MOP 6.00 Closing editor: Joanne Kuai
No bloom in June Slow growth in China’s factories. This, according to the official Purchasing Managers’ Index for June. Services and construction fared better, climbing convincingly over last month
Year IV
Number 826 Thursday July 2, 2015
Publisher: Paulo A. Azevedo
Page 9
Wheel of Misfortune The pressure’s still on. The casino take has slumped to it lowest in more than four years. Gross gaming revenues in June fell 36.2 pct to MOP17.4 billion. Dropping 37 pct y-o-y. The gov’t has loosened the transit visa policy for Mainlanders. But the imminent universal smoking ban in casinos, China’s stubbornly slowing economy and a second wave of graft crackdowns spells prolonged misery Page
7
In Perfect Shape
China requests negotiations between Greece and troika resume Page 11
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Brought to you by
Ups and downs
Page 6
HSI - Movers July 1
Bank charge
Name
The city’s economy contracted 24.5 pct in Q1. But the banks are making hay. Profits surged by double digits from Jan. to Apl. With operating profits in the sector reaching MOP4 billion. Increased deposits, Hengqin expansion and an SME boom have fuelled the bonanza
Page 5
Property
www.macaubusinessdaily.com
MGM Resorts activist renews spin-off call after Kerkorian Page 8 Home prices in China increase slightly in June Page 9
Profits are fattening up. Slimming and beauty parlour chain Perfect Shape reported net profits up 62.5 pct y-o-y to HK$134.9 million. Regardless, stocks dropped 11.44 pct to HK$1.78 per share following the results release
Hong Kong-based company Kingston Financial Group Ltd. wisely spread its risk. Across hotels, gaming, securities brokerage, underwriting and placements, margin and IPO financing businesses. The owner of Casa Real and Grandview Hotel reports poor gaming returns. But overall, the year brought in HK$2.48 billion, a 34.2 pct hike
Macau Cable TV registers losses of MOP32 million Page 3
Real estate catching a cold
%Day
China Resources Land
+4.57
Bank of Communicatio
+4.12
Lenovo Group Ltd
+4.07
China Merchants Hold
+3.74
China Life Insurance C
+3.37
Galaxy Entertainment
-0.48
Li & Fung Ltd
-0.49
Hong Kong Exchanges
-0.51
Cathay Pacific Airways
-1.04
Sands China Ltd
-2.06
Source: Bloomberg
I SSN 2226-8294
The contagion is spreading. Tanking gaming revenues are affecting other sectors – particularly real estate. Agencies say Macau will see further falls in transaction prices and shop rentals. Prime districts will take a hit in 2H 2015. Becalmed new home supply and weak sales in the second-hand market marks the worst half-year since 2003
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2 | Business Daily
July 2, 2015
Macau Iong Kong Leong promoted to DSF head The Secretary for Economy and Finance, Lionel Leong Vai Tac, has appointed Iong Kong Leong as the new director of the Financial Services Bureau (DSF) as the original head of the Bureau, Vitória da Conceição, had requested the Secretary to terminate her term, the Official Gazette announced yesterday. Mr. Iong Kong Leong has been vice director of the DSF since 2007. Meanwhile, Ms. Ho In Mui Silverstre, head of the Research and Financial Planning Department of the Bureau, has been promoted as vice director. The terms of the new Bureau leaders will last one year.
Macau slump spreads to shops, industrial unit sales Apart from homes, the sales and rentals of shops and industrial units have experienced a downturn in the first half of this year, Ricacorp Macau finds Stephanie Lai
sw.lai@macaubusinessdaily.com
up new businesses in residential neighbourhoods, where the rental level has actually risen.” Industrial units are another property segment that registered a fall in sale price and rental for the first half of this year, following weak sales sentiment in the general property market, according to Ricacorp Macau. As at last month, the average sale price of an industrial unit in Macau stood at HK$4,000 per square foot, representing a fall of some 20 per cent when compared to the highest level of HK$5,000 per square foot last year. The rental cost of a renovated industrial unit has also dropped by around 13 per cent to 15 per cent to HK$13 to HK$15 per square foot when compared to last year’s peak.
No new supply
D
eclining sales prices and weaker transactions seen in the city’s homes have already extended to shops and industrial units for the first half of this year, a trend that is likely to continue in the remaining half, estate agency Ricacorp (Macau) Properties Ltd. remarked in a review briefing yesterday. Dragged down by Macau’s continuous gaming slump and weaker luxury spending by visitors, the city will see transaction prices and shop rentals in prime districts continue to fall in the second half of 2015, the chief associate director of Ricacorp’s Macau unit, Franky Fong, said. “Now, even when some owners of
shops located to the west of ZAPE district [on the Macau Peninsula] that have offered them for sale at HK$200,000 (US$25,800 or MOP206,000) per square foot, no-one was willing to buy the shop space,” Mr. Fong said. “That price level is of a shop space spanning around 1,000 square feet, and is already a drop from the peak at some HK$260,000 last year.” “Some owners have also been less aggressive when negotiating new lease contracts with clients, offering a rental level of some 20 per cent less than last year,” the estate agent said with regard to the rental status of prime districts here in the first half of the year.
According to Ricacorp Macau, as of last month, the average transaction price of a shop located in the prime district of ZAPE had already fallen 27 per cent to about HK$196,000 per square foot from the peak of HK$270,000 per square foot last year; meanwhile, the average rental of a shop in the district stands at HK$330 per square foot, a fall of 20 to 30 per cent when compared to last year’s peak. “The shop transaction cost and rent will definitely be down-adjusted in the second half of this year for the prime tourism districts,” Mr. Fong said. “But at the same time, we see more commercial interest in setting
Macau has seen the worst half-year performance in terms of home sales this year since 2003, as no new home supply was available in the market and sales of second-hand homes have weakened, the estate agency said. Ricacorp Macau estimates that the city would register only around 2,900 home transactions for the first half of this year, representing a fall of nearly 35 per cent when compared to the 4,442 transactions in the same period last year. As of the first half of this year, the city has closed only 60 or so cases of off-plan home sales, regional director of Ricacorp Macau Jennifer Un said. These 60 cases are Shun Tak Holdings Ltd.’s Nova Park, the only available first-hand units in the home market as most other developers have showed no willingness to put forward a new round of sales given the weaker market sentiment and lack of developable land reserves, Ms. Un maintains. While not putting forward any sales price forecast for the second half of this year, the estate agency anticipates that the home market condition by then will be similar to the first half.
Business Daily | 3
July 2, 2015
Macau Pre-sales of M Residences reach HK$198 million
Macau Cable TV registers losses of MOP32 mln
M
acau Cable TV registered losses of MOP32 million as of 31st December 2014, according to the information published in the Macau Official Gazette. However, the company explained that it had accumulated losses of MOP142 million that were reduced to MOP32 million due to capital injection (around MOP110 million). In the report about the operations of the company, it was conceded that the development of cable TV in Macau is limited because of such factors as the end of the co-operation agreement with the government, on April last year, that determined that the
company would no longer be the sole provider of TV signals. The Macau Cable TV board expects the near term to be complicated. “Because the gaming industry is undergoing an adjustment period, company growth has slowed and profits can only be flat”, it was explained in the company chairman’s statement in the Macau Official Gazette. “Facing the current challenging operating environment, the company seeks to diversify its market, looking for potential new business opportunities in order to save steadily in adversity.” J.S.F
H
ong Kong developer Lippo Ltd. said the pre-sales of its new housing complex near the reservoir on the Macau Peninsula, M Residences, has brought it profits of some HK$198 million (US$24.7 million) as of Tuesday. The company filed a positive profit alert with Hong Kong Stock Exchange on Tuesday after trading hours, indicating that the HK$198 million it generated from the pre-sales of the housing project will be recognised in its interim results ended September 30 this year. In the same filing, the company also announced that M Residences, which is its only housing project in the Special Administrative Region, has already been given an occupation permit by the Macau Government. The 13-storey housing project occupies some 3,398 square metres, providing a total of 311 units, of which more than half are studio flats. The annual report of Lippo released on Monday indicated that 96 per cent
of the total saleable area of 26,025 square metres of M Residences was pre-sold at an aggregate consideration of HK$1.2 billion as at March 31 this year. The company also claimed in the Monday filing that all the site works
of the projects had been completed. Last month, the sole sales agent for the project, Jones Lang LaSalle Macau, told Business Daily that over 90 per cent of the units of the project were pre-sold in 2013 or before.
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info@goldfishmacau.com +853 2833 1258 www.goldfishmacau.com
K.L.
4 | Business Daily
July 2, 2015
Macau Government to merge DSRT with Macau Post Secretary for Transport and Public Works Raimundo Rosário revealed yesterday that he is to merge the Bureau of Telecommunications Regulation (DSRT) with Macau Post within this year, claiming a further plan of merging his subordinate departments will be unveiled next year. Mr. Rosário expects there will be four departments with more than 500 staff following his merger. Before the establishment of DSRT in 2000 with the name of the Office for the Development of Telecommunications and Information Technology, the city’s telecommunications was supervised by the then-Bureau of Telecommunications and Postal Services (CTT) - the predecessor to Macau Post.
Brands
Trends
Dolce Chinoiserie Raquel Dias newsdesk@macaubusinessdaily.com
T
he 2016 Spring/ Summer men’s collections are out. As has been the standard the big names are focusing on that youthful, young twist on traditional menswear. Dior Homme tried to reinvent the suit whilst Dolce & Gabbana spiced things-up with that Italian touch. The Sicilian vein in the brand always ensures the artsy, bold, rebellious mood of a warm Mediterranean painting. This time, however, the brand did something else. They continued with their journey through Sicily, with its beauty and foreign influences, in the Spring/ Summer 2016 menswear collection. Set within a grand park in Palermo lies a unique building, a pastiche of Sicilian traditions, chinoiserie, with some Indian and Turkish art thrown in for good measure. This Chinese Palace (Palazzina or Casina Cinese) was commissioned by Fredrick I in 1799 in the very popular late Rococo style of Chinoiserie. The silks, patterns and shapes all take us back to the belle époque’s fascination with the Chinese culture. The result is a striking collection that will definitely change things. Love it or hate it, you will have an opinion and, in fashion, that’s all a brand can ask for. The collection’s inspiration is not the only Asian element. Once portrayed like the smart guys in glasses, the fashion world (along with Hollywood) has discovered the Asian man, and we like it.
