Macau Business Daily, Sept 4, 2014 by Business Daily

MOP 6.00 Closing editor: Sara Farr Number 619 Thursday September 4, 2014

Publisher: Paulo A. Azevedo

Back to the drawing board

Year III

t’s been a hot potato. Urban Planning Committee members are finally discussing it. Even though the proposed amendment to the 1995 Taipa North development plan was first put on the table last year. The plan may not be perfect, they say. But it’s a start. Compulsory compensation of landowners would be a last resort, it’s claimed PAGE

www.macaubusinessdaily.com

Case in limbo The conflict is deepening. Ng Man Sun, the man behind gaming investor Amax International Holdings Ltd, has warned his former partner and girlfriend against selling Imperial Palace Hotel in Taipa. A local Chinese newspaper says he claims it would violate an injunction issued by the East Caribbean Supreme Court

Macau’s AXA gross premium MOP474.9mln in 2013 Page 2

Page 5

Jangho wins Parisian VIP rooms bid

Operational loss Flight reduction SmarTone Mobile Communications has posted a HK$17 million operational loss. This is for the 12 months ended June 30. Roaming business has plummeted. But its Macau operations returned revenues of HK$753.6 million. Up 2.5 percent over that of the previous year Page 3

Casting the runes The gaming market is under fire again. Analysts say it could shrink a further 5 percent after 2015. The VIP segment is particularly vulnerable. The seers say Macau faces tougher regional competition from a number of jurisdictions. The Philippines has been singled out for its quality product

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AirAsia Zest has reduced the number of flights between here and Manila. The budget airline’s ‘network adjustment’ will see it revert to three flights a week. CEO Joy Cañeba tells Business Daily that China is critical for the airline’s expansion. Overall passenger throughput between Macau and the Philippines has dropped in the past two years according to the Civil Aviation Authority of Macau

HSI - Movers September 3

Name

Page

%Day

Henderson Land Dev

6.18

Industrial & Comme

4.55

China Resources Lan

4.19

China Petroleum & Ch

4.09

China Construction B

4.05

Cathay Pacific Airwa

-0.14

China Resources Ent

-0.47

Belle International

-0.58

Sands China Ltd

-0.72

China Unicom HK

-2.55

Source: Bloomberg

I SSN 2226-8294

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September 4, 2014

Macau Administrative reform essential, says legislator

L Macau’s AXA posts gross premium of MOP474.9mln in 2013

he Macau branch of AXA China Region Insurance Company (Bermuda) Limited registered a gross premium of MOP474.9 million at the end of 2013. Its net income was of MOP89.6 million, while total profit reached MOP102.8 million at the end of last year. The company announced its 2013 final year results in a report published in yesterday’s Official Gazette. Official figures by the Monetary Authority of Macau (AMCM) show that in the first six months of this year the Macau branch of AXA China Region Insurance Co

(Bermuda) Ltd registered gross premiums of MOP227.1 million, ranking fourth in the registered insurance companies here. China Life Insurance (Overseas) Co Ltd recorded gross premiums of MOP1.4 billion, followed by AIA International Ltd with gross premiums of MOP973.7 million. Next up was MassMutual Asia Ltd with gross premiums totalling MOP245.4 million. Between January and the end of June, some 11 insurance companies were registered in Macau. All of these registered gross premiums of MOP3.3

billion patacas combined. For the whole of 2013, the 11 insurance companies registered and operating here had combined gross premiums of MOP4.96 billion. AIA International Ltd led the market with gross premiums of MOP1.8 billion, followed by China Life Insurance (Overseas) Co Ltd with gross premiums of MOP1.3 billion. AXA China Region Insurance Company (Bermuda) Ltd ranked third, just ahead of MassMutual Asia Limited whose gross premiums reached MOP456.9 million. S.F.

egislator and member of the Executive Council Leonel Alves says there’s a “certain expectation” of Chief Executive Fernando Chui Sai On’s new administration, and emphasises the need for an “essential” administrative reform. “There have been announcements on a reform of the public administration. It seems to me that this is an essential step for Macau to achieve its socio-economic development goals,” Mr. Alves is quoted as saying by Lusa news agency. After being re-elected for a second five-year term in office Chui Sai On spoke briefly about an administrative reform as one of his biggest priorities for the next administration that is sworn-in in December. So far, there are no details on this administrative reform. All that is known is that the Chief Executive plans to put some of the jurisdictions under the same secretary in order to increase “efficiency” and avoid having two people carrying out the same duties.

One example he gave was that of tourism, which he said falls under the secretary for social affairs and culture and could soon fall under the secretary for economy when his new administration takes office at the end of the year. Mr. Alves is also quoted as saying that there is an “overall feeling” that there is no need for change to the current Chui Sai On administration, even though the names of his secretaries will only be announced next month. “The expectation is for there to be a good administration that can help the Chief Executive implement improved measures in a timely manner. It seems to me that there’s an overall expectation to see new faces in the new [administration] team. It’s a general feeling,” he is quoted as saying by the Portuguese news agency.

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September 4, 2014

Macau

Taipa North discussion gets under way The controversial amendment to the Taipa North development plan proposal is now being discussed for the first time by the city’s Urban Planning Committee Kam Leong

kamleong@macaubusinessdaily.com

he Urban Planning Committee yesterday discussed for the first time the amendments to the Taipa North development plan proposed at the end of last year. Committee secretary Lao Iong, remarked that the new proposal may not be “perfect”. Last December, the government proposed amending the Taipa North plan implemented in 1995. The proposal allows landowners of the area to increase the plot ratio and raise the height of their developments to between 45 and 90 metres. The plan involves four parcels of land, which are recognized as idle. They are, namely, the land near Caminho das Hortas, Cheok Ka Village, the land near Avenida Dr. Sun Yat Sen and the land near Rua da Madeira. The government expects to resolve the problem of idle land with the new proposal. However, Mr. Lao, who is also the head of the urban planning department in the public works bureau, admitted that it is difficult for the government to speed up the development of the area as half of the plots of land are privately owned. The new plan, if successfully

implemented, may offer more housing units for the public. According to Mr. Lao, a total of 10,800 units could be built for some 36,500 residents, supposing all flats are T2 type. Meanwhile, 4,400 such units have already been built for public housing in Edificio do Lago, while some 5,400 units will be allocated for private housing and the remaining 1,000 granted for land reserve. In addition, the secretary said that the land tenants will have to provide part of its developments gratuitously to the government for public and social facilities as well as public land reserves. To return to such arrangements, the government will allow developers to build their car parks in the basements, which will not be calculated in the plot ratio. However, all new developments will have to follow the ‘daylighting’ rules, according to Mr. Lao.

Land expropriation – the final step Some Committee members doubt whether the government has measures to execute the plan if some owners insist on not cooperating. Mr. Lao replied that the

government may have to expropriate such parcels of land from tenants if such a scenario unfolds. “Regulations on expropriations are for government to use in the execution of some planning, basic facilities and city building. [It is] the very final and reluctant [step],” he said. He explained that the compensation for owners would not be the responsibility of the Urban Planning Committee, as stated in the regulations of expropriation.

Denial of harming landlords’ benefits Meanwhile, some members of the Committee think that the government may harm the benefits of tenants by requesting them to provide part of their land for the government to build public facilities. Mr. Lao declared that the plan has its equity principle. He mentioned that as the government is willing to increase the plot ratios of future developments it actually means that the buildable gross area will also increase. In addition, he said that it is hard to predict if owners will oppose the plan or not.

“We don’t know if they’re really not willing to accept the new plan. However, we know that as they have applied to the rules [plan], it means that they may be interested and they will calculate [the benefits of the plan] themselves,” he said. He also said that the government will observe the situation and will conduct another review should the plan not be as effective as expected. It was once suspected by the public that amendment to the Taipa North urban development plan would allow the incumbent Chief Executive to transfer benefits to businessmen via the plan as the government rushed to announce the new plan before the urban planning law came into effect in March this year. However, the government said that all land in the Taipa North area will have to follow the new urban planning law as well as that of the land law. In addition, every drawing would require the approval of the Urban Planning Committee. In yesterday’s meeting of the Committee, in addition to the four parcels of land in the Taipa North plan, members discussed six other parcels of land.

SmarTone Macau posts HK$17 million operation loss Mobile service provider SmarTone’s operations here continue to suffer from a roaming hit Stephanie Lai

sw.lai@macaubusinessdaily.com

eclining contributions from roaming business has handed SmarTone Mobile Communications (Macau) Ltd an operation loss of HK$17 million for the year ended June 30 this year, the firm’s parent declared in its annual result filed with the Hong Kong Stock Exchange yesterday. For the year ended June 30, the Macau operations of Hong Kong-listed SmarTone Telecommunications Holdings Ltd reported an operating loss of HK$17 million when compared with the operating profit of HK$23 million of the previous financial year. The loss was due to ‘lower contribution from roaming business,’ SmarTone said in the annual result filing. For the previous financial year, SmarTone had already called the declining contribution from roaming service the reason for its two-thirds

decline in operating profit. Following a reduction in roaming charges for voice calls and text messages between mainland China and Macau in late February last year, the three telecommunication

operators in the city, including SmarTone, further reduced roaming charges on August 23 – a time when the Bureau of Telecommunications Regulation said the cutdown in roaming charges

implemented by each company would be no less than 13 percent. SmarTone Macau’s earnings before interest, taxes, depreciation and amortisation for the year ended June

30 reached approximately HK$47 million, a decline of 46 percent from the HK$87.5 million registered in the previous financial year. Revenue from Macau operations was reported at HK$753.6 million, up by a slight 2.5 percent from a year ago, the firm’s parent announced. SmarTone’s operations here accounted for 5.7 percent of SmarTone’s overall revenue at HK$13.24 billion, which is up 10 percent. The group-wide revenue comprises a 22 percent increase in handset and accessory sales but was partly offset by a 4 percent decline in service revenue, driven by lower mobile service revenue, roaming revenue and the continuing scale-down of wireless fixed broadband business in Hong Kong. The Hong Kong-listed telco posted net profit at HK$537 million, down 36 percent year-on-year.

