OCBC 360 Account Interest Changes (November 2018)

Competition between the local banks for your deposits have been heating up recently as they try to one up each other on savings account interests rates. The latest salvo from OCBC relates to the changes in interest rates for their OCBC 360 Account effective 1 November 2018. As a account holder, I thought I’ll review the changes and share my 2 cents.

Current interest structure can be found here, while revised interest structure can be found here.


Summary of Changes

Source: OCBC Website

That is a lot of mambo jumbo to describe the changes. To illustrate the changes, here’s a practical comparison between the old and new interest structures.


Interest rate comparison

*Interest only applies to first $70,000 of balances

For core interest, I’ll assume most people are able to satisfy the $500 per month credit card spend requirement. At face value, most account holders are worse off as core interest has been reduced for balances below $35k. Actually, due to the tier system, account holders with balances below $70k but more than $35k are also worse off. Here’s a graph to illustrate:

Interest Curve As you can see from the graph, Core Interest has suffered mainly due to the removal of the payment category, which accounts for 0.3% interest. Core interest is only unchanged if you have exactly $70k in balances.

That said, if you include the new Step Up interest category, which requires you to have at least $500 more in month on month average balance (which I assume most Singaporeans are able to satisfy), you will then be able to push your interest to exceed the old rate of 1.8% to the max of 2.25% for balances more than $35k.

My Thoughts

The objective of the changes made is pretty obvious to me – OCBC wishes to increase their deposit base, as seen by the introduction of the tiered system, the Step-up category and to a lesser extent, the Boost category. It’s clear they wish to drive people to have at least $35k balance in their 360 accounts as that’s where the better interest rates come from.

In general, account holders like me who do not hold large amounts of cash, these changes are bad. However, this will have minimal impact on me due to my minimal cash balance anyway. That said, my guess is that risk averse Singaporeans who love to hold large amounts of cash will love these changes.

As a side point, I find it interesting that they also chose to cut the Wealth category interest to 0.9%, probably to help fund the new Step Up interest category.

What do you think of the changes to the OCBC 360 Account? Share your thoughts in the comments.

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Flash Note: Capitaland Mall Trust acquisition of remaining interest in Westgate

Today, Capitaland Mall Trust finally released more information on its proposed acquisition of Westgate as part of its EGM circular to unitholders. As a unitholder myself, I thought I’ll dive in, give my quick thoughts and speculate a bit.

The circular and presentation can be found here.


Capitaland Mall Trust is proposing to acquire the remaining 70% interest in Westgate that it doesn’t own from its sponsor, Capitaland. It will be holding an EGM on 10 am, 25th October 2018 to obtain unitholders’ approval to proceed with the acquisition.


As most Singaporeans know, Westgate is a mall located next to Jurong East MRT and is part of a mixed use development of retail and office space. It is also located within the Jurong Lake District, the planned 2nd CBD in Singapore. As such, it is a fantastic property location wise with some growth potential as the Lake District develops and matures.

Financing Details

The main details that were revealed as part of this circular relates to potential funding structures and their potential impact on the key valuation metrics of the REIT. 3 potential models of funding was illustrated: 70% debt funded, 85% debt funded and 100% debt funded, with the balance funded by equity where necessary.


Gearing Comparison

Source: Capitaland Mall Trust EGM Circular

As you can see here, the REIT has ability to fully fund the acquisition with debt without busting MAS gearing caps. Whether they choose to do so really depends on economic conditions at the time of fund raising.

Distribution per Unit

DPU Comparison

Source: Capitaland Mall Trust EGM Circular

A key assumption for this illustration is that equity is raised at $2 per unit, which is a 8.3% discount to today’s closing price of $2.18. Under the above conditions (No more than 30% of funding raised by equity and at $2 per unit), the acquisition is yield accretive. This is only true if management keeps the financing structure within these parameters.

Net asset value

NAV Comparison

Source: Capitaland Mall Trust EGM Circular

NAV post acquisition doesn’t change much. This means that the REIT is highly likely to be able to issue equity at a premium to book (based on illustrative price of $2 versus NAV of $1.93), which explains why the acquisition is able to be yield accretive at up to 70% LTV.