Perfect Shape posts full-year income, profits surge
H
ong Kong-listed slimming and beauty parlour chain Perfect Shape (PRC) Holdings Ltd., which also operates in Macau, saw its net profits and revenues for the financial year ended March 31, 2015 surge on higher spending by customers and broader service centres network. Perfect Shape’s net profit for the reporting period increased by 62.5 per cent year-on-year to HK$134.9 million (US$17.4 million), while its revenue was up by 55 per cent to HK$728.7 million, according to the company’s annual results filed with the Hong Kong Stock Exchange after trading hours on Monday.
‘The significant increase in both revenue and profit was mainly due to the increased average spending per customer and expansion of service centres network which broadened the group’s customer base,’ Perfect Shape said in the filing. Following the release of the results, however, Perfect Shape’s stocks dropped on the last trading day, on Monday, closing with a fall of 11.44 per cent to HK$1.78 per share. Of the revenue Perfect Shape gained for the reporting period, only about 2.16 per cent or HK$15.8 million was generated by the
company’s branch in Macau. Tthe revenue Perfect Shape posted for Macau for the reporting period jumped 173.4 per cent year-on-year. Hong Kong and Macau remain the core market for Perfect Shape, where the company saw growth of 136.2 per cent in its revenue generated by both cities of HK$444 million, according to the filing. The basic earnings per share of Perfect Shape of the reporting period were HK12.1 cents. The company proposed a final dividend per share of HK5.6 cents, payable around September 15. S.L.
IPIM beckons Café de Coral outperforms Singaporean market in Hong Kong firms to HK & Guangdong T
M
acau Trade and Investment Promotion Institute (IPIM) has joined forces with Hong Kong and Guangdong governments to attract Singaporean companies. The three parties jointly held a seminar in Singapore on Tuesday, seeking to promote their combined business advantages for Singapore enterprises mooting expansion in the three strategic locations of the Greater Pearl River Delta (GPRD) region. The Senior Manager of IPIM Agostinho Vong, Director-General of Hong Kong’s Invest Hong Kong, Simon Galpin, and Counsel of the Department of Commerce of Guangdong Province, Luo Lianji, attended the seminar.
he profit for Café de Coral increased 1 per cent during the fiscal year ended March 2015 to HK$587 million from HK$582.1 million, the group has announced in a filing with the Hong Kong Exchange. The revenue of the fast food restaurants expanded 8.8 per cent to HK$7.6 billion from HK$6.8 billion in the fiscal year ended in March 2014. The performance of the group was mainly explained by the operation in Hong Kong, as the company says that its results ‘outperformed the market’ by achieving a 10 per cent increase in terms of revenue to HK$6.1 billion. Overall, the Hong Kong segment contributed 83 per cent to the total revenue of the group. During this period, growth was mainly fuelled by sales of fast food chain Café de Coral and Super Super Congee & Noodles, which, according to the company, increased sales from
comparable stores by 9 per cent and 6 per cent over the previous year. These results were achieved in spite of the ‘challenging environment’ of the region. The challenges that the group will face in the current year in Hong Kong are related to ‘high rental rates, rising raw material costs and the persistent labour shortage’. The board of directors also set as goals for the next five years the increase of its market share in Hong Kong and the development of business and expansion in Guangdong Province. J.S.F.
Business Daily | 5
July 2, 2015
Macau Fosun, Anbang and Apollo to buy Novo Banco Asia’s parent company Chinese groups Fosun International and Anbang plus American investment fund Apollo Global Management are the remaining contenders to buy Portuguese bank Novo Banco, which is the parent company of the Macau headquartered bank Novo Banco Asia. Novo Banco is the successor to Banco Espírito Santo, and was created after the Portuguese Government rescued the troubled Portuguese bank. According to local press, Spain’s Santander and the American Cerberus Capital Management were the excluded candidates from the previous phase of acquisition process.
Sole Survivors Local banks continue to outperform the rest of the economy. Profits went up 11 per cent up to April and almost 30 per cent in 2014. Deposits, Hengqin expansion and an SME boom have delivered a diversification of profits and risk Luís Gonçalves
Luis.goncalves@macaubusinessdaily.com
D
espite the performance of the crumbling gaming industry, the collapse in government taxes and the world’s fastest economic slowdown, banks in Macau continue to deliver a solid performance with profits going up by double digits. Growing deposits from non-residents, more loans to small and medium enterprises and more crossborder businesses are fuelling the local financial industry. The Monetary Authority of Macau (AMCM), the city’s ‘central bank’, describes the performance of banks here as ‘outstanding’. In fact, the financial system always goes hand in hand with the rest of the economy. And here is no exception. But the impact of the economic slowdown this time in banks was lessened as the government has launched several programs to support the creation of small businesses and local companies are expanding to Hengqin. This, in turn,
has provided more clients for banks and reduced its exposition to Macau.
Double digits
The Macau economy contracted 24.5 per cent in the first quarter. But the profits of local banks surged by double digits. From January to April, operating profits in the sector reached MOP4,025 million, a monthly average of MOP1,006 million and 11 per cent increase on the 2014 average. The performance still represents a slowdown compared to 2014 or previous years, but is still much better than casinos or real estate companies, for example. Even last year, when the economy and the gaming industry declined, Macau banks were able to achieve ‘outstanding results’, AMCM wrote in its annual report. Operating profits for the first time surpassed the MOP10 billion mark (the total amount was MOP10.875 billion). The growth rate of profits was 28.4 per cent year-on-year,
the second best performance since 2010. ‘Supported by the MSAR Government’s policies to promote economic diversification and the further deepening of cross-border economic co-operation, as well as the continuous efforts by banks to implement effective risk management processes and internal control measures, the banking sector achieved outstanding results’.
Multiples
Banks here make treble the profits today than they did five years ago and two times more than in 2012.
From 2010 to 2014, for example, the growth rate of the industry’s profits was 30 per cent per year. Not as impressive as the casino industry in those years, but much more stable. According to official data, the total assets of banks here have grown 50 per cent since 2012 and continue to break records. By the end of 2014, it had reached MOP1,174 billion and by the end of April was already MOP1,298 billion, a 10 per cent increase in only four months. AMCM says the local banking system will face
several challenges this year as the Macau economy undergoes a ‘consolidation’ phase, with the global economy expected to be ‘unstable due to the divergence in monetary policies of major economies, increasing volatilities in commodity prices, as well as the managed slowdown of the Mainland’. However, contrary to other sectors – take the gaming industry, for example – banks here have the opportunity to diversify risk and revenues outside Macau. Examples are the ‘One centre, one platform’ policy adopted by the government and the crossborder economic co-operation between the city and the Mainland through CEPA, the ‘Outline of the Plan for the Reform and Development of the Pearl River Delta’, the ‘Overall Development Plan of Hengqin’, the ‘Framework Agreement on Co-operation between Guangdong and Macau’ and the ‘Guangdong Free Trade Zone’, AMCM says. China’s long-term development programmes including the ‘Go Abroad’ and ‘One belt, one road’ initiatives, will create immense business opportunities for banks here.
Macau Banks - Operating Profits (in MOP million) Period
Operating Profits
Monthly Average
Growth
2010
3884
324
2011
5053
421
30.1%
2012
6288
524
24.4%
2013
8468
706
34.7%
2014
10875
906
28.4%
Jan-April 2015
4025
1006
11.0%
Source: AMCM
Corporate
MGM MACAU hosts filmmaking sharing session Summer at Wynn, exclusively for local residents MGM MACAU hosted a ‘Filmmaking sharing session with ‘Finding Mr. Right’ movie director Xue Xiaolu’ with the support of the Cultural Affairs Bureau of the Macau SAR Government at the Vista today. More than 100 local filmmakers, amateurs and students in related fields of study attended the session as Director Xue shared her tips on how to be a
successful screenwriter, and get into the movie business. Director Xue said of her experience filming at MGM MACAU and meeting local filmmakers, “Filming at MGM MACAU constitutes a very special moment particularly due to the opportunity to be able to present the movie with Macau Portuguese atmosphere and its unique culture”.
Wynn Macau is introducing a series of attractive offers including accommodation, dining and spa pampering for local residents looking for an indulgent getaway or special treat for themselves and their loved ones this summer. From July 1 until September 30, Macau residents can experience a luxurious retreat at the Forbes
5-Star Wynn Macau for only MOP1,888 per room per night. The package includes one night’s accommodation, choice of breakfast for two persons, complimentary WiFi, complimentary parking and late check-out until 3:00pm to ensure guests can enjoy their stay to the fullest. Other offers include dining and spa.
6 | Business Daily
July 2, 2015
Macau EGL Holdings sees interim profits double Hong Kong-listed travel agency EGL Holdings Company Ltd. told its shareholders on Wednesday that it expects its interim net profits attributable to owners of the company to double for the six months ended June 30 compared to the same period last year. The agency said the expected jump in revenues is attributable to significant increase in the portion of revenue derived from Japanbound package tours, the higher gross profit margin gained from the higher depreciation of the Japanese yen against the Hong Kong dollar, as well as the absence of listing expenses of some HK$6.7 million recorded for the last fiscal year.
