MOP 6.00
Supported by
Closing editor: Joanne Kuai
Macau ‘Australia Day’ Cocktail Fri, 29 January 2016 | 6pm - 8pm | Terrazza, Galaxy Macau More information at www.austcham.com.hk
Standard & Poor’s downgrades Asian oil companies Page 16
Year IV
Number 970 Wednesday January 27, 2016
Publisher: Paulo A. Azevedo
Air Macau to add flights during CNY Page 5
iGaming playing a bigger part in coming G2E Asia Page 3
Light at the end of the gaming tunnel Stabilisation is the new mantra. As applied to the fortunes of the gaming industry. The portends are good, says CLSA gaming analyst Aaron Fischer, for 2H 2016. Which he expects to return one pct growth y-o-y via the catalyst of Cotai’s new properties. While there is confidence in Wynn raising the bar for international visitors. Meanwhile, former gaming regulator consultant David Green says new junket regulations are unnecessary. As the tools are at hand already to be judiciously applied via enforcement rather than legislation Page 5
Rolling the dice Moving on. Hong Kong-listed gaming service provider Success Dragon is spreading its bets. Focusing now on the perceived big potential of Vietnam. Which it believes can help offset the woes of Macau’s gaming downturn
HSI - Movers January 26
Name
%Day
CITIC Ltd
+0.37
Link REIT
+0.34
Cathay Pacific Airways
-0.16
Swire Pacific Ltd
-0.34
MTR Corp Ltd
-0.43
China Resources Powe
-5.40
Tingyi Cayman Islands
-5.62
PetroChina Co Ltd
-5.82
China Life Insurance Co
-6.21
CNOOC Ltd
-7.15
Source: Bloomberg
I SSN 2226-8294
Page 6
Cypriot adventure Reportedly serious contenders. Melco Crown Entertainment and Filipino company Bloomberry Resorts are looking at Cyprus. For the Cypriot comprehensive casino resort concession. Cypriot authorities expect the casino resort to bring up to 500,000 more tourists to the Mediterranean island. With eight contenders to be whittled down to three www.macaubusinessdaily.com
Page 5
MICE power 123 projects facilitated by IPIM’s ‘One-stop Service’ in 2015. Some large-scale MICE events are set to be supported by the scheme this year. The number of anticipated participants is around 20,000
Page 4
PJ have hands full
Gaming-related crime is up. With 3,658 cases opened last year, according to Judiciary Police. The number represents a hefty 21 pct increase compared to 2014. Some 366 illegal detainments related to gaming were reported. As well as 318 loan sharking cases. Representing a substantial uphill trend
Page 2
Economy
Lunar liquidity People’s Bank of China has released 440 bln yuan. Using reverse-repurchase agreements this month preLunar New Year holiday. The added amount brings net injections via its various lending tools this month to some 1.6 tln yuan
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2 | Business Daily
January 27, 2016
Macau
PJ: Gaming related crimes on rise However, the Director of Judiciary Police says such cases usually occur on casino premises hence no harm to public security Joanne Kuai
joannekuai@macaubusinessdaily.com
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udiciary Police (PJ) Director Chau Wai Kuong (pictured centre) said that in 2015 the bureau opened files on 11,305 cases, a 5.3 per cent increase on 2014 when there were 10,737 cases. He was speaking during the annual briefing that took place yesterday at Judiciary Police headquarters in Avenida da Amizade. The PJ head said the bureau had closed 10,354 cases last year, with 3,434 suspects handed to the Public Prosecutor’s Office, 807 people more or 30.7 per cent increase compared to the previous year. Mr. Chau said that the phenomenon indicated that criminal activities here have become more rampant and complicated with the development of society.
Gaming-related crimes on the rise
With regard to gaming-related crimes, which the authorities describe as occurring on casino premises, some 3,658 cases came to their attention in 2015, a 21 per cent increase compared to 3,023 in 2014. The number was 2,599 and 2,070 in 2013 and 2012, respectively. Some 1,737 suspects were handed over to the Public Prosecutor’s Office. In addition, there were 366 cases of illegal detainment related to gambling, a drastic increase of 301 compared to the previous year. Loan sharking cases totalled 318, while 208 were recorded in 2014 and 16 in 2013. Police attribute the increasing number of crimes related to gaming to ‘the adjustment period of the gaming industry’ as well as more effort in fighting such crimes by the police and more frequent visits to gaming venues. However, the PJ head said that most of the cases were opened because the police took the initiative to investigate and most of the cases happened inside the casinos, hence there was no risk to social security outside the casinos. Mr. Chau pledged that the police will continue deploying police and enhance raids in order to suppress gaming-related crimes.
Anti-drug law revision to help
The number of drug related crimes decreased in 2015. Drug dealing cases totalled 85, a 17.5 per cent decrease year-on-year. Drug-taking cases totalled 51 with 107 suspects arrested. The numbers in 2014 were 114 cases and 160 suspects. However, the PJ head said it was not necessarily a good sign. “The number of drug related crimes has decreased but it doesn’t necessarily mean that the battle against drug related crimes is really
showing effects,” said Chau Wai Kuong. “On the contrary, we think that the cases are becoming more and more hidden. That’s why we think the revision of the anti-drug law will help the police in fighting drug related crimes, especially drug-taking.” The PJ director also noted that an increasing number of Hong Kong residents were smuggling drugs, with local police already in contact with their counterparts from the neighbouring SAR in order to tackle the issue.
Fraud cases decrease
“In 2015, fraud cases decreased 13.8 per cent year-on-year, totalling 435 cases. Among them, telephone fraud cases were 164, a decrease of 33 per cent compared to 2014,” said Mr. Chau. “The bureau will continue strengthening regional police cooperation and exchange of intelligence in order to tackle fraud cases. ” Analysing the cases from last year, the PJ head added that the most common practice of the conman is to pretend to be an official from the national authorities; such scenarios totalled 92 cases or 56 per cent of all phone fraud, also a drastic increase compared to 20 cases reported in 2014. In 2015, the money involved that was reported by claimed victims was around MOP10 million. According to the police, most of the victims were women; 40 per cent of the victims were aged between 18 to 33 years old; around 90 per cent of them were Macau local residents, 1.2 per cent
were Mainland residents, 1.2 per cent were from Hong Kong, and 2.4 per cent were from other countries and regions.
Better security
From the figures provided by the police, it seems that last year public security improved. Burglaries decreased 64 per cent to 62 cases. However, stolen property valued at over MOP200 million was reported, which is 21 times more than the previous year, and is mainly attributed to one case concerning missing art valued at over HK$200 million. The PJ head added that one thing worth noting was that 40 per cent of the cases took place in the islands; that is to say Taipa and Coloane. The PJ director says the islands became the new hot spots in the past year, followed by NAPE and ZAPE areas, in the south eastern reclaimed landfill on Macau Peninsula. Other traditional Macau neighbourhoods, namely Horta e Costa, Three Lamps, Praca de Ponte e Horta, Rua da Praia do Manduco area and Barra recorded a decreasing number of burglaries for the second consecutive year. In addition, the PJ director said that more than 70 per cent of the cases took place in buildings that have over eight floors. Reading the criminality pattern, burglars are targeting more high-rise buildings and act during the afternoon when homeowners are usually out. The police vow to deploy patrols accordingly in order to prevent such crimes from happening
and enhance community help and neighbourhood watches.
No tolerance
Regarding the reported case of six police officers arrested for facilitating gambling by illegals, the PJ director said that since the case is still under investigation it was not appropriate to release any more information. But Chau Wai Kuong stressed that if any other police officer was found involved, there would be no tolerance and the law will be enforced. Chau also remained silent on the Dore case saying that it is still under investigation and details remain confidential. Relevant information will be released in due time, said the PJ head. Chau Wai Kuong added that the police are also suffering from the human resources shortage. He added that last year Macau welcomed more than 30 million visitors but the ratio between the number of police officers and the huge inflow of people was in imbalance. He said the Judiciary Police have many position openings but can hardly fill them. Currently, the bureau is recruiting 45 people. This year, the bureau plans to recruit 60 more. In addition, 82 people are undergoing training before being assigned and deployed. The Judiciary Police also announced that they are improving their website and uploading more data in order to make them more informative and accessible for the public to enhance communication. The new website is expected to be launched this year.
Business Daily | 3
January 27, 2016
Macau Air Macau to add flights during CNY Air Macau says that in order to meet the increasing demands of the travelling public during the Chinese New Year (CNY) which falls around the second week of February this year, 68 charter flights and added flights have been arranged during that time. Affected flights to Mainland cities include Shanghai, Hangzhou, Nangjing, Chongqing and Zhengzhou; other international flights include Hokkaido, Osaka in Japan plus Seoul and Muan in South Korea in addition to Taipei and Hualian in Taiwan. The flight to Taipei is going to be added daily, departing Macau at 8:00am and leaving Taipei at 10:50am, starting February 5, according to a statement published by Air Macau yesterday.
G2E Asia celebrates 10th anniversary with growing iGaming segment The organisers of the fair say the iGaming segment will increase 52 per cent in terms of exhibitors and triple in terms of occupied area in this year’s edition
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he expansion of the iGaming sector is one of the main highlights of the 10th edition of G2E Asia, running from 17 to 19 May at The Venetian Macao. At the press conference to launch the event yesterday, Josephine Lee, the representative of Reed Exhibitions, the fair’s main organiser, stressed the growing influence of this component of gambling to the fair. “There is a 52 per cent increase in terms of exhibitors from the iGaming segment. In terms of area occupied by this segment, it has more than tripled [compared to the previous edition]” the Executive Vice President of Reed Exhibitions Greater China said. “The show continues to evolve, according to the changing rhythms of
the industry, which is why it remains so relevant, and why the gaming and entertainment industry throughout Asia trusts G2E Asia as the right exhibition platform to drive business forward”, she said. The main segments of the fair will continue to be slot machines and table games, as per previous editions. Last year alone there was a total of 9,867 visitors, an increase of 19.8 per cent year-on-year from 8,233. The number of exhibitors declined in 2015 to 160 exhibitors from 161 in 2014. The 2016 edition of the fair will also publish a report about the trend in the Asia market for the gaming industry titled ‘The Asian Gaming White Paper’. According
to the organisation, the goal of this working paper is to ‘deepen industry understanding of gaming trends, casino operations, players’ profiles and behaviour’.
