MOP 6.00 Closing editor: Luis Gonçalves Number 597 Tuesday August 5, 2014
Publisher: Paulo A. Azevedo
Beijing crackdowns to clean up Macau’s image
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Year III
nvestors and political experts agree. Beijing’s anti-corruption policy may end up improving Macau’s gaming image. But pundits say that ‘cleaning up’ will come at a high cost for casino operators. High-rollers are already cooling off and playing less. VIP revenues are plunging and junket operators are struggling to survive. But, then, there’s more profit in the mass market . . . Page
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Sin City lures Packer back
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HSBC profits down 12 percent, costs on the upside PAGE 3
Australian mogul James Packer has a thing for Vegas. Despite previous false starts in Sin City, he says the new venture is the real McCoy. The plan is to diversify Crown’s global earnings. From Australia and England, planned developments in Sri Lanka, stakes in Macau and potential investments in the Philippines and Japan
Mozambique opens consulate in Macau PAGE 5
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Targeting growth
Bonuses for peace
The People’s Bank of China is undertaking a new monetary easing policy. The Chinese government is using loans to lower borrowing costs: a key element of the yearly growth target process
Galaxy says it’s been in the hopper for awhile. The group announced yesterday that it always planned to share the fruits of its success with staff. Shares equivalent to three times one month’s salary and a cash bonus are on offer. Promotions are promised. Dissatisfied Galaxy staff were still deciding if they would march today: if so, some 2,000 to 3,000 are expected to hit the streets
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August 4
Name
%Day
CITIC Pacific Ltd
3.02
CNOOC Ltd
2.32
Tingyi Cayman Islan
2.30
China Shenhua Ener
1.93
Cathay Pacific Airwa
1.91
Sino Land Co Ltd
-0.61
Swire Pacific Ltd
-0.80
HSBC Holdings PLC
-0.85
Sun Hung Kai Proper
-0.87
China Resources Lan
-1.00
Source: Bloomberg
MIA flying high
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Macau International Airport continues to perform. Travellers using MIA rose by 11 percent in July year-on-year, topping 490,000. With new Air Macau routes and other airlines interested in flying here, MIA aircraft and passenger movement are poised to increase PAGE 5
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2014-8-5
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August 5, 2014
Macau
Beijing shockwaves to benefit Macau gaming image President Xi Jinping’s anti-corruption policy hit a new high after it was confirmed that the retired member of Politburo Standing Committee Zhou Yongkang was being investigated for corruption. In Macau, such policies from Beijing may end up improving the image of the gaming industry, but for now, with VIP gaming affected, smaller junket operators are struggling to survive João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he leadership of the People’s Republic of China confirmed last week, after months of speculation, an ongoing probe into Zhou Yongkang, the former Minister of Public Security and retired member of the Chinese Communist Party’s highest committee, the Politburo Standing Committee, for “for grave violations of discipline”. The reason is commonly a synonym for corruption. However, while Xi Jinping’s leadership breaks new ground in the anti-graft policy and investigates the most important political figure since the end of the Cultural Revolution, waves of such political measures are having repercussions on the Special Administrative Region of Macau and its gaming industry. The anti-graft policy is perceived, on its brightest side, to have brought a new image to Macau’s gaming industry. According to Christopher Jones, Senior Gaming Analyst at Telsey Advisory Group, Macau’s reputation is often portrayed from negative episodes, rather than from its brighter side. The approach of President Xi Jinping may help to change perception into reality. “I think at the end of the day, it [anti-graft policy] will prove to be a positive for Macau. For years, media, naysayers and sceptics have pointed towards Macau as if it were a den of thieves, drawing on the examples of a few bad apples. So I think that with the central government taking a sweeping look at all party members, new and old, it should go a long way to essentially clearing the name of Macau as a market,” he said to Business Daily. For the gaming expert, although there were investigations into some Macau players, for the most part the gaming industry has proven to be clean and playing by the rules. “Hopefully, after this we can all move on and obsess on another subject that pertains to Macau. To be clear, Macau has been subject to specific corruption investigations, such as with the investigation of Bo Xilai [former Chinese Minister of Commerce]. So Macau has been under scrutiny in the past and emerged largely unscathed,” he explained.
VIP exposure In economic terms, however, such measures are already affecting the gaming industry. The VIP gaming segment is expected to be more affected than the mass market because Chinese high-rollers will prefer to cool down for a while, avoiding drawing attention, as it was explained to Business Daily by the gaming analysts Grant Govertsen and Felicity Chiang from equity research firm Union Gaming Research. “We think that the ongoing anticorruption investigations in China have been impacting Macau’s VIP market on an indirect basis for quite some time. In our view, the reason is quite simple: now is not the time
to be flashy in China, and going to Macau to gamble large sums of money could be perceived as being flashy. As such, we think that some segment of the VIP community is laying low and might continue to lay low over the near term,” they said. The idea that the VIP gaming market is more likely to suffer from the political waves coming from Beijing is in line with the analysis of Christopher Jones. “The popular school of thought is that VIP will be impacted as thus far the mass market has been resilient. So, for now, I think that VIP will remain the primary victim of these investigations,” the Union Gaming expert concluded. After it was announced last Friday that there was a 3.6 percent year-onyear decline to 28.4 billion patacas in gross gaming revenue, Union Gaming Research issued a report about the industry stating that ‘VIP segment remains down about 20 percent yearon-year, while mass market continues to track at a rate approaching 30 percent plus.’ The reason for the trend in the VIP slowdown was defined as ‘largely political in nature (e.g.) PRC anticorruption crackdown; much more so than economic or even event driven.’
Small junket operators at risk The revelation of the investigation into a senior Communist party member is also a setback for junket operators. As frequently happens, the smallest companies tend to face the toughest challenges.
“One can make the argument that it will push capital sources towards the largest junkets and dissuade others from illegal activities such as back betting, etc. The victims here will be smaller junkets and subs. However, the players worth the effort will likely find their way to the more established junket operators,” Mr. Jones explained to Business Daily. The perception that this episode may reinforce the position of the largest junket operators in Macau is shared by the gaming experts from Union Gaming Research. “We think that the impact of such scandals has potentially made it more difficult for certain smaller junkets to raise additional capital. It’s these smaller junkets that from time to time have financial difficulty and are at risk from having to cease operations,” they said. “Based on conversations we’ve had with industry insiders, it feels like the bigger – and well capitalized – junkets are still healthy.” This is the second time in a year that junket operators have faced difficult times. In April, a junket operator named Huang Shan disappeared, taking with him US$1.3 billion. The episode showered discredit upon the operators and made it more difficult for such operators to access credit.
Time for Xi Jinping to focus on economic arena In political terms, the fact that a Chinese political figure is under investigation is perceived as a sign that the Beijing Government is truly committed to the anti-corruption
policy. However, it can also be seen as a sign that Xi has consolidated his power within the Chinese Communist Party, as explained by Dr. Zhu Jiangnan, Assistant Professor and Coordinator of the Contemporary China Studies Programme at the University of Hong Kong, to Business Daily. “The government mainly wants to show its strong commitment to anticorruption by investigating Zhou, showing that nobody is completely safe in the current anti-corruption campaign. In this way, they hope to deter more corruption. Another objective is to show that Xi has firmly consolidated his power within the Chinese Communist Party,” she said. “To probe into a former Standing Committee member of the Politburo must need the agreement of all high ranking officials, including the ‘retired comrades’ such as Jiang and Hu. Thus, pubic announcement of Zhou's investigation shows that Xi has achieved the paramount leadership within the party.” However, even if the anticorruption policy has been one of the main focuses of President Xi since he came into office, his attention is now more likely to change to structural reforms in the economic area. “I think more attention will be given to the economic arena after Zhou's case. The large anticorruption campaign is actually also a way to get rid of various obstacles of further economic reform. This probably also explains why some anticorruption investigation has focused on large state-owned enterprises,” Zhu Jiangnan said.
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Macau
Shares and bonus for Galaxy staff When Galaxy gaming workers were about to march as did Sands employees two weeks before, Galaxy announced yesterday that the group is willing to share the fruits of success with the team, by offering shares equivalent to three times one month’s salary and cash bonus Kam Leong
kamleong@macaubusinessdaily.com
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ll full-time staff of Galaxy Entertainment Group, whose positions are at or below senior manager grade, will receive the Group’s shares this month as well as a cash bonus which serves as a 14th month’s salary for the following two years, the Group announced yesterday after its gaming workers had announced it would stage a protest today. The company made an announcement that such rewards are to celebrate the Group’s 10th anniversary. All qualified staff will be distributed shares of the Group, the amount of which will equal three times staff salary. A 14th month’s salary will also be awarded in July 2015 and 2016. Galaxy said it has been working on the implementation of the salary alignment as well as the special bonus programme for a long time. The purpose of offering the rewards is to express their gratitude to the staff for its contributions. In addition, it said that it would provide more promotion opportunities in the projects
of Galaxy Macau Phase 2 and the renovation of the Grand Waldo Hotel. Business Daily reported yesterday that the demonstration organised by Forefront of Macau Gaming (FMG) and Galaxy workers is to complain and strive to
improve the current wage and promotion system of the Galaxy Group. The announcement made by the Group did meet one of the demands of the workers, which is to offer a 14th month’s salary. The protest slated for
today was to surround four of the Group’s casinos. The protest was announced following a meeting the workers had with the Labour Affairs Bureau on Friday. The organisers said that the day before that they estimated that some 2,000
HSBC profits drop 12pct in H1 Increased investment in risk puts operating costs up 4 percent, while revenues drop 2 percent. Sara Farr
sarafarr@macaubusinessdaily.com
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SBC Holdings PLC posted a 12 percent drop in profits to US$12.3 billion for the first six months of the year, compared to US$14.1 billion in the same period last year. In the company’s 2014 interim results filed yesterday with the Hong Kong Stock Exchange, revenues were also lower than expected, with a 4 percent drop to US$31.4 billion in the first half of the year from US$32.7 billion the previous year. Operating costs, however,
increased by 2 percent to US$18.2 billion from US$17.96 billion yearon-year. ‘Excluding significant items, operating expenses increased by 4 percent in part reflecting increased investment in risk, compliance and global standards,’ HSBC said in its interim report. In addition, loans and advances to customers increased to US$1.05 billion in the first six months of the year from US$992.1 million in the same period a year prior. Chief executive Stuart Gulliver has
to 3,000 workers would join the demonstration if Galaxy did not respond to their needs yesterday. After the announcement was made yesterday, Business Daily contacted the organisers of the protest, who replied that they were in discussions on their responses to the announcement. No further information was given before this story went to press. Meanwhile, Galaxy told Business Daily via email that the Group would continue to address the questions that were brought up through internal communication with the team members directly, when asked if the company announcement serves as a response to the workers’ demands and its perception of today’s protest. Galaxy gaming workers are the second group staging a protest to complain about the wages and promotion system of gaming corporations. Two weeks before, some 2,000 gaming workers, primarily working for Sands Corporation, participated in the Occupy Venetian movement, which was also organised by FMG.
