Portfolio Update

RNS Number : 0140V

Symphony International Holdings Ltd

26 October 2010

 



Not for Distribution, directly or indirectly, in or into the United States or any jurisdiction in which such distribution would be unlawful.

SYMPHONY INTERNATIONAL HOLDINGS LTD

SHAREHOLDER UPDATE

RELEASED 26 October 2010

The financial markets in Asia continue to improve. However there remain a number of risks that could increase volatility in the medium term and impede growth.

Symphony International Holdings Limited's ("SIHL" or the "Company") Net Asset Value ("NAV") increased from US$347,677,450 to US$410,190,151 between 30 June 2010 and 30 September 2010, or from US$1.0278 to US$1.1981 per share. This increase is largely attributable to improving market valuations of our listed investments and appreciation of currencies in Singapore and Thailand, where SIHL's portfolio companies predominantly operate. SIHL's NAV per share increase of 16.6% in 3Q10 compared favorably with select indices such as MSCI AC World, MSCI AC Asia and MSCI Singapore, which increased by 13.8%, 10.3% and 8.1%, respectively. MSCI Thailand performed better in 3Q10 with an increase of 22.7%.

PORTFOLIO SUMMARY

SIHL's NAV was US$410.19 million at 30 September 2010 and consisted of investments in the following segments:

Healthcare: US$43.41 million (10.6% of NAV)

Hospitality: US$116.48 million (28.4% of NAV)

Lifestyle: US$11.18 million (2.7% of NAV)

Lifestyle / Real estate: US$123.88 million (30.2% of NAV)

Temporary investments: US$115.25 million (28.1% of NAV). Temporary investments include cash and equivalents and are net of accounts receivable and payable

SIHL's NAV performed better than selected indices since SIHL's initial public offering in August 2007 through 30 September 2010. SIHL NAV has outperformed the MSCI AC World, MSCI AC Asia, MSCI Thailand and MSCI Singapore indices by 51.9%, 46.8%, 4.5% and 38.2%, respectively (Source: MSCI Inc., Company analysis).

SIHL's share price at 30 September 2010 was US$0.68 representing a 43.2% discount to NAV. 

SIHL's NAV at 30 September 2010 consisted of listed investments (38.9% of NAV), unlisted investments (33.0% of NAV) and temporary investments (28.1% of NAV). Temporary investments include cash and equivalents and are net of accounts receivable and payable

OVERVIEW

SIHL's listed investments accounted for 38.9% of NAV at 30 September 2010, down from 53.7% at 30 June 2010 primarily due to the sale of shares of Parkway Holdings Limited ("Parkway"). On a per share basis, the value of SIHL's listed investments stood at US$0.466. Unlisted investments (including property) comprised a further 33.0% of SIHL's NAV (or US$0.395 per share), with the remaining 28.1% of NAV (or US$0.337 per share) being temporary investments.

The Parkway exit during 3Q10 was SIHL's first realization and was made in response to a General Offer from Khazanah Nasional Berhad (the Malaysian government's investment vehicle) to privatize the company. This followed a bidding war for the company, which resulted in an exit price representing a 29% premium to the average price over a 6-month period prior to the initial offer. SIHL's investment in Parkway generated a 21.6% annualised return and a gain of US$26.6 million.

Following the Parkway exit SIHL now has more than US$115 million temporary investments. Management continues to evaluate opportunities to deploy these funds in its areas of deal focus.

SIHL's share price continued to trade at a discount to NAV during 3Q10. At 30 September 2010, SIHL's share price was US$0.68, representing a discount to NAV of 43.2%.

There has been an improvement in financial markets on account of a more favourable outlook for the global economy as fears over a 'double-dip' recession, credit worthiness of sovereign debt and fiscal sustainability abate. The International Monetary Fund ("IMF") announced the world economy expanded at an annual rate of about 5.25% during the first half of 2010 in its October 2010 World Economic Outlook update, compared with an estimate of 5.00% in July. This growth was driven by a strong rebound in industrial production and trade on account of a surge in inventory and fixed investments. Asian economies in particular have been beneficiaries of the improved economic environment with output expanding above pre-crisis levels. The IMF estimates Emerging Asia (excludes developed Asian countries that include Japan, Australia and New Zealand) will grow at 9.2% in 2010 compared with 2.7% for developed economies.

Despite a general consensus that the recovery is well on track, underlying risks remain elevated, particularly in developed economies. The US and Europe are expected to experience relatively sluggish growth compared with emerging and developing economies due to high unemployment, continued balance sheet reparation and large budget deficits. Under a renewed stress scenario, refinancing of sovereign and bank debt could be difficult given the diminished capability of many developed economies to use liquidity buffers to restore confidence. The stronger investor sentiment towards faster growing emerging and developing economies has led to strong capital inflows, particularly in Asia.

