Macau Business Daily, Aug 6th, 2014 by Business Daily

MOP 6.00 Closing editor: Luis Gonçalves Number 598 Wednesday August 6, 2014

Publisher: Paulo A. Azevedo

Killing the golden goose

Year III

ome 2,000 protested against Sands last month. Yesterday, another 1,000 casino workers targeted Galaxy. Unions are now in their stride. Predicting new marches, protests and assemblies by gaming staff in the coming months. Despite increased salaries, stock and bonuses, they say the overall system is unfair, and they want all of their demands met Page

www.macaubusinessdaily.com

Major Plataforma shareholder quits António José de Freitas has sold his 51 percent stake in Plataforma newspaper. Paulo Rego is now sole shareholder. The bilingual newspaper was launched just three months ago. Mr. Rego told Business Daily that the market would decide if the project had a viable future

HSI - Movers August 5

Name

%Day

Tencent Holdings Lt

3.33

CITIC Pacific Ltd

1.91

HSBC Holdings PLC

1.83

China Resources Ent

1.71

Kunlun Energy Co Ltd

1.38

China Petroleum & Ch

-1.59

Belle International

-1.72

China Overseas Lan

-2.35

Wharf Holdings LtD

-2.36

China Resources Land

-3.02

Source: Bloomberg

I SSN 2226-8294

PAGE 2

MGM China profits up 23 pct

Hunger for credit

Brought to you by

Loans to companies in Macau jumped almost 40 percent in June from a year ago. Exhibitions, conferences and manufacturing industries were the major beneficiaries.

MGM China reported a HK$3.035 billion net profit in the first half. Revenues climbed 12 percent, with mass market the driving force. Increased dividends are on the way PAGE 5

Stealth easing 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 tactic in achieving the yearly growth target PAGE 8

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August 6, 2014

Macau

Analysts bullish on Hutchison Sara Farr

sarafarr@macaubusinessdaily.com

A Majority stake sold in Plataforma newspaper Paulo Rego is now the sole shareholder of Plataforma Projectos Multimédia Limitada, a company that owns the bilingual newspaper launched three months ago. The new general manager told Business Daily that António José de Freitas left on good terms due to personal reasons João Santos Filipe

jsfilipe@macaubusinessdaily.com

ntónio José de Freitas, president of the Board of Directors of Macau Holy House of Mercy, has sold his 51 percent stake in Plataforma Projectos Multimédia, Limitada, the company that owns the newspaper Plataforma, to Paulo Rego, the former managing editor. Mr. Rego is now the sole shareholder; before the deal he owned 49 percent of the shares, and is set to assume the role of general manager. Yesterday, both António José de Freitas and Paulo Rego confirmed the deal to Business Daily but declined to reveal the amount involved in the operation. “The fact that António José de Freitas decided to leave the company was not something we expected nor that we wished three months ago, when the newspaper was launched.

However, he leaves on good terms, we are still good friends, and his decision was not taken without the guarantee that this decision would be beneficial for all the parties involved,” Paulo Rego told Business Daily. “António José de Freitas left for personal reasons,” he said. Plataforma is a bilingual newspaper published in Portuguese and Traditional Chinese that was launched last May. The project is focused on the commercial relationships between the Portuguese-speaking countries. “Nothing is going to drastically change. I will assume the role of general manager and Luís Andrade de Sá will continue to assist me in the editorial tasks, as he has already been doing,” Mr. Rego said. “Our goals and products are still the same. However, now that the newspaper is

out, our conviction about this project is stronger.” As for the financial sustainability of the project, Paulo Rego explained that the newspaper will not continue to be published if all the requirements were not met. “If the project goes on, it is because we understand that we meet all the requirements. But as with any other project, it is dependent upon the market and the readers’ interest in the newspaper. If the market is not interested in our project, it is likely that the newspaper will come to an end,” Mr. Rego said. Contacted by Business Daily, António José de Freitas, who is the President of the Board of Directors of Macau Holy House of Mercy, confirmed the deal but refused to comment further on the matter.

nalysts at Morgan Stanley expect Hutchison Whampoa International Ltd to experience growth in the second half of the year, after the company, which includes the Macau operations, reported a net profit of HK$13.5 billion for the first six months of the year. While this figure was up 13 percent from that of a year earlier and ‘slightly ahead’ of analysts’ expectations, it was still one of the slowest in the group’s last four years. Morgan Stanley analysts say earnings growth could remain in the single digits ‘as we see the full impact of minority dilution of AS Watsons’ in the second half of the year. AS Watson Group is a member of Hutchison Whampoa Group. ‘The company delayed the target to reach EPS of HK$10.0 from 2015 to 2016 and noted slower China sales and the sale of a 25 percent stake in AS Watson,’ analysts at Morgan Stanley said in a note to clients. While profits before interest payments and income taxes (EBIT) dropped 35 percent in the first six months of the year over that of the same period in 2013, Hutchison Telecommunications Hong Kong Holdings Ltd is ‘expected to recover in the second half with price increases,’ the note to clients reads. However, ‘we do not see any hope of improving performance in an organic way’ for Hutchison 3G Italia, whose EBITDA was off HK$600 million year-onyear. Last month’s Hutchison Telecommunications Hong Kong Holdings Ltd’s half year report revealed that there are 3.6 million mobile phone subscribers with the group in Hong Kong and Macau, a slight decrease from the previous 3.8 million at the end of 2013. The decline is thought to be due to a higher number of discontinuing subscribers of lower-tier customers, the group said.

Corporate Altira offers exquisite mooncakes

SJM awards scholarships to 38 children

Altira Macau is celebrating this year’s Mid-Autumn Festival with ‘exquisite mooncakes and luxury hampers,’ says the hotel group. ‘The full moon on the day of the Mid-Autumn Festival symbolises union. Families will get together to enjoy mooncakes and appreciate the moon when it appears at its roundest,’ the statement reads. In celebration, Altira has concocted a variety of assorted mooncakes including white lotus seed paste. In addition, hampers are on offer featuring different types of gift boxes. There are two types of hamper: the Deluxe Hamper and the Golden Harvest Hamper, the prices of which vary as do their contents. Altira is holding a promotional period from now until August 22 and a second promotional period from August 23 until September 7.

Sociedade de Jogos de Macau (SJM) awarded scholarships to 38 children of the company’s staff in addition to awarding 10 outstanding students. Another 26 students also had their scholarships renewed for another year. This year also coincided with the Awards’ 10th anniversary. The 10 outstanding students each receive 20,000 patacas per year until they complete their university studies. An additional two students received 10,000 patacas ‘as an encouragement for their good performance,’ the company said in a statement. The SJM Scholarship programme was established in 2005 and seeks to reward outstanding children of company staff in the furtherance of their university studies. In addition to awarding scholarships to children of staff, SJM also sponsors the full school fees of staff to further their studies at Macau Millennium College.

August 6, 2014

Macau

Protest hub of the gaming industry More marches, protests and assemblies are jostling to be heard in the city, all targeting the gaming enterprises in Macau, a gaming labor union says. Kam Leong

kamleong@macaubusinessdaily.com

lthough Galaxy Entertainment Group announced on Monday that it would award most of its full-time staff, some 1000 workers insisted on expressing their dissatisfaction with the “not-yet-responded” wage and promotion systems by joining the protest held by Forefront of Macau Gaming (FMG) yesterday afternoon. Yesterday’s protest started with an assembly at about 4:30pm in Golden Lotus Square, which is close to four satellite hotels of the Group - namely, Rio Hotel, Waldo Hotel, StarWorld Hotel and President Hotel. The protesters, which comprised more than 1000 workers, started their protest at around 5:00pm and gathered again in front of the side gate of StarWorld Hotel. “Although the group has released bonuses and shares [to most of the staff], as well as increasing the salaries of some of the workers, the core problems remain unresolved,” said the president of the gaming union, Ieong Man Teng. “For example, they

haven’t cancelled the intern positions which we demanded they do. Secondly, the salaries of some workers in lower potions have not yet been increased or the cancellation of the scoring system . . . After our discussion last night, workers decided to come out as planned.” Galaxy Group announced on Monday that it would offer shares in the Group amounting to three times staff’s salary this month, as well as a cash bonus equivalent to one month’s salary for the following two years to all full-time staff whose position are at or below senior manager. In addition, according to the union, the Group has offered salary increases for positions above dealers, such as supervisors and pit managers. However, such increases are only available to staff in Galaxy Resorts; those who work for its four satellite hotels claim they are not on the list. “Currently, as we know, there’s so far no news about increasing salaries in Rio

Hotel. We heard that one [hotel under Galaxy] posted a memo to inform the staff there that there won’t be any increase in salary, temporarily,” said Mr. Ieong. He also said that although some workers had already been granted a salary increase they still stood up yesterday for colleagues who had not been covered in the beneficiary list. The protest group requested to talk with the management of the Group when gathering in front of the StarWorld Hotel but its demands were not fulfilled. The assembly ended around 6:30pm, when participants decided to leave through the front gate of the hotel, as normal residents instead of as protesters. According to the organisers, the march had applied to pass the front gate of the hotel but was informed that it had to change its route by passing the side gate. Mr. Ieong said that the management of Galaxy did hold private meetings with some staff before the

protest; however, the union thought that no results would materialise if no public meeting was held. “We’d like to talk with the Group; however, the management of Galaxy did not respond to us directly.” As the Group had appointed the Macau Federation of Trade Unions (AGOM) to help with the issue, Mr. Ieong claims that many workers feel offended by the arrangement. “In our opinion, it [the arrangement] came out of the blue because no staff had turned to the association for help. They [the workers] are very dissatisfied with this as they think the association cannot represent them.”