sold or closed some 68 businesses, axed 40,000 jobs and taken a knife to costs since taking over in 2011. Earlier this year, analysts said they expected Mr. Gulliver to keep a tight rein on costs. ‘These [interim] results demonstrate the resilience of our business model,’ Mr. Guilliver said in a statement yesterday, adding that ‘whilst regulatory uncertainty persists, our balance sheet remains strong and our continuing ability to generate capital supports both growth and our progressive dividend policy.’ HSBC, which derives the bulk of its profit from Asia, is striving to keep bad loans under control and cut as much as US$3 billion of expenses as earnings from investment banking falls. The bank also said that a large portion of its revenue foregone as a result of the sale or closure of ‘nonstrategic’ businesses has already been replaced ‘organically.’ Over the next three years, HSBC plans to continue to invest in the higher growth areas of its business, centred on its international network, Mr. Gulliver said.
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August 5, 2014
Macau Brands
Trends
Harman Kardon joins LG Raquel Dias
Bally revenues could increase 21pct after acquisition Scientific Games Corp is set to buy larger rival Bally Technologies in a US$3.27 billion deal Sara Farr
newsdesk@macaubusinessdaily.com
sarafarr@macaubusinessdaily.com
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n recent years we’ve developed a hatred for wires. What seemed to be taken for granted for decades is now a major problem in our lives. Cables and wires are a thing of the past and we look at them as a necessary evil while trying our best to make them obsolete. German sound master Harman Kardon has joined the technology savvy LG to create the ultimate hands-free Bluetooth stereo headset. The Tone Infinim has a premium feel and look that makes the headset perfect for the businessman market as these are quite discreet. The Harman Kardon seal of quality also guarantees excellent sound quality. More than just plugging into the wireless trend, the headphones arrive at a time when major electronic brands (and audio experts) are trying to transform headphones into a fashion accessory. We need only think of shiny Dr. Dre’s beats or the new colourful Booze headsets to know this is true. A number of brands have turned to Swarovski crystals for that bling factor, too. The Tone Infinim appeals to a different market but the relevance of appearance remains. It boasts a sleek black and silver design with retractable earphones and will hold a charge for 550 hours when on standby. When in use, the headset is good for 17 hours of talk time and 14 hours of audio playback, and will announce incoming callers’ names and numbers with the Name Alert function.
nalysts at Telsey Advisory Group, LLC (TAG) estimate that Bally Technologies Inc will see revenues of US$1.21 billion (9.68 billion patacas) at the end of the year, an increase of 21.3 percent from the US$997 million recorded in the full year of 2013. This comes after US slot machine maker Scientific Games Corp announced it would buy larger rival Bally Technologies in a US$3.27 billion deal, the latest in a consolidating gaming industry. The US-based brokerage firm said in a note to clients that ‘the recent consolidation was much needed as smaller players had recently emerged as formidable competitors, including Aristocrat, Konami and Multimedia Games, not to mention the rise of EGT [electronic game tables] competitors like LT Games Ltd and Inter-Block.’ The deal was put together in just over three weeks and is said to strengthen Scientific Games’ casino management system and table gaming products as well as help it expand in Australasia. It will add to Scientific Games’ earnings per share and cash flow immediately on its closing — likely early next year — said the company, which had a market capitalization of US$720 million as of last week.
Following the announcement of the acquisition, TAG raised its price target on the shares of Bally Technologies to the take-out price of US$83.3 and ‘expect the deal to close on time in early 2015.’ BMO Capital Markets analyst Edward Williams said the merger of Scientific Games and Bally Technologies made strategic sense following a trail of recent mergers. Scientific Games bought slot machines maker WMS Industries for US$1.5 billion in January last year. Bally acquired Israeli online casino company Dragonplay Ltd in June, and casino equipment maker SHFL Entertainment in 2013. Scientific Games, backed by billionaire investor Ronald Perelman,
Koelnmesse’s green contract extended Sara Farr sarafarr@macaubusinessdaily.com
with Bloomberg
Mainlanders indicted on illegal UnionPay transactions
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oelnmesse Pte Ltd will continue to manage the annual Macao International Environmental Co-Operation Forum & Exhibition (MIECF), after its 5.2 million pataca contract with the government was extended for another year. The announcement was published in yesterday’s Official Gazette. According to the government dispatch, the amount paid by the Macau Government to Koelnmesse for 2014 is 1.32 million patacas, while that for next year will be 2.64 million patacas; in 2016, the amount will be 1.32 million patacas. The fund will be added to the private budget of the Macau Trade and Investment Institute (IPIM), which in turn will be responsible for allocating it. The green forum is usually held for three days in March. At this year’s three-day event, Chief Executive Fernando Chui Sai On said that one of the major policies for the Macau Government this year was to “increase overall capacity and promote sustainable development.” Every year, MIECF attracts a number of forum participants from Macau, mainland China, and overseas, the majority of whom are
said it expects to save US$220 million and cut US$25 million in capital expenditure annually by the end of the second year of the deal’s close. It also expects tax benefits. Perelman’s MacAndrews & Forbes Holdings Inc holds a nearly 40 percent stake in Scientific Games. Scientific Games estimated its revenue at US$1.6 billion and that of Bally at US$1.4 billion for the year ended March 31. Last year in July, Bally Technologies bought SHFL Entertainment Inc for about US$1.3 billion in a deal that combined two of the leading Nevada-based gaming equipment firms supplying Macau and the Asia Pacific region.
from the environmental industry and participate in the green forum and exhibition as well as exchange ideas on environmental issues. According to its website, Koelnmesse is one of the world’s largest trade fair companies. The group’s international activities focus on the Asia region with the majority of events held in Macau, mainland China, Singapore, Thailand and Japan.
he Public Prosecutor’s Office of Macao has finished its preliminary investigation concerning the arrest of two Chinese nationals that allegedly profited by MOP150,000 by illegally using mainland-based UnionPay terminals in Macau. In order to help tourists and gamblers withdraw more money than the cap allowed by Beijing, the two mainlanders withdraw a total of MOP60 million in 423 transactions from May to July this year, the investigation found. The scheme cost Unionpay more than MOP112 million. On July 18, two men were discovered carrying HK$1.5 billion and two terminal POS machines during a routine car check at Cotai in Macao. One of the suspects had already confessed that they had brought the POS machines from the mainland, helping tourists withdraw cash by UnionPay bank cards and benefiting from the transactions. Shops in Macao enjoyed a profitable sideline by allowing gamblers to purchase luxury goods via their UnionPay cards, then immediately exchange the goods for cash minus a commission. The switcheroo allowed gamblers to get around restrictions on taking money out of China. L.L.
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August 5, 2014
Macau City of Dreams gains extra exchange kiosk Melco Crown has been authorised by the government of Macau to increase by one the number of exchange kiosks in the City of Dreams casino. The authorisation, obtained on 23 July, was published yesterday in Macau’s Official Gazette. Since February 2009, the City of Dreams has had permission to run 20 exchange kiosks but now that number has been raised to 21. These kiosks buy and sell bills and coins in legal currencies as well as buying traveller’s cheques. The kiosks have to comply with the rules defined by the Macau Monetary Authority for exchange places. Melco Crown Entertainment is a joint venture of Lawrence Ho, son of Stanley Ho, and Australian billionaire James Packer.
MIA passengers increase 11 percent in July
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assenger numbers at Macau International Airport (MIA) continue to grow. A total of 490,000 travellers used MIA last month, an increase of 11 percent year-on-year, according to the management company of the airport, Macau International Airport Company Limited (CAM). CAM stated that more than 3.1 million passenger movements were recorded during the first seven months of this year. Such movements rose by 11 percent as well. Meanwhile, more than 4,000 aircraft landings and departures were recorded in the SAR last month. This number increased slightly by 3% from the same month of last year; total aircraft movements rose by 8 percent with a total of 29,000 aircraft movements recorded. The company said that its overall performance last month was not affected by the military exercise in East
China. Passenger movements between Southeast Asia, Mainland China as well as Taiwan posted continuing growth over the past months. The military exercise caused massive delays or cancellations of flights in China, after the Mainland aviation authorities requested airlines to reduce flight traffic by as much as 75 percent at two main airports in the area. It is believed that passenger and aircraft movements at MIA will continue climbing as Air Macau will
launch a new route between Macau and Tianjin, while other airlines are also interested in launching new routes, according to CAM, which said last month that it expects to handle 5.1 million passengers for the whole year. The company announced last month its first-half results. Revenue of around 510 million patacas (US$ 63.8 million) was registered during the first half; meanwhile, takings from the company’s aviation business jumped 21.1 percent.
