Online real estate firms in Mainland gaining momentum Property Page 9
Tuesday, March 29 2016 Year IV Nr. 1011 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai
www.macaubusinessdaily.com
MGTO Courts International Tourism Market Cops in firing line Security The Security Forces Disciplinary Committee (CFD) has received 73 complaints about the city’s security departments. Up 65 pct y-o-y, according to its 2015 report. Most complaints target the Public Security Police Force (PSP), especially the traffic department. Page 3
Tourism
US$59 million ‘Life Science Park’ in Zhuhai in 2018 Page 5
Infrastructure
Taipa transport interchange hopefully completed this year Page 4
Problematic gambling gaining ground The Social Welfare Bureau has observed a growing number of gambling disorder cases. Particularly in the last three years. Research is trying to cope with the problem and better allocate social services resources.
Gaming
Macau businesses shortlisted for Laos casino Page 7
Capex Mainland firms reduced capital expansion this quarter. This, according to a private poll. The survey also showed that firms hired fewer people. While just 33 pct increased expenditure. Pages 8&9 HK HSI March 24, 2016 20,345.61 -269.62 (1.31%) Tingyi Cayman Islands
+1.83%
MTR Corp Ltd
+0.67%
Hengan International
+0.32%
Hong Kong & China Gas
+0.28%
Power Assets Holdings Ltd
+0.19%
Cheung Kong Infrastruc-
+0.07%
Li & Fung Ltd
0.00%
China Resources Power
0.00%
New World Development
-3.18%
China Merchants Holdings
-3.68%
China Life Insurance Co
-3.93%
PetroChina Co Ltd
-4.28%
17° 20° 19° 22° 19° 23° 19° 23° 20° 23° Today
Wed
Thu
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Gambling Disorder Page 6
Fri
Sat
Source: Bloomberg
FTZ
Hiring less
Source: AccuWeather
Newly launched flights between Macau and Fukuoka. The Southern Japan tourist market is ripe for development, says MGTO. With the Macao Government Tourism Office expressing high hopes for more international visitors overall. Page 3
2 Business Daily Tuesday, March 29 2016
Macau
Security INCREASED DISSATISFACTION WITH TRAFFIC POLICE AS ENHANCED ACTIVITY COMBATS ILLEGAL TAXIS
Complaints about local police surge The Security Forces Disciplinary Committee said the complaints are primarily about officers’ attitudes and their inappropriate procedures for enforcement. Kam Leong kamleong@macaubusinessdaily.com
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he Security Forces Disciplinary Committee (CFD) received a total of 73 complaints about the city’s security departments in 2015, which represents a jump of 65 per cent year-on-year, driven by the two-fold complaints about the traffic police officers of the Public Security Police Force (PSP). According to the Committee’s 2015 annual report, 71 of the grievances were directly made by local residents, while the other two cases were respectively transferred by the graft-watchdog Commission Against Corruption and The Court of Second Instance. In terms of nature, 34 filed complaints alleged police officers’
inappropriate enforcement procedures, while another 28 were about officers’ attitudes, among other complaints.
Most complaints against PSP
Meanwhile, 67 complaints received by the disciplinary watchdog targeted the PSP, which accounted for 87 per cent of the total. In particular, the number of complaints about the Bureau’s traffic enforcement surged by almost two times to 32 cases compared to 12 in 2014. Residents primarily complained about the local traffic police’s attitudes, slow enforcement, abuse of power and inappropriate procedures. The Committee wrote in the report that the notable annual increase is due to the police department’s enhanced enforcement of taxi violations as well as unlicensed taxi services in the territory last year. It indicated seven of the traffic-related complaints were filed by the city’s taxi drivers, while three were made by drivers who were suspected of providing unlicensed taxi services. The other 35 complaints against the department were related to its police affairs. Again, complainants were primarily dissatisfied with officers’ attitude, misconduct, abuse of power and inappropriate use of
force. In addition, they claimed PSP officers had conducted inappropriate enforcement procedures and had conducted unfair enforcement. In addition, the security body overseer received seven complaints about the Judiciary Police in 2015, while Macau Prison, Macau Customs Service and Macau Security Forces Training College were each involved in one complaint.
One person files 13 complaints
CFD indicated in the report that one of the factors driving the increase in its received complaints is that one resident made a total of 13 complaints or advice on the city’s security departments in the year. It added that its increased promotion and publicity is also the reason boosting the complaint number to such a significant jump, apart from PSP’s strengthened combat of illegal taxi services. ‘We are glad to see [the growth, which] reflects the trust of residents in the Committee and their recognition of the Committee’s long-term efforts,’ Committee president Leonel Alves wrote in the report.
“Don’t ban entry without enough evidence”
In the report, the watchdog also made 13 suggestions for the
security bodies, which mainly advised police officers to improve their attitude, and to regulate certain standards for enforcement in order to avoid unfairness and subjectivity. It noted that local police should apply entry prohibition measures on individuals only when they have enough evidence proving the individuals are a risk to the city’s internal safety and peace. ‘PSP should also inform the individuals of the reasons they are prohibited from entry. During the process, enforcement officers should remain polite and avoid any arguments that may affect public order,’ the Committee advised. According to the report, CFD has already requested security departments to clarify or provide information on 18 cases received last year. In addition, it submitted 14 points of advice to the Secretary for Security or the departments, which were all responded to positively. ‘In the future, the Committee will take the initiative to discover the underlying problems of security departments and offer relevant advice as soon as possible so that the number of complaints [against the departments] can be reduced,’ the report said.
e-Government
Legislator urges stable government web The government should consider unifying the Internet servers of all government departments and manage bandwidth at a macro level, said legislator Ella Lei Cheng I in a written enquiry. The legislator’s demand follows a recent incident when local public broadcaster TDM reported the suspension of classes due to a heavy storm, which was later clarified by the Education and Youth Affairs
Bureau (DSEJ) as a drill. DSEJ’s official website crashed that morning due to the overflow of visits as parents tried to check the information. According to DSEJ, from 7:00am to 8:00am on the day in question, the website recorded about 560,000 visits which was eleven times higher than normal. Many parents failed to load the page. DSEJ later said if needed it will improve the configuration of all devices
but stressed that unlimited expansion may not be possible as the current various government servers are set up independently, given the fact that the bandwidth is not shared for internal mobilisation. Legislator Lei pointed out that e-government is the future and that the SAR Government should enhance its management of official website servers and bandwidth should be allocated accordingly in order to
provide a stable service for all government departments’ websites. With regard to DSEJ’s comment that it would establish a WeChat official account to release information, the legislator also enquired if the government would consider setting up accounts on other social networks in order to guarantee that residents have more channels to access official messages, especially in times of emergency.
