozone bailouts. GDP was $2.94 trillion in 2010 and its unemployment rate is healthy for a European nation. It also has a highly skilled labor force. The growing pains of absorbing East Germany are behind it and the ratings agencies bring no quarrel with its triple-A rating. Budget deficits, subsidies, tax cuts, aging population trends, immigration and the obvious leadership in eurozone bailouts do pose a risk. Still, public debt is tolerable at 78.8 percent of 2010 GDP. While any continued spending would pose longer-term risks, our take is that Germany will keep a triple-A rating longer than most nations. 5. Holland GDP per capita: $40,764.548 Holland, or The Netherlands, is in better shape than many eurozone countries. Its population is nearly 16.8 million and GDP is roughly $676.9 billion. A solid labor force, a surplus to its current account, and strong global industry all make it appear better than many eurorzone sister nations. High-tech exports, financial firms dominance, and its trade are all lags if and when the next recession takes hold. Budget deficits were high at 4.6 percent of 2009 targets and 5.6 percent of GDP in 2010 per earlier CIA data this year. Public debt is now projected at 64.6 percent of GDP and the ratings agencies have no current issues with the Dutch. Our take is that the triple-A rating has no severe risk as long as those dikes hol! ding back the sea continue to work just fine. 6. Norway GDP per capita: $52,012.506 Norway has one of the best ratings going for it and the Economist Intelligence Unit gave it the only true AAA in earlier reports. The nation is rich in resources with a low population of almost 4.7 million people. GDP is highly dependent on the price of oil and was about $255.3 billion, and unemployment remains very low. Public debt was 47.7 percent of GDP. Norway is just about self-sufficient even if the climate of ‘welfare capitalism’ exists with close to 50 percent of exports being in oil. It also has the world’s second largest sovereign wealth fund valued at more than $500 billion. S&P and Moody’s have no issue with the triple-A ratings, and we view Norway as being just fine unless oil and fish suddenly go out of style. 7. Singapore GDP per capita: $56,521.731 Singapore is the sole Southeast Asian nation with a solid triple-A rating. Despite a reliance on foreign trade exports, investors consider Singapore the safest place today for Asia. Its population is tiny at 4.74 million and its revised GDP is $291.9 billion. Singapore did not avoid the recession, but it also proved to bounce back the most. Public debt is artificially high at 102.4percent of GDP but that is a government tie of the Central Provident Fund. Imagine this for austerity measures: Singapore has actually not borrowed to finance any government deficits since the 1980s. S&P and Moody’s have no issues with the AAA rating and outlook, nor should investors. The only obvious risks are military action, climate change, or an unknown geological event. Barring those, Singapore has as solid of a triple-A status as they come. 8. Sweden GDP per capita: $38,031.484 Sweden is the largest of Scandinavian nations with nearly 9.1 million people. GDP was $354.7 billion per revised 2010 CIA data. Public debt in 2010 was 40.8 percent of GDP, shockingly low for Europe and Scandinavia. The nation was also not wrecked by World Wa! r II due to its neutral-nation status. Still, the country does rely heavily on exports; it was not immune from the recession; and it has reformed some financial policies while recovering. Immigration and population trends have been an issue, but the ratings agencies actually have no issue with its triple-A status. For that matter, we can’t criticize the triple-A rating at this point. 9. Switzerland GDP per capita: $41,663.047 Switzerland has only grown in standing since the woes of Europe and the world have grown in 2011. The solid triple-A status appears to be immune to the happenings around its border nations. The world’s banking center has actually had to warn that it might intervene if its currency strengthens too much more because it cannot export if other currencies keep falling. The mountain nation has a population of just over 7.6 million and 2010 revised GDP of about $324.5 billion. Unemployment is shockingly low; public debt is still at 38.2 percent per revised 2010 data; its taxation is rather low; its healthcare system is a blended mechanism; there are barriers to getting citizenship; and a sensible retirement model all combine to offer no real threats at all to the triple-A rating here. The world can drive itself to hell, and Switzerland dominates. At risk of losing AAA rating: 1. Austria GDP per capita: $39,634.128 We were surprised to see Austria has a triple-A rating with a stable outlook. Its business ties to the lands of the PIIGS and to Eastern Europe hurt its balance sheet. The country has a low population above 8.2 million and its 2010 GDP was roughly $332 billion per adjusted figures. The 2010 public debt ratio was 70.4 percent of GDP. Our take is that the ties to Germany may give it perhaps an artificial triple-A rating. The EIU said, even before the latest waves of weakening in trading partner nations, that Austria needs to continue restructuring, emphasizing knowledge-based sectors, move to greater labor flexibility, and grow labor ! participation to offset unemployment and aging trends and low fertility rates. Our own internal risk assessment is more critical than S&P and Moody’s and we just do no count Austria as a true triple-A in the European austerity path and with the the PIIGS nations facing so many woes, whether the European Union bails them out or not. 2. Finland GDP per capita: $34,585.453 Finland is a worrisome triple-A nation. It has a large landmass and a small population of about 5.25 million. It has a GDP of roughly $186 billion, a higher unemployment rate today, and a deep reliance on trade. Its precious technology sector is suffering with Nokia’s decline and the CIA Factbook noted that general government finances will remain in deficit during the next few years. Being rich in timber today does not weigh as much as being reliant entirely on imports of energy, raw materials, and many components for manufacturing. While 2010 debt to GDP was only 45.4 percent, it is easy to argue that this could skyrocket higher in hard times. Aging population trends, taxation risks, and that pesky Nokia problem all act in unison to keep us from considering Finland as a true triple-A nation. 3. France GDP per capita: $34,077.040 France is one of the world’s strongest nations and is the runner-up for Big Brother status in the euro. The population is now about 65.3 million and GDP was ranked as No.10 in the world at $2.145 trillion. France actually withstood the recession better than many other nations. But the CIA data showed that budget deficit rose from 3.4percent of GDP in 2008 to 7.8 percent of GDP in 2010 with its public debt going from 68percent of GDP to 84percent over the same period. With France being a key guarantor in the EU and the woes of the PIIGS nations, France could easily find itself at-risk of losing its the triple-A rating. Its banks also own substantial U.S. debt. We still view the debt rating risks more harshly than the ratings agencies on a longer-term basis. Pension reform, tax reform, ! demographics, immigration, a high degree of exposure to bailouts, all combine with a very stubborn labor force to put France potentially under the same risk that the U.S. faces in the years ahead. 4. United Kingdom GDP per capita: $34,919.511 The United Kingdom has kept its triple-A rating since ratings were initiated. The third largest economy in Europe after Germany and France has a population of about 62.7 million and its revised GDP figure was $2.17 billion. England is in a funk even if the ratings are not under immediate fire. The Brits face property woes and S&P did actually give the nation a ‘negative outlook’ before reverting back to ‘stable’ in 2010. That puts our top allies at risk all over again if collateral damage comes from the U.S. Our banking systems have many overlaps. One risk is that while it has coal, natural gas, and oil resources, reserves are declining and it is now a net importer of energy This transmission has been issued by a member of the UOB Kay Hian Group for the information of the addressee only and should not be reproduced and/or distributed to any other person. Each page attached hereto must be read in conjunction with any disclaimer which forms part of it. Unless otherwise stated, this transmission is neither an offer nor the solicitation of an offer to sell or purchase any investment. Its comments are based on information obtained from sources believed to be reliable but UOB Kay Hian Group makes no representations and accepts no responsibility or liability as to its completeness or accuracy.