Anti-corruption campaign Phase II likely to hit Macau
A
new headwind is en route to Macau as China announces a second wave in its anticorruption campaign. This time using the collaboration of the country’s telecom companies to target officials who have fled overseas. The new drive is likely to put added pressure on the local gaming industry, the VIP segment and junket business, in particular. Macau casinos make
more than half of their revenues from high rollers. As the anti-graft campaign activity and the number of cases investigated has seemed to slow in recent months, this second push in the crackdown on corruption will surely send shockwaves through Macau. The Central Commission for Discipline Inspection (CCDI) has
announced a new round of inspections, targeting again high profile public companies and institutions in China. The People’s Daily newspaper, the Ministry of Transport and China Eastern Airlines are some of the targets. But the most worrying factor regarding Macau is the CCDI’s goal to harness the technology of three of China’s largest telecom
companies - China Mobile, China Unicom and China Telecom - to track down state officials and Communist Party members accused of corruption that have gone overseas. This collaboration is likely to put some high rollers in an even lower profile mood, probably gambling less or sidestepping the city altogether. Investors see the impact of Beijing’s anti-graft move as one of the main reasons for the gaming revenues plunge here in the last year. VIP demand has been heavily hit but as Deutsche Bank said in a recent report “an unheralded aspect is the impact felt on the junket system as currency movements have become considerably more difficult”. Another investment house, Wells Fargo, underlined the case of Macau casino junket operator Cheung Chi-tai – reportedly linked to the Neptune Group – who was arrested by Hong Kong police and accused of laundering HK$1.8 billion as an example of the new push. According to official data, since 2014 China has investigated 63,000 corruption cases, involving 85,000 officials. More than 33,000 officials were disciplined from January 2014 to May this year. Deutsche Bank notes that while the number of investigations slowed in the first five months of the year compared to the same period in 2014 (a drop of 37 per cent to 10,739) , the number of officials disciplined has picked up (a 32 per cent increase to 8,404).
Kingston’s gaming revenues down 4.6 pct Nevertheless, the total revenues that the Hong Kong company generated last year still represents a significant hike of 34.2 per cent year-on-year, or 63.4 per cent jump in profit
I
nvestment holding company Kingston Financial Group Limited said its gaming business in Macau had registered a year-on-year decrease of 4.6 per cent in revenues for the year ended March 31, which is contradictory to the 34.2 per cent increase that the company posted for its
total revenues in the same period, according to its filing with the Hong Kong Stock Exchange after trading hours on Tuesday. The Hong Kong-based company, which owns Casa Real Hotel and Grandview Hotel in Macau and runs casino operation in the two properties under the gaming
licence of Sociedade de Jogos de Macau, S.A. (SJM), said its total revenue for the last fiscal year reached HK$2.48 billion (US$309 million) compared to HK$1.85 billion the year before, which contributed by its securities brokerage, underwriting and placements, margin and IPO financing businesses.
In addition, the company said its profit attributable to shareholders also surged 63.4 per cent year-on-year to HK$1.26 billion, while basic earnings per share reached HK7.25 cents compared to HK4.44 cents in 2013. Nevertheless, its annual gaming revenues generated in the SAR, which include gaming revenue and food and beverage sales in casinos, amounted to only some HK$678 million, decreasing by some HK$32.6 million from HK$711 million, representing a year-on-year drop of 4.6 per cent.
Slowdown in Macau
‘The two casinos consistently provided solid contributions to the Group in line with the healthy growth of the gaming industry in Macau. To strengthen customer loyalty and attract potential ones, the Group bolstered its membership programmes
L.G.
and provided a variety of incentives for members to increase their spending in the casinos as well,’ the company remarked. According to the filing, the company has 58 gaming tables for the mass market and 13 for its self-managed VIP rooms, in addition to 224 slot machines and 136 live baccarat machines in its electronic gaming halls as at the end of March. Despite decreasing in gaming revenues, the revenues the company earned from its hotel operations rose by 5.2 per cent year-onyear to HK$259.7 million from HK$246.9 million. The company indicated the average occupancy rate of Casa Real Hotel and Grandview Hotel was about 87 per cent and 78 per cent, down 2 percentage points and 6 percentage points, respectively. ‘Although the slowdown of Macau tourism and China’s anti-corruption campaign put pressure on the industry, the Group is cautiously optimistic about its operation because a large part of its segment income is derived from the local market,’ the Group wrote, claiming it will continue to upgrade its programmes to attract more new customers. K.L.
Business Daily | 7
July 2, 2015
Macau
Casinos endure most painful month since November 2010 Gaming revenues dropped to MOP17.4 billion last month. Investors, however, anticipate a boost from the looser transit visa policy for Mainland Chinese introduced this month. The ‘bad’ news is that the universal smoking ban in casinos is closer to becoming a reality João Santos Filipe
jsfilipe@macaubusinessdaily.com
G
aming revenue dropped 36.2 per cent year-on-year in June to MOP17.4 billion (US$2.18 billion) from MOP27.2 billion (US$3.4 billion), the Gaming Inspection and Co-ordination Bureau (DICJ) announced yesterday. This is the lowest amount collected for a month by Macau casinos since November 2010, when a MOP17.5 billion (US$2.19 billion) was generated. Whilst this is the 13th consecutive month of gross gaming revenue decline on a year-on-year basis the variance of the decline has been narrowing since February. During the second month of the year, the year-on-year drop hit 48.6 per cent, in March 39.4 per cent, in April 38.8 per cent and in May 37.1 per cent. Now it is 36.2 per cent, seemingly indicating that the worst is over for the industry. In terms of accumulated revenue, since the beginning of the year until June it went down 37 per cent year-onyear to MOP121.6 billion (US$15.2 billion) from MOP193.1 billion (US$24.2 billion). China’s slowing economy and the anti-corruption policy launched by President Xi Jinping has been cited by analysts as the main reasons for the slowdown of the industry in Macau because both factors keep high-rollers away.
News of the visa transit policy generated a direct effect on Tuesday night (Macau time) in gaming operators stocks. In New York trading, Melco Crown Entertainment surged 9.7 per cent, while Las Vegas Sands Corp. and Wynn Resorts went up 4.9 per cent and 5.1 per cent, respectively. This effect is expected to be felt today on the Hong Kong Stock Exchange as yesterday it was closed due to the celebration of the handover of the former British colony to China.
Galaxy fails to take leadership
While the ban on smoking is perceived as having a negative impact on the industry – the six gaming concessionaires have openly voiced their concerns about this measure – the announcement of the easing of the visa transit policy, exactly one year after it was tightened, is welcomed. From July 1, Mainland China
June gaming revenues market share
Contradictory signs
The results revealed yesterday came at a time when the industry is expecting to be affected by different government policies. On the one hand, the city’s Public Security Police (PSP) announced on Tuesday the easing of the transit visa policy for Mainland citizens; on the other hand, the full smoking ban bill has also been sent to the Legislative Assembly for approval.
passport holders transiting Macau are permitted to stay in the city for 7 days (previously they could stay 5 days) and they can obtain a second entry within 30 days (previously 60 days). This can boost the revenue of the industry because some gamblers have used the scheme to access multiple entry to the territory.
In terms of market share Sands China retained its leadership from the previous month with a share of 22.6 per cent, according to data compiled by Business Daily. For the first full month, Galaxy had its new gaming facilities (Galaxy Phase II and Broadway) operating. However, Lui Che Woo’s group were only able to manage second place with a 22.2 per cent share. SJM occupied last place on the podium (21.8 per cent). Melco Crown achieved a share of 14.4 per cent, MGM 10.2 per cent, and Wynn 8.8 per cent.
October
November December
January
February
March
April
May
June
SJM
23.5%
22.6%
23.6%
21.9%
23.1%
23.2%
21.7%
21.9%
21.8%
Sands China
23.7%
22.5%
20.7%
20.4%
23.3%
21.4%
24.1%
26.5%
22.6%
Galaxy
21.4%
21.5%
20.2%
22.5%
21.5%
20.1%
20.0%
18.5%
22.2%
MPEL
14.3%
13.4%
14.9%
14.7%
14.4%
13.9%
12.8%
14.2%
14.4%
MGM
8.2%
11%
10.5%
10.1%
9%
10.2%
9.6%
9.1%
10.2%
Wynn
8.9%
9%
10.2%
10.4%
8.6%
11.2%
11.8%
9.8%
8.8%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
Source: Business Daily
Paradise Entertainment to post likely loss for H1, 2015
G
aming equipment maker Paradise Entertainment Ltd. expects a likely loss for the six months ending June 30, 2015, as compared to the profit of HK$50.47 million (US$6.5 million) in the same period last year. In its profit alert announcement filed on Tuesday, the Hong Konglisted company attributed the loss to ‘a decrease in gross gaming revenue of casino management business’ and ‘an increase in overall operating expenses, particularly labour costs’. Apart from manufacturing and selling electronic gaming machines under the brand of LT Game, Paradise Entertainment also provided services for sales, marketing, promotion, player development and referral for Waldo Casino and Casino Macau Jockey Club. The company registered higher revenue last year but its net profit
has declined by nearly 36 per cent to HK$66.54 million. Despite the likely loss the company could post for the first half of this year, Paradise Entertainment said in its Tuesday filing that it remains confident in its current business strategies. ‘The group will continue to optimise its cost structure to remain lean in the current weak operating environment in Macau. The group is also expected to ramp-up its overseas gaming system market with machine installations in the second half of the financial year,’ Paradise Entertainment stated in the filing. Paradise Entertainment's chairman Jay Chun said in late May that the company was planning to sell 1,000 more live multi-game terminals in Macau this year, while it also aims to deploy 700 such machines in the U.S. Market. S.L.
8 | Business Daily
July 2, 2015
Gaming
MGM Resorts activist renews spinoff call after Kerkorian
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onathan Litt, who led an unsuccessful proxy fight at MGM Resorts International this year, renewed his call for a restructuring of the casino company, citing plans by the estate of Kirk Kerkorian to sell its 16 per cent stake. MGM Resorts surged as much as 4.8 per cent after Litt, founder of Stamford, Connecticut-based Land & Buildings Investment Management LLC, said Kerkorian’s death makes it more likely the company will have to take action. In a letter to shareholders on Tuesday, he said that could involve moving its properties into a real estate investment trust or putting MGM Resorts up for sale. “We continue to believe MGM is severely undervalued, with a net asset value of at least US$30 per share,” he said. Litt resumed his campaign to boost MGM Resorts’ stock price after a previous activist effort was beaten back in May. Prior to Tuesday’s trading MGM Resorts, the largest owner of casinos on the Las Vegas
We continue to believe MGM is severely undervalued, with a net asset value of at least US$30 per share Jonathan Litt, founder of Stamford, Connecticut-based Land & Buildings Investment Management LLC
Strip, had slumped 8.6 per cent since Kerkorian, its largest shareholder, died on June 15 at age 98. Kerkorian’s will directs his holding company Tracinda Corp. to sell its stake in MGM Resorts, valued at US$1.6 billion at current prices. While there is no deadline, the estate’s sale plan puts pressure on Chairman and Chief Executive Officer James Murren to boost the stock, analysts and investors told Bloomberg News. Tracinda has two representatives on the MGM board. “The one thing we all agree upon is that the stock is undervalued,” MGM Resorts Chief Financial Officer Dan D’Arrigo said in a telephone interview Monday, prior to the letter’s release. “I don’t think that changes.”
