Macau Business Daily, May 13, 2014 by Business Daily

MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 537 Tuesday May 13, 2014

Milk Powder Gate

Year III

The parallel trade in milk powder products between Macau and mainland China has become more rampant, with 2 million kilos worth 500 million patacas flowing across the border via ‘milk mules’, following Customs restrictions imposed in Hong Kong. Macau Customs and the Health Bureau said that they could offer no solution as it is beyond their remit Page

The art of war

Interview www.macaubusinessdaily.com

Stephen Hammond, UK Transport Minister

Financial experts warn that the PBOC strategy for yuan expansion has lost the battle. Recent mild results foretell clouds ahead.

British give a hand on LRT UK Transport Minister tells Business Daily that British consulting could help lower the cost of maintenance of the light rail system in Macau. Britain has “some real skills” to offer Macau when it comes to assessing and reducing the maintenance costs of rolling stock, he says.

Troubled Bahia

Page 6

Off-plan sales of small studio flats in Nam Van – ‘La Bahia No.1’ - are not moving as rapidly as units in upmarket housing project Carat in NAPE area. Estate agencies tell Business Daily that the developer’s prices are some distance from buyers’ expectations. Page

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HSI - Movers May 12

Name

Fasten seatbelts Analysts are anticipating a ‘strong but choppy’ year for the casino industry in Macau this year. Slower revenue growth, deceleration of upward estimates and a mixed outlook for China signal concern. Investors are already ‘anxious’.

%Day

Tencent Holdings Ltd

5.26

Cheung Kong Holdin

4.13

Henderson Land Dev

4.06

Wharf Holdings Ltd

3.33

Hang Lung Propertie

3.14

China Mengniu Dairy

0.26

China Unicom Hong K

0.16

Li & Fung Ltd

0.00

Swire Pacific Ltd

-0.06

China Resources Ent

-0.68

Source: Bloomberg

I SSN 2226-8294

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SJM market share dips

Billionaire galaxy Galaxy Entertainment chairman Lui Che Woo enters the financial stratosphere of the Sunday Times rich list for the uber-wealthy. His £12.5 billion (HK$163.3 billion) fortune secures him the number 42 spot Page 8

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The gaming operator reported a 2.9 profit increase in the first quarter supported by the mass segment but lost 3.2 percent of Macau’s casino gaming market Page

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May 13, 2014

Macau UnionPay stranglehold to impact mass floor The reported tightening measures by state-backed bank payment card China UnionPay Co and the Macau authorities could impact the mass market of casinos, SJM Holding Ltd chief executive Ambrose So Shu Fai said. But how big an impact can only be gauged from this month’s gaming revenue, Mr So said, quoted by Hong Kong newspaper Ming Pao Daily News. He said the tightening measures will not harm SJM, which focuses on the VIP sector. It was reported last week that UnionPay and the Macau administration have stepped up measures to curb the illegal use of handheld card devices for gamblers to cash in here.

Macau’s increasing role in milk powder trade More milk powder products - up to 2 million kilogrammes worth 500 million patacas - were parallel traded from Macau to the mainland following restrictions imposed in Hong Kong, Ming Pao reports Tony Lai

tony.lai@macaubusinessdaily.com

he parallel trade in milk powder products between Macau and mainland China has become more rampant, with an increase in value of up to 500 million patacas (US$62.5 million), following Customs restrictions imposed in Hong Kong. The Macau Customs and the Health Bureau said that they could offer no solution to the issue, which is beyond their competence. Hong Kong newspaper Ming Pao Daily News reported yesterday that its investigation found up to tens of thousands of tins of milk powder were being transported from Hong Kong to Macau every day, which were then carried by parallel traders to Gongbei in Zhuhai, bypassing normal trade procedures. This practice started to occur when the Hong Kong authorities imposed in March last year a carrying limit of up to two tins of powder on passengers crossing the border, the newspaper said. Mainland parents have no confidence in mainland milk powder brands since the melamine-tainted powder scandal broke out in 2008. They do not mind paying more for the powder imports from elsewhere like Hong Kong or Macau, and snap up products in the two Special Administrative Regions – a mindset some businessmen seize upon as an opportunity to profiteer. Ming Pao yesterday quoted official figures saying that the amount of milk powder reexported from Hong Kong to Macau hit 4.59 million kilos in the period March 2013 to February 2014, rising by 78 percent or 2 million kilos from a year earlier. The growth in the March 2012-February 2013 period was only 17 percent, the newspaper said. The 4.59 million kilo tins are enough for the 19,000 children aged 3 or below in Macau to consume for four and a half years, the newspaper added. Business Daily’s calculation of the official

Kong. Parallel traders were then paid 8 patacas (US$1) a tin to carry the powder to storage on the Zhuhai side, the newspaper said, adding that each trader brought over 10 tins each day and could earn up to 190 patacas daily. Ming Pao said that Dutch brand Friso was a popular brand with parents here and in mainland China. The newspaper quoted the Friso agency in Hong Kong as saying it ‘respects local regulations’.

Doubling imports

data shows the increase of such Macau-Gongbei parallel trade can rake in as much as 500 million patacas if all the additional 2 million kilo powder products are carried to the mainland bypassing the normal trade procedures.

Clampdown A spokesperson for the Macau Customs told Business Daily yesterday: “We have very strict regulations on the import of milk powder along with the Health Bureau in accordance with the External

Trade Law. But for exports, we have not imposed any restriction on milk powder products [one can carry when leaving Macau] and the passengers only have to file a declaration if the value of their goods exceeds 5,000 patacas . . . The mainland Customs have their regulations as they only allow a person to carry at most two tins of milk powder a day when entering the mainland”. The Macau authorities recorded no case this year in which individuals or companies were penalised

for illegally exporting milk powder, he added. Ming Pao quoted a Zhuhai Customs official in its report that the mainland side was aware of this parallel trade, and was ready to clamp down on the gang behind the plot. The official added that they had confiscated “several thousand tins” of such product last week. The Hong Kong newspaper reported that the milk powder products were first placed in storage near the Gongbei border on the Macau side after fetching them from Hong

A review by Business Daily on the trade figures from the Statistics and Census Service of Macau also found that the import of milk powder for baby feeding reached 635,498 kilos in the first three months of this year, rising by 25.6 percent from a year earlier. The import of powder for infant feeding – children usually aged one or below – surged by 133.2 percent to 1.31 million kilos in the first three months, figures show. Business Daily asked the Health Bureau, which licenses the imports of milk powder for babies aged 1 or below, for the reason behind the surge. A spokesperson for the Bureau only responded: “We will check whether there is enough documentation for the imports and whether the product package is intact and complies with local rules. But we will not look into the amount of imports, which is not the area covered by our governance.” The supply of milk powder products ran out early last year after mainlanders came to Hong Kong and Macau to snap up the food for their children, as they had no confidence in the products on mainland shelves. Hong Kong has imposed a two-tin limit since March last year to relieve the strain on the shortage while Macau launched a scheme for local parents to subscribe to, to ensure that they can secure enough milk powder for their infants.

May 13, 2014

Macau

Nam Van studio flat sales slow Price called by the developer on the tiny studio flats in La Bahia No.1 still a distance from buyers’ expectations, estate agencies claim Stephanie Lai

sw.lai@macaubusinessdaily.com

ff-plan sales of small residential studio flats in Nam Van - La Bahia No.1 - are not as rapid as the upmarket housing project Carat in NAPE area, suggesting that there is a price gap between buyers’ expectations and the developer’s, estate agencies tell Business Daily. The La Bahia No. 1 residences, originally planned as a commercial building before being turned into a mixed commercial and residential project, is not seeing the purchase frenzy since its product was launched last week as have other offplan sales in the city. The upmarket studio flats of Carat in NAPE area and the Grand Residencia Macau in Areia Preta incited much more interest, estate agencies say. One of the agencies, Sun City Property Co Ltd, told Business Daily that it estimated that less than 20 units had been sold from the

914.9 square feet, data from Financial Services shows. The La Bahia No. 1 flats sold since last week range in saleable area from over 350 square feet to around 750 square feet, most being studio flats. There are altogether 325 flats in the complex, of which a dozen had already been placed for the first phase of sales at Chinese New Year. The developer of La Bahia No. 1 is Sociedade de Investimento Imobiliário San Keng Van, SARL, Limitada, according to Land, Public Works and Transport Bureau’ records.

Junket buyers

batch of 30 units put on the market last week.

Mainlanders dominate “The developer is not urgently pressing for cash on La Bahia No. 1, and has now only put forward about 30 units for sale,” said Sun City Property’s executive

director Ms Lee Choi Hong. “Considering the size of these studio flats, the price that the developer is asking for La Bahia No.1 is a bit aggressive [for buyers]. And at this price level, locals would prefer flats in other areas.” Ms Lee added that many of the buyers of the La Bahia No.1 flats sold so far were mainland Chinese.

Each flat of the new Nam Van residence, near casinohotel Grand Emperor, was sold for around HK$11,000 (US$1,548) and HK$15,000 per square foot, estate agencies said. The average price of an unfinished flat in March was 12,798 patacas per square foot, whilst the average size of such a flat was

Two other agencies that have been engaged in the sale of the Nam Van studio flats, but ask not to be named, also express a similar opinion as Sun City on the developer’s price call. “Some of the customer sources [for La Bahia No.1] might have already been absorbed by the Carat or Grand Residencia,” a source from one of the agencies commented on the relatively slow sales for the Nam Van residence. “But the Carat, in comparison with La Bahia No. 1, got a lot more junket buyers,” said the source, adding that a common purpose for many buyers for La Bahia No.1 and Carat is for rental home investment.

May 13, 2014

Macau

Bumpy 2014 puts investors in an anxious mood Analysts are anticipating a ‘strong but choppy’ year for the casino industry in Macau this year. Slower revenue growth, deceleration of upward estimates and a mixed outlook for China signal concern. Alex Lee

Alex.lee@macaubusiness.com

he credit deceleration and mixed outlook for China, the junket and Union Pay scandals, visa restrictions in Macau and last week’s record volatility in casino stocks are starting to weigh on investor confidence in Macau, al least in the short term. Macau’s success story is still solid but 2014 will not mirror 2013. Analysts say investors are getting nervous about Macau’s future. ‘Investor interest in the group is extremely high, and we’ve been inundated with inbound calls on Macau stocks and trends over the past few weeks’, says Cameron McKinght, senior analyst at Wells Fargo in a note to clients. ‘They’re anxious about near term trends’, he added. The US bank says it ‘remains very positive on the medium and long-term outlook but we think that 2014 is going to be choppy and we could see a mid-year deceleration in VIP revenue growth’.

