Macau Business Daily, Aug 20, 2014 by Business Daily

MOP 6.00

Booming Galaxy Galaxy Entertainment is on top form.

Yesterday, it reported record half-year revenues and net profit. Shareholders will get a second dividend this year. The gaming operator is not resting on its laurels. The Grand Waldo Complex is now under “extensive renovation” and slated to re-open in early 2015. Kicking off a new wave of casinos in Cotai

Number 608 Wednesday August 20, 2014

Publisher: Paulo A. Azevedo

Closing editor: Luís Gonçalves

No civil referendum in public spaces PAGE 4 | 4G proposals revealed this year PAGE 3

Year III

PAGE 5

www.macaubusinessdaily.com

Shopaholic Central It’s all about shopping. Half of the territory’s visitors say they’re here for the clothing, local products and food. In the second quarter, tourists spent 9 percent more than a year ago. The Japanese are the big spenders

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CTM now has competition. Another fixed-line supplier expects to start offering Smart TV services in December. Yesterday, MTEL signed a threeyear contract with Australian SONIQ as sole equipment provider PAGE

Name

%Day 7.57

Galaxy Entertainme

3.43

Lenovo Group Ltd

2.74

China Resources Po

2.48

Hong Kong & China

2.18

From fish to rolling chips

Tingyi Cayman Islan

-0.66

CITIC Pacific Ltd

-0.96

Hengan Internation

-1.00

COSCO Pacific Ltd

-1.19

Kunlun Energy Co Lt

-2.44

Tsukiji is the world’s biggest fish market. The Tokyo landmark is huge. And on MGM Resorts’ radar as a potential site for a casino base in Japan. CEO James Murren visited the location last March. Just one of the options, claims his company

Source: Bloomberg

I SSN 2226-8294

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The heavens opened up yesterday. Despite the heavy rain, more than 1,000 SJM workers hit the streets. As promised, they were protesting – once more - for better working conditions, wages and bonus as management had not come to the table. The operator said it offers one of the best deals in the gaming industry. Not good enough, say the protest organisers. A major demonstration targeting the Big Six is scheduled for Monday afternoon

Smart TV on the way

August 19

China Resources Lan

PAGE 6

Gaming protests set to escalate

HSI - Movers

OTC market maker Beijing’s over-the-counter market is going to implement a market-making system. The proposed brokerage will solve a liquidity problem that has been curbing OTC development. So goes the theory Page 9

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August 20, 2014

Macau

Whistling in the wind? In spite of the heavy rain yesterday, more than 1,000 workers from SJM (Sociedade de Jogos de Macau) came out onto the streets again to let their employers know that they are still dissatisfied with their current working conditions. Moreover, a protest against the Big Six is brewing Kam Leong

kamleong@macaubusinessdaily.com

JM workers gathered once more yesterday afternoon to express their dissatisfaction with their employer as it had not responded to their demands within the period they had dictated. In addition, organiser Ieong Man Teng announced that a protest against all six gaming corporations will be staged next Monday. The gaming union Forefront of Macau Gaming (FMG) claimed that more than 1,000 workers joined the assembly yesterday. The assembly gathered at Sintra Square (Espaço Sintra) near SJM’s flagship Grand Lisboa property. During the assembly, some workers suggested marching around Grand Lisboa. Ieong Man Teng

responded on stage to all participants that although he “did not hear” what the workers were planning to do they should “do what they want”. Later, the workers did march around the SJM hotel for two laps. As the union did not register the march with authorities in advance, the protesters did not hold any banners or shout any slogans, but whistled.. The demands of the SJM protesters primarily revolve around getting an average 10 percent increase in their wages as well as 14th-month bonus, according to Mr. Ieong. At one point, the weather conditions yesterday led organisers to postpone the assembly to this

Saturday although the plan was dismissed after the march. The protest ended about six o’clock in the evening

SJM: current wages and benefits lead industry Following the assembly, SJM released a press release claiming that the current wages and benefits for its workers rank among the best in the gaming industry, local media TDM reported. The gaming corporation stated that the members of some organisations, who requested to discuss the problem with SJM, are not staff of the gaming corporation, and do not have the right to enter into a dialogue with the corporation. SJM also said that it would take effective measures to prevent and resist any attempt or activities that are harmful to the benefits of its employees and the corporation itself. Executive director of SJM Angela Leong claimed last week that SJM was the first of the six gaming corporations to increase the salary of its staff this year, which could serve as a response although she said she could not say if there would be another increase in wages in the future.

Big Six protest next Monday Mr. Ieong told reporters that a protest against all of the Big Six gaming operators will be held next Monday afternoon. The demonstration will depart from Golden Lotus Square and end at Government Head Office. He is

uncertain whether the group will pass by any casino. “The protest for the workers of all six gaming corporations is to fight for some basic benefits for them, such as [to resolve] the impact of secondhand smoke, problems of nonresident workers in casinos as well as typhoon subsidies,” Mr. Ieong said. He also claimed that the protest to be held during the campaign period of the Chief Executive election is to let the candidate know about the demands of the gaming workers and to get him to promise that he would tackle such problems. Most of the demands of the previous protests against Sands and Galaxy workers, he says, remain “unimproved”. Asked by Business Daily if the results for the upcoming movements will be less effective, Ieong said he believes that the cold resolution of the gaming operators will eventually trigger more workers standing up for themselves. “Workers will observe the strategy of how the corporations respond. Take SJM for example. Their cold attitude strengthens the [determination of] the employees to fight on the street. Comparatively speaking, if these gaming corporations continue to treat their staff in such a way, I believe it will only lead the employees to come out to express their demands,” Mr. Ieong said. Last Thursday, some 1,000 SJM workers gathered in front of the building where the Human Resources Office of SJM is located. FMG said then that further actions will be taken if the gaming corporation did not responsd to their demands within three days.

August 20, 2014

Macau

MTEL partners up City’s 4G proposals may be with SONIQ unveiled this year The corporation is joining the market and is ready to offer Smart TV services to householders and companies in Macau. The Chairman of MTEL, Michael Choi, says that e-commerce via TV is a way for SMEs to deal with the lack of human resources João Santos Filipe

jsfilipe@macaubusinessdaily.com

esterday, MTEL signed a three-year contract that will run until 2017 with Australian company SONIQ. The agreement makes the manufacturer of consumer electronics the sole provider of the Smart TV’s devices for the Macau corporation. MTEL is set to join the fixed-line telecommunications market in December. “Starting from today [yesterday] we signed a three-year contract with SONIQ to provide TVs for the Smart TV service that we expect to launch with the company in December. We choose SONIQ because they are very innovative and their products are top quality”, MTEL chairman and chief executive Michael Choi told Business Daily on the sidelines of the event. “This service will be a joint venture of the two companies”, he added. Smart TV is a service that through a television connected to the Internet features such functions as on-demand streaming media, Internet access and different apps and even e-commerce. However, before this service can be launched the company needs government approval for a licence as an Internet Service Provider (ISP). “We have applied for the licence and are now waiting for a reply. We are not sure when the government is going to give us an answer but it should not take long. Probably, that will happen by the end of September”, Choi said. If MTEL successfully gain a licence to provide Internet access to households and businesses the

company will be the only entity to challenge CTM’s Internet service, even though this market was liberalised fourteen years ago, in 2000. “We are very confident about the Smart TV service. It will be very attractive; not only for householders but for Small and Medium Enterprises (SME). Nowadays, one of the problems in Macau is the lack of human resources. E-commerce will tackle this as sales are online and so companies will have a solution for sales without having to hire as many workers”, he explained to Business Daily. MTEL received its fixed-line licence, valid until December 2021, last July. Since then, the company is expected to invest around MOP1 billion in order to set up its network. MTEL will have to cover 30 percent of Macau’s residential area when it joins the market in December. The works to install the fixed-line have progressed according to the company plan. “So far, we have reached 28 percent of the residential area on Macau Peninsula, and 28.5 percent in Taipa. In Coloane, we have already reached that target with roughly 42 percent of the residential area covered”, he revealed. “We’re pretty confident that the 30 percent target will be reached in time”, he added. According to the Official Gazette, the MTEL network is expected to cover 99 percent of residential areas within five years.

he Bureau of Telecommunications Regulation said yesterday that confirmed proposals of issuing licences for the 4G-LTE service might be announced this year, prior to which it may also allow telecommunications operators to offer trial 4G-LTE services to the public before they obtain the related licences. Replying to legislator Chan Meng Kam’s enquiry about whether the Bureau has a confirmed timeframe for issuing licenses for the 4G service, the deputy director of the Bureau, Hoi Chi Leong, said that it is now working on the final study and analysis of relevant laws. The Bureau is also striving to release the proposal for issuing the licences within this year although it had said at the end of last year that such a proposal would be ready by the first

half of this year. In addition, the government does not exclude the possibility of allowing operators to launch an experimental network for local residents before it officially issues licences to them. The Bureau claimed that the service fee for local and international landlines has been falling since the full opening of the local telecommunications market. Service fees for local landlines declined by 26% following adjustments in October of 2013 and April of 2014, according to the Bureau. “With the new operator of public telecommunications starting its business by the end of the year, as well as the introduction of 4G increasing the demands for faster speed of data transmission, [we] believe that [these] will sharpen market competition,” said Mr. Hoi.