Diversification and retail
With diversification now so prominent in the gaming sector, G2E Asia will also focus on the sector with the ‘Macau Retail Summit’, discussing the creation of the ideal customer service experience. This part of the event will focus on nextgeneration retail and how to use such technologies to enhance the customer experience. One of the new features of G2E Asia is the introduction of the Gaming Asia Awards. These awards are introduced
to the show in order to ‘recognize operators, regulators, suppliers and service providers’ contributions to the industry’. This year’s edition will also host the second edition of the All Asia Dealers Championship, which aims at distinguishing the best dealer’s skills and achievements in the industry. G2E Asia was first organised in 2007, since when the exhibition has become one of the most important events in the Asian gaming market. “Today, G2E Asia is three times bigger than when it was launched in 2007”, Ms. Lee explained yesterday at a press conference in the Pacha Club in Studio City. J.S.F.
4 | Business Daily
January 27, 2016
Macau opinion
Loose thoughts
José I. Duarte Economist
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he experience we have as tourists, anywhere in the world, is often a complex one. Various things will make us like (or dislike) a place and will provide an incentive (or not) to return at some future time. For Macau to become a top world destination implies the city must offer opportunities for different kinds of experience to a varied bunch of visitors. The attractiveness of the casinos and the quality of services they deliver to gamblers, including their lodging and food facilities, are certainly major factors. But if the place is to avoid becoming only a gambling spot, where many go, but few actually visit, other aspects will weigh in. Happy visitors are also, incidentally, our best advertisers. A comprehensive set of features sets the stage, so to speak, where enjoyable and memorable moments are more likely to happen. Possibly, as a tourist destination, we may be a bit short on some of them. The stories below are based, as they say in the movies, on true stories. I will refrain from conclusions. Take 1: shopping. You enter a photo equipment shop. A particular model catches your eye, and you ask to see it. While assessing its commands and fit in your hand, you ask about a certain accessory. They don’t know, never heard of – and do not show any interest in the matter. You venture a question about the camera specifications. No idea. “Could you show me the manual?”, you ask tentatively. “You can search on the Internet,” is the prompt reply. Finally, you get the message: customers are supposed to buy things, not ask questions. You leave but do not forget the advice. An online shop will deliver everything home, accessories included, in less than one week – for a lower price, including transportation, than the one offered at the shop. Good advice, in the end, you think. Take 2: arrival at the international airport. The full plane has just landed. It is past midnight. You just want to check in, have a shower and drop into bed. The first hint of trouble comes with people rushing to the door while the plane is still on the runway. You will shortly find they know something you don’t. From the airport few taxis are available. Some travellers don’t even try to queue at the taxi stand. They know better. Several taxis are waiting close to the parking lot. For a couple of “gifts” they will take you immediately, no need to wait. Time passes, the long queue hardly changes. Occasionally, a daring driver will approach the stand. From a few metres away, for a fixed fee, just a few hundred, he will offer to pick you up at once. It does little to improve the mood. More than one hour later you are on the way to your hotel. Not the smoothest of starts, you may be forgiven for thinking.
IPIM’s ‘One-stop Service’ supports 123 MICE events in 2015
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acao Trade and Investment Promotion Institute (IPIM) said its ‘One-stop Service’ for Meetings, Incentives, Conferences, and Exhibitions (MICE) bidding and support assisted a total of 123 projects in the territory last year. According to IPIM’s official statement, 90 of the total projects it assisted via the scheme were conferences, 25 were exhibitions, while the other eight were conventions and exhibitions. The events involved
the medical, insurance, finance, food & beverage, information, tourism and cultural creative industry sectors. The government department also disclosed that several large-scale MICE events are to be held in the city via the ‘One-stop Service’ scheme this year, which may attract more than 20,000 participants in total. These include Worldwide Chinese Life Insurance Congress, the 9th ACM SIGGRAPH Conference and Exhibition on Computer Graphics and Interactive Techniques in Asia
and Jeunesse Greater China Meeting. These three events are expected to bring 7,000, 5,000, and nearly 10,000 participants to the Special Administrative Region, respectively. The department’s ‘One-stop Service’ was launched in 2013 in order to attract and introduce convention and exhibition projects to Macau. IPIM said in the statement that its ultimate aim is to turn the city into the MICE capital of Asia Pacific through different kinds of channels.
San Miguel Hong Kong warns investors of losses in 2015
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an Miguel Brewery Hong Kong issued a profits warning yesterday in a filing with the Hong Kong Stock Exchange, saying the Hong Kong arm of the Philippinebased company ‘is expected to incur a consolidated net loss for the year ended 31 December 2015’. The loss is justified by the nonrenewal of distribution agreements with Anheuser-Busch InBev China and Anheuser-Busch InBev International GmbH & Co. KG, which represent
such beer brands as Budweiser, Corona and Stella Artois. At the same time, the fact that the brand is no longer distributing some products has increased associated operating costs. In the first six months of 2015, San Miguel Hong Kong recorded a loss of HK$14.6 million (US$1.87 million), while for the full year of 2014 it posted a net profit of HK$35.3 million. The consolidated results of the group are expected to be announced on February 4.
Business Daily | 5
January 27, 2016
Macau
CLSA: Gaming to stabilise and grow one pct in 2016 The positive outlook for the market is based on the opening of new projects, says analyst João Santos Filipe
jsfilipe@macaubusinessdaily.com
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rokerage firm CLSA estimates that this year will be a story of two halves culminating in the gaming industry stabilising by achieving one per cent growth yearon-year. “The outlook is improving in Macau this year and we expect revenues to increase by one per cent, which is a much better performance than last year”, the Regional head of Consumer and Gaming Research from CLSA, Aaron Fischer, said on the sidelines of a press conference launching G2E Asia. “The first half [of the year] will still be quite difficult and we expect
general gaming revenues to be down around 20 per cent. But as we move towards the end of the year, it will improve somewhat and in the second half of the year we expect positive growth”, he said. Fischer explained that the positive outlook for the market is based on the opening of new projects. The analyst went as far as to say that Wynn Palace, slated to open on 25 June this year, will manage to raise the bar in terms of international visitors. The analyst believes that the effect of the new openings will be extended
to 2017, when, mainly driven by premium and mass segments, gross gaming revenue will increase 12 per cent year-on-year. Concerning the challenges faced by the Mainland economy – namely, stock market volatility, weaker than expected GDP growth and increasing tightening of capital outflows - the analyst defined them as “reasons to be cautious in the short term”. Last year, industry revenue stood at MOP230.8 billion (US$28.8 billion), which was a decline of 34.3 per cent year-on-year from MOP351.5 billion.
Gaming expert says new junket regulations “unnecessary” Gaming expert and advisor on gaming regulation David Green said yesterday that the existing regulations already have the tools necessary to regulate the Macau junket sector. “I think the new junket regulations are desirable. Whether they are necessary is another question. The existing regulations are already quite extensive. There are already plenty of tools which are available for the regulator to provide a better regulatory environment. You do not simply write new law for the sake of it”, the founder of Newpage Consulting, David Green, told journalists yesterday. “It’s not really an enforcement issue. The question is what does the legislation actually require when it talks about the suitability of operators in junket terms”, he elaborated. Earlier this month, the new director of the Gaming Inspection and Co-ordination Bureau, Paulo Chan, said that the legal framework of the city’s gaming industry needs to be improved in order to strengthen oversight.
Report: Melco Crown bids for Cypriot casino licence
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ocal gaming operator Melco Crown Entertainment Ltd. is one of the contenders for the gaming concession on the Mediterranean island of Cyprus, news outlet Cyprus Weekly has reported. ‘Macau-based Hard RockMelco Crown Entertainment and the Filipino company Bloomberry Resorts are serious contenders for the Cypriot comprehensive casino resort,’ the news outlet cited an unidentified source as saying. Business Daily tried to reach representatives of Melco Crown for the company’s comments but there was no reply from the company before this story went to press.
This is not the first time that gaming operator boss Lawrence Ho Yau Lung (pictured) has expanded his gaming business outside the Special Administrative Region following the gaming downturn. Last February, the gaming entrepreneur launched City of Dreams Manila in the Philippines via Melco Crown Entertainment. Meanwhile, through Summit Ascent, another controlled company, he opened the Tigre de Cristal casino in Vladivostok in Russia last October. In addition to these two projects, Mr. Ho’s Melco International Development has tendered for a casino licence near Barcelona in Spain.
Melco Crown’s bid for the Cypriot casino is in competition with other Asian gaming operators. Apart from Bloomberry, Cyprus Weekly recently reported that Cambodian gaming operator NagaCorp had already submitted a full proposal to Cypriot authorities. Other bidders for the Cypriot gaming licence include the French consortium of Bouygues, Accor Hoer and Barrier, as well as Russian Absolute, the news outlet said.
Cypriot casino
In July last year, the legislative unit in the Republic of Cyprus passed the bill of Operations and Casino Control Law, which regulates the setting up
Corporate
CEM celebrates CNY with the elderly Chinese New Year is approaching. Companhia de Electricidade de Macau - CEM, S.A. (CEM) staff hosted a Spring luncheon for elders who joined the ‘CAT members 1+1 Elderly Programme’ to celebrate this special season at Federal Restaurant last week. During the luncheon, CEM staff and the elders chatted happily, enjoyed delicious food and took photos to record joyful moments.
Photos were printed out instantly and presented to the elders as souvenirs. Everyone had quality time together in the midst of conversations and laughter. After the luncheon, CEM Ambassadors proffered the elders Chinese New Year cakes. The elders showed their appreciation of the activity and hoped that they would have the opportunity to join such activities in the future.
of the country’s own gaming regulator, as well as allowing the licensing of an integrated resort comprising a casino and leisure facilities for a 30year period. According to Cyprus Weekly, the country’s Ministry of Commerce had asked members of parliament to approve the final rules and regulations regarding
the island’s first casino resort by next month in order to prepare for the next round of the bidding competition in which only three of eight contenders will remain. The Cypriot authorities expect the casino resort to bring up to 500,000 more tourists to the Mediterranean island. K.L.
