MOP 6.00 Closing editor: Joanne Kuai
Chinese authorities renew reserve ratio mechanism PAGES 10-11
Year IV
Number 955 Wednesday January 6, 2016
Publisher: Paulo A. Azevedo
Dalian Wanda to strengthen its position in movies with Legendary Entertainment acquisition PAGE 10
Agreement on Macau waters signed by SAR and Central Gov’t PAGE 6
Alleged junket theft dejA vu The city’s Judiciary Police confirmed that Casino L’Arc Macau has reported of a “senior staff” working at the junket operations of the casino having allegedly embezzled HK$99.7 million (US$12.9 million) This follow the case of an alleged theft last September by an employee of junket operator Dore Entertainment. Following the Dore incident, the casino regulator Gaming Inspection and Coordination Bureau (DICJ) has put forward a set of stricter accounting guidelines for the junket operators in Macau to follow starting in 2016 PAGE
5
Request withdraw Ng Lap Seng, accused by U.S. authorities of bribing a former United Nations General Assembly president, has dropped his demand to go to trial immediately amid setbacks at his companies
HSI - Movers January 5
Name
%Day
CHINA RESOURCES POWE
+4.50
BELLE INTERNATIONAL HO
+1.81
HANG SENG BANK LTD
+1.12
MTR CORP LTD
+1.06
CATHAY PACIFIC AIRWAYS
+0.76
BOC HONG KONG HOLDIN
-1.73
CHINA RESOURCES LAND L
-1.86
BANK OF COMMUNICATIO
-2.08
CHINA MOBILE LTD
-2.59
CHINA MERCHANTS HOLDI
-3.18
Source: Bloomberg
I SSN 2226-8294
PAGE 6
www.macaubusinessdaily.com
Calming down move The yuan rebounded from a five-year low as Chinese authorities moved to calm concerns sparked by the worst-ever start to a year for the nation’s equities. State-controlled funds bought stocks and the securities regulator signalled that a ban on share sales by major investors will remain beyond this week’s expiration date
PAGES 8&9
Mysterious mythology CEO of Sociedade de Jogos de Macau (SJM), Ambrose So said the Greek Mythology casino will reopen. Greek Mythology Casino has suspended its business since last Thursday for “internal renovation”. Ambrose So said that Greek Mythology’s halt of business would not bring any impact to SJM’s own business, as the casino’s revenues only accounted for very small proportion among other satellite casinos of the gaming concession holder
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2 | Business Daily
January 6, 2016
Macau
Michel Molliet appointed new Greater China COO of AccorHotels
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ormer general manager of Sofitel Macau at Pontel 16, Michel Molliet, has been appointed as the new Chief Operating Officer (COO) of French hotel group AccorHotels in Greater China, effective from January 1 this year, the company announced. In his new role, Mr. Molliet will replace the group’s former COO, Paul Richardson, to manage the group’s 125 operating hotels and projects in Mainland China, Taiwan, Hong Kong and Macau, which includes a total of 10 brands. Meanwhile, Mr. Richardson, will be the company’s new Chief Commercial Officer in Greater China. Mr. Molliet started to serve AccorsHotels in 1987, although he left the Group for two years to open the 3,000-suite Venetian Macau. He then rejoined the company in 2008 for the repositioning of the Sofitel brand in Greater China, besides his role as the general manager in Sofitel Macau. “I am very excited to take on this role as the leader of AccorHotels Greater China at a time when the Group is embarking on a new era to develop growth opportunities with immense potential,” said Mr. Molliet. Currently, AccorHotels operates 167 establishments in 67 cities in Greater China.
Michel Molliet
More residents fail to Agreements on maritime deposit cheques, despite management signed and Central Gov’t believe that the cash-handout increase SAR three agreements would further boost
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acau saw the number of residents that have yet to cash or deposit their cheques issued under the wealth partaking program, which has tripled for 2014 v. 2015 - despite the government handing out the biggest ever amount of cash-share to both permanent and non-permanent residents since 2014. For the 2015 edition of the city’s wealth partaking program, a total of 26,844 residents have yet to cash or deposit their cheques issued under the program, which involved an amount of over MOP223 million (US$27.9 million), Portugueselanguage newspaper Hoje Macau reported yesterday citing figures from Financial Services Bureau (DSF). This number of residents that have yet to cash their cheques represents about 4.2 per cent of the eligible residents that can receive the money issued under the wealth partaking program, the Portuguese media outlet reported. While for the 2014 edition of the program, the bureau registered a total of over 7,200 residents that have not
yet cashed or deposited their cheques, a number that translated into an amount of over MOP57 million. The wealth partaking program, also known as the so-called cash-share scheme, was first implemented in 2008 and is a policy that the MSAR government sees as an act of wealthsharing under the city’s economic growth. Starting from the 2014 edition of the program, the government has given out the biggest amount to residents: permanent residents can receive MOP9,000, while nonpermanent residents can receive MOP5,400– this amount remains unchanged for last year and this year’s edition of the wealth partaking program. As DSF explained to Business Daily, residents have about three more years to deposit or cash their cheques issued under the program. Beneficiaries of the wealth partaking program include all MSAR residents here, whether or not they reside in the territory. S.L.
the maritime development of Macau
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he SAR Government signed with the Mainland authorities three cooperation agreements aimed at strengthening management of those waters administered by the Macau Special Administrative Region (SAR) and at furthering development of the maritime economy within the waters, according to a press release issued by the Government Information Bureau yesterday. The three agreements cover issues related to transportation, traffic and fairway management of the waters, plus usage of the water resources, as well as maritime development within waters administrated by the SAR. The SAR government says the signing of the three agreements signifies the support of the Central Government, and of Guangdong Province and its prefecture-level city Zhuhai, for Macau’s adequate economic diversification, sustainable development and long-term stability. It also helps in advancing cooperation between Macau
and the Mainland authorities, as well as taking Macau-Guangdong ties to a new level of cooperation. A task force led by the Chief Executive Chui Sai On will be focusing on the next phase of such cooperation, including follow-up work on the formation of a cross-departmental task force for the development and management of the waters. The Government also vows to perform its duties in maintaining security within the waters administered by the Macau SAR and in managing transportation arrangements in the coastal area for which it has administrative responsibilities. The SAR government says the agreements signed are vital for Macau in its efforts to maintain close contact with neighbouring areas regarding: further cooperation opportunities; projects relating to environmental improvement, especially at Canal dos Patos; and for bettering the livelihoods of the residents of all the communities.
Business Daily | 3
January 6, 2016
Macau
Deposits with local banks down slightly in November There were fewer deposits from residents and non-residents last November, but those from public sector increased a little against October 2015 Kam Leong
kamleong@macaubusinessdaily.com
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ocal banking sector saw total deposits register a decline of 1.5 per cent in November 2015 as compared to the month before, according to the latest data released yesterday by the Monetary Authority of Macau (AMCM). In November 2015, total deposits with the banking sector totalled MOP850.2 billion (US$106.3 billion), of which 42.3 per cent were in Hong Kong Dollar (HKD), while some 20.2 per cent and 23.8 per cent were Pataca (MOP) and US Dollar (USD) deposits, respectively. Deposits from local residents accounted for MOP457.7 billion of the total, which dropped by 3.4 per cent year-on-year, or 1.8 per cent month-on-month. MOP deposits from residents increased one per cent month-on-month, but HKD, USD and Renminbi (CNY) deposits declined by 1.9 per cent, 6.2 per cent and 5.9 per cent month-on-month, respectively. In addition, non-residents deposits amounted to MOP268.1 billion in that month, which is down by
2.1 per cent from October 2015. Meanwhile, public sector deposits with local banking sector climbed 1.1 per cent month-on-month to MOP124.4 billion.
Loans
In the month, local banks gave out a total of MOP389.3 billion of domestic loans to private sector, which jumped by 17.4 per cent year-on-year, or 0.1 per cent month-on-month. 65.7 per cent of such loans were denominated
in HKD, amounting to MOP255.8 billion, while another MOP106 billion of loans were denominated in MOP. On the other hand, external loans dropped 1.3 per cent to MOP382.0 billion in the month, nearly half of which denominated in USD, totalling MOP189.6 billion. As at the end of November, the loan-to-deposit ratio for the resident sector grew 0.9 percentage points from the previous month to 66.9 per cent, while the ratio for both the
resident and non-resident sectors rose 0.8 percentage points to 90.7 per cent. During the month, currency in circulation slightly increased by 0.8 per cent. Money supply (M1) dropped 0.2 per cent month-on-month, while quasi-monetary liabilities fell by 2 per cent compared to October. The sum of these two items, M2, thus decreased 1.7 per cent month-onmonth to MOP469.7 billion, of which MOP accounted for 30 per cent.
4 | Business Daily
January 6, 2016
Macau opinion
Case study
José I. Duarte Economist
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he adoption of a minimum wage for the cleaning and security workers in private buildings will prove to be – and already is, in a sense – an interesting case study for local policy setting mechanisms. Let us leave aside the economic arguments and the empirical evidence concerning the setting of a minimum wage. Also, leave aside the ethical or political issues – be they the criteria to establish a minimum wage, or how to do it when meaningful mechanisms for workers representation do not exist. Ignore also the question why certain sectors should benefit from the measure while others are exempt, and which motives might explain such disparity. That is a long list of relevant issues: but let us focus only on the immediate effects of the measure, as reported in the media. We are told that some buildings have already dispensed their doorkeepers and the cleaning personnel. Besides the loss of jobs, two immediate practical impacts are pointed out: degradation of hygiene conditions and reduced security. How real and how strong they are likely to be in reality may only be possible to evaluate properly a few months henceforth. But for now they are felt and we are told the government is taking measures to help on all those fronts. First, the services of environmental protection (which apparently have in their remit the issues of domestic littering) and the municipal institute and the garbage collection company (which indeed have responsibilities in that matter) are deemed to increase the number of rubbish containers near the affected buildings, and increase the frequency of rubbish collection. Second, the criminal police, the public security and the firefighters, all together, are supposed to enhance their vigilance in the affected areas, compensating for the lack of private security in those buildings. Whether the assigned personnel will be removed from other tasks or the three institutions will need to hire additional staff to fulfill the newly assigned duties is not clear. Thirdly, the government will set a mechanism for financial help for those owners that cannot afford the new legal wages. We can start betting on how many will declare they dispense with the public largesse, supposing it materializes in any meaningful way. Let us sum up. A popular and ‘feel-good’ policy measure is taken without visible consideration for the associated economic and political issues or the empirical evidence. Its adoption creates a public health hazard, a public security risk and promises additional burdens for the public purse. While purporting to help the weakest and less qualified, it may translate into further transfers of public money to owners of real estate. To deal with the hazards it created, seemingly half-cooked solutions are put forward, without noticeable evaluation of their consequences. Even ignoring the implicit public costs, it is difficult to see the ‘solutions’ as fair, reasonable or feasible. This is not policy setting at its best.