More on the way Mr. Ieong said that the union will take further action if there is no response from the Group. Meanwhile, regarding the previous Sands protest, of which the demands are not improved or resolved. Mr. Ieong said that the union will hold another assembly in

Macau Red Cross responds to Yunnan disaster

acau Red Cross donated 300,000 yuan (US$ 48,653) to help with emergency relief in Yunnan, which was jolted by a 6.5-magnitude earthquake on Sunday afternoon. According to the non-profit organisation, the donation was passed to Yunnan Red Cross via telegraphic transfer. In addition, two Macau Red Cross staff went to the epicentre area of the earthquake, in Ludian County, to evaluate current conditions and distribute materials. The organisation also shifted 500 family packages of emergency relief

stored in Sichuan Province to the stricken area right after the quake occurred on Sunday. Macau Red Cross said it would liaise with the Chinese Red Cross and render support according to the development of conditions. They will decide later if they will solicit contributions from Macau as well. CE: “Macau will try its best to help” Meanwhile, Macau Chief Executive Fernando Chui Sai On wrote to the Chinese Government to express the SAR’s condolences for all killed in the earthquake as

well as its regards to all victims and affected parties. Mr. Chui wrote in the letter that the Macau SAR will try its best to help relieve the emergency situation and assist in various emergency tasks, with the purpose of helping local people return home and resume normal life as soon as possible. Zhaotong City is located in Ludian County in Yunnan Province, China. The strong quake killed at least 398 people and left some 1,801 injured. The China Government announced earlier it would allocate 300 million yuan for disaster relief.

the square in front of Sands Macau. The worst scenario will be going on strike on Friday. He thinks that there is a secret agreement between the six gaming corporations in Macau, hence none of them is willing to increase staff salary alone, according to Mr. Ieong’s speech at the assembly. The union may consider holding a protest gathering of workers from all the casinos in Macau. Legislator António Ng Kuok Cheong, who was also present at the assembly in Golden Lotus Square, said that the workers should give some space for the Group to respond to their needs instead of saying it is discriminating against the workers. “That there is some response from the corporation is a good thing . . . I think one corporation is not the worst one if its staff are willing to come out and express their opinions because the opinions are showing some problems really exist in the systems of the corporations which they should improve,” he said. Mr. Ng said he would gather opinions from the workers and relay them to the government and related corporations. The union claimed that more than 1,200 protesters joined the assembly at its peak while the Public Security Police Force put participants at half that number. “According to the actual circumstance, we will resolve the situation appropriately and reasonably. Moving forward, we will continue to strengthen internal communication in an effort to promote mutual trust between employer and employee and sustain a long-term development for our team members and the company”, said Buddy Lam, Vice President of Public Relations of Galaxy Entertainment Group in response to the protests.

August 6, 2014

Macau Brought to you by

HOSPITALITY

Loans to companies jump 40 percent in June The exhibition and conferences sector and manufacturing industries accounted for most of the loans, the Monetary Authority revealed Sara Farr

sarafarr@macaubusinessdaily.com

Faint blips Non-Asian visitors represent a very small fraction of the total number of visitors to Macau. The statistical bureau publishes individual figures for visitors coming from 15 countries outside of Asia. Nine of them are European, three are from America, two are from Oceania and one is from Africa. In the period shown, from the beginning of 2010 to the end of the first half of the current year, their combined average share approximated 2.2 percent of the total. That means that about 50,000 visitors per month, give or take a couple of thousand. Changes in the flow of visitors coming from any individual country in that list have no detectable effect on the behaviour of the indicator, as the average of visitors in the same period was about 7 million visitors per quarter. While the overall growth in the period exceeded 24.5 percent, the combined growth of those non-Asian countries was below 5 percent.

The chart shows the countries in this group for which the quarterly average, in the period shown, stood above 10,000 visitors. The leading country was, without surprise, the United States, representing, on average, 30 percent of all visitors coming from these 15 countries. Put the country together with Australia and Canada, second and third in the ranking, and that figure rises to just over half of the visitors. The combined share of the top five countries in the chart reaches two-thirds of the total. Inevitably, all the other countries contribute marginally to the tally and, in most cases, with figures equivalent to less than 1,000 visitors per month, on average. Those that have grown the most since 2010 are Russia, with a tripling of their result, and Portugal, with a 27 percent rise.

7.8 %

Portuguese visitors growth, H1, on previous year

oney supply grew 22 percent in June to 483.6 billion patacas over the same month a year earlier, the latest figures released yesterday by the Monetary Authority of Macau show. ‘M1’ refers to that part of the money supply that includes physical coins and currency, as well as readily liquid assets such as on-demand bank deposits and money held in cheque accounts. ‘M2’ is M1 plus all timerelated deposits, savings deposits, and non-institutional money-market funds. The latest official figures show that money supply M1 also increased by 14.4 percent to 59.4 billion patacas in June year-on-year, while it grew only slightly by 1.4 percent when compared month-on-month. Under ‘M1’, the currency in which money supply decreased was patacas with a 1.4 percent drop compared to that of the month of May. However, this same figure in June was up 22.5 percent to 27.4 billion patacas when compared to the month of June 2013.

The share of patacas in ‘M2’ stood at 24 percent in June. While this figure was slightly up by 0.1 percentage points from that of a month ago, it was also down by 0.6 percentage points month-on-month.

Growing deposits Meanwhile, overall deposits increased. Macau residents’ deposits totalled 473.9 billion patacas at the end of June, up 22.1 percent from a year ago and up 2.1 percent from a month earlier, while deposits of non-residents grew 31.9 percent to 211.8 billion patacas. The majority of deposits were in patacas, which witnessed a 2.8 percent increase from that of a month earlier, followed by Hong Kong dollars, which also increased by 2.3 percent. Total deposits with the banking sector grew 1.7 percent from that of a month earlier to 773.7 billion patacas. Of these, 18.4 percent were in patacas, while 40.4 percent were in Hong Kong dollars.

In addition, domestic loans to the private sector increased by 36.3 percent year-on-year to a total of 308.5 billion patacas, of which 86.4 billion patacas were pataca-denominated. Hong Kong dollars, on the other hand, accounted for 196.4 billion patacas of the total deposits with a 47 percent increase over that of June 2013 and a 3.5 percent increase over that of the previous month. According to the Monetary Authority, the economic sector taking out the most loans included ‘exhibition and conference’ as well as ‘manufacturing industries’. Also, pataca-denominated external loans increased by 123.7 percent to 5.4 billion patacas from that of a year ago. Overall external loans increased 22 percent in June year-on-year to 324.8 billion patacas. The loan-to-deposit ratio for the resident sector rose to 54.9 percent at the end of June, a 0.6 percentage point increase over that of the previous month, while the ratio for both the resident and non-resident sector also rose to 81.9 percent, up by 0.8 percentage points.

Novo Banco to acquire BESOR Moody’s increases ICBC P Macau rating M ortuguese bank Banco Espirito Santo do Oriente (BESOR), headquartered in Macau and belonging to the BES group, will become part of ‘Novo Banco’ following the split of what used to be Banco Espirito Santo (BES) in two. According to Portuguese news agency Lusa, which quoted an unnamed banking source, the bank in Macau ‘does not have any activity’ related to the Espirito Santo group and as such is not part of the group’s ‘bad assets’. BESOR is owned almost in its entirety by BES and has been operating in Macau since 1995, where it primarily serves as a commercial and industrial bank. In response to a request for comment following the crisis with BES, the Monetary Authority of Macau said that its duty is to oversee that the bank operates according to international standards and keeps in touch with various regulators around the world, including the Bank of Portugal. According to Lusa, the Monetary Authority here refused to give any information regarding a specific banking institution.