My Guess

Here we enter the realm of speculation, let’s assume the acquisition is approved at the EGM, which is highly likely given the merits of the deal.

First question: What would the final financing structure be?

Whether they ultimately choose to fund it entirely through debt or partially fund it with equity really depends on economic factors like interest rate and cost of equity. As the REIT is currently trading at a premium to NAV, cost of equity is low as it is able to issue equity at a premium to valuation. Coupled with the fact that the REIT potentially might need the debt headroom for other acquisitions or to complete the construction of Funan, it definitely makes sense for the REIT to issue equity.

Second question: Since equity is likely to be issued, will there be a rights issue? In order to answer that, let’s take a look at a hypothetical scenario – if it was a rights issue for 70% LTV scenario, what would be the likely structure of the deal?

Rights issue ratio.JPG

For convenience, I ignored the effects of the acquisition fee. I also included a “worst case” scenario where the Managers fund the acquisition at NAV.

A whopping 3.5 units per 100 shares! Given a rights issue / preferential offering is much more expensive to conduct as compared to a private placement, my money is on the REIT managers doing a private placement instead, should they choose to partially fund it through equity.

So my best guess is that the acquisition will be funded by a mix of debt and equity, while equity will most likely be raised via private placement. So don’t feel too compelled to raise cash to participate in a potential rights issue. Let’s see if I’m ultimately right 😛

Do you agree with my guess? Let me know your thoughts!

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OUE Commercial REIT rights issue – a case study of value destruction


Regular readers would know that I have shifted to a more income approach over the past year and as part of that strategic shift, it involves purchasing more REITs for my portfolio. Also, I have in the past espoused my love of rights issues / preferential offering as seen in my participation in the Frasers L&I Trust preferential offering.

Unfortunately, just as stocks are not born equal, REITs are also not born equal. Whether a rights issue is value accretive or destructive very much depends on the structure of the deal, with that heavily influenced by the REIT Sponsor and Manager. If you invest in a REIT that has a Sponsor who’s interest is not aligned with the interests of minority shareholders, you can get shafted with some pretty bad deals.

Today, I’ll examine one such example – OUE Commercial REIT’s proposed acquisition of OUE Downtown from its Sponsor, OUE Limited, and its associated rights issue.

“Art” of the Deal

Here’s a summary of the significant effects of the acquisition and associated rights issue:

Issue summary

*Calculated based on 10 September 2018 closing price
#Based on REIT data from The Fifth Person website

Right out of the gate, you can see that the rights issue is ridiculously dilutive to your investment, with your distribution yield falling from 7.02% to 6.21% if you only take your own entitlement of rights. Pay you my hard earned cash and I get less dividends as a result?

Thanks bro.

The market rightfully recognised this and the REIT’s price corrected over the past week.

OUE Commercial Chart

How low must the price be before you get the same yield post acquisition as pre-acquisition?

Let’s work this out backwards, pre-acquisition distribution yield was 7%, as such for distribution yield to remain at 7%:

Target TERP = $0.0354 / 7 x 100 = $0.505.

Target Price cum rights
= (0.505 x 2,852,129k post acq units – $587,500,000 proceeds) /  1,546,769k pre acq units
= $0.55

That is a whopping 17.3% drop from the 10 Sep price and a further 9.1% drop based on yesterday’s closing price of $0.605!

The worst part of this, this is of no fault of the REIT’s existing property portfolio performance. It’s like passing the ball to your soccer captain and he takes the ball, turns around and scores an own goal, leaving you wondering what you did wrong.

Moral of the Story

Investing in REITs require close examination of Sponsor and Manager behaviour, and not just studying them from a numbers perspective. Some REITs tend to have management and sponsors who couldn’t care less about minority shareholders and it is important to understand management before investing. If not, you risk being exposed to such value destructive behaviour.

For those invested, I feel you and I hope the rights issue works out well for you (ie you get a lot of excess rights, and I mean A LOT). For me, I’ll avoid this REIT like the plague until it is at a much much cheaper price.

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Retirement planning is as much about self sufficiency as it is about love

By now, at least some of you should have watched this heartwarming ad from NTUC Income about “The Worst Parents in the World”.