August 20, 2014

Macau Brought to you by

HOSPITALITY Asian Guests The number of hotel guests from Greater China has risen consistently since 2010 and has stood around an average of just over 4.5 million guests in the last four semesters ending in June. Mainland China in the main contributor for the growth observed; this is a well established feature. Interestingly, in the case of this tourism indicator, Macau residents are also accounted for. They make use of the local hotel facilities and are doing so in significant and rising numbers. In fact, in the last semester, Macau guests represented, for the first time, more than half the corresponding figure for Hong Kong guests; and, on present trends, they will shortly amount to as much as twice the number of Taiwanese guests. Driven by the mainland and Macau, the overall proportion of guests from Greater China is now approaching four-fifths of the total. The remaining Asian countries combined accounted for less than half a million guests in the last semester. Their share of the total number of guests has declined consistently throughout the period observed here.

The two top countries sitting next in the hotel guests’ ranking are Japan and South Korea. Their combined figures have oscillated around 200,000 guests per semester since the second half of 2011. However, those countries are following neatly different paths. The figure for Japanese guests has been declining since its peak in the second half of 2011. Meanwhile, the number of South Korean guests keeps rising, from 60,000 in 2010 to more than 100,000 lately. In 2010, Japanese guests accounted for roughly twice the number of Korean guests; in the beginning of 2013, Koreans claimed the top spot outside Greater China, with the gap rising slowly but steadily.

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loss of Japanese guests since their peak in 2011H2

Civil referendum to shun public places The Court of Final Appeal has ruled against a civil referendum being held in a public place

acau Conscience, Macao Youth Dynamics and Open Macau Society plan to jointly hold a civil referendum on the Chief Executive election at the end of this month. The two questions on the ballot forms are whether the Chief Executive of the Macao SAR should be elected by universal suffrage in 2019 and whether voters have confidence in the sole candidate running for the election in 2014, or who would they support if there was more than one. Macau Conscience, Macao Youth Dynamics and Open Macau Society have jointly formed themselves into an ‘Electoral Affairs Commission on the Civil Referendum 2014 on the Chief Executive Election’. They are holding this civil referendum in reaction to the election of the Chief Executive of Macau taking place on August 31. According to Portuguese news agency Lusa, the court’s decision was based on the fact that a civil referendum is not deemed an assembly

and, as such, cannot be held in a public place. Jason Chao, president of the Open Macau Society, is quoted by the news agency as saying that ‘the court does not consider that taking part in a civil referendum constitutes an assembly or meeting, and therefore does not have the obligation to assure us a public place in which to hold it.’ According to court documents, the definition of an assembly is ‘a gathering (generally intentional and organised), non-permanent, of people who listen to speeches and debate ideas, aimed at defending ideas or other common interests and that form collective opinions.’ Mr. Chao is quoted as saying that the decision was mainly due to a change in the case’s judges. Song Man Lei, who ruled the previous judgment allowing for a referendum to be held in a public place, maintained her stance but was out-voted by new members of the bench who disagreed. This final judgement was handed

down by judge Lai Kin Hong. However, Mr. Chao said that the court also made clear that ‘citizens have the right to do anything that does not go against the law,’ including the civil referendum. He added that the decision of the Court of Final Appeal will not deter the group from holding the planned civil referendum with voting booths to be set up in private spaces. ‘We will do anything necessary to ensure the civil referendum is successful,’ Mr. Chao is quoted by Lusa as saying. Both the Macau and Beijing governments have said that such a referendum is deemed ‘illegal’. Earlier in the month, Mr. Chao compared what the referendum organisers are trying to do with that of the Public Opinion Programme of the University of Hong Kong, which in 1993 organised a ‘People’s Referendum Scheme’ and today remains one of the methods employed by the university to research public opinion.

Super Spanish chicken concept

uperPollo (translated as SuperChicken) is a Spanish cuisine restaurant chain that has rapidly expanded in Macau since last year. The restaurant chain has already opened three branches in Macau in local neighbourhoods off the beaten tourist track. The philosophy of the restaurants is to offer a healthy Spanish menu adapted to Macau flavours and meal schedule and style, while appealing to Macau consumers. With this concept in mind, Antonio Guijarro, the man behind the business, wants to turn it into a franchise that every high middle-class family can

afford to open. Until now, the founders have been focused on optimising all the process involved in the distribution chain, tweaking menus and, in particular, building a team that they can rely on. Guijarro is fully conscious that

the staff is one of the most valuable assets a company has in Macau and hence the company is taking care of workers in each and every respect. In addition to the SuperPollo chain, Guijarro and his partners have recently opened a new restaurant with a twist. Named Bar-Celona, the wine and tapas bar emulates the trendiest Spanish bars. The cuisine is more sophisticated and the business model is designed to evolve as a standalone bar or inserted in 5-star hotels but at more affordable prices. The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at www.magzter.com.

August 20, 2014

Macau

Galaxy’s net profit leaps 29 pct, special dividend announced The casino operator has expressed confidence in the city’s gaming market despite softer results posted in June and July Stephanie Lai

sw.lai@macaubusinessdaily.com

asino operator Galaxy Entertainment Group Ltd has reported record halfyear revenue and net profit, while announcing - for the second time this year - a special dividend payout upon the release of the group’s interim results yesterday. The first-half revenue of the Hong Kong-listed operator Galaxy Entertainment Group rose 25 percent year-on-year to HK$38.4 billion, while its adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) has also risen by 26 percent to HK$7.3 billion. Net profit attributable to shareholders grew 29 percent yearon-year to HK$6 billion. Despite the impact of the World Cup and the soft landing of the Chinese economy on gaming performance, the group still saw its adjusted EBITDA for the second quarter rise 15 percent to HK$3.5 billion. This figure, when compared on a quarter-on-quarter basis, dropped by 9.6 percent. Speaking at a press briefing about the interim results yesterday, the management of the casino operator expressed confidence in the gaming growth of Macau. “As mentioned in reports in June and July, gaming revenue has been impacted by the World Cup, and in the long term it’s impossible to see a double-digit growth [for gaming revenue],” said the chairman of Galaxy Entertainment Lui Che Woo, “But the results have picked up starting from July . . . Macau has increased tourism and entertainment facilities and despite seeing one to two months of results decline, for the year overall we’ll still see a stable growth.” Mr Lui’s son and deputy chairman of Galaxy Entertainment Group, Francis

Lui Yiu Tung, noted that he expected - “in the short term” - a mass gaming growth of 20 to 30 percent. “There is still big room for developing both the mass and VIP segments because we have 1.3 billion Chinese population and a growing middle class,” said Lui. “In the short term we may see a 20 to 30 percent growth in the mass gaming segment.” “VIP will not be flat. As Bob [Galaxy Entertainment’s chief financial officer Robert Drake] has mentioned, there have been some fluctuations with the World Cup and the soft landing of the Chinese economy in June and July,” said Mr. Lui, “But in the long term we’ll see double-digit growth for the whole gaming market . . . Personally, I’m very confident in Macau’s gaming and tourism business, and this is still where our key investments are in.” The casino operator announced a special dividend of HK$0.45 cent per share yesterday, which is payable by October 31 – this closely follows the company’s paying of the HK$0.70 cents per share of special dividend by end-July. Francis Lui did not pledge any adoption of a fixed dividend policy when questioned by media yesterday. “We’ve seen a good beginning as this is now the second time that we’ve issued a special dividend,” he said, “But only when we know more clearly about the scale and time required for our Cotai Phase 3 and 4 projects may we come up with new thoughts on the subject. Now we’re subject to market conditions as well as our cash flow to determine [the dividend payout].”

“Sufficient tables” While the casino operator’s Cotai Phase 2 project is to be completed by

mid-2015, Francis Lui also said that they are confident in getting sufficient gaming tables for the Cotai project although he did not specify the number of tables that the casino is getting. “We’re confident in getting sufficient gaming tables [for Phase 2], while we’ve also devoted a lot of work to the amenities for shopping as well as conventions and meetings for the project,” he informed media. In December 2012, Galaxy Entertainment said that it hoped to have 500 tables for Galaxy Macau Phase 2. The group added at yesterday’s briefing that the Phase 2 project would be completed “on budget” and “on schedule” by the middle of next year. By this year end the group would recruit about 8,000 employees to staff the Phase 2 operation. Recent bouts of protests by croupiers demanding higher wages has been a concern of the gaming sector here but Mr. Lui responded that the company would seek a “win-win” situation for investors and workers to find a “rational” answer. Running for re-election, incumbent Chief Executive of Macau Fernando Chui Sai On confirmed on Saturday that he would maintain the ban against importing labour to work as croupiers when announcing his political agenda. Mr. Francis Lui is one of the 400-member electoral conference that will be casting the votes at the end of August to elect the city’s Chief Executive. The co-chairman of Galaxy Entertainment also noted that the company has increased employees’ pay by 20 percent over the past year, including a 5 percent salary boost and bonus. Despite the policy direction

suggested by Mr. Chui that could further restrict the labour pool, Mr. Francis Lui told media that the company was confident that the upcoming recruitment would not be a problem.

More projects in the pipeline The Grand Waldo Complex, which Galaxy Entertainment acquired from third-party investors in July 2013 and now under ‘extensive renovation’, is due to re-launch in early 2015, the casino operator announced yesterday. The group is announcing the plan for this hotel, leisure and entertainment complex by the fourth quarter this year, a project that will target the mass market. The group is also set to start ‘later this year’ the site investigations on the Phase 3 and 4 projects on the Cotai Strip, a HK$50-60 billion investment. Robert Drake, Chief financial officer of the group, has noted that the “well-capitalised” casino operator was sitting on HK$14.1 billion in net cash on hand as of end-June. In tandem with the Macau projects, Galaxy Entertainment noted in their interim results that they were still working to develop the conceptual plans for a ‘low-rise and low density’ resort project occupying a 2.7 square kilometer parcel on Hengqin island, involving 10 billion yuan.