Business Daily Tuesday, March 29 2016 3
Macau Tourism New air route between Macau and Fukuoka commenced
Flight hub
MGTO: Southern Japan identified as new tourism market. Bami Lio bami.lio@macaubusinessdaily.com
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ith the developm e n t o f M aca u’ s flights, Macau has had positive results in attracting international tourists. Southern Japan will be another market for the Macao Government Tourism Office (MGTO) to target, following the commencement of direct flights between Macau and Fukuoka in Japan, said MGTO Director Maria Helena de Senna Fernandes. The route launched by Air Macau yesterday will fly four trips every Monday, Tuesday, Friday and Saturday. The one-way trip is around three and a half hours. It’s the third direct flight to Japan that Air Macau has launched, following flights to Tokyo and Osaka. Ms. Senna Fernandes told reporters on the sidelines of the inaugural ceremony of the route yesterday that Japan has always been an important market to Macau. She remarked that visitor arrivals from Japan had increased 20 per cent year-on-year in the first two months of 2016. She expects the new flight will give the SAR more opportunities to explore other areas of Japan.
of Japan’s Kyushu Island, is known for its ancient temples, beaches and modern shopping malls and theme parks. Ms. Senna Fernandes says that for people from Fukuoka and its surrounding areas, the customs and media usage are different from other parts of Japan, such as in Tokyo or Osaka. Hence, the MSAR Government will come up with a different strategy to co-operate with local entities, such as travel agencies and local tourism department to attract tourists to visit Macau. When asked about the possibility of direct flights between Macau and Lisbon, Ms. Senna Fernandes said that is possible but commercially it has to be sustainable. She revealed that the current population in Macau is not enough for that market. The
government is trying to see if it is possible to also find new passengers in surrounding areas like the Mainland.
Growing aviation market
President of Macau Civil Aviation Authority (AACM) Simon Chan Weng Hong also told reporters that positive growth has been seen in the Macau aviation market in the past few years. He said that more facilities and regional development had gradually made the tourism and aviation markets bigger. And airlines have more data and confidence in considering new services because a certain market size is needed to guarantee a sustainable business. Mr. Chan revealed that the government is also gradually improving the aviation market and situation in
Macau so that more frequent and scheduled services can be launched in the market. He added that the newly launched route will not only help residents from the two cities travel between the destinations but will also help Macau International Airport become a more important transit hub, as it facilities people from neighbouring regions to travel to the southern Japanese city through the MSAR. When asked about the planned third runway at Hong Kong International Airport, which will reportedly possibly affect nearly 43 per cent of flights landing at Shenzhen Airport and over 90 per cent of departures from Macau, the AACM head said that Macau, Hong Kong and the Mainland sit down together frequently to discuss air space usage, runway orientations and flight procedures for each airport. He said that a new runway or any change in flight procedure of any airport will affect the whole region. However, the priority is air space safety and they all follow the principle that the aviation of every place will not affect each other.
Different strategy
The city’s tourism boss says that Fukuoka, the capital of Fukuoka Prefecture on the northern shore
Inauguration ceremony of Macau-Fukuoka route launched by Air Macau yesterday at Macau International Airport.
4 Business Daily Tuesday, March 29 2016
Macau Transportation
Uber launches 7-seater
Infrastructure
Taipa transport interchange hopefully completed this year
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he managing director of Top Builders Group Ltd., Forest Tang Hon Cheong, said his company would strive to complete the construction works for the public transport interchange at Estrada Governador Albano de Oliveira in Taipa (Phase 1) within this year. Speaking to reporters on Sunday, Mr. Tang claimed the construction works of the project had been 80 per cent completed and expects the project can be fully completed if the company can get all needed assistance from the authorities. According to the Transportation Infrastructure Office (GIT) the transport
interchange - costing MOP480 million (US$60 million) - will be connected to the future LRT stations and provide interchange facilities between LRT and buses and taxis. The project construction, started in 2012, was supposed to be completed in 28 months as regulated by the contract between the government and the contractor. According to Mr. Tang, the construction period has already been extended to 48 months, while his company has suffered from an extra expenditure of tens of millions of patacas due to the delay. Nevertheless, he denied that Top Builders is liable for the delay. He explained that the slow progress of the
construction is due to the company not getting enough co-ordination and assistance from the authorities, adding that the government had not imposed any penalty on the company. Mr. Tang disclosed that his company has been in “friendly discussion” with the government for compensation of the extra cost, stating it would pursue the claims through civil remedies if discussions fail. The transport interchange, for which bids were opened in 2012, is in front of the Jockey Club in Taipa. The infrastructure will include garden terrace, public facilities, square with greenery and coach bus parking lot, GIT says on its official website. K.L.
Using a mobile app that connects riders and drivers, Uber is aiming at large groups and families with its new 7-seater services using cars like Toyota Alphards and Estimas. Base fare for the new offerings starts at MOP25, with a minimum fare of MOP50. Per minute additions are MOP2.7 with a per kilometer charge of MOP6. The two other ranges on offer are uberX and UberBLACK, with base fares of MOP14 and MOP16, respectively, and a minimum MOP20 and MOP25, respectively. Per minute charges are MOP1.4 and MOP1.8 for X and BLACK ranges, with per kilometer charges of MOP3.5 and MOP6, respectively. The new 7-seater service joins the two other existing options on the platform: uberX, the platform’s lower cost option, and the premium UberBLACK, which features luxury vehicles. Trasy Lou Walsh, General Manager of Uber Macau, said the launching of the new service is in response to riders’ feedback, particularly those with families, to having an additional option for when they are travelling in a large group. According to the service provider, currently the average waiting time for rides in town is under 5 minutes. Besides being in demand by locals, visitors from over 52 countries have already taken a ride with Uber in Macau.