September 4, 2014

Macau

AirAsia Zest reduces Manila-Macau flights The low cost carrier has cut its daily Manila-Macau flights to three times a week due to under-utilised seating capacity between the two cities Stephanie Lai

sw.lai@macaubusinessdaily.com

ow cost carrier AirAsia Zest reduced the frequency of its flights for the Macau-Manila run from daily to three times a week in mid-August, an adjusted schedule that is likely to remain for the rest of the year as part of its regional flight “network adjustment”, the carrier told Business Daily. AirAsia Zest, the merger of budget carrier giant AirAsia and Zest Airways, returned to its old schedule of running flights between here and Manila every Tuesday, Thursday and Saturday from August 15. Chief executive officer of AirAsia Zest, Joy Cañeba, explained to Business Daily that the reduction in flight frequency evolved as part of the carrier’s “network adjustment”, with AirAsia Zest launching more domestic and regional flights. “We returned to the original three times weekly schedule or every Tuesday, Thursday and Saturday on August 15 [and from that date onwards] this year as part of network adjustment,” Ms. Cañeba said in an email statement. “It was during this period when we added new flights to Incheon [South Korea], increased our domestic routes and are now looking at opening direct flights to China from Kalibo, gateway to the popular island resort of

Boracay aside from our daily Manila-Shanghai route… China is an important market for us to grow and expand.” Currently, AirAsia Zest has a fleet of 14 airplanes, all the A320 Airbus, the carrier told us. The company originally expected to secure 18 airplanes for its operations this year, Business Daily learned. For AirAsia Zest, the decision to make daily flights between here and the capital city of the Philippines starting from July was “a response to increasing demand”, Ms. Cañeba said. The Civil Aviation Authority of Macau told us that they have yet to receive any formal application from

AirAsia Zest’s return to the old flight schedule. The Authority also noted that it has not received any application from AirAsia Zest to adjust its flight frequencies for the “winter schedule” – spanning end-October to end-March. When asked if the shift in flight frequency was primarilyly due to a demandside factor, AirAsia Zest replied that they could only answer upon releasing the analysis of the data comparison on passenger load factor of the past two months. The passenger throughput between Macau and the Philippines has actually dropped in the past two years:

in 2012, some 206,688 flight passengers travelled between Macau and the Philippines, a 5.5 percent fall compared to the year prior; last year, the flight passenger volume for the route further dropped by a year-on-year 7.6 percent to 190,910 passengers, data from the Civil Aviation Authority of Macau shows. Nevertheless, in midJune the civil aviation authorities from Macau and the Philippines signed a memorandum that allowed the seating capacity for carriers to be raised from the weekly 4,500 seats for Macau-Manila route to 7,020 seats, an expanded capacity that roughly equates to five flights a day. While the increased seating capacity sought to catch the “potential growth” of visitation between Manila and here, as the Philippines’ Civil Aeronautics Board told us in June, the present utilisation of the ManilaMacau route is only 4,500 seats per week, according to the Civil Aviation Authority of Macau. At present, AirAsia Zest’s rival low cost carrier Cebu Pacific and legacy carrier Philippines Airlines also run the Manila-Macau route; the former operates flights between the two cities on a daily basis.

Jangho wins LT Game, IGT announce ‘total casino solution’ Parisian VIP rooms bid

Corporate

International gaming companies LT Game (LTG) and International Game Technology (IGT) have teamed up to jointly exhibit and unveil a brand new ‘Total Casino Solution’ concept at this year’s Macau Gaming Show to be held between November 18-20 at The Venetian Macao. ‘When you come to our gigantic 1,440 sq. m. booth, you will feel like you’ve stepped into a fully operational casino, complete with slot machines, live table games, electronic table games, and cash handling and casino management systems,’ a joint statement from the companies said. LT Game is one of the major gaming and casino providers in Macau and the Asia Pacific region. International Game Technology is a Nevada-based company specialising in the design, development, manufacturing, sales and distribution of gaming machines and network system products internationally, as well as online and mobile gaming solutions for regulated markets.

hanghai-listed Jangho Group Co Ltd has announced that its local subsidiary company, Sundart Engineering Services (Macau) Limited, has won the bid for the domestic renovation works of the Parisian Macao’s VIP rooms for all floors from the 30th to 37th. The Beijing-based builder informed the Shanghai Stock Exchange that its Macau subsidiary company had been awarded the contract valued at 341 million patacas (US$43 million) by Venetian Cotai Limited. The contract, according to the builder, would amount to 2.2 percent of its 2013 annual sales income. The project is estimated to take eight months to complete. The company will

Macau may relax use of in-flight gizmos Relaxing the use of handheld electronic products during a flight is a direction that the Civil Aviation Authority of Macau is working on as it currently reviews local air navigation regulations in other jurisdictions. The decision will “follow the global trend” on the easing of handset use in-flight, the Authority told Business Daily. The relaxing of use of gadgets on planes will translate into a set of guidelines to be sent to the carriers, the authority additionally noted. While the completion of the local aviation safety rules review has yet to be announced, the Civil Aviation Department of neighbouring Hong Kong announced on Tuesday the easing of restrictions on using mobile gadgets on planes, thus passengers on Cathay Pacific and its subsidiary Dragonair will be able to use smartphones, e-readers and tablets in the air – although these devices will still have to be kept in flight safe mode in order not to transmit signals.

be in charge of the work on the superior suites, corridors and elevator lobbies of the eight floors of the ongoing Cotai project of Sands China Ltd. In addition, the Beijing builder signed a contract with Galaxy Entertainment Group Ltd last July to build the tower façades of Galaxy Macau’s second phase, worth some 381.9 million patacas. Last June, Melco Crown Entertainment Ltd invited the company to assume charge of the curtain wall works in City of Dreams, a responsibility it also secured for Marina Bay Sands’ integrated resort in Singapore. The Parisian Macao - a Phase III project by Sands China on the Cotai Strip - was given the go-ahead by the Macau Government to resume construction last week following its suspension in June. The project, worth 21.6 billion patacas, was halted following an on-site accident which led the government to demand the operator suspend work and improve safety standards. K.L

September 4, 2014

Macau Amax boss warns former partner against selling Imperial Palace Amax boss Ng Man Sun has warned former partner Chan Mei Fun not to sell Imperial Palace, saying that such an act would violate violate a filed injunction Stephanie Lai

sw.lai@macaubusinessdaily.com

aming investor Amax International Holdings Ltd boss Ng Man Sun has warned his former partner and girlfriend Chan Mei Fun against selling the Imperial Palace Hotel in Taipa, known previously as New Century Hotel, saying that any such sale would violate the injunction that the East Caribbean Supreme Court issued in late March this year. In a notice published in the Chinese-language newspaper Macao Daily News yesterday, Mr. Ng mentioned a recent application delivered to the Court of Second Instance here that requested to review and confirm the injunction issued by the East Caribbean Supreme Court on March 27 – a court order that sought to ban Mr. Ng’s former partner Chan Mei Fun, also known by her Putonghua-derived name Chen Mei Huan, from selling Imperial Palace in ‘any formats’. The injunction, claimed Mr. Ng in the newspaper notice, was recognised as a final order from the East Caribbean Supreme Court on April 21. The injunction also sought to ban any transfer of shares in Macau Hotel Developers Ltd (known as Empresa Hoteleira de Macau Lda) arranged by Peckson Ltd or Ms. Chan, Mr. Ng wrote in the notice. Peckson Ltd is a BVI-registered owner of Empresa Hoteleira de Macau Lda, the Macau registered operator of Imperial Palace. The newspaper announcement

is the extension of a legal conflict between Mr. Ng and Ms. Chan over control of Imperial Palace, following a decision of the Eastern Caribbean Supreme Court last year that rejected Mr. Ng’s bid to wrest control of the Taipa hotel. The hotel venue hosts Greek Mythology Casino, which operates under a gaming concession of Stanley Ho Hung Sun’s Sociedade de Jogos de Macau SA. Mr. Ng argued in court in the BVI last year that the transfer to Ms. Chen in 2011 of Peckson shares was only meant as a temporary measure. The reason, the court was informed by Mr. Ng’s side, was that the couple had planned to build a casino resort in Cotai. Ms. Chen was said to be in good standing with influential people in mainland China. But for the venture to be approved Ms. Chen needed to show she was independently wealthy. The shares in Peckson were said to have a face value of only US$40,000 but represented at least HK$720 million (US$93 million) in value relative to the HK$900 million Mr. Ng had paid to acquire Empresa Hoteleira de Macau in 1996. However, the BVI court judge rejected Mr. Ng’s claim, saying it was clear from documentation presented to the court that the transfer of the controlling shares had taken place. Following the failure of claims, Mr. Ng announced in a newspaper in late December that he was lodging an appeal against the BVI court’s judgment.

September 4, 2014

Macau Brands

Trends

Shocking in Givenchy Raquel Dias newsdesk@macaubusinessdaily.com

hese days it might take a lot to shock you. You may think you’ve seen it all; from explicit sexual images to just about everything else under the sun there’s little that’s not out there and in your face. Even the campaign Benetton did two years ago featuring major religious entities snogging each other did little to truly impress. Well, this time it’s Karl Lagerfeld who takes the initiative and I must admit if nothing else the photographs are, well, strange. Conchita Wurst, the Eurovision song contest star who chose to keep her beard even when in drag, has taken the fashion world by storm. Being the creative director for iconic fashion houses is not the only talent Mr. Lagerfeld professes: he has shown his talent for photography on more than one occasion. It’s no surprise, then, that Carine Roitfeld, editor of CR Fashion Book, called upon Kaiser Lagerfeld to capture the Austrian drag queen in new-season Givenchy for the latest issue of her magazine. On this particular shoot, Lagerfeld used pregnant model Ashleigh Good as well in a piece that will for sure shock the most progressive fashionista. Like all good artists, Karl Lagerfeld has shown us, yet again, that we have yet to have seen it all.