FMT: Ambiga tells of her ‘lawyerly revolt’.... by Clare Rewcastle Brown

Ambiga tells of her ‘lawyerly revolt’

Clare Rewcastle Brown

 | August 15, 2011

All the violence during the Bersih 2.0 rally came from the police, said Ambiga during a fundraising dinner in London.

Over the weekend, Bersih 2.0 chairman Ambiga Sreenivasan drew a big draw in London, bringing enthusiastic audiences to a fund-raising dinner and to listen to speeches.

The Bersih 2.0 rally had produced an excellent sympathy turnout over here in July, with several hundred marchers clad in yellow making the walk from the Malaysian High Commission over to Trafalgar Square.

The time difference between the two regions made the London event especially poignant, because by the time it got going news had already come through about what had happened to friends back home.

This weekend was the first chance for many to receive a first-hand account of what took place and from the leader of the event herself.

Ambiga manages a rare combination. She is a highly formidable female, but also warm and engaging.

She laid out with clarity and objectivity why she had led her lawyerly revolt.

For us who had been so far away it was a welcome analysis.

Bersih’s concerns had been sparked off by their observation of the Sarawak state election, she explained.

To their horror they witnessed “the dirtiest election ever” with “out and out vote buying”, “intimidation”, “phantom votes” and all the paraphernalia of rigged elections.