6 | Business Daily
January 27, 2016
Macau
Success Dragon bullish on Vietnamese market The Hong Kong-listed gaming service provider believes its new market focus on Vietnam has big potential as the company tries to offset the gaming downturn in Macau Kam Leong
kamleong@macaubusinessdaily.com
management business in the Southeast Asian country could be 100 per cent higher than those generated in the Special Administrative Region. According to Mr. Salas, Success Dragon currently manages around 800 slot machines in Macau, each of which generates daily revenues of around US$60 (MOP480) and US$120. He also disclosed to the business wire that the company had reached service agreements with two Vietnamese hotel operators to manage a total of 180 slot machines, which may account for three per cent of the Vietnamese slot machine market.
Fighting for market share local major industry is very slow. S u cces s Dr a g o n , f o r m e r l y known as C Y Foundation, majors in the provision of services for the management of electronic gaming equipment in the Special Administrative Region. Claiming the company’s business in Macau would continue, Mr. Salas perceives higher potential in the Vietnamese gaming market, according to the news outlet.
Vietnamese market
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mid the local gaming slump, the chairman and CEO of Hong Kong-listed Success Dragon International Holdings Ltd., Carlos Salas, said the company is shifting its focus to other Asian markets such as Vietnam, where
slot machine turnover can be double that of Macau. Mr. Salas told Hong Kong Chinese language business wire Finet Group Ltd. that Macau’s gaming industry may only register slight growth for this year, given the recovery of the
He explained that the competition in Macau’s gaming market is getting very intense with fewer Mainland Chinese tourists visiting the city, affected by the central government’s policies. By contrast, gaming competition in Vietnam is not high, whilst the number of slot machines is low. The CEO added that profits generated by the slot machine
The company chairman said that Success Dragon is mulling increasing its share in the Vietnamese slot machine market to 20 per cent in the future 18 to 24 months, adding it would also eye other new gaming markets, such as Cambodia and Sri Lanka. In addition to gaming service management, Success Dragon engages in management services for horse and dog racing in Vietnam, which target local residents in the country. The latest interim report of the company indicates that the electronic gaming business accounts for 71.6 per cent of the company’s total revenue. Nevertheless, for the six months ended September 30 last year, the Hong Kong-listed company saw its revenue generated from the electronic gaming business decrease by 11.1 per cent year-on-year to HK$57 million, posting a net loss of HK $140.3 million.
Business Daily | 7
January 27, 2016
Gaming
Atlantic City’s road out of distress clouded by state’s control Local leaders, leery of state control, are meeting Tuesday to discuss bankruptcy
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ond investors are calling New Jersey’s actions to control Atlantic City’s teetering finances “bizarre” and “confusing” as the mayor says bankruptcy may be its best option. In just the past week, there’s been a flurry of moves: --Governor Chris Christie rejecting measures that would have kept Atlantic City solvent past April, even after Democrats made changes he requested; --State officials pushing a ballot question that would ask voters to end Atlantic City’s gambling monopoly, which would probably cause even more casinos there to shutter, Moody’s Investors Service said in a report last week; --Lawmakers seeking a takeover of the seaside community at a time when state oversight of cities nationwide is under scrutiny amid a water crisis in the emergency-manager-run town of Flint, Michigan. Local leaders, leery of state control, are meeting Tuesday to discuss bankruptcy. New Jersey, which has policies aimed at steering cities from financial disaster, must approve a municipal bankruptcy, which hasn’t happened since the 1930s. Senate President Steve Sweeney, the top Democratic legislator, says a takeover will help solve the city’s problems outside of the courts -- but investors say that isn’t a plan to reverse its fortunes. A takeover is a “black box,” said Jason Diefenthaler, who runs a highyield muni fund at Wasmer Schroeder
& Co. in Naples, Florida, that holds some city water securities. “What else can they propose that hasn’t already been proposed that might move the needle for the city?” Credit-rating companies are watching closely. On Friday, Standard & Poor’s cut Atlantic City’s debt four levels to CCC-, a rating it reserves for borrowers that are “currently vulnerable to nonpayment.” Recent state actions “call into question the city’s ability to meet payments on its obligations,” S&P said in a statement. Atlantic City’s fate is tied to the actions of the state, which in 1976 established its casino monopoly. Tourists flocked to the city, which become the second-largest U.S. market after Las Vegas. Then competition from neighboring states led to nine straight years of declines, and four of its 12 casinos closed in 2014. Its gambling revenue last year was less than half the 2006 peak. The slump opened up a US$120 million hole in the city’s budget. It has about US$240 million in debt outstanding and faces more than US$150 million in tax appeals from casinos. Legislation that the city was counting on would have diverted some gambling funds and set up fixed payments from casinos to prevent real-estate tax appeals that strain the city’s finances. Although lawmakers made changes Christie requested, he rejected them, saying through a spokesman that the city hasn’t dealt with its “excessive spending.”
The inconsistent measures toward Atlantic City are undermining its reputation, said Howard Cure, head of municipal research in New York at Evercore Wealth Management, which oversees $5.9 billion of investments. “It makes you, as an investor, start to question the efficacy of the state programs,” Cure said.
No shelter
Dan Solender, head of municipal debt at Lord Abbett & Co., pointed to the example of Detroit as showing how a takeover can lead to bondholder losses: it too fell under a stateappointed emergency manager, Kevyn Orr, who months later filed its record bankruptcy. An emergency manager was also in charge in Flint when the city changed its drinking water source to a polluted local river system from Detroit’s to cut costs. Michigan’s emergency managers have more authority than those in New Jersey, where Atlantic City’s manager largely makes recommendations that need local approval. Manager Kevin Lavin released a report this month recommending that Atlantic City take control of its water system, regionalize police services and consider privatizing the fire department, saying those moves may be easier under state control. Sweeney’s proposal would empower New Jersey’s Local Finance Board for 15 years to oversee and implement such decisions.
Sweeney didn’t respond to a question on whether bondholders should expect losses if there is a takeover. In a statement, he said control by state officials would be a better outcome than bankruptcy. “The state can work with city officials, community organizations and investors,” he said. “It is a better solution than having a bankruptcy court dictate the terms and conditions of any financial settlements that will likely to be far less favorable to everyone.” Kevin Roberts, a spokesman for Christie, declined to comment on investors’ concerns and pointed to the governor’s remarks while campaigning for president in Iowa, where he said, “I appreciate the efforts of the senate president, in particular in his outspoken advocacy for change in what’s happening governmentally in Atlantic City.” Carl Thompson, a municipal analyst in Boston at Eaton Vance, said he’s unsure if state control would solve Atlantic City’s problems -- which he said increased “immensely” because of Christie’s veto. Casinos and tourism remain its primary revenue source and they’re floundering, said Thompson, whose firm holds US$30.7 billion of local debt including city securities. “I’m not sure what the control board can do,” he said. “You can make cuts but I don’t think you can make cuts far enough to fix the problem.” Bloomberg
8 | Business Daily
January 27, 2016
Greater China
PBOC’s flood of cash keeps money rates in check before holiday The PBOC auctioned 360 billion yuan of 28-day reverse-repos and 80 billion yuan of seven-day contracts yesterday
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hina’s central bank is flooding the financial system with cash to keep borrowing costs in check as demand for funds surges before the Lunar New Year holiday. The People’s Bank of China added 440 billion yuan (US$67 billion) using reverse-repurchase agreements, the most in three years, bringing net injections via its various lending tools this month to about 1.6 trillion yuan. Overnight and seven-day rates for loans between banks held near one-week lows as the fresh money averted a cash squeeze. The Lunar New Year celebrations will shut banks for the week starting February 8 and so cash needed to pay for the associated travel, feasts and gifts needs to be stockpiled in advance. Policy makers are trying to keep borrowing costs from rising as they contend with the slowest economic growth in a quarter century and record capital outflows. That task is being complicated as they also seek to stabilize the yuan after the currency’s slide to a five-year low roiled global financial markets in the first week of the year. The PBOC’s growing use of short-term lending tools led to expectations for cuts in lenders’ reserve-requirement ratios being scaled back over the past month, a Bloomberg survey shows.
“The PBOC remains reluctant to conduct system-wide easing, such as RRR cuts across the board, on the back of depreciation concerns and huge new loans in the first couple of weeks of the year,” said Becky Liu, senior rates strategist at Standard Chartered Plc in Hong Kong. “The large amount of cash shows its firm determination to maintain accommodative moneymarket conditions, and to use shortterm tools to boost liquidity.” The central bank plans to arrange 1.6 trillion yuan of short-term funds and as much as 800 billion yuan of medium-term liquidity support, according to the transcript of a PBOC meeting posted on Sina.com Friday. Guotai Junan Securities Co. estimated cash demand will surge by about 3 trillion yuan in the run-up to the Lunar New Year. The PBOC auctioned 360 billion yuan of 28-day reverse-repos and 80 billion yuan of seven-day contracts yesterday. That’s the biggest oneday offering since February 2013. The interest rates were unchanged at 2.6 percent and 2.25 percent, respectively.