Greek Mythology Casino halts business for “renovation” But does not say how long business will be suspended Kam Leong
kamleong@macaubusinessdaily.com
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reek Mythology Casino has suspended its business since last Thursday for “internal renovation”, according to a notice posted outside the casino. However, it still remains unknown when the operation will be resumed. The casino, located inside the Beijing Imperial Palace Hotel (formerly known as New Century Hotel) in Taipa, is operated by Greek Mythology Entertainment Group under the gaming licence of Sociedade de Jogos de Macau S.A. (SJM) According to the notice, clients can register and exchange their Greek Mythology chips at SJM’s Grand Lisboa Casino during the closure period. But the casino did not say in the announcement how long the renovation works will take. Greek Mythology Casino is founded by Ng Man-sun, who is the chairman and CEO of Hong Kong-listed junket investor Amax International Holdings Ltd that owns 24.8 per cent of equity interest in Greek Mythology Entertainment, according to the company’s latest interim report issued in December last year. A spokesperson of Amax confirmed to Business Daily yesterday that ‘the Greek Mythology is currently closed for renovation purpose,’ adding the company will announce if there are any updates on the progress. Meanwhile, the Chief Executive Officer of SJM Holdings Ltd, Ambrose So Shu Fai, also confirmed that
the temporary closure is just for renovation, assuring that the casino will be reopened. He told TDM yesterday that the shareholders of the casino would like to re-open the casino property for business as soon as possible as they want to continue making money. In addition, the SJM chief executive told Hong Kong Chinese-language newspaper Economic Journal that Greek Mythology’s halt of business would not bring any impact to SJM’s own business, due to the casino’s revenues only accounting for very small proportion among other satellite casinos of the gaming concession holder. In addition, Mr. So indicated that the satellite casinos did not return any gaming tables to SJM following the business suspension, despite it had returned some 40 gaming tables to SJM in 2012.
Disputes
In fact, the Beijing Imperial Palace Hotel has been involved in labour disputes with its workers from October last year. In that month, the city’s Labour Affairs Bureau (DSAL) said it had received complaints from 281 employees working for hotel property for claiming unpaid salaries. According to DSAL, as at yesterday, the Bureau had completed investigating 209 cases of owed-pay and other claims filed by employees working for the hotel, as well as some
other 33 cases filed by workers from Greek Mythology. Indicating such cases did not involve any gaming-table employees, the labour department said it had passed the cases to the city’s Judiciary Police (PJ). Nevertheless, the Bureau did not comment whether the business suspension of Greek Mythology is related to these labour disputes. Enquiring the Gaming Inspection and Co-ordination Bureau (DICJ) on the same question yesterday, Business Daily had not received any reply from the gaming regulator before this story went to press. Meanwhile, Amax has been claiming in its filings with Hong Kong Stock Exchange that its relationship with Greek Mythology Entertainment ‘began to deteriorate in 2012,’ saying that the casino operator has refused to provide the company with its valid financial information to Amax since then. In 2012, Mr. Ng had a dispute with his former girlfriend Chen Mei Hua over the ownership of the thenNew Century Hotel and the Greek Mythology Casino. Meanwhile, the following year, the city’s Court of First Instance ordered the seizure of hotel in lieu of an undisclosed debt owed to Hoi Cheng Nga, the head of Energy Travel Agency Ltd. Mr. Ng’s investing company, however, said at that time that the operation of the casino would not be affected by the seizure as it is only a tenant of the hotel.
Business Daily | 5
January 6, 2016
Macau PJ: Junket operations “senior staff” allegedly embezzled nearly HK$100 mil from L’Arc Macau Following the Dore cage capital theft in Sept last year, L’Arc Macau casino has now reported an alleged capital theft by a senior staffer to the local police Stephanie Lai
sw.lai@macaubusinessdaily.com
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he city’s Judiciary Police (PJ) confirmed yesterday that Casino L’Arc Macau has reported of a “senior staff” working at the junket operations of the casino having allegedly embezzled HK$99.7 million (US$12.9 million), a case that the police are pursuing as fraud. The confirmation came from the PJ spokesman and head of economic crimes division Chan Cho Man during a press briefing yesterday, where he noted that the case had been reported by the casino on Sunday. L’Arc Macau is one of the fifteen satellite (third-party managed) casinos that is operated under a service agreement with Macau-based casino operator SJM Holdings Ltd. Casino L’Arc Macau was opened in September 2009. Business Daily has requested more details on the alleged embezzlement case from L’Arc Macau, but did not receive a reply by the time the story went to press. The licence holder of the satellite casino, SJM, has also not remarked to us on the impact that
the case could have on the company’s performance. Citing unidentified industry sources, local broadcaster MASTV reported that at least ten VIP gaming rooms operating inside Casino L’Arc Macau were affected by the
alleged embezzlement by the junket operations senior staff. The alleged capital theft from Casino L’Arc Macau comes just months after a similar case reported by local VIP gaming operator Dore Entertainment Co Ltd to the police
in September last year. Dore, which runs VIP operations at Wynn Macau casino, said at the time that a former cage manager has allegedly stolen over HK$100 million from the cage, and used her power to illegally pool in deposit capital offering high interest rates without the company’s knowledge. The local police said more than HK$500 million was stolen from the VIP gaming promoter following reports of Dore’s reported loss plus other individual investors’ reported losses of money deposited with Dore. Following the Dore incident, the casino regulator Gaming Inspection and Coordination Bureau (DICJ) has put forward a set of stricter accounting guidelines for the junket operators in Macau to follow starting in 2016. The guidelines state that all junket operators have to compile a monthly accounting report to the bureau, and that they also have to disclose to the bureau details of the key personnel in charge of the financial operations of the junket firms.
6 | Business Daily
January 6, 2016
Macau
Ng Lap Seng drops bid for speedy trail in U.N. bribe case Ng’s lawyer requested a speedy trial previously, saying Ng was facing "irreparable damage" as his businesses were "beginning to suffer substantial setbacks"
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billionaire real estate developer from Macau accused by U.S. authorities of bribing a former United Nations General Assembly president has dropped his demand to go to trial immediately amid setbacks at his companies. In a letter filed in federal court in Manhattan on Monday, a lawyer for Ng Lap Seng, 68, said the Chinese citizen would withdraw a request for a speedy trial in the bribery case. The lawyer, Benjamin Brafman, gave no reason why Ng was no longer seeking a quick trial on charges that he bribed John Ashe, a former U.N. ambassador from Antigua and Barbuda who was U.N. General Assembly president from 2013 to 2014.
But in his letter, Brafman indicated Ng would seek to have a trial separate from some or all of the four other defendants indicted in the case. Brafman declined to comment. Brafman had requested a speedy trial on Dec. 10, saying Ng, who is under house arrest in New York, was facing "irreparable damage" as his businesses were "beginning to suffer substantial setbacks" following his arrest on Sept. 19. Ng, who heads Macau-based Sun Kian Ip Group, and his assistant, Jeff Yin, were initially arrested on charges of making false statements to customs officials about why they brought US$4.5 million into the United States from China. They were later accused of scheming to bribe Ashe, who prosecutors said took more than US$1.3 million in bribes from Chinese businessmen to support their interests in the U.N. and Antigua. Those bribes included US$500,000 that prosecutors said Ng, through intermediaries, paid Ashe, to seek U.N. support of a U.N.-sponsored conference center in Macau. Ng, Lin, Ashe have pleaded not guilty.
unionPay cards Illegal transactions totalled MOP1.2 billion in 2015
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he volume of illegal transactions using portable terminals of UnionPay International in Macau amounted to MOP1,224 million (US$153 million) in 2015, according to
data provided by the Judicial Police (PJ) as reported by Portuguese News Agency Lusa. The amount relates to 30 cases opened by the PJ, of which 24 were delivered
to the Public Prosecutions Office (MP). In 2014, more cases were detected (47), but the amount involved in the illegal transactions was lower at MOP784 million. The transactions were
deemed illegal as they were made in Macau through POS (point of sales) machines of UnionPay China or other POS provided by third parties. This made it difficult for UnionPay International to charge the right percentage of share of gains - due to the services being in fact made outside Mainland China, as Macau is a Special Administrative Region.
Impact on gaming
According to data provided by PJ, 76 suspects were handed to MP in those 30 cases detected during 2015, including 13 residents of Macau, 62 from Mainland China and one from Taiwan. Meanwhile, 71 POS machines were seized. Illegal transactions detected in 2015, translated into losses for UnionPay International were approx. MOP2.29 million against losses of MOP1.56 million in 2014, according to data provided to the Lusa. Unlike 2014, the cases were detected in hotels. “There is no information about casinos,” PJ spokesperson said.
Reuters
Tightening rules with UnionPay debit cards was regarded by analysts surveyed by Lusa as a factor for the first annual y-o-y drop in five years of gaming revenue as observed in June 2014 – and the trend continues - by decreasing the liquidity of most players. Asked about next steps that have been taken to curb illegal transactions with the Chinese authorities, PJ’s reply suggested having “a mechanism of cooperation with the Ministry of Security.”