BESOR posted a profit of 39.4 million patacas in 2013. Last year’s total income was 44.8 million patacas. From its total income of 44.8 million patacas the bank paid 5.4 million patacas in taxes. In June, BESOR president José Morgado told Business Daily that changes in BES were not going to affect Macau’s financial institution owned by the Portuguese group.

oody’s, one of the world’s three biggest rating agencies, has increased the Industrial & Commercial Bank of China (ICBC Macau) bank deposit rating as well as its baseline credit assessment rating for the first time since the rating agency started evaluating the local bank in 2010. According to ICBC Macau, Moody’s has lifted the long-term and shortterm bank deposit rating of the bank from the previous A3/P-2 to A2/P1. In addition, it has improved the baseline credit assessment (BCA) of the bank to baa3 from the previous ba1. However, the strength rating of ICBC Macau’s standalone bank financial (BFSR) remains at D+. Moody’s is one of the Big Three international credit rating agencies. The other two are Standard & Poor’s and Fitch Group. K.L.

August 6, 2014

Macau

Wynn resists revenue drop in July Although gross gaming revenue declined for the second month in a row, the fall was less than feared during July. Wynn was the only casino operator to see its revenue increase year-on-year, although SJM maintains its leadership in terms of market share

he impact of the World Cup, which ran from 12 June to 13 July, in Brazil, lingered during July, diverting the attention of casino gamblers to sports betting. Thus, gross gaming revenue dropped 3.6 percent to 28.4 billion patacas year-on-year. The data revealed last Friday by the Gaming Inspection and Coordination Bureau demonstrates a revenue drop for the second month in a row. The revenue of July was also the second lowest in 2014, with revenue totalling 27.72 billion patacas in June. The daily evolution of gaming revenue in July proves a strict correlation between the fall and the World Cup, as by the end of the tournament the pace of gaming revenue had increased. According to the data accessed by Jornal Tribunal

de Macau, the daily average of casino revenue increased by 2.5 billion patacas from 13 July on, as the World Cup came to an end. In the month of July, Wynn was in the limelight, increasing its revenues in comparison to July last year. According to JTM, the revenue of the company controlled by Steve Wynn increased 5.8 percent to more than 3.2 billion patacas, which is a market share of 11.1 percent. This result brings Wynn back to fifth position in terms of market share, overtaking MGM, who occupy last place. Sociedade de Jogos de Macau (SJM) remains at the top of the heap in terms of market share, a position it occupies for the fifth time this year. However, the company held by the group founded by Stanley Ho could

not avoid a drop of 4.6 percent to 6.9 billion patacas for a market share of 24.1 percent in July, having achieved a market share of 24.9 percent during June. In July, Sands China had a gross gaming revenue of 6.6 billion patacas (decreasing 2.3 percent in comparison to July 2013) and a market share of 23.1 percent. The company held by Sheldon Adelson failed to regain the leadership from SJM, as it did in February and May. Galaxy Entertainment remained close to the leading group. The gross gaming revenue of the company decreased 0.4 percent to 5.8 billion patacas. Owning the most productive casino (Galaxy Macau), the group controlled by Lui Che Woo accounted for 20.6 percent of total gaming

revenue. In June, the group had generated 21.12 percent of the total share of revenues. Melco Crown Entertainment has been falling in the last months but maintains fourth position. The casinos managed by the joint venture of Lawrence Ho and James Packer experienced a drop of 10.6 percent year-on-year during July for a market share of 12.3 percent. Also in the red zone, MGM China dropped 11.3 percent year-on-year. Following a good performance during June, MGM market share shrank from 10.3 percent to 8.8 percent.

Double-digit growth Although gross gaming revenues dropped for the second month in a row, the total amount generated since the beginning of the year demonstrates a double-digit increase in relation to the first seven months of 2013. From January to July, casinos cashed in 222.5 billion patacas, 10.2 percent more than in 2013. In the seven months analysis, SJM also tops the charts. The company has a market share of 23.6 percent, leading Sands China (22.9 percent) and Galaxy Entertainment (20.4 percent). In the bottom half of the table, Melco Crown (12.9 percent) is followed by Wynn Macau (10.6 percent) and MGM China (9.6 percent). For the current month, gaming operators’ expectations have been moderated. However, it is possible that the revenue will return to growth although an increase is not likely to be significant, mainly due to the fact that last year’s gains set a very high standard (30.7 billion patacas). On the flip side, in a sector where the offer has been stimulating demand, the lack of casinos opening is not likely to increase the influx of gamblers. The increase in the influx must only be significant from the end of 2015 on, and mainly in 2016 and 2017, as the casinos being built in Cotai will then open. The possibility of breaking one more record in October, however, must not be excluded as the National day of China is celebrated in that month. JTM

Mass market boosts MGM profits

GM China reported yesterday a net profit increase of 23 percent in the first half of the year after revenues from mass gamblers outperformed Macau’s overall market for two consecutive quarters. The net profit totalled HK$3,035 million in the period, while the operating profit (Adjusted EBITDA) climbed 16 percent year-on-year to HK$3,765 million. The company said that it had a record performance in the mass market segment as a consequence of its gaming optimisation and more marketing initiatives. The weight of mass gamblers in MGM’s performance is growing every quarter. In the second quarter, the mass segment

was responsible for 77 percent of the company’s operating profit, up from 70 percent in the first three months of the year. Net revenues reached HK$13.724 million in the first half, 12 percent more than in the same period last year. MGM China will distribute an interim dividend of HK$28 cents a share, more than last year’s HK$23 cents. The company also announced that it has awarded approximately half of the construction contracts for MGM Cotai. Grant Bowie, Chief Executive Officer of MGM China, said: “While on the Peninsula we are executing our yield-focused optimisation initiatives, we see opportunities to further improve the efficiency of MGM MACAU”.

August 6, 2014

Macau

FBI snuffs World Cup betting hub at Caesar’s $25K-a-night villas

hen FBI agents entered Villa 8882 at Caesars Palace in Las Vegas on the afternoon of July 9, they found Wei Seng Phua and his son watching the World Cup semi-final between the Netherlands and Argentina. Phua, a regular at the Poker King Club in Macau where seven-figure pots are common, had flown in from the former Portuguese colony on his private jet two weeks earlier. He travels on a diplomatic passport from San Marino, hobnobs with the world’s top professional poker players, and according to the FBI is a high-ranking member of a Hong Kong-based triad group. When the FBI entered their villa, the father and son and a third man had their laptops switched on to betting websites showing the live odds for the game and instant messaging windows. In two of the hotel’s adjacent villas, which rent for a minimum of $25,000 a night, investigators discovered other members of Phua’s group amid clusters of computers and monitors and three large-screen televisions showing soccer games. During the Federal Bureau of Investigation raid, a woman working on a laptop was ordered to put her hands up. She raised one hand and continued typing on a betting website with the other, according to a criminal complaint filed by the U.S. Phua, a 50-year old Malaysian

citizen who also goes by the name of Paul Phua, and his son are due today in federal court to answer to charges they ran an illegal gambling business out of the Caesars Palace villas. Phua and his associates, six of whom are set to be arraigned August 7, were using the SBOBet and IBCBet sports betting websites, neither of which

is licensed to operate in Nevada, in order to monitor odds and place bets, according to federal prosecutors.

Sports Betting These are the two biggest online sport betting commission businesses in the world, according to Chris

Eaton, former head of security at soccer’s governing body FIFA. Eaton, now a director at Doha, Qatar-based International Centre for Sport Security, estimated that each company turns over about $2 billion a week. Of more than 8,000 operators offering sports betting worldwide,

August 6, 2014

Macau Phua and his 22-year‑old son Darren are out on bail after two professional poker players posted $2.5 million in cash bonds and Phua’s $48 million Gulfstream G550 was secured as collateral

his associates handled “hundreds of millions of dollars” in illegal bets on World Cup games, the government said. Following his June 18 arrest, Phua posted bail in Macau and flew to Las Vegas in his private plane. He has a diplomatic passport from the Republic of San Marino, for which he is the ambassador to Montenegro, according to a July 14 court filing by his lawyer. Phua and his associates from Malaysia, China and Hong Kong had already set up shop in Caesars Palace by then, according to U.S. prosecutors. They had rented Villas 8881, 8882 and 8888 earlier in June. The number 8 is a lucky number in Chinese culture and the tail number of Phua’s Gulfstream is N888XS, according to the complaint.