Mozambique to open consulate here T
he central government in China has given the go-ahead for Mozambique to open a consulate in Macau. According to Portuguese-language station Radio Macau, a delegation from Mozambique is currently in Macau after arriving on Sunday, the aim of which is to ‘take care of formalities’ related to the setting up of a consular representative. The delegation in Macau is also looking for a location to house the consulate, which, according to Radio Macau, has long been planned and spoken of. While there had been talks on the possibility of opening a consulate for the African nation in Macau, Beijing has only now given the green light. Mozambique will be the fourth consulate in Macau after Portugal, Angola and the Philippines.
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Macau
Crown pays US$260mln for Las Vegas site The resort will diversify Crown’s global earnings from casinos in Australia and England, planned developments in Sri Lanka, stakes in Macau and potential investments in the Philippines and Japan
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ustralian mogul James Packer’s Crown Resorts has paid US$260 million (2.1 billion patacas) for a prime site on Las Vegas Boulevard in a bid to crack the American casino market, the company said yesterday. The billionaire, who runs Crown – a worldwide gambling empire, and is an investor in Macau casino developer Melco Crown Entertainment Ltd – has teamed up with former Wynn Las Vegas president Andrew Pascal in a joint venture, backed by Oaktree Capital Management. The Las Vegas plot is “the best piece of undeveloped land on the Las Vegas Strip,” Bruce Karsh, president of Oaktree, said in a statement yesterday. The new resort company, which is majority-owned by Crown, has bought a controlling interest in a 34.6acre vacant site on the world-famous gambling strip formerly occupied by the New Frontier casino. The site is about a mile from the Flamingo Las Vegas towards the northern end of the Strip, in a location flanked by Wynn and the Trump International Hotel. The development will be Crown’s third try in Las Vegas after Fontainebleau Resorts LLC and Cannery Casino Resorts LLC failed to prosper. The resort will diversify Crown’s global earnings from casinos in Melbourne, Perth and London, planned developments in Sydney, Brisbane and Sri Lanka, and stakes in Macau’s City of Dreams resort and potential investments in the Philippines and Japan via its 34 percent share of Melco Crown Entertainment Ltd. “You can’t be in the gaming industry and not have a special reverence for Las Vegas – that’s where it all began,” said Packer, who is cochairman of the new venture. “As we have built Crown Resorts into a thriving international company with successful casino ventures in Australia, Macau, and London, we’ve always kept our eye on Las Vegas.” Packer scrapped plans to develop a US$5 billion casino in Las Vegas with private equity partner York Capital Management in 2008 as the global financial crisis crunched the
credit market, with Crown writing off US$41 million in the process. Crown also lost money on investments in U.S. casino firms Fontainebleau Resorts LLC and Cannery Resorts LLC . “And while we fell short in past attempts to enter that market, we now have the ideal opportunity with a great local partner in Andrew, a leading financial investor in Oaktree, and the perfect piece of property.” The new resort company hopes to start development in late 2015 and complete the project in 2018. “For over 25 years, I’ve studied the ever shifting Las Vegas landscape,” said Pascal, the other co-chairman. “I’ve always been inspired by this city’s capacity for reinvention. I’m excited to have my hand in crafting something new and fresh for the resurgent Las Vegas market.” Packer, the son of late media baron Kerry Packer, is one of Australia’s wealthiest people, with a personal fortune estimated at US$6.7 billion. As well as casinos in Melbourne, Perth, Macau and London, he is planning one in Sydney and has his eye on the Japanese market. The company paid US$320 million in 2009 for a 24.5 stake in Cannery, which owns a casino off the Strip in north Las Vegas. It hasn’t received any dividends or recognised any earnings from the group since then. Crown’s existing markets have shown patches of weakness in recent months. Gaming revenues in Macau fell from the previous quarter during the three months to June at the fastest rate since 2003. First-quarter revenues had hit a record 102.5 billion patacas (US$15 billion). In Australia, a measure of consumer confidence hit a three-year low in May, and first-half earnings missed estimates amid a 26 percent decline in bets from high-rolling gamblers. Packer is ranked Australia’s thirdrichest person with a fortune of $6 billion, according to Forbes. Last year, he cashed out of his family’s publishing and broadcasting assets for about $1 billion to concentrate on his gambling business. His plans for a gaming empire include projects in Japan and Sri Lanka.
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August 5, 2014
Macau
Caesars may negotiate with senior bondholders Advisers to a group of senior bondholders that owns debt in a unit of casino company Caesars Entertainment have entered into talks to restructure its borrowings, according to two people familiar with the situation
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nvestment bank Miller Buckfire & Co. and law firm Kramer Levin Naftalis & Frankel LLP signed confidentiality agreements allowing them to see sensitive information as they seek a deal that would pare debt at the unit, said the individuals, who asked not to be named because the talks are private. The investors own portions of Caesars Entertainment Operating Co.’s $6.35 billion of firstlien bonds. The advisers’ restricted status comes as Caesars, taken private in 2008 by Leon Black’s Apollo Global Management LLC and TPG Capital, moves toward a possible restructuring of about $19 billion of debt at its operating company. The unit hired law firm Kirkland & Ellis LLP last month to advise on the restructuring, a person with knowledge of the appointment said at the time. Blackstone Group LP has been working as the parent company’s adviser, the person said. Senior bondholders have an incentive to negotiate with the operating company as Caesars seeks to reconfigure its capital structure. Without a deal to significantly cut debt, first-lien bondholders risk that their investments will weaken as the company diminishes its approximately $3 billion of cash to pay interest to lower-ranking creditors. Caesars has had only one profitable year since 2008, when it was saddled with $30.7 billion of debt in the
buyout, according to data compiled by Bloomberg. The company now has $21 billion of long-term borrowings, the data show. Gary Thompson, a spokesman for Caesars, Phillipa Yule, a spokeswoman for Kramer Levin, and Chuck Dohrenwend, a spokesman at Abernathy MacGregor Group for Miller Buckfire, declined to comment. Bud Perrone, a spokesman for Apollo at Rubenstein Associates Inc., and Lisa Baker, a spokeswoman for TPG at Owen Blicksilver Public Relations Inc., declined to comment. The company has agreed to pay the fees Kramer Levin and Miller Buckfire are billing for advising first-lien clients, the people said. That signals the group is willing to negotiate with the company rather than solely pursue an antagonistic strategy that aims to force a default, said one of the people. The first-lien bondholders that Miller Buckfire and Kramer Levin are advising won’t initially have access to the information, according to sources. Caesars’ talks with the first-lien group contrasts with contention between the company and a group of its lower-ranking creditors. Those bondholders, which own second-lien debt and are represented by Jones Day LP, sent the operating company a notice on June 5 that alleged it defaulted on its obligations when it transferred assets to an affiliate.
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August 5, 2014
Greater China Promises to increase investment repeated China will increase investment in areas including the property sector, while authorities will advance wide-ranging economic reforms such as changing the fiscal and pricing systems, the country’s powerful economic planning agency said yesterday. The remarks from the National Development and Reform Commission were a reiteration of existing government policies. China’s economy grew slightly faster than expected in the second quarter at 7.5 percent as a burst of government stimulus paid dividends. But analysts said Beijing will likely need to offer further support to meet its growth target for 2014.
Microsoft should not obstruct probe
Microsoft Corp should not obstruct an anti-trust investigation by Chinese regulators, the State Administration for Industry and Commerce (SAIC) said yesterday, the latest shot fired by China’s government at the U.S. software giant. The SAIC has questioned Microsoft’s lawyer, Deputy General Counsel Mary Snapp, who was at the regulator’s offices yesterday, a spokesman for the SAIC said. Last week, the SAIC said it was formally investigating Microsoft for breach of anti-trust rules and had raided four of the software firm’s offices in China.
Safety violations at blast plant A car parts plant in China where 75 workers were killed in an explosion committed multiple violations of regulations, the country’s work safety chief said yesterday, according to state media reports. State Administration of Work Safety head Yang Dongliang said the Taiwanese-invested Zhongrong Metal Products Co. factory in Kunshan, near Shanghai, was missing equipment for dust removal. Saturday’s blast in the wheel hub polishing workshop happened when dust particles from production came into contact with flames, the official Xinhua news agency reported.
Oil refinery fire contained in NW China A fire at a PetroChina oil refinery in Lanzhou, capital of northwest China’s Gansu Province, was contained without casualties. The Lanzhou petrochemical subsidiary of PetroChina said the fire, triggered by a leakage from a fractional distillation device in the refinery at 8:39 a.m. yesterday morning, was brought under control after the propylene source was cut off. The municipal environmental department said they have not detected air or water contamination from the fire. The refinery’s distillation device has a capacity of producing 300,000 tonnes annually.
PBOC’s stealth-easing deplo
A Chinese central bank loan that’s almost the size of the U.S. bailou International Group Inc. has spurred speculation that policy maker a new form of monetary easing to shore up growth
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hile the People’s Bank of China warns debt is rising quickly, and credit expansion is already high, that didn’t stop it from extending what Chinese media reported is a 1 trillion yuan (US$162 billion), three-year loan to a state development bank. By comparison, the AIG rescue amounted to US$182 billion. The loan, designed to lower financing costs for governmentbacked housing projects, marks a “qualitative” easing by Governor Zhou Xiaochuan, according to Citigroup Inc. economists. The move, which the PBOC has yet to confirm, also takes the central bank deeper into fiscal-policy territory after it gave quotas for discounted lending for agriculture, small businesses and low-income housing. “It shows the central bank’s efforts to lower borrowing costs,” said Ding Shuang, Hong Kong-based senior China economist at Citigroup. The PBOC is reluctant to increase the money supply and is instead using a tool that looks like a “subsidized lending facility,” Ding said. The PBOC and borrower China Development Bank didn’t respond to faxed questions today. The CDB loan, along with stimulus projects from provincial authorities and the central government, and a decline in money- market interest rates, may help assure Premier Li Keqiang’s 7.5 percent economic growth target this year.
