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Sunday, 20 May 2007

Cityspring, is there value?

Though normally I had no interest in IPOs or post IPOs, the recent eye-popping news that a fund actually made a lost due to after factoring management fee while operations is profitable grabbed by attention. I can't helped but investigate further, just for fun.

After going throught the financial data, either from its website or its published financial statement on SGX, I note that citysprng's annual profit (including management fee) actually steadily receded from:
  • 4.9 in 2005 to
  • 1.87M (annualised from a 9 mth figure of 1.4M) in 2006 to
  • -224M (annualised from a 3 mth figure of -56M) in 2007
and management fee went from
  • 3.5M in 2005 to
  • 2.3M (annualised from a 9 mth figure of 1.75M) in 2006 to
  • 253.6M (annualised from a 3 mth figure of 63.4M) in 2007

Cityspring disclosed in its results announcement that the calculation of management fee is based on
  1. base fee (to cover operating cost
  2. payable if they outperform MSCI Asia Pacific (ex Japan Utility Index)
Given its hot recent IPO, it should far, no doubt, outperform any utility index in the world. So component 2 above would have contributed to the
astronomical management fee that outstrip any gain in operating profit. But there again, if, as a result of the hefty managment fee results in the subsequent plunge in share price (which surprisingly did not happen), the management in the next quarter should plunge too.

On a separte note, it is interesting to know that on responding to a Business Times dated 16 May 2007 - Is there value in Cityspring forecast, after its mind-boggling management fees, Cityspring actually stated that "Group net profit before mangement fee and income tax for the period at $10.5 million is better than the projected loss of $1.6 million in the prospectus". "... in the prospectus...", hmm if people already knew prior to IPO that it will make a loss (though not as much as 56M), then why did they (and many others after the launch) invest so enthusiastically in Cityspring? Or did they did so just because of Temasek? The latter can afford to diversify aggressively over astronomical number of investment to spread the risk that one or two bloops does not hurt them as much as a drop of ink in pail of water. But to small retail investors buying whatever Temasek had a signature, it just doesn't make sense.



Anonymous Anonymous said...

Well, the fee structure does not make sense. We know that unit trust charge based on this similar fee structure as the appreciation of fund may partially be credited to the ability of the manager. However, this does not apply at all to City Spring or any other type of REIT/ Infra. trust. Why would market sentiment got anything to do with management's ability? The performance fee should be based on the increase in DPU.

So why is there a rush during post IPO on this trust? Probably due to herd behaviour in this bullish market. The majority didn't actually read the details in the prospectus. Even if they did, they may not have understood the impact.

It's interesting that the trust did not plunge much further after the news is release.

24 May 2007 at 01:01  
Blogger Market Uncle said...

To the management, it made sense. They simply link their remuneration to trust price performance.

To shareholders (and any rational people), it does not make sense. Since when are management of any company paid according to how well one company's share price perform? Shouldn't the management be focused on trust performance (in profit) instead?

Its indeed interesting to note the share price didn't decline much. If it did, their management fee will decline next year (to the delight of existing shareholders?). Now that it didn't decline much, this might mean next year's management fee will be as astronomical as this year.

26 May 2007 at 00:06  
Blogger SGDividends said...

Hi Uncle,

im severly heavy weight on Cityspring and after reading your article, i agree with you on your analysis and it did give me food for thought regarding the management fee..

However, from a shareholder standpoint, i feel we are concerned ultimately about share price. Whatever it takes to get a higher share price would make shareholders happy, if it takes high earnings to translate to high share price be it..therefore i think that management's remiuniration pegged to share price makes sense to shareholders actually.....

That said, im still going to load up on cityspring reasons because..its entities are recession proof...recently, they have settled their refinancing issues and the earliest repayment is 2011..which in my opinion credit would be flowing again.Just to share with you lah....

Anyway..hope you most more often cos i really do learn a lot from you..really...

25 October 2008 at 20:26  
Blogger SGDividends said...

Oh yes, do you know where i can get the chart for this index?
MSCI Asia Pacific (ex Japan Utility Index)

And how do they actually compare this chart with their share price?
Do they fix a specific date and time and then measure the percentage increase of the share price of both till another specific time? ( Just trying my luck, incase you know)

25 October 2008 at 20:31  
Blogger Market Uncle said...

Hi sgdividend,
If an investment product, be it an equity, bond etc are well sought after, the demand will outstrip supply to result in a satisfactory appreciation in underlying price.

If the trust is managed properly to provide a steady and increasing dividend, then its price will raise accordingly automatically.

As share price and value does not always move in agreements, it is almost impossible for management to control them. Pegging their performance to it seems unfair to me.

Anyway, in defensive terms, I do agree that if cityspring does not have higher refinancing risk compared to other debt based instruments, then it is relatively safe in this credit crunch.

As for MSCI Asia Pacific (ex Japan Utility Index), I can't help you here. Tried googling for it a while, but can't find anything good.

29 October 2008 at 21:08  
Anonymous Penny Stock Newsletter said...

Their are always bargains stocks somewhere. You have the whole world to pick from.

12 December 2011 at 05:59  

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