Malaysia blacklisted by G20 as tax haven?

This is a shocking news to me, as Malaysia, together with 3 other nations i.e. Philippines, Uruguay and Costa Rica, were blacklisted as uncooperative tax havens by the Organization for Economic Cooperation and Development (OECD) at the request of the Group of 20 (G20) summit.

In my perception, Malaysia is very far from being a tax haven to its residents. People always say that if you buy a big car, or a high-end property, you will always be on the eyes of Inland Revenue Board (IRB, a.k.a. Lembaga Hasil Dalam Negeri, LHDN). Same will go to those who never declare for income tax, or declared very little, and buy something valuable within the nation.

After some Google findings, it seems that the cause for this blacklist is by the Labuan offshore financial centre, which is viewed as the tax haven for foreigners. Although it is "offshore", now this small little island has caused a major impact to the whole Malaysia by this OECD's no-play-play blacklist action.

Surprisingly, some well-known tax havens such as Switzerland, Singapore, Cayman Islands, Liechtenstein, Monaco are just in the "grey list", together with Luxembourg, Austria, Belgium and Chile, just because they have agreed to "improve transparency standards".

China (including Hong Kong and Macao) is even in the "white list", due to their "commitment" to implement the internationally agreed tax standards.

So, it is now clear that the blacklisting is not based on how far the nations has gone in harboring foreign tax avoiders, but how cooperative to G20 are they in implementing the demanded tax standards.

This must be the most unwanted "greeting" to Najib who just sworn in as the new prime minister of Malaysia today. How will he resolve this issue?

For your information, the G20 is made up of the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America, and also the European Union who is represented by the rotating Council presidency and the European Central Bank.

The Managing Director of the International Monetary Fund (IMF) and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G20 meetings on an ex-officio basis.

Singapore wins back Evergreen Marine

On 2002, Evergreen Marine (长荣海运) completely pulled out of Singapore and settled down in Port of Tanjung Pelepas in Malaysia, as said due to cost issue.

Recently, the Taiwanese founder of Evergreen Group, Mr. Chang Yung-Fa (张荣发) appeared in Singapore and announced the opening of Evergreen Marine (Singapore) Pte Ltd, a newly formed company for the reentrance of Evergreen Marine back to Singapore.

Evergreen is expected to have 13 ships presently flying the Panamanian flag to move to Singapore and raise the Singaporean flag to take advantage of the Singapore's Approved International Shipping Enterprise (AIS) scheme which provides 10 years renewable tax exemption for qualified international shipping companies. In fact, one of their vessel already flying with Singaporean flag on 10 March 2009, which is their first vessel ever flying the flag of Singapore.

Mr. Chang also announced that Evergreen will expand their Singapore operations and plan to have about 50 Singapore-based fleets in the near future. This is considered significant, as Evergreen Marine has a total of about 180 vessels now.

Meanwhile, Evergreen does not have any expansion plan for their operations in Tanjung Pelepas.

This shows that Singapore has learnt their lesson, responded fast, and succeed in winning back this marine big player to their port. This move from Evergreen is expected to contribute positively to their economy and labour market. Congratulation.

Assessing company financial health with Altman Z-Score

In early 60's, Dr. Edward Altman (Professor and Vice-Director of New York University's Salomon Center, Leonard N. Stern School of Business) has used Multiple Discriminant Analysis to combine a set of 5 financial ratios and developed the famous Altman's Z-Score.

Nowadays, Altman's Z-Score is being used by many to assess a company's financial health. For instance, investors use it to determine if the company is worth for investment, bankers use it to determine loan risk, etc.

The 5 financial ratios used are:

• A = Return on Total Assets = EBIT / Total Assets
• B = Sales to Total Assets = Net Sales / Total Assets
• C = Equity to Debt = Market Value / Total Liabilities
• D = Working Capital to Total Assets = Working Capital / Total Assets
• E = Retained Earnings to Total Assets = Retained Earnings / Total Assets

Different weight factor is applied to the above 5 financial ratios, and the formula to calculate Altman's Z-Score is:

Z = 3.3A + 0.999B + 0.6C + 1.2D + 1.4E

The final result will yield a number between -4 and +8. The higher the score is better.

According to the Altman's Z-Score analysis:

• When Z is less than 1.8, the company is very likely to have financial trouble
• When Z is between 1.8 and 2.7, the company's financial situation is fair, and there is risk of getting into financial trouble
• When Z is between 2.7 and 2.99, the company is not likely to have financial trouble in the near future
• When Z > 3, the company is financially strong

Note that C which includes the market value of the company, is determined by its share price, and very much influenced by the investment market sentiment. However, C also carries the least weightage, and Return on Total Assets is the most important factor, which I think most fundamentalists are agreeing with.

Over the past 30+ years, Altman's Z-Score was found to be pretty usable to assess company financial health, with accuracy of above 70%.

Altman's Z-Score is a good tool to predict for investment safety, but bear in mind that it is not a tool designed to predict for investment profitability.