PBOC headquarters in Beijing
It shows the central bank’s efforts to lower borrowing costs Ding Shuang economist, Citigroup
The PBOC made no mention of pledged supplementary lending in its quarterly monetary policy report released August 1, when it warned that money supply and credit have increased rapidly. The central bank, which is involved in regulating some aspects of the banking industry, said it will “deepen reform” of CDB to support redevelopment of run-down areas and city infrastructure. The China Banking Regulatory Commission announced last week it approved CDB to start a housingfinance business to provide loans for shantytown renovation and related city infrastructure. Under pledged supplementary lending, the PBOC offers collateralized credit directly to financial institutions
Steel output higher than official data The government has stepped up efforts to crack down on the bloated sector
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hina’s leading steelmaker has estimated national crude steel output in 2013 at 822 million tonnes, nearly 6 percent above official data, suggesting the
The harsh market situation has forced China’s steel enterprises to experience first-hand the negative impact that overcapacity is having on the healthy development of the steel industry Xu Lejiang Baosteel, chairman
country’s supply glut is worse than previously estimated. The figure given in a speech published yesterday by Xu Lejiang, chairman of the state-owned parent
of Shanghai-listed Baosteel Corp, would take the annual growth rate for steel output in 2013 from 7.5 percent to more than 13 percent. China’s steel sector, by far the
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Greater China
oyment
Li Ka-shing targets aviation The tycoon wants to extends his kingdom to the skies with the acquisition of Irish airline AWAS
ut of American rs have adopted
to extend on to industries or projects it specifies, with the aim of lowering their financing costs, according to China Business News. CDB offers three-year loans for shantytown projects at 5.895 percent compared with benchmark lending rates of 6.15 percent for the same maturity, Australia & New Zealand Banking Group Ltd. said in a July 29 report.
Targeted easing “This is another targeted easing measure,” Chang Jian, chief China economist at Barclays Plc., wrote in a July 30 report. While the loan doesn’t represent “broad loosening,” it has “reduced recent market concerns about a shift in the PBOC’s stance away from easing towards neutral or tightening,” she said. In its August 1 report, the PBOC said targeted measures have become a “new trend of major central banks” since the global financial crisis started and that it will keep using tools such as relending and rediscounting to guide institutions to “optimize their credit structure.” The CDB loan is the equivalent of an across-the-board cut of 1 percentage point in the ratio of deposits banks must hold as reserves, JPMorgan Chase & Co. estimated, scrapping its forecast for two 50 basis-point cuts from the current 20 percent reserve requirement ratio for large banks.
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property flagship led by Asia’s richest tycoon Li Ka-shing is seeking to buy into Irish aircraft leasing group AWAS - the Hong Kong businessman’s first major foray into the aviation industry. Cheung Kong Holdings said yesterday in a filing to Hong Kong Stock Exchange, the company “has submitted a preliminary non-binding proposal in respect of the possible acquisition of certain aircrafts from the AWAS group”. The potential deal is at an early stage, but media reports in Ireland -where AWAS’s has its Dublin head office- estimate it could be as much as $5 billion for around 100 aircraft. Li commands a vast empire through Cheung Kong Holdings and conglomerate Hutchison Whampoa, with global assets in property, telecoms, utilities, ports and retail. He warned last week of a climate of
(Pictured) Billionaire Li Ka-shing
Cheung Kong’s plan to diversify into the aviation-related investments could be a way to enhance return of its cash surplus
Bloomberg New
Jonas Kan analyst, Daiwa Securities
world’s biggest, has been plagued by a persistent oversupply that has depressed prices and saddled hundreds of mills with colossal debts. Many are already on the brink of closure. “The harsh market situation has forced China’s steel enterprises to experience first-hand the negative impact that overcapacity is having on the healthy development of the steel industry,” Xu told an internal meeting of the China Iron and Steel Association (CISA) last week. The government has stepped up efforts to crack down on the bloated sector, restricting new capacity growth and forcing out-dated and polluting capacity to close, but new plants have continued to go into operation. Xu said China’s official steel capacity levels reached 1.106 billion tonnes last year, putting utilisation rates at 74.3 percent. Total capacity has now risen to 1.14 billion tonnes, Xu said. He said CISA’s 88 members had a total capacity of 842.93 million tonnes last year, and produced 663.8 million tonnes of crude steel. Smaller, non-member firms had a total capacity of 263.29 million tonnes and produced 158.17 million tonnes, putting their average utilisation rate at just 60 percent. Xu said Chinese steel mills would continue to struggle in the second half of the year amid financing difficulties, rising environmental compliance costs and higher tax rates. Reuters
political and economic uncertainty likely to last the rest of the year, and said there was a need for “long-term” strategies to increase shareholders’ returns. In July, Cheung Kong reported a profit for the first six months this year grew by 59 percent to HK$21.35 billion (US$2.75 billion). Dow Jones Newswire quoted analyst Jonas Kan of Daiwa Securities that Li has been looking for investments that can yield good and steady returns. Kan said: “Cheung Kong’s plan to diversify into the aviation-related investments could be a way to enhance
return of its cash surplus.” AWAS, owned by private equity group Terra Firma, has a portfolio of more than 300 aircraft leased to more than 100 airlines around the world, including Thai Airways, Qantas and China’s budget carrier Spring Airlines, according to its website. The talks comes amid fierce competition in the industry with a proliferation of budget carriers in the Asia Pacific region. China last year relaxed rules on setting up commercially run airlines, helping spur demand for new aircraft. AFP
McDonald’s returns to normal service China’s leaders have sought to ease those concerns with a new draft law that brings increased scrutiny of the industry, harsher penalties, and more compensation for consumers
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he firms starting to resume its full menu in some Chinese cities, almost two weeks after the fast-food chain pulled items including beef and chicken burgers as its supplier was probed for using expired meat. Customers in Chinese cities including Beijing and Guangzhou will be able to buy all the items on the menu later this week, said the firm in a statement yesterday, without specifying the date or number of cities. It’s also increasing orders from other existing suppliers in China while exploring new ones, the maker of the Big Mac burger said. McDonald’s withdrew beef, pork and chicken items from its restaurants in China after a Shanghai television station reported on July 20 how Shanghai Husi Food Co took expired meat and added sell-by dates of another year. OS I , wh i ch a l s o s u p p l i ed ingredients to restaurants including Yum! Brands Inc. and Papa John’s
International Inc. in China, has since pulled all products made by Shanghai Husi and replaced its management team in the country after coming under Chinese government investigation. Six executives of Shanghai Husi have been arrested, the state-run Xinhua News Agency reported yesterday, citing Bai Shaokang, vice mayor and head of the public security bureau in Shanghai.
No Big Macs The Big Mac wasn’t available in Beijing restaurants, while in Shanghai, limited choices of burgers were being sold, according to McDonald’s delivery services in the two cities. In Hong Kong, McDonald’s restaurants are serving burgers such as the Big Mac and McChicken burgers “back to their original build,” after lettuce and onion were imported from the U.S. and Taiwan, according to an announcement on the restaurant chain’s website today. McDonald’s
Hong Kong halted sales of products supplied by Shanghai Husi late last month. McDonald’s is increasing orders from existing suppliers such as McKey Food Services Ltd., a Shenzhen unit of Philadelphia-based Keystone Foods, to handle the shortage of ingredients, the restaurant operator said yesterday. It’s also exploring new Chinese suppliers for items such as fresh produce, and is in the process of evaluating these companies. Yum and Burger King Worldwide Inc. have cut ties with OSI since the food scandal, while McDonald said last month it will continue using food from OSI’s other operations in China. McDonald’s is China’s secondlargest fast-food chain by market share, trailing only Louisville, Kentucky-based Yum, according to London-based research firm Euromonitor International Ltd. Yum, the owner of Pizza Hut, gets about half of its revenue from China. Bloomberg News
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Greater China
Legal battles dock at Qingdao port As global banks and trading houses fire off lawsuits over their estimated US$900 million exposure to a suspected metal financing fraud in China, the tangled legal battle to recoup losses is set to drag on for years and hinder a swift recovery in the metal trade
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SBC is the latest bank to launch legal action since Chinese authorities started a probe into whether the firm at the centre of the allegations, Decheng Mining, used fake warehouse receipts to obtain multiple loans. Several banks had already ditched their commodity trading divisions due to low returns. The scandal, centred on the eastern port of Qingdao, means those remaining in the commodity financing business will have to consider their future, or at least bring in new controls on lending requirements. It has also acted as a warning over murky business practices in China and highlighted the difficulties of navigating the Chinese legal system for foreign companies, some of which have since frozen new financing business. “In the next six to twelve months, the impact would likely be reduced appetite for lending on metal collateral,” said Daniel Kang, Asia head of basic materials equity research at JP Morgan. “Copper imports may come under pressure in the second half, partly related to smaller traders going bankrupt.” China’s imports of refined copper, the most widely used metal in financing, fell 8 percent in June from a year earlier to hit a 13-month low as banks reduced lending for metals imports following the Qingdao probe, which was first reported at the start of that month. Using commodities as collateral to raise finance is common in China and not illegal, but duplicating receipts to repeatedly mortgage the full value of an asset is fraud and could leave
potential losses. HSBC, Standard Chartered, Citi, Standard Bank, Mercuria Energy Trading SA and Citic Resources Holdings Ltd have more than US$880 million of exposure, according to company statements and reports. In addition, Chinese media reported on June 18 that Chinese banks have a total exposure of about 16 billion yuan (US$2.58 billion) on loans to Decheng Mining and its related companies. Qingdao Port, whose listed Hong Kong unit faces a lawsuit brought by Citic Resources Holdings claiming damages of US$108 million, declined to comment on the state of the investigation. Reuters
HSBC is the latest bank to launch legal action against Decheng Mining
more than one creditor holding claims to the same collateral.