Less conviction Despite a strong first quarter, where some major operators like Wynn, MGM or Sands reported a revenue growth exceeding market expectations for 2014, Wells Fargo feels there’s ‘less conviction’ for this year compared to previous ones. The bank estimates a 13 percent increase in Macau’s market revenue growth for

this year, behind investors’ consensus of a 15 percent jump and far from 2013’s performance. Last year, gambling revenues in Macau rose 18.6 percent. For now, operators are still running above analysts’ 2014 predictions. In the first quarter, net revenues generated by the Macau market increased 19 percent year-on-year for Melco Crown Entertainment, 14.2 percent for Wynn, 33 percent for MGM and 36 percent for Sands China. Analysts believe the pace of upward revision this year for casinos will slow and limit the multiples expansion, especially with the bar set so high in 2013, once estimates by investors were upgraded strongly following a strong second half. The latest sign

of this trend is a ‘softer than expected’ April, says Wells Fargo.

Positive shift The anxiety in investors’ minds was patently clear last week. Casino stocks in Hong Kong fell almost 10 percent in a single session beating a 2-year record slump last Thursday after two press articles reporting on Macau’s crackdown on illegal money transfers with Union Pay and future visa restrictions provoked a massive sell-off in the stock markets. Investors say the market reaction was excessive but is likely to happen again. ‘To be sure – we are not getting negative or bearish on the group – but cautioning that short-term volatility in the group could

Analysts shred Wynn strategy

ynn lost the race against its main competitors in Macau in the first quarter with group revenues growing at just half of the pace with potential shortcomings in gaining mass-market clients in the future posing a major concern, reports Motley Fool. In an analysis about Wynn’s performance, the report stated that the company led by Steve Wynn lagged behind in the first three months of the year with revenues from Macau climbing 14.2 percent against an increase of 33 percent by MGM and 49 percent by Las Vegas Sands. The fastgrowing mass market gamblers are the driver behind this year’s results and will continue to improve in the future. According to Mckinsey, in the next ten years 75 percent of China’s population will earn US$9-34,000, a middle class boom that will feed the mass segment for years to come.

still be in the two-digit range, supported by a positive mix shift as operators bet more on the higher margin mass market than VIP segment. Wells Fargo anticipates that the credit growth deceleration and mixed outlook on China will affect VIP gamblers but the mass market will continue to counterbalance the high roller slowdown. Mass market revenues will jump 29 percent this year as more Chinese visit Macau. ‘Against a choppy near-term outlook, we remain bullish on the medium and long term secular story. We still believe that Macau can be a US$115 billion market by 2018, which would represent 20% annualized revenue growth’, underlined Wells Fargo in its most recent update for the Macau gaming industry.

‘Investors should focus less on Wynn’s gains in VIP gaming and worry more about Wynn’s potential shortcomings in regard to gaining mass market growth’, wrote Motley Fool. Wynn was the only operator in the quarter that saw VIP revenues grow faster than the mass market – 26 percent against 23 percent. This performance compares to Sands and MGM, whose gains in mass market increased 54 percent and 45 percent in the quarter, respectively, two times more than Wynn’s. Barron’s recently noted that Wynn is actually driving down Macau’s mass market growth to 40percent. Motley Fool writes: ‘Wynn’s earning are not very inspiring. Investors should look at Wynn’s first quarter-earnings with a perspective that considers the results from the industry and Wynn’s competitors before making a pick’.

Steve Wynn

Short-term volatility in casino stocks could persist Wells Fargo

persist’, Wells Fargo warned its clients. But if the short term prospects look cloudier than last year, the market is still bullish for the medium and long term in Macau. This year, revenue growth will

Sands and Wynn In a more challenging year, Wells Fargo picks Las Vegas Sands and Wynn as the best suit to outperform in 2014. The strong mass presence of Sands in Macau – the hot segment in the industry today - is a major advantage for the operator together with continued operational improvement and focus on non-gaming amenities that will drive revenues up. Concerning Wynn, the US bank says the mas market will increase share prices in the future, with progress on the Cotai project insurance for investors.

May 13, 2014

Macau

Melco Crown Philippines losses mount The City of Dreams Manila confirms Hyatt as its third hotel brand but its opening date has yet to be finalised and the bill is adding up Tony Lai

tony.lai@macaubusinessdaily.com

he losses incurred by the ongoing development of The City of Dreams Manila have tripled in the first quarter of this year, says the Philippine-based subsidiary of Melco Crown Entertainment Ltd. The US$1.26 billion (10.4 billionpataca) casino-resort project will also feature the Hyatt brand as its third hotel brand in its six hotel towers but mystery still surrounds the opening date of the project. Melco Crown (Philippines) Resorts Corp said in a regulatory filing last week that its net loss in this year’s first quarter hit 970.1 million Philippine pesos (175.11 million patacas) versus 338.68 million Philippine pesos in the first three months of last year. ‘We are currently in the development stage, and as a result there is no revenue and cash provided by our intended operations,’ the filing said. ‘As is typical for a developmentstage company, we have incurred losses to date and expect these losses to continue to increase until we commence commercial operations with the planned opening of City of Dreams Manila,’ the company added. The pre-opening costs of the project reached 426.4 million Philippine pesos in the first three months against 42.7 million Philippine pesos a year earlier – due to staff costs, consultancy fees and land lease from local partner Belle Corp, the filing said.

‘This targeted debut is calibrated in time for the so-called ‘Golden Week’ in China, a period when everyone goes on a holiday break,’ newspaper Philippine Daily Inquirer reported last month. The latest filing of Melco Crown Philippines did not confirm the opening date, only saying that the project is expected to operate ‘later this year’.

Third entity

…we … expect these losses to continue to increase until we commence commercial operations with the planned opening of City of Dreams Manila Melco Crown (Philippines) Resorts Corp

The City of Dreams Manila providing up to 365 gaming tables, 1,680 slot machines and 1,680 electronic table games - is expected to open mid-year, according to the company’s filings last year. But the Philippine media have reported since last month that the project may only open in September or October to cater to mainland Chinese tourists who will vacation during the seven-day Chinese National Day holiday starting October 1.

Melco Crown Philippines signed an agreement in March last year with the Belle Corp. gaming and leisure development unit of Philippine mall and banking conglomerate SM Investments Corp. to develop the project together. Belle Corp is the developer of the project, utilising a land area of 6.2-hectares (15.3 acres), while Melco Crown Philippines is the project operator. The Philippine unit’s parent, Melco Crown, unveiled in a separate statement last week that the Manila project will sign up the Hyatt Hotels Corp as its third branded hotel for its six hotel towers there. But the statement did not specify the number of rooms Hyatt will run in the project. The project is a venture between Lawrence Ho Yau Lung and Australian billionaire James Packer. The statement continued: “We believe this property will significantly enhance Manila’s appeal to regional tourists who are seeking a unique and world-class entertainment and gaming experience.” The Manila project has currently confirmed three hotel brands, including a 260-room Crown Towers hotel and a 321-room tower managed by luxury hotel and restaurant chain Nobu, co-founded by actor Robert De Niro. The City of Dreams Macau - Melco Crown’s project here - also features a hotel tower branded Grand Hyatt, one of the hotel brands of the Hyatt Hotels Corp.

May 13, 2014

Macau Brands

Trends

Planet bathroom: Cooler than ever

British minister sounds out LRT opportunities The UK minister for transport says British consulting could help lower the cost of maintenance of the light rail system here Sara Farr

sarafarr@macaubusinessdaily.com

Raquel Dias newsdesk@macaubusinessdaily.com

rankly, sometimes it’s hard to say when and where there’s a trend to follow. The word itself has myriad associations that range from economic terms to fashion tendencies. So it might be a bit of a stretch to say that luxury bathroom amenities have become a growing trend, not only for hotels and spas but also for private homes. You might remember that it was a short time ago you wouldn’t see anything remotely connected to the subject in Macau but now Kohler has opened a major retail outlet in Taipa . It’s true that when Kohler launched their fancy toilet Numi – the one that heats the seat, has a bidet function and even an air-dry option - it was an immediate success. Whilst Kohler might have innovated the rethinking of the toilet, Grohe has introduced an interesting option for your shower time (or should we say personal spa time?). The F-Digital Deluxe intelligent spa system transforms your bathroom into your personal relaxation room. There’s a Rain shower completed with a ‘Multi Spray Shower Head’, a thermostatic mixer and a ‘Deluxe ambient controller’. The ensemble will transform your boring old bathroom into your favourite area of the house. You can literally do anything and there won’t be much need to sing in the shower as you can use your iPhone to control the lighting and steam temperature. There’s even a wheel that allows you to choose the colour and intensity of the ambient LED lights, for an out of this world shower.

Stephen Hammond, UK Transport Minister

he rail industry is an important one for emerging economies and countries, as are asset management skills. While Macau is far from an emerging economy, the territory is about to welcome its first ever rolling stock with the construction of phase one of the light rail transit (LRT) system. UK minister for transport Stephen Hammond told Business Daily that it is important to know and understand what and how to manage a piece of infrastructure that is built to last for “many hundreds” of years. “When you have a piece of rolling stock for 30 years, how that rolling stock connects with the infrastructure can have a huge impact on your maintenance costs,” Mr Hammond said. This is where the British come in. According to the UK minister for transport Britain has “some real skills in that.” And Macau would benefit from it, too, mainly when it comes to assessing and reducing the maintenance cost of the rolling stock upon completion of the light rail. In that regard, Britain is already lending a helping hand in their field of asset management skills to Singapore, which is now planning two additional lines for its existing rail system. “I know there was a lot of British input into the building,” Mr Hammond said of Singapore. But that’s not all: British companies were also talking to the operator there about panel management skills and how much maintenance costs . . . I would hope to persuade Macau of that. Talking to British firms or offering

contracts to British firms would be significant to the taxpayer,” the UK minister added.