Mechanism in place
In mid-December, the Monetary Authority of Macau (AMCM) announced a realtime monitoring system of Mainland bank cards, in order to combat “illegal crossborder financial activities and money laundering.” “The initial phase of the real-time monitoring system will be implemented on highrisk merchants near casinos, most of which are jewellery and watch merchants,” said AMCM in a press release. “In view of the comparatively high turnover incurred, China UnionPay cards related transactions will be focused on at the initial stage.” The real-time monitoring system is designed with the aim to verify the genuine relationship between card holder and the bank card in the process of acquiring goods or services, so as to protect the lawful rights and interests of cardholders, merchants and banks.
Business Daily | 7
January 6, 2016
Gaming
The ghosts of Baha Mar: How a US$3.5 bln paradise went bust
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eyond the tropical waters, across palm- fringed sands and behind locked gates, looms Baha Mar -- the largest and, at US$3.5 billion, priciest resort in the Caribbean. Here, no one frolics pool-side, pina colada in hand, or hits irons on the Jack Nicklaus golf course. No slot machines jingle-jangle in the casino. The Flamingo Bar, the Brasserie des Arts and the Cartier boutique lie dark. On this bright October morning in the Bahamas, all 2,200 guest rooms are empty. The quiet is almost spooky here on the outskirts of Nassau, where the waterscape frills of nearby Paradise Island give way to the vast ghostresort that is Baha Mar. Just how the place ended up like this -- in a bankruptcy so colossal that it’s jeopardizing the Bahamas’s credit rating -- is the biggest business story to hit this Caribbean nation for as long as anyone here can remember. It stretches far beyond the white beaches and across time zones, to none other than the State Council of China.
‘Big boys in the room’
Turns out that even in paradise, local aspirations can collide with China’s global ambitions. Baha Mar may have been dreamed up in the vacationland of the Bahamas, but the central government in Beijing controls the development bank and construction giant that will determine its fate. And China, some Bahamians say, is playing tough as its staterun enterprises project money and influence around the world, including to this small island 180 miles off the coast of Miami. “Their attitude is, ‘We’re the big boys in the room, we’ve got the money -- so you do what we say,’” says Dionisio D’Aguilar, a prominent businessman and former Baha Mar Ltd. director. Time is short. Bahamian officials have been counting on Baha Mar to invigorate the tourist economy. The developers claimed the resort could single-handedly generate 12 per cent of the country’s gross domestic product -- provided it ever opens. Understanding the island’s
predicament requires going back more than a decade to 2005 when Prime Minister Perry Christie reached an agreement with a local businessman named Sarkis Izmirlian to help revitalize Cable Beach, the most popular beachfront destination on New Providence Island. Izmirlian, then just 32, seemed a natural choice. He’s from a wealthy family -- his father is Armenian peanut tycoon Dikran Izmirlian -and lives on nearby Lyford Cay, a billionaire enclave. Izmirlian sank nearly US$900 million into Baha Mar and recruited marquee-name partners like a Caesars Resort hotel. Then the 2008 financial crisis hit, and would-be partners balked. When China State Construction Engineering Corp., the world’s second-largest contractor, approached Izmirlian about stepping in, he said yes. The company directed him to ExportImport Bank of China, or Exim, which promotes trade and investment under the direction of Beijing. Seeing a way into U.S. markets, China State Construction promptly invested US$150 million. Exim kicked in US$2.45 billion in construction loans -- with the proviso that Izmirlian could never fire the Chinese builder, no matter what, and that workers from China would do the job. Flush with Chinese money, Izmirlian declared four Baha Mar hotels would open by 2014. All this was documented in court filings, and supported by interviews with Christie and other Bahamians. The Chinese and Izmirlian declined interview requests. Endless haggling complicated by language barriers ensued -- about payments, invoices, workmanship, on and on. Deadlines were set and promptly broken. Emails flew back and forth to Beijing.
Burst pipes
In May 2014, Izmirlian appealed to an independent mediation service based in Washington, D.C., but the troubles multiplied. Pipes burst when inspectors tested the fire sprinklers and faulty balcony railings had to be reinforced, people with knowledge of the construction said. When Izmirlian
complained, China delayed its money, one said. As construction dragged on, Izmirlian and Christie flew to Beijing. There, officials assured them the resort would be ready to open on March 27. Upon his return, the developer hired 2,070 hotel workers, ran a global ad campaign and stocked the casino with US$4.5 million in cash. For Izmirlian the affair was becoming the ultimate contractor nightmare. He was spending an additional US$4 million a month to pay staff for a hotel with no guests. Concerned that China State Construction might gain a tactical advantage by filing first, he secretly planned to have Baha Mar declare bankruptcy in the U.S. rather than the Bahamas, whose laws would make liquidation all but inevitable. He didn’t even alert the prime minister for fear he would tip off the Chinese, says D’Aguilar, the former resort director. Baha Mar Ltd. filed for bankruptcy in Delaware on June 29 - - and all hell broke loose. China State Construction accused Izmirlian of disrupting the project with endless design changes. “Baha Mar Ltd.’s decision to file for bankruptcy is the direct result of its failure to secure adequate financing and its mismanagement,” the Chinese company told the court. Christie’s foreign minister, Fred Mitchell, spoke out in an August speech celebrating the end of slavery on the island, saying “the attempt to keep us bondsmen and slaves does not and has not stopped.” At the Emancipation Day Service, Mitchell continued, saying: “It is therefore no surprise then that an investor -- because he has the word billionaire behind his name -- would think, would have the temerity to believe, that he can challenge the leader of our country.” As the dispute dragged into September, a Delaware judge dismissed the U.S. bankruptcy and a Bahamian judge put provisional liquidators in charge, rendering Izmirlian’s US$900 million investment nearly worthless. In October, they hosted negotiations at a nearby hotel. It was a bizarre scene, with Bahamian dancers gyrating in hot pants in the
lobby as Chinese men in black suits hunched over laptops.
Still negotiating
In November, Izmirlian said he was still negotiating with Exim and hoped to remain involved. Failing that, he’s also sued in the U.K., claiming about US$192 million in damages for a breach of contract, a figure that could grow as another winter tourist season passes with the resort still in limbo. How it’ll end is anyone’s guess. Fernando Menendez, a senior fellow at Washington think tank Center for a Secure Free Society, says the episode says less about the Bahamas or Izmirlian than it does about China and its state-owned enterprises. China Exim wielded billions to guarantee work for one of its biggest customers, China State Construction. How and when that work got done didn’t really matter: Exim made sure the state-run company could never be fired. “State-owned enterprises don’t function as competitive entities,” Menendez says. “They’re protected from failure.” Christie says he’s still optimistic the resort can open. In December, Exim said a number of potential investors had expressed interest. These include Guo Guangchang, chairman of a nonstate Chinese conglomerate called Fosun Group, people familiar with the situation say. Fosun already owns stakes in Club Mediterranee SA and Cirque Du Soleil Group. Back in Nassau, people worry that even with new investors, the promised economic boost will take time. It could be 2018 before Baha Mar makes a meaningful contribution to the economy, according to Standard & Poor’s, which lowered its Bahamas rating to BBB- and warned it could be heading for junk. For now, Baha Mar faces mold and corrosion as it bakes in the tropical heat. Its pink and cream towers are ringed by a chain-link fence and blue tarps cover unused supplies. At night, lights pop on in several rooms -- a move the Bahamians hope will ward of the desolate air of this Caribbean ghost. Bloomberg
8 | Business Daily
January 6, 2016
Greater China
Authorities battle to shore up stocks and c
Beijing is trying to orderly unwind a massive and unprecedented stock market rescue las pressing ahead with reforms Pete Sweeney and Samuel Shen
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hina struggled to shore up shaky sentiment yesterday a day after its stock indexes and yuan currency tumbled, rattling markets worldwide, but analysts warned investors to buckle up for more wild price swings in the months ahead. Stocks fell more than 2 percent in early trade, prompting fears that exchanges were set for a second day of panic selling after a 7 percent dive on Monday set off a new “circuit breaker” mechanism, suspending trade nation-wide for the first time. But both the central bank and the stock regulator reacted quickly, and major indexes recouped most of their initial losses despite a late afternoon scare. The People’s Bank of China (PBOC) poured nearly US$20 billion into money markets, its largest cash injection since September, and traders suspected it was using state banks to prop up the yuan at the same time. The China Securities Regulatory Commission (CSRC), for its part, announced it was planning new rules to further restrict share sales by major stakeholders in listed companies, and said it would further tweak the circuit breaker mechanism amid criticism that it had fuelled Monday’s sell-off.
Today’s problem is the legacy of the government’s heavy-handed intervention last year Yang Hai, analyst, Kaiyuan Securities
The blue-chip CSI300 index ended up 0.3 percent at 3,478.78 points after bouncing in a 4 percent range, while the Shanghai Composite Index dipped 0.3 percent to 3,287.71 points. How long any reprieve will last is still in question. In a dilemma similar to the U.S. Federal Reserve’s recent tapering of its stimulus programme, Beijing is trying to orderly unwind a massive and unprecedented stock market
rescue last summer, while pressing ahead with reforms to allow markets to have a greater say in determining the yuan’s value. Its heavy handed approach to the stock market crash and its surprise devaluation of the yuan in August had
foreign banks could face curbs if they snub gold benchmark China needs the support of foreign banks, especially those who import gold into the mainland A. Ananthalakshmi
KEY POINTS CHINA PLANS TO LAUNCH YUAN GOLD BENCHMARK IN APRIL BUT NEEDS FOREIGN BANKS TO PARTICIPATE COULD CURB GOLD IMPORT QUOTAS IF BANKS DON’T JOIN – SOURCES
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hina has warned foreign banks it could curb their operations in the world’s biggest bullion market if they refuse to participate in the planned launch of a yuandenominated benchmark price for the metal, sources said. The world’s top producer and consumer of gold has been pushing to be a price-setter for bullion as part of a broader drive to boost its influence on global markets.
Derived from a contract to be traded on the state-run Shanghai Gold Exchange, the Chinese benchmark is set to launch in April, potentially denting the relevance of the current global standard, the U.S. dollar-denominated London price. China needs the support of foreign banks, especially those who import gold into the mainland, but they could be wary given the global scrutiny on benchmarks following
the manipulation of Libor rates in the foreign exchange market. Banks with import licences will face “some action” if they do not participate in the benchmark, said a source who did not want to be named as he was not authorised to speak to media. “Maybe China won’t cancel the licence but we won’t give them the import quota or will reduce the amount under the quota,” the
called its policymaking into question and sparked global market volatility.