Analysts: regional competition to ‘cannibalize’ junket VIP segment Competition from casinos opening in the Philippines, Russia and Cambodia are likely to divert 8.8 billion patacas from Macau’s 200 billion-pataca junket VIP revenue stream. Predictably, Macau junket operators are following the money and setting up their VIP Rooms in these countries João Santos Filipe

jsfilipe@macaubusinessdaily.com

acau’s junket VIP market is going to face tougher competition from other Asian regions from 2015 on and, according to a report by investment bank UBS, the increasing competition is likely to shrink the segment by four to five percent. ‘We believe the junket VIP segment is subject to the most intensive regional competition amongst all gaming segments in Macau’, the bank says. ‘We expect junkets will be able to bring some Macau junket VIP businesses to other jurisdictions, especially in the Philippines, where we see the quality of product itself as quite high. If we assume various rolling volume per table per day that ranges from US$0.2 million [1.6 million patacas] to US$0.4 million [3.2 million patacas] (compared to Macau at around US$1.2-1.3m [9.6-10.3 million patacas]), we estimate these jurisdictions can achieve US$1.1bn [8.8 billion patacas] revenue in 2015.’ This revenue is expected to be diverted from the Macau gaming industry. ‘This could be directly cannibalising Macau VIP business, especially as in two of these jurisdictions, there will be Melco-backed operations (City of Dreams Manila, and Summit Ascent). US$1.1billion [8.8 billion patacas] equals around 4-5 percent of 2014 Macau junket VIP revenue of around US$25billion [200 billion patacas]’, UBS analysts predict. According to the report, the advantages of some of the competitors is the fact that gaming tax rates are lower than in Macau (39 percent) and that operators are able to offer higher commissions to junkets. ‘Customers in this segment are introduced to casino resorts via junket agents, who in turn are motivated to bring customers to where they can earn the most commissions, and where they can have the most abundant availability of credit.’ The Philippines (City of Dreams Manila and Solaire), Russia (Summit Ascent) and Cambodia (Naga Corp) are identified as the main potential competitors, ‘In Cambodia, Naga Corp plans to offer commission rates higher than 70 percent of gross gaming revenue to Macau junkets under the revenueshare model, according to the company - a clear strategy to sacrifice margins in order to gain any incremental business in the junket VIP pie in Macau’, it explained. The growing competition does not mean that Macau junket operators’ revenues will be damaged, as they are expanding into the new emerging gaming markets. ‘In our recent visit to Solaire Resort in the Philippines, we noticed that most of their fixed room junkets are now occupied by well-known Macau

junket operators’, the bank says. However, the ‘wide difference between the quality of the gaming products in Macau compared with those in other jurisdictions’ may limit the ability of junket agents to sway the decision of customers’ preferred place to gamble.

Transition year After it was revealed that gross gaming revenue in Macau had dropped 6.1 percent year-on-year to 29.9 billion patacas, Sterne Agee issued a report lowering expectations for gross gaming revenue during the current year. ‘We lower our calendar year of 2014 Macau gross gaming revenue estimate to +3 percent from +5 percent’, the report says. ‘We continue to view the calendar year of 2014 as a transition year in Macau ahead of multiple years of sequential market growth driven by visible, high-margin mass volumes’, it added. The 3 percent growth for the year is also the prediction of a UBS bank report. ‘Our overall gross gaming revenue forecast is now 3 percent for 2014’, the bank analysts wrote. Wells Fargo is also cautious about this year – saying it has turned from ‘choppy’ to ‘rocky’ - as they ponder whether uncertainty will persist in the last quarter of 2014.

We expect junkets will be able to bring some Macau junket VIP businesses to other jurisdictions, especially in the Philippines, where we see the quality of product itself as quite high UBS

‘We believe slowing China home prices and the continued Chinese anticorruption campaign could impact player sentiment and spending. Moreover, the [October 6] smoking ban creates some uncertainty’, they concluded.

September 4, 2014

Gaming

Revel history: Gambling no sure bet for renewal a second time. If a buyer can’t be found, some creditors may be wiped out, while others are left with the cost of maintaining a dormant building. Revel made efforts to broaden its appeal, ending its smoke- free policy, opening two lounges for VIPs and introducing Relish, a 24-hour cafe with fried shrimp and French fries for US$5.99. “It’s a beautiful resort, you have to have a seven-day-a- week plan,” Hartmann said in a telephone interview last month. “People are looking for quality food at a reasonable price point.”

‘Gamblers wanted’

he Revel Casino Hotel was envisioned as a playground for Wall Streeters who hated flying to Las Vegas. Instead, it’s become a money pit for the banks and money managers who spearheaded the New Jersey project, and the losses will keep coming even after it closed yesterday. The Atlantic City resort, built at a cost of US$2.4 billion (MOP19.2 billion), ceased operations at 6a.m. local time after two bankruptcies and a 10-month search for a buyer. Barring a sale, the new owners may be Wells Fargo & Co. and JPMorgan Chase & Co., which provided US$125 million in court-approved funding. They’re the latest on a list of backers that’s included Capital Group Cos., the third-largest manager of U.S. mutual funds, and Morgan Stanley, the original investor. The resort fell prey to poor timing, bad design and a misreading of the local market. The Revel saga shows what can go wrong when bankers stray from what they know, according to Charles Geisst, a professor of finance at Manhattan College in New York and author of the book “Wall Street: A History.” “The check-in desk at Revel was on the 11th floor, reached by escalator,” Geisst said in an e-mail. “That’s not planned or invested in by someone who understands the hotel business.” It’s also a case study that has implications for Governor Chris Christie and other local leaders as they ponder what’s next for Atlantic City in a summit scheduled for September 8. A future beyond gambling might be the answer.

Name recognition Donald Trump, whose brand once topped three Atlantic City casinos, sued last month to get his name removed from the remaining two properties. “I see what’s happening in Atlantic City; it’s just too much competition,” Trump said in an interview with Bloomberg Television’s Trish Regan. “There’s too much pressure from Pennsylvania, Maryland, and ultimately everybody’s going to do badly because they’re looking at casinos as a panacea.” Revel’s early champion was Michael

Garrity, a principal in Morgan Stanley’s private-equity arm in the mid-2000s, and before that an analyst at Putnam Investments and an investment banker at Rothschild Group. Morgan Stanley backed Revel to bring a more upscale casino to the northeastern U.S., Garrity told New Jersey regulators at a 2012 licensing hearing, before its April opening. “I’ve spent a lot of years on Wall Street,” Garrity said. “What’s always amazed me, the thousands of traders, analysts, private-equity guys, bankers that will jump on a plane, fly four to five hours to Vegas, lose the day on the way back. Because they’re gamblers? No. Because they want to have fun. And that was really the premise behind Revel.” Garrity couldn’t be reached for comment. Wells Fargo, Capital Group, JPMorgan and Morgan Stanley declined to comment.

Initial stumble Revel stumbled before it opened. Morgan Stanley had US$800 million in the project when the 2008 financial crisis hit. Kevin DeSanctis, a casino veteran and the resort’s first chief executive, met with bank officials and told them they would be in a better position to complete the project down the road if they invested US$480 million to finish the structural work, according to his testimony at the same 2012 hearing. New York-based Morgan Stanley ultimately put in more than US$1.2 billion, before writing off Revel and selling its interest for US$35.5 million to an investor group led by DeSanctis in 2011. DeSanctis raised US$1.15 billion from a new set of lenders led by JPMorgan to finish the development. To bolster the financing, New Jersey agreed to provide US$261 million in tax credits as part of Christie’s push to reverse Atlantic City’s declining fortunes.

Fresh capital With new funds, construction of the 47-story property resumed. DeSanctis held off finishing 500 of the planned 1,900 hotel rooms, expecting to complete a more-exclusive boutique section with a separate elevator at a later date. “We’ve already talked to several

folks who are very interested in doing that,” DeSanctis, formerly with Penn National Gaming Inc. and Mirage Hotel Resort & Casino, told regulators at the 2012 hearing. DeSanctis, reached by e-mail, declined to comment. More challenges loomed. Cost overruns topped US$100 million, forcing Revel to seek additional funds shortly after opening, according to a June declaration in bankruptcy court by Shaun Martin, the company’s chief restructuring officer. Revel had to supply its own electricity, and entered into a costly 20-year agreement requiring it to pay power plant operating expenses and a 15 percent guaranteed return to a third party, ACR Energy Partners.

Gastro pub The resort, which opened in April 2012, features 2,300 slot machines, two nightclubs, two theaters and 13 restaurants, including Amada, an Andalusian tapas bar, and the Mussel Bar & Grille, a “gastro-pub with Belgian flair,” according to marketing materials. The property includes five pools and a “SkyGarden” with 20,000 trees and plants. In targeting high-end, overnight guests, Revel skipped the amenities that Atlantic City’s traditional customers look for, Martin said. The resort didn’t have a lounge for frequent gamblers or affordable food and beverage options. Hurricane Sandy closed Atlantic City for six days in late 2012. Short of cash and running at a loss before any interest costs, Revel tapped investors for US$150 million that December, according to a statement, and in March 2013 filed its first bankruptcy petition.