Green transport Mr Hammond was in Macau for the 5th International Infrastructure Investment and Construction Forum that was held last week. During the two-day conference, the UK minister conducted bilateral talks with a number of ministers from around the world, including China. Some were ministers from African states participating in the forum. “In Africa

I would hope to persuade Macau… Talking to British firms or offering contracts to British firms would be significant to the taxpayer Stephen Hammond, UK Transport Minister

at the moment there seems to be a big invigoration,” Mr Hammond said, adding that when speaking with the minister from Senegal, the African leader relayed some of the types of problems his country faced. The primary one being that railroad lines are poorly maintained and they are looking to build new pieces of railroad line in that country. “What we’ve spoken to them about is the scale, and what are the opportunities,” Mr Hammond said. In addition, the UK minister said Britain has strong expertise in green transport, transport infrastructure and logistics planning. “There’s the whole area of inward investment and benefit, and Macau would benefit from that,” Mr Hammond said, adding that there is an opportunity for collaboration with China in green transport and infrastructure transport. “I think that it’s not insignificant that Britain has a reputation in the consulting end of that, and international reputation and renown, as well as international standards that are widely recognised,” he added. As such, British companies have much to offer in technologies and solutions to help tackle transport challenges, particularly in southern China. Earlier this year, Xinhua news agency reported that bi-lateral trade between China and the United Kingdom had surpassed US$70 billion (560 billion patacas), with UK exports to China growing more than that of other European Union countries.

May 13, 2014

Macau

Mong Ha Pavilion to open in 2016 The reconstruction of the Mong Ha Pavilion started in 2011 and was first scheduled to be ready by 2013. However, works that will cost around 18.8 million patacas are delayed and now the government does not expect it to be completed until 2016

he reconstruction of the Mong Ha Pavilion continues to be delayed, with works expected to last, at least, until 2016. The good news for the government is that the postponement of the works is not increasing the amount of the investment, standing at 18.84 million patacas.

The reconstruction of the facilities began in September 2011 during the second phase of the construction of Mong Ha Public Housing. Mirabel Consultores Limitada was the company responsible for the works related to the pavilion that should have been finished by 2013. When the first contract was signed, three

instalments were scheduled. The first was to be paid in 2010 in the amount of 5.918 million patacas. The second (11.999 million patacas) was be paid in 2011 and the last was scheduled for 2012 (923,000 patacas). Nevertheless, for reasons related to the excavation of the site where Mong Ha Pavilion is going to be placed, the reconstruction was delayed. Yesterday, the government published a new dispatch scheduling new instalments. According to the dispatch signed by the Chief Executive Chui Sai On, the first payment was made in 2011 in the amount of 10.533 million patacas. No more payments were made until this year, when the government is expecting to pay 6.830 million patacas to Mirabel Consultores. The government will also pay 738.400 patacas per year for 2015 and 2016. The Mong Ha pavilion was first opened in February 1983 in what was once a military field. It was closed in September 2011 in order to reconstruct a new pavilion in the Mong Ha area.

Less than perfect takeover of Milan Station

he controlling shareholder of second-hand luxury bag retailer Milan Station Holdings Ltd has backed out of a memorandum of understanding with a third party buyer to purchase its shares in Milan Station. In March, the second-hand luxury bag retailer entered into a non-legally binding MOU with a third-party buyer to acquire at least 60 percent of its shares in Milan Station. In a filing with the Hong Kong Stock Exchange, since both parties ‘did not enter into any definitive formal agreement by May 9,’ and ‘pursuant to the terms of the MOU, the MOU has lapsed’. As such, Perfect One has discontinued talks with the potential buyer in regards to a possible disposal. According to a filing with the Hong Kong Stock Exchange in March, the shareholder, Perfect One, holds a 72.29 percent stake in the business. The firm’s 2013 interim report states it has only one outlet in Macau – in Rua de São Domingos – which raked in HK$328.50 million (US$42.36 million) in the first half of last year.

May 13, 2014

Macau

Lui Che Woo scales billionaire league The Chairman of Galaxy Entertainment, Hong Kong tycoon Lui Che Woo, has entered the Sunday Times rich list for the uber-wealthy ranked 42 with a fortune put at £12.5 billion (HK$163.3 billion). More billionaires hang their hat in Hong Kong than any other Asian city

he owner of Galaxy Macau has entered the Sunday Times 2014’s billionaire list at a highly respectable 42, having not even been charted last year. His fortune is now estimated at £12.5 billion (HK$163.3 billion). Lui Che Woo’s entry to the list cannot be considered a complete surprise as Forbes had already made public that his fortune had doubled during the course of last year. His bet on a gaming licence in Macau was cited by the American magazine as the overriding reason for his burgeoning fortune. Cheng Yu Tung, ranked 41 last year, fell 8 positions in this year’s list to 49th position. The Chow Tai Fook Chairman, who has a 10 percent stake in Sociedade de Turismo e Diversoes de Macau (STDM), has an estimated fortune of £11.3 billion (HK$147.6 billion). Li Ka Shing continues to be Asia’s richest man although he drops out of the global top 20. Last year,

Lui Che Woo

he was in 15th position and now ranks 22. His wealth is estimated at £18.0 billion (HK$235.1 billion). The Sunday Times said that his fall is explained by the fact that his net worth was outperformed during 2013. The Walton Family (which operates Wal-Mart)

maintained first place in the list. Their collective fortune is estimated to be £86.6 billion (HK$1,131 billion). Second place goes to the Koch brothers’ £59.8 billion (HK$781.3 billion). Bill Gates, founder of Microsoft, climbed from 5th to 3rd place in one year with £47.3 billion

(HK$618 billion). Hong Kong is the place where most billionaires live in Asia. Some 34 super-rich tycoons live in the Pearl of the Orient. Beijing and Taipei take second place (15 billionaires) while Singapore ranks 3 with 14 uber-wealthy residing in the

Lion City. Worldwide, London is seen as the more fashionable city for billionaires. In total, 72 individuals identified by the Sunday Times rich list live in the UK capital. Moscow ranks second (48), while New York occupies third place (43).

SJM gaming revenue increases 4.9 percent The company has maintained a growing trend but SJM lost 3.2 percent of Macau’s casino gaming market in the first quarter of this year Alex Lee

Alex.lee@macaubusinessdaily.com

Casino Grand Lisboa collected HK$8,280 million in revenues. Other Self-promoted Casinos (Casino Lisboa, Casino Oceanus at Jai Alai and one Tombola hall) accounted for HK$3,237 million, while satellite casinos (fourteen third partypromoted casinos) put HK$11,272 494 million into the group’s coffers.

Decrease in VIP gaming revenue

JM’s gaming revenue increased 4.9 percent in the first quarter of this year to HK$22,789 million while in the first three months of 2013 it accumulated HK$21,734 million, the company announced yesterday. Notwithstanding, the company lost 3.2 percent of Macau’s casino market during Q1, as compared to Q1 2013 when it occupied 26.2 percent .

In the period, adjusted EBITDA increased 2.9 percent to HK$2,190 million; in 2013, it was HK$2,219 million. These results contributed to a jump of 27.8 percent in mass market gaming from HK$6,220 million in Q1 2013 to HK$7,948 million in Q1 2014. Adjusted EBITDA Margin was 9.5% in Q1 2014, compared to 9.7% in Q1 2013.

There was also a decrease of 4.1 per cent in the Group’s VIP gaming revenue to HK$14,511 million, while it was HK$15,137 million in the first three months of last year. SJM states that this was due to the classification of certain tables. “During Q1 2013, HK$1,004 million of gaming revenue from certain high-limit gaming tables located in mass market gaming areas were classified as VIP gaming revenue due to game size. If these tables had been classified as mass market, Q1 2014 VIP gaming revenue would have shown an increase of 2.7%”, it was explained. The revenues of slot machine have also decreased12.6 percent from HK$377 million to HK$330 million. In Q1 2014, SJM operated an average of 582 VIP gaming tables - 1,195 mass market gaming tables

and 2,971 slot machines. In the same period, VIP chip sales accounted for HK$537.2 billion compared to Q1 2013 when they were HK$459.2 billion. There was also a cut in the VIP gaming hold percentage (before commissions and discounts) from 3.08 percent in 2013 to 2.70 per cent in the first months of the year. As at 31 March 2014 the Group held HK$29,616 million in cash and HK$1,447 million of debt as at 31 March 2014.

Average occupancy rate tops 95 percent in Grand Lisboa In the first months of 2014, the average occupancy rate of Grand Lisboa was 95.8 percent with an average room rate of HK$2,385 per night, as compared to an average occupancy rate of 93.9% and average room rate of HK$2,236 in Q1 2013.

May 13, 2014

Greater China

New role, new bank

two countries also have a combined voting power of 26 percent, compared with China’s 5.47 percent, according to the bank’s website.

The Asian Infrastructure Investment Bank intends to reinforce China’s part in Asian development as an alternative to Japan and U.S.

Infrastructure demand

n the first evening of the Asian Development Bank’s annual meeting in the capital of Kazakhstan this month, delegates from 16 countries dined as China’s Finance Minister Lou Jiwei led discussions about the creation of the new US$50 billion Asian Infrastructure Investment Bank, to be mostly funded by China. The delegates included representatives from Pakistan, South Korea, Kazakhstan, Mongolia and Sri Lanka. Left out from the feast, however, were regional rivals Japan and India, as well as the U.S. China’s proposal is viewed privately by officials and diplomats as a challenge to the regional role of the ADB, a Manila-based multilateral lender founded in 1966 that is dominated by the U.S. and Japan. It’s one of a number of moves by China to promote its influence in the region, from the suggestion of a “mega free-trade area” in Asia to promoting a regional security summit hosted by President Xi Jinping this month with at least 14 state or government leaders attending, including Russian President Vladimir Putin. Japan and the U.S. are observers to the 24-member body.

