MOP 6.00 Closing editor: Joanne Kuai
Sands China net profit plummets 46 pct in third quarter
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Page 7
Year IV
Number 910 Monday November 2, 2015
Publisher: Paulo A. Azevedo
Package tourists down 25 pct in September Page 4
Retail receipts: First single digit growth since 2004
Gaming Revenue Above Gov’t Red Line
Gaming revenue fell 28.4 pct in October Y-o-Y. Revenue fell to MOP20.06 bln (US$2.51 bln) from MOP28.03 bln a year prior. But was higher than the MOP17.13 bln of September, according to Macau Gov’t data released on Sunday. The month of October included China’s National Day holiday. Plus the grand opening of Melco Crown Entertainment Ltd.’s US$3.2 bln Studio City resort Page 7
Spreading downturn Macau’s lucky streak is coming to an end. Not just on the baccarat tables but for real estate, too. The average price per square metre of residential housing dropped 14.2 per cent Y-o-Y during September. To MOP83,595 (US$10,472) psm. From MOP97,386 psm one year ago. Transactions increased by 5 to 466 from a year ago
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Health Bureau blasts survey Try e-cigarettes. That’s what a recent survey seems to suggest tobacco smokers do. ‘Less harmful’, it claims. And will help wean addicted off the real deal. Not so, says the Health Bureau in no uncertain terms. Electronic cigarettes should not be considered an alternative to conventional tobacco products, say the authority. A universal smoking ban bill is progressing through the legislature www.macaubusinessdaily.com
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Trilateral summit Trilateral co-operation with Japan and S. Korea. Chinese Premier Li Keqiang says Beijing hopes it is free from disturbances. With the three sides firmly fixed on mutual goals. He made the remarks at a joint press conference with S. Korean President Park Geun-hye and Japanese PM Shinzo Abe. Following the first China-Japan-S. Korea leaders’ meeting following a 3.5-year hiatus
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Customs chief found dead A preliminary investigation suggests suicide. The director-general of the Macau Customs Service was found dead in a public toilet in Ocean Garden last Friday. Circumstances surrounding Lai Man Wa’s death are still being investigated. The case has been reported to the central gov’t
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The gaming revenue downturn continues. But opportunities abound in the mass market. Jay Chun tells Business Daily that gaming equipment makers have a golden opportunity to capitalise on the swing in sentiment. Speaking to us ahead of the 2015 Macao Gaming Show, the president of the exhibition’s organiser remains upbeat about industry prospects. Enthusing about the electronic gaming segment. The extra space at the show. The new sector for local purchasing. Plus the new products on offer
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Source: Bloomberg
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2 | Business Daily
November 2, 2015
Macau
Government: Customs chief Lai Man Wa allegedly committed suicide
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he director-general of the Macau Customs Service, Lai Man Wa, was found dead in a public toilet in Ocean Garden last Friday afternoon, with a preliminary investigation indicating that she had committed suicide by slashing her neck and wrists, swallowing sleeping pills and wrapping a plastic bag around her head.
The death of the Customs head was announced by Chief Executive Fernando Chui Sai On last Friday evening, saying that the officer had not been involved in any investigation cases involving the Commission Against Corruption (CCAC). Hosting an urgent press briefing with Secretary for Security Wong Sio Chak, the CE claimed on that
evening that the officer was thought to have committed suicide Meanwhile, the city’s Judiciary Police (PJ) announced on Saturday that it had found a cutter with blood and sleeping pills inside the 56-year old’s bag. In addition, Lai’s head was wrapped in a plastic bag when she was found, with slash wounds found on the right side of her neck and on both wrists. Lai’s body was found in a public toilet by a cleaning worker in the Ocean Garden residential complex in Taipa. The PJ said there was not much blood at the scene. In addition, it did not find any wounds caused by any ‘defence’ of the female official, and her clothes were not dishevelled. Forensic analysis, meanwhile, determined that the cause of Lai’s death was due to suffocation. According to the Secretary for Security, the Customs chief was supposed to have joined him for a meeting in Zhuhai at 4:30 pm on Friday. However, she did not show up and was unreachable. The authorities are still investigating the causes that might have driven the mother-of-two to commit suicide. The Chief Executive said he had already reported the case to the central government, while Secretary Wong would take up the responsibilities of Customs director-general before a new appointment is made by Beijing. This is the first time that the city has experienced the death of a major official during their term since the establishment of the Special Administrative Region Ms. Lai, who joined the Public Security Force (PSP) in 1984, was deputy director-general of the Customs before being promoted as official head during the CE’s major reshuffle of his cabinet last December. K.L.
Gov’t vows to refurbish Portuguese-style villas
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he government says it will soon finish the planning for gentrifying the 12 Portuguesestyle villas sitting on Avenida do Coronel Mesquita, a task that is part of its plan to build a cultural tourism area in the northern district of Mong Ha on the Macau Peninsula. The news came from the Cultural Affairs Bureau's acting director Chan Peng Fai answering legislator Kwan Tsui Hang's written enquiry about the deadline of the gentrification plan for the Portuguese style villas. These villas were the former homes of civil servants during the Portuguese administration in the city. Secretary for Social Affairs and Culture Alexis Tam Chon Weng told media in early October that the villas were part of the government's plan to turn Mong Ha district into a “cultural exhibition area”. The Secretary then mentioned the plan to renovate the old villas in the district into a cultural heritage display centre or a museum, which could help attract tourists to visit the area. The gentrification process of these old villas could take two to three years, Mr. Tam has said.
Merchandise exports reach MOP850 mln in September, up 11.6 pct The value of re-exports of Clocks & watches and Diamonds & diamond jewellery soared by 343.3 per cent and 229.0 per cent, respectively
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tatistics and Census Service (DSEC) data indicates that total merchandise exports for September 2015 amounted to MOP850 million, up 11.6 per cent year-on-year; the value of re-exports grew 20.9 per cent to MOP713 million, of which the value of Clocks & watches and Diamonds & diamond jewellery soared 343.3 per cent and 229.0 per cent, respectively; however, the value of domestic exports dropped 20.4 per cent to MOP137 million, of which domestic exports of Tobacco decreased 21.9 per cent to MOP42 million.
Total merchandise imports fell 10.8 per cent year-on-year to MOP6.99 billion. The merchandise
trade deficit amounted to MOP6.14 billion. In the third quarter of 2015, the total value
of merchandise exports (MOP2.69 billion) rose by 18.6 per cent year-on-year but that of merchandise imports (MOP21.06 billion) dropped 4.4 per cent, resulting in a trade deficit of MOP18.37 billion.
First three quarters
In the first three quarters of 2015, the total value of merchandise exports grew 11.8 per cent year-on-year to MOP8.14 billion, of which the value of re-exports (MOP6.81 billion) increased 17.4 per cent, while that of domestic exports (MOP1.34 billion) declined 10.3 per cent. The
total value of merchandise imports fell 1.7 per cent to MOP63.73 billion. The merchandise trade deficit widened to MOP55.59 billion for the first three quarters of 2015. Analysed by destination, merchandise exports to Hong Kong (MOP4.94 billion) and Mainland China (MOP1.34 billion) in the first three quarters of 2015 increased by 15.1 per cent and 19.3 per cent year-on-year, while exports to the EU (MOP170 million) and the USA (MOP149 million) decreased 22.0 per cent and 38.2 per cent, respectively. By country of origin, merchandise imports from Mainland China (MOP23.51 billion) in the first three quarters of 2015 increased 11.2 per cent year-on-year, while imports from the EU (MOP14.37 billion) fell 12.2 per cent. External merchandise trade reached MOP71.88 billion in the first three quarters of 2015, down 0.4 per cent compared with MOP72.14 billion a year earlier.
Business Daily | 3
November 2, 2015
Macau Government increases parking fee in 11 car parks The government is to increase the parking fee in 11 busy public car parks from December, a special dispatch by Chief Executive Fernando Chui Sai On announced last week. The monthly pass charges for reserved and non-reserved parking spaces have been lifted to MOP2,300 (US$287.5) and MOP1,600, respectively, while that for motorbikes is increased to MOP400. For hourly parking, the new charges for parking space is MOP6 from 8:00am to 8:00pm, and MOP3 for night-time. The hourly parking fee for motorbikes, meanwhile, rises to MOP2 for the daytime and MOP1 for night-time. The Transpot Bureau also said that they are going to increase the parking fee for the remaining 27 public car parks starting from the beginning of next year
Home prices drop 14.2 pct in September The average price of housing per square metre stood at MOP83,595, as the number of transactions increased from a year ago
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he average price per square metre of local real estate dropped 14.2 per cent year-onyear during September to MOP83,595 (US$10,472) per square metre, from MOP97,386 per square metre one year ago. However, in comparison to one year ago, the number of housing transactions in the territory increased by five transactions year-on-year to a total of 466 from 461 in September 2014, according to data released by the Financial Services Bureau (DSF) on Friday. Compared to the data from September of this year with August, the price of property declined 0.6 per
cent from MOP84,087, but the number of transactions increased 23 month-onmonth from some 443. In September, the most expensive houses were in Coloane, with the average price of MOP101,930 per square metre resulting from 24 home transactions. However, the price shrank by MOP35,122 year-on-year from MOP137,052, resulting from 34 transactions. Coloane recorded a 25.6 per cent decline in prices. As per one year ago, Taipa is the second most expensive area in Macau, but the price of real estate dropped on the island 21.2 per cent yearon-year to MOP87,950 per square metre from
MOP111,677. However, the decline in the price resulted in an increase in the number of transactions that went up to 70 from 56, an increase of 25 per cent. The Peninsula is the cheapest area in the territory to acquire a home,
with the average price per square metre amounting to MOP80,993. Also on Macau Peninsula, there was a drop in prices in comparison with September 2014 from MOP89,304, representing 17.6 per cent. Transactions remained stable with 372
transactions in September, meaning one less transaction than one year ago. According to DSF, the average area occupied by each unit was 70 square metres, exactly the same as one year ago. J.S.F.