Debt erased In that restructuring, Revel wiped out 82 percent of its US$1.5 billion in debt. Funds affiliated with Chatham Asset Management LLC, Canyon Capital LLC and Capital Group ended up with the equity. DeSanctis stepped down and interim CEO Jeff Hartmann, former president of the Mohegan Sun casino, took over. Canyon Capital declined to comment. A spokesman for Chatham said it exited the investment in May. In June, Revel filed for bankruptcy

Hartmann added the word “casino” to the property name and introduced a marketing slogan: “Gamblers wanted.” He started a controversial promotion promising to refund slot machine losses greater than US$100 for the month of July. A lawsuit claims Revel didn’t make it clear the refunds would be paid out over 20 weeks in casino credit. In October, Revel’s board named Scott Kreeger, a former executive with Station Casinos, as chief operating officer. Hartmann left. Lisa Johnson, a spokeswoman for Revel, said Kreeger wasn’t available for comment. Design flaws remain a challenge, according to Robert Heller, chief executive officer of Spectrum Gaming Capital LLC, an investment bank in New York. They include a “bland” front entrance, little pedestrian activity at Revel’s northern end of the city’s boardwalk and long escalators that older patrons find “intimidating.” “People want to move quickly through spaces,” Heller said in a telephone interview. “Vertical in casinos is never a good thing.” Johnson, the Revel spokeswoman, said patrons could access the lobby and casino by elevator.

City’s decline Revel’s failure shows how “the best and the brightest, the smartest guys in the room” misjudged the market and the pace of Atlantic City’s decline, according to Izzy Posner, executive director of the Lloyd D. Levenson Institute of Gaming, Hospitality & Tourism at Richard Stockton College of New Jersey. Casino revenue in the city, which introduced gambling as an economic development tool in 1978, is down more than 40 percent to US$2.86 billion from the 2006 peak as neighboring states entered the business. Four of the city’s 12 casinos have closed or are slated to close by mid-September. Caesars Entertainment Corp.’s Showboat shut down August 31. Atlantic City’s casino revenue is expected to decline to around US$2 billion annually, Alex Bumazhny, a Fitch Ratings analyst, said in an Aug. 29 report. About half of Revel’s business will transfer to other casinos in the city, with those located away from the boardwalk – Boyd Gaming Corp.’s Borgata, Landry Inc.’s Golden Nugget and Caesars Entertainment Co.’s Harrah’s – seeing most of the benefit. Local officials, including Mayor Don Guardian and state Senator Jim Whelan, say someone will pick up Revel for pennies on the dollar. “Hopefully it’ll be a real casino company,” Whelan said. Bloomberg

September 4, 2014

Greater China Hong Kong shares close at highest level Hong Kong’s benchmark index made its largest daily gain in 9-1/2 months yesterday to close at its highest level since May 2008, while China’s onshore markets took heart from upbeat results of two surveys on service sector activity. The services purchasing managers’ index (PMI) compiled by HSBC/Markit jumped to 54.1 in August - the strongest in 17 months - from a nine-year low of 50.0 in July, while the official non-manufacturing PMI rose to 54.4 from July’s six-month low. The Hang Seng Index climbed 2.3 percent to close at 25,317.95 points. The China Enterprises Index of leading offshore Chinese listings in Hong Kong was up 3.2 percent, its highest close since December 10.

Oil giants to open spending taps Flagship Chinese oil producers are preparing to ramp up multi-billion dollar capital spending plans squeezed amid a Beijing probe into industry graft, offering a lift for oil services firms that suffered from belt-tightening in the first half. State-controlled majors PetroChina and Sinopec Corp delayed investing in project launches in the first half as China’s government deepened its corruption investigation in the state sector. Project tendering in China has been riddled with graft amid a culture of officials at state firms accepting bribes to award contracts to companies run by relatives or friends. Oil industry executives say the probe hasn’t ended but may have peaked, having ensnared at least 11 former senior executives at PetroChina and its parent company China National Petroleum Corp (CNPC). That’s enough to trigger new spending at the majors as they switch focus to meeting operational targets.

Top-level meeting on strained ties Senior officials from Canada and China met quietly in Ottawa last week to discuss relations that have deteriorated so badly that they could threaten Prime Minister Stephen Harper’s planned visit to China in November. Canada sees China as an important trading partner and in early 2012 Harper went to Beijing to pitch the idea of Canada as a potential oil supplier. The closeness of the ties are in question after two high-profile incidents. In late July, Canada accused Chinese hackers of being responsible for an attack on a government computer. In early August, China detained a Canadian couple, Kevin Garratt and Julia Dawn Garratt, on suspicion of spying.

Strengthening budget management China is strengthening budget management as government expenditures become more transparent and efficient, according to an executive meeting of the State Council. The meeting, presided over by Premier Li Keqiang on Tuesday, said China is aiming to build a modern fiscal system, a highlight in the country’s ongoing fiscal reform. The pledge came following China’s top legislature adoption of a Budget Law revision on Sunday intended to clear ambiguity and to close loopholes in managing the trillions of yuan involved in fiscal revenue and spending.

Cooling off Hong Kong chaos risk recedes as poll fighter downsizes hopes David Tweed and Fion Li*

he risk of Hong Kong’s financial district being paralyzed by a mass sit-in is diminishing after a pro-democracy leader said the strategy of threatening civil disobedience had failed to persuade China to make concessions on changes to the city’s leadership election. The downtown occupation will be smaller, staged on a day when it causes least disruption, and participants won’t resist police officers, Benny Tai Yiu-Ting, founder of Occupy Central with Love and Peace, said in an interview on Tuesday. Tai said it was clear China won’t backtrack on rules laid down Aug. 31 that include the screening of candidates for the 2017 poll. China’s uncompromising stance and the pragmatism of Hong Kong people mean “the number of people joining us will not be as big as we expect,” Tai said. It marked a change in tone from his earlier predictions that at least 10,000 would move to the streets as part of an era of civil disobedience. The remarks prompted Occupy Central to issue a statement late Tuesday saying it was “not correct” to say that it less support from the community and new supporters were joining following the China’s decision. The group will “definitely not back down” from its occupation plans, it said. Any signs of waning support for Occupy Central, which has galvanized disparate pro-democratic groups in the former British colony, will relieve business leaders and officials who had issued predictions that a sit-in would wreak economic havoc and

scare away tourists. It also shifts the focus of the democracy debate to opposition lawmakers, who have vowed to defeat the proposed election bill in the legislature.

No compromise China has signaled it won’t compromise over its insistence that it vet candidates and blamed a small number of law-breakers for opposing its plans. Li Fei, deputy secretary general of the National People’s Congress, told people in the city the proposal is the most concrete step toward implementing universal suffrage in the election. Hong Kong’s last colonial governor, Chris Patten, wrote in the Financial Times that the city had been promised democracy and the U.K. should speak out to honor treaty obligations it made in 1984 when the transfer to sovereignty to China was mapped out. In Taiwan, ruled separately and claimed by China, President Ma Ying-jeou urged China to open dialogue with Hong Kong people, saying democracy and the rule of law are core values shared by Taiwan people.

‘Minimal disruption’ Tai reassured people that Occupy Central will go ahead non an unspecified date, while minimizing disruption. When business people “know the details of when we will organize this event, they will know we have no intention to damage the economy of Hong Kong,” he said in a conversation.

Hong Kong’s last colonial governor, Chris Patten, wrote in the Financial Times that the city had been promised democracy and the U.K. should speak out to honor treaty obligations it made in 1984

“Even though I cannot mention the date, but if you look at the calendar, you would know which date would cause the minimal damage to Hong Kong’s economy,” he said. Hong Kong has public holidays scheduled for Sept. 9 and Oct. 1 and 2, meaning retailers, which stay open, may face more upheaval than banks and brokerages. “We still don’t know how long and how big the Occupy Central movement will be,” said Dennis Lau, director of sales operations at Chow Sang Sang Holdings International Ltd., Hong Kong’s second-largest jeweler. “What worries us is that it may affect the sales momentum

September 4, 2014

Greater China

Stock brokerages and banks in the city had braced for protests in the coming weeks, ready to enact established contingency programs.

Associate Professor of Law at the University of Hong Kong Benny Tai Yiu-ting speaking during a rally outside the Chief Executive office in Hong Kong last week

Index ended little changed and has gained 6.2 percent this year, led by a 37 percent advance in Hong Kong Exchanges & Clearing Ltd. Chan Kin-man, another cofounder of Occupy Central, said while they couldn’t estimate the turnout for the sit-in, they plan to continue the long-term fight. The movement will focus on awakening Hong Kong’s citizens to “genuine democracy,” he said. “Although some pragmatic supporters may leave, new supporters are joining us,” Occupy Central said. “They are angry about the Chinese government’s decision and are firm to show the dignity and willpower of Hong Kongers.” Some students had vowed to skip school from mid-September in protest.

‘Atomic bomb’

as fewer shoppers will be willing to come to our shops in Central.”

Banks on alert Stock brokerages and banks in the city had braced for protests in the coming weeks, ready to enact established contingency programs. Some like Christfund Securities Ltd., a Hong-Kong based brokerage, planned to deploy staff to branches outside the central district. “If we don’t need to go to the branches that’s great for us,” said Simon Lam, research director at Christfund. “But we still have the system intact to protect our operation just in case.” Standard Chartered Plc, HSBC Holdings Plc and its Hang Seng Bank Ltd. unit all have continuity plans to maintain their services, spokesmen for the lenders said. HSBC, whose Asian headquarters is meters away from the site of the planned sit-in, has back-up centres and resources for employees to work off-site, said spokesman Gareth Hewett. He declined to comment on Occupy Central’s latest remarks. If Tai’s prediction of dwindling support is correct, it “will be very positive to the market because it will minimize the uncertainties at the moment,” said Lewis Wan, Hong Kong-based chief investment officer at Pride Investments Group Ltd., which manages about US$250 million.