Starting big The new bank, put forward by Xi during his visit to Indonesia in October, will initially be less than a third

Manila’ headquarter of Asian Development Bank, controlled by Japan

of the size of ADB, which has US$174 billion in total capital, according to its 2013 report. The ADB is rated AAA by Standard & Poor’s, its top credit rating, compared with the AA- the company gives to China’s sovereign government. China plans to pay a “relatively big portion” of the US$50 billion but doesn’t necessarily have to own a controlling stake, Finance Minister Lou said in April. The working group for the establishment of the bank is based in Beijing and is headed by Jin Liqun, chairman of China International Capital Corp., one of the country’s leading investment banks.

“Asia is in dire need of investment, especially in infrastructure, but ADB’s current capacity is really insufficient,” Lou said at a gathering of all ADB members on May 4 that included Japan, India and the U.S. “By comparison, the China Development Bank has been doing commercial infrastructure loans and its business size is far bigger than the ADB and World Bank combined - and that happened in less than 20 years.” Japan and the U.S. are the two largest shareholders of the 67-member ADB, with 15.7 percent and 15.6 percent respectively. The

Asia is in dire need of investment, especially in infrastructure, but ADB’s current capacity is really insufficient Lou Jiwei, China’s Finance Minister

The AIIB will differ from the ADB by focusing on building infrastructure rather than prioritizing poverty reduction, Lou said at the Boao Forum in April. The bank is unlikely to attach political conditions to its loans due to Beijing’s policy of not interfering in other countries’ internal affairs, according to Zhao Jianglin, a researcher with the National Institute of International Strategy at the Chinese Academy of Social Sciences in Beijing. China’s soft power push is driving other multilateral initiatives. It has proposed studying a “mega free-trade” agreement in the Asia-Pacific region and has submitted plans for a working group, Wang Shouwen, assistant commerce minister, told reporters in Beijing last month, according to the official Xinhua News Agency. Xi will preside over a summit starting May 20 in Shanghai of the Conference on Interaction and Confidence-Building Measures, a body first mooted by Kazakhstan in 1992 to promote peace and security in Asia. The organization has a clear “Asian-led identity,” upholds China’s principle of non-interference in the internal affairs of other countries and has “enormous development potential in the future,” Cheng Guoping, Vice Minister of Foreign Affairs said at briefing last week. Bloomberg News

RMB declines as PBOC cuts reference rate In offshore trading in Hong Kong, the yuan dropped 0.06 percent to 6.2386 per dollar

hina’s yuan fell as the central bank cut its reference rate to an eight-month low after President Xi Jinping said the nation needs to adapt to slower growth. The People’s Bank of China reduced the daily fixing by 0.07 percent to 6.1625 per dollar, the weakest level since September 9. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 of its major peers, jumped 0.4 percent on May 9, the largest one-day rise in two months. China needs to adapt to a “new normal” for the pace of economic growth and remain “cool-

minded” amid a slowdown, Xinhua News Agency report cited Xi as saying in a May 10 report. “The yuan is likely to stay under pressure on continued dollar strength,” said Bruce Yam, a Hong Kong-based foreignexchange strategist at Sun Hung Kai Forex. “China has not yet shown signs of strong recovery, so it’s more likely for the yuan to drop further amid these pessimistic views.” The currency fell 0.15 percent, the most since April 24, to close at 6.2375 per dollar in Shanghai, China Foreign Exchange Trade System prices show. The spot rate was 1.2 percent weaker

PBOC fixed the lowest level since September

than the fixing, within the 2 percent band. China’s “relatively large” foreignexchange reserves have become a burden, Phoenix TV cited Premier Li Keqiang as saying. The stockpile climbed to a record US$3.95 trillion by the end of March, while the yuan fell 2.6 percent in the first quarter. The economy will grow 7.3 percent this year, according to the median estimate of analysts in a Bloomberg survey, compared with a target of about 7.5 percent.

6.1625 per dollar People’s Bank of China daily fixing yesterday

Policy changes The State Council, the country’s cabinet, said on May 9 that it will relax limits on foreign investments in listed companies, expand quotas for capital flows and develop commodities-trading tools. China will actively prevent risks from crossborder capital flows and crack down on illegal activities in the currency market, the State Administration of Foreign Exchange said in its 2013 annual reported posted on its website on May 9. In offshore trading in Hong Kong, the yuan dropped 0.06 percent to

6.2386 per dollar, according to data compiled by Bloomberg. Twelvemonth non-deliverable forwards slipped 0.22 percent to 6.2365, almost at par with the spot rate in Shanghai. The contracts lost 0.46 percent in two days, the biggest drop since March. One-month implied volatility in the onshore yuan, a gauge of expected moves in the exchange rate used to price options, gained two basis points, or 0.02 percentage point, to 1.58 percent, data compiled by Bloomberg show. Bloomberg News

May 13, 2014

Greater China Graft-busters inspect two more firms China’s graft-busters are conducting inspections at two more power sector companies, the anti-corruption watchdog said, as the government steps up a campaign against pervasive corruption. The ruling Communist Party’s Central Commission for Discipline Inspection said in a statement late on Saturday that the probes were aimed at “effectively bringing shock and awe” to the war on graft declared by President Xi Jinping. The latest firms put under scrutiny are Power Construction Corp and state-controlled power equipment maker China XD Group, it said.

April fiscal revenues up China’s fiscal revenues in April rose 9.2 percent from a year earlier to 1.2 trillion yuan (US$192.7 billion), the Ministry of Finance said yesterday, quickening from a rise of 5.2 percent in March. Fiscal revenues in the first four months rose 9.3 percent from the same period last year to 4.8 trillion yuan, the ministry said in a statement on its website. China’s fiscal expenditures rose 9.6 percent in the first four months from a year earlier to 4.0 trillion yuan, the ministry said. It did not give a spending figure for April alone.

US$100 million loss in derivatives trading in Taiwan

Yuan rout over, according to PBOC members are concerned that the losses, if sustained, could eventually

irms from Goldman Sachs Group Inc. to Commonwealth Bank of Australia are predicting the record yuan rout engineered by China’s central bank has run its course. Since falling as much as 3.5 percent from mid-January to the end of last month, the yuan has rebounded 0.4 percent and is headed back toward its record high of 6.0393 per dollar. One-month forward prices rose last week to the highest since March as the People’s Bank of China lifted the official rate, which determines the band the currency can float in. Goldman Sachs strategists said the yuan is becoming “attractive” while CBA advised clients to exit a bet that it would weaken. “It wouldn’t be surprising to see the PBOC putting an end to the yuan’s decline,” David Loevinger, a former U.S. Treasury Department senior coordinator for China affairs and now an analyst at TCW Group Inc. in Los Angeles, said in a phone interview on May 6. “China has always been allergic to large exchange-rate movements. Too much appreciation induces capital inflows. Too much depreciation induces outflows.” PBOC members are concerned that the losses, if sustained, could eventually unnerve foreigners and threaten the overseas investment the country is counting on to boost flagging economic growth, according to Loevinger. Phone calls to the PBOC’s press

office in Beijing last week seeking comment on the yuan’s rebound weren’t returned. The onshore market rate for the yuan climbed to 6.2325 per dollar yesterday from 6.2674 on April 30, the weakest intraday level since October 2012, according to prices compiled by Bloomberg. It has fallen 2.9 percent since December 31, more than in any full year since 1994,

when China unified the official and market rates. The yuan has weakened for four straight months, its longest run of losses ever, and is this year’s worst performer among 24 emerging-market currencies tracked by Bloomberg after the Argentine and Chilean pesos and Russia’s ruble. Strategists are speculating that the PBOC is now through with allowing

Taiwanese companies listed on the main board and the Over the Counter (OTC) exchange posted a combined loss of T$3 billion (US$100 million) in derivatives trading, including the target redemption forward (TRF) tied to the Chinese yuan, Taiwan’s top financial regulator said yesterday. Financial Supervisory Commission Chairman William Tseng made the comments to reporters on the side-lines of a business event but did not elaborate.

Warehouse business on the rise

Uni-President to raise in rights

US$2.5 trillion may need to be invested in buying land and constructing warehouses alone over the next decade and a half

Instant noodle and beverage maker Uni-President China Holdings Ltd plans to raise about HK$3.28 billion (US$423 million) in a rights issue, raising capital to repay loans and for working capital. Hong Kong-listed Uni-President, which is the China arm of Taiwan food and beverage conglomerate Uni-President Enterprises Corporation, aims to sell 719.9 million rights shares, offering one rights share for every 5 shares held at HK$4.56 apiece, it said in a filing to the Hong Kong bourse late on Sunday. The issue price represents a 29.6 percent discount to the shares’ previous close. BNP Paribas and JPMorgan are the joint underwriters of the issue.

he ageing warehouses that supply goods to customers across the world’s secondlargest economy are already creaking under the strain, lacking

the automation and state-of-theart technology that has fuelled the rise in the United States and Europe of Amazon.com Inc. By 2020 China’s e-commerce sector

will be larger than those of the U.S., Britain, Japan, German and France combined, KPMG said in a recent report. To cope with the China surge,

Hangzhou suspends incinerator Chinese authorities suspended construction of a waste incinerator in the eastern city of Hangzhou after demonstrators overturned cars and set police vehicles on fire in a protest that drew thousands of people. Violence broke out when police tried to drive hundreds of people off the Hangzhou-Huangshan expressway, the state-owned Global Times said today. Several local residents told the newspaper that three people died and many others were injured, it said. “We were calm and organized, but the police began to beat us out of nowhere,” the paper cited one unidentified protester as saying.

None other than Alibaba co-founder Jack Ma has prioritised improving the logistics of China’s warehouses

May 13, 2014

Greater China

Goldman Sachs

Yuan sleeps in Taiwan

unnerve foreigners and threaten overseas investment the yuan to slide after it strengthened the official reference rate in seven of the last 11 days. The official fixing reached 6.1542 per dollar on May 7, from 6.161 on April 22, the weakest in seven months. The central bank set the fixing today at 6.1625, the lowest level since September 9, after a rally in the greenback. The currency is able to move 2 percent higher or lower than that rate each day.

