By Lee Meixian

leemx@sph.com.sg@LeeMeixianBT

Singapore

IT’S NOT just start-ups, tech projects

and social campaigns anymore.

Crowdfunding in Singapore has em-

braced a new asset class: real estate –

nascent even in countries such as the

United States, France and Australia.

Twosuchplatforms,CoAssetsand

DomaCom Singapore, are already

available here. A third, FundPlaces,

will be launched by end-May.

These platforms generally “match-

make” property deals – be they mez-

zanine loans to developers or equity

in physical property – with investors.

Properties can span land banks to de-

velopment projects to completed in-

come-yielding buildings.

The huge benefit it brings to

small-time developers is a quick and

efficient alternative source of fund-

ing,while sophisticated investors like

it for theirnewfoundaccess to real es-

tate deals.

Yet most Singapore developers re-

main wary and prefer more tradition-

al funding sources like bank loans,

debt issuances and shareholder

funds.Consultantsalsodoubt that re-

al estate crowdfunding will become

mainstream in the near future.

Thebiggestgriperemainsthehigh

risks – risks that the promised re-

turns do not materialise, risks that

projectsfailduetoadeveloper’snegli-

gence, or of investors not being able

to liquidate their securities.

The governing regulatory frame-

work is still vague. The Monetary Au-

thority of Singapore (MAS), in seeking

tobalancebetweenfacilitatingsecuri-

ties-based crowdfunding and putting

in place safeguards, has proposed to

limit such investors to only accredit-

ed investors and institutions. The in-

dustry has given its feedback, but the

rules have not been finalised.

Crowdfunding platforms here

themselves are erring on the side of

caution and exercising various forms

of due diligence to avoid non-per-

formance. which they say would hurt

their reputations and goals to be

long-term players.

They ensure that the developers

that listontheirplatformsareofacer-

tain standing, and are target accredit-

ed, institutionalandhighnetworth in-

vestors. The man in the street has no

place in these deals.

For instance, CoAssets requires

the developer to have a Singapore of-

fice and local director who would be

held liable in a default.

Ong Choonfah, chief operating

officer at DTZ SE Asia, pointed out

however that “personal guarantees

are only as good as the person who is

guaranteed”.

Crowdfunding platforms can go to

great lengths, but without more ro-

bust regulations, there are limits to

howmuch theycan protect investors.

Counterparty risks remain, for ex-

ample.

“For most projects, we can’t guar-

antee they won’t fail,” said FundPlac-

es co-founder Tan Kok Keong. “That

isa risk thatall investorshave to take.

But we try to mitigate that risk by

workingwithpeoplewhohaveshown

themselves to be good paymasters,

who are proper business people and

have credible backgrounds.”

☛ Continued on Page 2

Prime Minister Lee HsienLoong is expected to

announce at his retreat with

Malaysian Premier Najib

Razak on Tuesday the location

of Singapore’s terminal

station for the proposed

high-speed rail link with Kuala

Lumpur. TOP STORIES / 2

To avoid nasty – and possibly

costly – surprises in your

investing, don’t be afraid to

look closer at companies’

financial statements and ask

probing questions.

BT-CITIBANK YOUNG INVESTORS’FORUM / 12

If there is a path leading outof the realm of “systemicallyimportant financialinstitutions”, AIG may alreadybe on it, the insurer’s CEOsays. BANKING & FINANCE / 13

China is preparing to shufflethe leadership of its biggestoil companies, helping toclear a path in a crucial areaof the economy for PresidentXi Jinping as he plans hisoverhaul of the nation’sbloated state sector. ENERGY& COMMODITIES / 14

The euro’s slide against theUS dollar is paying off forcompanies from German drugand chemical maker Bayer AGto French cosmetics giantL’Oreal SA, adding tooptimism that the currencymove is fuelling an economicrecovery. CONSUMER / 18

With just a few days to goto the UK elections thisThursday, pollsters, bettingshops, markets and businesspeople have becomeincreasingly convinced thatanother coalition is inevitable.