Investor confidence Investors haven’t shown much concern over the threat so far this year. The benchmark Hang Seng

“We need mass movement to ensure that we have enough bargaining power,” said Alex Chow, a spokesman for the Hong Kong Federation of Students. Some pan-democrat lawmakers including Emily Lau, the chairman of the Democratic Party of Hong Kong, has vowed to join in Occupy Central’s action. “We will still work together,” she said in an interview. “The turnout doesn’t matter that much. I never saw that Occupy Central would bring great harm to the Hong Kong economy. The so-called potential mass disruption was more government propaganda.” “It’s like the atomic bomb - when deterrence doesn’t work what do you do? Press the red button or not?” said Jean-Pierre Cabestan, director of government and international studies at Hong Kong Baptist University. The downsizing of Occupy Central’s ambitions may refocus Hong Kong’s democracy debate from popular protests to how opposition lawmakers vote on the proposed bill in the legislature.

Opposition dilemma “The real question is whether the pan-democrats are going to remain united and refuse to endorse” the electoral-reform package, Cabestan said. To become law, the universal suffrage bill will require two-thirds of the 70-member legislature to support it, meaning the legislation could be halted by the 27 opposition members. If the proposal is rejected, Hong Kong will continue to have its leader picked by a 1,200-member election committee. The democrats “should take what they’ve been offered and push for more,” said David Zweig, professor of political science at the Hong Kong University of Science & Technology. “Every step they can get out of Beijing, they should take it and run with it.” *With Vinicy Chan, Kana Nishizawa, Alfred Liu and Jill Mao in Hong Kong Bloomberg

China services rebound in August

hina’s service industries strengthened in August, contrasting with declining manufacturing gauges and suggesting a transition away from factory-led growth. The non-manufacturing Purchasing Managers’ Index advanced to 54.4 from 54.2 in July, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. A separate services gauge from HSBC Holdings Plc and Markit Economics surged to a 17-month high of 54.1, from 50 in July. Readings above 50 for both gauges indicate expansion. Chinese stocks added to gains on optimism a rebound in services growth will help offset a pullback in manufacturing and a property slump. China’s weakening real-estate market has weighed on related industries, raising concern the government will miss its expansion target of about 7.5 percent this year. “The economy still faces downside risks to growth in the second half of the year from the property sector slowdown,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement. “We think policy makers should use further easing measures to help support the recovery.” August data point to divergent trends in employment across

manufacturing and services, according to a statement from HSBC and Markit.

Manufacturing Gauge The manufacturing PMI, also released by NBS and CFLP earlier this week, fell to 51.1 in August from 51.7 in July, missing the 51.2 median estimate of analysts. A separate manufacturing gauge given Sept. 1 from HSBC and Markit was 50.2, also falling from 51.7 in July. Services accounted for 46.6 percent of gross domestic product in the first half of 2014, 1.3 percentage points higher than the same period a year earlier, the statistics bureau said in July when it released secondquarter GDP data. The official services PMI rose even as separate indexes for new orders, prices and expectations fell, suggesting that conditions “continue to be on the soft side,” Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong, said in a note. The headline number of 54.4 is independent of the readings for measures including orders and prices, according to the logistics federation. That contrasts with the manufacturing PMI, which is a weighted composite of sub-gauges including orders, production and employment. Bloomberg

September 4, 2014

Greater China

Silk Road revival Chinese vice premier puts forward roadmap. The Silk Road economic belt involves over 40 Asian and European countries and regions with a combined population of 3 billion

hinese Vice Premier Wang Yang has suggested a broad-strokes roadmap for building the Silk Road economic belt during an ongoing expo in northwest China’s Xinjiang Uygur Autonomous Region. In his keynote speech delivered at the fourth China-Eurasia Expo, Wang said China and countries along the belt should make joint efforts in streamlining trade procedures, improving industrial levels and building an efficient transportation network in a step toward a vigorous new “Silk Road”. He said China is willing to provide financial support for countries along the route in the process of infrastructure construction. The expo attracted roughly 25,000 participants from China, 60 foreign countries and four international organizations. With the building of the Silk Road economic belt high on the agenda, the six-day international fair, which opened Monday in Urumqi, capital of Xinjiang, aims at drawing regional economies together to discuss development strategies. The Silk Road economic belt, proposed by Chinese President Xi Jinping during his visit to Central Asia in September 2013, involves over 40 Asian and European countries and regions with a combined population of 3 billion. It eyes the cultural revival of the Silk Road, which historically links China with Central Asia and Europe, as a way of developing political and economic ties. Experts and participants said Wang’s overarching plan for the hugely ambitious scheme is likely to speed up the construction of what is shaping up to be a major regional economic force.

four economic and trade cooperation zones outside China with a total investment of US$2 billion. China hopes to continue such cooperation by encouraging Chinese companies in sectors such as textiles, home appliances and electronics to invest in countries along the belt in an attempt to push up local industrial levels. Cooperation is a necessity in building the belt, because it will bring more understanding and exchanges, according to Meng Yongsheng, deputy dean of the economy department of Xinjiang University of Finance and Economics. Meng said that many countries in central Asia were historically lagging behind in economy, and that they tend to be cautious in opening up their market. By encouraging industrial cooperation, it will engage them more in the process of the building scheme. “It will be wise for China to pursue diverse forms of cooperation so that countries along the new Silk Road could truly benefit from the economic belt,” Meng said.

sustainable development. Such measures are welcomed by participants like Nazira, an expo coordinator for the industry and commerce union of Kyrgyzstan. Nazira said that wool handmade products from her country have found immense popularity in China and that Kyrgyz companies have received a good number of orders from China at the past expos. “I believe there will be more opportunities for us,” Nazira told Xinhua at the expo. Wang Ning, a research fellow with the economy research department

of Xinjiang Academy of Social Sciences, lauded Wang’s proposal. She said that freer and balanced trade is the foundation of international cooperation and it is time that countries abandon trade barriers to allow for quick flow of people and commodities.

Industry cooperation Industrial cooperation, a major driving force behind the belt’s future development, should also be enhanced, Wang Yang said. So far, the country has established

Finance for transportation network Despite turbo-charged development in the past, Wang has pointed out a slew of bottlenecks that makes the new Silk Road bumpy at the moment, including poor infrastructure and low levels of interconnectivity. He said that countries should jointly work toward a safe and efficient transportation network, adding that China is currently taking the lead urging financial institutions to give aid to these countries in infrastructure construction. Xinhua

Freer, balanced trade China has been conducting measures to allow for easier trade procedures on the belt. For instance, customs procedures have been streamlined at the Horgos International Border Cooperation Center, a free port on the ChinaKazakhstan border. Visiting traders can stay for 30 days visa-free in the center. In his speech, Wang signaled China’s willingness to continue such efforts for inbound and outbound traders by deepening cooperation in terms of customs, e-commerce and cross-border transportation to bring more trade access. He mentioned reaching a balanced trade mechanism, saying China is willing to buy advantage products from countries on the route to help traders catch on par and realize

Silk Road

Coal import curbs

hina, the world’s top coal importer, is expected to soon put curbs on shipments of lowquality coal, responding to calls for support from the country’s miners who are seeing widespread losses due to oversupply and anaemic demand for the fuel.

The China National Coal Association has sent a proposal to the government calling for imports of low-quality coal with ash and sulphur content exceeding 15 percent and 0.6 percent, respectively, to be halted, sources from coal producers and power utilities said.

The National Development and Reform Commission (NDRC) and the National Energy Administration (NEA), which are key policy-setting organs of the Chinese government, have already signed off on the proposal, the sources said. It still awaits approval from China’s State Council to be written as law. The plan is set to hit Australian coal exports hardest and block out tens of millions of thermal coal imports by year-end, the sources said.

“The association’s rationale is to try to cut total imports by about 10 percent to restore balance in the domestic market,” said a source with a major coal producer who has been briefed on the association’s proposal at a meeting last month. Officials from the coal association declined to confirm details of the proposal. The NDRC and NEA could not be reached for comment. Reuters

September 4, 2014

Asia

Sending signals to Beijing Japan PM Abe appoints China-friendly lawmakers to key posts Linda Sieg

Japanese Prime Minister Shinzo Abe (C), escorted by security agents, leaves prime minister’s official residence in Tokyo

apanese Prime Minister Shinzo Abe picked two veteran lawmakers with friendly ties to China for top party posts YESTERDAY in an apparent signal of hope for a thaw in chilly ties with Beijing and a summit with Chinese leader Xi Jinping. The change in executives in Abe’s Liberal Democratic Party (LDP) is part of a broad leadership rejig, including a cabinet reshuffle, aimed at strengthening party unity and polishing Abe’s image 20 months after he surged back to office. In a move welcomed by Tokyo stock market players, Abe drafted Yasuhisa Shiozaki, 63, a proponent of an overhaul of Japan’s Government Pension Investment Fund (GPIF), to head the ministry of labour, health and welfare, which oversees GPIF. The fund is finalising plans to boost the weighting of domestic stocks in its portfolio. Abe also gave women almost a third of the posts in his 18-minister cabinet to show his commitment

to promoting women as part of his “Abenomics” growth strategy. But he retained core cabinet members such as Chief Cabinet Secretary Yoshihide Suga, Finance Minister Taro Aso, 73, Economics Minister Akira Amari, 65, and Foreign Minister Fumio Kishida, 57, signalling policy continuity. Abe’s new line-up faces a number of challenges, including how to repair ties with China that have been frayed by rows over disputed territory and Japan’s wartime history, and whether to go ahead with a planned sales tax rise next year despite signs the economy is faltering. In a bid for party unity, the hawkish Abe tapped outgoing Justice Minister Sadakazu Tanigaki, his predecessor as LDP leader, for the key party post of secretary-general, the LDP’s de facto election campaign chief. Tanigaki, 69, is from a moderate wing of the LDP that favours better ties with China. He was also an architect of a plan to hike the sales

Australia’s growth slows Michael Heath and Angus Whitley*

ustralia’s economic growth slowed last quarter in response to a stronger currency and weaker commodity prices, as central bank Governor Glenn Stevens indicated he wants to avoid cutting interest rates further. Second-quarter gross domestic product advanced 0.5 percent from the prior three months, when it rose 1.1 percent, a Bureau of Statistics report showed yesterday. Stevens, in a speech shortly after the release, said he is unwilling to drive up house prices even further to quicken a fall in unemployment, which jumped to a 12-year high in July. Yesterday’s data underscore a division in policy outlook between the Federal Reserve, which markets bet will tighten next year, and the Reserve Bank of Australia’s flagged

period of stability for its recordlow benchmark. Australia is losing its developed-world-beating status as the mining investment boom that powered it through the global financial crisis wanes. “Stevens was as clear as he is ever likely to be that further rate cuts are not on the agenda,” said Michael Blythe, Sydney-based chief economist at Commonwealth Bank of Australia. “A new message being developed by the RBA governor is the emphasis that policy makers have done as much as they can in creating a backdrop that should support economic growth.”