‘No reason’ “There’s absolutely no reason for the Chinese renminbi to devalue,” said Philippe Jauer, the chief investment officer for global fixed income and currencies in Singapore at Amundi, which oversees about US$1 trillion, said in a May 6 interview. “The Chinese currency should continue to appreciate.” The central bank had weakened the fixing from 6.0930 per dollar on January 14 as it sought to introduce a two-way trade in its currency and deter hot money. After almost uninterrupted annual gains since 2005 that saw the yuan strengthen 33 percent versus the dollar, speculators had come to see China’s currency as a one-way trade, leaving the world’s second-largest economy vulnerable to a sudden shift in investor sentiment. The PBOC bought dollars to weaken the yuan, boosting its foreign reserves by US$127 billion in the first quarter to a record US$3.9 trillion.

as much as US$2.5 trillion may need to be invested in buying land and constructing warehouses alone over the next decade and a half, according to one builder. That’s drawing the attention of global private equity firms like Blackstone Group LP and Carlyle Group LP as they seek to benefit from an anticipated investment boom. “Over the next 15 to 20 years, the real cost of building warehouses is going to be staggering,” said Jeff Schwarz, co-founder of Global Logistic Properties Ltd (GLP), the biggest foreign builder of logistics facilities in China. With each new facility the size of several large sports stadiums, that translates to around 2.4 billion square metres of new warehouses - an area close to two-thirds of the total land mass of Taiwan. And GLP estimates the US$2.5 trillion needed over the next 15 years will still only increase per capita fully automated modern warehouse space to just a third of that of the U.S. Alibaba controls 80 percent of all online retail in China, and its logistics partners delivered five billion packages last year from deals struck on its Internet marketplaces. While transport infrastructure has kept pace so far with Alibaba’s rise, warehousing is a key to the supply chain across the e-commerce industry that logistics specialists say is in serious need of a makeover: Boston has more modern warehouses than the whole of China, says Stuart Ross, head of Industrial at real estate consultancy firm JLL China. Less than 20 percent of China’s warehouses are categorised as modern, with fully computerised tracking systems and the latest in retail technology, according to GLP and other warehouse builders. Many facilities serving Alibaba and its

China has always been allergic to large exchange-rate movements. Too much appreciation induces capital inflows. Too much depreciation induces outflows David Loevinger, former U.S. Treasury Department senior coordinator

“The underlying trend in the renminbi hasn’t really changed,” Andy Seaman, London-based fund manager for Stratton Street Capital LLP’s Renminbi Bond Fund, said in a May 9 phone interview. “The goal of the Chinese government is to shift toward a more domestically-oriented economy and away from one that’s purely export-based.” Some say the worst is still to come for the yuan. Bloomberg News

peers are located in areas that are tough for trucks to access. They often lack raised loading bays to let packages simply roll off conveyor belts into the back of trucks: Instead, trucks are loaded and unloaded by manual labour. That’s a headache that can cut into profits for e-commerce firms. Despite China’s wages being much lower than in the U.S., it can cost over twice as much to transport goods in China compared with the U.S., says GLP.

A Ma must Improving the logistics of China’s warehouses has been prioritised by none other than Alibaba cofounder Jack Ma. Last year, Alibaba announced a plan to lead a consortium to invest US$16 billion in the first phase of building a national logistics business, a unit of Alibaba to be chaired by Ma. Alibaba’s efforts to update logistics in China haven’t gone unnoticed. U.S. e-commerce company ShopRunner, a rival to Amazon, will use Alibaba’s domestic logistics network when it launches in China later this year. JD.com Inc, ranked second behind Alibaba in China e-commerce if a long way behind, said it plans to spend up to US$1.2 billion over the next three years to buy land and vehicles and build warehouses for its logistics network. Since the beginning of 2013, around US$22 billion has been earmarked by buyout firms, including Blackstone and Carlyle, and private companies to buy land and build new warehouses in China. That is just a fraction of what the logistics industry expects will be needed to keep pace with the country’s consumer boom. Reuters

Taiwan’s yuan debt market has seen few offerings this year as its low trading activity deters investors

uan deposits in Taiwan that surged fivefold in the past year are mostly sitting idle, according to global banks who say more investment options are needed to make the renminbi a global currency. Credit Suisse Group AG estimates that about half of the 268 billion yuan (US$43 billion) of savings on the island are re-deposited at Bank of China’s Taipei branch, while only 7 percent is used for loans. The territory’s sales of yuan notes, known as Formosa bonds, were 1.5 billion yuan this year, while Taiwan has yet to receive a qualified investor quota allowing it to invest the funds in China’s onshore market. “Many banks were very proactive in building up a liquidity pool in the shortest time, betting that there will be a corresponding regulatory development in the end,” said Raymond Yeung, a Hong Kongbased economist at Australia & New Zealand Banking Group Ltd. “The critical question is how to deploy the huge amount of deposits sitting on only one side of the balance sheet.” Taiwan’s case shows the difficulty global financial centres including London, New York and Singapore will have in making full use of yuan deposits as China’s government takes an ad hoc approach to lifting capital

controls. While Asia’s largest economy is seeking to boost the global role of the yuan, foreign investors must apply for quotas to invest in onshore bond and stock markets.

Yuan expansion Taiwan started taking renminbi deposits in February 2013 following a clearing agreement signed in the preceding year. Singapore and London joined the competition for yuan business as China signed currency-swap lines with at least 20 foreign central banks and allowed the yuan to trade directly against major currencies such as the yen. While China has agreed to let Taiwan participate in the Renminbi Qualified Foreign Institutional Investor program, or RQFII, the island’s quota is conditional on the passage of a trade deal with its neighbour, which was shelved following widespread protests last month. “If, by the year-end, China still hasn’t opened up RQFII to Taiwan or helped Taiwanese banks invest their yuan, they will face a serious bottleneck,” said Chung Hsu, a Taipei-based banking analyst at Credit Suisse. Bloomberg News

Meituan joins the Chinese IPO invasion The compnay has partnerships with about 400,000 merchants in China

eituan.com, a Chinese group discount website backed by Alibaba Group Holding Ltd., is considering a U.S. initial public offering as it forecasts sales to triple this year. The company that offers discounts similar to Groupon Inc. expects transactions to more than double to 40 billion yuan (US$6.42 billion) this year from 16 billion yuan last year, Chief Executive Officer Wang Xing said during a May 7 interview in Beijing. Revenue is forecast to triple to about US$300 million (1.9 billion yuan), he said. “In the future, yes,” Wang said when talking about plans for an IPO. “If you ask me now, I would prefer the U.S.” Meituan, which has 90 million active mobile users and is at least 10 percent owned by Alibaba Group, is tapping into China’s surging middle class, which is seeking deals for entertainment and restaurants. About 70 percent of the platform’s transactions are done through Meituan’s mobile applications as the company competes against Dianping. com, the Yelp-like website backed by Alibaba competitor Tencent Holdings Ltd., which is Asia’s largest Internet company. Yelp has a market value of about US$3.9 billion and Groupon US$4.13 billion, according to data compiled by Bloomberg. Meituan, which began offering its services in March 2010, attracted US$12 million from Sequoia Capital

US$6.42 billion 2014 transaction forecast

Operations LLC the same year and another US$50 million of investment led by Alibaba and Sequoia in July 2011. The company broke even last year, Wang said. E-commerce spending by Chinese consumers will reach 3.3 trillion yuan by 2015, according to a Bain & Co. report in August. China has more than 618 million Web users. Beijing-based Meituan offers local business-search services that include consumer-generated reviews. Users also can buy coupons and get group discounts. Meituan has partnerships with about 400,000 merchants in China and is looking to expand its offerings by 50 percent to 300 cities this year, Wang said. The company has about 5,000 employees, with about 3,000 focusing on attracting merchants to offer services on the platform. Its staff could grow to 8,000 by year’s end, Wang said. Bloomberg News

May 13, 2014

Asia NZ house prices edge up New Zealand house prices rose for a third consecutive month in April to a record high, while the number of houses sold fell, the Real Estate Institute of NZ (REINZ) said yesterday. The REINZ said the sharp dip in sales volumes, especially in lower valued properties, pointed to the impact of the central bank’s limits on low deposit lending and the start of the interest rate tightening cycle. Last week the Reserve Bank of New Zealand (RBNZ) said limits on low deposit home loans have been effective in slowing house price inflation.

India’s new government to inherit wobbly economy High inflation and weak growth have dogged much of outgoing Prime Minister Manmohan Singh’s second term

ndia is on the cusp of political change that is widely expected to infuse a new life into an economy that is struggling to break away from a tale of weak growth and high inflation. But data due this week will

probably show no improvement yet to its economic woes, as industrial output is expected to contract for a second straight month while inflation is forecast to pick up. Asia’s third-largest economy is

Emperador suspended after deal Shares of Philippine liquor manufacturer Emperador Inc were suspended from trading yesterday after it sealed a 430 million pound (US$729 million) deal to buy the Whyte & Mackay whisky unit of India’s United Spirits Ltd. The Philippine Stock Exchange said it imposed the trading suspension pending Emperador’s compliance with disclosure requirements. The deal is still subject to approval by regulators and stockholders. Emperador said in a statement the deal was in line with its plans to expand its portfolio.

Optimism for turnaround

Thiess India CEO arrested Australia’s Leighton Holdings said yesterday the head of its Thiess subsidiary in India has been arrested by police and the main client for its Pakri Barwadih coal mine is attempting to terminate its contract. Thiess Minecs Chief Executive Raman Srikanth was arrested on Friday, Leighton said, adding that client NTPC Ltd is in breach of its contract by attempting to terminate it. Thiess Minecs, which is 90 percent owned by Leighton’s wholly owned subsidiary Thiess Pty Ltd, has been in dispute with NTPC over the mine for a number of years.

Qantas plans junk-rated bonds

Qantas Airways Ltd. is planning the first-ever junk-rated bond issue in Australia after it was stripped of its investment grade amid losses. Australia’s largest airline hired Deutsche Bank AG to arrange a sale of eightyear fixed-rate notes, according to an e-mailed statement from the sale manager. The Australian dollar notes are being marketed to yield about 400 basis points more than the swap rate, three people familiar with the matter said, asking not to be identified because the terms aren’t set.

battling the worst slowdown since the 1980s as GDP growth has almost halved to under 5 percent in the past two years. Output from mines, utilities and factories in March probably fell 1.5 percent from a year earlier, according to a Reuters poll of economists. If the forecast materialises, it would mark the fifth fall in industrial production in six months, reflecting the rut gripping the economy from weak consumer and investment demand. Meanwhile, consumer inflation is estimated to have quickened to 8.48 percent in April from 8.31 percent in March, the poll showed. Wholesale prices for the month are forecast to rise 5.73 percent compared with a 5.70 percent annual gain in March.