Macau
TM
Brand guidelines
5th Ad March 21st Masters only - outlined.indd 1
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Business Daily Tuesday, March 29 2016 5
Macau Start-ups
International Entrepreneurs Festival to be held in Hengqin
Trade Zone, according to the organiser Zhuhai Entrepreneurs Mutual-Help Association. Business matching sessions The second edition of the Zhuhai Macau and successful entrepreneurs’ sharing International Entrepreneurs Festival is sessions are among other activities to be held in the neighbouring island of Hengqin starting on April 23. The two-day encouraging young start-ups which are going to be held. The organiser says that event will select distinguished start-ups the event aims to build a platform for and those who win the competition will have the opportunity to set up their offices young entrepreneurs from Macau and Zhuhai to develop their business. in the Start-Up Valley in Hengqin Free
Food Marketing Portuguese-speaking Countries Food Product Exhibition Centre opens on Thursday
Lusalicious Exhibitors hope the platform will help foodstuffs of Portuguese-speaking countries enter the Mainland China market.
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he Portuguese-speaking Countries Food Product Exhibition Centre is to be inaugurated in Macau’s Tap Seac Square business centre R1 units - commonly known as the Glass House - on Thursday, 31st March. The Centre attracts many businessmen and trade agencies to participate as exhibitors displaying food represented or supplied from Portuguese-speaking countries to find more trading opportunities, according to a press release issued yesterday by the Macau Trade and Investment Promotion Institute (IPIM). F. Rodrigues (Successors) Company Limited displays a variety of food in the centre, including sardines, cod fish, tuna fish, olive oil and various kinds of wine. Company CEO Humberto Carlos Leitão Rodrigues hopes to promote their food, enhancement of awareness of cuisine of Portuguese-speaking countries, and increase trading activities with Mainland China.
Kid’s Shopping Centre executive director Ms. Latonya W.M. Leong said that baby food in all Portuguese-speaking countries must be tested and meet EU standards thus it is safe and convenient, and its price is not so expensive, and is therefore very welcome in the Macau market.
The chairman of the Executive Committee of International Lusophone Markets Business Association, Eduardo Ambrósio, said that the Portuguese-speaking Countries Food Product Exhibition Centre aims to provide enterprises with a platform to promote the food, and he hopes this will help the food to enter the Mainland market.
Offline and online
IPIM says that the Portuguese-speaking Countries Food Product Exhibition Centre in Macau is an offline shop that promotes economic and trade co-operation between China and Portuguese-speaking countries. A website titled Economic & Trade
Co-operation and Human Resources Portal between China and Portuguese-speaking Countries has been set up. Through the Portuguese-speaking Countries Food Products Database, it is possible to regularly publish investment projects, trading and exhibition information of Portuguese-speaking countries. Thus it can help build the ‘Three Centres’; namely, the China and Portuguese-speaking Countries SME Business Service Centre, the Portuguese-speaking Countries Food Distribution Centre, and the Exhibition Centre for Economic and Trade Co-operation between China and Portuguese-speaking Countries.
Variety of products
In addition to wine, olive oil and canned foods from Portuguese-speaking countries common products like baby food can also be found in the Portuguese-speaking Countries Food Product Exhibition Centre.
Mr. Humberto Carlos Leitão Rodrigues, CEO of F. Rodrigues (Successors) Company Limited.
Medical
US$59 million ‘Life Science Park’ in Zhuhai in 2018 17-storey medical complex breaks ground. Singapore-based Asian American Medical Group Limited (AAMG) and Rich Tree Holdings (RTH) broke ground on Sunday on a US$59 million (MOP471 million) specialist medical centre located in the Zhuhai Free Trade Zone. The park, set to open in 2018, is being built on a 5,446 square metre plot, with its 17 storeys allowing for over 21,000 square metres
destined for an international health screening centre, multidisciplinary medical suites, and retail and F&B outlets. AAMG is still finalising its 60 per cent stake in RTH, which was previously valued at SG$19.6 million (MOP114 million / US$14.27 million), in the interests of overseeing the design and delivery of the park, along with U.S. healthcare group UPMC. RTL, the private equity firm who secured a 40-year lease on the plot, estimated its worth at RMB1,500 (MOP1,842 /
US$230)per square metre. The park, termed a ‘specialist ambulatory medical centre’, will, upon completion, offer health screening, endoscopic and operation services plus multi-disciplinary medical
21,000 Square metres Built-up area for the 17-storey park
consultations. AAMG, in its advisory capacity, will help in ‘setting up an international referral centre to service residents in Zhuhai and the surrounding areas seeking medical treatment overseas, particularly in Singapore,’ it said in a press release. The group is reportedly receiving SG$750,000 for its ‘services and healthcare related advisory to RTL’, with ‘negotiations currently ongoing to extend AAMG’s involvement’ further ‘beyond the feasibility and planning phase,’ said Dr. Tan Kai Chah, AAMG’s Executive Chairman and lead surgeon. AAMG plans to use their Zhuhai presence to ‘expand our presence in China’, according to Dr. Tan, with plans to turn the Zhuhai centre into a hub for specialist wellness, diagnostics, cosmetic and preventive medical care using ‘the best of Singapore’s proven medical expertise’. Through the project the group hopes to reshape medical tourism in China states a report. AAMG is based in Singapore and entered into a strategic agreement with UPMC in October 2012. AAMG’s operations include the Asian American Liver Centre Pte. Ltd. and Asian American Radiation Oncology Pte Ltd. AAMG has been listed on the Australian Securities Exchange since September 2009. The opening date of the park, originally slated for 2017, is set to correspond with the completion of the Hong Kong-Zhuhai-Macau Bridge. K.W.