GOVERNMENT & ECONOMY / 20

After the final bell, boxerFloyd Mayweather jumped onthe ropes and defiantlybarked to the crowd. He knewhe’d won the bout, buteveryone else needed judges’confirmation. Moments later,the scorecards made itofficial. LIFE & CULTURE / 24

By R Sivanithy

sivan@sph.com.sg

@RSivanithyBT

Singapore

A GROUP of professional traders has

complained three times over the past

sixmonths to theSingaporeExchange

(SGX) and the Monetary Authority of

Singapore (MAS) about the mar-

ket-making activities of Macquarie

Capital Securities (MCS) for the Hang

Seng Index (HSI) warrants issued by

Macquarie Bank (MB).

In complaints dated Nov 12, 2014,

Dec 22, 2014 and March 8, 2015, the

traders alleged that the warrants of-

ten did not move in accordance with

theunderlying indexandthe theoreti-

cal pricing model. They listed dozens

of instances, illustrating situations

where call warrants fell instead of ris-

ing when the HSI rose, and where put

warrants also fell when the HSI

dropped.

MCSis thedesignatedmarketmak-

er (DMM) for warrants issued by MB,

which means that MCS is obliged to

provide constant buy-and-sell prices

throughout each trading session.

For example, according to the lat-

est batch of HSI call warrants issued

in April, the term sheet specified that

the maximum bid-offer spread was

10 times the minimum permitted

price movement in the warrants or

S$0.20, whichever was greater.

The complaints alleged that MCS’s

pricing was “erratic” and “unfair”. Be-

tween Dec 22, 2014 and March 8,

2015, the complainants claimed to

have recorded 66 instances of “erraticprice behaviour”, including allegedodd delays in MCS’s automated pricequoting system which proved detri-mental to the complainants’ tradingpositions.

When contacted, an SGX spokes-man said it had received the com-plaintsand was looking into them butcould not comment on specific cases.BTunderstands MAS isawaiting SGX’sfindings since it is the exchangewhich supervises DMMs.

Meanwhile, an MCS spokesmansaid it had been notified of the com-plaints but could not comment as ithad not received details yet.

Warrants are derivative instru-ments that derive their value from anunderlying asset. Call warrants giveholders the right to buy the asset at a

fixed price within a specified timeframe and so rise when the underly-ing asset rises, while put warrantsgive holders the right to sell the assetat a fixed price within the stated timeperiod and therefore gain value whenthe underlying asset falls.

Structured warrants differ fromcompany-issuedwarrants in that theyare offered by financial institutions(usually banks like MB) when there isdemand for such instruments.

Upon expiry, warrants that are “inthemoney”aresettled incashby issu-ers – that is, calls whose exercise pric-esarebelowtheactualpriceof theun-derlying asset or puts whose exerciseprices are above the market price.

Warrant pricing typically uses anoption pricing formula that incorpo-rates five variables: time to expiry,

the underlying asset’s price, the exer-cise price, the risk-free interest rate,and expected future volatility.

Inordertoensureaprofitablebusi-ness, issuersactivelyhedgetheirposi-tions, usually by buying or selling theappropriatequantityofover-the-coun-ter options or the underlying asset it-self.

In theory, because of their hedg-ing, issuers are directionally neutral,and so are thought to be largely indif-ferent to the direction of the underly-ing asset. However, they are exposedto the volatility of the underlying as-set.So intimesofgreatvolatility, issu-ers face higher hedging costs.

MB is the market leader in the localmarket for HSI structured warrantswith an estimated 90 per cent marketshare.