Definite Opportunity
Land & Buildings said it didn’t brief MGM Resorts before releasing its latest letter. MGM Resorts advanced 4.1 per cent to US$18.30 at 9:44 a.m. on Tuesday, after rising as high as US$18.43. Through Monday, the shares were down 18 per cent this year. The recent declines may reflect concern that a divestiture will depress the stock, or the ongoing plunge in gambling in the Chinese enclave of Macau, where MGM Resorts generates a third of its revenue. “There’s definitely an opportunity here,” said Chris Jones, an analyst with Union Gaming who recommends buying the shares. “Without Tracinda’s support they are much more vulnerable.” In May, the company fought off an attempt by Litt to elect four nominees to its board. Litt dropped his effort after failing to win the support of some of MGM Resorts’ largest shareholders, including Kerkorian. The casino company’s investors have changed since Land & Buildings
began its campaign, Litt said in his letter. The sale of Kerkorian’s shares would remove an obstacle to forming a real estate investment trust, he said. Ownership of REITs is capped at 10 per cent per investor. Moving some or all of the Las Vegas-based company’s casinos into a real estate investment trust could boost MGM Resorts stock because REITs don’t pay federal income tax, passing earnings directly to investors instead.
Restructuring Options
Litt, who also argues for asset sales including disposition of the 51-per cent owned Chinese subsidiary, said JPMorgan Chase & Co., Bank of America Corp. and Evercore Partners Inc. have been retained by the casino operator to work on restructuring options. The company could also merge with Wynn Resorts Ltd., he said. MGM Resorts has said only that it’s working with Evercore and other advisers to evaluate its options. MGM Resorts’ chief problem, analysts and investors said, is debt, which stands at US$14.6 billion. The company would be wise to sell some noncore assets to cut borrowings, according to Jeffrey Susman, a senior investment analyst at Denver-based Cambiar Investors LLC, which owns 5.7 million shares. He suggests selling the Mirage Hotel & Casino on the Strip, one of the company’s middle-market resorts, or the Crystals mall at MGM Resorts’ CityCenter property down the street. The company sold Treasure Island Hotel & Casino for US$775 million in 2008, during the financial crisis. Mirage is next door.
Crystals Mall
MGM Resorts put Crystals up for sale two years ago but didn’t like the offers it got. The company is tearing down the unfinished Harmon Hotel next
door and has resolved litigation with the contractor, moves that could make the mall more attractive to buyers, Murren said on a May 4 conference call. The mall is worth “easily well over” US$1 billion, he said. “I think it’s quite possible to sell either one or both,” Susman said. MGM Resorts has other options, including consolidating the 50 per cent-owned CityCenter into the wider operation, said Jones at Union Gaming. The company could also acquire the publicly traded shares of MGM China, the Macau subsidiary, which is less leveraged than the parent and has stronger growth prospects, he said. “Long-term that would be a fantastic idea,” Jones said. Jones figures consolidating CityCenter could add at least US$3.15 to the company’s stock price. A spinoff of some regional assets into a REIT could add US$3 more. His price target is US$26.
‘Orderly’ Sale
Kerkorian’s will calls for the “orderly disposition” of the shares, so his executor, MGM board member Anthony Mandekic, isn’t under immediate pressure to act. One potential deadline could be nine months from now, when estate taxes are typically due, according to David Stoll, an attorney with Milbank, Tweed, Hadley & McCloy in New York. MGM Resorts hasn’t dismissed the REIT option. The company has said its big Las Vegas resorts require a lot of capital, which might be complicated by having its real estate under separate ownership. “There’s a lot of strategic complexity to that,” said Dan Wasiolek, an analyst at Morningstar Inc. in Chicago. “What makes the most sense is to sell off some assets.” Bloomberg
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July 2, 2015
Greater China
Factory and services surveys fuel hopes economy levelling out A private factory survey also released yesterday showed activity contracted for thefourth straight month in June Kevin Yao
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ctivity in China's factory sector expanded slightly in June though not as much as expected, while growth in the services sector sped up, official surveys showed, offering some signs that the world's second-largest economy may be starting to slowly level out after a raft of support measures. Beijing has rolled out a flurry of steps since last year, including interest rate cuts and more infrastructure spending, but analysts remain wary about the outlook given the stillweak property market, erratic global demand for China's exports and fears of a collapse in its wild stock market. The government is due to release second-quarter gross domestic product data on July 15 and many economists expect growth to dip below 7 percent, which would be the weakest performance since the global financial crisis. "In general, the softness in the manufacturing sector remains, requiring more policy recalibration," Liu Li-Gang and Zhou Hao at ANZ said in a research note. "Looking ahead, as real interest rates faced by Chinese companies remain elevated, we see that further monetary easing is still highly needed." With demand weak at home and abroad, factory growth remained tepid, with the reading just above the 50 point level that separates contraction from expansion on a monthly basis. The official Purchasing Managers' Index (PMI) stood at 50.2 in June, unchanged from the previous month's reading, the National Bureau of Statistics. Analysts polled by Reuters had predicted it would edge up to 50.3. "Business development momentum is still insufficient, and domestic and foreign demand remains weak," the bureau said.
KEY POINTS June official factory PMI at 50.2, vs 50.2 in May New orders sub-index at 50.1 vs May’s 50.6 June official services PMI at 53.8, vs 53.2 in May Both PMIs add to signs of steadying in economy Demand remains weak, policy support may be needed
The sub-index for new orders a proxy for domestic and foreign demand - fell to 50.1 in June from May's 50.6. New export orders fell to 48.2 from 48.9 in May, indicating contraction in foreign demand for a ninth straight month.
And stressed factories continued to shed jobs, with the employment sub-index inching down to 48.1 from May's 48.2. A private factory survey also released yesterday showed activity contracted for the fourth straight month in June but at a slower pace than in May. The official survey focuses on larger, state-owned firms, and the private one on small and mid-sized companies which are facing tougher financial and operating conditions. The central bank cut lending rates on Saturday for the fourth time since November and trimmed the amount of cash that some banks must hold as reserves, stepping up efforts to support the slowing economy.
Services shines
Meanwhile, the official services PMI rose to 53.8 from May's 53.2, the bureau said, suggesting growth in that sector quickened slightly in June, offsetting some of the broader economic drag from ailing factories. The new orders sub-index of the services PMI rose to 51.3 in June from 49.5 in May and the employment sub-
Home prices inch up from May Prices in the southern city of Shenzhen rose as much as 5.3 percent in June from the previous month
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hinese home prices rose slightly in June from May, two private surveys showed yesterday, suggesting some stabilisation after a slew of government measures to support the property sector. Prices of new homes in 288 cities rose an average 0.3 percent in June from May, the second consecutive rise on a monthly basis, a poll by property services firm Real Estate Information Corporation (CRIC) showed. Prices in the southern city of Shenzhen rose as much as
5.3 percent in June from the previous month, said CRIC, owned by E-House China Holding Ltd. From a year earlier, home prices in June were still down 1.3 percent, though the rate of decline slowed from 1.6 percent in the previous month. A separate survey by China Real Estate Index System (CREIS) showed average prices in the 100 biggest cities rose 0.6 percent in June from May, the second monthly rise in a row. Prices in the country's
10 biggest cities improved by as much as 1.1 percent, said CREIS, a consultancy linked to China's largest property data provider, Soufun Holdings. Official data showed China home sales measured by floor area rose 16.4 percent in May from a year earlier. The government is due to publish its June property price data for 70 of the biggest Chinese cities on July 18 after reporting its property sales and investment figures on July 15. Reuters
index inched up to 49.7 from May's 47.6 as the pace of job shedding eased. The services sector has accounted for the bigger part of China's economic output for at least two years, with its share rising to 48.2 percent last year, compared with the 42.6 percent contribution from manufacturing and construction. "The services sector is also cooling, except the financial sector that has been supported by the stock market," said Lin Hu, an economist at Guosen Securities in Beijing. Lin believed rising trading volume in the stock market may have lent more support to the economy in the second quarter, though some analysts fear that a further stock plunge may hit consumer confidence and spending and put added strain on the financial system. Property prices and sales have also shown signs of improving in recent months, at least in big cities, but investment remains weak with high local government debt levels and bureaucratic delays thwarting Beijing's efforts to get big infrastructure projects off the ground. Reuters
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July 2, 2015
Greater China
Premier Li Keqiang announces “green” plan for Paris climate summit Separately, the United States and Brazil pledged to increase their share of renewable energy in electricity generation Julien Ponthus
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hina formally committed to halting the rise in its greenhouse gas emissions within the next 15 years, in a much anticipated strategy to help build a U.N. climate deal in 2015. The world’s top greenhouse gas emitter said it would invest more in clean energy and plant more carbon-absorbing forests as part of the plan. The Chinese plan chimes with targets announced in November, when Beijing reached a key climate change deal with Washington to cap its emissions by 2030. “China’s carbon dioxide emission will peak by around 2030 and China will work hard to achieve the target at an even earlier date,” Chinese Premier Li Keqiang said in a statement after meeting
Chinese Premier Li Keqiang announced reduction targets after meeting French President Francois Hollande in Paris
French President Francois Hollande in Paris. French Foreign Minister Laurent Fabius called China’s plan an “excellent sign” for the United Nations summit in Paris from November 30 to December 11, which intends to agree a global deal to combat climate change after past failures. China did not, however, say at what level its emissions
would peak. The cap is the first set by Beijing, which had argued that it needed to burn more fossil fuels to end poverty and that developed nations must lead in climate action. In a new element beyond the U.S.-China deal, Beijing said it would cut its CO2 emissions per unit of gross domestic product by 60-65 percent from 2005 levels by 2030. That would deepen a
40-45 percent cut already set by Beijing for 2020. The world’s second-largest economy also aims to increase the share of non-fossil fuels in its primary energy consumption to about 20 percent by 2030, the statement said, as part of a strategy to limit more heat waves, floods and rising sea levels.