Klaus Schwab and Prime Minister of India Manmohan Singh at the opening of the World Economic Forum in India

Policymakers are hopeful of an economic rebound in the fiscal year that began in April, but much will depend upon the pace of reforms after a new government takes over in New Delhi following the conclusion of on-going national elections on May 16. “We concur that the economy has bottomed out in recent quarters and a

South Korea yuan deposits marks new record Yuan deposits in Seoul were built through a structured product scheme

uan deposits at banks in South Korea rose by an equivalent US$2.0 billion during April to hit a record US$9.9 billion, official data showed yesterday, as investors continued to favour the yuan’s higher interest rate. It was the third-largest monthly gain on record in the yuan deposits in South Korea, which have risen fast from late last year mainly to earn higher returns from yuan assets, South Korea central bank data showed. A Bank of Korea official said the rise in yuan deposits was expected to continue for the time being as yuan deposits still offered at least 50 basis points higher return than won deposits, although it gave no further details. Media reports said last month that financial authorities in South Korea had lifted their warning on banks to refrain from increasing their yuan deposits, although there has been no official announcement on the matter. What makes yuan deposits in Seoul different from those in Singapore or

US$7.3 billion

South Korea April deposits in foreign currencies rise

London is that the won cannot be directly converted to yuan, making yuan deposit transactions there complicated. Yuan deposits in Seoul were built through a structured product scheme

in which a local brokerage sold assetbacked commercial paper to raise won from local institutions such as insurance companies. The proceeds were then swapped into dollars, before they were converted to yuan and deposited with the local subsidiaries of Chinese banks, which then send the money back to China to fund their operations there. The Bank of Korea data showed all deposits in foreign currencies including yuan rose by a net US$7.3 billion during April to reach a record US$58.4 billion, the biggest monthly gain since early 2007, he said. More than half of the monthly gain came from deposits in U.S. dollars, which rose by a net US$4.8 billion to US$42.5 billion on increased deposits by companies for settlement of trade bills, the data showed. As of the end of April, U.S. dollardenominated deposits accounted for 72.7 percent of the total and yuan deposits for 17.0 percent, the data showed. Reuters

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May 13, 2014

Asia

The promise of reform needs to match with improvement on the ground to sustain that optimism (in financial markets) Radhika Rao, DBS economist

right mix of policy coordination and governance should be able to kickstart the growth cycle,” Singaporebased brokerage DBS said in a note last week. “While the cycle could benefit from a stable government, the (growth) upturn will be gradual.” High inflation and weak growth have dogged much of outgoing Prime Minister Manmohan Singh’s second term, damaging the prospects of his Congress party at the election rally and swelling public support for pro-business opposition leader Narendra Modi.

Modi’s promise to fix an ailing economy has made him the prime ministerial front-runner. India’s National Stock Exchange has surged 17 percent since the Bharatiya Janata Party (BJP) leader officially joined the fray for the country’s top job on hopes he would script an economic revival. But that depends on his success in pushing up capital investment growth from an eleven-year low and cooling retail inflation that been averaging nearly 10 percent for the past two years, way above the central bank’s comfort zone. “The promise of reform needs to match with improvement on the ground to sustain that optimism (in financial markets),” wrote DBS’ economist Radhika Rao.

Challenges While many analysts are hoping for a rapid implementation of pending labour, fiscal and tax reforms for a faster economic recovery, some say high corporate leverage and rising bad loans at Indian banks will hamper the pace of recovery. Stressed loans in India - those categorised as bad and restructured - total US$100 billion, or about 10 percent of all loans. Debt-equity ratio of Indian firms has hit a two-decade high of 97.9 percent, Nomura said. Compounding economic worries are the prospects of a below-average monsoon this summer, which could hit farm output and fuel inflation, leaving the central bank with little room to support the economy. In 2009, patchy monsoon rains led to India’s worst drought in nearly four decades, resulting in runaway food inflation. Reuters

Weak exports lead Japan’s lower current account surplus Exports rose only 6.2 percent from the previous year

apan posted a much lower-thanexpected current account surplus in March on weak demand for exports and rising imports, reinforcing recent signs that the recovery in the world’s third-biggest economy is being hampered by slow shipments. The surplus stood at 116.4 billion yen (US$1.14 billion), much less than the median forecast for a 305.0 billion yen surplus, finance ministry data showed. That was also well below a 612.7 billion yen surplus in February. Imports jumped in March partly due to increased demand before a sales tax increase at the start of April. Excluding this one-off factor, economists say the data shows that a steady shift of manufacturing capacity overseas means Japan can no longer export its way to growth, and that it needs to boost its services sector to rebalance its economy. “The current account surplus could stabilise in the second quarter,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co. “But structural changes mean exports are likely to remain weak. We need to respond to this change by increasing productivity in the services sector to meet domestic demand.”

Imports jumped an annual 23.2 percent in March, the data showed. On the other hand, exports rose only 6.2 percent from the previous year. Some companies used their domestic manufacturing capacity to meet a pick-up in demand before the sales tax hike, which resulted in lower exports. However, exports have been weak for some time as a structural shift in manufacturing to overseas markets has diminished Japan’s status as an export-led economy. The soft shipments have raised worries of a stumble in the economy as the effects of Tokyo’s aggressive fiscal and monetary stimulus have largely faded. Some analysts say that if exports remain feeble, the Bank of Japan may be forced as soon as July to expand its stimulus by ramping up its purchases of government bonds and other assets. And there are growing signs that policymakers are becoming less confident about an export upturn. Japan’s economy probably grew the most in a year in January-March as consumers rushed to buy goods to beat the April 1 sales tax hike. Reuters

New UHD TV format faces uncertain future Samsung and LG are not missing a chance to boost UHD sales will drive global TV market growth,” Simon Sung, vice president of Samsung’s visual display division, told analysts last week while discussing 2014 market conditions. UHD shipments will reach 13 million TVs this year from 2 million last year, or about 6 percent of an overall market destined for its third straight year of decline, according to researcher IHS. Sung said he expects the global TV market to grow this year, albeit by a low singledigit percent, citing the World Cup as a factor. Samsung UHD TV set

occer fans who have splashed out on topof-the-range ultrahigh definition (UHD) TVs in time for the FIFA World Cup next month may not get to watch any matches in the new format. Only three matches will be filmed in UHD, which boasts resolution four times higher than the full HD standard. That is because even in Japan, where the format was invented, few broadcasters have the ability to transmit the large amount of data required for UHD over conventional broadcast satellites. Dependence on broad-

casters highlights the risks TV makers such as Samsung Electronics Co Ltd and LG Electronics Inc. take when promoting new technology. Plasma screens were shortlived, 3D is widely regarded as a gimmick, and smart TVs - with features akin to smartphones - have not become mainstream. “Distribution and content are the biggest hurdles for UHD adoption,” DisplaySearch analyst Hisakazu Torii told Reuters. The World Cup is arriving at least two years before regular UHD broadcasting becomes plausible, analysts said.

UHD content is indeed scarce. Sony Corp, which sees widespread UHD adoption taking as much as seven years, is among a minority in offering films in the format over its online Video Unlimited service, accessed through smart TVs. Even so, Samsung and LG - the biggest TV makers by market share - are not missing a chance to boost UHD sales. The World Cup offers an opportunity to charge a premium for UHD before competition drives prices down by as much as 50 percent by year-end, industry watchers say. “Demand for UHD TV

Investment The process to make HD and UHD TVs is not so different, said analysts. So Samsung and LG - like panel makers such as LG Display Co Ltd - likely invested in UHD just a tiny fraction of the pair’s 26.5 trillion won (US$25.65 billion) in combined 2013 capital expenditure. Broadcasters, on the other hand, have to contend with a high barrier to entry. In Samsung and LG’s native South Korea, public broadcasters plan to invest around 61.8 billion won in UHD infrastructure and content over the next two years.

A group of cable providers aims to invest about 650 billion won by 2017. At present, there is one UHD cable channel airing for 20 hours a day. Concern over content is exaggerated, said Shinhan Investment analyst Soh Hyun-cheol. Content production costs may rise by 20 percent to shoot in UHD, but that is far less than for 3D, and the better picture quality offers real benefit, he said. “At sizes above 50 inches ... UHD TVs offer better readability than full HD TVs even if they’re not showing UHD content,” said Soh. A bigger worry is that a honeymoon period of wide margins is unlikely to last very long, indicating the technology might not be a long-term growth driver. Competition will see prices pushed lower as makers fight for market share, and margins may be as thin as those of HD within two years from now, analysts said. The average sales price for a 55-inch UHD TV is likely to be around US$1,078 by the October-December quarter from US$2,057 a year earlier, showed projections from researcher DisplaySearch. Reuters

May 13, 2014

International

Pfizer presses AstraZeneca

Finnish austerity ending

The firm is widely expected to come back with a sweetened offer for AstraZeneca this week

Finnish austerity is drawing to a close as Antti Rinne, who’s joining the government after winning leadership of the Social Democrats, vows to push the coalition partners into agreeing to more stimuli for the ailing economy. Rinne, a trade union leader, wants to invest in infrastructure such as roads and railways and on information technology to create jobs, he said in a speech on May 10. A 600 million-euro (US$825 million) package agreed on in March “is a good start, but it’s not enough,” he said.