The fact that modern technology meant there was solid, recorded evidence of plenty of cheating meant that, in Ambiga’s view, the Election Commission had a constitutional duty to investigate and take action.

However, to her dismay the Election Commission did nothing.

EC’s wilful ignorance

As a former leader of the Malaysian Bar Council, Ambiga couches her arguments in the language of the law and not politics.

Throughout (her speech), she made clear that her core concerns are about the abuse of legality and of Malaysia’s constitution.

She explained how Bersih had appealed to all political parties on the issue, but that support had come only from the opposition.

Yet, her most withering criticism was directed towards officials of the Election Commission for their persistent attacks on the opposition and their refusal to investigate fraud.

“The Election Commissioners just don’t understand that under the constitution they are supposed to be independent of the government,” she sighed.

There can be nothing more frustrating for a lawyer than such wilful ignorance by those who have responsibility for upholding the rule of law.

For those who had been distant from the event, Ambiga’s description of what had happened to her and others at the rally was shocking.

Police had subjected her and the leader of the opposition to an attack of tear gas, fired at them from both ends in an enclosed tunnel.

“(It was) the most frightening experience of my life, I could not breathe,” Ambiga said.

Back in Malaysia, she said, BN politicians are now crowing that their tough handling of the rally had been designed to avoid the rioting and looting that had resulted from the soft tactics against protesters last week in the UK.

Wryly, Ambiga explained the main difference between the two events.

“In Malaysia all the violence came from the police”, she pointed out.

‘Raw abuse of power’

Not a pot had been broken by the peaceful demonstrators, who had turned out because they did not want the illegal practices and improprieties that they had seen in Sarawak to spill over into the upcoming general election in Malaysia.

But, the Bersih 2.0 leader is full of optimism and hope.

Thanks to the foolish handling by the government, their campaign has been successful beyond their wildest dreams.

To begin with, the Bersih Executive Committee had been worried that they would never be able to inspire the people with such a dry and difficult topic as electoral reform.

Would voters appreciate the significance of such matters as electoral registers, boundary delineation and all the little tricks that allow for the manipulation of election results?

But, as they started to mount their protests and demand key reforms, the response of the government took them by surprise and played right into their hands.

“We didn’t expect for a minute the violent reaction. It was so extreme” she said.

In her analysis, it was this “raw abuse of power”: the threats to lock her up under the ISA laws, the lies about funding, the raids on their premises, that woke up the Malaysian public to the rally and the principles that Bersih were trying to protect.

Who could have imagined, for example, that the matter of indelible ink for voting slips could have become such a major political issue?

Yet, the ferocity of the government’s refusal to take this very sensible step has created suspicion throughout Malaysia.

Heightened awareness

Since the rally, explained Ambiga, people have woken up to the fact that the electoral roll is a mess.

“The achievement of that day is heightened awareness of the importance of electoral reform”.

Every day now communities are actively scrutinising their local registers and turning up anomalies they wish to complain about.

Bersih’s crucial campaign for clean elections has taken centre stage in Malaysian politics, just as she wished.

Clare Rewcastle Brown is the founder/editor of Sarawak Report. She is also a FMT columnist.

malaysiakini: Big difference between Bersih and London riots.... by Marion Tharsis

Big difference between Bersih and London riots

Marion Tharsis

Aug 13, 11 5:41pm

The recent London riots and looting is totally a different situation from the Bersih 2.0 gathering on July 9, because one is violent in nature while the other was a peaceful expression against an electoral system that has shown so much of ambiguity and suspicious handling over a long period of time.

Bersih neither had any violent inclinations nor ulterior motive to put the country in disarray and turmoil. Bersih was blown out of proportion by certain groups to make it look like an extremist movement out to create chaos and trouble.

Therefore, comparing what happened in London to that of Bersih's peaceful march for electoral reforms is like comparing an apple to an orange. It does not take an expert to analyse both the situations and conclude that one was purely peaceful in nature while the other had evil and destructive intentions to capitalise on a police shooting incident. 

Our leaders are always seen to be quick to seek some kind of absolution and justification for their actions by making statements to intensify any given local situation.

The Bersih supporters did not throw missiles at the police on guard or riot or loot for that matter but in return the supporters were literally attacked by law enforcers with water cannons and tear gas, All these unnecessary use of force for a peaceful march to hand-over a petition to the king? 