August 20, 2014

Macau

Here for the shopping Almost half of all visitors say the purpose of their trip was shopping, with per capita spending increasing by 9 percent in the second quarter for same-day visitors Sara Farr

sarafarr@macaubusinessdaily.com

isitors are spending more while here whether just for one day or overnight. The biggest slice of their shopping spree is clothing at 20 percent, followed by local food products and handbags, each at 19 percent. The latest figures from the Statistics and Census Service Bureau (DSEC) released yesterday show that overall per capita spending of visitors was MOP2,141 in the second quarter of the year, a 9 percent increase from that of the same period a year earlier. Overnight visitors spent an average of MOP3,915, an increase of 15 percent year-on-year, while same-day visitors’ spending dropped slightly by 1 percent to MOP610. Overall, total spending increased by 17 percent to MOP16.3 billion in the

second quarter of the year over the same period in 2013. Japanese visitors were the biggest spenders with a per capita spending increase of 41 percent in the second quarter to MOP2,029 over the second quarter of 2013. Overnight visitors from Japan, however, spent MOP2,978, a 45 percent increase yearon-year. Visitors from Australia also spent considerably more between the end of March and end of June, with per capita spending increasing by 28 percent to MOP1,609. Americans also spent 8 percent more than in the second quarter last year, with their per capita spending reaching MOP1,219. According to the Statistics and Census Service Bureau, ‘long haul visitors spent primarily on accommodation and food

and beverage’. These visitors as well as those from Singapore, Malaysia and Taiwan spent more while visiting Macau than mainland Chinese visitors – the biggest source of travellers to the territory. While mainland Chinese still remain the biggest spenders, their overall per capita spending increased by only 6 percent in the second quarter of the year over the same period in 2013. Overnight visitors from mainland China spent an average of MOP4,926, while same-day visitors spent MOP732. Shopping is where they spent the most, accounting for 51 percent of overnight visitors’ spending and 81 percent of same-day visitors. The per capita spending of Singaporeans increased by 9 percent to MOP1,899, while that of Malaysians increased 12 percent to

Hotel services A-Okay MOP1.711 and Taiwanese 14 percent to MOP1,606 over that of the second quarter of 2013. According to the latest figures, the main purpose of visiting the territory was for vacation at 59 percent, followed by 21 percent who were in transit, 8 percent for gaming, 6 percent to visit family and relatives and 5 percent for business.

Some 88 percent of visitors surveyed for last quarter’s ‘Visitors’ Comments Survey’ complimented hotel services and facilities. As many as 89 percent said they were satisfied with their use of travel agency services, while 41 percent deemed tourist attractions here ‘adequate’. Another 17 percent said public transport needs improving.

August 20, 2014

Gaming

Tokyo fish market catch of the day for casino operators MGM Resorts International (MGM) has scouted the world’s biggest fish market as a potential site for the casino resort it wants to build in Japan, according to two people familiar with the company’s plans

hief Executive Officer James Murren visited central Tokyo’s Tsukiji Market in March to survey the sprawling warren of fish stalls on about 231,000 square metres (57 acres) of land that the city may sell once its vendors relocate, the sources said. The site - one of the largest parcels ever offered for redevelopment in the Japanese capital and located near the luxury shopping enclave of Ginza - would be an alternative to the Odaiba district that is seen as the top contender for a gaming resort. While land costs would be higher, Tsukiji promises greater visitor numbers due to its accessibility by transit and proximity to other tourist draws, Jay Defibaugh, an analyst with CLSA, said by phone.

Reclaimed Land “Tsukiji, in terms of accessibility, is almost unrivalled in Tokyo,” Defibaugh said. Even with the higher costs, casino operators would find the site “very appealing,” he said. The Tsukiji fish market attracts 42,000 visitors daily, many of whom come to see the early morning auctions where 420 billion yen-worth (US$4.1 billion) of seafood, including some of the world’s most expensive tuna, is sold each year. The eating stalls around the almost 80-yearold covered market are popular destinations for freshly caught sushi breakfasts. The Tokyo Government decided in 2001 to relocate the market from Tsukiji to a less cramped facility being built on reclaimed land in Tokyo Bay about four kilometers (2.5 miles) away. The move has been delayed in part because of toxic soil that needs

to be removed from the new site.

Land Prices Tokyo may sell the Tsukiji parcel after most of its 780 fish and vegetable vendors move to the new site, which is scheduled to be completed by early 2016, according to the city office that manages the market. Land in the Tsukiji area costs about 1.39 million yen per square metre, while the cost of property in Odaiba, on reclaimed land in Tokyo Bay, is about 956,000 yen per square metre, according to the land ministry.

James Murren

Ed Bowers, MGM’s senior vice president for global gaming development, said the company would need at least 30 acres to build a casino resort. He declined to discuss any specific sites, saying Odaiba and Tsukiji were among several locations that have “surfaced,” with Tokyo’s city government seeming to favour the area of reclaimed land in Tokyo Bay.

City’s Choice “Ultimately, it’s really the city that has the say on where they would like this thing to be,” Bowers said. While the city sees the land’s sale as a likely outcome, it has not yet decided what the site’s best use would be, including whether it would be an appropriate location for a casino resort, Tadashi Sato, who manages the city’s urban policy division, said by phone. A few potential buyers have expressed interest in the site, said Sato, who declined to identify them. The Las Vegas-based company is among the big casino operators, which also include Las Vegas Sands Corp. and Caesars Entertainment Corp., that have said they are prepared to spend billions of dollars on building a casino in the world’s third biggest economy.

‘Anointed’ Site Prime Minister Shinzo Abe said in June that his ruling party would seek to pass a casino-legalization bill in the fall. The current legislation calls for the government to create a legal framework for casinos within one year of the law’s enforcement. A subsequent bill detailing rules for casino operations would also need to be approved. Odaiba, a parcel of reclaimed land about five kilometers from the business district around the city’s main train station, was “anointed” as the location of a hoped-for casino by former Tokyo Governor Shintaro Ishihara in 1999, Defibaugh said. “The birthplace of the casino push was really in Odaiba,” he said. Odaiba’s lure includes shopping malls, the Tokyo Big Sight convention

centre, a 115-metre-tall ferris wheel and the futuristic headquarters of Fuji Television Network Inc., designed by Pritzker architecture prizewinner Kenzo Tange. Mitsui Fudosan, Japan’s largest property developer, has sought government approval for an entertainment complex and resort in Odaiba with construction firm Kajima Corp. and Fuji Media Holdings Inc., spokesman Yoshinobu Koriyama said by phone. The company has never portrayed the project as a casino development, he said. Ownership of the Odaiba site that’s open to development is divided among several companies, while the Tsukiji parcel is wholly owned by Tokyo’s government, Bowers said. Sole ownership could streamline efforts to build a resort, he said.

Skyscraper District “Land that’s owned wholly by the city that’s big enough may take less time to assemble than a piece of land that’s owned by multiple parties,” he said. Tsukiji is also more centrally located, near more train lines and adjacent to both Ginza and the Shiodome skyscraper district, where companies including Softbank and All Nippon Airways have their headquarters. It’s adjacent to the Hama Rikyu Park, one of Tokyo’s most visited traditional gardens. Ginza, with a commercial history dating back to the 1600s, is undergoing a renaissance of its own. In April, Mori Building Co., Japan’s biggest closely held developer by sales, and LVMH Moet Hennessy Louis Vuitton said they were part of a group that’s spending 83 billion yen to build an office and retail complex that will open in 2016 in the area. “Tsukiji is closer to town: It’s Ginza, basically,” said Kenji Okamoto, managing director for Japan of Spectrum Asia, a gaming consultant. “Odaiba sounds more like Disneyland: it’s out there, but you can have all the fun there.”

August 20, 2014

Greater China Xi to renew media groups President Xi Jinping said that China will build several new-type media groups that are strong, influential and credible. Xi made the remarks when presiding over the fourth meeting of the Leading Group for Overall Reform. He called on the nation to integrate traditional and new media to diversify its communication system. Traditional media and new media must complement each other and their integration should cover content, channels, platforms, operations and management, Xi said. Integration should be supported by technology and follow the rules of news communication and laws governing the development of new media.

Cutting rate minority warns on Chen Dongqi belongs to a minority that believes rate cuts are Xiaoyi Shao and Koh Gui Qing

Myanmar to strengthen China border-trade links Myanmar is implementing a new central economic zone in Muse, a border town in northern Shan state linking China’s Ruili of Yunnan province, to boost border trade at the most important crossing between the two countries, according to the project official saying yesterday. The new Muse Central Economic Zone, being established on over 120 hectares of land at a cost of US$51.54 million, comprises 18 estates including jade trading facilities, markets, shops, hotels, restaurants and housing complexes, said the official. The plan of setting up of the Muse central economic zone was approved by local authorities in early 2013.

Zhejiang sells municipal bonds China’s Zhejiang provincial government auctioned a total of 13.7 billion yuan (US$2.23 billion) of five-, seven- and 10year municipal bonds at yields of 3.96, 4.17 and 4.23 percent, respectively, traders said yesterday. It is the seventh time this year that a Chinese local government has issued bonds directly, without the Finance Ministry acting as a proxy. China announced in May that it would allow local governments to issue U.S.-style municipal bonds for the first time in an experiment to straighten out its messy state budget, and start the clean-up of its massive local government debt problem.