Confidence game
Keeping China’s notoriously volatile and speculative stock markets stable will be a trick. Some market watchers
source said. Banks with licences must apply to regulators for annual import quotas. Australia and New Zealand Banking Group, HSBC and Standard Chartered are the foreign banks with import licences. Another 12 Chinese banks can also import. HSBC declined to comment, while ANZ and StanChart did not respond to calls and emails. Banks had been told China would take “some measures” if they did not participate in the fix, a banking source said. “They passed on the impression that ‘maybe your quota will be limited or you cannot be a market maker for swaps or forwards’,” he said. In a trial run for the fix in April 2015, some foreign banks participated along with many major Chinese banks. Traders at those banks said earlier that while they were interested in the benchmarking process, their legal and compliance teams may be reluctant. “For foreign banks to take part in that fixing procedure, it is very hard. There are compliance issues for every foreign bank,” said the second source, adding that the issue was not with China, but the regulatory attention benchmarks have attracted in the last few years. Details of the 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. A yuan fix would not be seen as an immediate threat to the gold pricing dominance of London and New York, but it could gain momentum if China’s currency becomes fully convertible. Reuters
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Greater China
currency
st summer while
Hai, analyst at Kaiyuan Securities. “The patient was desperately looking for treatment but took the wrong medicine that only prolonged the illness.” Government actions have also suppressed trading volume, leaving the market more susceptible to big price swings, and discouraged foreign investors who tend to hold stocks longer than hit-and-run local retail investors. “We’ve been waiting for a market drop like this for a long time,” said Samuel Chien, a partner of Shanghai-based hedge fund manager BoomTrend Investment Management Co. “The economy is poor, stock valuation is still high, and the yuan keeps sliding, showing capital outflows are accelerating. The market drop is overdue.” Indeed, some retail investors told Reuters said they would steering clear of stocks after being burned this week. One 23-year-old from Guangzhou who gave his surname as Hu said he had bought stocks on Monday afternoon, assuming that the circuit breaker would never be triggered, only to see it kick in well before the market close, locking in a 5 percent loss. He took advantage of the mild bounce yesterday to exit his position, saying he had “learned a lesson in blood.”
Yuan risk
say the government’s interventions have kept stock valuations excessively high given the cooling economy and falling profits. “Today’s problem is the legacy of the government’s heavy-handed intervention last year,” said Yang
China is also wrestling with market expectations that it will allow further depreciation of the yuan, a scenario many traders believe is inevitable as the economy slows and more investors pull capital out of the country in search of better returns elsewhere. Authorities let the yuan weaken 4.7 percent against the dollar last year, a record yearly loss. It slipped
Rail freight volumes post largest annual decline The amount of cargo moved by railways around China is seen as an indicator of domestic economic activity
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hina’s national rail freight volumes declined by a tenth in 2015, their biggest ever annual decline, business magazine Caixin reported yesterday, a figure likely to raise questions about how sharply the economy is really slowing. Citing sources from railway operator National Railway Administration, Caixin said rail freight volumes declined 10.5 percent year-on-year to 3.4 billion tonnes in 2015. Volumes fell only 4.7 percent in 2014. The amount of cargo moved by
KEY POINTS CHINA’S RAIL FREIGHT VOLUMES FALL 10.5 PCT IN 2015 LIKELY TO ADD TO CONCERNS OVER CHINA’S ECONOMIC GROWTH RATE NEEDS GROWTH TO HIT 2020 RAIL FREIGHT VOLUME GOAL
railways around China is seen as an indicator of domestic economic activity. The country’s top economic planner said last month that November rail freight volumes fell 15.6 percent from a year earlier. Weighed by weak demand at home and abroad, factory overcapacity and cooling investment, China is expected to post its weakest economic growth in 25 years in 2015, with growth seen cooling to around 7 percent from 7.3 percent in 2014. But some China watchers believe real economic growth is already much weaker than official data suggests,
to fresh 4-1/2 year lows on Monday, which some blamed for aggravating the stock market slump. While the onshore yuan market has stabilised in response to central bank blandishments, the offshore yuan continues to price in deeper discounts; trading at 6.6373 per dollar, 1.7 percent weaker than the onshore currency. The gap is so large as to make them effectively different currencies, increasing risks for companies and traders. It also increases the likelihood of market-distorting arbitrage strategies, which the PBOC has shown signs of being concerned about. It recently moved to suspend foreign banks suspected of implementing aggressive strategies to profit from the rate difference, and more enforcement is expected. If yesterday’s policy-induced market respite proves temporary, regulators might have to freeze new share offerings again, extend a ban on certain share sales and keep the “national team” of brokerages and asset managers on the hook to keep buying and holding stocks at a loss. This could entail the postponement of already delayed reforms, such as moving to a U.S.-style IPO registration system that would reduce opportunities for corruption and regulatory meddling. Such an eventuality would further dent confidence in the China Securities Regulatory Commission and in the wider financial regulatory framework to manage increasingly complex markets as the economy slows. “Further government intervention on a big scale would amount to injustice in a market whose reputation has already been suffering,” said Yang of Kaiyuan Securities. Reuters
pointing to falling freight volumes and weak electricity consumption among other measures. Power consumption in November inched up only 0.6 percent from a year earlier. A private-sector survey published on Monday showed that the factory activity contracted for the 10th straight month in December and at a sharper pace than in November, suggesting a continued gradual loss of momentum in the world’s secondlargest economy. A media official for the National Railway Administration said Caixin had obtained the figures from the railway operator’s statistics department but said she was unable to confirm their accuracy as the 2015 report was not ready. Caixin said the operator was targeting an expansion in rail freight volumes to 4.2 billion tonnes by 2020, which would require an average annual growth rate of around 4.3 percent. In comparison, passenger traffic volumes on the network grew 6.1 percent in 2015, Caixin said, though at a slower pace from 2014 when it increased by 11.9 percent. Reuters
Shareholders to extend share sale ban At least 10 Chinese companies said their controlling shareholders or senior executives would not sell shares on the secondary market within the next six or 12 months, in an attempt to prop up China’s stock market after a 7 percent plunge. The market slump on Monday was partly triggered by fears that a six-month ban on share sales by listed companies’ major shareholders, imposed during the height of a market rout last year, will expire on January 8, unlocking an estimated 1.24 trillion yuan (US$190.23 billion) worth of shares.
Insurance fund to invest in Russia’s Yamal LNG
More than 40 Chinese insurance companies and asset managers have jointly started an investment firm, raising 40 billion yuan (US$6 billion) for a first fund to finance energy and infrastructure projects overseas, China’s insurance regulator said. The new firm, China Insurance Investment Ltd, will boost China’s energy security by directing part of its first fund to finance Russia’s US$27 billion Yamal liquefied natural gas (LNG) project, the China Insurance Regulatory Commission (CIRC) said in an online statement on Monday, without providing any details.
Guideline to promote law-based governance China has issued a guideline to promote law-based governance, vowing to build a rule-of-law government by 2020. To achieve the goal and solve prominent problems in governing in accordance with the law, the country is in dire need of issuing such guidelines to serve as “a blueprint and a roadmap,” a statement from the Legislative Affairs Office of the State Council said yesterday. A rule-of-law government features scientific functions, statutory rights and responsibilities, strict law enforcement, openness, justice and integrity, while being corruption free, efficient and observing the law at the same time.
Transit stops in Taiwan for onward flights allowed China will allow transit stops in Taiwan for onward flights from three Chinese cities, China’s Taiwan Affairs Office said yesterday. Passengers flying from Nanchang, Kunming and Chongqing will be allowed to transit through Taiwan’s main international airport before flying on to a third destination, according to a statement on the Chinese government agency’s website. The two sides had been discussing the issue, which proponents have said would be a boon for Taiwanese airlines, as it could give them more business from mainland passengers traveling onwards from the island.
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Banks reserve ratio reengineered The change is part of a broader shift toward more flexibility with monetary policy tools as China tries to balance economic reforms with propping up growth
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s investors continue to grapple with China’s economic slowdown, regulators may be taking away an old standby for monetary easing. The required reserve ratio for commercial banks, a tool long used to add or remove liquidity, will increasingly be used instead as a lever for enforcing financial stability. That’s according to a People’s Bank of China announcement on December 29 describing a new Macro Prudential Assessment system, or MPA. The idea is to use the ratio of deposits that must be held at the PBOC as a method for reining in risks. Exposure to stock and bond markets will be used in calculating ratios for individual banks, the PBOC says. Officials will also look at growth in lending, rates on loans and capital adequacy. Among the potential implications: less likelihood of required reserve ratio cuts as a way of stoking lending growth amid the weakest economic expansion in a quarter century. China’s main stock index tumbled so much on Monday that circuit breakers halted trading, offering a reminder of how poor sentiment is even after equities in recent months recouped some of last summer’s rout. The PBOC injected liquidity yesterday through repurchase agreements, helping shore up some stabilization in stocks. “We’ll see less across-the-board cuts” in the RRR, said Ming Ming,
head of fixed income research at Citic Securities Co. in Beijing who formerly worked in the PBOC’s monetary policy division. “The MPA framework signals policy makers will move away from universal reserve ratio changes to being in favour of using the tool to fine-tune requirements for individual banks.” Central bank researchers have advocated setting up an interest-rate
target similar to what the U.S. Federal Reserve has used. Ma Jun, the chief economist of the PBOC’s research bureau, said in a commentary last Wednesday the central bank should set reserve requirements with short-term interest rate stability in mind and pointed to open market operations and other facilities to manage rates. China’s 10year bonds dropped the most in two
weeks after Ma’s comments damped speculation that lenders’ requiredreserve ratios will be eased further. The required-reserve ratio forces banks to put aside a percentage of their deposits that they can’t lend out, which directly affects the cash supply in the banking system. It’s a monetary tool that the U.S. Federal Reserve has long since stopped using to adjust liquidity in the economy.