4 | Business Daily
November 2, 2015
Macau
Package tourists down 25 per cent in September The 5-star hotel occupancy rate also dropped 5.2 pct. DSEC says the increase in the supply of guestrooms is outpacing the growth in number of guests
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Retail receipts: First single digit growth since 2004 In 2014, retail trade receipts increased 4.3 per cent having been pummelled by the slowdown in visitor spending
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he slowdown in visitor spending in the territory of last year has given way to the first single digit growth in retail trade receipts since 2004. According to the Wholesale and Retail Survey 2014 published by the Statistics and Census Service (DSEC), Retail Trade receipts amounted to MOP68.75 billion (US$8.61 billion) last year, which was an increase of 4.3 per cent from MOP65.91 billion. In terms of retail, the sale of watches, clocks and
jewellery goods dropped 11.5 per cent to MOP18.56 billion. However, sale of goods in department stores (MOP11.40 billion), leather articles (MOP8.35 billion), adults’ clothing (MOP7.05 billion) and goods in supermarkets (MOP4.75 billion) recorded growth rates amounting to 2.9 per cent, 12.1 per cent, 9.7 per cent and 11.5 per cent, respectively. In terms of the expenditure of the retail trade it increased at a faster pace than receipts, growing at a 7 per cent year-
on-year rate to MOP60.92 billion from MOP56.94 billion. Operating expenses (MOP10.41 billion) and compensation for employees (MOP4.82 billion) grew 22 per cent and 21.3 per cent, respectively. However, 75 per cent of the expenses of the retail trade are related to the purchase of goods and commission paid, which increased 2.8 per cent to MOP45.69 billion. In spite of the slowdown, in 2014 the sector continued to expand as there were a total of
isitors on package tours totalled 723,000 in September 2015, down 24.9 per cent year-onyear according to the latest data from the Statistics and Census Service (DSEC) . Package tourists from Mainland China (596,000), Taiwan (37,000), Hong Kong (18,000) and the Republic of Korea (17,000) dropped 23.6 per cent, 41.7 per cent, 31.1 per cent and 52.2 per cent, respectively, year-onyear, while those from Japan (17,000) rose by 28.4 per cent. Visitors arriving on package tours totalled 679,000, down 14.7 per cent year-on-year; meanwhile, visitors joining local tours decreased by 73.3 per cent to 45,000. In the first three quarters of 2015, visitors on package tours totalled 7,392,000, down 8.0 per cent yearon-year; those arriving on package tours decreased by 5.1 per cent to 6,277,000. Outbound residents using services of travel agencies totalled 112,000 in September 2015, down 8.6 per cent yearon-year; those travelling on package tours decreased 3.4 per cent to 43,000, with the main destinations Mainland China (80.2 per cent of total), Taiwan (5.2 per cent) and Hong Kong (3.8 per cent). In the first three quarters of 2015, outbound residents using the services of travel agencies totalled 1,117,000, down 1.4 per cent year-onyear.
The number of guests checking into hotels and guesthouses totalled 853,000, up 0.1 per cent year-on-year. Guests from Mainland China (533,000) decreased 2.6 per cent, while those from Hong Kong (135,000) increased 33.1 per cent. The average length of stay of guests held as September 2014, at 1.4 nights. The average occupancy rate of hotels and guesthouses was 78.4 per cent, down 6.2 percentage points year-onyear. Meanwhile, 5-star hotels posted the highest occupancy rate of 80.7 per cent, representing a yearon-year decrease of 5.2 percentage points as the increase in the supply of guest rooms (+8.2 per cent) outpaced the growth in guests (+4.3 per cent). In the first three quarters of 2015, guests of hotels and guesthouses totalled 7,604,000, while the average occupancy rate stood at 80.0 per cent, down 5.7 per cent and 6.3 percentage points, respectively, year-on-year. Visitor-guests accounted for 68.0 per cent of the total overnight visitors, down 0.8 percentage points. According to DESC, some 103 hotels and guesthouses were operating at the end of September 2015, providing 30,000 guestrooms, up 7.4 per cent year-on-year. The number of guestrooms in 5-star hotels totalled 20,000, accounting for 66.3 per cent of the total inventory.
6,464 retail establishments, up 413 from 2013, and 35,350 people engaged, which was up 14.4 per cent year-on-year.
Industry expenses increased 30 per cent yearon-year to MOP34.29 billion from MOP26.38 billion, mainly driven by the increase in purchase of goods and commission paid, which expanded by 31.8 per cent to MOP29.44 billion. At the same time, compensation to employees increased 23.5 per cent to MOP2.34 billion. By the end of 2014, there were 4,948 wholesale establishments, an increase of 326 year-on-year, with 19,701 persons engaged in the sector, a growth of 15.2 per cent. According to DSEC, receipts from the sale of motor vehicles and automotive fuel decreased 1.8 per cent to MOP7.53 billion from MOP7.67 billion. This was mainly driven by the decrease of receipts from the sale of motor vehicles, which declined 9.8 per cent to MOP4.65 billion. However, income generated by the sale of automotive fuel increased 7.3 per cent to MOP1.56 billion.
Whole trade receipts up 27.9 per cent
In 2014, receipts from the wholesale trade increased 27.9 per cent year-on-year to MOP36.57 billion from MOP28.60. According to DSEC, the receipts of the wholesale of food, beverages and tobacco alone generated 30.7 per cent of total industry receipts, amounting to MOP11.21 billion. This was an increase of 21.4 per cent in relation to the previous year. During the same period, the sales of solid, liquid and gaseous fuels and related products increased 32 per cent year-on-year to MOP6.54 billion, while sales of machinery, equipment and supplies (MOP6.11 billion) and the wholesale of other consumer goods (MOP6.86 billion) increased 70.8 per cent and 13 per cent, respectively.
J.S.F.
Business Daily | 5
November 2, 2015
Macau
Health Bureau defends proposed ban on e-cigarette sales The local health authority said it did not agree with a survey suggesting that smokers would like to be able to choose to switch to less harmful alternatives to traditional tobacco products such as e-cigarettes Stephanie Lai
sw.lai@macaubusinessdaily.com
and that the efficacy of e-cigarettes helping smokers to quit smoking has not been systemically evaluated. Electronic cigarettes are the most common prototype of ENDS. The WHO report, which recommends strict regulation of e-cigarettes and bans sales to minors, noted that the aerosol to ENDS users usually contains some carcinogenic compounds and other toxicants. ‘The fact that ENDS exhaled aerosol contains on average lower levels of toxicants than the emissions from combusted tobacco does not mean that these levels are acceptable to involuntarily exposed bystanders,’ the WHO report reads. ‘In fact, exhaled aerosol is likely to increase above background levels the risk of disease to bystanders, especially in the case of some ENDS that produce toxicant levels in the range of that produced by some cigarettes.’
Banning the trade
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he city’s Health Bureau has defended its proposed ban on local sales of electronic cigarettes as part of the amendment of the tobacco control regime, saying that it does not agree with a survey suggesting that most smokers want to be able to choose to switch to ‘less harmful’ alternatives such as e-cigarettes. In a statement released on Thursday night, the Bureau stated that e-cigarettes are not less harmful than traditional cigarettes, and that e-cigarettes should not be considered as an alternative to conventional tobacco products. “To ensure public health, the MSAR Government has clearly suggested regulating e-cigarettes as a tobacco product as written in the
delivered bill on the amendment of the tobacco control regime, and this has already gone through the first reading in the Legislative Assembly,” the Bureau stated. The bill, which is now being reviewed by the second permanent committee of the Assembly, suggests a blanket ban on e-cigarette sales. The same bill also proposed a universal smoking ban in the city’s casinos. The Health Bureau’s statement followed the Thursday briefing of two Hong Kong-based consumer advocacy groups calling for the government and legislature to give an opportunity to adults to choose e-cigarettes as a safer alternative to smoking. The two groups are Fact Asia and Asian Vape Association, and the former’s supporters include
Axiom Select, the Tobacco Vapour Electronic Cigarette Association, and Philip Morris International. In the briefing, Fact Asia has presented a survey conducted by Ipsos of 404 local adult smokers in late August to mid-September, in which 54 per cent agreed that e-cigarettes represent a positive alternative to smoking. Some 55 per cent of respondents agreed that the government should not prevent or delay legalising less harmful products. The Health Bureau said they disagreed with the conclusion of the survey. Citing a World Health Organisation (WHO) report of 2014 on electronic nicotine delivery systems (ENDS), the Bureau stressed the possible health risks to ENDS users and non-users
In Macau’s neighbouring city Hong Kong, the health authority is considering a ban on the sale of e-cigarettes despite a recent British Study suggesting their vapours are around 95 per cent less harmful than tobacco. Currently, e-cigarettes can be sold legally in Hong Kong, and they are regulated as pharmaceutical products by the Pharmacy and Poisons Ordinance. The study, conducted by Public Health England, concluded that most of the chemicals causing smokingrelated diseases were absent in e-cigarettes. The study also suggests e-cigarettes should be promoted as a means to help smokers quit. Macau’s legislature will soon be considering whether it goes along with the government’s proposed ban on e-cigarette sales, as legislator Chan Chak Mo noted last week that he was still hopeful the bill could be approved before the legislative year ends in August, 2016. “We recommend that the Legislative Assembly take note of regulations that have been introduced in other countries, and look at the body of evidence. They should introduce evidence-based regulation of e-cigarettes in Hong Kong instead of banning them without any in-depth understanding of the reasons why harm-reduction experts are calling for their legalisation,” co-founder of factasia.org Heneage Mitchell commented in a note to the survey.