PBOC to drain 30 bln yuan China’s central bank will drain 30 billion yuan (US$4.88 billion) from the money markets through 14-day bond repurchase agreements yesterday, traders said. Maturing bills and repos will inject a net 51 billion yuan into the banking system this week. The People’s Bank of China (PBOC) conducted a net injection of 14 billion yuan into the banking system last week.

Heinz recalls infant food Ketchup maker H.J. Heinz Co has recalled some infant food in eastern China after it was found to contain lead in excess of the allowable limit, the company said on Monday. The move by Heinz comes after food safety regulators in eastern Zhejiang province said on Friday that they had found “excessive amounts of lead” in the company’s AD Calcium Hi-Protein Cereal. Heinz said it is recalling four batches of the product as a precautionary measure after a test found it exceeded the allowable limit for lead.

People’s Bank of China headquarters in Beijing

hina ought to loosen monetary policy further through “modest” cuts in bank lending rates and reserve requirements by next year to spur economic growth, a researcher at a government thinktank said. Chen Dongqi, deputy chief at the Academy of Macroeconomics Research - which is affiliated to

China’s top economic planner, the National Development and Reform Commission - said the Chinese economy is losing momentum as domestic demand softens. Although China is on track to meet this year’s economic growth target of 7.5 percent, Chen said surprisingly weak loans in July, when the amount of money flowing into the economy

hit a six-year low, were not to be shrugged off. “We should pay great attention to the sharp falls in the credit and financing figures for July. The shrinking amount of cash flowing into the economy will harm economic growth,” Chen told Reuters in an interview. “The window has been opened for

Inflows to Hong Kong ETFs soar The majority of the net inflows went into the CSOP FTSE China A50 ETF, which attracted an estimated 6.8 billion yuan

ffshore investors are rallying behind China’s undervalued equities by ploughing billions of dollars into Hong Kong’s exchangetraded funds denominated in the yuan currency. As a scheme to allow more foreign inflows into Chinese stocks draws near, fund managers are wagering on a sustained rebound for the Shanghai Composite Index after a prolonged four-year slump has opened up opportunities to buy on the cheap. “There were some switching from markets where fund managers had gained positive returns to places that they thought there could be more opportunities, and China was be one of them,” said Jackie Choy, an ETF strategist at researcher Morningstar. ETFs under the Renminbi Qualified Foreign Institutional Investor (RQFII) posted significant net inflows of 8.2 billion yuan (US$1.33 billion) last month, the highest since December 2012 and nearly doubling from June, according to Morningstar data. The majority of the net inflows went into the CSOP FTSE China A50 ETF, which attracted an estimated 6.8 billion yuan, followed by the Bosera FTSE China A50 Index ETF, which drew an estimated 2.4 billion yuan. A strengthening of the Chinese currency, which has gained 2 percent from 18-month lows hit in April this year, and a recovering economy, have also helped draw foreigners to these ETFs, analysts say.

The 2IFC tower hosts the Hong Kong Monetary Authority

Launched in 2011, RQFII enables financial institutions to use offshore yuan to invest in the mainland’s securities markets. Foreign investors, who cannot directly invest in mainland equities, have eagerly embraced the QFII and RQFII schemes to tap China’s onshore market. Chinese equity markets were among the worst performers in the

first half of this year. The Shanghai Composite Index dropped 3.2 percent, while the U.S. market was up 7 percent during the same period. However, the A-share index has rebounded by nearly 10 percent in the past month as investors prepared for the launch of the stock connect that is set to make a debut in October and speculate on price convergence of dual-listed shares. A-shares are

August 20, 2014

Greater China

Home-grown brands advised to be cutting-edge

deceleration warranted

cutting interest rates and the reserve requirement ratio (RRR),” he added. Chen is not alone in calling for looser policy, but he belongs to a minority that believes rate cuts are warranted. He declined to estimate how deep he thinks the cuts in interest rates and RRR levels should be, saying only that policy should be loosened incrementally to avoid having too much cash flow into the economy in one go. “To avoid pumping too much money into the economy too quickly, we should walk slowly in small steps, which means increasing the frequency of modest interest rate and RRR cuts,” he said. Such an approach would lead the public to think that monetary policy has changed from being relatively tight to becoming moderately loose, thereby encouraging firms and households to spend, Chen said.

A soft landing for property The economist’s call for rate cuts came after China’s economy showed signs of softening in July, when growth in investment, retail sales and bank lending were unexpectedly tepid. To re-invigorate the economy, China has relaxed monetary policy

since April by lowering the RRR for small banks to boost lending, easing controls in the property market, and accelerating the construction of some infrastructure works. A Reuters poll in July showed analysts were divided over whether China would cut the RRR in coming months. Half of the economists surveyed thought the RRR would be reduced by 50 basis points to 19.5 percent between October and March, and a vast majority thought interest rates would remain unchanged. Unlike some analysts, Chen was sanguine about the broader risks from China’s cooling property market, where prices fell for a third consecutive month in July. Strong housing demand should ensure that the downturn stays shallow, creating a “soft landing” for the sector, he said. “There is no big problem in the property market. It just takes time for the industry to get back to normal,” Chen said. After a strong 2013, China’s housing sector has cooled this year as prices and sales turned south, leading many analysts to warn that it poses the biggest risk to broader growth. Reuters

Most Chinese brands don’t have a clear image that stands out from the competition

hina’s time-honoured homegrown brands need to stay relevant, emotionally and culturally, to domestic consumers if they want to continuing growing in a fast evolving market, a marketing consultancy report said. These brands are some of the oldest in China and have a deep understanding of consumer tastes and needs, which means a competitive advantage to provide good products and services, said the Added Value consultancy, part of UK-based WPP, the world’s largest advertising group. The advantage of Chinese brands also lies in traditional Chinese culture or the heritage of a certain period of history, it said in the report released yesterday. Most Chinese brands, however, don’t have a clear image that stands out from the competition. They are not stylish or modern enough, so it’s difficult to attract younger consumers. Time is a double-edged sword. Although brand heritage can be important in terms of awareness and status, it is only half the story, the report said. It is equally important for a brand to keep in touch with changing times. Linking tradition with contemporary

themes ensures a brand move from “time-honoured” to “timeless”, it said. The report used Yunnan Baiyao, one of the country’s major pharmaceutical producers that sells traditional Chinese medicine, as an example. With deep roots in traditional Chinese medicine, the brand blazed new trails in oral care. It has shown how a time-honoured brand can ride the wave of consumer trends and build commercial success over time, the report said. The report also gave recipes for reviving China’s time-honoured brands. “The emphasis should be on staying relevant, emotionally and culturally, to today’s consumers.” China’s oldest brands need to keep up-to-date and reflect changing consumer tastes. They also need to realize how consumers are becoming more sophisticated. These brands really have a good opportunity to capitalize on the growing pride of China and the Chinese themselves. They are well placed to do this by leveraging their history and unique “Chinese-ness”, it said. To do that, they also need to evolve with the times, it added. Xinhua

Beijing OTC to add market-maker system There were some The new system, involving select brokerages, switching from markets will only be deployed in the Beijing market at present where fund managers had gained positive returns to places that they thought there could be more opportunities, and China Companies trading on 26 different was one of them

7,000

over-the-counter trading systems

Jackie Choy, ETF strategist, researcher at Morningstar

generally only available for purchase by mainland residents. Stock connect would allow mainland investors to trade shares in designated companies listed in Hong Kong, and at the same time let Hong Kong investors buy shares in Shanghai-listed firms.

Exhausted quotas Thanks to this surge in fund flows, the Hong Kong Monetary Authority (HKMA) has had to intervene in the foreign exchange market in recent weeks to protect the Hong Kong dollar’s currency peg with the U.S. dollar. The total injection of funds was around HK$75 billion (US$9.68 billion) since July 1, a large chunk of it due to capital inflows into markets. Reuters

hina’s “third board” overthe-counter (OTC) market in Beijing will implement a market-making system for trading shares on the exchange on August 25, the regulator announced, resolving a long-standing liquidity bottleneck that has stifled the development of OTC markets. The statement, published on the website of the National Equities Exchange and Quotations system yesterday, follows previous announcements that such a system would be implemented soon on the OTC board in Beijing. These reports have been accompanied by a spike in

transaction volumes on the exchange, according to data from ChinaScope Financial. The new system, involving select brokerages, will only be deployed in the Beijing market at present. Regulators have not said whether it will be extended to other OTC markets around the country. China has nearly 7,000 companies trading on 26 different over-thecounter trading systems around the country, including major cities like Tianjin, Shanghai and Chongqing and in smaller regions, but transaction levels have remained anaemic due to tight regulations, in particular on

how transactions are handled. One of the major investor complaints about China’s OTC markets has been the lack of a “market-making” mechanism, in which a broker serves to clear all transactions in a given stock, guaranteeing that there will be a buyer or seller for shares in the companies for which it makes the market. Without market makers, traders in a given stock risk being kept waiting to complete a transaction, which has deterred investors from trading in the small companies listed on the OTC boards in China. Market makers can secure an easy profit from the spread between bids and asks, but analysts note that managing a market requires a brokerage to maintain a deep liquidity pool and have solid risk management skills. Reuters

August 20, 2014

Greater China

More carbon permits for Guangdong market Most of China’s new CO2 markets handed out too many permits in 2013 The local government has not released the names of the facilities covered. According to the DRC note, electricity generators will receive 95 percent of the permits they are expected to need for free, while manufacturers will get 97 percent. Most of China’s new CO2 markets handed out too many permits in 2013, their first year of operation. In Guangdong, this led to prices dropping by almost a third to 41.50 yuan (US$6.74) in the weeks ahead of a compliance deadline. In the last two weeks, permits in the Guangdong market have traded around 50 yuan. Daily volumes have been around 10,000 permits, a significant uptick from the 2013 compliance year, when there were barely any trades going through at all. A second source at the local exchange said most of the trading is done by around 10 institutional investors that the government has allowed to join the market in a bid to boost liquidity.