612.5 billion yuan through its Medium-term Lending Facility, data compiled by Bloomberg show. It auctioned 80 billion yuan of treasury deposits on behalf of the Ministry of Finance last week, a further injection of liquidity into the banking system. The monetary authority also told lenders to cancel repos at interest rates it deemed too
high, according to people familiar with the matter. The central bank is forecast to make fewer reductions to the proportion of deposits lenders need to set aside, according to a Bloomberg survey. The reserve-requirement ratio for major lenders is seen dropping to 15.5 percent this year from 17.5 percent, a smaller decline than the
Liquidity injections
The PBOC has pumped in a net 905 billion yuan via open- market operations so far this month, and
The central bank (headquarters pictured) plans to arrange 1.6 trillion yuan of short‑term funds and as much as 800 billion yuan of medium-term liquidity support
Alibaba growth likely slowest on record The pace lags the 47-51 percent revenue growth JD.com projected John Ruwitch and Paul Carsten
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hinese e-commerce giant Alibaba Group Holding Ltd is expected to post its weakest quarterly revenue growth on record, Thomson Reuters data shows, a slowdown analysts say will heat up the battle with smaller rival JD.com Inc in a tougher economy. Alibaba’s revenue for the quarter ending December is projected to grow at 26.6 percent, according to a Thomson Reuters SmartEstimate survey of 28 analysts, which would be the slowest rate since the company started publishing such data 3-1/2 years ago. The pace also lags the 47-51 percent revenue growth JD.com projected for the same period, which is also the slowest expansion since the company started releasing records. Alibaba and JD.com declined to comment, citing the pre-earnings quiet period. “When the market starts to slow you start to have real winners and real losers,” said Brian Buchwald, chief executive of consumer intelligence company Bomoda. “I think that they need to pay attention to their immediate competition.” JD.com has focused on more affluent shoppers in China’s biggest cities, a strategy that may be paying off in an economy that last year grew at its weakest pace in a quarter of a century.
While the two companies calculate the total value of goods sold - known as gross merchandise volume (GMV) - differently, JD.com’s GMV grew 82 percent in the nine-months to September while Alibaba’s rose 34 percent, suggesting China’s biggest e-tailer was losing market share. Earlier this month, Alibaba Chief Executive Daniel Zhang said the company will pivot towards these “first-tier” cities like Beijing,
Shanghai, Shenzhen and Guangzhou, after having trumpeted a push into China’s countryside, as well as abroad. In an article on Alibaba’s blog page, Zhang also said the company was seeking to retain and win over more customers by “enhancing reputation and optimising user experience”. This may be a tough ask, as quality concerns still dog Alibaba and as JD.com has already carved out its own space in these cities by offering speedy
delivery and quality assurances. “They have faster shipping speeds, and the quality is more trustworthy,” said Zoe Li, who works at a tech startup in Beijing, referring to JD.com compared to Alibaba. Last month, the Chinese e-commerce giant avoided being named on a U.S. blacklist for sites hosting the sale of fake goods, and appointed a new head of anti-counterfeiting. Reuters
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January 27, 2016
Greater China move to 17 percent predicted a month earlier. PBOC Assistant Governor Zhang Xiaohui told leaders of five of the nation’s biggest banks they had lent out too much cash in the first half of this month, more than 1.7 trillion yuan, and that they had to slow the lending, South China Morning Post reported Sunday, citing the minutes of a gathering of executives and PBOC officials. “Increased onshore borrowing has lifted up the funding demand in the market as well, which has also somewhat tightened up onshore liquidity conditions,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “It appears that Chinese corporates have repaid some of their offshore dollar borrowing, and turned to the onshore market for yuan funding.” Bloomberg News
Energy giant signals nation’s fuel glut is worsening The country’s oil consumption will rise 4.3 percent to 566 million tons this year, with imports satisfying 62 percent of total demand
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hina’s biggest energy company predicted the nation’s refineries will increase output in 2016, exacerbating a fuel glut and boosting exports of the surplus to regional markets. Net export of oil products -- which strips out imports -- will rise by 31 percent this year to 25 million metric tons, China National Petroleum Corp. said in its annual research report. The country’s refineries will increase oil processing by 5.3 percent while net crude imports will rise 7.3 percent to 357 million tons. “China is set to ship record oil products overseas amid its slowing domestic demand,” Jean Zuo, an analyst at ICIS China, said by phone from Guangzhou. “The country will remain enthusiastic for crude imports this year amid low prices and as strategic crude stockpile facilities are due to come online.” China exported a record amount of diesel, kerosene and gasoline last year and for the first time shipped more products abroad than it imported amid the slowest economic expansion in 25 years. Meanwhile, its crude purchases increased to a record in 2015 as the world’s second-biggest oil
consumer sought to fill its strategic oil reserve and the government allowed small private processors called teapots to buy foreign supplies.
Teapot expansion
The teapots, clustered around the eastern Chinese province of Shandong, will account for the bulk of the increase in oil processing this year as the country’s bigger stateowned processors decrease output, CNPC said in its report. “China’s fuel glut is in its worst shape,” Dai Jiaquan, director of CNPC’s oil market department, said yesterday. “This is mainly due to weak demand and fast growth of refining projects in recent years. Now low oil prices have boosted refinery operating rates, especially for teapots, who are snatching market share rapidly from major refineries.” The country’s oil consumption will rise 4.3 percent to 566 million tons this year, with imports satisfying 62 percent of total demand, according to CNPC. The country had 495 million barrels of oil storage capacity, consisting of 180 million for strategic petroleum reserves and 315 million for commercial use. Bloomberg News
Yuan speculator says reserves could drop US$200 bln in January China's FX reserves remain the biggest ever accumulated in nominal terms
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he monthly fall in China’s hard currency reserves could almost double to around US$200 billion in January, bringing Beijing closer to a deeper devaluation of the yuan, one of the western hedge funds betting big against the currency said on Monday. A plunge in reserves of US$108 billion in December was the biggest monthly fall on record and one of the factors spurring a wave of sales of the yuan by Chinese traders and speculative western funds earlier this month. Chinese reserves have fallen steadily over the past 18 months, from US$3.99 trillion in June 2014 to US$3.33 trillion in December. Omni Macro Fund Chief Strategist Chris Morrison said a change in how the People’s Bank of China intervenes on the offshore market in the yuan would help push that figure sharply higher this month. “They are currently reporting zero for the intervention in dollarCNH, because they have been rolling over the forwards and never actually delivering in U.S. dollars,” Morrison said. “What was interesting in January was they didn’t roll over the forwards, so that should be reported and add
to the fall in reserves. January’s fall will be larger than December’s, I’m thinking around US$200 billion.” Very few of the hedge funds that have rounded on the yuan as overvalued have been willing to talk about their trading strategies and the details of China’s defence of the currency in wholesale financial markets. Omni has been betting against the yuan since the start of 2014. Morrison, previously a proprietary trader for RBS and JPMorgan, said that after a “good result” from China’s sharp one-off devaluation last August, the fund had taken more profit on the trade before a round of strong action by Chinese authorities to stabilise the currency earlier in January. He said Omni had re-entered the trade when prices of currency forwards came back down just over a week ago. China’s FX reserves remain the biggest ever accumulated in nominal terms and while a fall for the yuan is one of the big consensus plays among bank analysts this year, most forecasts call for a decline of less than 10 percent. Against that are the periodic bouts of panic seen on Chinese financial markets over the past six months
Tokyo-Beijing seek new dialogue Japan and China are working to create a new framework to bring together govern‑ ment and central bank officials to discuss economic policy coordination, such as steps to stabilise the yuan, the Nikkei newspaper said yesterday. The move, which comes as concern over China’s economic slowdown jolts financial mar‑ kets, could help ease market strains by signalling that Asia’s two largest econ‑ omies are working together closely to stabilise global growth. Japan hoped to assist China’s efforts in reducing excess capacity and reorganising state-owned companies through the new framework.
Rail freight down 11.9 pct in 2015 China’s rail freight volume dropped 11.9 percent in 2015 from a year earlier to 3.36 billion tonnes, the nation’s top economic planner said yesterday, compared with a decline of 3.9 percent in 2014. For the fourth quarter, the amount of cargo moved by railways declined 13.4 percent year on year, the National Development and Reform Commission (NDRC) said on its website. The NDRC did not provide data for December. The tepid reading, often viewed as an indicator of economic activ‑ ity, comes after China posted its weakest economic growth in 25 years in 2015.
Bond issuance surges to 22.3 trillion yuan China’s total bond issuance jumped to 22.3 trillion yuan (US$3.39 trillion) in 2015, up 87.5 percent from the previous year, official figures showed, driven by a new debt-swap programme introduced last year and strong corporate issuance. Lo‑ cal governments issued 3.8 trillion yuan of municipal bonds, while policy banks issued 2.6 trillion yuan of bonds, according to data released late on Monday by the People’s Bank of China on its website. Is‑ suance in the larger interbank market was 21 trillion yuan, up 81.3 percent on the year, with the remainder issued through the smaller exchange traded markets.
Huarong launches consumer finance firm
Omni Macro Fund has been betting against the yuan since the start of 2014
and resulting capital outflows which have eaten into the reserves Beijing has to resist a large immediate drop in the yuan’s value. “Something in the region of a 1520 percent move (in the yuan) is perfectly reasonable,” Morrison said. “But if China has a crisis, it is radically too conservative. Then it should be something like the dollar going from 6 to 9. I’m not just making that figure up to be dramatic, that’s just what some other emerging markets have done, look at Turkey or Brazil.” Reuters
China Huarong Asset Management Co, the country’s biggest distressed debt manager by assets, yesterday launched a consumer finance company, the latest step in the company’s bid to become a fully-fledged financial conglomerate. Huarong Consumer Finance Co, based in the eastern city of Hefei, will allow Huarong to “expand from corporate business to retail business, and from traditional finance to internet finance,” Huarong said in a press release. The new firm is the first consumer finance company set up by a state-owned asset manager, Huarong said.
Air China expects 60-80 pct profit jump for 2015 Air China’s net profit for 2015 is likely to jump 60-80 percent from last year thanks to an increase in revenue and a substantial fall in fuel costs, the stateowned carrier said on Monday. Air China, the country’s biggest airline by market value, said in a stock exchange statement it had “captured strong mar‑ ket demand and increased its capacity deployment”, which helped to boost revenue. Net profit attributable to eq‑ uity holders rose to 3.78 billion yuan (US$574.6 million) in 2014.