6 | Business Daily
November 2, 2015
Macau
MGM Resorts creates REIT for hotels to help boost value MGM Resorts International said it would form a publicly traded real estate investment trust comprising 10 properties, including the Mirage, a move that will simplify the company’s structure and shift about US$4 billion debt off its balance sheet
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GM Resorts International, the Las Vegas casino owner that’s been under pressure from an activist investor, plans to put many of its hotel-casinos into a real estate investment trust to cut debt and boost its stock. MGM Resorts will put 10 properties with 24,000 hotel rooms -- including Mandalay Bay, The Mirage, New York-New York and Luxor in Las Vegas -- into a REIT that will be called MGM Growth Partners LLC, the company said last Thursday in a statement. The new business will assume approximately US$4 billion of debt. The casino owner is joining companies including Penn National Gaming Inc., Caesars Entertainment Corp. and Pinnacle Entertainment Inc. in turning to a REIT. Land & Buildings Investment Management LLC, an activist investor, has been pushing MGM Resorts to restructure, and Chairman and Chief Executive Officer Jim Murren had said a decision would come this year. “We had the luxury of time, rather than react to kind-of, half-backed ideas that were thrown around earlier this year,” Murren said in a telephone interview Thursday. “The company has come up with a solution that’s almost virtually friction-less. We’re
not calling or breaking bonds or purging profits. It’s value accretive.”
Macau fails
MGM Resorts is in the middle of a separate effort to boost profit by US$300 million annually through a combination of cost- cutting and steps to increase revenue. The company has had to cope with a steep drop in business from the Chinese enclave of Macau, one of its largest markets, as well as weak betting at home. The company’s largest individual shareholder, Kirk Kerkorian, died in June, leaving instructions that his 16 per cent stake be sold in an orderly fashion. MGM Resorts also reported thirdquarter earnings that beat analysts’ estimates after reducing expenses. Profit totalled 12 cents a share, excluding items, compared with a loss of 4 cents a year earlier. Analysts were forecasting profit of 4 cents, the average of 17 estimates compiled by Bloomberg. The company’s whollyowned domestic resorts reported their highest earnings before interest, taxes, depreciation and amortization in seven years, Murren said.
Popular Tool
REITs have become a popular tool to lower taxes and improve returns
for investors. They don’t pay federal income taxes and are required to distribute at least 90 per cent of taxable earnings as dividends. MGM Resorts will lease the 10 properties from the REIT -- which will also own the MGM Grand Detroit in Michigan, and the Beau Rivage and Gold Strike Tunica in Mississippi -under a deal with an initial 10-year term and options for four, five- year extensions. The company will keep full ownership of the Bellagio and MGM Grand Las Vegas. The transaction is expected to be completed in the first quarter. MGM Resorts will sell approximately 30 per cent of MGM Growth Partners to the public, retaining the rest, Murren said. Such a structure will allow MGM Resorts to avoid some of the stumbling blocks associated with distributing the REIT’s stock to current shareholders. They include acquiring approval for a spinoff from the Internal Revenue Service, as well as limits on individual ownership of the entities, Murren said. Jonathan Litt, co-founder of Land & Buildings, didn’t respond to a request for comment. An executive search firm is seeking CEO candidates for the REIT, as well as potential board members, Murren said. The impact of $4 billion less debt on MGM Resorts’ balance sheet
KEY POINTS MGM to maintain control of new REIT To contribute 7 Las Vegas, 3 regional properties To keep ownership of Bellagio, MGM Grand Las Vegas
should lead to higher credit ratings, he said. MGM Growth Partners will have an option to buy two new casinos that MGM Resorts is building in Massachusetts and Maryland. It will also look to buy additional resorts. “There will be gaming assets that will shake out over next few years,” Murren said. On a conference call with investors Thursday, Murren said the board was reviewing several potential bidders for its Crystals mall in Las Vegas, which he said is worth more than US$1 billion. Bloomberg
Business Daily | 7
November 2, 2015
Macau
Casino revenue extends fall despite more holiday arrivals
“Macau is not out of the woods yet, especially VIP gaming, as we expect Macau to experience three consecutive years of falling gross gaming revenue,” Nomura analysts led by Richard Huang wrote in an Oct. 27 note. Nomura forecasts gross gaming revenue to fall 35 per cent this year and decline another 8 per cent in 2016.
Gross gaming revenue fell 28.4 per cent year on year to MOP20.1 billion in October. Gaming revenue has fallen 35.5 per cent so far this year
Gloomy Golden Week
Macau is not out of the woods yet, especially VIP gaming, as we expect Macau to experience three consecutive years of falling gross gaming revenue Richard Huang, analyst at Nomura
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acau’s casino revenue fell for the 17th straight month, as increased visits over China’s National Day holiday week failed to boost traffic at betting tables in the world’s largest gambling hub. Gross gaming revenue fell 28.4 per cent year on
year to MOP20.1 billion (US$2.5 billion) in October, according to data released by Macau’s Gaming Inspection and Coordination Bureau (DICJ). That compared with the median estimate of a 28 per cent decline from nine analysts surveyed by Bloomberg. Gaming revenue
has fallen 35.5 per cent so far this year. Battered by China’s anticorruption campaign and its slowing economic growth, Macau has seen gaming revenue tumble since mid-2014 as highstakes players or VIP gamblers avoided the former Portuguese colony. Chinese visitor arrivals
Sands China net profit plummets 46 pct in third quarter
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ocal gaming operator Sands China Ltd. saw its profit attributable to shareholders plunge by 46.4 per cent year-onyear to US$344.8 million (HK$2.67 billion) for the third quarter of this year, it told Hong Kong Stock Exchange last Friday. According to the company’s filing, its adjusted EBITDA for the period registered a year-onyear decrease of 32.7 per cent to US$545.4 million from US$811 million one year ago. In addition, its total net revenues posted a year-on-year drop of 28.9 per cent to US$1.65 billion, compared to US$2.32 billion during the third quarter of 2014.
during the Oct. 1-7 National Day break rose 7.1 per cent from a year earlier, according to Macau government data. Visitors from the mainland increased 17 per cent during the same period last year.
Heeding Chinese President Xi Jinping’s call for Macau to rid its economy of an overdependence on gambling, casino operators such as Sands China Ltd. and MGM China Holdings Ltd. are building new resorts with more non-gaming features to attract tourists. Melco Crown Entertainment Ltd.’s Studio City opened its doors on Oct. 27, featuring a Batman ride and a 130meter (400-foot) high Ferris wheel. Gross gaming revenue over the National Day break, also known as Golden Week, was MOP914 million a day, 65 per cent higher than the daily takings in September, Deutsche Bank analyst Karen Tang wrote in a note on Oct. 12. That was still a decline 28 per cent compared with the same period last year. Macau’s VIP segment is being squeezed as the government tightens rules on junket operators, the middle-men who bring in VIPs from China and provide credit for them to gamble. The gaming regulator announced on Oct. 22 stricter accounting requirements for the operators. Bloomberg
Suncity boss: Revenue growth “absolutely possible” in 2016
The company generated most of its net income from The Venetian Macao during the period, of which adjusted EBITDA totalled US$257 million, followed by that earned by Sands Cotai Central, amounting to US$170.3 million of the total. According to its filing, rolling chip volume of The Venetian Macao decreased 32.1 per cent year-onyear to US$6.88 billion for the period, while the rolling chip win percentage was 3.08 per cent for the period, down 0.05 percentage points compared to the same period of last year. The property also registered US$1.05 billion for slot handles. K.L.
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lvin Chau Cheok Wa, owner and chairman of major Macau junket operator Suncity Group, says it is “absolutely possible” that the city could see growth in casino earnings again next year, and that the trend of continuous closures of VIP gaming rooms seen in recent months would end. Mr. Chau was speaking to reporters following a meeting between the Association of Gaming and Entertainment Promoters of Macau and Secretary for Economy and Finance Lionel Leong Vai Tac regarding the accounting rules for junket operators. Mr. Chau is an executive vice president of the Association.
The Suncity boss believes that Macau's gaming market has now bottomed out as “all the bad news” for the industry has already been digested and reflected. The accumulated gross gaming revenue of Macau for the first nine months of this year stands at MOP176.02 billion, down 36.2 percent from a year ago. The month of September has already marked the sixteenth consecutive month of an unparalleled losing streak in the city's casino earnings. The junket promoter said he was not bearish about Macau's gaming business, as he still has confidence in the client source from Mainland China. S.L.