No obligation

uangdong, the biggest of China’s seven pilot carbon trading markets, will this year hand out around 6 percent more emission permits to companies than in 2013, potentially aggravating oversupply that sent prices tumbling earlier this year. The market is meant to rein in climate-changing greenhouse gas emissions from power stations, cement factories, petrochemicals, and iron and steel producers emitting more than 20,000 tonnes of carbon dioxide each year. The market will cover 193 facilities this year, nine fewer than in 2013, who will be issued 370 million permits, the

provincial Development and Reform Commission (DRC) said in a note on its website on Monday night. In addition, 8 million permits will be set aside for auctions, and a further 38 million can be bought be new factories or held in reserves that the government can introduce to the market later if there is a severe shortage. The DRC note did not explain why the amount of permits had been increased, but an official with the China Emissions Exchange, which operates the permit trading platform in Guangdong, said there were some changes in the list of market participants.

193

facilities covered in Guangdong by carbon permits in 2014 “The amount of permits increased because companies brought into the scheme this year are bigger than those eliminated,” he told Reuters. He did not want to be identified as he is not authorised to speak with media.

Hoping to solve some of the difficulties the Guangdong market experienced in its first year, the local government has also removed an obligation for companies to buy 3 percent of their permits in government auctions. The mandatory auctions at a minimum price of 60 yuan for last compliance year sparked anger among local industry, and many initially refused to participate. For 2014, companies can choose whether to cover any shortage by buying in auctions or the secondary market, or cut their emissions. The government will hold four auctions ahead of the compliance deadline next June, the first due in September. The minimum price will start at 25 yuan in the first auction, climbing to 40 yuan in the final one.

Northeast rustbelt region to be polished The government will speed up the construction of railways, highways, airports, power grids and water conservation

hina has announced fresh policy measures to support the lagging north-eastern region, including quickening infrastructure investment and opening up state firms to private investment. Premier Li Keqiang has already pledged to provide more support for the northeast region, which is made up of the provinces of Liaoning, Jilin and Heilongjiang. The government will speed up the construction of railways, highways, airports, power grids and water conservation, as well as spend more on shanty town renovation, according to a guidance issued by

the cabinet on the central government website. Private investors will be encouraged to participate in infrastructure projects through public-private partnership (PPP) deals, and privately owned banks will be allowed to set up in the region, the cabinet guidance stated. Private investment will be allowed into state-owned firms when they restructure and state firms will use part of returns from their share transfer and asset operations to pay for “the necessary cost of reform”, it added without elaborating. Known as China’s rustbelt, the northeast was plagued

by widespread layoffs in the 1990s, when the government forced state factories to shut en masse to cull inefficient industry. The region enjoyed an economic boom in the past decade due to Beijing’s supportive policy and

increased demand for raw materials and machinery products, but the revival wobbled this year as China’s growth grinds towards a 24year low. The region faces new challenges “as the rate of economic growth has

Jilin’s economy expanded 6.8 percent

Reuters

continued to drop since last year and some industries have production difficulties,” the cabinet said. The government will encourage the region to embrace technological innovations, supporting new industries, such as robots, gas turbines and high-end marine engineering equipment. The region will step up trade and energy cooperation with Russia, Mongolia, Japan, South Korea and North Korea, it said. Of China’s 31 provinces and regions, the three northeastern provinces were among the six with the weakest economic growth. Liaoning’s economy grew 7.2 percent in the first six months, below the national average of 7.4 percent. Jilin’s economy expanded 6.8 percent, and a Heilongjiang official said the province was the worst performer in all of China, with growth likely to be under 5 percent. Reuters

August 20, 2014

Asia

Philippines jobless rate problem deepens It is, however, still below the record high of 34.4 percent unemployment rate of March 2012

ut of a population of 100 million, some 11.8 million Filipinos are still jobless and there is an increasing pessimism among them of finding gainful employment soon, according to a recent survey conducted by a reputable survey firm in Manila. The survey done by the Social Weather Stations (SWS) from June 27 to 30 showed that the jobless rate for the second quarter was 25.9 percent, barely changed from the 25.7 percent in the first quarter of the year, or 11.5 million jobless Filipinos. The latest figure, however, is still below the record high of 34.4 percent unemployment rate in March 2012. The definition of the SWS of joblessness covers respondents aged 18 and above who are without jobs at present and are looking for work. This excludes those not looking for a job such as housewives, students and retired or disabled persons. The government’s definition of unemployment differs from that of the SWS. The government’s Labour Force Survey (LFS), which includes persons 15 years and above who are not working, are looking for work and available for work, showed the jobless rate in April at only 7 percent, or 2.92 million Filipinos. The SWS said that if the availability requirement is included, the adult joblessness in June would still be at 15.2 percent, or an estimated 6.1 million Filipinos. Analysts here said that the unemployment problem in the Philippines could worsen after the Philippine government decided to repatriate thousands of overseas Filipino workers

(OFWs) from Libya, a country now wracked by lawlessness where rival militias, including Islamist groups, are battling for control of key population centres such as Benghazi and Tripoli. According to the Department of Foreign Affairs (DFA), they have already ferried some 800 Filipino workers from Libya to Malta where they will take a chartered plane for the trip to Manila. Some 400 workers have already arrived in Manila from Malta. The DFA said that they have decided to order the repatriation of all Filipinos from Libya after one Filipino

25.9 percent unemployed rate at 2014 2Q in Philippines Social Weather Stations survey

construction worker was beheaded and another female nurse was abducted and gang-raped. There are more than 10,000 Filipinos, mostly skilled workers, in Libya. Most of the Filipino migrant-workers, however, have decided to take their chances in Libya rather than return to the Philippines where there are no jobs, according to the DFA. Even the World Bank and the Manila-based Asian Development Bank (ADB) have cited the country’s joblessness and continued poverty despite a remarkable 7.2 percent growth in gross domestic product (GDP) last year.

In a recent report, the World Bank said the country’s economic growth has benefitted only the top 20 percent of the population, while almost a quarter of the population lives beneath the poverty line, earning less than 16,841 pesos (about US$386) a year. The World Bank said that the figure has remained almost unchanged since 2006, despite the growing economy. It said that a larger labour force may not be good for unemployment, which is already around 7 percent (the government figure) but still among the highest in Asia. Reuters

U.S. tornadoes take toll on QBE As insurance profit margin slips to 7.6 percent

ustralia’s biggest insurer QBE Insurance Group yesterday announced measures to raise up to US$1.5 billion after first-half profit dropped 18 percent due to higher pay-outs to U.S. clients. Hefty claims resulting from adverse weather in North America took their toll on QBE’s bottom line. The results show the high price QBE is paying for its foreign expansion in terms of earnings stability, even if some analysts expect it to pull ahead of domestic competitors like IAG in the long-term. QBE has completed more than 75 acquisitions in the past 10 years to expand to 50 countries.

It is Australia’s largest insurer by premium income and generates almost three quarters of its premiums abroad. About 30 percent of its premium income came from North America, which was lashed by severe storms in early June producing baseball-sized hail and tornadoes. In a bid to offload non-core assets, the company said it would finalise the sale of its central and eastern European operations and planned to sell part of its Australian and North American underwriting agencies in the second half. That includes sale of Underwriting Agencies of Australia, which it bought in 2008, and two body corporate

KEY POINTS QBE H1 net profit down 18 pct QBE says to sell shares in lenders’ mortgage insurer business brokerages acquired in 2004. QBE would retain the underwriting rights at these businesses. The sales are part of a raft of capital-raising measures including a US$750 million share placement

and a share offering of its lenders mortgage insurer business, which had US$1.2 billion in assets at the end of June. “These initiatives deliver significant additional cash and capital resources that will substantially improve the group’s financial flexibility and ability to better withstand a reasonable range of downside scenarios,” QBE said in a statement. QBE’s insurance profit margin slipped to 7.6 percent in the first half from 10.8 percent a year ago. It expects margins to rise to 8 percent to 9 percent by the end of the financial year. Reuters

August 20, 2014

Asia Vietnam’s top-10 trade commodities Vietnam earned US$83.98 billion from the exports, while it spent nearly US$82.39 billion for the imports, in the first seven months of this year, according to the latest report from the Vietnam’s Customs Administration yesterday. Of the total export value, the top-10 export commodities gained 58.34 billion dollars, or 69.4 percent. In the seven-month period, telephones and appliances took the lead with an export value of US$13.33 billion, an increase of 15.41 percent year on year. Textile and garments came second, earning US$11.5 billion, up 19.5 percent, followed by the footwear with US$5.78 billion and 22.46 percent, respectively.

