Morning Buzz Singapore

21 November 2006

Kim Eng Research Team

US Indices (Previous Session)

News Headlines

�� Investors benefit as firms rush to use up tax credits

Singapore - Retail investors are emerging as the big winners as a growing

number of listed companies in Singapore adopt an innovative method of

distributing millions of dollars of unused tax credits. Pressure to use up the credits

is mounting, with a Dec 31, 2007 deadline just over a year away. These so-called

Section 44 tax credits, held by various firms, are a relic of the old tax system that

applies to dividends. Many shareholders, especially small investors, stand to

pocket a tax windfall as firms use up the tax credits by handing out generous

dividends. In what has now emerged as a major trend, OCBC Bank pioneered a

technique that helps some companies overcome a tricky dilemma: using the

credits without running cash reserves too low. In May last year, the bank handed

out a generous dividend - and gave shareholders the option of using the money to

buy one new share for every five held at an attractive price. As the rights shares

were overwhelmingly taken up, no net cash outflow from OCBC was required. In

just over a year, nearly a dozen companies have followed OCBC's lead and more

are expected to follow. Companies such as Singapore Press Holdings and

Robinson & Co have used up all their Section 44 tax credits to shareholders. But

some do not have large cash piles available for such payouts or do not want to

deplete their cash. Firms such as property player Bukit Sembawang Estates have

jumped on to the bandwagon. Hotel Royal, Singapore Reinsurance, engineering

and property investment firm Guthrie GTS and sports and leisure group

SuperBowl all took similar action earlier this year. Hiap Seng Engineering's shares

shot up to their highest level in almost three years in September after the firm

announced a bumper bonus dividend of a net eight cents per share and a rights

issue. Next was HupSteel, which asked shareholders to subscribe to its rights

issue using the bonus dividend by this week. This month, another two firms -

Allgreen Properties and oil and gas support firm Rotary Engineering - have

unveiled similar plans. City Developments and United Overseas Bank are among

the companies with unused tax credits.

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LAU Wai Kwok (sales)

lauwk@kimeng.com

Sebastian HENG (research)