8 | Business Daily
November 2, 2015
Macau
2015 MGS - “Gaming downturn’s a good o The annual three-day Macao Gaming Show kicks off on November 17. Jay Chun, the president of the exhibition’s organiser - the Macau Gaming Equipment Manufacturers Association - told Business Daily that the current gaming downturn in the city has brought more opportunities for this year’s mass market exhibitors, especially gaming equipment makers, as casinos strive to boost their mass market appeal Kam Leong
kamleong@macaubusinessdaily.com
Some 30 pct more exhibitors for 2015 MGS This year’s Macao Gaming Show (MGS) will see its number of exhibitors jump by at least 30 per cent from last year following the establishment of a new area for the city’s cultural and creative industry. “The new cultural and creative area will accommodate about 30 new exhibitors. Due to these new exhibitors, this represents a minimum growth of 30 per cent in the number of exhibitors from last year’s 100 something. In fact, we’re still receiving more exhibitors. In addition, this year, we will have more nongaming elements than in the past few years,” the event Director and General Manager at MGS, Marina Wong, told Business Daily.
copied from those in Macau. They will buy the same machines that they see in Macau for their casinos as the American market is too far away from them. In addition, they are Asians so they are more interested in themes that differ from the U.S. market.
Do international buyers have different demands for machines from local operators?
What are the special features of this year’s Macao Gaming Show (MGS)?
First of all, compared to last year, we have more exhibitors. In addition to land-based exhibitors, we will have exhibitors presenting payment solutions. For the electronic gaming machine segment, a few companies will launch their new products during the exhibition. However, I cannot disclose what these products are at this moment. In terms of venue, the whole area of this year’s MGS is a bit bigger compared to last year. In the current situation, I think it’s good that our area does not decrease. The non-gaming part of the exhibition will be bigger than last year’s as the segment is growing quite fast. But the number of VIP gaming exhibitors will be fewer, while the number of equipment
In our mass market, besides traditional gaming tables, it is all about gaming machines. I think it’s now a very good opportunity for exhibitors when the business is not that good
exhibitors will be greater. Meanwhile, we will offer a new sector of local purchasing for local companies. The Secretary [For Economy and Finance] Lionel Leong has been encouraging gaming operators to purchase local products; as such, we have invited some gaming operators to introduce the whole procurement procedures of gaming companies. It is because many local companies may not fully understand such procedure. In addition, we also have a new Korean sector for Korean companies, primarily technology companies.
Who are the target buyers of the exhibitors? In addition to local buyers, they aim [to reach] regional buyers. Like for Vietnam, their standards on gaming machines are totally
The demands of the two groups are not too different. As I mentioned, Vietnamese casinos, instead of building their own standards, will follow Macau to decide which models of machine can be approved to place in their casinos. For Cambodia, they don’t have the authority to supervise this. And I think buyers from Singapore, Australia and South Africa will also come to this year’s exhibition, as well as those from America as they are interested in the Asian market.
Amid the gaming downturn, is attracting exhibitors more difficult?
It depends upon the business models of different companies. Currently, the industry is focusing on increasing the proportion of mass market, not totally replacing the VIP gaming market, but at least to lift its percentage of total gaming revenues. In our mass market, besides traditional gaming tables, it is all about gaming machines. I think it’s now a very good opportunity for exhibitors when the business is not that good. In the past, casinos didn’t care about the mass market, only the VIP rooms; but the mass market is now the segment that every operator cares about the most. Hence, they
Business Daily | 9
November 2, 2015
Macau
opportunity for gaming machine makers”
think about how the revenues from the sector can be boosted. For exhibitors, I think they understand it and are all trying to present something new for MGS this year.
So the demand for gaming machines is surging…
Absolutely. Every company is striving to do well in the mass gaming market, which has actually pressured the management teams. The pressures are from their boss and their shareholders as the major six casinos here are all listed companies. As such, they will look for new things for their business. They will be more dilligent in doing so than before.
Two new casinos opened this year, with four more to launch next year. Do you think supply is higher than demand as revenues are still dropping?
I don’t think so. In many overseas casinos, like those in the United States, there are one-cent gaming machines. Imagine when we play cards or mahjong with our friends, no-one would argue if the bets involved are only some 100 dollars. In the past, our mass market’s electronic facilities were not that varied and the minimum bets were high. However, if companies lower the minimum bets for these games they would become entertainment for customers as people won’t feel sad about losing a few hundred dollars. And there will be more people playing the machines inside the casinos as they can spend the same amount of money as before but playing for a longer time. For the long term, the machines could become more entertaining than gambling. I think this is what every company here is aiming to reach.
In your opinion, then, lower the bets and improve the business?
Of course, it will be more difficult to earn money if we lower the minimum bets. Say, before we only needed 100 people to earn 100,000 dollars, we may now need 300 to earn the same amount.
But for me, it’s always better to have a market of 300 people than only 100. When we lose 10 of the 100, we will lose 10 per cent of our total customers. But when you lose per cent of 300 people, we will still have 270. For the long term and for a healthy market, the mass market should be gradually developed as entertainment, like those in the U.S. where people may spend their whole day playing the machines.
Is electronic gaming a trend for the local industry?
Machines for sure will be a trend; especially as Macau is facing different kinds of issues such as manpower and cost. This market is oversupplied a bit for this year, and some of the VIP rooms have closed but we have four more casinos to open next year. There will be around 1,000 gaming tables, which suggests operators will need to hire at least 5,000 people. When we’re short of manpower, for the long term the mass market will be about gaming machines. This is a global trend. After all, I believe, in between three and five years we won’t have enough dealers in the market as they can only be locals. In fact, we have also co-operated with the Federations of Trade Unions to provide training to local dealers who want to shift to the machine sector. We are thinking of issuing them certificates during the MGS. I believe this kind of training is good for the industry, and for the workers themselves. Many of them don’t like to be a dealer as it is a very [high] pressure [job] in which you cannot make mistakes at all. Being a slot-machine attendant will be more relaxing, as the tasks are more technical, while the salary is not bad.
How do you see sales of this year’s MGS?
I am confident. Of course, some casinos are cutting their budgets, but no matter - I don’t think companies will cut the budgets
Do you think the new batch of casinos in Cotai will attract more customers, particularly the premium class?
For the long term and for a healthy market, the mass market should be gradually developed as entertainment, like those in the U.S. where people may spend their whole day playing the machines
For the existing casinos, their percentage of revenues generated by the mass market has increased this year from last year. It is difficult for the mass market to soar in a short period of time to be like the VIP segment. Although it would take longer to occupy a bigger proportion of total revenues, it will be very stable when it reaches that level. When the VIP market attracts 100 gamblers, the mass market can attract 10,000. Hence, the stability of the mass market will be higher than the VIP market for sure. And it won’t be easily affected by fluctuations in the economy so I’m always confident in the growth of the mass market.
Are there any particular expectations of this year’s MGS? for their production tools. When businesses are bad, they need to buy more production tools to boost their businesses, or they cannot attract customers, especially when all the other companies have got something new. In general, I really think the current situation will give more opportunities to [suppliers]. When the VIP business was good before casinos were not willing to spend money buying gaming machines. But if they don’t have the machines now, their opportunities will be decreased. For my own company, I can also see the demand for gaming machines has been surging.
In your opinion, how can we boost our mass market?
I think it depends upon the promotion techniques. Here I’m not only talking about ads but other marketing tools. Of course, for self-gaming, maybe we should promote more Asian themes. Before, there were many foreigners in the mass market. But I think we should now promote other themes to attract attention.
Our exhibition is a trade show, of which the aim is to help all suppliers do business. I hope this year’s buyers can see more and buy more machines that can boost their revenues in the current situation… And we hope MGS can turn out to be a one-stop shopping conference for integrated resorts in between three and five years so that buyers - no matter they own casinos or hotels - can buy everything they need in our exhibition. The three-day exhibition includes six major categories; namely, Gaming Equipment and Accessories, Gaming Promoters (Junkets) and VIP Clubs, Casino Fixtures and Fittings, Promotional Services and Memorabilia, Food and Beverage, and Entertainment and Performance. According to Ms. Wong, this year’s exhibitors come from South Korea, Italy, Germany, the United Kingdom, Japan and Taiwan in addition to local companies. She added that more than 40 gaming machines would be placed in the machine experience sector this year, a 10 per cent increase on last year.
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November 2, 2015
Greater China
Premier Li says “a lot of room” left for China consumption to grow China said last week that it will significantly increase the share of consumption in its economic growth in the next five years and increase its targeted adjustment to economic policy to keep growth at a relatively quick pace “We will firmly pursue restructuring and reform. There may be fluctuations in economic indicators but there will not be major ones.” Li is on an official visit to South Korea and attended the first summit of the leaders of South Korea, Japan and China in more than three years on Sunday.
Next five years
Chinese Premier Li Keqiang
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hina is firmly committed to restructuring and reforms and consumption has “a lot of room” to grow, Premier Li Keqiang said on Sunday, dismissing concerns that the economy may be at risk of a hard landing. The world’s second-largest economy continues to grow at nearly 7 per cent, Li told a gathering of business leaders
in South Korea, which counts China as its largest export market. “The Chinese economy will maintain a mid- to high-level of growth for quite some time in the future,” Li said, according to comments released by the Korean Chamber of Commerce and Industry, one of the groups that hosted the premier.