Myanmar announces oil, gas fair Aimed at flourishing Myanmar’s energy sector, an oil and gas fair will take place in Yangon in mid October with focus on upstream oil and gas activities, according to the organizer of the event yesterday. As the sector attracts most foreign investors, the fair is seen as an event for more investors to explore Myanmar’s oil and gas market, creating opportunities for foreign investors to join the energy sector of the country and showcasing the latest foreign products and technology for local entrepreneurs.

Singapore companies delay payments Only 47.38 percent of the payments by companies in Singapore were made on time in the second quarter, down from 51.92 percent in the previous quarter, Channel NewsAsia reported yesterday. This was mainly due to gloomy economic growth, said the report, citing a survey by D&B Singapore, a commercial information provider in the country. The study monitored over 1.5 million transactions by companies through the Singapore Commercial Credit Bureau (SCCB), the report said. According to the study, the proportion of slow payments rose to 41.1 percent in the second quarter from 37.88 percent in the first three months.

S.Korea July producer prices up South Korea’s producer prices in July posted annual gains for a second straight month, the first time that has happened since May 2012 and a sign that they may have bottomed out. Yesterday, central bank data shows that on an annual basis, producer prices rose 0.2 percent in July, following June’s 0.1 percent increase. It had been 26 months since there last were two consecutive months in which such prices rose from a year earlier. Producer prices in South Korea had long been under pressure as the shocks from the 2007-2008 global financial crisis had kept a lid on demand for consumption and investment.

Japan eyes Indonesia, Vietnam Indonesia and Vietnam, where oil demand is growing 1-2 percent capacities to reduce expensive product imports

X Nippon Oil & Energy Corp is looking at building refineries and petrol stations in Indonesia and Vietnam as fuel consumption slumps at home, in what would be its first major downstream oil investment in Asia outside Japan. Japan’s biggest oil refiner sees the two markets as the most promising locations for investment due to their robust economic growth outlook and openness to foreign investment, the company’s president Tsutomu Sugimori said in an interview. Japan’s oil demand has dropped a fifth over the past decade, and is projected to fall another 8 percent in the next five years, a government energy committee forecast in March. Indonesia and Vietnam, where oil demand is growing 1-2 percent a year, are looking to beef up their refining capacities to reduce expensive product imports. Another Japanese refiner is already helping to build Vietnam’s second oil refinery. Still, neither of the countries is an easy place to do business for overseas investors. Indonesia hasn’t been able to agree terms with foreign partners on any proposed refinery project in the past 20 years, and access to Vietnam’s retail sector could be limited. “Indonesia has many requirements

such as a need to upgrade refineries, increase refining capacity and improve ageing facilities, and we are looking for an opportunity to enter,” Sugimori said. “We are looking to see if we can set up a complete refining and retail service station network.” JX has opened a Southeast Asia business development section in Singapore and has been looking at business opportunities in Asia

excluding China and South Korea. A company spokesman said its officials had been travelling to meet various industry and government officials in Southeast Asia, but declined to give further details. Sugimori and the spokesman provided no timeline or spending target for any potential investments. Indonesia and Vietnam, with populations of about 240 million and 90 million, respectively, have been

Arrium sees strong iron ore demand The company has been focusing on iron ore growth as its steel business remains under pressure from foreign competition

ustralian steel maker and iron ore miner Arrium Ltd posted an 83 percent jump in annual underlying profit as its iron ore output rose by more than half, and said it expected demand for seaborne iron ore to remain strong. The mining and materials group said it expects iron ore prices, which have fallen 31 percent this year, to improve as stocks of lower quality ore that have come on to the market following expansions by Fortescue Metals Group and Atlas Iron are absorbed. “The demand for seaborne iron ore is expected to remain strong due to continued growth in crude steel production in China and declining production of higher cost Chinese ores,” Arrium said, matching comments by the world’s top three iron ore miners, Vale, Rio Tinto and BHP Billiton. Arrium’s underlying net profit for the year ended June 30 of A$296 million (US$276 million) compared

KEY POINTS Annual iron ore production up 51 pct Iron ore cash costs at A$48 a tonne beat company forecast

with A$162 million a year ago. That was slightly ahead of the A$289.6 million average forecast of analysts surveyed by Thomson Reuters I/B/ E/S. Its full year dividend of 9 cents a share was also slightly higher than forecasts at 8.6 cents. Iron ore sales rose to 12.5 million tonnes, while iron ore cash costs fell

to A$48 a tonne compared with the company’s forecast of A$50 a tonne. It said it expects those costs to hold at around A$48-A$50 a tonne in the year to June 2015. Arrium last month posted record full-year shipments of iron ore with the completion of an A$86 million magnetite project. It said it expects to hit a production rate of about 13 million tonnes a year in the current quarter. The company has been focusing on iron ore growth as its steel business remains under pressure from foreign competition, due to the strong Australian dollar and high domestic costs against a backdrop of weak construction demand. Arrium said profit margins in the steel business were likely to remain under pressure in the first half of the current financial year, but it expected sales volumes to improve as infrastructure and residential construction pick up. Reuters

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August 20, 2014

Asia

for refining push

NZ budget surplus forecast trimmed

a year, are looking to beef up their refining

The economy was being driven by strong construction, migration, and high terms of trade but momentum slowed

Indonesia, Southeast Asia’s largest economy, could become the world’s biggest gasoline importer by 2018, according to Wood Mackenzie, and industry sources say it could hold a roadshow next year to attract investors to build a new refinery. Indonesia’s 1 million-barrels-perday (bpd) capacity can meet only two-thirds of its domestic oil demand, while Vietnam’s sole 130,000-bpd Dung Quat refinery meets about a third of oil product use there.

Prospects

courting foreign direct investment in their downstream oil sectors. Their economies are expected to grow more than 5 percent this year, and while oil demand growth has been sluggish, neither is self-sufficient in the refining sector. Vietnam’s motorcycle sales have taken off as its citizens get richer and hit 3.5 million units in 2012, making it the fourth-biggest market after China, India and Indonesia.

JX already operates lubricant oil plants in both nations and launched a diesel import and sales business in Indonesia this year. “Wanting to expand overseas their core competencies of refinery and retail sales business is natural,” given the state of Japan’s domestic market, said Reiji Ogino, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities. In Vietnam, JX had previously been looking to team up with stateowned Petrovietnam to expand the Dung Quat oil refinery, but gave up on the project last year as financial terms could not be concluded. Reuters

ew Zealand is likely to post smaller-than-expected budget surpluses over the coming four years as the economy is forecast to grow more slowly and the tax take shrinks, Finance Minister Bill English said yesterday. English said a surplus of NZ$297 million (US$251.26 million) was now expected for the year to June 2015 compared with NZ$372 million forecast in the budget delivered in May. Future year surplus forecasts were also reduced, while the government’s net debt level was expected to peak at a slightly higher level this year, with a slower rate of reduction in future years. The economy was being driven by strong construction, migration, and high terms of trade. However, the momentum has slowed, and growth was expected to be softer as commodity prices ease and higher interest rates start to impact on activity. “Some of the drivers of growth are expected to be a little stronger than forecast in the budget, while others have weakened a little,” English said in a statement.

The Treasury slightly trimmed its forecasts of growth, inflation, and expected a larger current account deficit. The revised forecasts were contained in the pre-election economic and fiscal update, a legally-required disclosure of the government’s financial position before a general election. He said the overall outlook for the economy remained strong but would be jeopardised by policies of rising taxes and significantly higher spending that some political parties were campaigning on. The centre-right National party has a strong lead in polls ahead of the Sept 20 vote, but under New Zealand’s proportional voting system would likely need the continued support of minor parties to command a majority. In a separate release the Debt Management Office reaffirmed its budget forecast of NZ$8 billion of bond issuance in the year to June 2015, with a new Sept 2035 inflation indexed bond to be launched through syndication by the end of the year. Reuters

Economy to shrink due to climate change A report noted that the Maldives and Nepal would be the hardest hit, losing up to 12.6 percent and 9.9 percent of their economies

limate change will slash up to 9 percent off the South Asian economy every year by 2100 if the world continues on its current “fossilfuel intensive path,” the Asian Development Bank (ADB) said yesterday. In a ground-breaking report titled “Assessing the Costs of Climate Change and Adaptation in South Asia,” the Manila-based lender said its forecast assumes a 4.6 degree Celsius rise in global temperatures. Given the uncertainties of climate change, ADB said there is a “slight chance” that annual losses will rise to as high as 24 percent by 2100. “South Asia’s economy is under serious threat and the lives and livelihoods of millions of South Asians inhabiting the region’s many mountains, deltas, and atolls are on a knife edge,” ADB VicePresident Bindu Lohani said in a statement. The report noted that the Maldives and Nepal would be the hardest hit, losing up to 12.6 percent and 9.9 percent of their economies, respectively, every year, by 2100. Meanwhile, Bangladesh would lose 9.4 percent, India 8.7 percent, Bhutan 6.6 percent, and Sri Lanka 6.5 percent.