Electronic Equipment

most do so without obtaining authorisation required in the countries in which their clients are located, making about 80 percent of all sports bets illegal, according to a May 2014 report by the Sorbonne University and International Centre for Sport Security. David Chesnoff, Phua’s lawyer, said his client will plead not guilty “as loudly as possible.” “He intends to vigorously defend the case,” Chesnoff said in a phone interview.

Poker Players Phua and his 22-year-old son Darren are out on bail after two professional poker players posted $2.5 million in cash bonds and Phua’s $48 million Gulfstream G550 was secured as collateral. The poker players, Andrew Robl and Phil Ivey, who have won 10 World Series Poker bracelets, are friends of Phua, Chesnoff said. Phua’s lawyer described him as an “entrepreneur.” The Justice Department said in a court filing that he’s a high ranking member of an Asian organized crime group, the 14K Triad. Triads are involved in the illegal drug trade, money laundering, illegal gambling and extortion rackets. Chesnoff denied the allegation, saying he wasn’t going “to dignify it with a response,” and said his client was a “complete gentleman.” Phua at one point provided socalled junket services to the Macau subsidiary of Las Vegas Sands Corp. (LVS) He was the owner of Sat Ieng, a licensed operator that brought high rollers to the casino’s VIP rooms in exchange for a share of the turnover, according to a 2006 filing by Teem Foundation Group Ltd., a Hong Kong company that invested in Phua’s business. When he was arrested last month, Phua told federal agents he was betting on the World Cup through someone in the Philippines named “Foo.” He also told them he has invested $200 million in the IBC website and that he had bet “between $200 million and $300 million in Hong Kong money” since arriving at Villa 8882 on June 23, according to the complaint. In a separate interview, Darren Phua said his father owns IBC.

Macau Run-in The FBI raid in Las Vegas wasn’t Phua’s first run-in with law enforcement over alleged World Cup betting. He was arrested in June in Macau together with more than 20 other people for operating an illegal sports book gambling business, U.S. prosecutors said. Phua and

The group aroused suspicion when they asked for an unusually large amount of electronic equipment and technical support, according to court documents. After casino electrical engineers had gone into one of the villas to set up equipment, they told security that it looked like an illegal gambling operation, with computers displaying betting odds similar to the screens at the casino’s sports book. An undercover FBI agent went along with an IT technician to Villa 8882 - the one occupied by Phua - on July 4 to set up a new laptop computer. The butler, also a hotel employee, refused to let them enter beyond the pantry, saying the guests didn’t want anyone to “see their business,” according to the criminal complaint. The following day, two undercover FBI agents went to the villa, following an urgent request for help with the DSL connection right before the Belgium vs. Argentina game, and saw Phua clicking on the odds shown on the SBOBet site, which is licensed in Asia and Europe but not in the U.S. In a search of his laptop after the raid, the FBI found a message from someone using the name ‘byronchia’ to Phua that said “Hi Boss.” It listed what agents calculated was a grand total of HK$2.75 billion ($357 million) in gambling for the World Cup up to July 5, according to the criminal complaint.

Self-surrender Phua wasn’t immediately taken into custody after the July 9 raid. He was arrested four days later in the lobby of the Palazzo Hotel even though he had agreed to surrender, according to the July 14 filing by his lawyer. Phua and his associates face up to five years in prison if convicted of running an illicit gambling business and two years for unlawful transmission of wagering information, according to the U.S. Gary Thompson, a spokesman for Caesars Entertainment Inc., declined to comment on the alleged gambling hub in the villas, which the government said was set up without the consent of the casino. SBOBet said in a July 17 statement that neither Phua nor the other defendants have any association with the ownership or management of the company. The company also said it doesn’t accept bets from the U.S. and that any alleged wagers placed by the accused on its site “could only have been made illegally.” Representatives of Firstright Developments Ltd., a Philippine company that owns IBCBet according to its website, didn’t immediately respond to an e-mail seeking comment on Phua’s involvement with IBCBet and his alleged use of the website in Las Vegas.

Shark’s fin soup off the menu for hotel chain M elia, which runs more than 350 hotels in 40 countries, making it one of the world’s largest hotel companies, said the ban on shark fins would also apply to all events held in its facilities. Shark fins are highly prized by many Asians, especially in Hong Kong and China where shark fin soup is commonly served at wedding banquets and corporate parties. Environmental activists have for years campaigned against shark finning, in which the fins are sliced off sharks, often while they are alive, before the fish are thrown back into the ocean to die. They say it is cruel, and a threat to sea life and the preservation of the oceans, and has led to overfishing, with many shark species now considered endangered.

Melia is the latest in a string of companies to boycott shark fin consumption in recent years following lobbying by conservationists. The US-owned Marina Bay Sands casino in Singapore, part of Las Vegas gaming magnate Sheldon Adelson’s portfolio, announced in June it would stop serving shark fin in its restaurants. Thai Airways announced last week that it had stopped flying shark fin cargoes, bringing the carrier in line with a number of other Asian carriers including Hong Kong’s Cathay Pacific and Philippine Airlines. More than 70 million sharks are killed worldwide every year, with a majority of fins consumed in Chinese markets, according to environmental group WWF. AFP

Iao Kun outperforms market in July D espite the soft July in Macau, when gaming revenues fell for the second straight month, junket operator Iao Kun Group outperformed the market after posting a 7 percent revenue increase last month. The company reported yesterday that revenue from its VIP rooms in Macau totalled US$1.6 billion in July, 7 percent more than a year ago (US$1.5 billion in July 2013). The win rate for last month was 2.32 percent.

For the first seven months of the year, the junket firm amassed US$11.03 billion, up 10 percent from the same period last year, at an average of US$1.58 billion per month. Even with the VIP segment plunging in Macau this summer, Iao Kun was able to get more revenues in July than the year to date month average. The company runs five VIP rooms in Macau: in StarWorld Hotel & Casino, Galaxy Macau Resort, Sands Cotai Central, City of Dreams and Le Royal Arc Casino.

August 6, 2014

Greater China Samsung supplier to resume business A Chinese subsidiary of Shinyang Engineering Co Ltd resumed supplying parts to Samsung Electronics Co Ltd yesterday. In July, Samsung Electronics halted business with Dongguan Shinyang Electronics Co Ltd, a wholly owned subsidiary of Shinyang Engineering, after a U.S.based activist group said it found at least five child workers without contracts at the Guangdong provincebased supplier. The suspension was prompted by a report released earlier in July by China Labour Watch, which said children were working on the assembly lines at Dongguan Shinyang.

Jiangxi province sells municipal bonds Provincial government auctioned a total of 14.3 billion yuan (US$2.31 billion) of five-, seven- and 10-year bonds at yields of 4.01 percent, 4.18 percent and 4.27 percent, respectively, traders said yesterday. Jiangxi province is the fourth province that has issued bonds directly this year, without the finance ministry acting as a proxy. Guangdong, Shandong and Jiangsu provinces issued bonds earlier this year. China announced in May that it would allow local governments to issue U.S.-style municipal bonds for the first time.

PBOC to drain 30 bln yuan repos

China’s central bank will drain 30 billion yuan (US$4.86 billion) from the money markets through 14-day bond repurchase agreements yesterday, traders said. Maturing repos will inject a net 30 billion yuan into the banking system this week. The People’s Bank of China (PBOC) conducted a net drain of 11 billion yuan from the banking system last week.

LatAm tour “highly important”

Hong Kong home sales seen

Housing sales are rising again after transactions plunged last year t at least 2002 as the government stepped up cooling measures Michelle Yun

ong Kong’s home sales, which hit a two-year high in July, lack the catalyst to rebound further as government policies to contain prices deter speculators, according to the city’s two-biggest property brokers. Monthly sales volume may be capped at around 7,000 to 8,000 in the third quarter as existing homeowners are reluctant to sell and investors are discouraged by additional taxes, according to Centaline Property Agency Ltd., Hong Kong’s biggest closely held realtor. The number of new and existing homes changing hands in July reached 7,792, the most since October 2012, data released by the Land Registry yesterday shows. Transactions were as high as 11,358 in March 2012, the most monthly volume since 2011. Housing sales are rising again after transactions plunged last year to the lowest since at least 2002 as the government stepped up cooling measures to quell prices that have doubled since 2009. While buyers are returning to the market, the pool is still limited as levies including a 15 percent tax on foreign purchasers remain. “It’s an end-user-to-end-user market,” said Wong Leung-sing, an associate research director at Centaline in Hong Kong. “You won’t get that explosive momentum without speculators. There are too many regulations and too little supply.” Transactions are being driven by new projects as developers have been offering discounts and subsidies to attract buyers. Total home sales

Lam Tin zone in Hong Kong

reached HK$57.1 billion ($7.4 billion) in July, more than double the value a year earlier and the highest since March 2012, according to Land Registry data. The data didn’t break down new and existing homes.