“China possesses a large market, and it has potential, in particular, the consumption potential has not been fully realised,” he said. “We believe Chinese consumption is at half (its capacity). There is still a lot of room.” China said last week that it will significantly increase the share of consumption in its economic growth in the next five years and increase its targeted adjustment to economic policy to keep growth at a relatively quick pace. Li said it was natural for the rate of growth to slow as the economy grew in scale. “You may have seen reports that the Chinese economy is continuously slowing, but when you look at the figures, the rate is gradually falling.” Weighed down by weak exports, industrial overcapacity and high local government debt, China’s economy grew
China possesses a large market, and it has potential, in particular, the consumption potential has not been fully realised Li Keqiang, China Premier
by 6.9 per cent in the third quarter from the same period a year earlier, far more robustly than more developed economies but still its slowest pace of expansion since the global financial crisis. Earlier on Sunday, South Korea reported its exports slumped the most in more than six years in October, with hefty drops in shipments to China, the United States and Europe suggesting a further weakening in global demand.
Hong Kong home transactions headed for 20-year low
High leverage shifts to bond market after equities deflate
The government has previously said it plans to increase total housing stock by 18 percent, or 480,000 homes
Investors say rising bond prices and rapidly rising supply pose mounting risks, but see no reason for alarm yet
H
ong Kong’s existing-home transactions probably fell to the lowest level in almost 20 years in October as prospective buyers are waiting for prices to drop and sellers refrain from settling for less money, according to Ricacorp Properties Ltd. The number of transactions in the secondary market may fall to about 2,000, the lowest level since at least 1996 when the property agent started collecting the data, Derek Chan, head of research at Ricacorp, said in an e-mailed statement Wednesday. That would be lower than the 2,200 to 2,500 monthly transactions recorded in 2003, when the city was in the grip of the severe acute respiratory syndrome, known as SARS. Hong Kong Chief Executive Leung Chun-ying on October 22 vowed to “resolve the housing issue” in the financial center, where home prices have jumped more than 370 percent to a record since 2003. The government has previously said it plans to increase total housing stock by 18 percent, or 480,000 homes, in the next decade. Leung and the city’s de facto central bank have also implemented a series of cooling measures, including tightening mortgage rules and raising
Nathaniel Taplin
transaction levies for overseas investors. Leung, in his October 22 speech to lawmakers, also said prices in primary and secondary markets have “started to decline,” without providing specific data. Banks including JPMorgan Chase & Co. and Morgan Stanley have said they expect property prices will start to fall in Hong Kong as the economy weakens and interest rates increase. Henderson Land Development Co. Chairman Lee Shau-kee said prices would fall 5 percent in the each of the next two years, according to a Hong Kong Economic Times report on October 16. Secondary private residential property prices dropped 0.19 percent during the October 12-18 period from a week earlier, falling for a fourth week in five, according to an index published by broker Centaline Property Agency Ltd. Total property transactions, including new homes, in the first 26 days of October were 3,711, down 24 percent from the same period a month earlier, Chan said in the statement, citing Land Registry data. He expects total transactions to be 4,640 in October, the lowest in 19 months. Bloomberg News
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ust when investor fears over plunging Chinese stocks appear to be calming down, the country’s frothy corporate bond market is stirring concerns it could be the next domino to fall. Investment funds have flowed rapidly into corporate bonds since the stock market collapsed in June, triggering a surge of debt issuance. Demand has compressed corporate and sovereign bond spreads to their narrowest in four years - an oddity, when industrial profits are falling and credit risks are rising. While bond investors say corporate bond prices are not at unreasonable levels, they are wary a sharp correction could be sparked by a bond default from major state-owned companies or a change in monetary policy. “What concerns us is the narrowing credit spread between corporate bonds and government bonds, despite shrinking corporate profits,” said
Zhou Hao, senior emerging markets economist at Commerzbank in Singapore. “In addition, we are also worried about the rising leverage ratio in bond positions.” The People’s Bank of China has also weighed in with Vice Governor Yi Gang saying on Saturday the central bank is looking into leverage levels in the debt market. China’s local governments and state-owned enterprises are burdened with worryingly high levels of debt. Sinosteel last week delayed interest payments to bondholders, deepening concerns about potential bond defaults. Local media also have highlighted rising leverage in fixedincome structured products - an uncomfortable parallel with the margin-fuelled equity meltdown this summer. A vice president at a large fund in Hong Kong who deals with Chinese
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November 2, 2015
Greater China
China’s factory gauge signals continuing contraction China’s first key indicator this quarter, an official factory gauge, missed analysts’ estimates, signaling that the manufacturing sector has yet to bottom out as global demand falters and deflationary pressures deepen
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he official purchasing managers index was unchanged at 49.8 in October, the National Bureau of Statistics said Sunday, compared with the median estimate of 50 in a Bloomberg survey. It was the third straight reading below 50, the line between expansion and contraction. The official non-manufacturing PMI, a barometer of services and construction, fell to 53.1 from 53.4 in September, the weakest since December 2008. “The manufacturing sector is still contracting, though stabilizing,” and the report indicates economic momentum remains sluggish, said Liu Ligang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “We still believe the Chinese economy will experience modest rebound supported by faster infrastructure investment in November and December.” The newest data highlight the challenges confronting China’s old growth drivers.
The nation’s leaders have reiterated priorities of both reforming the economy and maintaining medium- to high-speed growth in the next five years, according to a communique released by Xinhua News Agency on Thursday. The readings suggest continued monetary easing by the central bank hasn’t yet boosted smaller businesses as much as their larger, stateowned counterparts, which are able to borrow at reduced rates. “Big companies are stabilizing, while smaller ones continue to perform below the contraction-expansion line,” Zhao Qinghe, a senior statistician at NBS, wrote in a statement interpreting the data on Sunday. “The percentage of small companies facing a financial strain is considerably higher than that of bigger companies.”
‘Managed stabilization’
The unchanged manufacturing PMI suggests
“managed stabilization” as policy makers strive to balance growth, reform, and market stability, according to Zhou Hao, a senior economist at Commerzbank AG in Singapore. The manufacturing sector stabilized “somewhat” due to monetary policy easing, Zhou said, while slowing power generation, steel production and housing sales are “suggesting that the overall economy is still under downward pressure.” The employment gauges of both manufacturing and non- manufacturing sectors remained mired in contraction zone, Sunday’s report showed. China’s surveybased unemployment rate picked up slightly to around 5.2 per cent in September, while a ratio of job supply and demand rose in the third quarter. One highlight in Sunday’s data was a pickup in the activities of the construction sector. The reading of new construction orders jumped
by 5.5 percentage points to 55.1, signaling demand recovering, according to the NBS statement. New export orders showed declines in both PMI gauges, indicating the nation’s exporters are still challenged as they enter the final quarter of the year. The PMI report suggests that measures to support growth over the past year haven’t been enough and additional easing, most likely in the form of more targeted measures, may prove necessary to prevent a
further slide in fourth-quarter output, according to Fielding Chen, a Bloomberg economist in Hong Kong. The People’s Bank of China has cut its benchmark interest rate six times in the past year, to a record low. “This has reduced funding costs for firms and provided support for the slowing economy,” Chen wrote in a report Sunday. “Nevertheless, it may not be enough to offset headwinds from lackluster investment and weak exports.” Bloomberg
KEY POINTS Corporate debt spreads over govt bonds tightest in 4 years Rising leverage deepens risks in bond markets China c.bank says looking into debt market leverage Signs of repo leverage moving back into both bonds and equities
debt called onshore corporate debt expensive, but noted “tons of demand from mainland offshore institutions”.
Leverage and supply
Different factors appear to be driving the high leverage in China’s two bond markets - the bigger interbank market and the smaller exchange-traded corporate bond market - but analysts see the smaller of the two as more of a concern for fixed income investors. Data suggests high trading volumes in the interbank bond repurchase
(repo) market - the main venue for bond-backed borrowing - are linked to stock buying. Volumes jumped more than 60 percent in the second quarter but fell sharply in August as the equity bubble deflated. The recovery in equity markets in recent weeks has spurred a pick-up in interbank repo activity again. The picture is muddier in the exchange bond market, where issuance is surging as companies take advantage of easier regulations and investors seek the relative safety of bonds.
Repo volumes on the Shanghai exchange rose 15 percent in the third quarter, up from a 10 percent rise in the second, even as the stock market corrected. Meanwhile, net corporate debt issuance hit a 17-month high of 327 billion yuan (US$51.5 billion) in September, up nearly 70 percent from January. Demand has been so strong that some firms such as property developer China Vanke sold a bond at 3.5 percent, 4 basis points below the yield of China Development Bank bonds.
Investors say rising bond prices and rapidly rising supply pose mounting risks, but see no reason for alarm yet. “To a certain extent this is a case of new supply driving demand, and there may be a limited lifespan,” said a bond fund manager at a buy side firm in Singapore. “But so far the new issuers are pretty credible.” Still, given rich valuations, analysts caution that the financial system could be severely affected if a major state-owned enterprise fully defaults or a policy change causes renewed capital outflows. Goldman Sachs estimates China’s bond market - government and corporate debt - at about US$4.24 trillion in 2014, the world’s third largest. “If a big SOE really defaults, then it’s likely to re-price the onshore bond market which is trading very tight right now versus the offshore bond market,” said Annisa Lee, regional head of credit analysis at Nomura. Reuters
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November 2, 2015
Asia
China, Japan, South Korea declare cooperation fully restored The three countries pledge economic cooperation at first summit in over three years “We agreed we would continue to try to achieve peace and stability in the region based on the spirit that we squarely face history and look to the future,” Park said at a press conference with Abe and Li. “We assessed that practical cooperation in a variety of areas has increased among the three nations despite fluid circumstances in and out of the region.”