Multiple claimants With multiple claimants, crosscountry jurisdictions, involvement of state-owned entities and a separate corruption probe into Chen Jihong, the chairman of Decheng’s parent firm, the lawsuits stemming from the alleged fraud are unlikely to be wrapped up soon. Firms may also try to recoup losses via arbitration, as China recognises international arbitration awards, but that process typically takes at least two to three years. In the Qingdao case, a problem for some Western banks trying to retrieve cash is that their contracts
were signed with global warehousing firms acting as collateral managers, leaving them no direct way of claiming in Chinese courts. To seek redress, some are teaming up with their collateral managers, which have local units holding contracts at the port. Decheng and its parent could not be reached for comment, while attempts to contact Chen Jihong by his mobile phone were also unsuccessful. It was not clear if he has appointed lawyer to represent him.
Potential losses
In the next six to twelve months, the impact would likely be reduced appetite for lending on metal collateral Daniel Kang equity research JP Morgan
The full financial impact of the Qingdao case is unclear, but publicly traded banks and trading firms have been forced to disclose
Closer ties with Egypt Visiting Chinese Foreign Minister Wang Yi on Sunday called for keeping up the strategic, pragmatic and sustainable bilateral ties between China and Egypt
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s strategic partners, China and Egypt should further promote the mutually beneficial cooperation in various fields for the development and prosperity of both countries, Wang said during talks with his Egyptian counterpart Sameh Shukry. For that end, the understanding and friendship between the two peoples should be strengthened, as it’s the social foundation and momentum of a ever progressing bilateral relation, Wang added. The Chinese foreign minister, who started his two-day visit to Cairo on Saturday, expressed China’s firm support for Egypt’s exploration of a development path in accordance with its own national conditions, saying Egypt has gained a steady step in its political transition. During the meeting, Wang
proposed that the two countries should focus the bilateral cooperation in six fields. China and Egypt should strengthen mutual political trust and support by facilitating highlevel official exchanges, while at the same time enhance pragmatic bilateral cooperation in such fields as infrastructure, energy, industry, agriculture and space technology, Wang said, also calling for more exchange in culture, education and tourism. He also called for further military exchanges between the two countries, as well as more security cooperation in the fight against terrorism, transnational crime and drug trafficking. The two countries should also advance their mutual support and coordination regarding international
(Pictured) Hotels in Cairo. Egypt’s economy is inextricably linked to tourism
and regional issues, he added. For his part, Shukry said that China is the most trusted friend and strategic partner of Egypt, expressing his country’s firm support to the one-China policy and its efforts in maintaining national sovereignty. Egypt is strongly opposed to any foreign interference of China’s internal affairs, Shukry said. The Egyptian foreign minister stressed that Egypt is willing to deepen high-level exchanges between the two countries. Egypt welcomes more Chinese investment and participation in developing Egypt’s infrastructure, new energy, manufacturing and agriculture, Shukry said. Xinhua
China-Egypt fields of cooperation Infrastructure Energy Industry Agriculture Space technology
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August 5, 2014
Asia
South Korea finance minister Australian shakes up the scene inflation slows Three frenetic weeks into the job, South Korea’s new finance minister Choi Kyung-hwan has made such a splash that his name already describes Seoul’s plans to rev-up faltering growth
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ut while “Choinomics” is proving an effective quick fix, lifting markets and giving an unpopular government a boost, it falls short thus far of a full-fledged manifesto similar to the “Abenomics” launched by Japanese Prime Minister Shinzo Abe in late 2012 to shake his country from its economic torpor. Economists say bolder measures to reform structural weaknesses are needed to head-off what Choi warns is a serious threat that Asia’s fourth-largest economy could slide into Japan-style stagnation. The veteran lawmaker’s plan combines extra spending with an easing of mortgage curbs to boost the property market, a proposal to tax excess corporate cash reserves, and not-so-subtle pressure on the central bank to ease interest rates. Since Choi’s appointment, the benchmark stock index has risen 4 percent in anticipation of higher dividends, while bond prices are also up, reflecting rate cut bets. Some economists are also revising up their growth forecasts. That is a relief for President Park Geun-hye, who brought in the 59-year-old close ally and ruling party floor leader in a cabinet reshuffle. Still missing, though, are long-term solutions to South Korea’s problems: over reliance on manufacturing and exports at the expense of consumption and services, a rapidly ageing population, inefficiencies in the labour and housing markets, high household debt, and the often-stifling
dominance of giant conglomerates such as Hyundai, Samsung or LG, known as chaebol. Park in February spoke of plans to rebalance the economy, but like many before has made little headway with follow-up. Choi’s tax plan, due to be detailed on August 6, is the most ambitious part of his package. It aims to boost investment, wages and dividend pay-outs in order to stimulate consumption. In theory, it would go some way towards promised rebalancing. The question is whether it can work.
Some economists also point out that Choi’s US$40 billion stimulus, equivalent to 3 percent of the economy, is less than meets the eye. Only about US$11 billion of that represented by fiscal spending and much of the rest in the form of financial support from the central bank and state banks that may have limited impact on growth. ANZ Banking Group, however, considered the stimulus boost and expected monetary easing sufficient to raise its 2014 South Korea growth forecast to 3.6 percent from 3.4 percent and next year’s to 3.7 percent from 3.4 percent.
More to come?
Regulatory reform cannot solve everything in a day and there are limits, but we will strive to have money flowing into the markets from investment and reform Choi Kyung-hwan South Korea finance minister
Choi - nicknamed “the Bull” for his hard-charging style - is promising more, including an expansionary budget next year and possibly beyond. Further potential steps include relaxing construction regulations, incentives for companies to hire part-time workers, and encouraging investment in services and smaller enterprises. “Regulatory reform cannot solve everything in a day and there are limits, but we will strive to have money flowing into the markets from investment and reform,” he told parliament soon after taking office. Critics also say Choi’s steps to boost the property market risk undermining efforts to rein in high consumer debt for the sake of a short-term boost that may not even materialise. Reuters
in July
The slowdown suggests that a high reading recorded for the RBA’s trimmed mean measure of inflation in the second quarter might have been an aberration and not the start of a trend
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private gauge of Australian inflation showed price pressures subsided in July, a welcome development for policy makers after official figures surprised on the high side in the second quarter. The TD Securities-Melbourne Institute’s monthly measure of consumer prices edged up 0.2 percent in July, following a flat outcome in June. That was a subdued result given July usually sees seasonal increases in many government charges, from rates to utilities. As a result the annual pace of inflation slowed to 2.6 percent, from 3.0 percent in June, taking it back toward the middle of the Reserve Bank of Australia’s (RBA) long term target band of 2-3 percent. The RBA holds its July policy meeting on Tuesday and is considered certain to leave interest rates at 2.5 percent, where they have been since it last cut in August 2013. “On-going caution from RBA in recent weeks speak to us that the Board can pause for another month and assess the improving global economic outlook as well as more mixed data news closer to home,” said Annette Beacher, TD’s head of Asia-Pacific research. Monday’s survey showed seasonal price rises for electricity, gas and other household fuels, property rates and charges. These were partly offset by falls in water and sewerage, clothing and footwear, and alcohol and tobacco. Various measures of underlying inflation also moderated in July. Annual growth in the trimmed mean fell back to 2.6 percent, from 3.0 percent, while inflation excluding fuel, fruit and vegetables slowed sharply to 1.9 percent. Prices for tradable goods and services fell by 0.2 percent in the month to drag the annual pace down to 2.3 percent. Even the nontradables sector, where inflation has been stubbornly high, saw some improvement with prices up 2.8 percent for the year compared with 3.3 percent in June. Reuters
Reserve Bank of Australia headquarters
A South Koren dealer works in front of monitors at the Exchange Bank in Seoul, South Korea, 30 July 2014. The benchmark Korea Composite Stock Price Index (KOSPI) climbed 20.64 points to 2,082.61 on 30 July
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Asia 75% of India’s GDP is black money The Hindu Monday newspaper quoted “the findings of a confidential report commissioned by the government” as saying the increase has been driven substantially by the higher education sector, real estate deals and mining income. The former Congress-led government commissioned the National Institute of Public Finance and Policy to study the black. The Special Investigation Team on black money, constituted by the Narendra Modi, is studying the report, said the newspaper. The report was submitted to the Finance Ministry in December 2013 and is yet to be tabled at the Indian Parliament.
Australian job ads edge higher in July Job advertisements in newspapers and on the Internet crept higher in July to be up moderately on the same month last year in a sign of a gradual pick up in the labour market. A survey by Australia and New Zealand Banking Group showed total job advertisements rose 0.3 percent to 133,292 per week on average in July. That followed June’s 4.4 percent increase and left ads up 4.2 percent on July last year. Ads on the Internet rose by 0.4 percent in July, while those in newspapers fell 2.8 percent.
Higher palm oil output to cap prices Palm oil production in top growers Indonesia and Malaysia could pick up in the final months of this year, keeping a lid on prices, although some in the market are still worried about a potential El Niño plus tree stress in Malaysia. Crude palm prices in Malaysia have tumbled more than 15 percent this year, due in part to a bumper harvest of rival soybeans. Yesterday the benchmark October contract was down 1.1 percent at 2,260 ringgit (US$706) per tonne at midday.