New projects The July data reflects sales at new projects including City Point, the 1,717-unit residence developed by Cheung Kong Holdings Ltd. and Nan Fung Development Ltd., and The Grand Austin, built by Wheelock & Co., New World Development Co. and MTR Corp., Centaline and realtor

Midland Holdings Ltd. said. August transactions will be underpinned by sales at Mont Vert, another Cheung Kong apartment project, Centaline’s Wong said. Transactions of existing homes in July may have been around 5,500 units, below an average of 7,000 to 8,000 units a month, according to Midland, the biggest listed real estate agency in the city. Existing homes make up the majority of the market, accounting for about 80 percent of the sales volume. “The market undoubtedly has picked up despite the policies staying unchanged,” Buggle Lau, Midland’s

Soros urge China to reveal payments to Africa USA and EU have passed laws requiring extractive industries listed on public exchanges to disclose their payments to governments

President Xi Jinping’s latest Latin America tour was “very encouraging,” the head of the Economic Commission for Latin America and the Caribbean (ECLAC) said on Monday. ECLAC Executive Secretary Alicia Bárcena told Xinhua that the trip was “very encouraging” and the decisions reached during Xi’s tour were “highly important.” During the trip, Xi paid state visits to Brazil, Argentina, Venezuela and Cuba, and attended the sixth summit of the emerging-market bloc of BRICS, and a meeting with Latin American and Caribbean leaders.

Billionaire George Soros at the World Economic Forum of Davos

hina should publicly disclose what it pays African governments for extracting oil, gas and minerals as a way to level the playing field for companies worldwide and help countries get a fair deal for their natural resource wealth, billionaire investor George Soros said. “China has to line up to join the regulations. Otherwise they are spoilers,” Soros said at a forum on natural resources held on the sidelines of the U.S.-Africa Leaders Summit that runs through Wednesday. To increase accountability for natural resources, the United States and the European Union have passed laws requiring extractive industries listed on public exchanges to disclose their payments to governments. In addition, 35 countries including many in Africa are party to the Extractive Industry Transparency Initiative (EITI), a coalition of governments, companies and civil

August 6, 2014

Greater China

n capped

SHG-HK bourses link enters the latest sprint

to the lowest since

chief analyst, said by phone yesterday. “But you can see that the existing home market has slowed again recently as homeowners are raising their asking prices.” Existing home prices, tracked by Centaline, have gained 4.4 percent since the start of June after falling as much as 5 percent from a peak in March last year. Analysts from Citigroup Inc. to JPMorgan Chase & Co. are revising up their forecasts. Prices may fall 5 percent this year instead of an earlier forecast of a 10 percent drop, as the U.S. delays interest rate increases, Bank of America Corp. analyst Raymond Ngai said last month. Bloomberg News

You won’t get that explosive momentum without speculators. There are too many regulations and too little supply Wong Leung- sing associate research director Centaline

society that works to improve accountability for management of revenues from natural resources by setting global standards for payment disclosure. Soros called on Africans to urge China to participate in the initiative, and to expand payment disclosure from oil, gas and mining to include forestry and agriculture. “It is a very important thing to get them to join, in fact so important that we have to be ready to reconsider the structure of EITI, or China won’t consider it,” he said. Multi-national companies frequently complain that their competitive position in bidding for contracts is undermined if they have to adhere to U.S. and European disclosure rules that would not apply to state-owned companies in China, which are big players in Africa. China does not like to engage with civil society, which is a central part of EITI, he said. However, Chinese companies are learning that failure to engage poses significant risks to their investments in Africa. Moreover, Chinese companies already must disclose their payments to governments that are party to the EITI, and those that list securities in the EU and the United States will have to comply with new transparency rules that start taking effect next year. Reuters

China says the scheme is on schedule and rehearsals will begin at the end of August, with the link expected to go live two months later. But market players say there is still an enormous amount of work to do

ong Kong is working night and day to launch an initiative that will let global investors trade Chinese stocks from the city for the first time and secure the former British colony’s position among the world’s pre-eminent share markets. To meet an October deadline, regulators, brokers and engineers in Hong Kong have shunted other projects to the bottom of their to-do list, delaying technology upgrades, putting off new product launches and pushing market reforms onto the backburner. But the rush to launch the complex project risks a technology snafu that could lead to potential losses on investors’ portfolios, people in the industry say. They also worry that the Hong Kong and Shanghai financial industry may not be fully prepared by October. More than 100 banks and brokers in Hong Kong - including HSBC, Societe Generale, BNP Paribas, Morgan Stanley, Citigroup and Instinet - are working on the project. The initiative has diverted thousands of staff from their everyday roles and will see many of them office-bound over several weekends in August and September for performance and business continuity testing. The trading link requires an unprecedented level of coordination between multiple parties - including brokers, asset managers, the two exchanges, their clearing and settlement providers, data providers, technology firms and several

regulators. Additionally, the Hong Kong and Shanghai markets have to overcome different currencies, fee structures, legal regimes, tax rules, national holidays, clearing and settlement processes, and supervisory regimes. The link is the top priority at the Hong Kong Exchanges and Clearing Ltd (HKex), which has pushed a number of closely-watched initiatives - including a planned consultation on a closing auction and the introduction of trading controls known as circuitbreakers - onto the backburner, two sources familiar with the matter said.

Operational risk Shares of HKEx have gained 35 percent year-to-date as investors focus more on the exchange’s long-term prospects. Bullish investor sentiment on the trading link helped push Hong Kong’s Hang Seng index to a threeyear high last month. The link will boost the average daily value of trading on the HKEx by around 38 percent to HK$93 billion (US$12 billion) by 2015, according BNP estimates. The project was first floated in 2007 but was later shelved due to China’s slowdown amid the global financial crisis. The trading link has been hailed as a milestone in the opening up of China’s capital markets, allowing foreign investors to trade in and out of Chinese stocks in real time.

My concern is that some exchange participant firms won’t be ready, and many buy-side firms won’t be either, which means the first few months may be quiet as institutional investors wait and see how the initial implementation pans out Stephane Loiseau head of cash equities for Asia Pacific Societe Generale

Reuters

More LNG tankers in high-tech push Orders represent only a little more than half of the total investment of nearly US$50 billion needed to expand the global LNG fleet of 394 vessels, based on an average gas tanker cost of US$200 million and ABS estimates

hinese shipyards are aiming to take some US$10 billion in orders for new LNG tankers over the rest of the decade, part of a plan to restructure the country’s ailing shipbuilding sector and secure China’s energy supply chain. The push to build its own natural gas delivery vessels will boost China’s capability in high-tech ships and pose a challenge to South Korean and Japanese shipyards that have been the main suppliers of large gas tankers for 30 years. Up to 50 liquefied natural gas (LNG) tankers, or more than 20 percent of the 225 LNG vessels expected to be added worldwide by the end of 2020, are set to be built in China to deliver gas to its ports, according to estimates from ship safety agency the American Bureau of Shipping (ABS). Relying on home-built vessels for gas deliveries -which China needs to serve new import terminals coming

KEY POINTS Global LNG fleet needs to grow by 225 vessels by end-2020 About 125 vessels already on order, mostly to S.Korean builders China builders to grab a fifth of LNG ship orders to 2020 –ABS

online- gives it greater control over its supply chain and snags a bigger share of the high-value end of the shipbuilding business. The global shipping industry is emerging from a five-year downturn, the worst in 30 years, and China -the largest shipbuilding nation and long the leader in basic vessels- sees a growth opportunity in developing the skills and technology to build more sophisticated ships. Beijing last year laid out a plan for domestic shipyards to target a quarter of the global market for high-tech ships, including LNG tankers. More than 70 percent of around 125 LNG carriers and storage vessels currently on order have gone to South Korean shipyards such as Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries. Reuters