‘Boom-bust’ Home loans to investors in the 12 months ended July surged 8.9 percent, the fastest pace since May

tax in two stages to curb Japan’s huge public debt. Implementation of the second stage is now in doubt due to a string of gloomy economic data. Veteran lawmaker Toshihiro Nikai, 75, who also has close ties with China, was appointed to a second top party post. Outgoing administrative reform minister Tomomi Inada, 55, a close conservative ally of Abe, became LDP policy chief. “He is sending a strong message to China that he wants to improve ties. Not only Tanigaki but Nikai have good ties with China,” said political analyst Atsuo Ito. Abe has signalled that he hopes to meet Chinese leader Xi at an AsiaPacific leaders gathering in Beijing in November. “Japan and China both have responsibility for international peace and prosperity. It is vital to develop a forward-looking, cooperative relationship on common issues confronting international society,” Suga told a news conference as China

2008, according to central bank data. Home prices across Australia’s state and territory capitals recorded the biggest winter gain since 2007, according to the RP Data-Rismark Home Value Index. Prices rose 4.2 percent in the three months through August, it showed. “In our efforts to stimulate growth in the real economy, we don’t want to foster too much build-up of risk in the financial sector, such that people or financial institutions are overextended,” Stevens said yesterday. “The more prudent approach is to try to avoid, so far as we can, that particular boom-bust cycle.” Australia’s economy expanded 3.1 percent in the second quarter from a year earlier, yesterday’s GDP report showed. The median forecast of economists was for a 3 percent increase, and they had predicted a 0.4 percent quarterly gain. Treasurer Joe Hockey said yesterday that there was “real and building momentum in the Australian economy,” though there are “still challenges that need to be met.” Australia hasn’t recorded two consecutive quarters of economic

marked the anniversary of its World War Two victory over Japan. Former vice defence minister Akinori Eto takes over from moderate conservative Itsunori Onodera as defence minister. He also assumes a new post responsible for national security reform as Abe pushes ahead with efforts to ease the limits of Japan’s pacifist constitution on its military. The little-known Eto, who is close to Abe, belongs to a group of lawmakers advocating visits to Tokyo’s controversial Yasukuni Shrine for war dead, although his office said he has not visited the shrine this year. Abe’s pilgrimage there in December outraged China, where the shrine is viewed as a symbol of Japan’s past militarism. Abe has since avoided visiting the shrine in person. Abe has not revamped his cabinet since returning to office in December 2012, a record for a post-World War Two premier. That means dozens of veterans in his male-dominated LDP were eager to be tapped for a post. Abe, who has made a push to get more women into the workforce a linchpin of his “Abenomics” growth plan, appointed five female ministers, equalling a record set by Junichiro Koizimi in 2001. Abe, who surged to power promising to revive the economy and bolster Japan’s security stance in the face of a rising China, has seen his support slip to around 50 percent, still high for a Japanese premier but off early peaks of around 60 percent. Reuters

KEY POINTS Abe seeks China thaw with party executive appointments GPIF reformer Shiozaki tapped for Labour portfolio Key ministers remain signalling policy continuity More women, but message mixed

contraction, the technical requirement for recession, in 23 years. It avoided the Asian financial crisis of 19971998 and the 2009 global recession as government stimulus and a mining investment boom to meet Chinese demand powered growth. The GDP report showed household spending rose 0.5 percent in the second quarter from three months earlier, adding 0.3 percentage point to growth. Non-dwelling construction advanced 2.5 percent last quarter, adding 0.2 point, and dwelling construction gained 2.3 percent, adding 0.1 point. Machinery and equipment dropped 3.4 percent, subtracting 0.2 percentage point. “If you abstract from all the big moves in net exports and inventories over the last couple of quarters we still have the same old dilemma for the economy: what’s growing outside mining?” said Stephen Walters, JPMorgan Chase & Co.’s Sydneybased chief economist in Australia. “Not much.” *With Kimberley Painter, David Fickling and Benjamin Purvis in Sydney and Jason Scott in Canberra Bloomberg

September 4, 2014

Asia

Betting on pesos Foreigners cash in on Philippine T-bill arbitrage Jongwoo Cheon

n a classic arbitrage play, foreign investors are sweetening their returns on Philippine government bills by borrowing pesos in offshore currency derivative markets at half the rate they would pay onshore. Emerging Asian assets have been top picks among investors as they used the cheap money flowing from major overseas central bank

stimulus campaigns to buy into higher yields offered by borrowers in the Asia-Pacific region, and the Philippines has been one of the main beneficiaries. Offshore peso interest rates are lower than onshore rates because offshore investors are holding large peso positions, betting the currency will rise on solid economic fundamentals,

traders said. This difference in the rates presents a greater opportunity for foreign investors, as central bank rules limit the amount domestic investors can borrow from the offshore market. Investors can exchange dollars for pesos for three months at a total cost of between 0.4 and 0.8 percent via offshore currency forwards

and then earn returns of 1.49 percent on three-month Philippine treasury bills. Borrowing pesos for three months onshore costs between 1.3 percent and 1.5 percent, which would make the returns on three-month treasury bills hardly worth the effort. Foreign investors are boosting their returns even further by borrowing pesos at the cheap one-month rate and rolling them over continuously in order to buy three-month bills, but avoiding the higher cost of three-month borrowing. “The spread is very attractive,” said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore. Moreover, rising 1.0 percent from a 3-month low against the dollar struck on August 8 has increased the

peso’s appeal, which currency traders say has been boosted by demand from offshore hedge funds. With inflation rising to a near three-year high of 4.9 percent in July there are expectations that the central bank could hike rates as early as this month. Yields on long-term Philippine bond yields have jumped, reflecting inflation expectations. But short-term yields have risen by less and in recent weeks have even eased with the arbitrage trade. Annual inflation in August is expected to accelerate to 5.0 percent, the upper limit of the central bank’s target for the first time in nearly three years, a Reuters poll found. Inflation puts the profitability of bonds at risk as it hurt debt prices, but the arbitrage play helped investors find higher returns in the Philippines over the short term. “These trades are always there and may become more popular because the BSP (Bangko Sentral ng Pilipinas) has a slightly hawkish stance now,” said Saktiandi Supaat, head of FX research at Maybank in Singapore. Reuters

Australia to sign civil nuclear deal with India Jane Wardell

ustralia Prime Minister Tony Abbott said yesterday he hoped to sign a deal this week to sell uranium to India for peaceful power generation, but halted uranium exports to Russia over Moscow’s role in Ukraine. Work on an India-Australia agreement has been underway since Australia, which has 40 percent of the world’s known uranium reserves, lifted a long-standing ban on selling uranium to energy-starved India in 2012. Nuclear-armed India and Australia have been working on a safeguards agreement since then to ensure any uranium exports from Australia are used purely for peaceful purposes. “I am hoping to sign a nuclear cooperation agreement that will enable uranium sales by Australia to India,” Abbott, who will visit this week, told parliament in Canberra. India faces chronic shortages of electricity, and a quarter of its billion-plus population has no little or no access to power. Two thirds of India’s power supplies come from burning coal, and it is keen to shift the balance towards nuclear over the next few years. Canberra had previously refused to

Tony Abbott

sell nuclear material to India because it had not signed the Nuclear NonProliferation Treaty (NPT). Asked what steps had been taken to ensure there were appropriate safeguards, Trade Minister Andrew Robb said the government had “satisfied ourselves that the steps are in place”. “The negotiations and work that’s gone on between authorities in India and Australia have gone on for some years to develop a bilateral nuclear cooperation agreement which meets the international requirements and we

are satisfied, our officials are satisfied, that all the requirements have been met,” Robb told ABC radio. Meanwhile, Australia imposed a ban on uranium sales to Russia, two days after Canberra unveiled fresh sanctions against Russia over what Prime Minister Tony Abbott called its “bullying” of neighbouring Ukraine. Russia is accused of backing proRussian insurgent groups battling the government in Kiev. “There will be no uranium sales to Russia until further notice and Australia has no intention of selling

uranium to a country which is so obviously in breach of international law as Russia currently is,” Abbot told parliament. Australia and Russia signed a bilateral agreement in 2007 enabling uranium exports. Only a small trial shipment of less than a hundred tonnes uranium has been shipped to Russia. India operates 20 mostly small reactors at six sites with a capacity of 4,780 MW, or 2 percent of its total power capacity, according to the Nuclear Power Corporation of India Limited. The government hopes to increase its nuclear capacity to 63,000 MW by 2032 by adding nearly 30 reactors - at an estimated cost of US$85 billion. Australia, which has no nuclear power plants of its own, is one of the world’s top exporters of uranium, mining 7,529 tonnes of uranium in fiscal 2011/12, worth A$782 million, according to government figures. Abbott is visiting India and Malaysia as he seeks to deepen trade and personal ties in Asia ahead of the Group of 20 Leaders Summit scheduled to take place in Brisbane in November. Reuters

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Luciana Leitão, Luis Gonçalves, Michael Armstrong, Sara Farr, Stephanie Lai, Óscar Guijarro, Kam Leong GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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September 4, 2014

Asia

Just another case Indonesia’s energy minister made a suspect in graft case Fergus Jensen

ndonesia’s anti-corruption agency said yesterday the energy minister was a suspect in a case involving extortion and abuse of authority, the latest in a string of cases that have tainted President Susilo Bambang Yudhoyono’s final year in office. The minister, Jero Wacik, is a senior figure in Yudhoyono’s Democratic Party, and the third cabinet minister in the outgoing government to be implicated in a corruption case. President-elect Joko Widodo, who gained widespread popularity for his clean image, will take over as leader of the world’s third-largest democracy on October 20. The Corruption Eradication Commission (KPK), which is increasingly targeting corruption in the natural resources sector, said Wacik was a suspect in a case involving extortion and kickbacks worth about 9.9 billion rupiah (US$840,979). “We have issued a letter on September 2 that raises the status to suspect of JW from the energy and mineral resources ministry,” Zulkarnain, the KPK’s deputy commissioner, told reporters, referring to Wacik by his initials. Zulkarnain said his agency would request that a travel ban be imposed on him as soon as possible.