Carbon price up
Benchmark EU carbon prices rose after the news and were last 1.4 percent higher at 7.47 euros a tonne. China accounts for a quarter of world greenhouse gases and its plan, submitted to the United Nations, means governments accounting for more than half the global total have now outlined goals for climate action beyond 2020.
About 40 countries emitting just over 30 percent of world emissions have previously submitted their plans, including the United States and the European Union. National plans will be the building blocks of a Paris accord. South Korea said it would cut greenhouse gas emissions by 37 percent below businessas-usual levels, deeper than its earlier intention. “The United States and China can no longer use inaction by the other as an excuse for ignoring the risks we all face from climate change. Both countries are acting,” said Bob Perciasepe, president of the U.S. Center for Climate and Energy Solutions think-tank. Many experts outside China reckon it can peak its emissions before 2030, given signs such as a fall in coal consumption in 2014. Beijing is under strong pressure to shift to renewable energies, partly to curb air pollution. “In our estimates the peak would be around 2025 or even earlier,” Hanna Fekete of the independent New Climate Institute think tank in Germany, which tracks pledges, told Reuters. She said she did not think Beijing’s plan would affect the group’s estimates last year that global temperatures are set to rise by 3.1 degrees Celsius by 2100, far above a U.N. ceiling of 2 degrees. Reuters
Beijing’s gold market plans to balance pricing The yuan fix is due to launch by the end of 2015 via the Shanghai Gold Exchange (SGE), which last year allowed foreign players to trade gold using offshore yuan A. Ananthalakshmi and Jan Harvey
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decade after China kicked off a series of gold market reforms, plans to establish a yuan price fix mark one of Beijing’s biggest step so far to capitalise on the country’s position as the world’s top producer and a leading consumer. While no immediate threat to the gold pricing dominance of London and New York, the benchmark could ultimately give Asia more power over bullion trade, particularly if the yuan becomes fully convertible, industry sources say. “Across the commodity markets as a whole, we’re seeing some very significant initiatives by the Chinese authorities,” said Nic Brown, head of commodities research at Natixis. “For the gold market, it’s an attempt to provide a Chinese counterweight that offers liquidity, offers physical metals, offers futures trading for the markets in the Asian time zone,” he said. Asia is the top buyer of gold, with China and India alone accounting for about half of global consumption, but London and New York are regarded as price benchmarks for spot and futures trading respectively. In the last year, other attempts have been made to create a regional benchmark, including by Singapore, but China is being the most aggressive.
KEY POINTS Yuan gold fix latest step by China to boost global influence Could provide benchmark for top consuming region Asia Full yuan convertibility could support its global use
At a gold conference in Shanghai last week, SGE’s vice president, Shen Gang, said efforts towards internationalisation of the China market and building the exchange into an influential one globally would continue. Shen said there were plans to boost liquidity by inviting security firms, insurance companies and funds to trade on the exchange, and form potential tie-ups with exchanges in Dubai, Hong Kong and the CME Group.
Building block
China’s attempt to create a yuan gold benchmark is seen as another
step in its efforts to make its markets more global. Beijing has also been conducting currency reforms and in April sources said there were plans to extend a pilot scheme under which the yuan is traded with few restrictions to all its free trade zones, before taking the scheme nationwide this year. China has also shown interest in participating in the London gold fix. The Bank of China joined the gold price auction in London recently as a member, while Industrial and Commercial Bank of China Ltd
(ICBC) has said it was interested in participating. Traders say until the yuan is fully convertible China will have a tough time taking liquidity away from London, though a fix in Asian hours could still be convenient. Details of the yuan fix are yet to be revealed, but sources say it would be derived from a contract traded on the bourse for a few minutes, with the SGE acting as the central counterparty. That could make the process transparent - addressing one of the big concerns about the London fix. Reuters
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July 2, 2015
Greater China Cost of OSI’s food scandal nearing US$1 bln The company said it had lost “hundreds of millions of dollars” in lost revenue in China since an undercover local media report showed workers using out-of-date meat and doctoring production dates
China’s largely rubber-stamp parliament ratified an agreement with the world’s largest emerging nations yesterday to create a new development bank, state news agency Xinhua reported. The New Development Bank, also known as the BRICS Bank, is an alternative to western institutions such as the World Bank. The Standing Committee of the National People’s Congress approved the agreement between Brazil, Russia, India, China and South Africa to create the bank, Xinhua said. China has pledged to contribute a total of US$41 billion to the bank, giving it the largest voting right at 39.5 percent.
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.S.-based meat supplier OSI Group has lost around six billion yuan (US$967.6 million) since a food safety scandal in China last summer, a senior Chinabased executive for the firm told the official Xinhua news agency. The report, published late on Tuesday, underlines how severe the impact of food safety scares can be in China, which has seen a series of stomach churning scandals from decades old meat to milk tainted with industrial chemical melamine which led to the deaths of at least six infants. OSI Group said in January it had lost “hundreds of millions of dollars” in lost revenue in China since an undercover local media report alleged to show workers at its Shanghai Husi Food Co Ltd plant using out-of-date meat and doctoring production dates. Operations at Shanghai Husi, which supplied meat to McDonald’s Corp and Yum Brands Inc, were suspended following the reports. Local authorities launched an investigation into the matter and OSI’s chief executive said he was appalled over missteps at the plant. OSI China’s vice president Lü Yong told Xinhua on Tuesday the
Parliament ratifies BRICS Bank agreement
Local bullet trains tested
firm had suffered the near US$1 billion loss since the scandal last July and that many factories were still suspended “We have invested more than US$500 million in China in recent five years, and we believe we can overcome the difficulties.” U.S. and China-based spokespeople for OSI declined to confirm or deny the 6 billion yuan figure. “Although losses have been considerable due to the event, we do not have a ‘running
total’ that can be confirmed,” U.S.based spokeswoman Alison Kovaleski said in an email sent to Reuters. OSI is working with Chinese authorities, who are yet to publish the final report on the matter. In January, OSI Group criticized the handling of the investigation into Shanghai Husi by a food regulator, a rare act in China where firms are usually careful not to openly challenge the authorities. Reuters
China began testing the first bullet train completely made from locally produced parts this week, the official People’s Daily newspaper said yesterday, as part of a big government-led push to export railway technology. China is competing with Germany’s Siemens AG, Canada’s Bombardier Inc. and Japan’s Kawasaki Heavy Industries Ltd for global rail contracts - the same companies that helped it build a high-speed rail network that is now the world’s longest at 16,000 kilometres. China is also home to the world’s largest train maker by sales, CRRC Corp Ltd.
WB censures financial sector interference The World Bank yesterday censured China for the state’s extensive interference in the financial system, saying it could stoke potential instability unless Beijing undertakes urgent reforms to eliminate distortions in the broader economy. In its China economic update, the bank welcomed the slowdown in Asia’s powerhouse economy as it showed the growth model was changing for the better, reducing vulnerabilities built up by a credit-fuelled bounce that followed the 2008 global financial crisis. But in the 39-page report, the World Bank also criticised the Chinese government for interfering extensively in the financial sector.
Foreign Ministry says Greek debt talks should continue China sees Greece as a portal into both Europe and Africa for the distribution of Chinese products
Airbus jets ordered
China’s Cosco manages two of the Athens Piraeus port’s cargo piers
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hina’s Foreign Ministry yesterday called for talks between Greece and its creditors to continue, after the country defaulted on a loan with the International Monetary Fund. The IMF said that Greece had not made its scheduled 1.6 billion euro (US$1.8 billion) loan repayment to the fund. As a result, IMF Managing Director Christine Lagarde will report to the global lender’s board that Greece is “in arrears,” the official euphemism for default. Chinese Foreign Ministry spokeswoman Hua Chunying said that China wanted to see a united European Union and a strong euro. “So we hope that the relevant creditors can keep talking with Greece
to try and reach agreement as soon as possible and appropriately resolve the crisis now faced,” Hua told reporters at a regular press briefing. “From China’s point of view we hope to see that the EU and euro zone can appropriately resolve this issue and Greece can continue to remain in the euro zone. This accords with the interests of all sides. China will continue to play a constructive role in this regard,” Hua said. The EU is China’s largest trading partner and China is the EU’s secondlargest trading partner. Chinese Premier Li Keqiang said during a visit to Brussels this week that China did not want to see Greece leave the euro zone and that China would continue to buy euro zone debt.
From China’s point of view we hope to see that the EU and euro zone can appropriately resolve this issue and Greece can continue to remain in the euro zone Hua Chunying, spokeswoman, Chinese Foreign Ministry
In February, Li urged Greek Prime Minister Alexis Tsipras to ensure protection of the rights of China’s companies and backing for a port project. China’s Cosco manages two of the Piraeus port’s cargo piers. Under a privatisation scheme last year, it had been shortlisted, along with four other suitors, as a potential buyer of a stake of 67 percent in the port. Reuters
China placed a landmark order on Tuesday for dozens of wide-body jets from Airbus in a multi-billion-dollar deal that paves the way for a second European aircraft plant in the world’s fastest-growing aviation market. The deal, signed during a visit to France by Chinese Prime Minister Li Keqiang, includes a definitive purchase of 45 A330 aircraft, worth at least US$11 billion at list prices, plus plans for a possible further 30 worth about US$250 million each.
Xiaomi takes first big step outside Asia Smartphone maker Xiaomi has started making devices in Brazil for selling locally, promising to dramatically undercut rivals on price in the first big step beyond Asia for the world’s most valuable technology start-up. Xiaomi’s global vice-president, Hugo Barra, said in an interview on Tuesday that Brazil was “stage one of our Latin America launch,” pointing to Mexico and Colombia as logical next steps in the region, although he declined to say when. Without traditional advertising or stores, China’s top-selling smartphone company is betting that a tempting price tag will capture the attention of Brazilians.