In the ad, the groom at his own wedding dinner described how he had a “terrible” childhood, no piano lessons, no expensive tuition, no expensive overseas trips or birthday celebrations. However, he expressed his gratitude that they did it, so that they could be self reliant in retirement and not be a burden to him.

Amid all the concern over Singapore’s cost of living and the cost of raising a family here, the ad reminded us that it is possible if you live within your means. It also shined a light on the consequences insufficient retirement planning can have on your children and the society.

It also reminded me of stories Mom would tell me of growing up with Ah Gong, Ah Ma and all her brothers and sisters. Of how Ah Gong and Ah Ma was generous with their money and didn’t control it well. Of how they had to support Ah Gong and Ah Ma in their old age. Of how Mom chose to forgo an overseas scholarship as it would mean years without income for her family, and of how she chose to forgo a career fast track so that she could spend more time raising my brother and I.

Lastly, it reminded me of how blessed I am to have grown up in a middle class family without worry or care, with my parents having the foresight to have sufficient funds to retire without having to rely on me. In the process, I am allowed the freedom to choose any career path that I fancy.

Don’t plan for retirement only because its about being self sufficient, do it because of the love of your family.

Thanks Mom & Dad.

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Shifting my investing style

Many people tend to pigeon hole themselves into a particular style of investing they identify with – Value Investors, Growth Investors, Income Investors, Index Investors, the list goes on and on. The talks and courses I’ve attended to date also tend to teach a singular method to investing, maybe because it is easier to sell and structure into a course / talk.

I used to be very clear on what my style was – High growth stocks all the way. However, over the past year, I’ve transitioned to a more income approach as seen by my portfolio comparison below:

Portfolio comparisonPortfolio pie comparison

Why the shift?

The main reason for the shift is my gut feeling that we are at a late stage bull market cycle and I need to be more defensive in my stock picks. You may or may not agree with this assessment, but my gut has rarely failed me in my 5 years of investing.

With that said, I may have gone overboard in my shift to income investing as more than half of my portfolio is now in slow growing income stocks. This is why I have held off on adding more income to my portfolio and have been eyeing any weakness in high growth tech stocks as evidenced by my recent buys into Facebook in July and Tencent earlier this month.

Going forward, I hope to maintain a 50-50 growth to income stock portfolio. This may impair my ability to continue to churn out market beating gains but at least I can sleep better at night, knowing the certainty of my dividends.

So how would I define my investing style?

Course providers / Speakers say that you should stick to a single tried and tested method to achieve market beating returns.

To my undisciplined mind, I don’t care for a single consistent approach. I buy stocks that I feel will give me a return, the reason for that return does not have to be consistent. Who cares it is because the stock is undervalued, or if it pays me a sustainable dividend while I wait for the company’s recovery, or if it is overvalued but will eventually grow into its valuation. As long as you potentially give me a return, I’m in. I feel this level of flexibility is important to survive different market cycles.

I suppose my investment style is anything goes for capital appreciation. I guess I won’t be conducting any courses / talks soon.


I used to laugh whenever I read that a fund’s investment philosophy was for capital appreciation. It was like duh, isn’t that the aim of investing? But now that I’m running my own “fund”, I get it. It just means being flexible and nimble in the face of market changes.

Something I’ll be continually shifting in light of current market conditions.

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Tesla – Symptoms of poor governance pile up

Tesla Logo.png

US Tech stocks were my first love in my investing journey. That said, I’ve never felt compelled to jump on the Tesla (NASDAQ: TSLA) bandwagon. I initially didn’t bother because I hated the car manufacturing business. Slowly as the years went by, I saw Tesla as a company that at best was not operating to its fullest potential, at worst was a dysfunctional managerial mess.

With the recent public controversies over CEO Elon Musk’s tweets over a potential privatisation of Tesla and his emotional stress, I thought I’ll run through some of the symptoms that kept me away from buying into the Tesla story.

Symptom 1: Consistent inability to hit internal production targets

Tesla has faced manufacturing delays and struggles since they started making Model 3s, their entry model. The magic number currently thrown around by Musk for the longest time was 5,000 Model 3s a week. This was consistently missed until early July 2018 when they finally hit it, but not without having to put up temporary tents to assemble the cars. This landmark was celebrated with tweets of employee photos.