.S. drugmaker Pfizer pressed the scientific case for its controversial plan to acquire AstraZeneca yesterday as its chief executive prepared for a grilling from British lawmakers. In the latest phase of Pfizer’s campaign to counter critics of its proposed US$106 billion deal, research head Mikael Dolsten said he had been through five different mergers and acquisitions and denied such big transactions disrupted drug research. “If you keep your sense of curiosity and an open mind, you can learn tremendously,” he said in a video posted on the company’s website. “We must stay laser-focused on our important projects. And that’s, of course, true for Pfizer scientists and AZ scientists and will be true also if we can make a potential combination come together.” British lawmakers are due to quiz Dolsten’s boss, Scottish-born Chief Executive Ian Read, on May 13 about his plans to acquire Britain’s secondbiggest pharmaceuticals business - a deal driven in large part by Pfizer’s wish to cut its tax bill. They will also interrogate AstraZeneca CEO Pascal Soriot and business minister Vince Cable. A second parliamentary committee on May 14 will question both CEOs again about the science aspects of the deal, along with Pfizer’s Dolsten and science minister David Willetts. Buying AstraZeneca would be the largest foreign takeover of a British firm. Pfizer’s approach has been rejected by AstraZeneca and the idea of a merger is opposed by many scientists and some politicians who fear it would damage the country’s science base. Dolsten said there was “a really great fit” with the products that AstraZeneca had in its portfolio, with potential for combining drugs in areas such as lung cancer to offer much more effective treatments. Pfizer has given a fiveyear commitment to complete

BNP and Credit Suisse ask for mercy

Pfizer’s famous Viagra was invented in its labs in UK, most of them currently dismantled

AstraZeneca’s new research centre in Cambridge, retain a factory in the north-western English town of Macclesfield and put a fifth of its research staff in Britain if the deal goes ahead. But the U.S. firm has also said it could adjust those promises if circumstances change “significantly”, prompting demands for more watertight pledges. Prime Minister David Cameron said on Sunday he had made “very good progress” in securing guarantees from Pfizer. However, Dolsten’s remarks contained no new pledges on preserving British science jobs.

Sweetened offer? Pfizer is widely expected to come back with a sweetened offer for AstraZeneca this week, though people familiar with the matter said it was likely to wait until after the parliamentary select committee hearings. The British group rejected a May 2 cash-and-stock offer worth 50 pounds a share from its larger American rival, and CEO Soriot has been on a road show to meet leading investors and

lay out his strategy for a prosperous independent future. Soriot has secured the backing of several high-profile shareholders, but others have told Reuters they would like him to engage with Pfizer if the U.S. group makes an improved offer. In addition to wanting a higher price - many analysts think Pfizer will have to offer around 55 pounds a share - investors are also keen to increase the proportion of cash in any deal from 32 percent at present. Pfizer is limited in the amount of cash it can offer since in order to keep the tax advantages of redomiciling to Britain it must ensure at least 20 percent of the enlarged group is British-owned. Under British takeover rules, Pfizer has until May 26 to make a firm bid for AstraZeneca or walk away. Political concerns about the proposed takeover have been fuelled by Pfizer’s record of making big job cuts after past acquisitions. It also has a tarnished reputation in Britain after shutting down most of its drug research in Sandwich, southern England, where Viagra was invented, with the loss of some 1,700 jobs. Reuters

BSkyB to create European TV giant Media watchdog Ofcom was poised to obstruct any attempt by Murdoch to unite his continental pay-TV businesses with BSkyB

ritish Sky Broadcasting said yesterday it was in early talks with Rupert Murdoch’s 21st Century Fox over the possible acquisition of its pay-TV assets in Germany and Italy, Sky Deutschland and Sky Italia. “BSkyB believes at the right value, this combination would have the potential to create a world-class multinational pay TV group,” the group said in a statement. A deal would unite Murdoch’s European satellite holdings in a single group. Fox owns a 39 percent stake in BSkyB, a 55 percent stake in Sky Deutschland and all of Sky Italia. Bloomberg had reported on Friday that Fox was in talks for such a deal, worth about 10 billion euros (US$13.8 billion), which would turn BSkyB into a European satellite-TV giant. It quoted

people familiar with the situation. 21st Century Fox said yesterday said the combination of the Skybranded European satellite platforms in Britain, Germany and Italy had often been discussed internally, but it noted that no agreement had ever been reached. “Over the years we’ve had numerous internal discussions regarding the organisational and ownership structure of the European Sky-branded satellite platforms,” the company said in a statement. “From time to time these conversations have included BSkyB, however no agreement between the parties has ever been reached.” Rupert Murdoch tried to take full ownership of BSkyB in 2010, but the bid was derailed by a phone hacking scandal involving his British tabloid

News of the World in 2011. The U.S. company later split into two, with its media assets listed as 21st Century Fox and its publishing activities remaining in News Corp. BSkyB said talks were still preliminary and no agreement has been reached on terms, value or transaction structure. Barriers to a deal include the fact that fact that Sky Italia is yet to renew the Serie A soccer rights in Italy, which is a key part of its TV offering, analysts at Citi said. Britain’s Sunday Telegraph newspaper said the media watchdog Ofcom was poised to obstruct any attempt by Murdoch to unite his continental pay-TV businesses with BSkyB in a way that would give him overall control of the British satellite broadcaster. Reuters

BNP Paribas and Credit Suisse Group have appealed to U.S. authorities to allow their subsidiaries rather than parent companies plead guilty in investigations they are facing, the New York Times reported, citing people briefed on the talks. Prosecutors are investigating BNP over allegations that it violated U.S. sanctions against Iran and other countries, and are conducting a probe of Credit Suisse over allegations that it helped wealthy Americans evade U.S. taxes. The newspaper said that prosecutors appeared to balk at the overtures from the banks.

Saudi Arabia ready to compensate oil shortage Saudi Oil Minister Ali al-Naimi said yesterday the world’s top oil exporter was willing to supply markets with more crude if rising tensions between Russia and the West over Ukraine cause a shortage. Russia’s military intervention on Ukraine’s Crimean peninsula and its aftermath in eastern Ukraine have rattled oil markets for the last few months, keeping benchmark Brent futures near US$108 a barrel after hitting US$112.39 on March 3, the highest this year. Saudi Arabia produced 9.66 million bpd of crude in April, up from 9.566 million bpd in March.

Codere extends talks to avoid insolvency Codere SA, the Spanish gaming company negotiating a 1.1 billion-euro (US$1.5 billion) debt restructuring deal, gained yet more time to reach an accord with creditors and avoid entering bankruptcy protection. Codere’s senior facility lenders and a majority of bondholders agreed to continue talks for 48 hours and will not demand repayment during the period, the Madrid-based company said in a statement. It sought preliminary creditor protection in January after reporting seven consecutive quarters of losses.

CD&R acquires Mauser US private equity group Clayton, Dubilier & Rice (CD&R) said yesterday it plans to acquire German packaging specialist Mauser for around 1.2 billion euros (US$1.7 billion). CD&R said in a statement it expects to complete the transaction in the third quarter of 2014. With revenues last year of 1.2 billion euros, Mauser manufactures and supplies plastic and steel drums and intermediate bulk containers (“IBCs”) for the chemical, industrial and food and beverage industries, among others. It employs a workforce of 4,400 at 57 production facilities in 18 countries.

May 13, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

A Light Unto Cities

Joseph E. Stiglitz

Nobel laureate in economics and University Professor at Columbia University

TAIPEI TIMES Acer Inc (宏碁) returned to profitability last quarter, but the world’s fourth-largest PC vendor needs to better control its operating costs and regain notebook sales momentum in order to sustain its profitability, analysts said. “Despite a tiny profit in the first quarter of the year, a turnaround is a positive,” Yuanta Securities Corp (元大證券) analyst Vincent Chen (陳豐丰) said in a client note. …, Acer reported that it posted a net profit of NT$1 million (US$33,200) and earnings per share of NT$0.0004 last quarter.

Medellín, Colombia

THE ASAHI SHIMBUN Panasonic Corp. has started selling a new electronically controlled greenhouse that creates a more optimal cultivation environment, allowing farmers to grow some crops year-round. The company started the business, which will target spinach production at first, at the start of the fiscal year on April 1. The “integrated control panel” for Panasonic’s vinyl greenhouse is connected to sensors that measure temperature and humidity, among other things. It also controls and manages light-blinking curtains, fans and the sprinkler system to create a perfect and more natural environment for growing vegetables.

THE JAKARTA GLOBE After a two-day meeting of its leaders this past weekend, the United Development Party (PPP) has decided to form a coalition with Great Indonesia Movement Party (Gerindra), giving its support to Prabowo Subianto as candidate for Indonesia’s presidency. “The PPP Rapimnas [National Leaders Meeting] unanimously supports Prabowo Subianto as presidential candidate,” said Arwani Tomafi, the PPP’s head of media affairs division, yesterday. In the two-day meeting, PPP discussed two other possibilities of a coalition: with Indonesian Democratic Party of Struggle (PDI-P), supporting Jakarta Governor Joko Widodo; and with Golkar Party, supporting Aburizal Bakrie.

THANH NIEN NEWS Coffee sales by growers in Vietnam, the biggest producer of robusta beans used by Nestle SA, may slow after stockpiles slumped 54 percent from an all-time high. Unsold reserves shrank to 390,000 metric tons at the end of April, or about 23 percent of the record 1.7 million-ton crop, according to the median of 10 trader and shipper estimates compiled by Bloomberg. That’s less than 27 percent at the same time last year and the 25 percent average in the past five years, the survey shows. Inventories were 850,000 tons in the week ended March 7, a record for that time of year.