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July 2, 2015
Asia
Japan’s business mood improves The mood among big service-sector firms improved by 4 points to plus 23 Leika Kihara and Tetsushi Kajimoto
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apanese business sentiment improved to levels not seen since before the economy slipped into recession last year, offering relief to policymakers keen to keep the recovery intact without additional stimulus. Big companies plan to increase capital expenditure at the fastest pace in a decade, the Bank of Japan’s (BOJ) closely watched “tankan” survey showed yesterday, a welcome sign for premier Shinzo Abe’s economic revival strategy which has seen limited success in nudging firms to boost wages and investment. The upbeat data should ease pressure on the BOJ to expand monetary stimulus further even though inflation remains distant from its ambitious 2 percent target, analysts say. “The tankan shows more monetary easing is not necessary, because there really isn’t anything bad in this data,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management. “Japan’s economy is improving quicker than I expected. Overseas and domestic demand are both doing well,” Muto said.
KEY POINTS Big manufacturers’ sentiment index +15 vs f’cast +12 Big non-manufacturers’ index +23 vs f’cast +22 Big firms expect 9.3 pct rise in FY2015/16 capex
Bank of Japan said if companies do increase capital expenditure as forecast it will be the biggest rise since fiscal 2006
Analysts say an expected downturn in growth in the second quarter may quickly be unwound through the next six months if companies follow through on their investment plans.
The headline index measuring big manufacturers’ sentiment rose 3 points from three months ago to plus 15 in June, beating a median market forecast of plus 12 and improving for
the first time in three quarters. It hit the highest level since March 2014, when consumption boomed ahead of a sales tax hike in April of that year. The knock from the higher levy drove the economy into a mild recession last year. The mood among big servicesector firms improved by 4 points to plus 23, beating market forecasts and rising for three straight quarters to reach a level last seen in March 2014. In a sign the benefits of Abe’s stimulus policies are broadening, small and midsize hotel and restaurant
South Korea’s June exports fall for 6th month Some analysts expect another cut in coming months to spur growth towards the government’s target of 3.1 percent for 2015 Christine Kim
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outh Korean exports fell for a sixth straight month in June, ramping up pressure on policymakers as they scramble to inject billions of dollars worth of fresh stimulus into an economy reeling from a onetwo punch of weak consumer spending and slack global demand. Exports from Asia’s fourth-largest economy fell 1.8 percent in June from a year earlier to US$47.0 billion, while imports slumped 13.6 percent to US$36.7 billion, the Ministry of Trade, Industry and Energy said, producing a record trade surplus of US$10.2 billion. A Reuters survey had forecast exports to have
Finance Minister Choi Kyung-hwan
fallen 1.0 percent in June and imports were seen down 8.7 percent. The ministry said trade conditions in the second half of 2015 are expected to improve with new car and
handset model releases, but exports face external risks from China and the euro zone. “We’ll keep seeing falls in exports throughout the third quarter which will be inevitable due to the debt crisis in Greece and sluggishness in China,” said Park Sang-hyun, chief economist at HI Investment & Securities. A breakdown of exports per destination showed exports to the U.S. and China rose in June, reversing months of falls, while shipments to the EU marked a sixth straight month of declines. To shore up a sputtering economy, the government will move a supplementary budget worth around 15
trillion won (US$13.41 billion) to parliament by July 6. An official from the ruling Saenuri Party said yesterday the party hopes the budget will pass parliament before July 20. The outbreak of the deadly Middle East Respiratory Syndrome since late May and the absence of a pick up in shipments have already prompted some analysts to trim their economic growth forecast for this year. The Bank of Korea last month cut interest rates for the second time this year, and some analysts expect another cut in coming months to spur growth towards the government’s target of 3.1 percent for 2015.
Finance Minister Choi Kyung-hwan voiced concerns earlier last month that second-quarter growth may be below 1 percent in sequential terms. Earlier yesterday, data showed consumer prices rose 0.7 percent in June on-year, a five-month high. Core inflation eased to 2.0 percent in annual terms, from 2.1 percent in May. The finance ministry said that inflation will start trending up in the second half of the year as base effects from low global oil prices from 2014 subside. The ministry has forecast inflation at 0.7 percent in 2015. Reuters
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July 2, 2015
Asia operators’ sentiment turned positive for the first time since relevant data became available in 2004. “An increase in the number of foreign visitors to Japan seems to have brightened sentiment among retailers, restaurants and hotels,” said Hideaki Kikuchi, an economist at Japan Research Institute.
Strong capex plans
The tankan also showed that companies, after sitting on their huge pile of cash for decades on pessimism over the economic outlook, are finally starting to invest. Big firms plan to raise capital expenditure by 9.3 percent in the fiscal year from April, the survey showed, beating a 5.2 percent increase expected by analysts. If companies do increase capital expenditure at that pace, it will be the biggest rise since fiscal 2006, the BOJ said. “We’re seeing companies spend more to enhance their plants’ productivity or renovate equipment,” Ko Nakayama, head of the BOJ’s economic statistics division, told a briefing. BOJ policymakers will scrutinise the tankan, regarded as among the most comprehensive gauges of the economy given its large sample base, when they meet for a rate review later this month. The survey results come on top of a recent batch of mixed data. While consumer spending and capital expenditure grew, soft exports and output have heightened the chance the economy may have hit a temporary soft patch in the second quarter. Reuters
Weak demand dampens Indian June factory activity A survey suggested demand for Indian goods was cooling at home and abroad
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rder books at Indian factories filled up at the slowest pace since September last year, dampening overall manufacturing activity and putting companies off from hiring staff, a business survey showed. The Nikkei Manufacturing Purchasing Managers’ Index, compiled by Markit, fell to 51.3 in June from 52.6 in May but stayed above the 50-point mark that separates growth from contraction for the 20th month. “June PMI data pointed to a slowdown in India’s economic upturn. New business expanded at a noticeably weaker pace, in part reflecting a loss of momentum in export business,” said Pollyanna De Lima, economist at Markit. India’s gross domestic product grew 7.5 percent in the three months ending March, a revised method of calculation showed, making it one of the fastest-growing economies in the world. But some economists are sceptical about the new method for calculating GDP, which has put the Indian economy ahead of even China.
The PMI survey suggested demand for Indian goods was cooling at home and abroad. The new orders sub-index came in at its lowest reading since September at 51.8 from 54.3. Companies kept price rises to a minimum in June, good news for an economy that has long battled stubbornly high inflation. “With price pressures being weak and growth losing steam, June’s dataset suggests that the Reserve Bank of India’s loosening cycle is, therefore, likely to continue,” De Lima said. The RBI has eased policy three times this year, taking the repo rate down to 7.25 percent from 8 percent, but will wait until at least October before cutting it further, a Reuters poll found last month. India’s inflation rate has cooled dramatically, coming in at 5.01 percent in May compared with a peak of more than 11 percent in 2013. But RBI Governor Raghuram Rajan is concerned poor monsoon rains could drive up food prices in the near term. Reuters
Thai June consumer prices fall Annual consumer prices dropped for a sixth straight month in June, mainly due to lower energy prices, giving the central bank room to keep interest rates low or cut them to support the stumbling economy. The index, published by the Commerce Ministry, declined 1.07 percent in June from a year earlier, in line with a Reuters poll forecast for a 1.0 percent drop. The ministry said yesterday there was no deflation yet and it expected positive headline CPI in the last quarter of this year. The core inflation rate rose 0.94 percent in June.
India to help ailing state-run banks India is drawing up a comprehensive package to help state-run banks, Junior Finance Minister Jayant Sinha said yesterday, as part of efforts to nurse them back to health and improve the flow of credit to industry. State lenders, which dominate India’s banking system, were hit hard by a surge in bad loans after a slowdown in economic growth following the 2008 global financial crisis. Stress tests carried out by the central bank showed that gross non-performing assets as a ratio of total loans could rise to 4.8 percent by September from 4.6 percent in March.
Japan’s top 3 automakers to subsidise hydrogen stations
Indonesia inflation rate rises again Rising trend is weighing on the rupiah, which has lost nearly 7 percent against the dollar this year
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ndonesia’s annual inflation rate rose for a fourth straight month in June, which makes it harder than it already was for the central bank to cut lending rates to try to jack up the country’s slowing growth. Last month’s headline inflation rate was 7.26 percent, compared with May’s 7.15 percent. The June rate was lower than the 7.34 percent projected in a Reuters poll, but the highest since December. Indonesia stands out in Asia, where many countries have recently seen falling prices, for having increasing rates of inflation year. For May and June, a main cause was higher food prices before and during the Muslim fasting month. Traditionally, food and other prices increase during Ramadan, Indonesia’s biggest shopping season as Muslims
prepare for post-fasting holidays, which Indonesians call Lebaran. Suryamin, head of the Central Bureau of Statistics, said “hopefully prices will go down after Lebaran,
KEY POINTS June headline rate 7.26 pct y/y, poll expected 7.34 pct Continuing rise should keep monetary policy tight for now Core inflation rate in June 5.04 pct, unchanged from May
there is a chance to control them better”. The holiday begins July 17. Core inflation, which excludes administered prices and food prices, was stable in June, rising 5.04 percent. On a month-on-month basis, consumer prices rose 0.54 percent in June, compared with May’s 0.50 percent. Indonesia’s inflation - the highest in Southeast Asia by far - is a chief reason Bank Indonesia (BI) has left its main interest rate at 7.50 percent since a 25-basis-point cut in February. In a bid to spur consumption without lowering interest rates, the central bank recently increased the amount consumers can borrow to buy cars and homes. The authorities hope that such measures will lift loan growth, which slowed to 10.4 percent on an annual basis in April from March’s 11.3 percent. Indonesia’s rapid inflation is also weighing on the rupiah, which has lost nearly 7 percent against the dollar this year. So far this year, inflation has exceeded the central bank’s 3-5 percent target every month. However, economists reckon inflation will recede late in the year. Also on Wednesday, the Nikkei/ Markit purchasing managers’ index said Indonesia’s manufacturing activity contracted for the ninth straight month in June on persistent declines in new orders and production. Reuters
Japan’s top three automakers said yesterday they will spend up to 6 billion yen (US$48.92 million) combined to subsidise the cost of operating hydrogen fuelling stations as the country aims to lead the world in developing cars that use the fuel. Japan is set to miss an ambitious target of having around 100 of the fuelling stations in place by March next year, as part of plans to develop a so-called hydrogen society to help cut carbon emissions and alleviate its heavy reliance on overseas fossil fuels.