Is it worth celebrating though? For comparison, Toyota manufactured 13,400 cars per day in Japan back in 2014.  That’s about 94,000 cars a week, way outpacing Tesla in 2018.

Symptom 2: The Solarcity Acquisition

Tesla acquired Solarcity, a company Elon Musk co-founded with his cousins, in a cool USD2.6 billion all stock deal in late 2016. Setting aside all the conflict of interest issues with such a deal, the justification of such a deal goes against financial logic. A company with known cash flow issues going out and acquiring another with negative cash flows in a commoditising business boggles the mind. There may be strategic reasons for such a acquisition, but at face value, Solarcity was not a good fit for Tesla.

Symptom 3: Starting to fund the company through debt

In September 2017, Tesla issued bonds to fund its working capital needs instead of using equity as it had always previously done. For people who understand corporate finance, this is a pretty boneheaded move for 2 reasons:

1) There is no tax advantage

One advantage debt has over equity is that interest expenses are deductible against income, reducing the amount of taxable income. That said, it is only an advantage if Tesla was profitable and had income to be taxed. The last I checked, this was not the case.

2) Easy access to equity capital

Given the personality cult surrounding Elon Musk, it should be easy for Tesla to raise equity capital. It will dilute Musk’s share of the company yes, but a small percentage of a valuable company is still worth more than a significant percentage of a defaulted company.

If control was such a concern, I’m sure Musk can find solace in his god-like status among investors and a weak board which he easily controls.

What is going on?

The key problem with Tesla is the failure to adhere to good corporate governance principles arising from having a revolutionary CEO like Elon Musk.

Maverick genius, but poor operator

Having such a brilliant and strong minded CEO like Musk has been simultaneously Tesla’s greatest strength and weakness. On the one hand, it has produced some of the sexiest cars one can buy as well as some pretty sweet tech. On the other, you have a CEO with an immense ego and a predisposition to micro manage. All this is fine if the CEO is able to execute well. Tesla’s struggles with manufacturing indicate otherwise.

Not being able to manage well is common for tech company founders. Founders, like Amazon’s Jeff Bezos and Google’s Larry Page & Sergey Brin, struggled operationally at different points in their company’s life cycle. What is more important is recognising that weakness and hiring suitable people to manage those areas, something Musk’s ego and absolute need to micro manage (I’m speculating here) currently prevents him from recognising / doing. The fact that Tesla does not have a Chief Operating Officer to share the burden with Musk indicates this.

Rubber stamp board of directors

In a case where management is misfiring on all cylinders, the Board of Directors has to step in to make the tough decisions to right the ship. Unfortunately, a look at the board composition shows why the Board is potentially rubber stamps Musk’s decisions:

  1. Elon Musk – Chairman and CEO
  2. Kimbal Musk – Brother of Elon Musk and significant shareholder
  3. Brad W. Buss – Long time board member (since 2009) and ex-employee
  4. Ira Ehrenpreis – Venture Capitalist and SpaceX investor
  5. Antonio J Gracias – Venture Capitalist and SpaceX investor
  6. Steve Jurvetson – Venture Capitalist and SpaceX investor
  7. Robyn M. Dunholm – COO of Telstra (Australia telco)
  8. James Murdoch – CEO of 21st Century Fox
  9. Linda Johnson Rice – CEO of Johnson Publishing Company

Firstly, nobody really jumps out as a famous name other than James Murdoch who might combat Musk. Secondly, Musk is both Chairman of the Board and CEO, which is a huge concentration of power sitting in one person. Thirdly, about 2/3 of the board is kind of friendly to Elon Musk (The first 6 names on the list), who might be less challenging to his decisions. Lastly, there is little to no technology or car manufacturing brain trust on the board, leading to potential difficulty in offering constructive advice to Musk.