Introducing MPA in China sets the stage for the forthcoming reform of the financial supervision system Mao Junhua, analyst, China International Capital
dalian Wanda clinches deal for legendary entertainment Founded in 2000, Legendary has produced hits such as “The Dark Knight,” “Jurassic World,” “Man of Steel,” Liana B. Baker
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hinese property and investment firm Dalian Wanda Group has agreed to acquire a majority stake in Legendary Entertainment, valuing the U.S. movie studio company at between US$3 billion and US$4 billion, according to a person familiar with the matter. The move represents Wanda’s latest bid to expand overseas and become a major player in the U.S. entertainment industry following its acquisition of AMC Entertainment Holdings, the second-largest movie theatre chain in North America, for US$2.6 billion in 2012. Wanda, controlled by China’s richest man, Wang Jianlin, will own a little more than half of Legendary Entertainment, with Legendary founder and Chief Executive Officer Thomas Tull and the rest of its management owning the
Wanda, controlled by China's richest man, Wang Jianlin (pictured), will own a little more than half of Legendary Entertainment
remainder, the person said on Monday. Other investors in Legendary, including Japan’s telecommunication conglomerate SoftBank Group Corp and investment firm Waddell & Reed Inc, have agreed to sell their stakes in the company, the person added. An agreement has been signed and could be announced as early as next week, the person said, asking not to be identified because the deal is not yet public. Wanda, Legendary, SoftBank and Waddell & Reed did not immediately respond to requests for comment. Founded in 2000, Legendary has produced hits such as “The Dark Knight,” “Jurassic World,” “Man of Steel,” and the 2014 remake of “Godzilla,” as well as “The Hangover” film franchise. Legendary generally provides half the financing for movies whose budgets can run up to US$200 million or more. It also has an agreement with China Film Co, the largest and most influential film company in China, to coproduce movies. Wanda is the leading shareholder of China’s biggest theatre chain, Wanda Cinema Line Corp. Wanda may also list its film production and distribution unit by the end of 2016, its company founder was quoted as saying in an interview with Caixin Weekly financial magazine in November. Reuters
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January 6, 2016
Greater China The PBOC currently pays a 1.62 percent annual interest rate on banks’ required reserves and 0.72 percent on extra reserves parked at the central bank.
October cuts
Chinese policy makers last announced a cut in the ratio for the biggest banks in October, reducing it to 17.5 percent from 18 percent, while also lowering the one-year lending rate, their main policy tool, to a record low 4.35 percent. In a series of reductions, the central bank has brought the reserve ratio down from its 2011 peak of 21.5 percent. The easing underscored the determination of the country’s leaders to meet their 2015 growth goal of about 7 percent. The pace
of expansion will slow to 6.5 percent in 2016 and 6.3 percent in 2017, according to the median estimates of economists surveyed by Bloomberg.
Liquidity concern
Market participants say short-term liquidity is tightening and capital outflows continue, making the PBOC more likely to add liquidity, according to a report yesterday by the official China Securities Journal, an affiliate of Xinhua News Agency. The participants, who weren’t identified, said additional RRR cuts are necessary and feasible, the paper said. Economists had expected one more RRR cut by January 1, according to the median of estimates in a December 17 to December 22 Bloomberg survey. The central bank said in its announcement last week it will use the new MPA system to examine banks’ capital adequacy and watch financial institutions’ interest-rate pricing, the monetary authority said last week. The PBOC will assess data quarterly, while monitoring and giving guidance to banks on a monthly basis. The PBOC said the assessment “will change its focus from loans, which are narrowly defined, to a focus on credit in a broader sense.” It will include bond investments, equity investments and buybacks of financial assets sold -- which typically refers to banks’ off-balance-sheet assets.
Regulatory reforms
“Introducing MPA in China sets the stage for the forthcoming reform of the financial supervision system,” Mao Junhua, an analyst at China International Capital Corp. in Beijing, wrote in a report. The upgraded mechanism will give the PBOC “more macro-prudential regulatory powers,” he said.
Mainland’s economy weighs on consumer tech spending Glenn Chapman
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pending on personal tech gadgets is taking a hit from the economic slowdown in China and the strong US dollar, researchers from the Consumer Technology Association (CTA) said Monday. The CTA forecast that US$950 billion will be spent globally on consumer electronics this year in a two percent drop from the US$969 billion spent last year, while the number of actual units shipped will see little change. “We are seeing pretty flat demand while we wait for new innovations to reach consumers,” CTA senior director of market research Steve Koenig said as the premier Consumer Electronics Show prepared to get under way in Las Vegas. Koenig cautioned that technology spending comparisons were “challenged” by a very strong dollar and prices dropping on market mainstays such as smartphones and tablets. “We really see the global economy starting to get back on track as we wrestle with a range of issues,” Koenig said. “I think the biggest thing we are starting to come to grips with is the
normalization of the slowdown in China.”
Technology triumvirate
Smartphones and tablet computers were expected to account for 46 percent of the money spent this year on consumer electronics, but new categories such as “wearables,” drones and virtual reality gear should be making their presence felt in the market, according to Koenig. When mobile computers such as laptops are included with smartphones and tablets, the share of sales in the year was predicted to be 58 percent or some US$551 billion. “Over half a trillion US dollars,” Koenig said of the forecast. “I give you technology’s triumvirate: laptops, smartphones and tablets.” He wondered aloud regarding the potential for tablets to be squeezed out by large-screen smartphones and portable computers such as the Lenovo Yoga, which are designed with screens that can be removed and used as touch-controlled tablets. Smartphone shipments were predicted to cool a bit this year, growing about eight percent to 1.4 billion devices.
China’s top leaders, looking for new ways to steer the economy, said last month that monetary policy must be more “flexible” to create appropriate conditions for structural reform. The central bank has applied different required-reserve ratios for different loan types. In the last four publicly announced RRR cuts, PBOC cut the level for some lenders by an additional 0.5 percentage point if they allowed more lending to rural areas and smaller businesses. That’s means the real RRR applied to certain banks could be as much as 1.5 percentage point lower than the standard rate.
Customized RRR
Ming at Citic cited comments by the PBOC’s Ma as further evidence that there will more customized RRR adjustments and fewer across-theboard changes. In his commentary in the PBOC- published newspaper Financial News, Ma said the central bank should strengthen guidance of market interest rates to help the economy. Ma also reiterated the idea of setting and managing an interestrate corridor target. The PBOC’s initiative may be a response to a lack of coordination by financial regulators after Chinese stocks plunged last year and a surprise devaluation of the yuan, and may be a signal of coming reform to the nation’s financial regulatory structure, according to Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. The “PBOC has traditionally been a stronger proponent for reforms” compared with the China Banking Regulatory Commission and the China Securities Regulatory Commission, Xia wrote in a note. “This could be good news for financial reforms in China.” Bloomberg News
Smartphone adoption is being pushed by progressively lower prices, which is especially important in markets such as China, Africa, and the Middle East where high-end handsets are out of reach for many people.
Rise of ‘wearables’
Meanwhile, the overall category of wearable computers that includes smart watches should continue its “meteoric rise” and there will be “no shortage” of wearable computing gadgets on the CES show floor that officially opens today, according to Koenig. Emerging markets were seen as continuing to be central to growth in the consumer electronics market, with India becoming a driving force as China shifts to lower, steady growth after a long run of booming expansion. “Even a small slowdown in China can have really big knock-down effects around the world,” Koenig said of the chilling effect it has had on other regions, especially those where exporting commodities is important. “Most companies are going to start looking increasingly to India as the new place for double-digit growth year over year.” LCD televisions remain “the king of screens” with sizes trending up. One in every five televisions sold this year was expected to be 50 inches, measured diagonally, or more and feature ultra high-definition 4K resolution. Televisions were likely, once again, to be stars on show floor at CES, but new talent in the form of drones, robots, 3D printers, and virtual reality, along with smart cars and homes were expected to grab attention and momentum. “Make no mistake, innovation is really reshaping the global technology industry,” Koenig said. AFP
Vice premier stresses precision in poverty relief Chinese Vice Premier Wang Yang has said the government should ensure precision in bringing some minority groups from south-western Yunnan Province out of poverty. The vice premier visited Yunnan’s minority groups that have entered socialist society directly from late primitive or slave societies from Saturday to Monday. They have lived in solitude for a long time and suffer extremely poor living conditions. Wang met with people from the minority groups and handed out questionnaires to acquire detailed information on their production and living conditions and to discover the reason behind their poverty.
Changan AutoMobile announces global move
The Chinese automotive manufacturer Changan AutoMobile announced Monday it is to base its worldwide headquarters of its powertrain and research and development divisions in England’s second biggest city, Birmingham. The company has bought an entire phase of buildings on the Birmingham Business Park to accommodate its headquarters which will employ around 200 staff. Last September Changan moved its British operations to the business park, but the company has now more than trebled its space on the park to around 7,500 sq meters to accommodate its role as a world headquarters for its development divisions.
Deeper parliamentary exchanges with Canada Chinese top legislator Zhang Dejiang held talks with Canadian Speaker of the Senate George Furey Monday, pledging to further strengthen parliamentary exchanges with Canada. Zhang, chairman of the National People’s Congress (NPC) Standing Committee, welcomed Furey’s visit in the wake of the New Year’s holiday, saying he hopes the visit will be a good beginning for the development of China-Canada relations and the cooperation between the two parliaments.
Former Beijing deputy Party chief expelled from CPC Lyu Xiwen, former deputy Party chief of Beijing, has been expelled from the Communist Party of China (CPC) and dismissed from public office for multiple offenses including graft, making groundless criticisms against the party line and hindering investigations. “Lyu severely violated political discipline and rules,” the CPC Central Commission for Discipline Inspection (CCDI) said in a statement on Tuesday. She made groundless criticisms of the Party’s key policies, formed cliques and obstructed investigations, the statement said, without elaborating. Lyu accepted bribes and took advantage of her post to seek profits for others, the statement said.