Indonesia’s trade deficit in June Indonesia’s trade balance swung back into a deficit in April-June after a surplus in the first quarter, a reminder that the country’s sizable current account deficit is one of a raft of economic problems the new president will face
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ata from the statistics bureau on Monday showed a trade deficit of US$305 million in June, compared with a revised US$60 million surplus in May. A Reuters poll had forecast a deficit of US$390 million for June. In June, exports grew 4.45 percent from a year earlier, compared to the poll forecast of a drop of 0.1 percent. Imports increased too, by 0.5 percent compared with a projected 3.65 percent fall. Gundy Cahyadi, an economist at DBS Bank in Singapore, said the June trade deficit “shouldn’t be read as completely negative” given the export expansion and import growth which “suggests not all is bad with the state of Indonesia’s domestic demand”. For the second quarter, Indonesia had a trade deficit of US$2.21 billion, which compares with a US$1.07 billion surplus in January-March. Trade deficit for the first half of the year is US$1.15 billion, better than last year’s first half deficit of US$3.34 billion. A drop in mineral export has been one of the cause of the deficit. Mineral exports were down 27 percent in the first half due to an ore export ban the government imposed. The latest trade and inflation data
was reported one day before Indonesia announces its growth rate for the second quarter. A Reuters poll has forecast a pace of 5.30 percent from a year earlier. The size of the second-quarter trade gap could cause concerns about Indonesia’s current account deficit to increase, which in turn could keep pressure on the rupiah. Bank Indonesia has predicted the current account deficit for the second quarter -to be reported next week- expanded to 4 percent of gross domestic product from JanuaryMarch’s level of 2.06 percent. Last year, Indonesia reported a second quarter current account deficit of 4.4 percent, which hurt the rupiah. For all of 2014, the central bank has projected a deficit of 3.3 percent. The rupiah weakened to 12,000 per dollar at the end of the second quarter, but has been appreciating in the third quarter after Joko “Jokowi” Widodo was elected president.
Fuel price hike ahead? Analysts said the trade picture would improve significantly if domestic fuel prices can be raised well before October 20, when Widodo will be sworn in as president. A cut in
A general view of high-rise buildings at a business area in Jakarta, Indonesia. Indonesia’s president-elect Joko Widodo faces tough tasks at the helm of South-east Asia’s largest economy. Indonesia is grappling with a rising fiscal deficit and slower growth after a yearslong economic boom fuelled by high commodity prices
fuel subsidies would raise prices and reduce demand for costly oil imports. Two people knowledgeable about the matter said outgoing President Susilo Bambang Yudhoyono is in talks with Widodo about increasing fuel prices before October. The current account deficit is a major reason Bank Indonesia (BI) has kept monetary policy tight. Yesterday, the statistics bureau said the annual inflation rate in July was 4.53 percent - in line with expectations - compared with 6.7 percent in June. The drop was expected, as it was in June 2013 that Indonesian cut fuel subsidies, jacking
SoftBank academy tests Japanese entrepreneurs
If Masayoshi Son, the billionaire founder and CEO of SoftBank Robots to better lives Corp needs a fresh strategy to fend off a surprise French counterbid for a prized U.S. telecoms target, he could do worse for elderly Two joint Japanese-New Zealand than ask budding entrepreneurs at the SoftBank Academia research programs are to study new ways to use robots to improve care of the elderly, according to the New Zealand government department funding the studies. Ministry of Business, Innovation and Employment (MBIE) science investments general manager Prue Williams said yesterday that the Callaghan Innovation and the University of Auckland Bioengineering Institute grouping would focus on improvements to the robotic assistive walking suit in collaboration with the Japanese Shinshu University. The team would develop a “motion controller” for a Japanese exoskeleton to assist patients recovering from stroke.
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ere, some 300 or so aspiring leaders - split about evenly between company insiders and entrepreneurs from outside brainstorm ideas and vie to catch Son’s eye, with a chance he’ll offer them a job or invest in their company, or even choose them as his “heir” to run Japan’s second most valuable listed company. The Academia, set up by Son four years ago, meets once or twice a month in the 25th floor cafeteria of SoftBank’s Tokyo headquarters. In what sounds like an episode from business-reality TV show “The
Apprentice”, the budding leaders play business-themed board games and compete with 5-minute business proposals that are judged by their peers. The winners get to meet Son; the losers hear, “You’re fired!” The Academia is ostensibly seeking someone to carry on the business from Son, Japan’s best known entrepreneur who built a small software distributor into a near-US$90 billion internet media empire. Son, 56, has said he wants to retire in his 60s. But the programme is also helping SoftBank scout and train talent to run its hundreds of ventures, in fields
from internet services to robotics and renewable energy, in a country where MBA-type business schools and venture capital firms are rare. “People say Son’s thinking is: you guys may not be able to be my actual successor, but you definitely have what it takes to become head of a subsidiary,” said one participant, who asked not to be named. SoftBank, Japan’s third-largest mobile operator, is an aggressive acquirer that last year bought No.3 U.S. wireless company Sprint Corp, and is in talks to buy fourth-ranked T-Mobile US Inc. It is also a significant
editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Luciana Leitão, Luis Gonçalves, Michael Armstrong, Sara Farr, Stephanie Lai, Óscar Guijarro, Kam Leong, Lucas Lyu GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.
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Asia
Japanese lawmaker asks for below zero rates
broadens
Takeshi Fujimaki, a former adviser to billionaire investor George Soros, says Bank of Japan Governor Haruhiko Kuroda might learn a lesson from his European counterpart’s “bold” introduction of negative interest rates
“I up domestic prices. The central bank has maintained its policy rate at 7.50 percent since December after increasing it 175 basis points between June to November 2013. Reuters
KEY POINTS June exports +4.45 pct y/y, vs. -0.1 pct seen in poll Imports in June +0.54 pct, vs. poll forecast of -3.65 pct July annual headline inflation eases to 4.53 pct Q2 pace of GDP growth to be announced Tuesday
f we must depend on monetary policy, quantitative easing is a colossal mistake,” Fujimaki, who holds a seat in Japan’s upper house of parliament, said in an interview in Tokyo on July 30. “The BOJ should have introduced a negative interest rate 20 years ago.” The European Central Bank in June started charging 0.1 percent for holding cash in excess of minimum reserves, making President Mario Draghi and his fellow policy makers the world’s first central bankers to do so. Kuroda has relied on about 7 trillion yen (US$68 billion) in monthly government bond buying to achieve the BOJ’s 2 percent inflation target. “Quantitative easing means the monetary base will keep expanding, whereas under negative interest rates it would shrink because depositors at the BOJ’s current account would be penalized,” Fujimaki said. “These two approaches are completely opposite.”
Cash increase Kuroda pledged on April 4, 2013, to expand the amount of cash in circulation plus bank reserves to 270 trillion yen by the end of 2014. The monetary base, which swelled to 243 trillion yen as of June 30, will increase to 340 trillion yen next year, according to the median forecast of economists surveyed by Bloomberg News. The BOJ estimates its currentaccount balance, financial companies’ deposits at the central bank, rose to a record 154.3 trillion yen last
Fujimaki criticize pictured Bank of Japan Governor Haruhiko Kuroda’s measures
month. That’s a luxury Draghi could not afford because the treaties that founded the modern European Union prohibit the ECB from financing governments. Negative rates would function as a penalty on the BOJ’s current-account balance, giving greater impetus for Japanese banks to invest overseas and increase lending instead of parking cash at the central bank, Fujimaki said. “It’s a government-run pyramid scheme,” he said, referring to the BOJ’s expansion of the monetary base through purchases of Japanese government bonds. “At some point it will crash and so will the yen.”
The cost to protect Japan’s bonds against non-payment hasn’t reflected these concerns. Five-year credit default-swaps dropped to 34.5 basis points on July 8, matching a 5 1/2year low, according to data provider CMA. That’s less than half of what they were in December 2012, when Prime Minister Shinzo Abe came to power pledging to end deflation. Japan’s benchmark 10-year yield was at 0.525 percent, the lowest among global markets after Switzerland. It will climb to 0.72 percent by yearend and reach 0.9 percent in 2015, according to Bloomberg News. Bloomberg News
Panasonic wants to feed Singaporeans shareholder in Chinese e-commerce giant Alibaba Group, and has stakes in mobile game companies Supercell and Gungho Online Entertainment Inc. It plans to amass 5,000 companies within its empire by 2040, up from nearly 900 now. Reuters
People say Son’s thinking is: you guys may not be able to be my actual successor, but you definitely have what it takes to become head of a subsidiary Anonymous program participant
Japan’s Panasonic Corp, best known for its television sets and home theatre systems, wants to feed Singaporeans with its radishes and lettuce
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unit of the electronics conglomerate last week started selling to a chain of Japanese restaurants in Singapore fresh produce grown in what it says is the first licensed indoor vegetable farm in the island state. The move ties Panasonic’s deeper push into farming technology with land-scarce Singapore’s ambition to reduce its near-total reliance on food imports. The facility, which presently has a small production capacity of 3.6 tonnes annually, produces 10 types of vegetables such as mini red radishes and baby spinach. Fujitsu Ltd is growing lettuce at its Fukushima province plant, while Sharp Corp is testing growing strawberries indoors in Dubai. In Singapore, Panasonic’s 248 square metre farm is located inside a factory building on the outskirts of the city, where standard fluorescent lighting gives way to a pinkish-purple glow from
LED lights brought in to nurture the plants. It aims to grow more than 30 crop varieties by March 2017 and account for around 5 percent of
An example of vertical crops
local vegetable production. It said the vegetables grown at its facility could be half the price of those flown in from Japan. Singapore imports more than 90 percent of its food, and produced nearly 22,000 tonnes of vegetables in 2013, compared with a little more than 17,000 tonnes in 2004, according to the Agri-Food and Veterinary Authority. Last year it imported 514,574 tonnes of vegetables. As part of its efforts, it has provided some funding and research support to local vertical farming company Sky Greens, which grows leafy vegetables at its farm in three-storey high frames inside greenhouses. The farm currently has 600 such towers and intends to expand to 2,000 by next year. It can produce up to one tonne of vegetables a day, which it sells to local supermarket FairPrice. Some farms in Singapore are also using aeroponics or hydroponics growing plants without soil. Reuters
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International Germany halts Rheinmetall deal with Russia Economy Ministry has confirmed it has halted Rheinmetall’s export of combat simulation gear to Russia, going beyond recently imposed EU sanctions which block future defence contracts. Economy Minister Sigmar Gabriel, a Social Democrat (SPD), has blocked the deal which was approved by Germany’s previous government, the ministry said. “I can confirm that in the light of the EU sanctions, permission to export a combat training centre has been revoked,” a spokesman said. Rheinmetall said yesterday it was in talks with the German government.