Dysfunctional finance function

Symptom 2 and 3 is indicative of a CFO who is either doesn’t know what he’s doing or doesn’t have the power or strength to push back on potentially financially disastrous moves. CFO Deepak Ahuja has been with the company since 2009, with a hiatus between 2015 to 2017 due to retirement. His deep historical ties with Tesla and the fact he came out of retirement to “save the company” may indicate a close relationship with Musk.

What Next?

A company with the best and most revolutionary tech in the world can fail with poor execution. Tesla is tethering on the brink, but it is currently not irretrievable.

The immediate change that I feel Musk and the Board should consider is hiring a capable COO, someone with car manufacturing experience preferably. This allows him to delegate day to day operations to somebody so that he can concentrate on the areas he is good at, like design and being the big picture thinker. This also helps with succession planning.

The board should re-look at board composition to include more truly independent directors, preferably till at least a 50-50 ratio. This will allow the board to truly be able to function properly and challenge managerial decisions.

Lastly, Musk should learn to delegate and let go more. Given his disinterest in answering investment analyst questions, let CFO Deepak answer and manage them. Also, forget about the short sellers. The best way to get back at short sellers is to manage your company well and defy their expectations, and not to break false stock price moving news over Twitter.

Only when these moves and a substantial drop in share price (my personal reference price is $180) happen will I then start considering Tesla as a investment again.

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5 things Singaporean investors should be thankful for this National Day


National Day has always been a time of patriotic celebration. For me, it tends to be patriotic reflection. This has been made more pronounced with my work travels over the past 1 and half years. Sitting here alone chilling in my Beijing hotel room having worked through yet another National Day overseas, I thought I’ll share my top 5 things I feel Singaporean investors should be thankful for this National Day.

1) Income tax regime

The best part of being a Singaporean investor is the relatively low income taxes as well as no taxes on dividends and capital gains. Taxes on employment and investment income directly affect your ability to accumulate wealth as it acts as an additional cost. Having experienced the benefits of Singapore’s income tax system, I can’t imagine living in a system that taxes you over 40% of income and having to pay taxes whenever I receive dividends or sell my investments.

What’s more, I’ve seen tax systems in China and India that are so complex and with high tax rates. Only with a tax system so simple and intuitive like Singapore’s will you be able to e-file your taxes on your own.

2) CPF

CPF can be a contentious issue among Singaporeans. To me, having a family member who YOLOs all his life, I see the need for the forced savings of CPF. What’s more, it’s not like they are paying you peanuts for holding your cash, with guaranteed 2.5-5% interest across your various accounts. Yes, CPF has its flaws, but its current incarnation to me provides the necessary basic layer of retirement safety for most Singaporeans, without encouraging the crutch mentality of pension systems. I’ve yet to find a better designed retirement system to date.

3) Wealth of investment options available

This may seem pretty obvious, but the countries I’ve visited sometimes struggle to have the same level of investment options available to their citizens. Ask the Chinese what a REIT is, and they’ll tell you it is a scam to swindle investors’ money on the premise of pooling funds to invest in real estate. Add to that the controls over capital outflows and you essentially can only buy stocks from the Chinese casino stock market, unless you are super rich.

Also, let’s not talk about countries with hyper inflationary economies like Venezuela and Zimbabwe or poor countries where investment options don’t really exist.

4) High level of security and low risk of disaster

This factor to me is often overlooked and taken for granted. Imagine owning a REIT with Singapore properties and every other year Singapore is hit by a tsunami or earthquake. Or owning a Singapore-based factory with constant civil unrest and strikes. The relative political and financial stability gives rise to the possibility of stable assets to invest in, and for Singaporeans to prosper.

5) SDIC’s Deposit Insurance Scheme

Another often overlooked factor. This deposit insurance is essentially the Singapore government insuring up to $50k of your bank deposits in each Singapore based bank. With ironclad AAA-rated reserves, this insurance is almost guaranteed to pay out in bank disaster scenarios. Given Singaporeans love of fixed deposits and high interest savings accounts as a form of investment, this is most welcome.


Singapore is one of the most investor friendly countries in the world, and the world has noticed. With many famous names and investors choosing to come to invest and start wealth management firms and funds here, we as Singaporeans should utilise our birthright to its fullest extent.

To all my Singaporean readers, Happy National Day! #WeAreSingapore

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