6 Business Daily Tuesday, March 29 2016
Macau Procurement
CPTTM launches procurement webpage linking SMEs and gaming operators The Macau Productivity and Technology Transfer Centre (CPTTM) has launched a new webpage providing procurement information of local gaming operators and hoteliers for the city’s SMEs in order to increase their business opportunities. According to its press release yesterday, the webpage currently provides the procurement information of MGM Macau and Wynn Macau, in addition to that of CPTTM. Through the new webpage, local SMEs can apply to be registered suppliers. Additional information of procurement process, documents needed for application, and purchasing lists of recent projects or regular items is available on the webpage.
Gambling Disorder
Problematic gambling cases on the rise Some 147 reported cases of gambling disorder recorded in 2015. Annie Lao annie.lao@macaubusinessdaily.com
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rising number of people are seeking help related to problematic gambling, according to the 2015 annual report of the Gambling Disorder
Individuals Central Register System released by the Social Welfare Bureau (IAS). The number of cases of gambling disorder stood at 147 in 2015, while the number was 141 in 2014 and 134 in 2013. According to the report, in 2015 some 73 per cent of
the people seeking help were male. The average age of the cases reported was 41, while the youngest was 16 and the eldest was 82. The majority of people were aged 30 to 39. About 84 per cent, or 123 cases, were reported by Macau ID holders, while 7.5 per cent, or 11 cases, were filed
DSM-5 Diagnostic Criteria: Gambling Disorder Persistent and recurrent problematic gambling behaviour leading to clinically significant impairment or distress was indicated by individuals exhibiting four (or more) of the following in a 12-month period: 1. Needs to gamble with increasing amounts of money in order to achieve the desired excitement. 2. Is restless or irritable when attempting to reduce or stop gambling. 3. Has made repeated unsuccessful efforts to control, cut back, or stop gambling. 4. Is often preoccupied with gambling (e.g.) having persistent thoughts of reliving past gambling experiences, handicapping or planning the next venture, thinking of ways to get money with which to gamble.
5. Often gambles when feeling distressed (e.g.) helpless, guilty, anxious, depressed. 6. After losing money gambling, often returns another day to get even (‘chasing’ one’s losses). 7. Lies to conceal the extent of involvement with gambling. 8. Has jeopardised or lost a significant relationship, job, or educational or career opportunity because of gambling. 9. Relies on others to provide money to relieve desperate financial situations caused by gambling. Specify current severity: Mild: 4–5 criteria met. Moderate: 6–7 criteria met. Severe: 8–9 criteria met.
by Hong Kong residents and 4 per cent, or 6 cases, were filed by non-resident workers. With regard to civil status, among the 147 cases filed, 43 cases or 29 per cent of them were single, while 87 cases or 59 per cent of them were married. Another eight people were reported to be divorced.
Job matters
The available data from the Social Welfare Bureau also indicates that among all 147 reported cases in 2015 less than 30 per cent had received higher education. In addition, except for eight unemployed individuals, of the remaining 133 cases 18 per cent, namely 24 people, were casino dealers. And 13 per cent or 18 people worked in the gaming industry. These two categories accounted for the biggest chunk in terms of occupation. Over half of them worked a 24-hour shift with over 60 per cent earning an average monthly salary of MOP14, 000. Gamblers who had five to seven years of gambling experience represented the largest proportion of about 34 per cent, while about 24 per cent had between one to three years of gambling experience. Some 60 per cent of the gamblers seeking help from the social work organisations say their family members also had gambling habits while 32 said their family did not gamble.
Gambling to trouble
While these problematic gamblers gamble for various reasons, a lot of them seem to use gambling as a way to solve financial crises. The data provided by the Bureau also shows that among ‘playing for fun’, ‘looking for
thrills’, ‘to killing time’, ‘out of boredom’, and some other reasons, ‘solving financial problems’ was listed as the biggest reason to gamble as stated by those seeking help. In addition, over 60 per cent of them were over MOP100, 000 in debt, while about 25 per cent did not have any debt. Almost 30 per cent of the individuals spent between MOP10, 000 to MOP50, 000 each month on gambling. The Bureau also indicates that about 40 per cent did not know how much money they had spent on gambling, reflecting that addictive gamblers’ money management skills was weak. Most popular games among them include baccarat, slot machines and sic bo, with baccarat accounting for over 50 per cent.
Serious problem
In addition, based on one measurement tool - DSM-5 (the Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition, see box) - applied to 91 of the cases filed in 2015, 40 per cent were diagnosed as having a moderate gambling disorder, while 41 per cent were diagnosed with a severe disorder. The Bureau indicated that people in trouble would only seek professional help when the situation became serious. A Gambling Disorder Individuals Central Register was set up by the Social Welfare Bureau in 2011 to collect data through the Internet by 16 local social service facilities in addition to the Bureau. According to the Bureau the aim is to use the data to further analyse them in order to better help those in need as well as better allocate social services resources.
Business Daily Tuesday, March 29 2016 7
Macau
Gaming
Macau businesses shortlisted for Laos casino Winning bids own and operate complex for 50-year period. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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hree of six businesses shortlisted for the purchase and operation of Savan Vegas Hotel and Entertainment Complex, located in Savannakhet Province and bordering northern Thailand, have ties to Macau. The sale was announced last year and is undertaken through San Marco Capital Partners (SMC), the exclusive agent working for the Government
of the Lao People’s Democratic Republic. Of the six qualified parties in the sales process the three with Macau ties are Macau Legend, who recently announced its intent to sell its Landmark Macau property and in February broke ground on its integrated leisure, tourism and entertainment complex in Cape Verde; the Iao Kun Group, a Nasdaq-listed VIP gaming promoter operating ‘five major luxury VIP gaming facilities’ in Macau; and a consortium involving RGB (Macau) Limited, an electronic
gaming machine maker owned by RGB International Bhd originally out of Penang, Malaysia with Mr. Datuk Chuah Kim Seah and Mr. Ung Chi Fong. The other three qualified parties are Silver Heritage Ltd., headquartered in Hong Kong and currently developing its first casino resort in India along the Nepali border; Groupe Lucien Barrière, a casino, luxury hotel and restaurant operator in France, Switzerland and Egypt; and PGP Investors Ltd., a California based investment firm.