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Philippine inflation rose to 1.5 pct in December Headline inflation could have accelerated to 1.5 percent last month
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hilippine annual inflation accelerated more than expected in December to hit its highest in seven months, the country’s statistics agency said yesterday. Mainly driven by holiday-
relate d d e m a n d i n f o o d a n d beverages as well as fuel prices, headline inflation was 1.5 percent in December, up from the 1.1 percent registered in November but down from 2.7 percent a
year earlier, Philippine Statistics Authority (PSA) reported. Core inflation in December was 2.1 percent compared with 1.8 percent the previous month, but the monthly rise in consumer prices slowed to 0.2 percent from November’s 0.5 percent. “Higher annual rates were registered in the indices of alcoholic beverages and tobacco; health; transport; and recreation and culture,” the PSA said in a statement. “Similarly, annual inflation in the National Capital Region (NCR) inched up 1.1 percent in December. It was recorded at 1.0 percent last month and 1.6 percent in December 2014. The uptrend was due to faster annual increment in the transport index.” “Inflation in Areas Outside NCR (AONCR) likewise advanced to 1.5 percent in December 2015. In November, it grew by 1.1 percent and in the same period last year, 3.0 percent. The indices of six out of the 11 commodity divisions had higher annual rates during the month. The average inflation for 2015 slowed down to 1.5 percent from 4.5 percent in 2014.” Headline inflation could have
accelerated to 1.5 percent last month due to higher food and fuel prices, among others, the Finance department said in its latest economic bulletin on Monday. The Finance department said the biggest contributors to the December increase would be transport inflation (from 0.6 percent to 1.3 percent), alcoholic beverages and tobacco (from 3.9 percent to 4.6 percent), food (from 1.7 percent to 2 percent), and recreation and culture (from 1 percent to 2 percent). “Food is adversely affected by Typhoon Lando and holiday-related demand upsurge, transport by lagged effect of fuel prices and alcoholic beverages, recreation and culture due to the holiday demand,” the Finance department said. “The recovery of food supply is very important after a strong typhoon; authorities can encourage and develop private sector sources of seeds and seedlings and look into alternative ways of replenishing lost stock (perhaps though imports from Association of Southeast Asian Nations),” it added.
Indonesia mulls pushing back metal concentrate export rules Southeast Asia’s largest economy banned overseas sales of raw ores including nickel and bauxite in 2014 Yoga Rusmana and Fitri Wulandari
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ndonesia may relax rules on the export of metal concentrates following the collapse in metals prices, while keeping a ban on raw ore shipments, according to Energy and Mineral Resources Minister Sudirman Said. The policy on concentrate shipments, due to be halted from 2017 to push mining companies to build smelters, should be examined to provide maximum value for the domestic economy, Said said in an interview. The government will soon discuss changes to the mining law with parliament, he said on Monday.
“2017 is the deadline for processed-metal exports, but can we meet the targets for smelter construction by 2017? It must be reviewed,” Said said in his office in Jakarta. “We must be realistic to ensure a conducive investment climate,” he said. Southeast Asia’s largest economy banned overseas sales of raw ores including nickel and bauxite in 2014, while permitting the continued export of semiprocessed concentrates for a further three years. Since the ban on ore shipments went into effect in January 2014, base metals have plunged
on the slowdown in China, while rival shippers emerged, including producers in the Philippines and Australia.
‘Come to grips’
“Indonesia has had to come to grips with the present reality of the resource sector environment,” Gavin Wendt, founding director at MineLife Pty Ltd. in Sydney, said by e- mail. The curbs were intended to spur investment in processing across the archipelago, enabling Indonesia to produce higher- value commodities. Freeport-McMoRan Inc. and Newmont Mining
Corp. are companies that produce copper concentrates in the country. Unless the law is revised, exports of concentrates from Indonesia will also be prohibited from January 2017.
‘Almost inevitable’
“It was almost inevitable that the 2017 deadline for the export of metal concentrates, would have to be pushed out,” Bill Sullivan, a lawyer specializing in mining at Christian Teo & Partners in Jakarta, said by e-mail. “The more interesting issue is whether, having pushed out the deadline for the export of metal concentrates,
Xinhua
the government will also reconsider the existing export ban on unprocessed metal minerals, notably bauxite and nickel.” Before the 2014 ban, Indonesia was the world’s biggest shipper of mined nickel, which is used to make stainless steel, as well as China’s largest supplier of bauxite, an ore needed to make alumina, the feedstock for aluminium. Nickel plunged 42 percent on the London Metal Exchange last year, while aluminium sank 19 percent. The low metal prices are a challenge for the country’s goal of promoting processing, according to Said, who said the government would provide incentives to aid development. The slumping nickel price has hurt producers in Indonesia. Tsingshan Bintangdelapan Group, a Chinese-Indonesian venture that built a smelter after the ban on ore exports, has said it is making a loss of US$2,000 on every ton. Plans for new smelters will be put on hold if rates stay where they are now, according to Chief Executive Alexander Barus. Bloomberg News
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Asia Indonesia watchdog imposes surcharge on banks Indonesia’s banking watchdog has instructed the biggest banks to set aside more capital this year in an effort to reduce risks to the financial sector. The Financial Services Authority said on its website it will rank systemically important banks (SIBs) based on their size, interconnectedness with the financial system, and the complexity of their business. Under new regulations SIBs are required from January 1 to set aside “capital surcharges” of between 0.25 percent and 0.625 percent of risk-weighted assets, depending on how systemically important the institutions are.
World Bank opens Kangaroo market
Australian electronics collapse highlights risks of private equities sales Several Aussie firms have seen their shares slump below their issue price following quick private equity sales in recent years Byron Kaye
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he collapse of Australia’s biggest electronics retailer yesterday, just two years after listing, has sparked a fresh round of criticism about the swift and often mysterious methods that private equity firms use to prime their investments for sale. The demise of Dick Smith Electronics Ltd is part of a broader pattern: buyout firms cutting the time they spend turning their investments around and leaving the newly public companies poorly placed to weather turbulence. Australia’s biggest department store chain, Myer Holdings Ltd, cleaner-caterer Spotless Group Holdings Ltd and top-rating television broadcaster Nine Entertainment Co Holdings Ltd have all seen their shares slump below their issue price following quick private equity sales in recent years. Each has suffered weaker-thanforecast sales thanks to sector-specific headwinds, with Dick Smith and Myer facing competition from online retail, Spotless grappling with a mining downturn and reduced services spending, and Nine saddled with an exodus from free-to-air television to the internet. “Everyone’s got to shoulder a bit of responsibility,” said Matt Haupt, a portfolio manager at Wilson Asset Management, referring to the private equity firm which sold Dick Smith, Anchorage Capital Partners, the company’s management and the
investment banks which managed its float. “This one was really dressed up. Most of the private equity deals have worked but this one was terrible.” Anchorage, whose managing director Philip Cave was also Dick Smith’s chairman until February 2015, declined comment. The investment banks which helped Anchorage sell Dick Smith, Macquarie Group Ltd and Goldman Sachs, also declined comment. Macquarie is Dick Smith’s biggest shareholder with 19.5 percent, worth A$16 million (US$11.5 million) when the stock last traded, down from A$104 million in May. In a statement, Dick Smith said its directors were “confident on the long-term viability of the company (but) have been unsuccessful in obtaining the necessary support of its banking syndicate to see it through this period”.
Painful lessons
For most of its life as a listed company, Dick Smith impressed investors with its strategy of rapidly adding stores - in fiscal 2014 it added 54, growing its presence by a sixth - and riding a wave of demand for smart phones, tablets and flat screen TVs. Then in October and November 2015 it issued two profit warnings, sending its shares plummeting. It slashed retail prices in the busy Christmas period before suspending its shares from trading on Monday.
Yesterday, it had called in administrators. The shares last traded on Friday at 35.5 Australian cents, compared with their A$2.20 issue price. Until then, few had questioned how Anchorage sold the retailer in 2013 with a market capitalisation of A$520 million, having bought it from supermarket giant Woolworths Ltd for less than A$100 million 15 months earlier. One person who did was Matt Ryan, an analyst at Forager Funds Management, who wrote in a September 2013 blog, three months before the Dick Smith listing, that Anchorage “can’t have done much to turn around the business; they’ll have barely met their management team”. He added that “either Woolworths should be embarrassed at selling Dick Smith for an absolute pittance or investors are about to find they have purchased a dressed-up lemon”. Yesterday, Ryan declined to blame Anchorage for making a profit. “I would hope investors learn something from this. The onus is on us to turn down these floats,” he told Reuters in a telephone interview. Australian Shareholders’ Association company monitor Alan Goldin also declined to blame the vendor. “I can’t believe anybody brings a company to market because of the goodness of their heart,” he said. Reuters
The International Bank for Reconstruction & Development has become the first borrower to dip its toes into Australia’s bond market in 2016 following a decline in issuance last year. The development lender, part of the World Bank Group, is marketing a new five-year Kangaroo note, sale managers said in a statement yesterday. It’s offering the Australian dollar- denominated securities at a yield of about 42 basis points more than the swap rate, according to three people familiar with the deal who asked not to be identified because they’re not authorized to speak publicly.
Bangladesh exports rise Bangladesh’s exports rose 12.7 percent in December from a year earlier to US$3.2 billion, driven by an increase in readymade garment sales, official data showed yesterday. Exports for July to December, the first half of the country’s 2015-16 financial year, rose 7.8 percent from a year earlier to US$16.1 billion, the Export Promotion Bureau said. Sales of garments, comprising knitwear and woven items, totalled US$13.13 billion in the July-December period, up 9.2 percent from a year earlier. Garments are a key foreign-exchange earner for the South Asian nation.
S.Korea account surplus highest in 45 months South Korea’s economy posted the longest current surplus for 45 months in a row due to faster fall in imports than exports, keeping a so-called recession-type surplus trend, central bank data showed yesterday. Current account surplus reached US$9.40 billion in November, up from a surplus of US$9.12 billion in October, according to the Bank of Korea (BOK). It marked the longest surplus for 45 straight months since March 2012. During the January-November period, the surplus amounted to 97.99 billion, boosting expectations to top 100 billion dollars for the whole year of 2015.