South Asia’s economy is under serious threat and the lives and livelihoods of millions of South Asians inhabiting the region’s many mountains, deltas, and atolls are on a knife edge Bindu Lohani, ADB Vice-President

Asia Development Bank headquarters entrance at ADB Avenue in Manila, Philippines

If the global community does not tackle the problem head on, ADB said almost all areas of South Asia will suffer due to the rise in temperature. For one, annual rice production will drop by as much as 23 percent in Bangladesh, India, and Sri Lanka by 2080. Also, a 1-meter rise in sea levels would affect 95 million people and another

100 million when there are storm surges. Changes in rainfall pattern will make it harder to meet energy and water needs in the region and bring increased cases of dengue and diarrhoea. ADB said a concerted action to reduce dependence on fossil fuel and slow the rise in global temperatures would cut the projected financial and human toll

of climate change on South Asian nations. The report noted that if the rise in global temperatures is kept below 2 degrees Celsius under the socalled Copenhagen-Cancun agreement, then South Asia’s economy would only be reduced by 1.3 percent annually by 2050 and 2.5 percent by 2100. Xinhua

August 20, 2014

International Russia working on more retaliatory measures Russia is working on possible additional retaliatory measures in case Western nations impose new sanctions, President Vladimir Putin’s spokesman Dmitry Peskov said yesterday. “Various options are being worked out. We have repeatedly said that Russia is not an advocate of the sanctions rhetoric and did not initiate it. But in the event that our partners continue the unconstructive and even destructive practices, additional measures are being worked out,” Peskov said. He said the scope of further Russia sanctions would depend on the type of measures that Western nations may adopt in the future.

German central bank doubts economic outlook

German economic outlook would not be as bright as previously expected due to geopolitical tensions, although overall upward trend would not change, warned the German central bank Bundesbank. “The outlook for the German economy after mid-year has deteriorated due to unfavourable news related to international environment,” said the Frankfurt-based central bank in its monthly report. “The expectation that the cyclical trend would strengthen further in the second half of 2014, which underlying the spring economic forecast, was in question because of current indicators,” it said.

U.K. inflation rate declines The BOE kept its key rate at 0.5 percent this month Scott Hamilton

Bank of England

.K. inflation cooled more than economists forecast in July, giving the Bank of England room to keep its key interest rate at a record-low. The rate of price growth fell to 1.6 percent from 1.9 percent in June, the Office for National Statistics said yesterday in London. Economists had forecast 1.8 percent, based on the median of 32 estimates in a Bloomberg survey. Separate data showed pipeline inflation pressure eased, with factorygate prices posting the first annual decline in almost five years. The BOE kept its key rate at 0.5 percent this month and Governor Mark Carney said it’s not yet time to begin tightening policy. While Britain’s recovery is strengthening, supporting the case for withdrawing emergency stimulus, officials are trying to balance that against subdued earnings and inflation that’s below their 2 percent target. “With inflation under control for now, the BOE can keep any hikes gradual and allow the economy to keep growing strongly,” said Rob Wood,

an economist at Berenberg Bank in London. “Weak wage growth means the BOE now believes that unemployment can fall further without pushing up inflation.”

Clothes prices The biggest downward effect on the annual inflation rate last month came from clothes, due to an unwinding after an increase in prices in June, the ONS said. Consumer prices fell 0.3 percent in July from June, it said. Retail-price inflation, a measure used as a basis for the inflation-linked bond market and wage negotiations, slowed to 2.5 percent last month from 2.6 percent. That increase means regulated rail fares will increase by 3.5 percent on average next year under government rules that allow companies to lift ticket prices by 1 percentage point more than RPI. Chancellor of the Exchequer George Osborne, who faces an election in less than a year, changed the 2014 price increase to match RPI. While inflation is below the BOE’s

target, it continues to outpace wage growth, squeezing consumers. Earnings fell an annual 0.2 percent in the second quarter compared with a year earlier, the first drop since 2009. The BOE cut its forecast for wage growth last week and Carney said the weakness is adding to uncertainty about the outlook for spare capacity and inflation. In a sign that upward pressure on inflation may remain under control, the ONS said input prices fell 1.6 percent in July from June and dropped 7.3 percent compared with a year earlier. That’s the biggest annual decrease since September 2009. The biggest driver of the decline was crude oil. Factory output prices fell 0.1 percent on the month and the year. The annual decline was the first since October 2009. In a separate report today, the statistics office said annual U.K. houseprice growth slowed to 10.2 percent in June from 10.4 percent in May. Values increased 0.5 percent on the month. In London, annual price growth cooled to 19.3 percent from 20.1 percent. Bloomberg News

Maersk raises 2014 profit forecast

Poland’s jobless rate Second-quarter earnings before interest, tax, depreciation decreases during crisis and amortization rose 9 percent Poland is one of the only three European Union (EU) countries with a decreasing unemployment rate in 2007-2014, Poland’s Ministry of Labour and Social Policy reported Monday, quoting Eurostat figures. At the end of June 2014, over 25 million Europeans were jobless. In 2007-2014 the EU unemployment rate grew from 7.2 percent to 10.2 percent, according to Eurostat. Only three countries managed to reduce unemployment during the crisis, namely Poland, Germany and Malta, said Labour Minister Wladyslaw Kosiniak-Kamysz in a statement.

U.S. clears AstraZeneca over heart drug trial The U.S. government has cleared AstraZeneca Plc. over a major clinical trial used to win marketing approval for its important new heart drug Brilinta, following an investigation which had cast a shadow over its prospects. The drug maker said yesterday the Department of Justice (DoJ) was closing the probe into the 18,000-patient study and no further action was planned. AstraZeneca views Brilinta as a potential US$3.5 billion-a-year seller, but news last October that the DoJ was quizzing the company about the way it conducted the trial raised doubts over its medical value, causing sales to stall.

.P. Moeller-Maersk A/S raised its full-year profit forecast after the company’s containershipping line, the world’s largest, said earnings are rising because of higher freight volumes and lower costs.

We find it highly positive that they show clear commitment to return on capital and distribution of this to shareholders through share buybacks and dividends Frode Moerkedal, analyst, RS Platou Markets

Earnings excluding discontinued operations, impairment losses and divestment gains will total US$4.5 billion compared with a previous forecast of US$4 billion, Copenhagenbased Maersk said today in a statement. The stock jumped the most in a year after the company also said it’s buying back shares. Maersk Line, which transports about 15 percent of the world’s containers, has been battling industry overcapacity after a boom in ship orders coincided with the global recession, triggering the worst slump in prices for carrying cargo since containerization became global in the 1970s. The unit said today 2014 profits will be “significantly” above last year’s result of US$1.5 billion, compared with a previous forecast of a result “above” 2013’s level. The company will buy back shares for about US$1 billion within the next 12 months “due to the current strong financial situation,” Chief Executive Officer Nils Smedegaard Andersen said in the statement.

‘Highly positive’ “We find it highly positive that they show clear commitment to return

on capital and distribution of this to shareholders through share buybacks and dividends,” Frode Moerkedal, an analyst at RS Platou Markets, said in a report to clients, reiterating a buy recommendation on the stock. Second-quarter earnings before interest, tax, depreciation and amortization rose 9 percent to US$3.09 billion, beating the US$3.05 billion median estimate of four analysts surveyed by Bloomberg News. Net operating profit after tax at the Maersk Line container unit jumped 24 percent to US$547 million. Volumes increased 6.6 percent, while costs declined by 4.4 percent in the quarter. Maersk also raised profit forecasts for its oil-exploration and portterminal divisions. The oil unit, which posted a US$1.7 billion write-down on its Brazilian assets last month, will report an underlying profit in 2014 in “line with” last year’s US$1 billion, compared with a previous forecast for declining earnings, Maersk said. Profit will be helped by higher oil prices, which Maersk says it sees at US$108 per barrel compared with US$104 a barrel previously. Bloomberg News

August 20, 2014

Opinion Business

wires

Sanctions blowback

Leading reports from Asia’s best business newspapers Marcel Fratzscher

President of DIW Berlin, a research institute and think tank, and a professor of macroeconomics and finance at Humboldt University

Foreign Ministers Pavlo Klimkin of Ukraine (L-R), Laurent Fabius of France, Frank-Walter Steinmeier of German, and Sergei Lavrov of Russia meet to confer about the situation in Ukraine in Berlin, 17 August 2014

ERLIN – With the crisis in Ukraine intensifying, the United States and the European Union are locked in a battle of wills – and sanctions – with Russia. Indeed, in retaliation for the intensification of Western financial sanctions, Russia has announced a ban on food and agricultural imports from the US and the EU. But the real threat to the West lies in the potential impact of a financial crisis sparked by its own sanctions against Russia. Consider Russia’s 1998 financial crisis. In August of that year, then-President Boris Yeltsin declared, “There will be no devaluation – that is firm and definite.” Three days later, the ruble was devalued, and Russian financial markets went into a tailspin. With capital pouring out of the country, the Russian government was forced to restructure its debt, and the economy entered a deep recession. Though Russia was relatively insignificant financially, its crisis had far-reaching consequences. Among the worst affected was Argentina; the Russian crisis exacerbated a decline in investors’ confidence in emerging markets that culminated in Argentina’s sovereign default less than four years later. Even the US and Europe were not immune, with the collapse of the major hedge fund Long-Term Capital Management (LTCM) fuelling anxiety about the viability of many other financial institutions. Today’s financial dramas bear a striking resemblance to this experience. Argentina has technically defaulted; American and European financial institutions and markets are jittery; and Russia is promising that the sanctions it faces will have no impact on its economy. The most obvious similarity is