Crowdfunding comesto S’pore real estate

❚❚ DAILYDIGEST Hang Seng warrants: traders complain

Founder(s)

Targetedinvestors

Types of investments

Usual investment bracket

Usual total quantum

Returns

Location of properties

Business model

Due diligence/authorisation

Tan Kok Keong & Brian Wee

Accredited investors* only

Development andincome-yielding assets

S$50,000 to S$200,000

S$10 million and below

8-20% pa, dependingon asset class anddevelopment stage

Key cities in Asiaand Australia

(Declines to provide)

Requires developers toprovide the necessary duediligence documents forinspection by prospectiveinvestors

CROWDFUNDING

PLATFORMCoAssets FundPlaces DomaCom

Real estate crowdfunding platforms

*Accredited individuals are those whose net personal assets exceed S$2 million (with conditions) or whose income in the preceding 12 months is at least S$300,000. Accredited corporations are those with net assets of more than S$10 million.

Source: Compiled by BT

Getty Goh & Seh Huan Kiat

SME bosses and high net worth individuals (not necessarily accredited)

Mostly development projects

S$10,000 to S$50,000

S$100,000 to S$1.5 million

5-15% pa

South-east Asia and Australia

Success fees (5% of amount raised)AdvertisementsPublicationsEvents

Ensures developers have a Singapore office and local director (who wlll be held liable in a default)Ensures complete documentationOther Acra checks including substantial paid-up capital

Arthur Naoumidis

Financial advisory firms,wealth management firms,private banks (who in turnadvise their accreditedinvestor clients)

Land banks, developmentprojects, completed properties(student accommodation, hotel suites, condotels are most popular)

Australian retail investors: min A$20,000Singapore accredited investors: min S$200,000

Australian retail investors: A$300,000 to A$1 millionSingapore accredited investors: S$1 million to S$30 million

Varies according to property,eg 3-4% rental yield +6-8% capital gains(on disposal) for Australianresidential properties

Australia

Fund management feesof 0.88% pa

Fund is registered with MASin Singapore. In Australia, it isapproved by ASIC and backedby Perpetual Trust Services

In 3 letters to SGX and MAS, they allege Macquarie’s pricing is “unfair” and “erratic”, with warrants often not moving in line with underlying index

TOPLINEDigital, social media consultancy power Weber Shandwick growth

COMPANIES & MARKETS / 4

STI 3,487.39 -25.61

KL COMP 1,818.27 -44.31

NIKKEI 225 19,531.63 -488.41

HANG SENG 28,133.00 +72.02

SHENZHEN B 1,426.32 +29.41

DOW 18,024.06 -56.08

MARKETSWeekly Change

THE REAL DEALUncompromising respect for original Thai cuisine at David Thompson's Long Chim

DINING OUT / 23

ASEAN CORPORATE GOVERNANCE SCORECARDFull rankings of the 100 largest Singapore-listed companies TOP STORIES / 3

BUSINESS SCHOOLS IN ASIAHow should they position themselves in the global marketplace? VIEWS FROM THE TOP / 10-11

S$1.00 MCI (P) 051/08/2014 Monday, May 4, 2015

☛ Continued from Page 1

Lim Yew Soon, managing director of

Singapore property developer EL De-

velopment,alsoworriesthateasierac-

cess to finance will lead developers to

become less cautious and take higher

development and investment risks,

as opposed to the prudence one

would naturally practise when using

one’s own shareholders’ funds.

Some say that real estate crowd-

funding is not new. DomaCom

Singapore’s managing director Paul

Zaman, for example, calls it just a

modern buzzword for age-old finan-

cial practices: “In stockbroking, this

process is called bookbuilding. And

in property, it’s called syndication.”

EL’s Mr Lim also likened crowd-

funding to some developers’ method

ofgettingfundsfrombusinessassoci-

ates who are not shareholders of the

company. “They are more like angel

investors who put in money to fund

development projects, be it local and

overseas. This has been in place for

years. In return, they take a percent-

age, say 2 per cent, of the project’s

profits.”

Others highlight a slight differ-

ence: syndicates are made up of peo-

ple who know one another quite well,

but in crowdfunding, complete stran-

gers could be pooling their money to-

gether to buy a property.

Real estate crowdfunding also dif-

fers from real estate investment

trusts (Reit), which come with a

non-customisableportfolioofproper-

ties, and private property funds,

which like Reits typically buy big-

ger-ticket assets.