Timchenko says business will not turn on him over sanctions An ally of Vladimir Putin said yesterday that Russia’s business elite would not put pressure him to change tack on Ukraine due to Western sanctions which would only strengthen support for the president’s policies. Gennady Timchenko, who is under U.S. sanctions, told Itar-Tass news agency the West had miscalculated when it designed punitive measures it hoped would put pressure on Putin’s inner circle and change Russia’s course in Ukraine.
Portugal rescues Banco Espirito Santo Portugal will spend 4.9 billion euros (US$6.58 billion) to rescue its largest listed bank, testing the euro zone’s resilience to another banking crisis just months after Lisbon exited an international bailout. The rescue of Banco Espirito Santo, which was unveiled after a frenzied weekend of discussions between Portuguese and European Union officials, comes after weeks of increasingly bad news about the financial state of the lender, particularly its exposure to a cascade of companies headed by its founding Espirito Santo family.
Romania cuts main rate Romania cut its benchmark interest rate to a record after a five-month pause as a bumper harvest limits the risk of inflation quickening. Policy makers lowered the rate to 3.25 percent from 3.5 percent, according to an e-mailed statement yesterday. Five of nine economists in a Bloomberg survey predicted the move, while four saw the rate unchanged. The central bank maintained requirements for foreign-currency liabilities at 16 percent and those for leu deposits at 12 percent.
27,000 Russian tourists stranded More than 27,000 Russian tourists have been stranded abroad, a tour operators association said yesterday, as the latest in a series of travel companies failed amid strains over the Ukrainian crisis. “All the tourists are abroad without return tickets” after the Labirint (Labyrinth) company announced Saturday it halted operations, said the Tourhelp service of Russian foreign tour agencies which is trying to help those stranded find seats on flights chartered by other travel firms.
Jobs, education, and security: top necessities for Africans The poll offers a snapshot of priorities for Africans and their attitudes towards the United States from nine countries Lesley Wroughton
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fricans see jobs, education and security as their biggest areas of concern, according to a poll on Monday conducted by ONE, the anti-poverty campaign co-founded by rockers Bono and Bob Geldof. The poll comes on the eve of an August 4-6 African summit of nearly 50 African leaders hosted by U.S. President Barack Obama in Washington where deals worth billions of dollars are expected to be announced. The poll offers a snapshot of priorities for Africans and their attitudes towards the United States from nine countries as small as Benin and Rwanda to larger and more populous nations including Nigeria, South Africa, Kenya, Uganda, Ghana, Tanzania, and Tunisia. While most of the 4,500 respondents believe that the United States has had some impact on their country and community, they think the world’s richest nation has been slow coming to the party of an economically rising Africa. The poll was conducted over a fiveday period at the end of July surveying 500 people in each country, with the average age of respondent about 26. The margin of error is plus or minus 5. As Washington prepares to showcase its interest in Africa at the summit, most respondents believe the United States has had “some impact” on their country and community although were not sure how supportive Obama had been. Most respondents surveyed said the United States had “some impact”
Poll details 4,500 respondents 5 days
on their country and community. In Rwanda, however, 62 percent of respondents said the United States had a “big impact” on their country, as did 31 percent in Tanzania, and 37 percent in Uganda. When it came to Obama’s support, 55 percent of respondents in Benin were not sure, as were 38 percent in Ghana, 41 percent in Rwanda, 47 percent in South Africa and 48 percent in Tunisia. A large chunk of respondents, some 42 percent, in Nigeria believed Obama had been “very” supportive and 49 percent in Tunisia thought he had been somewhat supportive. The poll measured attitudes towards governments and found that a vast majority believe their government had best addressed security issues, followed by education and corruption. In Kenya, Nigeria and Tunisia, security was the biggest priority. In Rwanda it was trade and jobs followed closely by education, security and health. To respondents in South Africa, education and jobs were key areas of concern.
500 people in each country Benin, Rwanda, Nigeria, South Africa, Kenya, Uganda, Ghana, Tanzania, and Tunisia average age 26 margin error ±5
In Benin, 36 percent of the people surveyed thought their government had best addressed agricultural and corruption issues. Some 43 percent of respondents in Kenya, 28 percent in Tanzania, 34 percent in Nigeria, and 81 percent in Rwanda listed security as the area where their government had done a good job. All respondents felt their governments needed to invest a lot more in agriculture. In Tanzania, however, an overwhelming 56 percent thought their government should invest a bit more. Reuters
European banking research retreat targeted by funds As Europe’s big investment banks and brokerages scale back their research efforts some hedge funds and other specialist players spy an opportunity
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f the major players aren’t ferreting out investment ideas among Europe’s thousands of non bluechip companies, figuring the effort is too costly and time-consuming at a time of cutbacks and rationalisation, other participants see a chance to capitalise on the resultant gap in the market. The hope? That less analysis and information flow has left the best investment ideas undiscovered, even in an era of data overload via everything from specialist investor websites to social media. “If it’s shrinking, that research is going to be replaced by independent research firms and hedge funds, which are doing their own deep dive and explicitly investing behind their ideas,” said Soren Aandahl, head of research at activist investor Glaucus. Data underlines the scale of research cutbacks among the big banks. Four in every 10 European stocks
KEY POINTS Four in 10 European companies see coverage slashed Leaves room for others to do detailed research Gotham attack on Gowex latest high profile case tracked by analysts have seen a drop in coverage over the last two years, twice the number of firms recording a rise, Thomson Reuters figures show. And calculations by Reuters based on year-end statements show Europe’s 30 largest banks by stock market value cut staff by 80,000 in 2013 alone - not all equity analysts of course but certainly that category
was far from immune. This has led to fewer eyes looking at some of the 9,000 listed companies in Europe, especially those with a smaller market capitalisation. Some clients have noticed the difference. “For many of the European midcap companies we cover, the breadth, depth and quality of the sell-side research (from banks and brokers) has declined,” said Moni Sternbach, head of European mid-cap investing at US$6.5 billion hedge fund firm Cheyne Capital. Yet finding the right investment idea among overlooked small companies can still prove lucrative, as evidenced by events around Spanish wireless networks provider Gowex, a thinly analysed company whose shares fell 60 percent after a firm called Gotham City Research issued a detailed report questioning its accounts. Reuters
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Opinion Business
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Leading reports from Asia’s best business newspapers
THE BANGKOK POST The military regime has given the Finance Ministry the goahead to revive the mandatory provident fund scheme, aiming to provide a formal system of retirement protection as the country becomes an ageing society. The junta wants Thailand to have a mandatory provident fund system to alleviate the government’s fiscal burden in taking care of elderly people, a ministry source said. But the implementation would be done in phases, starting with large corporations and ending with the smallest companies, as the Finance Ministry is aware of small operators’ rising burden.
THE TIMES OF INDIA Flamboyant industrialist Gautam Singhania is for the first time opening the doors of his flagship Raymond to private equity investors. Singhania is in talks with private equity heavyweights, including KKR, General Atlantic and Temasek, to sell a significant minority stake in the textile-to-apparel maker that has an enterprise value of Rs 6,085 crore. Besides the American and Singaporean giants, Europe’s Capital International and Partners Group as well as local biggie Baring are vying to acquire 15-20% stake in the 89-yearold company, said a source briefed on the matter.
THE PHNOM PENH POST ANZ Royal has been accused of abandoning the communities impacted by ruling party Senator Ly Yong Phat’s US$220 million sugar plantation developments, after the bank last month announced it had severed all financial ties with his controversy-hit firm. More than 350 members of Thpong and Oral districts, which surround plantations belonging to Yong Phat’s Phnom Penh Sugar Company (PPS) and his wife Lim Heang’s Kampong Speu Sugar Company [KSS], signed and delivered a twopage complaint to the bank.
THE STRAITS TIMES More Singapore developers are vying for some of the world’s most sought-after real estate in cities such as New York and Sydney, as cooling measures here continue to bring down home prices. These firms are making waves in these pricey, mature cities where land and development opportunities are scarce. In its first foray into the United States, Keppel Land announced last Tuesday that it had ploughed US$70 million into a residential project in Manhattan’s upscale Upper East Side neighbourhood. The freehold building, at the corner of 59th Street and Third Avenue, will be developed by Macklowe Properties.
Buenos Aires’ Stock Market
A tear for Argentina Kenneth Rogoff
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Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics
AMBRIDGE – Argentina’s latest default poses unsettling questions for policymakers. True, the country’s periodic debt crises are often the result of self-destructive macroeconomic policies. But, this time, the default has been triggered by a significant shift in the international sovereigndebt regime. The shift favours hard-line creditors in bond issuances governed by US law. With emerging-market growth slowing, and external debt rising, new legal interpretations that make debt future writedowns and rescheduling more difficult do not augur well for global financial stability. There are no heroes in this story, certainly not Argentina’s policymakers, who a decade ago attempted unilaterally to force a massive generalized write-down on foreign bondholders. Economists who trumpeted the “Buenos Aires consensus” as the new way to run economies also look foolish in hindsight. The International Monetary Fund has long recognized that it made one too many loans to try to save Argentina’s unsustainable dollar peg as it collapsed back in 2001. This is not the first time that an Argentine default has upended international capital markets. According to the tabulation that Carmen Reinhart and I compiled in our 2009 book This Time is Different, Argentina has defaulted on seven previous occasions – in 1827, 1890, 1951, 1956, 1982, 1989, and 2001. Argentina may be almost as famous for its defaults as it is for its soccer teams, but it is hardly alone. Virtually every emerging-market country has experienced recurrent sovereigndebt problems. Venezuela is the modern-day record holder, with 11 defaults since 1826 and possibly more to come.