Jero Wacik

A KPK official who declined to be identified confirmed to Reuters that the suspect Zulkarnain was referring to was Wacik. Senior mining ministry official Sukhyar, who has only one name, said after the KPK announcement that talks with mining giant Newmont Corp, aimed at resuming copper exports, would not be affected by the change in Wacik’s legal status in connection with the case. Wacik, who was elected in April to a five-year term as a parliamentarian

starting in October, was not immediately available for comment. President Yudhoyono picked Wacik to take over the ministry in 2011. Wacik, a former tourism minister who comes from the island of Bali, faced heavy criticism this year for his botched handling of a ban on raw mineral exports that has caused billions of dollars in losses in the mining industry. This year, the religious affairs minister was identified as a suspect

in a graft case involving state funds allocated for the haj pilgrimage, while in 2012, the sports minister was forced to step down after being implicated in a case over the construction of a sports complex. Widodo has promised a clean and largely technocratic cabinet in a country where graft remains a prevalent problem. Indonesia consistently ranks among the most corrupt countries on Transparency International’s corruption perception index.

September 4, 2014

International

Slow summer

Samsung, Philips said to face Eurozone business grows in August at weakest pace this year EU fines Jonathan Cable Samsung Electronics Co., Royal Philips NV and Infineon Technologies AG will be fined by the European Union for fixing the price of chips used in mobile phones and bank cards, according to two people with knowledge of the case. Renesas Technology Corp. will avoid a penalty because it was the company that revealed the smart-card chip cartel, the people said under condition of anonymity because the EU decision isn’t yet public. The fines were approved by national competition authorities earlier this week, they said.

Saudi Arabian bank NCB to plan IPO National Commercial Bank, Saudi Arabia’s largest lender by assets, is seeking to sell a 15 percent stake on the Saudi Stock Exchange in the fourth quarter, according to two people familiar with the matter. The bank submitted plans for the initial public offering to the nation’s Capital Market Authority last week, the people said, asking not to be identified as the information is private. The regulator may fast-track the approval so that the share sale can take place before year’s-end, the people said.

Hugo Boss shares slump Hugo Boss AG shares fell the most in more than a year in Frankfurt after controlling shareholder Permira Advisers LLP sold an 11.2 percent stake in the German fashion house to institutional investors. The stock dropped as much as 5.7 percent to 100.9 euros, the steepest intraday decline since May 3, 2013. Permira, based in London, sold 7.9 million shares at 101.5 euros a share, valuing the stake at 802 million euros (US$1.1 billion), the privateequity firm’s Red & Black investment vehicle said in a statement yesterday.

Britain orders armoured vehicles Britain has signed a £3.5-billion (US$5.8-billion) contract for almost 600 new armoured vehicles, the government said yesterday on the eve of a NATO summit in Wales. The deal -- the largest single order the defence ministry has placed for armoured vehicles in three decades -- will support almost 1,300 jobs, the defence ministry said in a statement. Made by the British arm of US defence company General Dynamics, the 589 Scout Specialist Vehicles have computer technology that will help with surveillance on battlefields.

uro zone business grew at the slowest rate this year in August as escalating tension between Russia and Ukraine subdued spending and investment, surveys showed yesterday. Signs of slower growth, coupled with firms cutting prices at an even faster rate, will add to pressure on the European Central Bank ahead of its monetary policy meeting today. Markit’s Composite Purchasing Managers’ Index, which is based on surveys of thousands of companies across the region and is seen as a good gauge of growth, fell to an eight-month low of 52.5, well below July’s 53.8. That final reading was also weaker than a preliminary

estimate of 52.8, although it was the 14th month above the 50 line that denotes growth. Growth in Germany, Europe’s powerhouse, eased to a 10-month low while in France, the bloc’s secondbiggest economy, activity declined for a fourth month. “The euro zone economy is defying expectations of gaining momentum, which will no doubt add to calls for the ECB to embark on fullscale quantitative easing,” said Chris Williamson, chief economist at Markit. Speculation the ECB is preparing to buy assets spiked after bank President Mario Draghi said last month the bank was prepared to respond with all its available tools if inflation -which was just 0.3

KEY POINTS Euro zone composite PMI falls to 8-month low of 52.5 Firms cut prices for 29th month Heightened tensions over Ukraine weighing on sentiment

percent in August - were to drop further. The composite output price PMI, which has been sub-50 since April 2012, fell

to a three-month low of 48.9 from July’s 49.0 as firms cut prices to drum up trade. Growth in the bloc’s economy stalled in the second quarter and service firms’ optimism about the future fell to a year-low amid rising tension over Ukraine that has triggered sanctions from the West and countermeasures from Russia. The business expectations subindex experienced its biggest one-month fall since the tail end of the financial crisis, sinking to 58.5 from July’s 61.7. An overall PMI for the dominant service industry fell to 53.1 from 54.2 in July, below the preliminary 53.5. Reuters

Rerouting Virgin Atlantic focuses on U.S., demotes Asia after Delta tie-up Kari Lundgren

irgin Atlantic Airways Ltd. said it will add five daily U.S. flights, including a new route to Detroit, while scrapping services to cities including Tokyo and Mumbai following last year’s investment by Delta Air Lines Inc. Virgin, in which Delta purchased a 49 percent stake, will operate over 500 more flights next summer, it said yesterday. Detroit, a major hub for the U.S. carrier, gets a daily service from London Heathrow, while Los Angeles, Delta’s Atlanta base and New York John F. Kennedy airport get extra daily trips. The U.K. carrier, in which billionaire Richard Branson has a 51 percent stake, is

rebuilding its business around a revenue- sharing alliance with Delta on North Atlantic flights. Virgin said it’s on course to end annual losses by the end of this year and is targeting record profitability by the end of 2018. “Trans-Atlantic flying has always been at the heart of our network and our most financially successful region,” Chief Executive Officer Craig Kreeger, who came to Virgin from American Airlines in February last year, said in a statement. “Our ambition is to be profitable for the long term.” Crawley, Englandbased Virgin won antitrust clearance for joint transAtlantic operations with

Delta last year, allowing the coordination of timetables and pricing and giving access to a network including more than 40 cities beyond New York. Kreeger is seeking to restore Branson’s bestknown brand to profit without hurting a reputation for high service standards, and the company said today it will also spend 300 million pounds (US$182 million) on enhancing the “customer experience.’ The imminent addition of 16 Boeing Co. 787 Dreamliners will allow the replacement of aging Airbus Group NV A340s, improving operational efficiency while boosting the image of a carrier best known for

innovative customer perks such as resort-like lounges and motorcycle pickups. Virgin Atlantic will drop four routes in total, with the exit from Tokyo and Mumbai cutting the Asia-Mideast network by one-third to four cities. The carrier is also exiting Cape Town, a winter-only service, leaving just two African destinations, and ceasing summer-only Vancouver flights. Virgin Atlanta reported a pretax loss of 51 million pounds in 2013, before exceptional items, compared with a loss of 102 million pounds a year earlier. The company’s highest-ever profit of 98.7 million pounds was posted in fiscal 1999. Bloomberg

September 4, 2014

Opinion Business

wires

Down with Dengism

Leading reports from Asia’s best business newspapers Minxin Pei

MYANMAR TIMES Officials from the Ministries of Commerce and of National Planning and Economic Development have said it is an eventual goal at several press events in recent weeks, and many businesspeople support the move, saying it will help Myanmar products penetrate foreign markets. Still, many local businesspeople say they oppose any plans to open the import-export sector. Daw Toe Nandar Tin, owner of Annawa Dewi seafood factory in Yangon, said local businesses are often already struggling, while international companies will have far cheaper access to capital.

PHUKET GAZETTE Bangkok Dusit Medical Services PLC (BDMS), commonly referred to as the Bangkok Hospital Group, announced on Tuesday its intent to purchase Phuket International Hospital (PIH) for 3.61 billion baht. According to a document submitted by BDMS to the President of the Stock Exchange of Thailand, the sale is expected to be finalized by the end of the year, once due diligence is completed by PIH. Following the sale, PIH will be renamed Bangkok Phuket International and operated as a subsidiary of the Bangkok Hospital Group, “in order to support its business expansion and hospital operation in Phuket Province”.

THE CHINA POST Shares in Taiwan took a dive Tuesday after the rally seen a session earlier as Taiwanese suppliers to Apple Inc. came under pressure, dragging down the bellwether electronics sector, dealers said. The weighted index on the Taiwan Stock Exchange closed down 113.34 points, or 1.19 percent, at 9,399.72, after moving between 9,388.13 and 9,503.65, on turnover of NT$87.83 billion (US$2.93 billion).