August 6, 2014

Greater China

HSBC services data Yum wants questions strength of recovery Chinese

customers back

The services purchasing managers’ index (PMI) fell to 50.0 in July from a 15-month high of 53.1 in June

rowth in China’s services sector slowed sharply in July to its lowest level in nearly nine years, a private sector survey showed yesterday, indicating a recovery in the broader economy is still fragile and may need further government support. Weakness in new orders was also seen in China’s official services report at the weekend, which showed activity slipped to a six-month low. Both surveys contrast with other data in recent weeks that showed the economy was regaining momentum thanks to a spate of government stimulus measures. The weaker readings in services, which account for about 45 percent of gross domestic product (GDP), raise the question of whether Beijing needs to do more to support growth, particularly in the rapidly cooling property sector. The services purchasing managers’ index (PMI) compiled by HSBC/ Markit fell to 50.0 in July from a 15-month high of 53.1 in June, the lowest reading since November 2005 when the data collection began. In a sign that economic uncertainty has made companies more reluctant to spend, a sub-index measuring new business growth hit a 68-month low of 50.3 in July. Stock markets in Hong Kong and Shanghai turned negative after the survey was released, while most other Asian markets extended modest early losses. The unexpected weakness in

services comes after two separate PMI surveys last week showed China’s factory sector posted its strongest growth in at least 1-1/2 years in July, adding to hopes that the economy was building up steam again after a weak start to the year. “The weakness in the headline number likely reflects the impact of the on-going property slowdown in many cities as property related activity, such

Today’s data points to the need of continued policy support to offset the drag from the property correction and consolidate the economic recovery Qu Hongbin HSBC’s China Chief economist

as agencies and residential services, see less business,” said HSBC’s China Chief economist Qu Hongbin. A similar survey by China’s National Bureau of Statistics found non-manufacturing activity slowed to 54.2 in July from 55 in June as new orders rose at their weakest rate in at least a year. The official PMI is weighted more towards large stateowned firms. China’s once-heated housing market has slowed this year as sales and prices turned south in their biggest pull-back in two years, driven in part by the cooling economy and by the national government’s nearly five-year-long campaign to keep price rises in check. But the extent and breadth of the downturn have surprised analysts, with many worrying that it is now the biggest threat to China’s economy this year. At least 23 regional governments, which earn a large chunk of their revenues by selling state land, have openly or quietly relaxed home purchase restrictions this year, according to data from CRIC, a unit of real estate services firm E-House China. State-controlled banks have also revved up lending to the sector. The property slowdown may last for at least a year, though a market collapse is seen as unlikely, according to a Reuters analysts poll last week. Yet despite of the weakness in the services PMI, some measures suggested companies remained confident. Reuters

Still recovering from a poultry supply chain investigation in China that started in 2012, last month it was hit by another food scare

A Chinese menu cover at Pizza Hut, a brand name belonging to Yum

um! Brands Inc., owner of KFC and Pizza Hut, said its China team is trying to regain customers after a supply chain scare has recently hurt results. “Our leadership team in China is working hard to rebuild consumer trust and sales,” Chairman and Chief Executive Officer David Novak said in letter on Monday, which was e-mailed to Yum’s more than 40,000 restaurants and about 1.5 million store employees worldwide. Yum, still recovering from a poultry supply chain investigation in China that started in 2012, last month was hit by another food scare. Yum supplier Shanghai Husi, a division of OSI Group LLC, became the subject of a government probe into the altering of expiration dates on food. The fast-food chain terminated its relationship with OSI globally after the probe. Oak Brook, Illinois-based McDonald’s Corp., which will start selling beef and chicken burgers in some Chinese cities again soon, said it’s not getting products from any OSI Group or affiliate facilities in China. Previously, the chain was sourcing food from Husi’s Hebei plant while transitioning to a new OSI facility in Henan. Last week, Yum said there’s been a “significant, negative impact” to samestore sales at KFC and Pizza Hut during the past 10 days in China as a result of the latest food scare. It’s too early to tell how long it will take for sales to recover, the company said in a filing. Novak said in the letter that Yum’s China team is working to improve its surveillance and management of suppliers. Yum, based in Louisville, Kentucky, has more than 6,300 restaurants in China and gets about half of its revenue from the country. The company, which also owns Taco Bell, is scheduled to report thirdquarter earnings on October 7. Bloomberg News

6,300

Experts say the property slowdown, which may last for at least a year, is partly responsible for the cooling PMI

restaurants in China owned by Yum

August 6, 2014

Asia

Philippines ready to tighten monetary policy Annual inflation accelerated to near three-year highs in July, raising expectations of a further interest rate hike as early as in September, a prospect reinforced by the central bank governor’s comments

Thai starts stockpiled rice tender Apornrath Phoonphongphiphat

he Thai government will open a tender to sell an initial 167,000 tonnes of rice from stocks on August 7. The government was expected to continue to sell up to 500,000 tonnes of rice monthly from stockpiles, with Thai rice the cheapest on the market. “We (will) open widely for everybody, not only exporters, but also those rice traders and domestic rice retailers who need rice could join the tender,” said the official, who asked not to be named because she was not authorised to talk to the media. The director-general of the Commerce Ministry’s Department of Foreign Trade, Duangporn Rodphaya, who oversees the government rice stock sales, is due to give a briefing on the details of the rice tender later on Tuesday, the official said.

KEY POINTS Up to 500,000 tonnes expected to be sold monthly Low Thai prices, demand to absorb stocks

overnor Amando Tetangco warned that the central bank will not shy away from further policy tightening steps to curb pricing pressures, after headline inflation picked up more than expected in July to 4.9 percent on-year. It was the highest rate since October 2011. “Even as we have already taken a series of policy actions to address liquidity growth and its attendant financial stability risks and to temper inflation expectations, we will not hesitate to use any of our tools to help guide market to keep inflation within the target range over the policy horizon,” Tetangco told reporters in a mobile phone message. Higher food prices were behind the uptick in the consumer price index, topping analysts’ expectations for a 4.5 percent rise, and raising the chance the central bank’s main policy rate could be raised again at its next meeting on September 11. In response to the growing risk of further tightening, the Philippine peso hit a session high of 43.57 against the dollar after the data. Last week, Bangko Sentral ng Pilipinas raised its main overnight borrowing rate by 25 basis points to 3.75 for the first time in three years, aimed at taming price pressures as they threatened to top next year’s inflation target. The rate increase was the central

bank’s fourth and most aggressive move against inflation in as many meetings, and analysts expect further tightening ahead to anchor inflation expectations. “We expect further tightening by the BSP. Not only do we think the central bank will raise the key policy rate one more time in the next meeting, we are also pencilling further adjustment in the SDA rates,” said Gundy Cahyadi, economist at DBS in Singapore.

KEY POINTS July CPI at near 3-yr high C.bank says will not hesitate to use any of its policy tools Analysts expect hike in policy and SDA rates in Sept meeting

The consensus from a Reuters quarterly poll in July was for the central bank to raise the main policy by another quarter percentage point to 4.0 percent before the end of the year. Bernard Aw, economist at Forecast Pte in Singapore said second quarter gross domestic product data, due on August 28, will be a crucial piece of data to watch in the run-up to the September policy meeting as the central bank will likely want to assess the impact of further rate hikes on growth. The Philippine economy grew by a disappointing 5.7 percent in the first quarter, way below the government’s 6.5 to 7.5 percent target for the year, hurt by the impact of last year’s super typhoon. The latest data brought average inflation in the seven months to July to 4.3 percent, government data showed, above the mid-point of the central bank’s 3 to 5 percent target this year and outside its 2 to 4 percent target in 2015. Prices of food and non-alcoholic drinks rose 8.2 percent in July from a year earlier, the biggest increase since April 2009. Food prices alone saw their biggest rise in more than five years at 8.7 percent. Food accounts for 39 percent of the consumer price basket. Resuters

The Commerce Ministry has said the sales of around 500,000 tonnes of rice monthly would not depress prices. Exporters agreed, citing strong demand and competitive Thai prices. “It is a good timing as demand remains strong, while our prices are the most cheapest compared to Vietnam and India,” said Charoen Laothamatas, head of the Thai Rice Exporters Association. The price of common grade 5 percent broken Thai white rice was offered at US$420 a tonne, well below the same grade of Vietnam of US$465-US$470, while Indian grade was at US$435-US$445. “Thai rice is the cheapest. I think demand after the end of the Muslim fasting month and the New Year festivals should help absorb supply,” said a Bangkok-based trader. After the army halted the sale of rice stockpiles and ordered a nationwide rice inspection, it found 80 percent of the stockpile was in good condition and decided that rice would be gradually sold via tenders and government deals later this year. Around 14 million tonnes of rice stocks will be sold. Reuters

August 6, 2014

Asia Australia new vehicle sales dip in July Sales of new vehicles in Australia dipped in July after a strong rebound the previous month ran out of steam, though demand for sports utilities showed no sign of cooling. The Australian Federal Chamber of Automotive Industries’ VFACTS report showed sales of 89,867 in July, down 0.4 percent on the same month last year. Sales were down 24 percent on June that is typically a very strong month as dealers cut prices for the end of the Australian financial year. In the year to date, sales were running 2.1 percent behind the same period in 2013.