Back in 2003, partly in response to the Argentine crisis, the IMF proposed a new framework for adjudicating sovereign debts. But the proposal faced sharp opposition not only from creditors who feared that the IMF would be too friendly to problem debtors, but also from emerging markets that foresaw no near-term risk to their perceived creditworthiness. The healthy borrowers worried that creditors would demand higher rates if the penalties for default softened. Recently, as an outgrowth of a reconsideration of the IMF’s lending to the periphery of Europe (and Greece in particular), the Fund has advanced another approach to debt rescheduling, one that might be easier to implement. The IMF now recognizes that the bulk of its financing was effectively being used to allow short-term creditors to exit loss-free. As a result, there was not enough money left over to help soften budget cuts necessitated by the sudden stop in foreign funding. The experience of the recent Eurozone crisis stands in sharp contrast to the Latin American
debt crisis in the 1980s, when banks were not allowed to exit precipitously from their loans. If the new proposal is adopted, the IMF would conditionally refuse funds to countries carrying debt burdens that Fund staff determine are most likely unsustainable; creditors would first have to agree to a “reprofiling” of debt. Reprofiling is a euphemism for debt restructuring, which allows countries to borrow from existing creditors for longer periods and at lower interest rates than they would be able to do on the open market. Although it is far from clear how easily the IMF could hold the line against hard-bargaining creditors, the new policy, if adopted, would toughen the Fund’s approach to cases where it finds itself repeatedly throwing good money after bad. At present, the United States seems reluctant to go along with the IMF’s proposal. Evidently, US authorities believe that in some situations geopolitics trump economics (reflected, for example, in the IMF’s recent re-entry into Ukraine after a
Given the recurring complications of adjudicating sovereign-debt contracts in foreign courts, and the world’s inability to organize a credible and fair procedure for foreign bankruptcies, perhaps the best idea is to steer the bulk of international debt flows through debtor-country courts
string of failed programs). This American resistance is unfortunate. It would be far better if the US found ways simply to organize outright grants in exceptional cases like Ukraine, rather than design the international financial system around them. Given the recurring complications of adjudicating sovereign-debt contracts in foreign courts, and the world’s inability to organize a credible and fair procedure for foreign bankruptcies, perhaps the best idea is to steer the bulk of international debt flows through debtor-country courts. Jeremy Bulow and I made a proposal along these lines 25 years ago; it is still the right approach. In this scenario, countries interested in borrowing large amounts from abroad would need to develop institutions that made the promise to repay credible. By and large, experience supports this method. Indeed, the huge expansion in emerging-market domestic-debt issuance in recent years has helped reduce market tensions (though continuing reliance by corporates on foreign debt still leaves many countries vulnerable). But domestic borrowing is not a panacea. To believe that any country issuing debt in its own currency is risk-free as long as the exchange rate is flexible is astonishingly naive. For one thing, there is still inflation risk, particularly for countries with weak fiscal institutions and heavy debt burdens. Nonetheless, Argentina’s latest debt trauma shows that the global system for sovereigndebt workouts remains badly in need of repair. Deepening domestic debt markets – and perhaps change along the lines proposed by the IMF – is sorely needed. The Project Syndicate 2014
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Closing Chinese border city opens bus tour to DPRK
ADB launch joint venture for climate-related investments
The Chinese border city of Yanji in northeastern Jilin Province has opened a direct bus tour service to the neighbouring Democratic People’s Republic of Korea (DPRK). A total of 48 Chinese tourists and two Chinese guides ended their two-day tour to the city of Rason on Sunday completing the first batch of bus tours in Yanji, said Wang Yanbo, deputy chief of Yanji tourism bureau. The journey to the DPRK takes around four hours and will operate from Tuesday to Saturday the nonstop trip avoids transfer processing at the China-DPRK border. 10,000 Chinese tourists visit the DPRK annually.
The Asian Development Bank (ADB) and two private firms yesterday rolled out a joint venture that will undertake commercially-oriented private equity investments in climate-related transactions across Asia. The Manila-based lender joined forces with ORIX Corporation and Robeco Institutional Asset Management B.V. to form the joint venture dubbed as Asia Climate Partners (ACP). ACP will have initial capitalization of US$400 million U.S. dollars and will be based in China’s Hong Kong. ACP will invest in renewable energy, clean technology, natural resource efficiency, water, agriculture, forestry and other climate-friendly companies and transactions.
Hang Seng Bank profits reduced World’s strongest bank suffers a 5.4 percent fall
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ang Seng Bank Ltd., the Hong Kong lender controlled by HSBC Holdings Plc., reported lower first- half profit because of an accounting change and reduced gains from property valuations. Net income for the January-June period dropped 54 percent to HK$8.47 billion (US$1.1 billion), or HK$4.43 a share, from HK$18.47 billion, or HK$9.66 a year earlier, Hang Seng said in an exchange filing yesterday. Excluding a previous onetime gain connected with
Hang Seng’s stake in Industrial Bank Co., profit fell 5.4 percent. Hang Seng, the world’s strongest bank in a Bloomberg Markets magazine ranking of 97 lenders in June, was Barclay Plc’s “top pick” among Hong Kong banks in a report last month for reasons including its success in attracting deposits. Risks ahead include any propertymarket slowdown in the city, according to Ronald Wan, chief China adviser at Asian Capital Holdings Ltd. “If the property market
devalued or was seriously affected, the bank will be operating in a very difficult environment,” Wan said by phone from Hong Kong. “It is much more focused on
54 pct 2014 1H net income decline
Bank’s headquarters in Hong Kong
Hong Kong businesses and it doesn’t have too much overseas business.” Operating profit rose 6 percent to HK$9.5 billion, the bank, Hong Kong’s secondlargest lender by assets, said. Net interest margin, a measure of lending profitability, rose to 1.92 percent in the first half from 1.84 percent a year earlier. Net interest income climbed 7.8 percent to HK$9.7 billion.
Rising rates Hang Seng is set to benefit from rising interest rates and has a lower exposure than competitors to lending in mainland China, where bad loans are rising, Barclays analyst Sharnie Wong wrote in a report last month. Key risks could include any economic slowdown in Hong Kong, Wong said. The city’s housing sales plunged last year and the Hong Kong Monetary Authority said in June that the property market remained a concern for “macro-financial stability.” Hang Seng was the thirdranked home lender in the city, with a 16 percent share
of new mortgage registrations, according to the company’s statement today. The bank’s residential mortgage lending grew 2.4 percent from the end of 2013, the statement showed.
Mainland lending Meanwhile, the company said it was taking a “cautious” approach to lending on the mainland “in light of the more difficult operating conditions for mainland businesses.” Hang Seng was rated strongest in the Bloomberg Markets ranking of banks with at least US$100 billion of assets on the basis of measures including ratio of Tier 1 capital to risk- weighted assets. Hang Seng operates separately from HSBC, which owns 62 percent of the Hong Kong lender. Hang Seng Bank booked a one-time gain of HK$9.52 billion in the first half of 2013 as it reclassified its 10.9 percent stake in Industrial Bank, a lender based in the southern Chinese city of Fuzhou, as a financial investment instead of an associate. Bloomberg News
HSBC profits fall in first half
Vietnam’s exports to Hong Kong up
PetroChina to seal takeover of Athabasca
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ank giant HSBC said yesterday that profits fell in the first half because one-off gains were not repeated and after a weaker showing at its investment arm. Net profit dropped to US$9.746 billion (7.259 billion euros) in the six months to June 30 compared with earnings after tax totalling US$10.284 billion in the first half of 2013, the British lender said in an earnings statement. Reported profit before tax dropped to US$12.3 billion as last year’s first half benefited from higher gains from disposals and reclassification of HSBC’s interest in China’s Industrial Bank. Pre-tax profit at HSBC’s investment division dropped 12 percent to US$5.0 billion in the first half. HSBC chief executive Stuart Gulliver said that the bank’s overall interim results “demonstrate the resilience” of its business model. The Asia-focused lender is pushing on with its savings programme, having announced last year plans to cut costs by a further US$2.0 billion to US$3.0 billion between 2014 and 2016. AFP
ietnam’s exports to China’s Hong Kong reached some US$2.1 billion in the first half of 2014, up 31.36 percent year-onyear, according to statistics by Vietnam Customs. The Vietnam’s Industry and Trade Information Center (VITIC) under Ministry of Industry and Trade quoted the information from Vietnam Customs yesterday as saying that during the sixmonth period, cameras and spare parts ranked first among export items to Hong Kong, accounting for over 26 percent of the total export revenue. Specifically, during the period, some US$551.13 million worth of cameras and spare parts products were sold to Hong Kong, up 39.58 percent year-on-year, said VITIC. During the period, most of export products to Hong Kong saw increases, including fruits and vegetables (up 92.22 percent), textile fibre (up 90.66 percent), computer, electronic devices and spare parts (up 86.59 percent), and rubber (up 54.52 percent). Hong Kong was considered as a gateway for Vietnam’s products to enter China mainland market and other markets in Asia and Asia- Pacific as many of regional companies are headquartered in Hong Kong, said VITIC. Xinhua
tate oil giant PetroChina plans to pay the more than US$1 billion it needs to complete a takeover of the Dover oil sands project from Canadian firm Athabasca Oil Corp by the end of September, a person with knowledge of the deal told Reuters. PetroChina was supposed to complete the acquisition of Athabasca Oil’s 40 percent stake in the project in June, but delayed the payment while it reassessed the deal amid a government-led corruption probe into the Chinese national oil company, the person said. The internal review showed the geological structure of the project is more complicated than previous estimates, which would increase development costs, but the acquisition will go ahead, the person added. “The next step is to complete the transaction,” said the source, who declined to be named as he was not authorised to speak to the media. “PetroChina will pay in August or September.” Asked about the deal, PetroChina spokesman Mao Zefeng said: “At the moment, there is not any sign that PetroChina will not proceed with the project.” He declined to comment further. Reuters