The complex up for sale is located in the Nongduene Village and includes a full-service casino, hotel and entertainment and leisure facilities. Interested investors submitted expressions of interest and information regarding financial capability and operational expertise to the government for review, resulting in the six candidates. Bids are to be submitted on May 10 and will be opened in a public ceremony in Vientiane in the Lao PDR. The winning bid will receive the assets of the complex and a concession agreement to operate it for a 50-year period, according to a March 25 report on PR Newswire.
Gaming
Privately owned casino earnings remain private Hard Rock Las Vegas among companies that no longer need to file with the SEC.
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new regulation p ass ed ea r l ie r this month by Nevada gaming regulators means casinos owned by private investment groups can keep their earnings private, reports GamblingCompliance. Quarterly and annual earnings reports are no longer required, influencing a few major casinos such as Hard Rock Las Vegas, The Cosmopolitan and SLS Las Vegas – all owned by private investment firms. Under the previous licensing laws these casinos were required to register ownership with the U.S. Securities and Exchange Commission (SEC) and report financial results on a quarterly basis, despite no trading of stock, GC reported yesterday. Frank Shreck - a shareholder with Las Vegas-based Brownstein Hyatt Farber Shreck and a proposer of
the new regulation - told GamblingCompliance, that he didn’t expect publicly traded casinos to take advantage of the new rule since “to avail themselves of the new rule they would have to deregister as a public company.”
Costly endeavour
Shreck also told the business intelligence provider that the SEC registration could cost companies from US$400,000 to US$800,000 in fees and maintenance costs and that a recent client had fees for earnings filings worth over US$1 million annually. The change in regulation would protect confidential and financial information as well as proprietary gaming data. Of the casinos affected by the change, Hard Rock Las Vegas is owned by Brookfield Asset Management, SLS is owned by Stockbridge
“To avail themselves of the new rule they would have to deregister as a public company” Frank Shreck, Shareholder with BrownStown Hyatt Farber Shreck and proposer of the new regulation
Corporate
GEG Youth Achievement Programme Since the fifth “’GEG Youth Achievement Programme’ (‘YAP’) co-organised by Macau Management Association and Galaxy Entertainment Group (‘GEG’) kicked off last year, participants have been engaging in a series of activities designed to enhance leadership skills, build confidence and facilitate interaction with the community. YAP
participants recently held a community service challenge day to spread love throughout society. In addition to the community service challenge day, three outstanding local entrepreneurs were invited to present their innovative ideas and insights at a sharing session. YAP organises a variety of activities for young people to serve the community and develop leadership skills.
Capital and The Cosmopolitan is owned by Blackstone Group, GC reports. Not all privately held operators, however, fall under the new regulation, as privately held operators with public owned debt still have to file quarterly reports with the SEC. Groups such as Las Vegas-based Affinity Gaming, reports GC, who own 11 casinos in four states - Nevada, Colorado, Missouri and Iowa – still have to file, given its US$382.7 million in debt
published in its 2015 annual report. Public traded companies, the article states, such as MGM Resorts International and Boyd Gaming consolidate their earnings reports by local or regional market, instead of individual property – as privately owned companies do. None of the parent companies of Macau-based casinos will be directly affected by the new regulation given that they are publicly traded. K.W.
8 Business Daily Tuesday, March 29 2016
Greater China Capex
Mainland firms hiring less Only 33 percent of polled firms reported capital expenditure growth in the first quarter.
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apital expenditure by Chinese companies fell to the lowest in at least five years in the first quarter, a private survey showed, highlighting persistent weakness in the economy even as the government ratchets up policy support to head off a sharper slowdown. The quarterly survey of over 2,200 firms by China Beige Book International (CBB) also showed less hiring by companies, marking the second consecutive quarter of downward pressure on employment as executives scale back borrowing and spending. Only 33 percent of firms reported capital expenditure growth in the first quarter, the lowest in the survey’s fiveyear history. The share of firms reporting capex growth has fallen by over 40 percent since the second quarter of 2014. However, profits in the first quarter improved from the previous quarter’s lows as revenue growth steadied, the survey showed. “It’s unclear whether the economy as a whole weakened again in the first quarter. But policy challenges appear to have grown, and Beijing therefore may perceive the economy as weaker,” survey report authors Leland Miller and Shehzad Qazi wrote. Economists have questioned China’s official statistics for years and turn to private surveys such as the CBB and measures such as concrete, steel or electricity production to better gauge changes in the world’s second-largest economy. Vice Premier Zhang Gaoli told a high-level economic forum last week that recent data through early March showed that the economy is improving. The latest reported data showed
factory output in January and February grew at its weakest pace since 2008, while exports and imports continued to shrink, although fixed-asset investment growth beat expectations due to quickening property investment. The survey showed just 23 percent of firms expanded their workforces in
the first quarter, falling to half of what CCB reported in its inaugural report back in 2012. “Less borrowing and spending was necessary after the 2009-10 excesses. Less hiring is a much more pointed problem,” it said. The survey’s findings of growing
strains on corporate China echo those of a Reuters analysis last week, which showed Chinese companies are facing their tightest liquidity crunch in a decade as customers take longer to pay their bills, forcing some into more costly and less secure borrowing to stay afloat.
The survey showed just 23 percent of firms expanded their workforces in the first quarter.