There has been a strong appreciation in currencies and asset prices in most Asian countries. The relatively stronger economic position of Asian economies and expected long term interest rate differential compared with developed economies has attracted substantial capital. Thailand and Singapore, where SIHL's portfolio companies predominantly operate, have seen their currencies strengthen by 10.11% and 4.75% against the US dollar in the first three quarters of 2010. With strong capital inflows and robust domestic demand, there is concern that asset price bubbles are emerging.

Export dependent Asian economies are looking to balance the negative impact of rising currencies while on the other hand managing inflationary pressures. Countries including Thailand, South Korea, China and the Philippines have intervened to slow currencies appreciating, either through capital controls or increasing foreign currency reserves. Where there has been previously clear policies of removing accommodative monetary policy to reduce inflationary pressures, it appears that central banks of Asian economies have paused in raising interest rates to hinder currencies from strengthening further.

We remain optimistic on the outlook for Asian economies, such as Singapore and Thailand, but there remain potential risks that could increase volatility in financial markets and hinder growth. The balancing of capital inflows, appreciating currencies and inflationary pressures in Asia will be a key concern in 2011.

PORTFOLIO DEVELOPMENTS

Note: Portfolio companies are listed in the descending order of the total funds invested or committed.

Minuet Ltd is a joint venture between SIHL and an established Thai partner for the development of a branded life-style residential and recreational development in Bangkok, Thailand. SIHL has a direct 49% interest in the venture, the maximum allowable under current regulations, but will be responsible for the design, development and execution of the project.

Update: Advanced discussions with luxury resort operator Amanresorts to build the the first Aman club and villas are ongoing.

The value of Minuet Ltd at 30 September 2010 was US$98.4 million based on an independent third party valuation at 30 June 2010. The change in value from US$91.7mn at 30 June 2010 is predominantly due to an appreciation in the value of the Thai Baht.

Minor International Pcl ("MINT") is one of the largest hospitality and restaurant companies in the Asia Pacific region with 31 hotels and resorts totaling over 3,560 rooms under prominent brands such as the Four Seasons, Marriott, Anantara and others in Thailand, Vietnam, Maldives and South Africa. MINT also owns and operates 1,123 restaurants under The Pizza Company, Swensen's, Sizzler, Dairy Queen, Burger King, Thai Express and The Coffee Club.

Following the restructuring / merger with the Minor Corporation Public Company Limited ("MINOR"), MINT's operations also include contract manufacturing and an international lifestyle consumer brand distribution business in Thailand focusing on fashion, cosmetics through retail, wholesale and direct marketing channels under brands that include Esprit, Bossini, Red Earth, Bloom, and Zwilling Henckels amongst others.

Update: MINT's revenue and net income increased by 16.6% and 7.9%, respectively, in 1H10 year-over-year. The increase was primarily driven by a strong performance in 1Q10 from its hotel operations, continued growth of the restaurant business and contributions from the consolidation of Minor Corporation Pcl ("MINOR") businesses.

MINT's hotel operations in Bangkok were particularly hard hit by the political unrest during the second quarter. Businesses located where the demonstrations were held effectively closed for two months. The Four Season's hotel in Bangkok had an occupancy rate of about 11% in 2Q10.

The restaurant business continued to perform well driven by stronger same store sales and new equity and franchised outlets. Total system sales grew by 8% in 1H10 and EBITDA margins increased from 15% to 16%.

MINT successfully placed a 5-year debenture that was upsized

from THB2 billion to THB2.5 billion on strong demand. The debenture carried a 3.98% coupon and is rated 'A' by TRIS. The debenture was placed to refinance existing debt and provide additional liquidity.

The management of MINT are targeting earnings growth of 20% per annum through acquisitions outside of Thailand, additional hotel and restaurant management agreements and sales of existing property inventory valued at THB6 billion.

Parkway Life Real Estate Investment Trust ("P-REIT") invests in income generating healthcare-related properties in the Asia-Pacific region including the buildings of Parkway's three Singapore hospitals, which are leased back to Parkway on long leases. P-REIT is established and managed by Parkway Holdings Limited and generates an inflation-linked yield of around 6% based on current valuations and historic distributions.

Update: PREIT's gross revenue and property income increased by 15.3% and 14.5% in 1H10 year-over-year to S$37.4 million and S$34.5 million, respectively.

The strong growth is attributable to the full impact of eight properties acquired in Japan in November 2009.