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January 27, 2016
Greater China
Blue skies over Beijing? Decaying suburbs bear pollution cut cost China has earmarked 17 trillion yuan (US$2.6 trillion) for investment in overall environmental protection between 2016 and 2020 Jessica Macy Yu
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n the outskirts of Beijing, the disused factories of Chaomidian show the impact of China’s drive to shut down thousands of small firms causing big pollution. Amid scrapheaps and idle machinery, the community has clean air these days - and no jobs. After a three-year campaign, China’s push to cut smog appears to be paying off, whatever the localised cost, just as economic growth weakens to its slowest pace in 25 years. Chinese cities saw an average 10 percent drop in key pollutants last year, according to Greenpeace. While a World Health Organisation report in 2014 found 13 of the world’s 20 dirtiest cities were in India, a still smog-bound Beijing issued its first pollution “red alerts” last month. Soon after, the capital said it would shut down 2,500 more small firms this year, leaving communities like Chaomidian, in the southwest suburb of Fangshan, in the firing line. Beijing doesn’t issue comprehensive lists of the firms it has shut down to combat pollution, but Reuters research shows those already closed include Ding Kai Yuan Co among others in Chaomidian, home to about 2,000 people. The coal-burning brick works was shut in late 2014, 170 workers were laid off, and the manager left behind to watch over the ghost factory says she is still waiting for nearly half a million dollars in compensation. “I’m 53 years old, I grew up in this village,” said Han Fengge. “Right now, I don’t have the ability to re-start such a big investment from scratch, so all I can do is wait,” said Han. The city has promised compensation
to firms closed on pollution grounds. Nationwide, China has earmarked 17 trillion yuan (US$2.6 trillion) for investment in overall environmental protection between 2016 and 2020, Xinhua, the state news agency, reported in December. Asked why Han might not have received compensation yet, an official at the Beijing Municipal Commission of Economy and Information Technology, who wasn’t aware of Ding Kai Yuan’s case, said, “There could have been a problem at a certain link in the process. It’s possible the firm didn’t meet requirements in a certain area,” said the official, who gave only her surname, Gao.
Better air, worse economy
Around Beijing, company closures are just one of many tactics adopted to make the city’s air less noxious. Others include closing or relocating coalfired power plants, many of which are operated by large state-owned businesses, forcing old cars off roads and limiting outdoor construction. Critics say Beijing will have to move beyond small factory shutdowns and rely more on coordination with its neighbours, along with fair enforcement of the environmental law, to truly tackle the pollution problem. “No matter what measures Beijing takes inside its own city, it cannot effectively eliminate its own pollution, as a huge source of it comes from coal-fuel and industrial emissions outside of Beijing,” said Ma Jun, director of the Institute of Public and Environmental Affairs. Most of the companies that have been, and will be closed, are
comparatively small, and metropolitan Beijing’s economy as a whole won’t be seriously squeezed. Yet small and medium-sized enterprises account for about 60 percent of China’s GDP, leaving questions over how closures will affect future growth potential. At Ding Kai Yuan, the clean air drive has meant a total shutdown, with the company suffering losses of more than 17 million yuan (US$2.58 million), said manager Han. Since 2013, most of Chaomidian’s brick and plastics factories have been shut down, and with them the jobs that fuelled the local economy. Yang Jun, the Communist Party leader of Chaomidian, said the community has virtually no manufacturing businesses left. “We
KEY POINTS Local economies hit by forced closures of polluting firms Hundreds of Beijing firms already shut in 3-year drive Capital to shut down 2,500 more small firms this year With few options, small businesses rely on compensation Smog easing, but aggressive targets herald more closures
now rent out the land of the factories to car dealerships and rely on that income,” he said.
Aggressive target
While Ding Kai Yuan’s Han says she has yet to see any compensation, others have been beneficiaries, but say it is insufficient. Away from Chaomidian, managers at two other Beijing small factories forced to close - Beijing Haiming Casting and Beijing Hui Shang Wood Furniture - told Reuters the compensation has not been enough to make up for their losses. In Tongzhou district, Haiming Casting shifted into the construction materials industry, but profits are not as good as the original business, a company manager surnamed Li said. Meanwhile, Hui Shang Wood Furniture simply packed up and moved from Beijing’s Changping district to the inland province of Anhui, cleaning up its production process as it went, said manager Hong Guosheng. For Beijing and the surrounding area - including the steelmaking heartland of Hebei province and Tianjin’s port and manufacturing hub - the government has set an aggressive target for 2020 of reducing pollution by 40 percent from 2013 levels. That means more closures are inevitable. For Ding Kai Yuan’s Han, burdened by debt and with no way to start anew, the options are limited. “All I can do is hope the government keeps its word,” Han said. “The sooner it gives us a subsidy, the better.” Reuters
Business Daily | 11
January 27, 2016
Asia
South Korea Q4 GDP lags forecasts Demand for services and durable goods drove up private consumption by a seasonally adjusted 1.5 percent in the fourth quarter Christine Kim
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outh Korea’s economic growth slowed by more than half in the fourth quarter from the third quarter of 2015, prompting the government to press ministers to spend their budget allocations in a timely manner to keep recovery momentum alive. Fourth-quarter gross domestic product rose 0.6 percent in seasonally adjusted terms from the third quarter, the Bank of Korea said yesterday, slowing from a 1.3 percent rise in the September quarter of last year, slightly lagging forecasts. Construction investment dragged down quarterly growth, although private consumption was a bright spot in the October-December period. “There are doubts as to whether the surge in consumption seen late last year will spill over to this year, while the weakness in construction investment will have likely carried over into 2016,” said Kim Doo-un, an economist at Hana Financial Investment. Demand for services and durable goods drove up private consumption by a seasonally adjusted 1.5 percent in the fourth quarter, following 1.2 percent growth in the previous quarter to post the best quarterly rise
KEY POINTS Q4 GDP +0.6 pct s/adj q/q (Reuters poll +0.7 pct) Q4 GDP +3.0 pct y/y (Reuters poll +3.0 pct) Construction investment hurts growth in Q4 Private consumption notches 6-yr high Finance minister stresses importance of frontloading budget Private consumption was a bright spot in the October-December period
since the December quarter of 2009. This surge was due largely due to the government getting retailers to participate in nationwide discount sales in late 2015, the effects of which may taper off quickly, some analysts said. Meanwhile, central bank data showed construction investment dropped 6.1 percent in October-December from the previous quarter in the biggest decline in a year, dragged down by a lack of building projects, low government spending and a
soft slowdown in real estate transactions. For the full year, South Korea’s GDP rose 2.6 percent, compared to a rise of 3.3 percent in 2014, posting its slowest gain since 2012, mainly on poor exports and agriculture.
Call for timely frontloading
From a year earlier, the economy expanded 3.0 percent in the December quarter, the fastest annual growth since the third quarter of 2014.
To fight possible economic weakness early in 2016, Finance Minister Yoo Il-ho urged other ministers to act quickly in frontloading budget spending in the first quarter. The government usually frontloads its annual budget to prop up activity. Despite the rocky recovery, the Bank of Korea has few cards it can play to boost growth, given increasing household debt and inflation that is slowly on the rise. Kim said in order to manage market expectations the central bank was likely
Japan’s Economy Minister closes ranks with central bank Markets are simmering with speculation the BOJ may expand stimulus at a meeting ending Friday Stanley White
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apanese Economy Minister Akira Amari said yesterday that the Bank of Japan (BOJ) does not signal in advance whether it will ease
to continue sending verbal signals on rates and inflation. The central bank has said the economy is recovering steadily due to strong consumption, while it has grown more hawkish on interest rates, emphasising the importance of long-term structural reform for South Korea’s economy. The Bank of Korea’s base rate is currently at 1.50 percent, a level a majority of market participants believe will be kept unchanged for a prolonged period. Reuters
KEY POINTS Amari contrasts BOJ with ECB on market communication BOJ likely to cut CPI forecasts this week Speculation remains that BOJ could expand QE again
monetary policy, when asked about the chance of additional easing this week. Amari contrasted the BOJ with the
Japan’s Economy Minister Akira Amari last week in Davos
European Central Bank, saying he did not think the BOJ would communicate its intentions to markets in the way ECB President Mario Draghi did when he hinted last week that he was ready to expand stimulus in March. Amari reiterated his view that the BOJ is independent and the government should not guide monetary policy, but speculation remains that the BOJ could act this week as tumbling oil prices weigh on consumer prices. “Communicating with markets is part of central bank policy, and I don’t think the BOJ would transmit their intentions in advance,” Amari said. “The ECB’s style is quite bold, but I don’t think the BOJ would adopt this approach.” Markets are simmering with
speculation the BOJ may expand stimulus at a meeting ending Friday, as the effects of slumping oil prices were likely to force the BOJ to cut its inflation forecast for the coming fiscal year below 1 percent, sources told Reuters. A sell-off in Japanese shares and a rise in the yen could also prompt the BOJ to act as these market moves threaten to damage corporate sentiment, some economists say. The BOJ aims to meet its 2 percent inflation target around the second half of fiscal 2016, but this timing is looking increasingly unrealistic as oil prices continue to fall. Since launching quantitative easing in 2013, the BOJ has delayed its inflation target three times due to weak consumer spending and the deflationary impact from a global rout in oil prices. Reuters
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January 27, 2016
Asia
Malaysia brings prime minister probe to close with no graft found He’s faced a public campaign by former premier Mahathir Mohamad to get him out Manirajan Ramasamy
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nvestigators have cleared Malaysian Prime Minister Najib Razak of corruption over hundreds of millions of dollars donated to his personal bank accounts, bringing the premier closer to ending his biggest crisis in nearly seven years in power. The US$681 million transferred to Najib in early 2013 was from the Saudi Arabian royal family, Attorney General Mohamed Apandi Ali told reporters yesterday, citing investigations by the anti-graft agency. Najib returned US$620 million in August that year that was not utilized, he said. “Based on the facts and evidence as a whole, I as the public prosecutor, am satisfied that no criminal offense has been committed,” Apandi said. “Today, I am here to clear the prime minister.” He is instructing the Malaysian Anti-Corruption Commission to close the investigation papers related to the case. The funding imbroglio has roiled Malaysia for seven months, sparking political tensions within Najib’s own party. Najib, 62, has said the funds that appeared before the 2013 general election were to meet the needs of the party and the community and not
removes subsidies and after the implementation of a goods and services tax last year.