Territorial spats
Japnese Prime Minister Chinzo Abe (L), South Korean President Park Geun Hye (C) and Chinese Premier Li Keqiang
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hina, Japan and South Korea said their cooperation was “completely” restored after three years of strained ties and pledged to work collectively to respond to everything from slowing economic growth, to terrorism and the North Korean nuclear threat.
The agreement came Sunday in Seoul, where South Korean President Park Geun Hye, Japanese Prime Minister Shinzo Abe and Chinese Premier Li Keqiang held the first three-nation summit in more than three years. Territorial and historical disputes
have raised tensions in their region since the previous summit in 2012, while their share of the world economy has risen to more than 20 per cent. Investment among the three countries has increased in recent years as China became the biggest trading partner for both Japan and South Korea.
China and Japan have squared off over the sovereignty of islands in the East China Sea, while South Korea and Japan remain deadlocked over another set of islets. Japan’s wartime actions also remain a sensitive topic in China and South Korea. Both China and South Korea have demanded Japan do more to address its wrongdoing in World War II. The three leaders also agreed to boost efforts to sign a free-trade deal, Park said. The countries have engaged in negotiations since early 2013. A deal could provide a boost to the region at a time of slowing growth. The three nations will work toward the “prompt” resumption of six-nation nuclear talks on North Korea, she said. The talks -- last held in 2008 -- also involve the U.S. and Russia. North Korea said recently it had restored its nuclear reactor and has threatened to attack the U.S. with nuclear missiles.
Malaysian central bank accepts dollar deposits as ringgit sinks Elffie Chew
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alaysia’s central bank started taking in interbank dollar deposits for the first time in September to try and slow a slide in Asia’s worstperforming currency. Bank Negara Malaysia is accepting deposits in small amounts, according to a person familiar, who asked not to be identified because of company policy. The move will help build up the
country’s currency reserves, two other people said. The monetary authority said in response to questions that it’s encouraging financial institutions, including branches of overseas banks, to keep foreign-currency earnings and deposits of Malaysian-based companies in the domestic market. Falling reserves in the Southeast Asian nation have fuelled speculation the central bank has been intervening by selling dollars to help prop up the ringgit. The holdings dropped below the US$100 billion mark in July for the first time since 2010, a blow to investor confidence. They have since recovered slightly
but are still down 19 percent this year at US$94.10 billion. “The move will take the pressure off the ringgit,” said Nizam Idris, head of currencies and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “It will also help to stabilize foreignexchange reserves as it reduces the need for the central bank to intervene.” The ringgit dropped to a 17-year low in September as Brent crude prices fell by more than half from a 2014 peak, crimping government revenue for the region’s only major net oil exporter. Rising debt at state investment company 1Malaysia Development Bhd., slowing growth in
China and prospects of higher U.S. interest rates have also spurred capital outflows, weighing on the currency. It’s fallen almost 19 percent this year.
BNM statement
The central bank said its move is to ensure there’s sufficient dollar liquidity in the “financial system to meet the needs of businesses and households.” “To achieve this, financial institutions including the foreign banks are encouraged to recycle the foreigncurrency earnings and deposits of local corporations in the domestic markets to ensure continuous and
Bloomberg
sufficient level of liquidity,” the e-mailed statement said. Overseas investors were net buyers of the nation’s stocks for a third week through October 23, purchasing 230.4 million ringgit (US$54 million) and reducing outflows this year to 16.9 billion ringgit, according to a report from MIDF Amanah Investment Bank on Monday. That still exceeds the 6.9 billion ringgit for the whole of last year. Central bank Governor Zeti Akhtar Aziz pledged in August to rebuild the reserves. She has, along with Prime Minister Najib Razak, said there’s no plan to revisit capital controls imposed during the Asian financial crisis, when the ringgit was pegged at 3.8 a dollar in 1997 through to July 2005. The ringgit declined 0.6 percent to close at 4.2980 a dollar in Kuala Lumpur on Thursday, according to prices from local banks compiled by Bloomberg. While it’s appreciated 2.2 percent this month it has fallen almost 19 percent in 2015. Bloomberg News
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Business Daily | 13
November 2, 2015
Asia Japan, Canada agree to promote TransPacific Partnership Japan’s Prime Minister Shinzo Abe and Canada’s prime minister-designate Justin Trudeau agreed to promote the Trans-Pacific Partnership (TPP), both seeing the free-trade deal as beneficial to the region, Japan’s foreign ministry said in a statement. The two leaders exchanged views on the pact during a 15-minute telephone call on Friday, Japan’s foreign ministry said. Last month, 12 Pacific Rim countries including Japan and Canada agreed the TPP, a pact which aims to liberalize commerce in 40 per cent of the world’s economy by reducing or eliminating tariffs on almost 18,000 categories of goods. Trudeau is set to become Canada’s second-youngest prime minister after winning a general election on Oct. 19.
S.Korea Oct exports post worst drop in over 6 yrs
Aussie faces low-inflation trap as markets vote for rate cut Candice Zachariahs
A
ustralia isn’t immune to the low-inflation trap infecting economies from China to the U.S. and that’s reviving market expectations for an interest-rate cut next week. Data on Wednesday showed core inflation in Australia unexpectedly slowed in the third quarter, with an average reading of 2.15 percent near the 2 percent lower bound of the Reserve Bank’s annual goal. The Aussie fell a third day Thursday as bets on a November 3 rate cut rose to 58 percent, from 34 percent on last Monday, swaps data shows. The bond market’s expectations for inflation over three years dropped nine basis points this week to 1.81 percent. “All around the world we’re getting weak inflation prints, we shouldn’t be surprised when that happens in Australia as well,” said Vimal Gor, head of fixed-income at BT Investment in Sydney, where he helps to oversees about US$11 billion. “In Australia now we’ve got persistently low and falling inflation and we’ve got a weakening economy -- it just opens the door further for rate cuts by the RBA and we’re surprised they haven’t walked through that door already but we expect them to move next week.”
Unusual developments
Inflation is increasingly becoming the problem most central banks wish they had as declining commodities and currency devaluations pressure already anaemic prices lower still. Too- slow price increases would be an unusual development for Australian policy makers, who haven’t had to contend with consistent undershoots since the late 1990s. Of the two measures the RBA looks at, the trimmed mean CPI slowed to
an annual 2.1 percent pace in the third quarter, the weakest reading since 2012. The gauge hasn’t fallen below 2 percent since the middle of 1999. The weighted median CPI came in at 2.2 percent, the least since a 1.7 percent reported in the second quarter of 2012. It hasn’t been sub-2 percent for consecutive periods since 1998. The Australian CPI report “continues a theme as we’re seeing elsewhere, that there’s a lack of inflationary pressure right across the globe,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. In neighbouring New Zealand, central bank Governor Graeme Wheeler is predicting inflation will undershoot his target for a fifth year while European policy makers are considering adding to unprecedented easing as price changes threaten to become entrenched at a rate closer to zero. The Federal Reserve has held off tightening policy with a preferred gauge of price pressures staying stubbornly below the bank’s goal since 2012. Misses are taking hold even in China where growth remains close to the government’s target of about 7 percent.
RBA forecasts
On a six-month annualized basis, Australia’s two core readings are now running at 1.7 percent, according to Australia & New Zealand Banking Group Ltd. The RBA will be forced to lower its end 2015 forecast for underlying inflation by 25 basis points from 2.5 percent in its November 6 policy statement, Nomura Holdings Inc. said. “In a weak domestic demand, weak global inflation, weak commodity price environment, it’s not hard to imagine those underlying measures
South Korean exports slumped the most in more than six years in October, with hefty drops in shipments to China, the United States and Europe suggesting a further weakening in global demand. The trade ministry attributed the declines mainly to a sharp fall in ship contracts and low oil prices, but the sharper-than-expected deterioration is likely to add to fears that a deeper chill is settling over the international economy. Exports fell 15.8 per cent on-year to US$43.5 billion in October, their 10th straight month of declines and the sharpest fall since August 2009, trade ministry data showed on Sunday. Imports slumped 16.6 per cent to US$36.8 billion.
Iran to announce oil output rise at next OPEC meeting Certainly, the prospect for inflation pressures remains extremely subdued in the coming couple of quarters Jo Masters, senior economist, ANZ Bank
falling below the band,” said Jo Masters, a senior economist with ANZ Bank. “Certainly, the prospect for inflation pressures remains extremely subdued in the coming couple of quarters.” Even the Australian dollar’s 25 percent drop of the past two years hasn’t really spurred inflation as businesses are choosing to absorb any price increases caused by higher import costs rather than pass them on to consumers, she said. “What’s happening now is that the central banks of the world largely are trying to engineer growth and inflation and they are singularly failing to do so,” said BT Investment’s Gor. “We can easily see a path down to 1.5 percent and potentially much lower,” with the RBA probably cutting in November and then again in February, he said. Bloomberg News
Iran will officially notify producer group OPEC in December of its plans to raise its crude oil output by 500,000 barrels per day (bpd), the Iranian oil minister said on Saturday. “We...ask them to respect the 30-million-barrel ceiling which they have agreed,” Bijan Zanganeh was quoted as saying by Shana, the ministry’s news agency. “Iran is prepared to supply at least 500,000 bpd of crude oil to global markets,” he added. The Organization of the Petroleum Exporting Countries (OPEC) will meet in Vienna in early December. OPEC is pumping close to a record high as major producers focus on defending market share. This has added to amply supplies, which have helped cut prices by more than half from June 2014 to below US$50 a barrel.