Different crowdfunding platforms

also work differently. Unlike

CoAssets and FundPlaces, DomaCom

Singapore, a unit of Australia’s Doma-

Com, is more like a mutual fund with

many sub-funds, each containing a

property. Investors hold units in

these sub-funds and reap monthly

rentalyieldsand acapitalgainwhen a

property is sold. There is an – though

not yet sizeable – online secondary

market to allow investors to trade

their holdings.

It is essentially a “less clunky and

cumbersome” way of doing syndica-

tion, and there are available exit strat-

egies, said Mr Zaman. The sub-funds

can be terminated with a 75 per cent

unitholder vote, or a 50 per cent vote

after five years.

DomaCom opened its one-man of-

fice in Singapore last November. Its

fund is registered with the MAS.

In Australia, it is approved by the

Australian Securities and Invest-

ments Commission and backed by

Perpetual Trust Services. It hopes to

list in Australia in the next couple of

years to improve its credibility.

The one commonality that runs

through all three crowdfunding plat-

forms seems to be the location of

theirprojects inAustralia;andtheoth-

er, the conspicuous absence of any

Singapore projects.

There is a reason for this: the dif-

ferent payment methods for develop-

ers in both jurisdictions, explained

Brian Wee, CEO and co-founder of

FundPlaces.

Developers of Australian proper-

ties only get their sales proceeds

when their projects are completed,

whichmeanstheyhavetofundtheen-

tire project through bank loans, equi-

ty, and mezzanine financing. The

kind of “loans” FundPlaces facilitates

falls under mezzanine financing, and

frees upsome of the developers’ capi-

tal toacquirenewsitesor takeupnew

projects.

At as high as 20 per cent, the inter-

est ratesarehefty though. Incompari-

son, Australia’s banks are lending at

4-4.75percent for loan-to-value (LTV)

ratios of 50-60 per cent for five-year

maturities. Five-year corporate bonds

yield about 3-4 per cent.

Conversely, crowdfunding is less

necessary for Singapore projects be-

cause the initial downpayment and

subsequent progressive payments

are usually enough to fund construc-

tion. It is the land purchase that re-

quires loans, but crowdfunding plat-

forms are unable to raise large

enough an amount. Their funding

quantum is capped at S$10 million.

Is it going to be a disruptive tech-

nologytocommercial lending?Found-

ers of crowdfunding platforms here

say it is complementary, rather.

Ensuring that developers have

first obtained bank lending before

they are allowed to crowdfund gives

FundPlaces some certainty of the

developer’s credit-worthiness, said

Mr Wee.

CoAssets, which facilitates S$1-5

million loans to boutique developers

looking to do small regional projects,

said crowdfunding bridges a funding

gap where it might be difficult for

these developers to get bank loans.

“But when they have built a track

record, they can subsequently go to

banks,” CEO Getty Goh pointed out.

By Rob Curran

btworld@sph.com.sg

A FLAT April continued the US stock

market tale for the year: full of sound

and fury, signifying nothing.

Stock prices flew hither and yon

on most sessions last week as they

have on many sessions this year. And

yet for the week, the month and the

year, the major indexes finished

more or less flat. The skittishness

about the Federal Reserve’s plans and

the global economy is likely to keep

the action lively and directionless for

another week.

The Nasdaq Composite had closed

theprior weekat anall-timehigh, sur-

passing the dotcom peak that had

long seemed unassailable. This time

around, the technology stocks that

make up the bulk of the index – such

as Apple, Google and Facebook – are

highly profitable. But, as traders dis-

coveredlastweek,anothersignificant

sector in the index may have formed

a speculative bubble comparable to

thatof theearly-stage Internetcompa-

nies that proliferated in the year

2000.

Like the dotcoms, many small bio-

technology companies have yet to

turn a profit or even release a prod-

uct. Like the dotcoms, biotech shares

often gain several percent a day for

no reason other than the fact that day

traders like to gamble on them. Like

thedotcoms, thecompaniesoccasion-

ally tap intohighlyprofitable markets

– inthiscasediscoveringcures fordis-

eases rather than novel ways to con-

duct shopping. But, as with the dot-

coms, the vast majority of small bio-

techs never make it into the green.