Stocks, bonds
Malaysian Prime Minister Najib Razak
a new practice, and denied taking money for personal gain. He’s faced a public campaign by former premier Mahathir Mohamad to get him out, with Mahathir warning their United Malays National Organisation and the broader ruling coalition risk losing the next election due by 2018 if Najib stays on. The alliance lost the popular vote for the first time in 2013 as non-Malay voters deserted it.
Voter sentiment
“Can the government move on? Yes,” said Ibrahim Suffian, an analyst at the Merdeka Centre for Opinion
Research. “But will the allegation affect the sentiment of the voters? It depends on how the government performs over the next couple of years.” Najib is grappling with a slowing economy as government revenues are hit by falling oil prices. He’s expected to announce a revision to growth forecasts and cuts to operating expenditure on Thursday to keep the fiscal deficit for 2016 in check. The key for Najib is how much the economic pullback impacts the lives of voters. Malaysians are faced with rising costs from transportation to food and electricity as the government
“If things remain largely the same or if things continue to worsen as far as the economy is concerned, then the sentiments that will be carried over into the election will be negative,” Ibrahim said. Investors periodically dumped Malaysia’s stocks, bonds and currency last year. Foreign investors pulled 30.6 billion ringgit (US$7.1 billion) from stocks and bonds in 2015 and helped send the currency to a 17year low. “Once a leader has these kinds of negative perception, it affects investor confidence as a whole on concern of how the country is being run,” said Danny Wong Teck Meng, chief executive officer of Kuala Lumpurbased Areca Capital Sdn., which manages about US$224 million in assets. “It would be hard to change this negative perception. Fund managers in the U.S. and Europe will not put Malaysia as attractive as peers after considering political factors.”
Sri Lanka keeps key rates steady Some analysts had expected the central bank to be hawkish, seeking to help ease the pressure on the rupee Shihar Aneez and Ranga Sirilal
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ri Lanka’s central bank kept its key policy interest rates unchanged on Monday, saying the effects of previous adjustments are still trickling down into the economy while private sector credit growth will decelerate slowly. The Central Bank of Sri Lanka left the standing deposit facility (SDF) rate and the standing lending facility rate (SLFR) at 6 percent and 7.5 percent, respectively. “The Monetary Board observed that the policy
adjustments made on the monetary and external fronts are still being transmitted gradually to the macro economy,” the bank said referring to its previous
adjustments including a currency float and a rise in commercial banks’ statutory reserve ratio (SRR). “The increase in SRR also induced an upward adjustment in market interest rates, and the growth of credit extended to the private sector by commercial banks is expected to decelerate in the period ahead, albeit with a time lag.” Six of 11 analysts in a Reuters poll had predicted the rates would be unchanged, with the others expecting a hike. The SRR, which was
raised 150 bps in last month monetary policy, was left unchanged at 7.50 percent. Some analysts had expected the central bank to be hawkish, seeking to help ease the pressure on the rupee. The currency has been hit by broad strength in the dollar after the U.S. Federal Reserve signalled a turn in policy last year, and followed up with a rate hike in December. The rupee hit a record low of 144.30 earlier this month and has been hovering around that level since. It has
Bloomberg News
fallen 6.4 percent since it was free floated on September 4. Slowing global growth, the government’s loose monetary and expansionary fiscal policies, and a balance of payments challenge have also weighed on the rupee. “It’s more of a wait and see strategy,” said Shiran Fernando, an analyst at Colombo-based Frontier Research. Since April, when the central bank last cut its key policy rates after a change in government led to a review of infrastructure projects and a slowdown public spending, private sector credit growth has picked up. November data showed a rise of 27 percent on-year, compared to 13.9 percent in March. The trade deficit narrowed for the fifth consecutive month in November 2015, though on a cumulative basis, it deficit expanded marginally by 1.0 percent US$7.57 billion during the first eleven months of the year, the central bank said. Reuters
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Business Daily | 13
January 27, 2016
Asia Thai exports shrink at fastest pace in years Exports to China, the second biggest market in 2015 after the United States, slid 9.5 percent from a year earlier Orathai Sriring and Kitiphong Thaichareon
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hailand’s exports fell more than expected in December and contracted much more in 2015 than in the previous two years, showing how the trade-reliant economy continues to struggle amid weak global demand. Persistently poor exports and domestic demand have added to the challenges the ruling junta faces moving Southeast Asia’s secondlargest economy forward after seizing power to end political unrest 20 months ago. Exports, worth about two-thirds of GDP, fell 8.73 percent in December from a year earlier, the Commerce Ministry said yesterday. A Reuters poll projected a 7.2 percent drop. The fall was the 12th consecutive one and the biggest for any month since November 2011, when severe flooding forced thousands of factories to shut. In 2015, exports fell for the third straight year. The annual drop was 5.78 percent, the biggest in six years, compared with falls of less than 0.5 percent in 2013 and 2014.
KEY POINTS December exports -8.73 pct y/y vs -7.2 pct in Reuters poll Fall in December is the biggest y/y since November 2011 December imports -9.23 pct y/y vs -5.05 pct in poll Jan-Dec exports -5.78 pct y/y, imports -11.02 pct y/y
Lower oil prices have dented industrial production by dampening demand for offshore drilling rigs Masayuki Kitano
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Declining export prices
But the Bank of Thailand forecasts zero growth this year. Governor Veerathai Santiprabhob told Reuters last week “We expect quantity to be expanding a bit but that will be offset by declines in export prices.” Thai exports to China, the second biggest market in 2015 after the United States, slid 9.5 percent from a year earlier in December and by 5.4 percent for 2015. Shipments to Europe rose 2.3 percent in December but fell 5.7 percent for the year. Those to the United States shrank 7.2 percent last month but were up 0.7 percent in 2015. Imports dropped 9.23 percent in December from a year earlier, and 11.02 percent for 2015. Che-Yu Liang, a director of Ya Thai Chemical Co., which produces surface finishing chemicals for autos and other goods, said China’s slowdown has impacted business. “Many clients will bargain more to pay less, a 5 to 10 percent discount, but they don’t necessarily buy less from us due to the economy there,” he said. Last month, the central bank cut its 2016 economic growth projection to 3.5 percent from 3.7 percent, and predicted 2.8 percent for 2015. Growth data for 2015 is due on Feb. 15. Reuters
Weak Singapore factory output may lead to downgrade in GDP
ingapore’s industrial production in December suffered its biggest slump in eight months on a yearon-year basis, raising the prospect of the government revising down fourthquarter economic growth from its initial estimate. Analysts say the chance of more monetary easing in the trade-reliant city state, which is under pressure from slackening global growth and plummeting oil prices, could grow in coming months. The manufacturing output data yesterday held few positives, with production falling a sharp 7.9 percent in December from a year earlier, data from the Economic Development Board (EDB) showed. That was the biggest year-on-year fall since a 9.0 percent contraction in April, and worse than the median market forecast of a 7.0 percent drop. On a month-on-month and
Preventing a bigger 2015 tumble was the key auto industry, as exports of cars and car-parts rose 4.3 percent. Despite the poor 2015 results, the Commerce Ministry is maintaining a target of 5 percent export growth this year. “Exports could be positive in Q1 due to a low base last year and if oil prices don’t fall further,” said Somkiat Triratpan, a ministry official.
seasonally adjusted basis, industrial production rose 2.0 percent in December. That came, however, after output for both November and October were revised down from previous estimates. “Although the weaker December IP reading may weigh on Q4 GDP... our concern is that the weakness in production activity extends into January,” Wai Ho Leong, economist at Barclays said in a note. Fourth quarter gross domestic product will probably be revised lower, to growth of around 1.6 percent to 1.7 percent year-on-year, said Michael Wan, an economist for Credit Suisse, compared to the government’s advance estimate of 2.0 percent growth. Final Q4 GDP is expected to be released in February, and no later than February 25. Given the modest outlook for
economic growth and low inflation, there is focus on whether the Monetary Authority of Singapore (MAS) will ease policy further in coming months. “I think as we move into the next few months, the market will try to price in for a higher probability of easing,” said Wan, although for now he expects policy to remain steady at the next semi-annual MAS meeting in April. The chances for more monetary easing could rise the longer oil prices stay near their current low levels, and if uncertainty over the outlook for the Chinese economy and the yuan increases, Wan added. Against a backdrop of low inflation and tepid global growth, Singapore’s central bank eased monetary policy twice in 2015. Sluggish global demand has weighed on Singapore’s manufacturing sector, which accounts for about onefifth of the city-state’s economy. Marine and offshore engineering output shrank 40.3 percent in December from a year earlier, while electronics output shrank 12.4 percent on-year. Reuters
KEY POINTS December factory output -7.9 pct y/y; +2.0 pct m/m Median forecasts -7.0 pct y/y; +1.2 pct m/m December marine & offshore engineering output -40.3 pct y/y Q4 GDP y/y growth may be revised lower –analysts
Hynix profit slumps South Korea’s SK Hynix Inc said fourth-quarter profit tumbled 41 percent to a two-year low on slowing semicon‑ ductor sales and warned of uncertain demand heading into the seasonally weak January-March quarter. The firm also said it expects market conditions to remain difficult in 2016 amid weak global economic growth. SK Hynix reported an October-December operating profit of 989 billion won (US$825 million), in line with a Thomson Reuters StarMine SmartEstimate of 991 billion won de‑ rived from a survey of ten analysts.
Indian state oil refiners plan new plant Three Indian state-run oil refiners will jointly build a 60 million tonnes a year, or 1.2 million barrels per day (bpd), refinery on the country’s west coast, the federal oil minister said on Mon‑ day, adding the investment for the first phase of the refinery could exceed 1 trillion rupees (US$14.8 billion). Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd along with another state-run company, Engineers India Ltd, will design for an 800,000 bpd capacity in the first phase of the refinery in Maharashtra state, Dharmendra Pradhan said on Twitter.