India bans oil trade with IS-linked organisations India banned trade with Islamic Statelinked entities in oil and other products, complying with a U.N. resolution to act against militants active in oil-rich countries such as Iraq, Syria and Libya. “In compliance with United Nations Security Council Resolution ..., trade in oil and refined oil products, modular refineries and related materials, besides items of cultural (including antiquities), scientific and religious importance is prohibited,” India’s commerce ministry said in a notification. The rapid rise of Islamic State is worrying Western powers.
Pakistan’s June inflation holds steady Annual inflation in June was 3.16 percent, the same rate as in May, the Pakistan Bureau of Statistics said yesterday. On a month-on-month basis, prices rose 0.62 percent in June from May. The average annual inflation rate for July to June was 4.53 percent.
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International Euro zone factory June growth tepid Markit’s final euro zone manufacturing purchasing managers’ index (PMI) nudged up to a 14-month high of 52.5 last month from May’s 52.2, in line with a preliminary reading published before the fears intensified. Any reading above 50 indicates growth and an index measuring output that feeds into the composite PMI, due on Friday and seen as a good guide to growth, came in at 53.6, just above the flash 53.5 and May’s 53.3. Further expansion was curtailed by lacklustre growth in Germany and France.
Lowest-paid Americans lead wage gains Average hourly earnings in industries paying less than US$12.50 an hour a year ago rose 3.2 percent in the 12 months through April, about 1 percentage point more than wage growth for the job market as a whole, according to Goldman Sachs Group Inc. This development may be the start of a long-awaited catch-up for lower-wage workers, who suffered disproportionately during the recession and recovery. It is being driven in part by state governments raising their minimum wages, and also through voluntary decisions by companies to raise employees’ pay.
Greek crisis makes Russia rethink own debt The Greek debt crisis shows that Russia must carefully think about how high its own state debt burden is, Finance Minister Anton Siluanov told reporters yesterday. “We are not tied to Greece by any financial obligations so the effect (of the crisis) on Russia will be negligible. Indirectly it may affect Russian financial markets,” Siluanov said.
Mexico gives competitors access to Telmex networks Telecoms regulator said that it will open access to the “last mile” of Telmex telephone network to rivals, in a decision that aims to increase competition in a sector dominated by billionaire Carlos Slim. The move will force Telmex, owned by Slim’s America Movil, to let other companies use part of its vast fixed line infrastructure. The “last mile” connects competitors using Telmex’s fixed line infrastructure with their end-user customers. The company has 60 days to present terms by which it will offer services to other operators, the Federal Telecommunications Institute (IFT) said in a statement.
UK manufacturing growth hits two-year low British manufacturing growth slowed unexpectedly to its weakest rate in more than two years in June, dented by subdued export demand from Europe in the face of a strong pound, a closely watched survey showed yesterday. The Markit/CIPS manufacturing purchasing managers’ index (PMI) fell to 51.4, the weakest reading since April 2013, from a downwardly revised 51.9 in May. June’s PMI was worse than all forecasts in a Reuters poll that had predicted a slight improvement to 52.5, although it still held above the 50 mark that denotes growth.
U.S. exporters scramble to save deals as trade bank halts new business Companies affected range from giants including aircraft maker Boeing Co and General Electric Co to small exporters of specialty oilfield equipment
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.S. exporters large and small scrambled to urge foreign customers not to abandon deals supported by the U.S. ExportImport Bank, which will be forced to halt new business at as its charter expires. There are about 195 pending transactions still in its approval pipeline that will be frozen by the lapse, with requested amounts totalling US$9.14 billion, according to Ex-Im data circulated to Democratic lawmakers. The amounts include 14 loan guarantees worth US$3.33 billion, and 137 trade insurance requests worth US$163 million. Congress took no action to keep the 81-year-old Ex-Im operating before leaving Washington last week for an 11-day break. Democrats, moderate Republicans and exporters are pinning their hopes of renewing the bank’s charter on attaching a measure to a “must-pass” transportation funding bill in July. President Barack Obama said the lapse “means lost sales, lost customers, and lost opportunities” for exporters and vowed to fight for Ex-Im’s revival. Conservative political groups that have branded the Ex-Im bank as a purveyor of “corporate welfare” and “crony capitalism” declared a partial victory and said they would fight new legislation to renew it. Boeing, by far the Ex-Im Bank’s largest beneficiary, faces an aircraft financing void of US$8 billion to US$9 billion this year if Ex-Im never reopens, and would have to fill about half of that through its own financing arm, Boeing Capital, according to Moody’s Investors Service. While Boeing faces no immediate threat to its credit rating, the outlook
without Ex-Im could worsen over time if other negative factors came into play, said Moody’s senior vice president Russell Solomon. Fitch Ratings managing director Craig Fraser gave a similar assessment for construction equipment maker Caterpillar Inc , another top user of Ex-Im services, adding that without the bank, its competitive position could be reduced over time. Caterpillar said in a statement that reinstating the trade bank was a top priority and it would continue to work on Ex-Im-supported transactions so those customer transactions could proceed “as soon as the bank is renewed” Don Nelson, president of oilfield equipment maker Pro-Gauge
Greece anti-bailout voters in lead ahead of referendum Prime Minister Alexis Tsipras has called on Greeks to vote ‘No’ in the plebiscite
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early one in two Greeks intend to vote ‘No’ in a weekend referendum on the terms of its bailout, but capital controls are boosting the ‘Yes’ camp, a poll showed yesterday. The Prorata survey was carried out between Sunday and Tuesday, following the government’s decision to impose strict capital controls and close the banks after a breakdown in talks with its international creditors. Prime Minister Alexis Tsipras
has called on Greeks to vote ‘No’ in the plebiscite, which will ask voters whether they want to accept the latest deal from Athens’ creditors -- a deal he has branded “humiliating”. Preparations are already underway for Sunday’s referendum, which could seal the country’s financial fate. Before the capital controls came into effect, 57 percent said they would vote ‘No’ to the bailout, with 30 percent planning to vote ‘Yes’ and five percent undecided.
Technologies Inc of Bakersfield, California, said he is trying to persuade a Middle East customer to wait for an Ex-Im loan guarantee on a US$30 million project and not jump to a state-supported bid from China, Canada, South Korea, or India. General Electric said in May it would lose a US$350 million order from Angola for 100 diesel-electric locomotives to be built in Erie, Pennsylvania to China’s CRRC Corp Ltd if Ex-Im closes for good. But GE chairman Jeff Immelt said earlier this month that the industrial giant would try to keep the Angola deal from falling into the hands of the newly merged Chinese state-run train builder. Reuters
But after the measures -- including a daily cap of 60 euros (US$66) on withdrawals at ATMs -- were imposed on Monday, the ‘Yes’ camp grew amid fears that Tsipras’s stand will inflict more pain on recession-hit Greece, already struggling with sky high unemployment and mammoth debts. Forty-six percent of those polled Tuesday said they would vote ‘No’, compared to 37 percent in the ‘Yes’ camp and 17 percent still undecided, according to the survey carried out for the Ephimerida ton syndakton daily. Around 20,000 people demonstrated in Syntagma square in Athens on Tuesday in favour of a ‘Yes’ vote, which is being seen by many as a vote to stay in the eurozone and the European Union. Some 13,000 people had rallied for a ‘No’ demo against the bailout and austerity on Monday evening. Tspiras has staked his job on the referendum. A ‘Yes’ victory could see the government forced to resign, while a triumph for the ‘No’ camp could see the country exit the eurozone, with untold consequences for the EU. AFP
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July 2, 2015
Opinion
Emerging markets after wires the Fed hikes rates Business
Leading reports from Asia’s best business newspapers
THE STAR
Nouriel Roubini
MIDF Economic Research expects Fitch Ratings’ move to revise the outlook on Malaysia’s sovereign rating to “stable” from “negative” to boost the ringgit. The international ratings agency had also affirmed Malaysia’s long-term foreign currency Issuer Default Rating (IDR) at ‘A-’, with local currency IDR at ‘A’. MIDF Research said the review is in sharp contrast to the market’s expectation of a downgrade by as much as two notches on Malaysia’s credit rating, following its earlier remark in March on such a possibility because of worsening trade balance and a state investment company’s struggles to meet its debt obligations.
Chairman of Roubini Global Economics and Professor of Economics at the Stern School of Business
THANH NIEN NEWS It will become a lot easier to start a company in Vietnam when new law amendments take effect next month, abolishing thousands of business requirements. The amendments to the Law on Business and the Law on Investment are set to remove 3,299 legal requirements for businesses, or around half of all existing prerequisites, local media quoted the Minister of Planning and Investment’s announcement at a government meeting. The requirements to be rid of have been found in decisions issued by ministries and local governments.
THE TIMES OF INDIA A poll conducted by global ratings agency Moody’s has shown that there is some disappointment with the pace of economic reforms being pursued by the Narendra Modi administration and there was increasing concern about the risk of policy stagnation. “Specifically, almost half of the poll respondents identified sluggish reform momentum as the greatest risk to India’s macroeconomic story,” Moody’s Investor Service said. Several key legislative reforms are pending in Parliament and investors have complained about the slow pace of reforms. The government has taken several measures to boost growth but has shied away from taking big-bang measures.
THE PHNOM PENH POST The government has agreed to a new framework to increase the competitiveness of its agricultural sector in line with the recently launched Industrial Development Policy, state news agency AKP reported. Key guiding principles such as building up food-processing capacity and smoothing out export logistics were agreed to at the meeting last week. Ty Sokun, secretary of state at the Ministry of Agriculture, said that the framework would support the 10-year plan, which was launched in March this year and aims to diversify the Kingdom’s manufacturing sector.