KEPCO sells a stake of LG Uplus Korea Electric Power Corp (KEPCO) sold a 4.4 percent stake in telecom company LG Uplus Corp worth around 186.3 billion won (US$180.36 million), a KEPCO official said yesterday. State-run utility KEPCO sold the stake of about 19.2 million shares in LG Uplus, the No. 3 telecom company in South Korea, for 9,700 won per share after the market closed on Monday, said the official, who declined to be identified. That represented a discount of 3 percent from Monday’s closing price of 10,000 won.

Singapore’s CapitaLand net profit up CapitaLand Ltd., Southeast Asia’s largest property developer, said yesterday that its net profit rose 14.5 percent for the second quarter from a year ago. The good performance is mainly contributed to improved operating Profit After Tax and Minority Interests (PATMI), higher revaluation gains from investment properties and write-back of impairments. Net profit for the second quarter was 438.7 million Singapore dollars (US$352 million), compared with a restated 383.3 million Singapore dollars (US$282.3 million) in the same period last year. However, its revenue fell 13 percent to 875.3 million Singapore dollars (US$701.9 million).

Dairy prices drag NZ into trade deficit The plunge in dairy prices drove down the value of New Zealand goods exports in the quarter to the end of June, leading to a trade deficit of 146 million NZ dollars (US$124.3 million), equivalent to 1.2 percent of exports, the government statistics agency announced yesterday. The value of goods exported fell 7.4 percent to 12.4 billion NZ dollars (US$10.55 billion) in the June quarter, following a rise of 0.9 percent in the March quarter and large increases for the September 2013 and December 2013 quarters, according to Statistics New Zealand.

Indonesia’s quarterly results highlight change needed The five-member “transition office” will lead a team of several advisers who will be responsible for drawing up a policy roadmap

conomy unexpected failed to gain traction in the second quarter, growing at the slowest annual pace since the last three months of 2009. The statistics bureau said the growth rate was 5.12 percent, compared with the median forecast of 5.30 percent in a Reuters poll and the previous quarter’s pace of 5.21 percent. Indonesian growth has been trending down in the past two years. One factor has been weak exports. This year, mining exports have fallen significantly because of Indonesian rules banning shipments of mineral ore. In the latest quarter, there was a trade deficit of US$2.20 billion in April-June, following a surplus of US$1.07 billion in the first three months of the year. Leo Putra Rinaldy, economist with Mandiri Sekuritas in Jakarta, said the slowdown in the second quarter appeared to be “mainly caused by slowing investment.” The second quarter included the campaign to elect Indonesia’s new president. Some economists thought campaign spending would add enough to domestic consumption to lift the quarter’s growth pace about that of January-March.

Transition office Indonesia’s president-elect Joko Widodo on Monday announced

KEY POINTS Q2 GDP +5.12 pct y/y, vs 5.30 pct seen in Reuters poll Q1 GDP growth was 5.21 pct y/y Slowing investment seems a cause for slowdown Joko Widodo prepares a fivemember “transition office”

said in a statement, adding the team would prioritise universal access to healthcare and education. Widodo has promised to form a cabinet that is dominated by technocrats in order to overhaul a sleepy bureaucracy and introduce much-needed economic reform to address big fuel subsidies, cooling investment and creaky infrastructure. But concern persists that the former small-city mayor, who is relatively inexperienced on the national stage, may be beholden to his political party and its chief, former president Megawati Sukarnoputri, for key appointments and policy advice.

The president’s men

a high-powered advisory team to handle his transition to power as he prepares to take over the top job in the world’s third-largest democracy later this year. The five-member “transition office” will lead a team of several advisers who will be responsible for drawing up a policy roadmap to fulfil major campaign promises and address pressing issues facing Southeast Asia’s biggest economy. “This transition office is needed to prepare the implementation of our vision and programmes,” Widodo and vice president-elect Jusuf Kalla

The transition team will be headed by Rini Soemarno, a close aide of Megawati. Soemarno, an influential, U.S.-educated businesswoman, served during Megawati’s presidency as trade and industry minister and is a former head of PT Astra International , Indonesia’s biggest automobile distributor. Another member of the team of advisers, Hasto Kristiyanto, is vice secretary general of Widodo’s Indonesian Democratic PartyStruggle (PDI-P). Other figures include Anies Baswedan, a respected academic and education specialist, a military expert and a senior member of a coalition partner.

Reserve Bank of India holds rates

The next reading on inflation could be significantly higher than The RBI had unexpectedly cut the SLR the previous reading. in June by a half a percentage point However the RBI may “The upside risks to the target of ndia’s central bank kept its take some comfort from key policy repo rate unchanged ensuring CPI inflation at or below yesterday as widely expected, and 8 percent by January 2015 remain, core CPI inflation easing voiced a commitment to bringing although overall risks are more and the incipient recovery down inflation that convinced many balanced than in June,” Governor analysts that markets will have to Raghuram Rajan wrote in the RBI in industrial production wait until next year for the next cut statement on its policy review.

A. Prasanna economist ICICI Securities Primary Dealership

in rates. The Reserve Bank of India (RBI) left the repo rate at 8.00 percent, as expected by nearly all 43 economists surveyed by Reuters for a poll published last week. The repo rate has been unchanged since January, when the RBI increased it by a quarter percentage point.

“It is, therefore, appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged.” Rajan stressed that the next goal was to bring inflation down to 6 percent by January 2016, while warning of upside risks to that target also.

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August 6, 2014

Asia

OCBC Q2 net profit up Bad debt charges fell just over 20 percent to S$66 million Saeed Azhar

An Indonesian girl walks past an advertisement at a shopping mall in Jakarta, Indonesia, 31 July 2014. According to media reports, the government has predicted that Indonesia’s annual inflation rate would be at 4.6 percent

Widodo, a former furniture businessman, last month invited the public to participate in an online poll to choose cabinet ministers, but it was unclear how the survey would affect the final line-up. The new cabinet will be announced after Widodo takes office on October 20. The team will also draw up a list

versea-Chinese Banking Corp, Singapore’s second-biggest lender, yesterday posted a 54 percent rise in quarterly profit, beating expectations thanks to brisk loan growth and a strong performance from its insurance unit. OCBC, which last week boosted its China exposure by gaining over 90 percent control of Hong Kong-lender Wing Hang Ltd, said it expected to take advantage of growing investment and trade flows between Greater China and Southeast Asia. The bank earned S$921 million (US$739 million) in the three months ending in June, compared with S$597 million a year earlier. The profit was above the S$796 million average forecast of six analysts polled by Reuters. OCBC shares have underperformed DBS Group Holdings and United Overseas Bank this year since it became known it intended to buy Wing Hang, a move that increased its exposure to China’s slowing economy. Investors were also concerned about

a potential rights issue of about S$3 billion (US$2.41 billion) to fund the transaction. OCBC shares are 3.3 percent lower so far this year, compared with an almost 6 percent rise for larger rival DBS and 8.3 percent gain for UOB. Singapore banks are witnessing a slowdown in the housing market in response to government cooling measures, forcing them to diversify earnings from areas such as trade finance and wealth management. DBS last week reported a 9 percent rise in quarterly profit, beating expectations. UOB said quarterly profit grew 3.2 percent although its bad debt charges doubled. OCBC’s quarterly net interest income - the gap between what a bank makes from loans and pays on deposits - rose 17 percent to S$1.1 billion, on the back of a 12 percent year-on-year rise in customer loans. Contributions from insurance unit Great Eastern Holdings boosted noninterest income by 40 percent. Reuters

of potential cabinet ministers and review strategies to handle “major legal liabilities” facing the incoming administration like international arbitration cases involving mining giants Newmont Mining Corp and Churchill Mining, two of Widodo’s aides told Reuters. Reuters