Investment
Mutual funds turn to commodities, bet on reforms Inflows from mutual fund industry could be a major boost to liquidity in one of the world’s largest commodity futures markets. Ruby Lian and Gavin Maguire
China’s mutual fund industry is pushing to develop investment products linked to local commodity futures, betting that plans to fight chronic oversupply in the country’s mammoth resource sector will drive up prices for raw materials. The funds want to branch out beyond their traditional focus on stocks and fixed-income, with no immediate upturn in sight in the wake of turmoil last year that pulled down share markets by nearly 50 percent and forced bond
yields to multi-year lows. But a government campaign to streamline China’s bloated mining industries and crimp supply that has dragged on global commodity markets has buoyed hopes of an enduring recovery in prices of materials such as iron ore and copper, burnishing their appeal to fund managers. Inflows from China’s mutual fund industry, estimated to have managed 8.4 trillion yuan (US$1.3 trillion) by the end of last year, could be a major boost to liquidity in one of the world’s
largest commodity futures markets, which had transaction values totalling 136.5 trillion yuan in 2015. That would ramp up the pricing power of the top consumer of most raw materials at a time when Beijing is looking to increase its sway in international markets. “Investors have a growing appetite to diversify their investment destination after the stock market crash, and believe commodities are good assets as China is pushing for capacity-cut reform that will be favourable for raw materials,” said Fang Shisheng, a senior official with Orient Futures in Shanghai. Shenzhen-based UBS-SDIC Fund Management in August 2015 launched the first Chinese mutual fund product to invest in local commodities, linked to silver futures on the Shanghai Futures Exchange. Other funds are now waiting for regulatory approval for similar steps. They include Fortune SG Fund Management, which a company official said was planning a fund that tracks Shanghai copper futures, and HuataiPine Bridge Investments, which wants to start a fund to track an index of several agricultural futures. Huang Lei, a marketing manager at Beijing-based Harvest Fund, told
Key Points Fund managers plan products linked to commodity futures Hope campaign to overhaul resources sector will push up prices Looking beyond stocks, bonds after 2015 market turmoil More futures liquidity could boost China’s sway on global mkts
Reuters the company is also weighing the launch of a commodity product, though nothing has been set in stone. Meanwhile, a manager with Wanjia Asset said the Shanghai-based firm was preparing application materials to begin a fund that tracks a commodities futures price index, without giving more detail. “Commodities futures markets have been very hot these days while there are very few opportunities in other markets, so mutual funds are looking into commodities,” she said.
Surging trade
Several commodity markets around the world have recovered this year, with Dalian iron ore futures rallying more than 35 percent since early January and oil futures climbing back near US$40 a barrel after plunging below US$30. For the first two months of this year, total ShFE trading volumes surged about 50 percent, with volumes on the Dalian Commodity Exchange shooting up over 85 percent. But some futures brokers warned that Chinese mutual funds would need time to understand commodity futures and to hire experienced traders. “The trading of commodities futures is different, requiring strong risk control skills ... but it’s becoming a trend for mutual funds to participate in the arena too,” said a futures broker who speaks to funds. Others saw such diversification as inevitable. “Taking the longer view, I ... see the development of new commodity investment funds as the continued and necessary diversification of investment products in China - a process that will continue for many more years,” said John Browning, managing director of Hong Kong-based Bands Financial. Reuters
Business Daily Tuesday, March 29 2016 9
Greater China In Brief Premier Li Keqiang said on Thursday that China’s employment was stable in the first two months of 2016, with a survey-based jobless rate at about 5.1 percent, though the real jobless rate is widely believed to be much higher. The government has set a growth target of 6.5 percent to 7 percent for 2016, after the economy expanded 6.9 percent in 2015 - the slowest pace in 25 years. Beijing has pledged to make monetary policy more flexible this year even as it leans more on increased fiscal spending and tax cuts to support economic growth and cushion the pain from structural reforms. Reuters
Real estate
Shenzhen raises property deposit thresholds
M&A
Sharp, Foxconn push to close rescue deal after a month of delays Foxconn is seeking to cut the amount it will pay for equity in Sharp to about 389 billion yen. Pavel Alpeyev
Sharp Corp. and Foxconn Technology Group said they are pushing to close the rescue deal for the Japanese manufacturer that has been held up by disagreement for more than a month. Hon Hai Precision Industry Co., Foxconn’s flagship company, said on Sunday it will hold a board meeting on March 30 as scheduled where it may discuss the Sharp deal depending on the stage of negotiations, according to a statement to the Taiwan stock exchange. Sharp said yesterday it aims to reach the agreement as soon as possible, and will promptly make information public if it reaches a decision requiring disclosure. Sharp’s banks are ready to push back the deadline for most of the company’s 510 billion yen (US$4.5 billion) in loans and credit lines beyond March 31, people with knowledge of the matter said earlier. That would give the Japanese maker of Aquos televisions more time to reach a renegotiated deal to be acquired by billionaire Terry Gou’s Foxconn.
Sharp, along with the banks, is aiming for its directors to endorse a final proposal by March 31, one person said, although the board could meet for a vote earlier if a deal is presented. At the same time, an extension by the banks would give Sharp more time to negotiate a final agreement in April.
Finish line
The extension may be as long as a month, said the people, who asked not to be identified as the decision hasn’t been publicly announced. Gou agreed a month ago to buy Sharp for more than 600 billion yen, but has held off on signing a final agreement while his advisers scrutinize the company’s finances. Foxconn is seeking to cut the amount it will pay for equity in Sharp to about 389 billion yen, one person familiar with the matter has said. The Taiwanese company will probably still pay about 100 billion yen for preferred shares that the banks own, though the payment may be delayed, the person said. Bloomberg News
Real Estate
Online property companies soar Data showed a recovery in China’s property market accelerated, led by gains in major cities. Bonnie Cao
Real estate Web portals Leju Holdings Ltd.and SouFun Holdings Ltd. are standing out among U.S.-traded Chinese stocks, rebounding as government stimulus and a recovering property market improves the outlook for growth. Leju has surged 44 percent over the past month in the best performance on the Bloomberg China-US Equity Index, which gained 4.6 percent during the same period. SouFun has rebounded 25 percent from this year’s low in February. Both were among the 10 worst-performers on the gauge this year through early February, slumping at least 40 percent while the benchmark slid 23 percent. The turnaround comes amid monetary stimulus from the central bank and an easing of housing-market regulations. The companies are also benefiting from government policies geared toward increasing the role of privately-owned technology and service businesses in China’s economic development, said Brendan Ahern, managing director at Krane Funds Advisors. “Companies like SouFun are going to orient toward those tier-one coastal cities where you see a fairly robust realestate market rebound,” said Ahern, who invests in Chinese Internet companies, including SouFun, by phone
from New York. “Within China, you have a massive adoption of Internet that plays into the real-estate market as well, particularly in major cities.” Slumping home prices in smaller cities as the economy expanded at the slowest pace in 25 years weighed on earnings last year. SouFun, the country’s largest property website, posted its first annual loss since at least 2008, data compiled by Bloomberg show. Leju, which ranks second, posted adjusted net income that dropped 37 percent to US$57.4 million. The momentum behind the stock rallies picked up as data showed a recovery in China’s property market accelerated, led by gains in major cities. Steps the government has taken to encourage home buying have included a reduction of minimum down payments and cuts in deed and business taxes on home transactions. Prices in Shenzhen, a southern business hub that borders Hong Kong, posted a 57 percent of jump in February from a year earlier, while those in Shanghai increased 21 percent, according to data from the National Bureau of Statistics.