EU regulators to fine Japanese car part makers European Union antitrust regulators are set to punish Japanese auto parts mak‑ ers for allegedly fixing prices of starter motors and accelerator modules, two people familiar with the matter said on Monday. The companies in the al‑ leged cartel are world No. 2 parts maker Denso, Mitsubishi Electric Corp and a Hitachi Ltd unit, the people said. The European Commission action will mark the first of several automobile-related cases scheduled for 2016 and is the latest in a series of penalties levied by competition watchdogs in the United States, Europe and Asia against a longtime business model in the industry.
Thailand to boost rural economy Thailand will consider a stimulus pro‑ gramme worth up to 35 billion baht (US$972.49 million) to boost the rural economy, a deputy prime minister said on Monday, as the ruling junta tries to revive flagging growth. The army seized power in May 2014 to end months of political unrest but has been unable to move Southeast Asia’s economy forward as pivotal exports and domestic demand remain sluggish. The latest stimulus fol‑ lows a raft of already approved economic measures, including some 136 billion baht of spending approved in September to inject cash into rural areas.
LG Elec says Q4 operating profit up South Korea’s LG Electronics Inc said yesterday its fourth-quarter operating profit rose 27 percent from a year earlier - a result that was slightly above ex‑ pectations as earnings for its television business rebounded. LG, the world’s No.2 television maker behind domes‑ tic rival Samsung Electronics Co Ltd, said October-December profit was 349 billion won (US$290 million), above a Thomson Reuters StarMine SmartEs‑ timate of 340 billion won derived from a survey of 25 analysts.
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January 27, 2016
International UK considering allowing Iranian banks to resume business British regulators are considering whether to allow two Iranian banks in London to resume operations after years of sanctions, two sources familiar with the matter said. Melli Bank and Persia International Bank will only be able to operate in the UK once they have met Bank of England criteria for financial firms, the sources told Reuters on Monday. A nuclear deal with Iran earlier this month led to the removal of European Union curbs on its banks. This could bring Iranian banks in Britain, which less than 10 years ago boasted surging profits and growing European ties, out of isolation.
Fed to mull weak inflation but no policy move But there were some signs of weakness in consumer spending and industrial spending
Top court backs electricity markets rule The U.S. Supreme Court on Monday upheld a major Obama administration electricity-markets regulation that en‑ courages big power users like factories to cut consumption at peak times, re‑ jecting a challenge brought by electric utilities. The court, ruling 6-2, reversed a 2014 decision to strike down the 2011 Federal Energy Regulatory Com‑ mission regulation. The rule concerns what FERC calls “demand response,” which is when, in an attempt to manage electricity demand, regional electrical grid operators agree to pay large elec‑ tricity users like factories, businesses, schools and hospitals to cut usage at peak times.
Philips posts 2015 profit up 55%
Dutch electronics giant Philips yester‑ day unveiled solid net profits for last year, up 55 percent on 2014 driven by increased sales in its healthcare and lifestyle business as its seeks to shed its historic lighting section. Total net profit attributable to shareholders was 645 million euros (US$700 million) com‑ pared to 415 million euros in 2014, with sales up to 24.2 billion euros amid rising orders in North America and Europe, the company said. That represented a 13.3-percent hike in sales over the previous 12 months.
Saudi, foreign firms sign MoU for shipbuilding complex National oil giant Saudi Aramco has signed a memorandum of understand‑ ing to establish a shipbuilding and repair complex in the kingdom, part of Saudi Arabia’s efforts to diversify its economy beyond oil, the company said yesterday. Pressured by low oil prices, Riyadh is laying plans to develop non-oil indus‑ tries, using state spending to jump-start the process. The shipbuilding complex is one of the first big projects to be announced under this policy. The MoU was signed with National Shipping Co of Saudi Arabia (Bahri), a state-controlled firm which ships oil for Aramco.
U.S. Federal Reserve chair Janet Yellen
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eak inflation is expected to be the key topic in the on-going Federal Reserve two-day monetary policy meeting, its first since its historic interest rate rise in December. Coming less than a week after the European Central Bank signalled it could expand stimulus measures in March if inflation slows further, the Fed is not expected to take any policy action. With its first interest rate increase in over nine years in place for just six weeks, the Federal Open Market Committee, the Fed’s policy board, will continue to study how it impacts the US and global economies. But nerve-wracking global market volatility and plunging oil prices should have the US central bankers reviewing the measured confidence they expressed last month after lifting
the near-zero benchmark federal funds rate by a quarter point. Significantly, since the December meeting several Fed officials have made clear they view deflationary pressures as a significant risk despite other signs, like job creation, that point to firm economic growth. Oil prices fell by nearly 20 percent in the four weeks after the last FOMC meeting, and although Fed officials have said they expect the impact of weak oil prices to be transitory, there is still no clear bottom for the crude market and, in turn, the drag-down on inflation. So eyes will be on how the FOMC’s policy statement assesses the risks that prices broadly could continue to fall.
Need a clearer picture
In December the FOMC’s forecast implied four quarter-point rate
increases through this year to end with the benchmark federal funds rate around 1.25 percent. But if inflation remains as weak as it appears, rates could rise much more slowly. The global outlook has dimmed in recent months, with the greatest concern about slowing growth in China and stalls in other large emerging-market economies such as Brazil and Russia. IMF projected the United States would grow only 2.6 percent, 0.2 percentage point less than previously expected due to the strong dollar’s hit on US exporters. US jobs growth was solid in December and unemployment held at a seven-year low of 5.0 percent. US consumer prices fell last month overall, and core prices, stripping out food and fuel, rose only 0.1 percent. The Fed has kept monetary policy very loose aiming to push inflation up to around 2.0 percent. So far, that target remains elusive. Last week ECB chief Mario Draghi made clear weak inflation was a policy concern. He said the ECB was “determined” to do everything in its power to push eurozone inflation back to its similar target of just below 2.0 percent. “We have the power, willingness and determination to act. There are no limits how far we are willing to deploy our policy instruments within our mandate,” Draghi said. In Japan, the central bank -- which meets on Thursday and Friday -- is also reported to be wrestling with deflationary pressures. AFP
European Stability Mechanism head rules out haircut for Greek debt The ESM, which has the power to lend to euro zone members and offer other financial assistance, owns around 45 percent of Greek debt Stanley White
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he head of the European Stability Mechanism (ESM) yesterday ruled out a haircut for Greek debt but said extending debt maturities and deferring interest are options that officials could use to make Greece’s debt more manageable. Klaus Regling, managing director of the ESM, also said Greece must complete the first review of its progress on structural reforms before deciding on how to restructure its sovereign debt. Reforming the ailing pension system is a prerequisite for the conclusion of the first review of Greece’s 86 billion euro bailout agreed in July last year, but the plan is likely to be painful because some
Greek citizens will have to give up future entitlements, Regling said. “The first review needs to be completed first, and that may take two months,” he said. “There will be no haircuts. One can think about lengthening maturities and interest deferrals.” European officials may also consider steps to help Greece deal with an increase in debt servicing needs expected in 2022, Regling said. The ESM, which has the power to lend to euro zone members and offer other financial assistance, owns around 45 percent of Greek debt and is at the centre of efforts to put the country’s sovereign debt crisis behind it.
Greece’s mountain of debt is expected to reach 187.8 percent of annual gross domestic product this year. Greece has drafted a proposal to merge its six pension funds into one and possibly cut future main pensions by up to 30 percent. It plans to hold a vote on it in early February. Prime Minister Alexis Tsipras’s government has a parliamentary majority of just three seats and the reform, which opposition parties and many pensioners and workers oppose, will test its resolve to implement actions agreed with international creditors. Reuters
Business Daily | 15
January 27, 2016
Opinion Business
wires
Sri Lanka’s rebirth
Leading reports from Asia’s best business newspapers
Joseph E. Stiglitz
Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute
THE KOREA HERALD Collective loans banks offer new apartment buyers rose sharply in the second half of last year, leading growth in total mortgage loans, of‑ ficial data showed yesterday. Outstanding collective loans extended by local commercial banks totalled 110.3 trillion won (US$91.8 billion) as of end-2015, up 10.1 trillion won from six months ago, accord‑ ing to data by the Bank of Ko‑ rea and the Financial Services Commission yesterday. The growth of collective loans ac‑ counted for 34 percent of the banks’ total mortgage growth of 29.7 trillion won during the same period.
THE JAPAN NEWS Japan’s crude oil imports last year fell to the lowest level since 1988 as demand weakens amid a declining population and more effi‑ cient vehicles. The world’s third-biggest economy im‑ ported 195.5 million kilolitres of oil, or about 3.37 million barrels a day in 2015, a 2.3 percent drop from the previ‑ ous year, according to prelim‑ inary data from the Finance Ministry on Monday. Demand for fuels like gasoline and die‑ sel is forecast to fall by an average 1.3 percent annual‑ ly through the year ending March 2020, the Economy, Trade and Industry Ministry said in April.
THE STAR The medium-term prospects for the Malaysian property market still looks promising, despite the challenging head‑ winds ahead. Independent economist Lee Heng Guie said that while property pric‑ es would be easing further, a sharp fall in property prices would be unlikely. “This is be‑ cause Malaysia is not heading for an economic recession,” he said during a presentation at the 9th Malaysian Proper‑ ty Summit last week. “The softening property market renders the buyers the oppor‑ tunity to purchase property. For foreigners looking to in‑ vest in real estate in Malaysia, the weaker ringgit comes as a boon,” he said.
NEW ZEALAND HERALD Bank of New Zealand raised its estimate for New Zea‑ land economic growth this year after robust services and manufacturing data. The BNZ-BusinessNZ per‑ formance of services index remained robust in Decem‑ ber even as it slowed from a month earlier, slipping 0.9 points to a seasonally adjust‑ ed 58.9 last month, according to data released yesterday. That’s the third-highest result in 2015, and more than the average 57.8 through the year. All five sub-indices fell in December, but remained above the 50 reading that separates contraction from expansion.