Russian President Vladimir Putin’s assertions that his country can weather any and all Western sanctions. That may be wishful thinking. In fact, barring most major Russian banks from operating freely in Western capital markets could affect the entire Russian economy, not just the banks themselves. And the central bank’s decision to raise interest rates to buttress the ruble may lead to much tighter credit conditions for companies and households, pushing the Russian economy into recession this year and next. The problem with financial sanctions is that no one knows precisely how they will unfold – especially in an economy as large as Russia’s. If they prove to be more effective than intended, they will pose a serious threat to global financial stability. The restrictions on Russian banks operating in Europe and the US appear modest. The banks can still access money markets, cover their short-term financing needs, and count on the central bank for support. But investors’ risk appetite could easily shift, spurring them to withdraw large amounts of capital. Though Russia’s public debt is modest, its foreign-exchange reserves large, and its economy much stronger than in 1998, once the herd is running, it is impossible to stop it. Europe’s banks have extended almost €200 billion (US$268 billion) in loans to Russian institutions and firms, and hold a significant share of Russia’s eurodenominated assets, making them especially vulnerable. Moreover, the eurozone’s current stress tests may well reveal significant capital holes in major European banks in the coming months. Having just emerged from a deep recession, financial disruptions could easily cause Europe to slide

The financial sanctions on Russia are not targeted, temporary, or fully credible. If they affect Russia’s entire economy, hitting ordinary citizens the hardest, popular support for Putin’s regime may solidify further

back into recession, particularly given the eurozone economy’s close links to Russia via trade and energy. Compounding the problem, no one truly understands the precise connections among Russian and European institutions and markets. The collapse of LTCM in 1998 was completely unexpected. Is Europe today prepared to deal with a similar failure of an important financial institution? The financial sanctions on Russia are not targeted, temporary, or fully credible. If they affect Russia’s entire economy, hitting ordinary citizens the hardest, popular support for Putin’s regime may solidify further. Of course,

an economic slowdown could erode Putin’s popular support, which is based on the gains in living standards made under his leadership. In that case, Putin’s response could be even more damaging. Another problem is that implementing sanctions that cannot be reversed quickly removes the incentive for Russia to return to the negotiating table, especially because the threat of an escalation of financial sanctions lacks credibility, given the risk to European and US financial stability. Once these sanctions begin to bite, no one can say who will be hurt – or how badly. And, as Russia’s experience in 1998, and Argentina’s after 2002, demonstrated, the process of restoring confidence among market participants is a long and painful one. These concerns do not mean that the US and the EU should not impose sanctions on Russia for its illegal annexation of Crimea and continuing efforts to destabilize eastern Ukraine. But sanctions that hit the real side of the Russian economy – such as energy, natural resources, and the military – could provide a better solution. Though such sanctions may not work as quickly, they would be targeted, temporary, and credible, enabling the US and Europe to control –and adjust– the impact on the Russian leadership and economy. In any case, US and European leaders must recognize that all sanctions will have costs – many of them unexpected – for both sides. If they are not willing to risk global financial stability in an unpredictable game of chicken with Putin, perhaps it would be wise to re-think the composition of the sanctions that they impose. The Project Syndicate 2014

August 20, 2014

Closing Bank of China hit by bad loans

Air pollution worsens in Chinese skies

Bank of China Ltd. reported its slowest profit growth since the first quarter of 2013 after the lender set aside more money to cover costs tied to bad loans. Net income rose about 8.5 percent to 44.4 billion yuan (US$7.2 billion) in the three months ended June 30 from 40.9 billion yuan a year earlier, based on half-year figures released by the Beijing-based company yesterday. That compared with the 44.9 billion-yuan median of 10 estimates surveyed by Bloomberg. Bank of China almost doubled provisions for potential bad debt to 27.8 billion yuan in the first half from a year earlier.

Air pollution across 74 major Chinese cities worsened in July compared to last year, according to government data released yesterday, showing that the government is having trouble shaking its smog problem. The 74 cities struggled with pollution on 26.9 percent of the days in July, up from 19.5 percent a year ago, data on the Ministry of Environmental Protection website said. The air was worst in northern China, where Beijing, Tianjin and seven cities in Hebei province made the list of the 10 worst cities. Air pollution was judged high on 57.4 percent of the days in July, up from 51.4 percent last year.

Rain complicates grain stocks management The rains may boost crops as the government tries to reduce a glut that swelled to the equivalent of half a year’s consumption and toughens inspections to limit the influx of cheaper supplies

ain is forecast to bring relief to drought-stricken parts of China, complicating government plans to trim stockpiles that are estimated to be the world’s largest. As much as 60 millimetres are forecast for the Northern China Plain and the provinces of Jilin and Liaoning by August 24 and more rain is expected in the following three days, the National Meteorological Centre said on its website yesterday. The drought in the two provinces is the worst since 1961, the Ministry of Water Resources said August 13. The rains may boost crops as the government tries to reduce a glut that swelled to the equivalent of half a year’s consumption and toughens inspections to limit the influx of cheaper supplies from abroad. U.S.grown alfalfa, used to feed dairy cattle, is the latest on a list of restricted agricultural imports including barley, sorghum and corn products. “It’s still more than a month from harvest, so if we get decent rain, crops can make some recovery if they’re not dead already,” Zhang Zhixian, an analyst at Cngrain.com, a state- affiliated researcher, said by

phone from Shanxi province. “We don’t know if the national output overall will rise or fall because the droughts have been regional, but we will certainly still have huge supplies in this country.” Premier Li Keqing called for

drought relief measures for the country’s northeast, which he said is a key area for the autumn crop harvest, the water resources ministry said on its website August 13. Stateowned Xinhua News Agency warned the drought could end the country’s

It’s still more than a month from harvest, so if we get decent rain, crops can make some recovery if they’re not dead already

11 years of grain output growth. China began selling corn from state reserves in May, trying to reduce a load that grew to as much as 100 million metric tons, according to Ge Huanna, a Beijing-based analyst at Wanda Futures Co. The country consumes about 212 million tons annually and may have stockpiles of 77 million by the end of the 20132014 marketing year, accounting for 45 percent of the global total, according to the U.S. Department of Agriculture. A month before harvests begin across China, officials in the Northeast Plain, the top growing region that’s more than twice the size of Iowa, have only just begun releasing portions of 2013’s crop that it bought from growers. The surplus from last year may be as much as 60 million tons, enough to feed the country’s pigs and chickens for four months, according to Yigu’s Dai. The province of Inner Mongolia sold 88 percent of the 151,192 tons of corn from the 2013 harvest it offered last week, according to a statement on the National Grain & Oil Trade Centre.

China premium The government began buying corn from farmers in 2008 to boost incomes and raise the country’s agricultural self sufficiency, offering prices that rose 50 percent in the five years to 2013, according to statements on the websites of the National Development and Reform Commission. Farmers in China responded by switching to corn from soybeans, cotton, tobacco and other coarse grains. Output surged 43 percent over that period to 218 million tons last year, according to the USDA.

Zhang Zhixian analyst, Cngrain.com

Bloomberg News

JD sells 570,000 smartphones in 5-day promotion

Japan to resume Fukushima rice exports

hina’s second-largest e-commerce company JD.com sold 570,000 smartphones in a fiveday promotion offered exclusively on Tencent Holdings Ltd’s Mobile QQ, the two companies said yesterday, to show their partnership has paid off. Investors have scrutinized JD and Tencent, China’s biggest mobile gaming and social media company, for signs of benefits from a US$215 million partnership deal, in which Tencent took a 15 percent stake in JD. JD aimed to gain a potent ally in its battle against Chinese e-commerce leader Alibaba Group Holding Ltd. The two companies have touted the potential for selling JD’s inventory, including big-ticket electronic devices, via Tencent’s popular mobile apps such as QQ and WeChat. During the August 8 to 12 promotion, the Nokia XL 4G smartphone was sold only through a link within the Mobile QQ app. More than 210,000 people ordered the smartphone on the first day, JD said. The smartphone, offered by the Finnish handset maker following its acquisition by Microsoft Corp, is now widely available in China including on Alibaba’s Taobao market. Reuters

BHP unveils spin-off

apan is to restart exports of rice grown in Fukushima for the first time since foreign sales were halted due to fears of contamination by the nuclear disaster there, officials said yesterday. The National Federation of Agricultural Cooperative Associations (Zen-Noh), a major wholesaler of Japanese agricultural products, said it will send 300 kilograms (660 pounds) of the grain to Singapore. Its provenance will be marked and it will not be mixed with other produce, an official said. The rice was grown some 60-80 kilometres (37-50 miles) west of the crippled Fukushima nuclear plant, he said. It will be the first time rice grown in Fukushima prefecture -which hosts the battered Fukushima Daiichi nuclear power plant- has been sold abroad since fiscal 2012 when the region exported 17 tonnes (2,420 pounds) to Hong Kong, a Fukushima official said. “Despite our efforts at explaining the safety of Fukushima-made farm products, up until now we have not been able to find retailers who wished to trade rice grown in Fukushima,” said an official for Zen-Noh. AFP

op global miner BHP Billiton will spin off a roughly US$14 billion company to shareholders, mostly offloading assets it acquired in its 2001 merger with Billiton, as it looks to focus on its strongest businesses. Chief Executive Andrew Mackenzie, in the top job for just over a year, said the move to simplify BHP to iron ore, copper, coal and petroleum would rev up growth in cash flow and boost returns. “By concentrating on what we do best, the development and operation of major basins, we can improve our productivity further, faster and with greater certainty,” Mackenzie said in a statement. The plans were unveiled as BHP reported an 8 percent rise in second-half underlying attributable profit to US$5.69 billion, according to Reuters calculations off the full year result. That was just below forecasts for a second-half profit of US$5.94 billion, according to Thomson Reuters Starmine’s SmartEstimate. However, the miner held off announcing a highly anticipated buyback, disappointing investors who had been hoping for a buyback of up to US$8 billion, according to UBS estimates. Reuters