THE KOREA TIMES Loans extended by the Bank of Korea (BOK) to private and public companies stood at 13.1 trillion won at the end of August, up 65 percent from a year earlier, the central bank said Tuesday. It marks the highest level in 15 years and six months. The previous record was 15 trillion won in 1999, the year after the nation was hit by the Asian financial crisis. The recent steep rise has been attributed to the central bank’s involvement in various state-led credit extension programs to provide financial aid to private and public companies which are in the red.

Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States

hina has recently held a series of solemn, highprofile ceremonies, barely noticed by the outside world, in honor of the 110th anniversary of former leader Deng Xiaoping’s birth. But, as with most political festivities in China these days, few have bothered to reflect on what is being celebrated – and what Deng’s leadership actually meant. The truth is that, while Deng deserves appreciation for having brought China back from the abyss of Maoism, his approach – “Dengism,” or authoritarian developmentalism – is now impeding China’s prospects. Distinguishing Deng the reformer from Dengism the governing philosophy is no idle academic exercise. Deng, who risked his authority and that of the Chinese Communist Party (CCP) to break with Maoist convention and launch China’s economic revolution, died in 1997. Dengism, which emphasizes the goal of modernization under a powerful one-party state, continues to shape China’s governance system. Deng, who famously declared, “A cat’s color does not matter as long as it catches mice,” is generally remembered as an unabashed pragmatist. But even pragmatists have core principles that limit their actions, and Deng was no exception. Two ideas were incontrovertible: the CCP could retain its grip on power only by delivering economic development, and China could modernize only under a strong one-party system. Thus, rejection of democracy in any form was fundamental to Deng’s viewpoint. Though he advocated legal reform as a tool of modernization, Deng was adamant that the rule of law not be allowed to limit the CCP’s power. To be sure, Deng recognized some of the pathologies of the party-state. With leadership positions allocated – often for life – on the basis of personal connections, rather than merit, he understood that the system suffered from gross inefficiency, risk aversion, and a lack of technical expertise. But Deng was convinced that administrative reforms could resolve these issues. What he did not anticipate was how difficult it would be to overcome resistance from within the CCP to any diminution of its powers. The slow pace of reform frustrated Deng so much that, in the late 1980s, he asked the reformist premier Zhao Ziyang to lead a secret high-level task force to examine options for more radical changes – this time, directly targeting the political system. But when the group asserted that progress toward modernization would require

the incorporation of some democratic principles and the rule of law, Deng immediately quashed the initiative. His view that modernization required keeping power concentrated in the hands of a single party failed to anticipate the threat that a predatory state would pose to sustained development. Herein lies the tragedy of Dengism. It gained credibility from the fact that its creator dismantled a cruel and destructive system, and left behind a more prosperous and humane China. But that credibility has been used to justify the maintenance of a system that is now hampering China’s continued progress. Dengism’s greatest intellectual failure is its inability to account for the potential of unchecked power to nurture greed and corruption among ruling elites. Its greatest political failure is its resistance to the democratic reforms needed to constrain that power. During Deng’s rule, Dengism’s inherent contradictions and limitations were less apparent. After all, the Chinese people had been repressed for so long that economic reforms alone represented a huge step forward. Indeed, by creating space for individual creativity and entrepreneurship, they unleashed a historically

Dengism’s greatest intellectual failure is its inability to account for the potential of unchecked power to nurture greed and corruption among ruling elites. Its greatest political failure is its resistance to the democratic reforms needed to constrain that power

unprecedented period of rapid growth that lifted millions of Chinese out of poverty. But the lack of political reform meant that there was nothing to stop the ruling elites from appropriating a disproportionate share of the new wealth. Recent revelations of systemic corruption at all levels of government demonstrate that the gravest threat to China’s long-term economic success is the unchallenged, unruly party-state. The good news is that President Xi Jinping seems to recognize this problem. Beyond taking up Deng’s mantle in pursuing market-oriented economic reforms, he has been directing a bold anti-corruption campaign since coming to power. In July, he launched a formal investigation into one of the Chinese Communist Party’s most senior figures, Zhou Yongkang – a testament to his commitment to rooting out abuse of power. Xi’s desire to become China’s next great reformer may well be why his government has been investing so much energy in lauding Deng’s achievements. One hopes that he continues to emulate Deng, without allowing his approach to become distorted by Dengism. Project Syndicate, 2014

September 4, 2014

Closing Jihadists behead second US reporter

Permanent ceasefire in East Ukraine

Islamic State jihadists have beheaded a second American reporter, releasing video of what it said was retaliation for expanded US air strikes in Iraq, hours before President Barack Obama ordered more troops to Baghdad. Washington confirmed that the video of the execution of 31-year-old reporter Steven Sotloff, which a US spokeswoman described as “sickening”, was authentic.

Russian President Vladimir Putin and his Ukrainian counterpart, Petro Poroshenko, agreed on a permanent cease-fire in the Donbas region.“The result of a conversation was an agreement on a permanent ceasefire in Donbass, statement on the Ukrainian president’s website yesterday. ‘‘There was a mutual understanding on the steps to promote peace.’’

The end of a luxury war Arnault’s LVMH hands out Hermes stake Andrew Roberts

VMH Moet Hennessy Louis Vuitton SA will relinquish its US$7.5 billion holding in Hermes International SCA after a French court intervened to end a four-year battle over LVMH building a stake in the Birkin bag maker. LVMH, controlled by France’s richest man, Bernard Arnault, will distribute the stake to its shareholders and institutional investors, leaving the billionaire’s family holding company Groupe Arnault with an 8.5 percent interest, the Paris-based company said yesterday. LVMH currently holds about 23 percent of Hermes. The world’s largest luxury-goods maker pitted itself against one of France’s most storied brands in October 2010, when it disclosed that it had amassed a holding in the 177-year- old company via equity swaps. The move, which caught Hermes by surprise, rallied descendants of founder Emile Hermes to pool their shares in a holding company to protect against a full takeover and sparked legal action as well as demands that Arnault cut his stake.

Hermes Executive Chairman Axel Dumas, 44, and Bernard Arnault, 65, “both express their satisfaction that relations between the two groups, representatives of France’s savoir- faire, have now been restored,” LVMH said in a statement. Shares in LVMH rose as much as 3.9 percent in Paris, the most in almost five months, while Hermes tumbled more than 11 percent. The agreement ends all litigation between

Portugal to issue 15-year debt bonds

Hermes and the maker of Krug champagne, an LVMH spokesman said by phone. LVMH’s investment in Hermes was always financial and temporary, he said.

Seige ended This is “the end of the siege,” Luca Solca, an analyst at Exane BNP Paribas, said via e-mail. The resolution, which he estimates will boost Hermes’s freefloat to more than 20 percent from

about 7 percent, reduces “the speculative appeal of Hermes which goes back to being a normally traded company.” LVMH shareholders would book a capital gain of about 2.84 billion euros on the stake, based on the Kelly bag maker’s closing share price on Tuesday, according to a person familiar with the situation. The maker of Hublot watches previously booked a 1 billion-euro gain in 2011 tied to the unwinding of the equity swaps. Sanford

Foxconn to invest in Shanxi plants

ortugal is ready to issue 15-year debt bonds for the first time since it received a 78-billioneuro bailout from the European Commission, the International Monetary Fund and the European Central Bank in May 2011, according to local media reports. The treasury bonds will be auctioned this week and the amount of bonds is expected to 3 billion euros. The sale will be handled via a syndicate of banks consisting of CaixaBI, Credit Agricole, Danske Bank, Deutsche Bank, Morgan Stanley and Nomura. The 15-year bonds, the longest bonds sold by Portugal since 2008, will be a key test of investor comfort and comes after Euro zone bond yields fell last week following Quantative Easing speculation boosted by European Central Bank chief Mario Draghi. It is also the first time for Portugal to auction the long-term bonds since the debt-ridden country rescued its largest private bank Banco Espirito Santo with 4.9 billion euros owing to its fraud and money laundering last month. Xinhua

oxconn Technology Group will invest at least 5 billion yuan (US$814 million) into its factories in northern China’s Shanxi province amid the world’s largest contract electronics manufacturer’s push into electric vehicles. Chairman Terry Gou expects the company’s Shanxi workforce to reach 100,000 this year with annual output surpassing 60 billion yuan, Taipei-based Foxconn said in a statement, citing a speech delivered by Gou in Shanxi’s Taiyuan city yesterday. The company didn’t provide further details on the investment. Foxconn joins companies from Tesla Motors Inc. to China United Network Communications Corp. that are tapping into China’s drive to boost production and usage of new-energy cars which includes electric, hybrid and fuel-cell vehicles. The government is considering providing as much as 100 billion yuan to build charging stations and has already set a target for government procurement of electric cars. Gou has held talks with Tesla Chairman Elon Musk and Foxconn is already providing some components for the Palo Alto, California-based company’s vehicles, he said at a shareholders’ meeting in June.

C. Bernstein estimates the total tax charge for LVMH distributing the shares will be between 300 million euros to 400 million euros. Hermes patriarch Bertrand Puech had repeatedly called on LVMH to cut its stake to less than 10 percent to free shares on the open market. Arnault always maintained LVMH’s investment was peaceful and that it never had the intention of assuming control of its rival. Bloomberg

China eases funding rules

hina is relaxing its financing rules for listed property firms by allowing those that meet a certain criteria to sell medium-term notes in the interbank market, three sources with knowledge of the matter said. Money raised from the sale of notes can be used to fund new residential housing projects, supplement companies’ operating cash flows and repay bank loans, the sources said. The cash cannot be spent on buying land, they said. “Developers that qualify include those that participated in affordable housing projects and focused on sales of medium- and smallsized homes,” one of the sources said. “Qualified developers should also focus on sales of medium-and small-sized homes in their future businesses,” the source said. China’s once-heated property market is experiencing its sharpest slowdown in two years as sales and prices turned south after an exceptionally buoyant 2013.