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ri Lanka has been deservedly praised for the progress it has made since the end of the war against the separatist Tamil Tigers in 2009. The economy has grown at an average annual rate of 6.7%, and education and health statistics are impressive. All developing countries face myriad challenges, but this is especially the case for a country that has suffered an intense 30-year civil war. The government will need to set priorities; but success will require a comprehensive approach. Underlying wars such as the fight with the Tamil Tigers are, typically, social and economic grievances such as real or perceived discrimination, and the failure of government to address wealth and income disparities adequately. Thus, more than transitional justice is required in Sri Lanka (or, to take another example, in Colombia, where peace with the FARC guerillas seems increasingly likely). What is required is full integration of the Tamils, Sri Lanka’s embittered minority, into the country’s economic life. Markets on their own won’t solve this problem. Sri Lanka will need balanced affirmativeaction programs that address the various dimensions of economic disparity and are attuned to the inequalities within the Tamil population. It will do no good to give a leg up to Sri Lanka’s many rich Tamils, while leaving poor, lower-caste Tamils further behind. Economic integration of the northern Tamil region will require heavy public investment in infrastructure, education, technology, and much else. Indeed, such investments are needed for the entire country.
And yet tax revenue as a share of GDP is only 11.6%, about one-third that of Brazil. Like many other developing countries, Sri Lanka simply enjoyed the fruits of high commodity prices in recent years (tea and rubber account for 22% of exports). Sri Lanka should have used the commodity boom to diversify its export base; the previous government of Mahinda Rajapaksa did not. With export prices down, and with tourism likely to suffer from the global economic downturn, a balanceof-payments crisis looms. Some suggest that Sri Lanka turn to the International Monetary Fund, promising belt tightening. That would be hugely unpopular. Too many countries have lost their economic sovereignty in IMF programs. Besides, the IMF would almost surely tell Sri Lankan officials not that they’re spending too much, but that they’re taxing too little. Fortunately, there are many taxes that the authorities can impose that would increase efficiency, growth, and equity. Sri Lanka has abundant sunshine and wind; a carbon tax would raise considerable revenue, increase aggregate demand, move the country toward a green economy, and improve the balance of payments. A progressive property tax would encourage more resources to go into productive investments, while reducing inequality and, again, boosting revenues substantially. A tax on luxury goods, most of which are imported, would serve similar goals. Some in the country, citing inadequate inflows of foreign direct investment (despite marked improvement in the business climate), argue for
New President of Sri Lanka, Maithripala Sirisena, faces a big challenge to move forward country’s economy and politics
lower corporate taxes. But such tax concessions are relatively ineffective in bringing in the kind of long-term investment that Sri Lanka needs; so to embrace them would needlessly eviscerate the already weak tax base. Likewise, another frequently proposed strategy, publicprivate partnerships, may not be as beneficial as advertised. Such partnerships usually entail the government bearing the risk, while the private sector takes the profits. Typically, the implicit cost of capital obtained in this way is very high. And while the private sector can, and frequently does, renege on its contractual obligations (through bankruptcy) – or force a renegotiation under the threat of reneging – the government
cannot, especially when an international investment agreement is in place. Twenty-first century development strategies need to be different. They should be based on learning – learning to produce, learning to export, and learning to learn. There can be leapfrogging: in Sri Lanka’s case, the benefits (apart from direct employment) to be gained from certain lowskilled manufacturing stages like garments may be limited. Given its education levels, Sri Lanka may be able to move directly into more technologically advanced sectors, highproductivity organic farming, and higher-end tourism. But if Sri Lanka pursues such activities, it will need to ensure good environmental policies for the entire island. That will necessitate sound urban planning. Sri Lanka is fortunate to have a low level of urbanization today; but this is likely to change in the next two decades. This gives the country the opportunity to create model cities, based on the adequate provision of public services and sound public transport and attuned to the cost of carbon and climate change. Sri Lanka, beautiful and ideally located in the Indian Ocean, is in a position to become an economic hub for the entire region – a financial centre and a safe haven for investment in a geopolitically turbulent part of the world. But this won’t happen by relying excessively on markets or underinvesting in public goods. Fortunately, with peace and the emergence of representative political institutions, Sri Lanka today has a better opportunity than ever to make the right choices. Project Syndicate
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January 27, 2016
Closing China VAT reform to let industries save US$85 bln
Bumpy road ahead for electric cars: Tesla boss
China’s plan to expand its value-added tax (VAT) reforms will let industries that enter the scheme this year pay 560 billion yuan (US$85.1 billion) less in tax than they did in 2015, the National Bureau of Statistics said yesterday. Wang Baoan, chief of the bureau, also said China may raise its ratio of its fiscal deficit relative to gross domestic product to cover the lower tax revenue, but he said such a move would not be aimed at stimulating growth. On Monday, Premier Li Keqiang said China would expand tax reforms to replace a business tax with a value-added tax (VAT) this year. Wang also said the government would avoid harsh steps in reducing industrial overcapacity, leverage and inventories.
Electric car manufacturers will have to design futuristic vehicles to entice buyers in order to ride out the challenge of plunging oil prices, Tesla co-founder Elon Musk (pictured) said yesterday. The luxury all-electric US car maker, founded in 2003, rose to prominence as oil prices soared and made alternative energy vehicles more tempting. Now the fledgling industry is under pressure, said Musk. Tesla itself saw shares dive earlier this month after it reported deliveries at the bottom end of its forecast for the 2015 fourth quarter. “It definitely makes the transition to sustainable energy more difficult,” Musk, 44, said when asked at a business conference in Hong Kong about the impact of free-falling oil prices.
Standard & Poor’s downgrades Asia-Pacific energy firms The Standard & Poor’s reviews come days after competing rating agency Moody’s put 175 commodity firms, including in Asia, on review over a bleak outlook
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ating agency Standard and Poor’s (S&P) yesterday downgraded several oil and gas companies in the Asia-Pacific region as a lower oil price forecast undermines the sector’s revenue and credit outlook. In one of history’s steepest price falls, crude has tumbled more than 70 percent since mid-2014 to under US$30 a barrel, pulling down the share prices of energy firms, as producers pump 1 million to 2 million barrels of oil each day in excess of demand, in a war of discounts for market share. S&P said that it had taken various rating actions on oil and gas companies in the Asia-Pacific region, including China and Australia, after it cut its Brent crude oil price assumptions for this year and 2017 to US$40 and US$45 per barrel, respectively. “We don’t believe China’s national oil companies will be able to stabilize their cash flow adequacy amid the current price environment, despite their efforts to cut capital expenditure and costs,” the agency said.
The company said it had therefore lowered its credit profile for companies, including China Petroleum & Chemical Corp and China National Offshore Oil Corp. (CNOOC) in China and for Woodside Petroleum and Santos in Australia. However, S&P said the revised oil price outlook had no impact on the ratings and outlooks on national oil companies in South and Southeast Asia, such as Indonesia’s PT Pertamina, Malaysia’s Petroliam Nasional (Petronas), Thailand’s PTT Public or India’s Oil and Natural Gas Corp. (ONGC). “The companies all have an important policy role as major energy suppliers and providers in their respective countries... Therefore, the ratings and outlook on these four companies remain the same as those on their respective sovereigns.” The Standard & Poor’s reviews come days after competing rating agency Moody’s put 175 commodity firms, including in Asia, on review over a bleak outlook. Reuters
The company said it had therefore lowered its credit profile for companies, including China Petroleum & Chemical Corp and China National Offshore Oil Corp. (CNOOC) in China
Moody’s says Chinese banks face more risk amid volatility
Yangtze River Delta offers 144‑hour visa-free entry
Hyundai says bigger discounts coming for Mainland’s buyers
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redit ratings agency Moody’s has highlighted the increased uncertainty and risk Chinese banks are facing amid volatility in interest rates, exchange rates, stock prices and fund flows. Their financial performance over the next two years will be driven primarily by the evolution of their asset quality, which is in turn a reflection of their appetite for risk, Moody’s said yesterday. It forecast that banks focusing on growing loans to small and mid-size borrowers will see a faster rise in credit costs as such customers are more vulnerable to sector downturns and financial market volatility. “We also anticipate further increases in loan delinquencies, more defaults on corporate debt and some losses in wealth-management products, as more borrowers struggle to meet payments against the backdrop of high financial leverage and a downturn in their respective sectors,” said Moody’s Senior Vice President Christine Kuo. While the government will implement measures to mitigate financial market volatility and corporate defaults, their effectiveness will vary due to the complicated nature of China’s markets, Kuo added. Reuters
hanghai, Jiangsu and Zhejiang will offer a 144-hour visa-free entry for international transit passengers from January 30, in renewed efforts to boost business and tourism. The new policy, unveiled yesterday, covers travellers from 51 countries and regions, including the United States, Russia, Britain, Australia, France and Japan, the Ministry of Public Security announced yesterday. They can enjoy a 144-hour stay in the Yangtze River Delta upon entry via Shanghai’s air, sea and railway ports, Jiangsu Province’s Nanjing Lukou International Airport and Zhejiang Province’s Hangzhou Xiaoshan International Airport, providing they have third country visas and tickets to leave for a third country or region within 144 hours. Shanghai, Zhejiang’s capital Hangzhou and Jiangsu’s capital Nanjing have allowed 72-hour visa-free entry for international transit passengers since 2013. Under the previous policy, transit passengers could only enter through the airports of the three cities and were not allowed to travel to areas outside of the city. Xinhua
yundai said the pressure to lower prices will intensify in China as domestic automakers flood the world’s largest car market with more vehicles. Many local carmakers in China are ramping up production, leading to an increase in overall supply and forcing foreign companies to cut prices in order to compete, Chief Financial Officer Lee Won Hee said on a conference call yesterday. South Korea’s largest automaker posted its lowest annual profit in five years after deliveries in China slumped for the first time since 2007. Hyundai will respond by cutting costs at its plants in China and stepping up production of smaller cars and sport utility vehicles to take advantage of a tax cut in October, Lee said. The automaker plans to introduce newer versions of its Elantra and Verna cars. Hyundai’s plan to focus on selling vehicles with engine displacements of 1.6 litres or less follows the Chinese government’s move to revitalize local demand by slashing the purchase tax on those vehicles as of October. Deliveries in China declined last year as a slowing economy and shift in consumer preferences to cheaper SUVs hurt demand for the automaker’s sedan-heavy line-up. Bloomberg News