EW YORK – Last month, a remarkable gathering occurred in Medellín, Colombia. Some 22,000 people came together to attend the World Urban Forum and discuss the future of cities. The focus was on creating “cities for life” – that is, on promoting equitable development in the urban environments in which a majority of the world’s citizens already live, and in which two thirds will reside by the year 2050. The location itself was symbolic: Once notorious for its drug gangs, Medellín now has a well-deserved reputation as one of the most innovative cities in the world. The tale of the city’s transformation holds important lessons for urban areas everywhere. In the 1980’s and 1990’s, cartel bosses like the infamous Pablo Escobar ruled Medellín’s streets and controlled its politics. The source of Escobar’s power was not just the hugely profitable international cocaine trade (fuelled by demand in the United States), but also extreme inequality in Medellín and Colombia. On the steep Andean slopes of the valley that cradles the city, vast slums, virtually abandoned by the government, provided a ready supply of recruits for the cartels. In the absence of public services, Escobar won the hearts and minds of Medellín’s poorest with his largesse – even as he terrorized the city. One can hardly recognize those slums today. In the poor neighbourhood of Santo Domingo, the city’s new Metrocable system, consisting of three lines of aerial gondolas, serves residents hundreds of vertical feet up a mountainside, ending their isolation from the city centre. The commute is now minutes, and the social and economic barriers between the informal settlements and the rest of the city are on their way to being broken down. The problems of the city’s

poor neighbourhoods have not been erased, but the benefits that the infrastructure improvements have brought are brilliantly evident in the well-kept houses, murals, and soccer fields perched near the gondola stations. The cable cars are only the most iconic of the projects for which Medellín last year won Harvard University’s Veronica Rudge Green Prize in Urban Design, the most prestigious award in the field. Beginning with the mayoralty of Sergio Fajardo (now the governor of Medellín’s department, Antioquia), who took office in 2004, the city has made major efforts to transform its slums, improve education, and promote development. (The current mayor, Aníbal Gaviria, has affirmed his commitment to continuing on this path.) Medellín constructed avantgarde public buildings in areas that were the most run down, provided house paint to citizens living in poor districts, and cleaned up and improved the streets – all in the belief that if you treat people with dignity, they will value their surroundings and take pride in their communities. And that faith has been more than borne out. Throughout the world, cities are both the locus and the focus of society’s major debates, and for good reason. When individuals live in close quarters, they cannot escape major societal problems: growing inequality, environmental degradation, and inadequate public investment. The forum reminded participants that liveable cities require planning – a message at odds with prevailing attitudes in much of the world. But without planning and government investment in infrastructure, public transportation and parks, and the provision of clean water and sanitation, cities won’t be liveable. And it is the poor who inevitably suffer the most from the absence of these public goods.

One of the biggest obstacles to achieving sustainability is inequality. Our economies, our democracies, and our societies pay a high price for the growing gap between the rich and poor

Medellín holds some lessons for America, too. Indeed, recent research shows how inadequate planning has fuelled economic segregation in the United States, and how poverty traps have formed in cities without public transportation, owing to a shortage of accessible jobs. The conference went beyond this, emphasizing that “liveable cities” are not enough. We need to create urban areas in which individuals can flourish and innovate. It is no accident that the Enlightenment – which led in turn to the fastest and largest increases in living standards in human history – unfolded in cities. New thinking is a natural consequence of high population density, provided the right conditions are met – conditions that include public spaces in which people can interact and culture can thrive, and a democratic ethos that

welcomes and encourages public participation. A key theme of the forum was the emerging consensus on the need for environmentally, socially, and economically sustainable development. All of these aspects of sustainability are intertwined and complementary, and cities provide the context in which this is most clear. One of the biggest obstacles to achieving sustainability is inequality. Our economies, our democracies, and our societies pay a high price for the growing gap between the rich and poor. And perhaps the most invidious aspect of the widening income and wealth gap in so many countries is that it is deepening inequality of opportunity. Some cities have shown that these widely observed patterns are not the result of immutable economic laws. Even in the advanced country with the most inequality – the US – some cities, like San Francisco and San Jose, are comparable to the best-performing economies in terms of equality of opportunity. With political gridlock afflicting so many national governments around the world, forwardthinking cities are becoming a beacon of hope. A divided US seems incapable of addressing its alarming increase in inequality. But in New York City, Mayor Bill de Blasio was elected on the promise of doing something about it. While there are limits to what can be done at the local level – national taxation, for instance, is far more important than municipal taxes – cities can help ensure the availability of affordable housing. And they have a special responsibility to provide high-quality public education and public amenities for all, regardless of income. Medellín and the World Urban Forum have shown that this is not just a pipe dream. Another world is possible; we need only the political will to pursue it. The Project Syndicate 2014

May 13, 2014

Closing Debt costs fall to record for euro firms

Oil jumps to US$109 over Ukraine jitters

Borrowing costs for companies fell to a record in Europe as policy makers prepare more stimulus measures to prevent stagnant prices from derailing the economic recovery.Yields on investmentgrade corporate bonds in euros dropped to an average 1.7 percent, while junkrated borrowing costs fell to 4.2 percent, according to Bank of America Merrill Lynch indices. The data covers 1.7 trillion euros ($2.3 trillion) of securities.

Brent crude oil climbed towards $109 per barrel on Monday as the deepening crisis between Russia and Ukraine spooked investors. Although the likelihood is remote that the turmoil could lead to an energy supply disruption, Saudi Oil Minister Ali al-Naimi said the world’s top oil exporter was willing to supply more crude in the event of a shortage. Pro-Moscow rebels claimed a resounding victory in Sunday’s referendum in eastern Ukraine, with some saying that meant independence and others eventual union with Russia, as clashes broke out between separatists and troops.

China April bank lending disappoints; money growth picks up Credit decelerated in April more than forecast but the central bank will not act in the next six months

hina’s new bank lending and total social financing weakened in April but money supply growth picked up slightly, indicating that the central bank is treading cautiously in steering policy to support the slowing economy. Chinese banks made 774.7 billion yuan ($124.39 billion) worth of new yuan loans in April, lower than the forecasted 880 billion yuan in a Reuters poll and less than the previous month’s 1.05 trillion yuan, central bank data showed on Monday. Growth in the broad M2 money supply picked up to 13.2 percent in April from 12.1 percent in March, the weakest pace for more than a decade, the People’s Bank of China said in a statement on its website www.pbc.gov.cn. The April growth was higher than a Reuters poll forecast of 12.2 percent. “We cannot be optimistic about the total financing demand, as the April credit data shows both new yuan loans and social financing aggregate grew at a slower

pace,” said Xu Bo, an analyst at Bank of Communications in Shanghai. “We don’t expect any big loosening measures by the central bank, at least in the coming three to six months.” Growth in outstanding yuan loans also slowed, to 13.7 percent in April from 13.9 percent in March. The April pace was the lowest in more than eight years. The central bank also said that China’s total social financing aggregate, a broad measure of liquidity in the

economy, was 1.55 trillion yuan in April versus 2.07 trillion yuan the month before. But central bank officials insist that current money supply growth remains at a reasonable level and that total liquidity is ample to meet the needs of the real economy. The central bank aims for a 13 percent annual rise in M2 this year. Recent factory surveys point to initial signs of stabilisation in the world’s second-largest economy as the government employs targeted measures,

including accelerated spending on railways and affordable housing, to underpin growth.

Targetted approach Central bank governor Zhou Xiaochuan was reported as saying on Saturday that China will not use any large-scale stimulus to boost its economy, in response to speculation that authorities might lower reserve requirements for banks to spur growth. The government is trying to deal with the lingering

hangover of a 4 trillion yuan ($652 billion) stimulus package implemented in 2008-2009, which resulted in mountains of local government debt. “Although the authorities have pledged to tackle overcapacity in certain sectors of the economy, they seem to favour a targeted approach in recent months, and credit is still abundant for the wider economy,” said Chester Liaw, an economist at Forecast Pte in Singapore. The central bank said earlier this month that it would keep monetary policy steady with timely fine-tuning to help stabilise economic growth, while introducing greater yuan flexibility. While maintaining its longstanding prudent monetary policy, the central bank has started to finetune its stance to support the slowing economy. Last month, the central bank cut the reserve requirement ratio (RRR) for rural banks and cooperative banks to shore up the weaker agricultural sector. Reuters

Boom times for bank trading gone forever

Malaysian Airline taps banks for restructuring

Philippine distiller Emperador buys scottish whisky-maker

he boom years of financial market trading, when banks made unprecedented profits from bonds, currencies and commodities, may be over for good as financial firms realise there will be no cyclical upswing on their dealing desks. Even though it’s taken Western economies several years to regain pre-crisis national output levels, many doubt banks will ever revisit the pre-crisis high watermark of their trading activities. Revenues from fixed income, currencies and commodities - the so-called ‘FICC’ universe - continued to tumble for most major U.S. and European banks during the first quarter of 2014, increasing the pressure on them to rethink business models. Thanks to a more stringent regulatory environment and a potential turning point in the 20-year cycle of falling global interest rates, the twin peaks of just before and after the 2008 global financial crisis look unlikely to be revisited. FICC and equity trading income at Goldman Sachs last year was 72 percent of the bank’s overall revenue from investment banking, compared with 82 percent in 2010. Morgan Stanley’s FICC and equity trading revenue represented 70 percent of its total investment banking revenue, well down from 82 percent in 2003. Bloomberg

alaysian Airline System Bhd and its key stakeholders are in talks with banks for a strategic overhaul that could include the partial sale of its engineering unit and an upgrade of its ageing fleet, sources involved in the discussions said. Even before the loss of flight MH370 from Kuala Lumpur to Beijing on March 8 there was talk that loss-making MAS might need a financial rescue from state investor Khazanah Nasional Bhd, which owns 69 percent of the company. “They are sending all these feelers to banks to try and test the waters,” said a banking source familiar with the situation. “The most imminent move looks to be on the engineering business, an IPO or trade sale,” said the source, who declined to be identified as the talks are confidential. MAS aimed to break even this year after three years of red ink, but analysts expect losses to widen as the airline cuts fares to spur demand shaken by the disappearance of its MH370 flight over the Indian Ocean. It was already facing stiff competition from AirAsia Bhd on local and short-haul routes and from AirAsia X and Gulf carriers in the medium and long-haul market. Bloomberg

mperador, the Philippines’ largest liquor producer, said Monday it had agreed to buy Scottish whisky-maker Whyte and Mackay as part of an expansion beyond its traditional base of brandy. The company said in a disclosure to the Manila Stock Exchange that its UK subsidiary would buy Whyte and Mackay from Indian owner United Spirits for £430 million (US$726 million), pending approval from United Spirits’ shareholders, and from regulators. The Glasgow-based firm is the fifth-largest producer of Scotch with a history stretching back 160 years, and counts five distilleries and a bottling plant in Scotland. Andrew Tan, chairman of Emperador, said in the statement that whisky was the second fastest growing spirits segment in the world next to brandy, Emperador’s signature product. “With this acquisition, Emperador will be exposed to two of the fastest growing spirits segments in the world,” he said. “Whyte and Mackay is a prized asset with excellent growth opportunity and its acquisition is in line with our plans to enhance our product portfolio.” AFP