Most right thinking Malaysians can see the difference between the two situations and are not easily swayed to accept the authorities' mostly jagged analysis and explanations.

As general election draws closer, many attempts to coax, confuse and mislead the public by both sides, can occur at an accelerated pace. Thus one has to be cautious about falling into their game of chance and opportune.

We want people to lead the country with wisdom, justice and fairness to all. We do not want people who use the given power to undermine and persecute the public at the slightest opportunity. We want leaders who lead from the front and not from the rear.

We want a prime minister who takes control and accepts that faults can and do occur and not a Prime Minister who lets his subordinates to do the talking and take individual actions according to their own whims and fancies. 

Free and clean election is our prerogative and it is one of the fundamental principles of a genuine democratic process.

Asia Sentinel: UMNO's Corporate Cornucopia

The House that Mahathir Built

UMNO's Corporate Cornucopia

Written by Our Correspondent

Asia Sentinel, 13 OCTOBER 2010

How Malaysia's companies funneled money into the country's biggest political party

In the 1980s and 1990s, Halim Saad and Tajudin Ramli were two of Malaysia's brightest stars, picked by former Prime Minister Mahathir Mohamad to lead the country's ethnic Malays onto the national stage as exemplars of a new Bumiputera business culture that would catch up with the ethnic Chinese who had dominated commerce as long as Malaysia had been in existence.

When Mahathir took office, insiders say, his plan was to create a cadre of 100 super-rich bumis who in turn would help rural Malays into prosperity under a konsep payung, or umbrella concept routed through the United Malays National Organization, much the way he envisioned driving the country into industrialization through massive projects. But greed intervened. Once the privileged got rich, there was little incentive to share it with the kampongs, the Malay rural villages. Many of the companies eventually collapsed and are being supported by government institutions such as Kazanah Nasional, the country's sovereign investment fund, or the Employee Provident Fund.

Although the Umno connection was widely assumed during Mahathir's 22 year reign as prime minister, today a flock of explosive court documents filed in different Kuala Lumpur courts appear to be breaking open conclusively the open secret that Tajudin and Halim and others were essentially front men for the United Malays National Organization, the country's biggest ethnic political party and part of a class of rentier businessmen who became known as Umnoputras, a play on the word Bumiputera, or native Malaysians, predominantly ethnic Malays.

To Continue, read UMNO's Corporate Cornucopia



UMNO-linked companies:
Faber Group Bhd
KUB Malaysia Bhd
Malaysian Resources Corp. Bhd
Media Prima Bhd
New Straits Times Press (M) Bhd
Putera Capital Bhd
UEM Builders Bhd
UEM World Bhd
PLUS
Pharmaniaga
Utusan Melayu (M) Bhd (partly owned by Syed Mokhtar Albukhary, another Mahathir crony and one of Malaysia's 10 richest men according to the Forbes List
Renong Bhd
Realmild Sdn Bhd
Mahkota Technologies (Also a partnership with Syed Mokhtar Al Bukhary
Malaysian Airlines
Celcom
Malaysian Helicopter Service
Temasek Padu Sdh Bhd
Sabah Shipyard
Labuan Shipyard
Redicare
Medivest

fmt: SakmongkolAK47: ‘Mystery’ shrouded deal to save AirAsia?

‘Mystery’ shrouded deal to save AirAsia?

Mohd Ariff Sabri Aziz

 | August 11, 2011

Why is Khazanah giving away 20.5% in 'asset'-rich MAS, which has an extensive network and prized position in the Tier-5 airline market, for a stake in debt-ridden AirAsia?

COMMENT

The boss of Khazanah Nasional says that the MAS-AirAsia deal is, among other things, “not a bail-out” of MAS.

Well, we have questions for him.

Firstly, why was this deal worked out in the first place? Why AirAsia? Isn’t AirAsia operating at some 40 times its price earning (PE) ratio?

Looking at its numbers and the fundamentals, the high PE could mean that AirAsia stocks are overpriced.

That may mean some boys are cooking up the numbers to set up the market and make killings.

Former prime minister Dr Mahathir Mohamad said MAS “can learn” from AirAsia on ways to cut costs.

Does that mean all those damned exercise carried out by former MAS chief Idris Jala wasn’t enough? Why don’t we learn from Singapore Airlines or Qatar Airlines?

Oh… we want to learn from our home-grown talent will be the likely answer.

Commissions, commissions
I know this is a BAD deal because Mahathir said so. Mahathir always says something when he actually means the reverse.