PREIT announced the acquisition of 11 additional properties in Japan in 2010, bringing the total number of Japanese properties to 29. The acquisitions are yield accretive.

Annualised distributions in 1H10 increased to 8.31 Singapore cents from 7.55 Singapore cents a share year-on-year or by 10.3%.

PREIT announced that for the fourth year of lease term for the Singapore properties commencing on 23 August 2010, the minimum guaranteed rent will rise by 1.73%, based on the inflation linked formula.

The outlook for PREIT continues to be positive given its substantial debt capacity that allows for further yield accretive acquisitions.

At 30 June 2010, PREIT had gearing of 32.6%, well below the 60% limit allowed by the Monetary Authority of Singapore.

SG Land Co. Ltd ("SG Land") is a joint venture company that owns the leasehold rights for two office buildings in downtown Bangkok - SG Tower and Millenia Tower. The two buildings in SG Land's portfolio have high occupancy rates and offer attractive rental yields. SIHL holds 49.9% of the venture.

Update: SG Land continues to generate stable performance from rental income on its two office towers.  We continue to explore redevelopment and asset enhancement approaches in relation to these buildings.

SG Land was valued at fair value based on an independent third party valuation at 30 June 2010. The value of SG Land at at 30 September 2010 was US$16.1 million, up from US$14.7mn at 30 June 2010 predominantly due to an appreciation in the value of the Thai Baht.

C Larsen Singapore Pte Limited ("C Larsen") is an importer and distributor of high-end U.S. and European furniture brands that include Christian Liaigre, Martha Stewart, Barbara Barry, Baker, Herman Miller, Minotti and Thomasville. The market served by this business is primarily Thailand, but the intent is to grow the business gradually into other parts of Asia.

Update: C Larsen continues to perform to expectations. The Company continues to explore distribution opportunities in other Asian countries, particularly India.

C Larsen continues to focus on targeting institutional and retail clients.

AFC Network Pte. Ltd ("AFC") is a 24-hour TV channel broadcasting food and lifestyle programming tailored to audiences in the Asia Pacific region. This channel began broadcasting in July 2005 and currently airs in Singapore, Hong Kong, Malaysia, Indonesia and the Philippines.

Update: AFC completed a rights issue in June 2010 that was subscribed to by existing investors to fund working capital requirements through 2011. The Company is presently exploring different options to leverage its competitive advantage as the first-mover in the market.

One Central Residences Macau SIHL invested in four high-end residential apartments in a new development in Macau, which was completed ahead of schedule in August 2009.

Update: The Macau property market continues to improve. The development has been completed and SIHL took possession of the property units in August 2009.

SUBSEQUENT EVENTS

The Company issued 2,059,745 ordinary shares on 21 October 2010, credited as fully paid, to the Investment Manager, Symphony Investment Managers Limited, increasing the Company's fully paid issued share capital from 342,379,466 ordinary shares to 344,439,211 ordinary shares. The shares were issued as part of the contractual arrangements with the Investment Manager. If these shares had been in issue as at 30 September 2010, SIHL's NAV per share would decrease by US$0.0072 per share from US$1.1981 to US$1.1909 per share on that date.

A more detailed investor update is available upon request from the Company or maybe accessed via www.symphonyasia.com.

For further information, please contact:

Sunil Chandiramani - Symphony Asia Limited ([phone])

The foregoing may contain certain forward looking or forward sounding statements with respect to the investments, prospects and/or liquidity of the Company. Forward looking statements, by their very nature, involve risk and uncertainty, because they relate to circumstances and events that may or may not take place in the future due to the numerous factors that could cause actual events to differ materially from those implied by any forward looking statements. Neither the Company nor its Investment Manager undertake to update any such forward looking statements.

No representation or warranty is made by the Company or its Investment Manager as to the accuracy or completeness of the information contained in this document and its attachments and no liability will be accepted for any loss whatsoever arising in connection with such information. The press releases attached to this document were obtained from publicly available sources as at the latest practicable time for the preparation of this document.

This document is for information purposes only and does not constitute an invitation or offer to underwrite, subscribe for or otherwise acquire or dispose of any securities of the Company in any jurisdiction. All investments are subject to risk. Past performance is no guarantee of future returns. Shareholders and prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions.

This document is not for distribution, directly or indirectly, in or into the United States or any jurisdiction in which such distribution would be unlawful.

This announcement is not an offer of securities for sale into the United States. The Company's securities have not been, and will not be, registered under the United States Securities Act of 1933 and may not be offered or sold in the United States absent registration or an exemption from registration. There will be no public offer of securities in the United States.

 

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