‘Fierce competition’
Property-related services in China are “showing sustainable rates of growth,” which has led to “fierce competition among existing market leaders and new entrants, especially since 2014,” Nomura Holdings Inc. analysts led by Jeffrey Gaowrote in a February research report on the industry. SouFun, which controls 56 percent of China’s online property advertising market, and Leju, which has 29 percent, are well-positioned to adapt to that environment, in which consolidation “is inevitable,” they wrote.
“An established platform, strong execution, and adequate capital are key to win in the market consolidation, which will lead to profitability,” the analysts wrote. SouFun entered the online-to-offline market in 2014. While its aggressive offline investment weighed on margins, Morgan Stanley analysts led by Amanda Chen said the company is “heading in the right direction.” They raised the stock to the equivalent of buy last week. A large user base, strong brand image and superior technology will support SouFun in its market expansion and operating efficiency improvements, the analysts said in the report.
Analyst ratings
Leju’s profitability is being hurt by “near-perfect” competition from new entrants in the market, Robert Cowell, a Shanghai-based analyst at 86Research Ltd. who rates Leju as neutral and SouFun as a buy, said by e-mail. On a scale from 1 to 5, SouFun has a consensus recommendation of 4.6, compared with 3 for Leju and an average of 4 among 11 global peers, according to data compiled by Bloomberg. Analysts covering SouFun forecast that the company will post a 31 percent increase in sales for 2016, compared with an estimated 16 percent for Leju. “Although the competition will increase in China’s online property portal industry, the strong rebound of the property market in core cities will help maintain growth rates of the portals,” China International Capital Corp. analysts led by Beijing-based Eric Zhang wrote in a report this month. Bloomberg News
The southern Chinese city of Shenzhen has raised deposit requirements for some home buyers, the latest in a series of measures being introduced across the country to calm property markets, according to the official Xinhua news agency. Authorities in Nanjing, in the eastern coastal province of Jiangsu, issued similar measures yesterday, underlining how the government’s tightening campaign has spread to more “second tier” cities. Shenzhen has been the hottest property market in the country, with prices up nearly 57 percent in February from a year earlier. Army
Authorities terminate paid services in military The Central Military Commission (CMC) has planned to gradually terminate all paid services in the military in three years, according to a CMC circular recently issued. According to the document, military units will no longer be allowed to launch new programs or sign new contracts of paid services, and expired contracts may not be extended. The CMC also rolled out principles and measures on the termination of military paid services, aiming to tackle problems that may emerge as a result of the move to phase out paid services. Science
Government calls for reform of associations Science and technology associations in China should better serve science workers, the national strategy of innovation-driven development as well as the government and the general public through reforms, according to a document published Sunday. The General Office of the Communist Party of China (CPC) Central Committee recently issued a plan for deepening reforms in science and technology associations nationwide. The document urged science and technology associations to uphold CPC’s leadership in the reforms, and called on those associations to build closer links with science workers and the general public.
Results
Wuliangye reports profit recovery Wuliangye Yibin Co. Ltd, a leading liquor producer in China, announced rebounding profitability in 2015 on Sunday thanks to rising sales following two years of sharp declines. Net profits of Wuliangye increased 5.85 percent last year to nearly 6.18 billion yuan (about US$950 million), according to an annual financial report filed to the Shenzhen Stock Exchange. The company’s net profits slumped 26.81 percent in 2014 and 19.75 percent in 2013 as a nationwide frugality campaign curbed the consumption of premium liquor. Wuliangye attributed the profitability recovery mainly to an sales increase.
10 Business Daily Tuesday, March 29 2016
Asia
Seoul Stock Exchange seeing busy days. Stock Market
South Korea set for record IPO year IPOs expected this year include Hotel Lotte Co, drug maker Samsung Biologics and construction equipment maker Doosan Bobcat Inc. Elzio Barreto
R
iding a Seoul stocks revival, some of South Korea’s biggest family firms are set to clean house this year with multi-billion dollar initial public offerings that will fire the country to a record year for new listings. Family-run conglomerates, or “chaebols”, like Samsung, Doosan and Lotte are listing assets to streamline structures, smooth paths toward management succession or ease debt burdens. Added to other deals in the pipeline, IPOs planned by these three will take proceeds this year to at least
US$10 billion, bankers say, eclipsing 2010’s high of US$8.5 billion. Coming on the back of a near-10 percent rally in Seoul’s benchmark share index since mid-February, the sales will test international investor appetite for minority holdings in firms dominated by some of the best-known names in South Korean business. But the scale of the IPOs and relative stability of the domestic market compared to jitters over prospects in China this year make them a magnet for Korean investors at least. “We have to pay attention to these listings because they are large-cap deals,” said Park Sung-jin, a fund manager at Woori Asset Management in Seoul. “Benchmark funds, such as those for (Korea’s) National Pension Service, cannot pass them by,” he said, referring to the world’s third-largest pension fund with about US$81 billion invested in South Korean stocks at end-2015. IPOs expected this year include Hotel Lotte Co, potentially the country’s biggest ever at up to US$5 billion, drug maker Samsung Biologics and construction equipment maker Doosan Bobcat Inc, the latter two seen worth US$2 billion and US$1 billion respectively. Hotel Lotte’s listing is expected in the second half of June while Doosan Bobcat’s is due in the fourth quarter of 2016, Thomson Reuters publication IFR reported. Samsung Biologics hasn’t disclosed a timeline for its deal.