Vietnam’s coffee exports seen picking up Coffee exports in January are forecast to be between 130,000 tonnes and 140,000 tonnes (2.17 million to 2.33 million bags), traders said yesterday, against an estimated 130,000 tonnes shipped in December. Sales are expected to pick up because of ample supply at the harvest end in the world’s top robusta producer and as growers need more cash for fuel for watering trees starting in February. The growers also need cash for expenses in January ahead of the Lunar New Year festival, or Tet, in February.
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International U.S. manufacturing activity contracts Economic activity of the U.S. manufacturing sector in December contracted further, as the impact of a strong U.S. dollar continue to play out. The manufacturing index, also known as the purchasing managers index (PMI), fell to 48.2 in December, the lowest reading since June 2009, after registering 48.9 in November, the Institute for Supply Management (ISM) said in a report on Monday. Contraction in new orders, employment and raw materials inventories accounted for the overall softness in December, said the ISM. The ISM’s new-orders index rose 0.3 percentage point from the previous month to 49.8 in December.
Employment, security priorities for France Creating more jobs, fighting terrorism and maintaining security at home are French government’s priorities this year, French President Francois Hollande said on Monday. In a New Year message to his executive staff, Hollande said the government’s first priority is employment. “In 2015 we saw the first signs of growth recovery at 1.1 percent, the best figure since 2011, but the pace is obviously insufficient to sustainably reduce unemployment,” Hollande said. Weak oil prices, low interest rates would be “encouraging factors” to lower the unemployment rate currently at 10.2 percent, the highest jobless rate since 1997.
Brazil witnesses highest trade surplus in 4 years
S. Africa optimistic in resolving trade issues with U.S. African country exported US$176 million worth of agricultural products to the US last year, mainly citrus and wine
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he South African government yesterday expressed confidence that outstanding technical issues would be resolved in trade negotiations with the United States. SA government officials have been engaged with their U.S. counterparts during the festive season to finalize all the outstanding technical issues to allow for safe imports of poultry, pork and beef products from the U.S., said Sidwell Medupe, spokesperson of the Department of Trade and Industry. Medupe was speaking after South Africa missed the deadline of January 4 set by U.S. President Barack Obama in November 2015 to lift the ban on U.S. meat imports or face the risk of losing the agricultural benefits under the African Growth and Opportunity Act (AGOA). Since the negotiations began South Africa has made significant progress on opening its market for poultry, pork and beef from the United States, said the spokesperson. This includes an agreement on a quota for bone-in-chicken pieces and a poultry trade protocol on avian flu. All matters that were on the table
for conclusion by November 11, 2015 were concluded, only issues brought to the negotiating table after November 11, 2015, Medupe said. During the past few weeks, pork health certificates have been negotiated and only requires signature by both sides, said Medupe, much progress has been made on beef with a few issues that can be finalized quickly, he added. On the issue of Salmonella too, a great deal of progress has been made on a side-letter with some technical issues still to be finalized, according to Medupe. Although the deadline has passed, both sides are committed to continue the negotiations, he said. South Africa believes that with some flexibility from both sides the final touches to the agreement on which 95 percent of the work has been done can be completed with some extra-time, Medupe said. On Monday, Minister of Agriculture, Forestry and Fisheries Senzeni Zokwana said South Africa has not lowered its trade standards by any means in the process of negotiating with the United States.
Brazil registered a trade surplus of US$19.68 billion last year, which did not result from better export performances but a sharp fall in imports, the country’s Development, Industry and Trade Ministry said on Monday. The surplus, the biggest since 2011, has enabled Brazil to compensate the trade deficit of US$4.05 billion posted in 2014. In 2015, Brazil’s exports amounted to US$191.13 billion, down 14.1 percent from 2014, while imports totalled US$171.45 billion, down 24.3 percent compared with 2014. Both imports and exports were the lowest since 2009, as measured by daily averages.
Parliament to probe into Venezuelan gov’t corruption The president-elect of Venezuela’s National Assembly, Henry Ramos Allup, announced Monday that majority opposition in Parliament would launch a “colossal” investigation into alleged corruption within the executive branch. “I fear that the volume of pilfered, appropriated and stolen public funds is such that this will be an investigation of truly colossal dimensions,” Ramos Allup told private TV station Globovision.
Volvo, Ericsson to develop video streaming Automaker Volvo Cars and Swedish telecom giant Ericsson have teamed up to develop high-bandwidth video streaming in cars that drive themselves, the companies announced on Monday. The streaming technology would allow car passengers to watch high-definition video content in places where mobile broadband connectivity is scarce, Volvo said in a press release sent out from Stockholm. The project, designed for cars capable of autonomous driving, was presented Monday at the Consumer Electronics Show in Las Vegas.
Since the negotiations began South Africa has made significant progress on opening its market for poultry, pork and beef from the United States
The South African government blocks chicken imports from the U.S. because of outbreaks of avian flu in parts of the U.S. and because of concerns about salmonella infection. It has also been citing concerns about diseases in pork and beef to block imports of those products. SA exported US$176 million worth of agricultural products to the US last year, mainly citrus and wine. It is not clear how much its exports would be reduced by the loss of AGOA benefits, but it is expected that products to be affected will include macadamia nuts, avocados, citrus products, canned fruits, and possibly even wine. South Africa’s total exports amount to 70 billion rand (US$4.5 billion) and of these, 25 million rand (about US$1.6 billion) are to the U.S. market. SA has allowed virtually no U.S. chicken, pork or beef imports into the local market for several years, partly through anti-dumping duties and partly through health restrictions. In June this year officials from both sides agreed partly to lift the anti-dumping duties on U.S. chicken imports, to allow a quota of 65,000 tons a year to be imported. This would be subject to several conditions being met. Although the U.S. renewed the AGOA for another decade in July last year, Washington is currently conducting an out-of-cycle review of SA’s participation in the programme. The AGOA, a legislation that was approved by the U.S. Congress in May 2000, is to assist the economies of Sub-Saharan Africa and to improve economic relations between the U.S. and the region. The Act provides trade preferences for quota and duty-free entry into the U.S. for certain goods, under certain conditions. Xinhua
german unemployment remains at post-reunification low In numerical terms, the number of people registered as unemployed in Germany declined by a seasonally-adjusted 14,000 to 2.757 million
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erman unemployment was steady at historic low levels in December as the recovery in Europe’s biggest economy remains on track, data showed yesterday. Unemployment stands at the lowest level since west and east Germany reunited in 1990 after the fall of the Berlin Wall the previous year, the Federal Labour Office said in a statement. The German unemployment rate -- which measures the jobless total against the working population as a whole -- stood at 6.3 percent
in December, unchanged from November. In numerical terms, the number of people registered as unemployed in Germany declined by a seasonallyadjusted 14,000 to 2.757 million, the Federal Labour Office said. That was more than expected, as analysts had been pencilling in a decline of around 7,000. By contrast, in raw, or unadjusted, terms, the jobless total increased by 48,000 to 2.681 million and the unemployment rate inched up to 6.1 percent in December from 6.0 percent
in November, the office noted. But the increase was solely due to seasonal factors, the office said. “With real growth of 0.3 percent in third quarter, the German economy continued along its moderate upward trend observed in the first half of the year,” the labour office said. “The favourable development also continued on the labour market.” Taking the year as a whole, the German jobless rate stood at 6.4 percent and the jobless total at 2.795 million, the office added. AFP
Business Daily | 15
January 6, 2016
Opinion BUSINESS
WIRES
Leading reports from Asia’s best business newspapers
Another slow year for the global economy Ashoka Mody
THE TIMES OF INDIA
Former mission chief for Germany and Ireland at the International Monetary Fund, is currently Visiting Professor of International Economic Policy at the Woodrow Wilson School of Public and International Affairs, Princeton University
Finance minister Arun Jaitley said on Monday that there is a need for more investment in the farm sector as representatives from the key sector sought a string of measures to revive agriculture. Farmer groups demanded that micro-irrigation system should be given infrastructure lending status and food exports may be taxed rather than banned and funds collected there from be spent for improving irrigation system. There was suggestion to set up National Institute for Agriculture Market Intelligence, introduction of agriculture index and satellite survey every month.
JAKARTA GLOBE Indonesia has postponed a new levy on fossil fuels intended to support development of renewable energy resources and improve energy security, its energy minister said on Monday, a day before it had been due to come into effect. The decision highlights the difficulties President Joko Widodo faces in devising an energy policy for Southeast Asia’s largest economy, the world’s top exporter of thermal coal, while meeting environmental commitments. Fuel prices are politically sensitive in Indonesia, and changes typically spark protests and contributed to the downfall of long-serving autocrat and then president Suharto in 1998.
THE STAR The year ahead would be better than 2015 for (Malaysian) airlines with experts predicting growth in air passenger traffic at between 2% and 3%. Last year the industry saw marginal decline of 1% and the slight upside this year is expected to force airlines to continue to be creative in pricing their products well enough to entice travellers whose wallets are squeezed due to rising cost of living and a volatile ringgit. It was negative growth last year which used to average around 8% previously.
THE STRAITS TIMES Singapore and Malaysia are still in discussion over the commercial and operating models of the high-speed rail (HSR), the Ministry of Transport (MOT) said, in response to a Malaysian news report claiming that several aspects of the joint project had been decided. A ministry spokesman said the possibility of having two services for the HSR linking Singapore and Kuala Lumpur - one a nonstop express service, and the other a transit service calling at stations in between - was still being discussed.