Last week, the ProShares Ultra Bio-

technologyFund,an exchange-traded

fund designed to double the return of

an index of biotech stocks, fell 11 per

cent and at one stage had given back

half of its 40 per cent gains on the

year. One biotech company, Cella-

don, saw shares fall almost 80 per

cent on Monday after it warned that a

promising drug candidate performed

poorly in a clinical trial.

The immediate impetus for the

sell-off was shifting odds on the Fed-

eral Reserve’s interest-rate schedule.

The Fed’s Wednesday statement was

ambiguous on the timing of a hike,

and markets initially interpreted it as

a tacit postponement.

“They talked about wanting to do

itsometimethisyear . . .maybe,com-

paredto latesummer,early fall guide-

line, which people were whispering

about,” said Oliver Pursche, president

of Gary Goldberg Financial Services.

“It’s pretty clear from the state-

ment that nothing will happen before

September.”

On balance, the Fed’s comments

about the “transitory” nature of weak-

ness in US economic data sounded, at

least to some, more like a guarantee

of a hike by the end of the year.

Biotech stocks and utility stocks

were two of the best performing sec-

tors of the last 18 months, largely be-

cause the Fed’s ultra-low interest-rate

policy has driven investors out of the

bond market into these niches. Reti-

rees who sought to live off interest

payments or “fixed income” migrated

to the utility sector. Free range hedge

fundswhichhadusedborrowedmon-

ey to make leveraged bets in junk

bonds or emerging-market stocks

found better odds in the biotech

niche.

More broadly, an uneven earnings

seasonhasmadestocks jumpy.While

the vast majority of Standard & Poor’s

500 companies surpassed the mod-

est expectations for earnings, most

fell short of revenue expectations,

said Joe Kinahan, chief derivatives

strategist at TD Ameritrade. The cul-

prits: oil and the dollar.

Oil companies from ExxonMobil to

Britain’sBP, to France’sTotal, saw rev-

enue plunge, reflecting the roughly

50 per cent drop in oil futures during

the quarter.

Meanwhile, multinationals from

social network Facebook to elec-

tric-power outfitter Eaton said that

the stronger dollar diluted the value

of earnings

“Markets bounced around on earn-

ings,” said Eric Marshall, portfolio

managerwithmutual-fundfirmHodg-

es Capital in Dallas. “When you look

through the currency noise, and

some volatility seen on West coast

port disruption, overall earnings sea-

son has come in pretty solid.”

Another stock-market trend that

hangs in the balance: the resurgence

in the price of small-capitalisation

stocks. These companies are consid-

eredthemostsensitivetotheUSecon-

omy and had led the bull market until

2014. As growth slowed, so did the

small-cap rally. When the dollar took

flight against other currencies this

year, however, it didn’t hurt small

companies as much as it did the big

ones.

“You’ve seen the multinationals

face greater headwinds in the first

quarter than the smaller domestic

centric companies,” said Mr Marshall

of Hodges Capital.

For the dollar rally to continue in

foreign-exchange markets and the

small caps to recoup last week’s loss-

es, the jobs report on Friday will have

toexceedexpectationsofastatusquo

report. If more than the economists’

average target of 230,000 jobs were

addedinApril, theFedwill almostcer-

tainly raise rates by December. In that

event, traderscouldpunish the utility

and biotech sectors further. But small

caps and other economically sensi-

tive niches such as big banks should

carry the market higher.

“The Friday report is crucial be-

cause it’s part of what the Fed is look-

ingforbefore theyembarkonnormal-

isation of rates,” said Quincy Krosby,

market strategist at Prudential Finan-

cial.

“They want to make sure the econ-

omy is on a solid footing.”

By Lee U-Wen

leeuwen@sph.com.sg

@LeeUwenBT

Singapore

THE Singapore government is said to

have decided on which of three possi-

ble locations to site the Republic’s ter-

minal station for the proposed high-

speed rail link with Malaysia. An an-

nouncement is expected when the

two countries’ leaders meet here this

week.