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he prospect that the US Federal Reserve will start exiting zero policy rates later this year has fuelled growing fear of renewed volatility in emerging economies’ currency, bond, and stock markets. The concern is understandable: When the Fed signalled in 2013 that the end of its quantitative-easing (QE) policy was forthcoming, the resulting “taper tantrum” sent shock waves through many emerging countries’ financial markets and economies. Indeed, rising interest rates in the United States and the ensuing likely rise in the value of the dollar could, it is feared, wreak havoc among emerging markets’ governments, financial institutions, corporations, and even households. Because all have borrowed trillions of dollars in the last few years, they will now face an increase in the real local-currency value of these debts, while rising US rates will push emerging markets’ domestic interest rates higher, thus increasing debt-service costs further. But, although the prospect of the Fed raising interest rates is likely to create significant turbulence in emerging countries’ financial markets, the risk of outright crises and distress is more limited. For starters, whereas the 2013 taper tantrum caught markets by surprise, the Fed’s intention to hike rates this year, clearly stated over many months, will not. Moreover, the Fed is likely to start raising rates later and more slowly than in previous cycles, responding gradually to signs that US economic growth is robust enough to sustain higher borrowing costs. This stronger growth will benefit emerging markets that export
China’s economic slowdown, together with the end of the commodity super-cycle, will create additional headwinds for emerging economies
goods and services to the US. Another reason not to panic is that, compared to 2013, when policy rates were low in many fragile emerging economies, central banks already have tightened their monetary policy significantly. With policy rates at or close to double-digit levels in many of those economies, the authorities are not behind the curve the way they were in 2013. Loose fiscal and credit policies have been tightened as well, reducing large currentaccount and fiscal deficits. And, compared to 2013, when currencies, equities, commodity, and bond prices were too high, a correction has already occurred in most emerging markets, limiting the need for further major
adjustment when the Fed moves. Above all, most emerging markets are financially more sound today than they were a decade or two ago, when financial fragilities led to currency, banking, and sovereign-debt crises. Most now have flexible exchange rates, which leave them less vulnerable to a disruptive collapse of currency pegs, as well as ample reserves to shield them against a run on their currencies, government debt, and bank deposits. Most also have a relatively smaller share of dollar debt relative to localcurrency debt than they did a decade ago, which will limit the increase in their debt burden when the currency depreciates. Their financial systems are typically more sound as well, with more capital and liquidity than when they experienced banking crises. And, with a few exceptions, most do not suffer from solvency problems; although private and public debts have been rising rapidly in recent years, they have done so from relatively low levels. In fact, serious financial problems in several emerging economies – particularly oil and commodity producers exposed to the slowdown in China – are unrelated to what the Fed does. Brazil, which will experience recession and high inflation this year, complained when the Fed launched QE and then when it stopped QE. Its problems are mostly self-inflicted – the result of loose monetary, fiscal, and credit policies, all of which must now be tightened, during President Dilma Roussef’s first administration. Russia’s troubles, too, do not reflect the impact of Fed policies. Its economy is suffering
as a result of the fall in oil prices and international sanctions imposed following its invasion of Ukraine – a war that will now force Ukraine to restructure its foreign debt, which the war, severe recession, and currency depreciation have rendered unsustainable. Likewise, Venezuela was running large fiscal deficits and tolerating high inflation even when oil prices were above US$100 a barrel; at current prices, it may have to default on its public debt, unless China decides to bail out the country. Similarly, some of the economic and financial stresses faced by South Africa, Argentina, and Turkey are the result of poor policies and domestic political uncertainties, not Fed action. In short, the Fed’s exit from zero policy rates will cause serious problems for those emerging market economies that have large internal and external borrowing needs, large stocks of dollar-denominated debt, and macroeconomic and policy fragilities. China’s economic slowdown, together with the end of the commodity supercycle, will create additional headwinds for emerging economies, most of which have not implemented the structural reforms needed to boost their potential growth. But, again, these problems are self-inflicted, and many emerging economies do have stronger macro and structural fundamentals, which will give them greater resilience when the Fed starts hiking rates. When it does, some will suffer more than others; but, with a few exceptions lacking systemic importance, widespread distress and crises need not occur. Reuters
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Closing China recognises Bordeaux wine in bid to fight fakes
World Bank to lend US$650 mln for Indian rail project
After a four-year struggle, France has convinced China to recognise “Bordeaux” as a brand in a bid to combat counterfeit wines, the government announced. France has been in talks with China since 2011 to recognise the Bordeaux “appellation” -- a legally defined and protected geographical marker used to identify where grapes are grown. China’s recognition was a “historic advance” in the battle to stop fake Bordeaux wines being sold in Asia, the agricultural ministry said in a statement. The appellations system “promotes quality productions rooted in our territory,” it added.
The World Bank said yesterday it had cleared a US$650 million loan for a huge Indian freight rail corridor that will span 1,840 kms across the northern heartland of the country. Construction of the Eastern Dedicated Freight Corridor will help speed up the carrying of goods between Ludhiana in the west of India and Kolkata in the east, and is part of a series of new freight lines the World Bank says India needs to ease congestion on its network. Last year the bank approved a US$1.1 billion outlay and in 2011 US$975 million.
Government to let foreign rating firms score local bonds The government is seeking to find ways to stimulate growth without sharply increasing local government borrowing
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hina plans to allow international ratings companies to publish their credit scores on local government securities as it seeks to attract more investors to the nation’s 30 trillion yuan (US$4.8 trillion) domestic bond market. Authorities in Asia’s biggest economy also promised more participation by foreign financial services companies in its local capital market, according to a joint statement from the ChinaU.S. strategic and economic dialog held June 23-24. The government will also establish
an overall quota for foreign investment in the interbank bond market, rather than a country- by-country or institution-specific cap. President Xi Jinping is allowing more foreign institutions into China’s domestic bond market as the nation pushes for its currency to be included in International Monetary Fund reserves this year. Overseas
institutions held 735.2 billion yuan of onshore debt as of April 30, 2 percent of the 37.3 trillion yuan outstanding, official data show. “China is accelerating the opening up of its domestic bond market because it seeks to make the yuan an international currency,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shanghai.
Opening China’s markets to the outside world has the potential to boost global holdings of the nation’s onshore bonds fourfold, to as much as US$500 billion in five years, JPMorgan Chase & Co. estimates. Onshore notes held by overseas institutions jumped 84 percent in the 16 months through April, during which time China’s bond market
Overseas institutions held 735.2 billion yuan of onshore debt as of April 30 President Xi Jinping is allowing more foreign institutions into China’s domestic bond market as the nation pushes for its currency to be included in International Monetary Fund
expanded 26 percent, data from the central bank and China Central Depository & Clearing Co. show. Foreign ownership of onshore stocks surged 87 percent to 644.4 billion yuan. The financing arms of regional authorities face a record amount of maturing notes this year. The Ministry of Finance has granted another 1 trillion yuan quota for a local-government debt swap, boosting the program to 2 trillion yuan. Local government financial vehicles, or LGFVs, are being downgraded at an escalating rate as their financial position weakens amid the slowing economy. The credit scores of four socalled LGFVs were lowered in the last six months, according to China Merchants Securities Co., compared with one in the first six months of 2014 and seven for the full year. Fiscal revenue in China, which includes both central and local governments, increased 5 percent in the January-May period, versus 8.8 percent in the same period of 2014, finance ministry data show. “LGFVs’ credit profiles have worsened because of the sliding regional fiscal revenue,” said Sun Binbin, a bond analyst at China Merchants Securities in Shanghai. LGFVs were set up in the thousands in China to fund infrastructure projects like roads and bridges after a 1994 law banned regional authorities from issuing bonds directly. Bloomberg News
Nigeria’s government says debts hit US$63.5 billion
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Modi revives campaign for “digital” India
World’s first diamond exchange to be launched in Singapore
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igeria’s total debts stood at 12.06 trillion naira (US$63.5 billion) at the end of March this year, up from 11.2 trillion naira in December 2014, the Debt Management Office (DMO) said yesterday. Nigeria, Africa’s top economy and largest oil producer, has been hammered by the 50 percent fall in global oil prices as crude sales account for more than 70 percent of government revenue. Squeezed government revenues forced this year’s budget to be revised and federal projects scrapped or halted while state employees have gone months without being paid. The national currency, the naira, has also come under intense pressure, losing substantial ground to the dollar on both the official and black market. The figure announced by the DMO confirms claims by Vice President Yemi Osinbajo that the country’s debt stood at some US$60 billion at the end of Goodluck Jonathan’s term, after he lost to President Muhammadu Buhari in March elections.
ndia is reinvigorating an US$18 billion campaign to provide fast internet connections for all, with a “digital week” aimed at popularising Prime Minister Narendra Modi’s campaign promise to connect 250,000 villages in India by 2019. The government’s tech push, which plans to provide electronic governance and universal phone connectivity across the country, aims to bridge India’s digital divide, bringing in large investments in technology manufacturing. But apart from a handful of headline-grabbing initiatives - free wifi at the Taj Mahal, for example - the push to connect India and drive a national fibre optic network, first approved by the last government in 2011, has made slow progress. “Now we are at a place where we can take off,” said a spokesman for Communications and Information Technology Minister Ravi Shankar Prasad. “The idea is to bridge the gap between haves and have-nots of services and deliverables.” The plan aims to stop net imports of technology and electronics by 2020, while creating over 100 million jobs.
AFP
Reuters
ingapore Diamond Investment Exchange Pte Ltd (SDiX) will launch the world’s first commodities exchange in physically settled diamonds in Singapore, SDiX said yesterday. Targeted to go “live” in September, the new platform will utilize exchange technology to create a new marketplace for the global diamond trade, which is designed to deliver price transparency and liquidity to the diamond market through a real- time price discovery mechanism. The mechanism allows diamonds to be traded as a commodity, thus enabling the creation of a new asset class, said SDiX. Alain Vandenborre, executive chairman and controlling shareholder of SDiX, said the platform will provide a self- regulated marketplace for both diamond and financial traders as well as accredited investors to acquire stones at a market price that is driven by real time transactional data. “This will result in the homogenization of diamonds, simplifying the manner in which they are valued and hence allowing them to be traded as a commodity,” he added. Xinhua