India’s Rajan defends spirit of debate, right to differ Reserve Bank of India Governor Raghuram Rajan defended freedom of debate and the right to differ amid recent incidents that have raised concerns over religious intolerance in the world’s largest democracy. “India has always protected debate and the right to have different views,” Rajan said during a convocation address at his alma mater, the Indian Institute of Technology, in New Delhi on Saturday. “Excessive political correctness stifles progress as much as excessive license and disrespect.”
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November 2, 2015
International Chipotle shuts restaurants on health risk Chipotle Mexican Grill Inc. closed 43 restaurants in Seattle and Portland, Oregon, as health officials are investigating an E. coli outbreak linked to the Mexican food chain. All 43 restaurants in the areas have been shut after six of them were found connected to the two-week outbreak, during which about 20 people became sick, the Denver-based company said in an e-mailed statement. Three people in the Portland area and 19 in Washington state became ill after eating at the Chipotle restaurants since Oct. 14, according to a statement posted Saturday on the website of the Oregon Health Authority. One-third of those affected have been hospitalized and there have been no deaths, it said.
Air France, Lufthansa to avoid Sinai Air France, the French unit of Air France- KLM Group, and Deutsche Lufthansa AG said they’ll avoid flying over the area in Egypt where a Russian-operated aircraft went down earlier on Saturday, diverting planes as a precaution until more information becomes available on the cause of the crash that killed all 224 passengers and crew on board. The two airlines reacted as Egyptian authorities began probing the cause of the crash in Egypt’s Sinai Peninsula. Preliminary investigations indicate the plane, an Airbus 321 operated by Russia’s Metrojet, may have come down because of a technical issue, the staterun Ahram Gate website said, citing Egyptian security officials.
ECB reveals capital hole in Greek banks Greece’s banks need to raise more than 14 billion euros (US$16 billion) of extra capital to cover mounting unpaid loans, the European Central Bank said on Saturday as it announced the results of stress tests intended to rehabilitate Greek lenders. The capital hole has emerged chiefly due to the rising number of Greeks unable or unwilling to repay their debt, after a dispute over reforms between the leftist government and international lenders almost saw Greece leave the euro. As controls on cash withdrawals have squeezed the economy, loans at risk of non-payment have increased by 7 billion euros to 107 billion euros.
Lula Institute says all Brazilian ex-president’s transactions legal The financial transactions of former Brazilian President Luiz Inacio Lula da Silva involved no illegal activity, the Lula Institute said today in an e-mail commenting on a report in Epoca magazine. Funds in Lula’s bank accounts came from professional, legal and legitimate activities, including lectures, according to the Lula Institute. Epoca magazine had reported earlier that the Brazilian finance ministry’s financial intelligence unit, known as Coaf, found signs of possible irregularities in financial transactions carried out by former President Luiz Inacio Lula da Silva, as well as three former Workers’ Party ministers. The magazine cited a Coaf document it had access to.
Dubai stocks fall to 2-month low as Saudi downgrade Jolts Gulf Gulf banks are seeing surplus cash decline because of the slump in crude
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he DFM General Index dropped 2.2 per cent to 3,425.48 at 1:15 p.m. local time to the lowest level since Aug. 25. Saudi Arabia’s Tadawul All Share Index lost 1.1 per cent after Standard & Poor’s cut the country’s credit rating, citing an increase in the kingdom’s budget deficit after the slump in oil prices. “The downgrade will have implications for banks and financial services sector across the region,” said Muhammad Shabbir, the head of regional equities at Rasmala Investment Bank Ltd. in Dubai. “Banks’ credit ratings could come under pressure, not just for Dubai but for all across the Gulf Cooperation Council. This has implications for the costs of borrowing.” S&P lowered Saudi Arabia’s rating on Friday to A+, five steps below the top grade, with a negative outlook. Saudi Arabia, OPEC’s biggest producer, has suffered as crude’s 40 per cent slide in the past 12 months strains government spending in a country that gets at least 80 per cent of its revenue from energy. Dubai is one of the seven members of the United Arab Emirates, whose oil reserves are the eighth-largest in the world.
‘More bad news’
Brent crude gained 1.6 per cent on Friday to US$49.56 a barrel, paring its decline in the past 12 months to 42 per cent. Dubai’s Emaar Properties PJSC, the company with the largest weighting on the gauge, led the retreat with a 3.9 per cent drop. Dubai Islamic Bank, the U.A.E.’s biggest Shariah-compliant lender, slipped 2.3 per cent. “We see more bad news coming with the recent downgrade of Saudi Arabia,” said Tariq Qaqish, the head of asset management at Dubai-based Al Mal Capital PSC. “Oil is not
breaking the US$50 level and, most importantly, liquidity is drying up.” Gulf banks are seeing surplus cash decline because of the slump in crude. The three-month Saudi Interbank Offered Rate, a benchmark used to price some loans, climbed to the highest since February 2013 on Sunday. The Emirates Interbank Offered Rate in the U.A.E. is trading near the highest in two years. Abu Dhabi’s ADX General Index and Qatar’s gauge fell 0.6 per cent, each. Kuwaiti stocks lost 0.2 per cent, while Bahrain’s All Share Index was little changed. Oman’s MSM 30 Index rose 0.3 per cent led by National Bank of Oman SAOG’s 5.3 per cent increase.
Egypt crash
Egyptian stocks retreated 0.2 per cent. Authorities began investigating the crash of a Russian airplane in the Sinai Peninsula that took the lives of all 224 passengers and crew members on board. Officials from Egypt and Russia have doubted the Islamic State’s claim that it shot the plane down. “Tourism numbers are already down significantly,” said Mohamed Ebeid, the head of brokerage at EFGHermes Holding Co. “I think everyone is waiting to see the real cause of the accident before judging the outcome.”
Minister to resign
Israeli shares declined 0.2 per cent, led by dual-listed companies Perrigo Co. and Teva Pharmaceutical Industries Ltd., which fell in the U.S. on Friday. Tel Aviv’s oil and gas index advanced the most in a week on expectations Minister of the Economy Aryeh Deri will resign, removing a hurdle for the approval of the nation’s natural gas policy. That will allow the companies to begin development of Israel’s largest offshore gas field.
We see more bad news coming with the recent downgrade of Saudi Arabia Tariq Qaqish, Head of Asset Management at Dubai-based Al Mal Capital PSC
“We see an upside for gas stocks as the resignation of Deri promotes a scenario in which the gas framework will be passed and the industry developed,” said Sagie Poznerson, the head of trading at Leader & Co. Investment House in Tel Aviv.
Turkish vote
Turkish citizens went back to the polls for the second parliamentary elections in less than six months. The inconclusive vote in June spurred a selloff in Turkish assets as political parties failed to establish a coalition government, raising questions over who will run the nation’s $800 billion economy. The slump ended last month amid signs that some parties are willing to create alliances should Sunday’s vote result in another hung parliament. October was the lira’s best month in almost four years as it rose 3.8 per cent to 2.9150 against the dollar. The Borsa Istanbul 100 Index and the government’s 10-year bonds both rallied the most in a year. Bloomberg
Business Daily | 15
November 2, 2015
Opinion
Colombia is the ultimate cap wires on Asian coal prices Business
Leading reports from Asia’s best business newspapers
Clyde Russell Reuters columnist
The Jakarta Globe Mid-sized lender Bank Bukopin is planning to raise between Rp 1.5 trillion (US$108 million) and Rp 2 trillion of funds to bolster its capital and maintain lending growth next year, according to a top executive at the private lender. Glen Glenardi, president director of publiclylisted Bank Bukopin, said the company is considering either a bond issuance or a right issuance to rake in the funds, however he declined to disclose further plans. He added the private lender seeks to use the funds to achieve its target of 15 percent and 16 percent lending growth next year, while keeping its capital health in check.
The Japan News Stocks are seen remaining solid this week, with the Nikkei average consolidating its downside above 19,000. Last week, the benchmark 225-issue Nikkei average surged 257.80 points, or 1.37 per cent, on the Tokyo Stock Exchange to close at 19,083.10 on Friday. The Tokyo market attracted purchases most of the week thanks to buying on the back of brisk corporate earnings reports from key Japanese companies, such as industrial robot maker Fanuc and chipmaking equipment manufacturer Tokyo Electron.
The Times of India Finance minister Arun Jaitley on Saturday said India needs to aim for 9-10 per cent growth to create capacity in manufacturing and services sector to absorb 20 per cent of the population presently engaged in agriculture. According to Jaitley, the savings from the drop in global oil and commodity prices provides an opportunity to give the additional push to infrastructure. Speaking at an event organized by the Confederate of Real Estate Developers Association of India on, Jaitley said that a silent revolution was taking place in the form of suburbanization.
The Star A failed listing exercise for 1Malaysia Development Bhd’s (1MDB) energy assets last year is the main contributor to the firm’s present financial difficulties, said its chief Arul Kanda Kandasamy Saturday. According to Arul, 1MDB had two targeted dates in which to list the assets, which are now held under its power unit Edra Global Energy Bhd. The first was in November 2013 and another date was set for November last year. “In both circumstances, for various reasons including internal and external factors, the initial public offering (IPO) did not happen,” he told reporters during a press conference in Kuala Lumpur.