Malaysian Prime Minister Najib Ra-

zak, who is due for a two-day visit,

will have a retreat with Prime Minister

Lee Hsien Loong on Tuesday.

At a joint press conference after

their meeting, Mr Lee is likely to re-

veal where Singapore intends to build

its terminal station, having an-

nounced last year that there were

threeoptions:TuasWest, JurongEast,

and the city centre.

Malaysia has already confirmed

that its terminal will be in Bandar Ma-

laysia, about 5km from the landmark

Petronas Twin Towers in the heart of

the country’s capital Kuala Lumpur.

The Bandar Malaysia project is a

planned 200-hectare mixed develop-

ment that will sit on land in an exist-

ing military airbase in Sungai Besi.

The plan is to complete the mam-

moth rail project, estimated at

320-340km long, by 2020. Some

sources, however, told The Business

Times that it could bust that deadline

by two years.

Once the train service starts, pas-

sengers will be able to travel between

Singapore and KL in just 90 minutes,

compared to about 4-5 hours by car.

At the previous retreat in Putra-

jaya last year, the two prime minis-

ters also said that their countries

were exploring a new initiative: a sin-

gle border checkpoint with both Sin-

gapore and Malaysia housing their

Customs, Immigration and Quaran-

tine (CIQ) complexes at one location.

Mr Lee’s lastmeeting with Mr Najib

was a week ago in KL and Langkawi,

whenMalaysiahostedtheAseanSum-

mit meetings.

At the opening of the new chan-

cery of the Singapore High Commis-

sion in KL, Mr Lee said: “If we can get

the high-speed rail going and run-

ning, this will be a very important

projectwhichwill fostercloser tiesbe-

tweenourpeoples.Thenwecancome

up, have lunch, and go back down to

Singapore again.”

Singapore-Malaysia bilateral links

arestrong,andthiswillbethesixthre-

treat between Mr Lee and Mr Najib

since their first one back in 2007.

According to a statement from

Singapore’s Ministry of Foreign Af-

fairs on Sunday, the annual retreat is

a “key bilateral platform” for the

prime ministers to drive relations for-

ward.

Mr Najib will be in Singapore to-

gether with his wife Rosmah Mansor

and a high-level delegation compris-

ingmanymembers ofhisCabinetand

senior officials.

Mr Lee’s team of ministers will in-

clude Deputy Prime Minister and

Home Affairs Minister Teo Chee

Hean.

The Singapore leader will host a

private dinner for Mr Najib and their

wives on Monday evening. The re-

treat proper begins on Tuesday, with

the prime ministers and their delega-

tions meeting for bilateral discus-

sions on various issues.

After the retreat, Mr Najib is due to

deliverthekeynoteaddressat theEco-

nomic Society of Singapore’s annual

dinner at Shangri-la Hotel, an event

that Mr Lee will also attend along with

many policymakers, economists,

business leaders and academics.

This visit will be Mr Najib’s second

toSingapore in sixweeks. He was pre-

viously here in late March to pay his

respects to the late founding prime

minister Lee Kuan Yew at Parliament

House.

Crowdfunding comes to S’pore real estate

WALL STREET INSIGHT

Flat April continues market’s tale;all eyes on Friday’s jobs report

Najib in Singapore for leaders’ retreat

Mr Najib and Mr Lee at the Singapore Sports Hub last August. Aiming tofoster warmer bilateral relations, their meeting this week will be theirsixth retreat since their first one back in 2007. ST FILE PHOTO

PM Lee expected to announce Singapore terminal location for high-speed rail link to KL

Stock prices flewhither and yon onmost sessions lastweek as they have onmany sessions thisyear . . . Theskittishness about theFederal Reserve’s plansand the globaleconomy is likely tokeep the action livelyand directionless foranother week.

2 | TOP STORIESThe Business Times | Monday, May 4, 2015