The author conveys “the IMF should stop forecasting renewed growth and issue a warning that the global economy will remain weak and vulnerable unless world leaders act energetically to spur innovation and growth”. Pictured finance ministers and central bank governors in the latest IMF summit
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ast April, the International Monetary Fund projected that the world economy would grow by 3.5% in 2015. In the ensuing months, that forecast was steadily whittled down, reaching 3.1% in October. But the IMF continues to insist – as it has, with almost banal predictability, for the last seven years – that next year will be better. But it is almost certainly wrong yet again. For starters, world trade is growing at an anaemic annual rate of 2%, compared to 8% from 2003 to 2007. Whereas trade growth during those heady years far exceeded that of world GDP, which averaged 4.5%, lately, trade and GDP growth rates have been about the same. Even if GDP growth outstrips growth in trade this year, it will likely amount to no more than 2.7%. The question is why. According to Christina and David Romer of the University of California, Berkeley, the aftershocks of modern financial crises – that is, since World War II – fade after 2-3 years. The Harvard economists Carmen Reinhart and Kenneth Rogoff say that it takes five years for a country to dig itself out of a financial crisis. And, indeed, the financial dislocations of 20072008 have largely receded. So what accounts for the sluggish economic recovery? One popular explanation lies in the fuzzy notion of “secular stagnation”: long-term depressed demand for goods and services is undermining incentives to invest and hire. But demand would remain weak only if people lacked confidence in the future. The only logical explanation for this
enduring lack of confidence, as Northwestern University’s Robert Gordon has painstakingly documented and argued, is slow productivity growth. Before the crisis – and especially from 2003 to 2007 – slow productivity growth was being obscured by an illusory sense of prosperity in much of the world. In some countries – notably, the United States, Spain, and Ireland – rising real-estate prices, speculative construction, and financial risk-taking were mutually reinforcing. At the same time, countries were amplifying one another’s growth through trade. Central to the global boom was China, the rising giant that flooded the world with cheap exports, putting a lid on global inflation. Equally important, China imported a huge volume of commodities, thereby bolstering many African and Latin American economies, and purchased German cars and machines, enabling Europe’s largest economy to keep its regional supply chains humming. This dynamic reversed around March 2008, when the US rescued its fifth-largest investment bank, Bear Sterns, from collapse. With the eurozone banks also deeply implicated in the subprime mortgage mess and desperately short of US dollars, America and much of Europe began a remorseless slide into recession. Whereas in the boom years, world trade had spread the bounty, it was now spreading the malaise. As each country’s GDP growth slowed, so did its imports, causing its trading partners’ growth to slow as well. The US economy began to
In short, the factors that dragged down the global economy in 2015 will persist – and in some cases even intensify – in the new year
emerge from its recession in the second half of 2009, thanks largely to aggressive monetary policy and steps to stabilize the financial system. Eurozone policymakers, by contrast, rejected monetary stimulus and implemented fiscal austerity measures, while ignoring the deepening distress of their banks. The eurozone thus pushed the world into a second global recession. Just when that recession seemed to have run its course, emerging economies began to unravel. For years, observers had been touting the governance and growth-enhancing reforms
that these countries’ leaders had supposedly introduced. In October 2012, the IMF celebrated emerging economies’ “resilience.” As if on cue, that facade began to crumble, revealing an inconvenient truth: factors like high commodity prices and massive capital inflows had been concealing serious economic weaknesses, while legitimizing a culture of garish inequality and rampant corruption. These problems are now being compounded by the growth slowdown in China, the fulcrum of global trade. And the worst is yet to come. China’s huge industrial overcapacity and property glut needs to be wound down; the hubris driving its global acquisitions must be reined in; and its corruption networks have to be dismantled. In short, the factors that dragged down the global economy in 2015 will persist – and in some cases even intensify – in the new year. Emerging economies will remain weak. The eurozone, having enjoyed a temporary reprieve from austerity, will be constrained by listless global trade. Rising interest rates on corporate bonds portend slower growth in the US. China’s collapsing asset values could trigger financial turbulence. And policymakers are adrift, with little political leverage to stem these trends. The IMF should stop forecasting renewed growth and issue a warning that the global economy will remain weak and vulnerable unless world leaders act energetically to spur innovation and growth. Such an effort is long overdue. Project Syndicate
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January 6, 2016
Closing Beijing probes Microsoft’s alleged anti-monopoly case
Euro-area inflation stuck close to zero pressuring ECB
China’s commerce regulator launched a further probe into Microsoft’s alleged anti-monopoly case yesterday, showing the country’s latest effort to enforce its Anti-Monopoly Law. State Administration for Industry and Commerce (SAIC) task force launched an inquiry for Microsoft to clarify major problems found in electronic data during the probe. The company needs to submit a complete explanation after the inquiry, the SAIC said in a statement. In 2014, Microsoft was suspected of not fully disclosing information of its Windows operating system and Microsoft Office application, causing incompatibility problems. According to Chinese law, incompatibility without advance warning to customers could be regarded anti-competitive.
Euro-area inflation was weaker than economists predicted in December, when the European Central Bank stepped up its stimulus program. Consumer prices rose an annual 0.2 percent, the European Union’s statistics office said yesterday. That compares with a median estimate for a 0.3 percent increase, which would have been the strongest reading in seven months, according to a Bloomberg survey of economists. Even though ECB officials have for months been trying to boost price pressure with unconventional policies such as negative interest rates and large-scale asset purchases, their medium-term inflation goal of just under 2 percent is moving further into the distance.
Bank of China taps banks for world’s biggest aircraft leasing IPO BOC Aviation has grown to become Asia’s second-biggest lessor with a portfolio of about 250 planes Anshuman Daga and Fiona Lau
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ank of China has hired Goldman Sachs and BOC International as joint sponsors for a US$3 billion Hong Kong listing of its aircraft leasing arm, people with knowledge of the matter said. Bank of China plans to launch the IPO of Singaporebased BOC Aviation in the second quarter of this year, the people said, in what is set to be the world’s biggest listing by an aircraft lessor. The IPO comes as Asian lessors raise funds to challenge Western rivals in the nearly US$217 billion global industry, with huge orders or acquisitions to service the world’s fastestgrowing aviation market. Rival CDB Leasing, owned by statecontrolled China Development Bank, plans to raise US$1 billion in another IPO set for the second-quarter 2016, the people said. “There won’t be any shortage of investors because they are looking at not just an aircraft leasing company (BOC Aviation) but at a company
whose future is entrenched in Asia Pacific. It’s a growth story,” said Shukor Yusof, an analyst at Malaysian aviation consultancy Endau Analytics. Morgan Stanley has been hired as joint global co-ordinator for the lessor’s IPO, the people said, adding that the final deal value could change depending on market conditions and more banks could join the deal. The people declined to be identified because the information was not public. BOC Aviation, formed after Bank of China’s 2006 purchase of a firm formerly backed by Singapore Airlines Ltd, has grown to become Asia’s secondbiggest lessor with a portfolio of about 250 planes valued at US$9.4 billion, according to estimates from industry publication Flightglobal. The lessor, which has an investment grade rating, has already tapped into different sources of financing, including offshore renminbi-denominated bonds. Longer-term investors such as insurers and pension
Spanish unemployment sees record fall in 2015
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Bank of China branch in Singapore
funds are warming up to the sector as aircraft leases offer fixed incomes and are often seen as safe transactions. Paid for in U.S. dollars, aircraft are comparatively easy to re-lease to different geographies. “Investors should avoid
airlines but aircraft leasing companies are among the best assets investors can go for because you are looking at returns of at least 12 to 13 percent a year,” said Endau Analytics’ Yusof. BOC Aviation posted a 5
percent rise in net profit to a record $171 million in the first half to June 2015. Goldman Sachs and BOC Aviation declined to comment. Bank of China and BOC International, its investment banking unit, declined to comment, while Morgan Stanley was not available to comment. China Aircraft Leasing is the only listed aircraft lessor in Asia, while the U.S. has a few listed sector players including AerCap Holdings NV and Air Lease Corp. At least five Asian companies, including units of Sumitomo Mitsui Financial Group Inc and Industrial and Commercial Bank of China Ltd as well as BOC Aviation, now rank among the world’s top 15 aircraft lessors, according to Flightglobal. GECAS, a unit of General Electric Co and AerCap dominate the sector in which the top 50 lessors control a fleet of just over 7,800 planes valued at nearly US$217 billion.
India weighs fiscal stimulus in new budget
S.korean banks to tighten requirement for loans
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panish unemployment fell by nearly eight percent in 2015 from the previous year, the labour ministry said yesterday. The number of jobless dropped by 354,203 to 4.04 million, the largest annual decline ever. The labour ministry does not publish an unemployment rate, but national statistics office INE put the rate at 20.18 percent in the third quarter. “The trend is very good,” Prime Minister Mariano Rajoy told Cope radio. “What we need to do now is to persevere.” The fight against unemployment featured large in Rajoy’s platform ahead of December 20 elections, in which his party lost its parliamentary majority. In December alone, the number of jobless fell by 55,790, mostly thanks to temporary services jobs created during the festive season. Spain was hit hard by the global financial crisis, experiencing five difficult years of on-off recession that saw unemployment rocket to a high of 27 percent in 2013.
ndia claims to be the world’s fastest-growing major economy, yet the government might break its budget deficit targets to stimulate demand, potentially undermining the central bank’s fight against inflation. Statistically, Asia’s third-largest economy is outpacing China with above 7 percent annual growth. But Prime Minister Narendra Modi’s economic advisers are complaining of a sharp slowdown that threatens their budget calculations. In February, Finance Minister Arun Jaitley will present the budget for the fiscal year starting April 1. A senior official said the minister has been advised to increase its fiscal deficit target to 3.7 or 3.9 percent of gross domestic product (GDP) from 3.5 percent. There is also a proposal to delay, by one year, a goal of lowering the fiscal deficit to 3 percent in 2017/2018, the official said. “The economy is still suffering from slack demand,” said the finance ministry official. “It needs a conducive fiscal and monetary policy.” But Shaktikanta Das, the ministry’s economic affairs secretary, said the government has yet to decide on relaxing the deficit targets.
AFP
Reuters
Reuters
outh Korean banks plan to tighten requirement for loans to households and companies in the first quarter, a central bank survey showed yesterday. The lending attitude index, which gauges loan requirement like interests and maturity, stood at minus 15 for the January-March period, the lowest in more than seven years, according to the Bank of Korea (BOK)’s poll of banks. The index below zero means that banks planning to tighten loan requirements outnumbered the banks to ease. Banks are expected to tighten loan requirements in the first quarter on worries about big profit losses from major shipbuilders and the government’s plan to curb massive household debts. The lending attitude index for big corporations came in at minus 19 in the first quarter, down 6 points from the prior quarter. The index for small companies declined from minus 3 to minus 6 in the same period. The index for household loans was unchanged at minus 13 in the first quarter compared with the fourth quarter of last year. Xinhua