So what can we learn from AirAsia?

Let’s look at the home-grown talent’s (AirAsia) records. As of the first quarter of 2011, AirAsia debts amounted to RM7.7 billion with cash balances amounting to RM1.7 billion.

This part doesn’t require teaching for MAS. Its executives are renowned masters.

Let’s see further. In August 2010, AirAsia announced a deferment of its proposed aircraft purchases but sometime in June 2011 it reversed its decision and proceeded to place an order for an additional 200 new aircraft at the Paris Air Show.

No big deal, we can order as many as we want.

Possibly the commissions earned from the purchases dwarfed the one earned from the Scorpene submarines.

AirAsia’s skyrocketing debts

As of March 31, 2011 (first quarter report), AirAsia’s capital commitments stood at RM19 billion.

With the latest announcement, an additional RM54 billion will be added as capital commitments. The proposed capital commitments of about RM74 billion will be spread over a 15-year period ending 2026.

In other words, AirAsia has to increase its earnings to an average of RM5 billion per annum to meet its future dues.

From 2006 to 2010, AirAsia’s revenue grew by ten-fold from RM110 million to roughly RM1.1 billion. This is an average growth of RM 200 million per annum.

Now how will it reach RM5 billion?

This, we will see in the coming months when AirAsia rationalises all its routes and what not.

AirAsia’s cash reserves rose six-fold from approximately RM300 million to RM1.7 billion. But its debts skyrocketed from RM1.05 billion in 2006 to RM7.7 billion in 2010, an increase of 700%.

Surely this looks like a debt burden that is spiralling out of control.

Scheming Fernandes

This AirAsia-MAS deal is signed, sealed and delivered at an onerous and ominous time.

The world economy, including Asia’s, will be heading into another maelstrom and air travel will invariably be hit.

So what can be done?

One, AirAsia can cancel orders but contract penalties will be onerous.

AirAsia wouldn’t want to pay penalties, would it? The debt with Malaysia Airports Bhd (MAB) too, it dragged on for what seemed to be forever.

That option is no go. But then why would anyone want to forfeit commissions (from the purchase of new planes)?

Also, AirAsia chief Tony Fernandes is probably thinking along what economist John Keynes said: “When you are a big borrower, the banks are scared of you.”

So as a big borrower, Fernandes feels that size does matter after all!

He thinks it will shield him from foreclosure as banks will be wary of bearing heavy losses!

But also, a sizeable chunk of those loans are being held by Malaysian banks and in the worst-case scenario, the government and the taxpayers will have to pick the tab to avert a financial meltdown cascading down the AirAsia slope.

AirAsia – bad debtor

Now let’s take a look at MAS, currently the whipping boy but which is instrumental to further the game being played by Khazanah boss Azman Mokhtar and gang.

MAS has a paid-up capital of RM3.384 billion and has a fixed asset value of RM8.4 billion.

Its net asset is at RM 6.962 billion, where cash constitutes RM 2.086 billion.

Compare that to the position of AirAsia, which we have pointed out above. AirAsia has borrowings of up to RM7.7 billion and its cash position is RM1.7 billion.

In an earlier article, we pointed out that AirAsia has a record of being a bad debtor. It once owed MAB over RM65 million and whenever actions were taken against them, AirAsia would run to their chief counsel, former premier Abdullah Ahmad Badawi.

Now of course AirAsia has Mahathir on its side and also the abrasive and aggressive former International Trade and Industry Minister, Rafidah Aziz, who can be counted on to also be its enforcer.

MAS’ strenghts

MAS’ wealth is actually its network and position in the Tier-5 airline market. MAS’ annual operating turnover is RM12.98 billion versus AirAsia’s RM 3.948 billion.

MAS’ operating revenue from airline operation is at RM11.649 billion against AirAsia’s RM2.839 billion.

Whatever you “name” this MAS-AirAsia – “merger” or “cooperation” – it is a mystery-shrouded takeover with elements of manipulation and failure of disclosures.

Khazanah is giving away 20.5% of its holding in a company with a bigger network, acclaimed higher standard of service, much bigger operating revenue, stronger assets, lesser debts, more cash and better paymaster track record to another company with lesser track record.

AirAsia’s strength is that it excels in hyped-up marketing and showing it can make a lot of net money in shorter time.

The writer is a former Umno state assemblyman and a FMT columnist. This excerpt is from his blog sakmongkolak47.