Main branch of OCBC

Australia’s RBA marks a year of steady rates C

Reserve Bank of India Governor Raghuram Rajan

Analysts said the RBI statement could put to rest any prospect of rate cuts for a while, with many ruling out the chances of any reduction this year. “I think we will be in a pause mode for an extended period of time,” said Mohan Shenoi, treasurer at Kotak Mahindra Bank. The RBI did, however, announce steps to free up resources for banks to lend, a priority for Prime Minister Narendra Modi’s government as it seeks to encourage investment in order to put momentum back in sluggish economic growth. The central bank said it would continue to focus on spurring more lending and lowered banks’ minimum bond holding requirements, known as the statutory liquidity ratio (SLR),

by half a percentage point to 22.0 percent of deposits to free up more money for lending, effective from August 9. The RBI also cut the ceiling on debt that must be held-to-maturity (HTM) by lenders half a percentage point to 24 percent. It did not provide an estimate on how much credit growth that could spur. The measures come after the RBI had also cut the SLR by half a percentage point in June. India’s benchmark 10-year bond fell, sending its yield up 9 bps to 8.82 percent, as cuts in both the SLR and HTM are likely to pressure bond prices due to new supply. Reuters

entral bank kept interest rates at record lows yesterday to mark a full year without a change, and its masterly inaction looks likely to last for some time yet as the economy copes with a cooling mining boom. The local dollar inched higher as the Reserve Bank of Australia (RBA) stopped short of actively trying to talk the currency lower, noting only that it was high by historical standards and thus not as helpful in supporting the economy. “Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time,” stated RBA Governor Glenn Stevens, in what has become a monthly mantra. “On present indications, the most prudent course is likely to be a period of stability in interest rates.” In a recent speech, Stevens quipped that while markets might not appreciate such lengthy stretches of

“masterly inaction”, it was warranted given Australia was coping with a major downturn in mining investment as a once-in-a-century boom matures. Investors are taking him at his word and have priced in little chance of a move in the 2.5 percent cash rate for months to come. Interbank futures imply a one-in-five probability of a further cut by year end, before switching to an increasing chance of a hike in the second half of 2015. All 23 analysts polled by Reuters had expected rates to stay at 2.5 percent this month. The vast majority assume the next move will be up, though not until the first quarter of next year at the very earliest. The RBA itself has sounded reluctant to cut again, in part for fear of adding fuel to an already hot housing market. Home prices rose solidly in both June and July according to property consultant RPData, taking annual growth to just over 10 percent. Reuters

August 6, 2014

Closing China invents breathing-powered pacemaker generator

Bad quality top consumer complaint

Scientists have developed a nanogenerator that can power a cardiac pacemaker with electricity generated by a patient’s breathing. The nanogenerator system developed by the Beijing Institute of Nanoenergy and Nanosystems includes an implantable nanogenerator and an energy conversion and storage device. The nanogenerator is 12 millimetres long, 12 millimetres wide and 0.7 millimetre thick. The self-powered system harvests energy from breathing movements and stores the energy in the form of electricity to drive the pacemaker, according to the institute. Pacemakers have long been power limited, and once the batteries run out, patients face more surgery and heavy costs.

The majority of Chinese consumers’ complaints were based on the products’ poor quality, the China Consumers’ Association (CCA) has found. In its half-year report released yesterday, the CCA said consumer associations across the country investigated 327,564 complaints in the January-June period and helped consumers get refunds totalling 677.04 million yuan (US$110 million). Quality problems triggered 43.2 percent of the complaints, while dissatisfaction over after-sales service was behind 20.4 percent of them. Over half of the complaints were about mobile phones, clothes, cars and auto parts, footwear and food.

Land auction prices scare developers Last week, of the five Beijing lots put on auction, two that had their reserve price set near the city’s record high received no bids, the first time that has happened in more than three years

hinese property developers wary of poor sales amid the country’s industry downturn are giving expensive government land auctions the cold shoulder, with plots in the capital going unsold for the first time since April 2011. The poor reception highlights the persistent mismatch in price expectations between developers and local governments. Cash-tight developers are seeking lower prices while local authorities are refusing to budge because land sales account for the bulk of their revenues. On Monday, of the four lots sold by the Beijing government, two went to state-backed Greenland Group at the reserve price. The rest were sold to local developers at lower-thanexpected prices. Last week, of the five Beijing lots put on auction, two that had their reserve price set near the city’s record high received no bids, the first time that has happened in more than three years,

A developing zone in Quingdao

according to local media. China’s real estate industry has been correcting since late last year as the central government take steps to cool the overheated market. Official data show new home prices fell in June from May for a second straight month, with analysts forecasting further declines. The situation contrasts with that last year when developers were willing to pay whatever it took to secure land. During the peak years in 2009 and 2013,

such so-called “land kings” grabbed headlines with their aggressive bids. Market observers said that as property sales slow and the credit market tightens, many developers, in particular small and medium-sized ones, have little cash to buy land especially in top-tier cities where prices are set with a high premium. “Are we going to see ‘land kings’ in the second half? Unlikely. There will still be transactions, but it will depend on the location and

the reserve price,” said Knight Frank’s head of valuation & consultancy, Thomas Lam. Lam added that large developers would rather invest abroad as inventories in mainland China are expected to remain high. Beijing-based Longfor Properties told an earnings briefing on Monday that it “would rather miss the buying opportunity than buying wrong”, adding that it has slowed land purchases and new project starts since 2013.

Commenting on land prices, Chief Executive Officer Shao Mingxiao said: “Supply in many Chinese cities is at a saturation level, so I don’t see property prices will rise significantly... However, land prices did not fall accordingly. Many local governments did not change their attitude at all, that’s why we saw the failed auction in Beijing recently.” With land prices set by local governments stuck at lofty levels, sales have fallen. Government land sales in value terms slumped 40 percent in Beijing last month from a year earlier, data by research company China Real Estate Information Corp (CRIC) shows. Shanghai values dropped 27 percent. The total value of land sold by local governments in 100 cities last month fell 51 percent from a year earlier, according to CRIC, a whollyowned subsidiary of E-House China. Supply of residential housing has risen on the other hand.

China to promote solar installations

Machinery sector grows up

WH Group performs great IPO debut

he world’s biggest supplier of solar panels may announce policies as soon as this month to encourage solar-power installations at

home. Under the policies, the National Energy Administration would call for local planners to add more projects in regions where electricity can be distributed to customers living nearby, according to people familiar with the matter, who asked not to be identified because they aren’t authorized to speak publicly. The government will focus on supporting the development of so-called distributed solar power projects in industrial zones and at big industrial and commercial companies with large rooftops. Big consumers of electricity will also be encouraged to develop solar projects as a way to reduce power costs. The push may help China edge closer to its target of installing 8 gigawatts of distributed solar, which is eligible this year for subsidies, and may spur orders for solar equipment. Distributed projects have already caught the interest of investors such as GCL New Energy Holdings Ltd. and Yingli Green Energy Holding Co. Bloomberg News

achinery industry continued to recover with rising profitability in the first half of 2014 following moderate growth last year, according to a report released yesterday. The report, issued by the China Machinery Industry Federation (CMIF), said aggregate profits across the sector increased 19.6 percent to 715.3 billion yuan (US115.9 billion) for the first six months of 2014 compared with an average 15.6-percent growth in the whole of 2013. Following the increased growth rate, the federation raised its profit growth forecast for 2014 to 15 percent from a 12 percent forecast made in February. The CMIF’s vice president Chen Bin attributed the increased performance to lower energy and raw material prices and increased added value, thanks to the innovations made by China’s machine makers. According to the report, technology breakthroughs put Chinese enterprises in a favourable position when doing business with foreign partners. From January to June, trade surplus in the machinery sector rose to US$35.8 billion as more high-end machines were sold to overseas markets. Xinhua

Reuters

hinese pork giant WH Group, which scrapped an initial public offering worth more than US$5 billion earlier this year, saw a strong Hong Kong trading debut yesterday after its shares closed up more than seven percent. Shares in the world’s biggest pork firm closed at HK$6.66 (US$0.86), 7.42 percent higher than its offering price of HK$6.20 per share, after raising US$2.05 billion. WH Group had cancelled a planned listing in the city in April blaming “deteriorating” market conditions, but analysts attributed the move to a lack of appetite for the firm. WH Group had initially said it wanted to raise US$5.3 billion, which would have been the biggest IPO globally for a year and Hong Kong’s largest since 2010. It later slashed the valuation of its listing by two thirds to US$1.88 billion before it was cancelled, blaming concerns about the strength of the city’s stock market. Analysts have said there is potential for the stock to rise in the near future, helped by the importance of the pork industry in mainland China and after WH shed its share price. AFP