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here are several reasons why coal prices in Asia are unlikely to rally much in the coming years, but the most compelling one is also likely one of the most obscure: Colombia. Why should a South American country that hasn’t exported much coal to Asia recently provide the cap for prices? Because as soon as Asian coal prices rise to a level that would make sense for Colombian miners to resume exports, they will, and they have as much as 25 million tonnes of spare capacity in their production and export chain. It’s true that Colombia and other producers in the Americas, such as the United States and Canada, have been largely forced out of the world’s biggest coal market by the relentless decline in prices. But while U.S. and Canadian miners may struggle to resume exports to Asia even if prices do recover, given they have been closing pits, their Colombian counterparts are largely ready to increase output. The only thorn in their side is a battle over noise with residents that has restricted volumes on the Fenoco rail line linking the main mining region with ports, and put a question mark over the building of a duplicate track. But the problem doesn’t seem intractable and given the support of the Colombian government, it’s likely that a deal will be
Colombian miners have received a significantly bigger boost from currency depreciation than their counterparts in Indonesia and Australia, the world’s two biggest coal exporters
worked out to allow increased capacity on the railway. Even without the expansion, Colombia, the world’s fourthlargest coal exporter, still has the ability to supply millions of tonnes to seaborne markets. At what price can Colombian coal reasonably expect to return to Asia? Certainly the current US$51.84 a tonne for thermal coal at Australia’s Newcastle Port is
unlikely to be high enough to make economic sense. But it’s also likely that the price Colombia coal can make sense is lower than the $90 a tonne that prevailed in 2012, the last time significant volumes of fuel from the South American country made the long journey around the bottom of Africa to Asia. China, the world’s top coal importer, hasn’t bought any Colombian coal so far this year, and imports in 2014 dropped 79 percent from 2013 to just 105,666 tonnes, according to customs data. This is well down from levels seen in 2012, with the record monthly volume from Colombia standing at 860,844 tonnes in July of that year.
Bigger currency boost Since 2012, the main miners in Colombia, the joint venture Cerrejon, U.S.-headquartered Drummond and Murray Energy have worked at reducing costs, a common theme among beleaguered coal miners worldwide. But they have also been helped by a sharp decline in the value of the Colombian peso, which has dropped about 66 percent since the start of 2013 to 2,919.42 to the U.S. dollar as of the close on October 28. In contrast, the Australian dollar has declined by about 32 percent over the same period, and the Indonesian rupiah by about 41 percent.
This means Colombian miners have received a significantly bigger boost from currency depreciation than their counterparts in Indonesia and Australia, the world’s two biggest coal exporters. Add to this still depressed prices for bulk carriers and the price at which Colombian exports could again make sense in Asia drops somewhere closer to US$60-US$65 a tonne. Assuming Newcastle coal prices could reach that point, either through output cuts in Indonesia and Australia, or less likely through a demandled revival, and it becomes a virtual certainty that traders will seek to move Colombian coal to Asia. Strong arguments can be made that coal’s outlook in Asia is grim, including China’s slowing economic growth and determination to move away from the polluting fuel, questions about the strength of Indian import demand as domestic output grows and the increasing competitiveness of liquefied natural gas as a wave of new supply starts to hit the market. While all of these are valid arguments, they aren’t quite as definitive as having a producer with millions of tonnes of capacity ready to roll as soon as prices stage even a modest rally. Reuters
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November 2, 2015
Closing Chinese “Red Notice” fugitive repatriated from Ghana
Cathay Pacific: passenger capacity grew by 6.4 pct in H1
A Chinese corruption suspect who has been at large for three years has been repatriated from Ghana to China, the Communist Party of China’s Central Commission for Discipline Inspection (CCDI) said in a statement on Sunday. Zhao Ruheng, who was one of China’s 100 most-wanted fugitives, was returned thanks to “close cooperation” between the judicial, law enforcement and foreign affairs authorities of China and Ghana, the statement said. China released a list of its 100 most-wanted fugitives in April, Zhao is the 17th to be returned so far.
Cathay Pacific said its passenger capacity grew by 6.4 per cent and cargo capacity by 9.7 per cent during the first six months of this year. The company unveiled its biggest makeover for 20 years yesterday afternoon at Hong Kong International Airport, revealing a new, contemporary paint job for its fleet of 150 aircraft. Gone is the old design and logo that became an unmistakable part of the aviation landscape for two decades, replaced by an all green tailfin with a white brushwing. The red stripe has been axed with the dark green wrap around the nose of the plane also removed.
Morgan Stanley to face I Russian tycoon’s insider trading claims
n a trial starting today, Morgan Stanley will confront a Russian billionaire’s claims that it illegally short-sold a company based on inside information at the height of the financial crisis. The lawsuit against the global financial services fi r m i s b e i n g b r o u g h t in Manhattan federal court by Veleron BV, a Dutch company created as an investment vehicle by Russian tycoon Oleg Deripaska (pictured), who is also the founder of United Company Rusal Plc, one of the world’s largest aluminum companies. Veleron claims Morgan Stanley obtained inside information through a relationship it had with the company’s lender. The dispute arose from Deripaska’s 2007 investment through Veleron in Canadian auto parts maker Magna International. That investment was financed with a US$1.2 billion loan from BNP Paribas, with Veleron’s Magna shares as collateral. Though Morgan Stanley was not directly involved in that loan, it entered into a swap agreement with BNP Paribas under which it assumed some of the risk of the loan in exchange for fixed payments. On September 29, 2008, with Magna’s stock falling amid the global financial crisis, BNP made a US$93 million margin call to Veleron. Morgan Stanley subsequently learned from BNP that Veleron would
600 firms attend major trade fair in Baghdad
Billionaire Alwaleed sells stake in publisher at 91pct premium
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he 42nd Baghdad International Fair in the Iraqi capital started on Sunday with the participation of some 600 Iraqi and international companies from 22 countries. In the opening ceremony, Iraqi Prime Minister Haider al-Abadi said that “the exhibition proves that the country (Iraq) has a great potential that can rise again.” However, Abadi said Iraq cannot rise alone without cooperation in order to build peaceful society and safeguard the peace in the region as well as in the whole world. Abadi also said that Iraq has made progress in the fighting against the Islamic State (IS) militant group which seizes large parts of the country despite financial crisis that was caused by the sharp reduction of oil prices in the world markets. “Despite the financial crisis, we have achieved remarkable victories (against the IS) and had liberated hundreds of kilometers at Baiji and Anbar provinces, and we have militarily secured the capital city of Baghdad in 100 percent,” Abadi said.
audi Arabian billionaire Prince Alwaleed Bin Talal´s Kingdom Holding Co. agreed to sell its almost 30 per cent stake in Saudi Research and Marketing Group at nearly double the market value. The unidentified buyer will purchase 23.92 million shares, or 29.9 per cent of Saudi Research, at 35 riyals per share in a private transaction, Kingdom Holding said in a statement to the Saudi stock exchange. Shares of the publishing group were trading at 18.35 riyals last week before being halted. The deal is worth about 837 million riyals (US$223 million). Kingdom will use proceeds for “other corporate projects and investment opportunities,” according to the statement. The company and Alwaleed have built a combined stake in Twitter Inc. of more than 5 per cent, the second-largest in the company, a disclosure showed last month. The Saudi Research transaction will complete on Sunday, and be recorded in kingdom´s fourthquarter results, the statement said. The Riyadhbased group publishes newspapers including Arab News and London-based Al Sharq Al Awsat.
likely not meet the margin call and would have to liquidate its Magna stock. That information was forwarded from Morgan Stanley’s global capital markets group to one of its traders, Kerim Tuna, who traded mostly for Morgan Stanley’s own account. Tuna immediately began short-selling Magna stock, according to court papers. Morgan Stanley stood to lose US$6.6 million because of Veleron’s default, but thanks to Tuna’s short-selling, it was able to offset US$4.6 million of that. The lawsuit claims Morgan Stanley’s actions constituted insider trading because Morgan Stanley used its knowledge of Veleron’s impending default for its own benefit days before it became public. The lawsuit claims that the short-selling drove down the price of Magna stock. It seeks more than US$10 million in damages. But Morgan Stanley claims it has no duty to Veleron that could give rise to an insider trading claim, and that it was simply hedging against exposure to risk. It sought summary judgment dismissing the case, but U.S. District Judge Colleen McMahon ruled in July that it should go to a jury. Jury selection and opening arguments are expected Monday. Deripaska himself is not expected to testify at the trial, which the parties expect to last about three weeks. Reuters
Turkey goes back to polls seeking to break political deadlock
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urks went back to the ballot boxes on Sunday for a re-run of the inconclusive June election, with polls suggesting they’re more likely to perpetuate the political stalemate than end it. Another hung parliament may pressure the governing AK Party, which lost its majority in June, to seek a coalition and avoid having to hold yet another election. “I don’t think Turkey can withstand this,” Prime Minister Ahmet Davutoglu told NTV television Thursday. At stake is the financial and political stability of the Middle East’s biggest economy and a key NATO ally in a turbulent region. Since June, markets have tumbled as the four parties in parliament failed to agree on a government: the lira is the world’s second-worst performing major currency this year. The backdrop has darkened in other ways too: war with Kurdish militants has flared up again, and a series of Islamic State suicide attacks have killed more than 130 people and deepened divisions.