Amid the resurgence in Seoul’s IPO interest, newer firms are also set to pile in, including top mobile game maker Netmarble Games with a projected US$1.7 billion listing. The expected surge in activity would still leave Seoul firmly in the shadow of Hong Kong, where IPOs at the local exchange tally totalled US$23.7 billion last year, making it the world’s biggest IPO venue. But compared with the US$3.5 billion raised in South Korean IPOs last year, 2016’s potential growth points to determination among the “chaebols” to take action. As well as IPOs, secondary issuance is being lined up in already listed businesses like insurer Samsung Life Co Ltd and steelmaker POSCO, bankers say.
In the stars
“Stars are aligning so that a lot of those corporates need to do something, hence the resulting rise in activities,” said a Seoul-based equity capital markets banker, who couldn’t be named because details of the deals have not been made public. Still, investors may have just cause for a pause to consider exactly what they’re getting into. The Lotte Group plan to list one of the jewels in a consumer goods to leisure business empire comes after a bitter succession feud between sons of company founder Shin Kyuk-ho flared into public view last year. Bankers say the sale is nonetheless being
primed to beat South Korea’s existing IPO record, set in 2010 when Samsung Life Insurance raised US$4.4 billion. Meanwhile Samsung Group is immersed in its own succession preparations. Since 2014, it has been reshuffling its sprawling array of listed assets to cement the position of Jay Y. Lee, vice chairman of tech giant Samsung Electronics and heir-apparent to ailing patriarch Lee Kun-hee. Those moves triggered an acrimonious spat with minority investor Elliott Management last year that saw the hedge fund air complaints alleging Samsung disregard for shareholders in Seoul courtrooms. Elliott lost its case and ultimately sold its shares - but not before casting the spotlight on Samsung’s approach to corporate governance. Whatever the issues at Lotte and Samsung last year, bankers expect strong interest in deals in 2016. Before the major IPOs kick off, South Korea has already racked up US$2.7 billion worth of deals, and bankers expect secondary offerings this year from firms like Samsung Life, steelmaker POSCO and Doosan Co Ltd. All three firms declined to comment. “South Korea has been very resilient despite all the stress and worries in the rest of Asia,” said a senior Hong Kong-based equity capital market banker working on several Seoul deals, who could not be named discussing the matter. Reuters
Reserves Heist
Bangladesh asks NY Fed, Philippines to help retrieve stolen money US$30 million of the money was delivered in cash to a casino junket operator in Manila. Serajul Quadir
The new governor of Bangladesh’s central bank has sent formal letters to the New York Fed, as well as central bank and money laundering chiefs in the Philippines, asking them to help recover its stolen US$81 million, a senior central bank official said on Sunday.
The news came as Finance Minister Abul Maal Abdul Muhith said the government was waiting to hear the recommendations of an investigation committee to decide whether the central bank should file a suit against the Fed after one of the biggest cyber heists in history. Unknown hackers breached the computer
systems of Bangladesh Bank in early February and attempted to steal US$951 million from its account at the Federal Reserve Bank of New York, which it uses for international settlements. Some attempted transfers were blocked, but US$81 million was transferred to accounts in the Philippines belonging to casino operators. The central bank official told Reuters that Fazle Kabir, who became governor two weeks ago, had asked the NY Fed chief and the heads of the Philippines central bank and money laundering agency to assist Bangladesh in retrieving the funds. Kabir asked the Fed to investigate if there had been any lapses or whether it had any involvement in the heist,
the official said. Kabir sent separate letters to the ambassador of Bangladesh at the U.N. headquarters, and its permanent representative, urging them to pursue the NY Fed. The previous central bank governor, Atiur Rahman, resigned earlier this month after details emerged in the Philippines that US$30 million of the money was delivered in cash to a casino junket operator in Manila, while the rest went to two casinos. “In his letters the new governor sought all kind of help from them to retrieve the stolen money as we are following multiple efforts for the sake of the country,” the official said. Two weeks ago Bangladesh also formally sought
assistance from the U.S. Federal Bureau of Investigation to track down the cyber crooks. Bangladesh has appointed law firms to weigh its options vis-à-vis the NY Fed. “We will wait till the recommendations of the government-formed investigation committee,” Finance Minister Abul Maal Abdul Muhith told Reuters on Sunday, referring to a three-member committee headed by Mohammad Farash Uddin, a former central bank governor. “We will act as per its recommendations.” Earlier this month Muhith said Dhaka might resort to suing the Fed to recover the money: “The Fed must take responsibility,” he said. Reuters
Business Daily Tuesday, March 29 2016 11
Asia Macroeconomic Data
Japan’s flat consumer inflation keeps central bank under pressure Private poll says tankan likely to show biz mood worsening.
J
apan’s consumer inflation was flat in the year to February as low energy costs and weak consumption put a lid on price growth, government data showed on Friday, keeping the central bank under pressure to top up stimulus although it eased policy less than two months ago. A separate Bank of Japan (BOJ) index calculated by the central bank to strip out the effects of energy and fresh food prices showed consumer inflation at 1.1 percent in the year to February, unchanged from January. The data reinforces a dominant market view that the Bank of Japan will be forced to cut its inflation forecasts and push back the timing for hitting its 2 percent price target at a quarterly review of its projections next month. “Japan won’t see inflation hit the BOJ’s target in the next few years,” said Koya Miyamae, senior economist at SMBC Nikko Securities. “The BOJ is falling into a vicious cycle in which it remains under pressure for further easing even as it has few effective policy means available,” he said. The government’s core consumer price growth calculation for Tokyo, considered a leading indicator of nationwide prices, marked the biggest annual drop in nearly three years in March, suggesting that inflation will remain subdued on weak demand as the world’s third-largest economy skirts recession. Tokyo’s core CPI fell 0.3 percent in the year to March, the first time it dropped by as much since April 2013 and bigger than a median market forecast for a 0.2 percent decrease. The nationwide core consumer price index (CPI), which includes
Key Points Nationwide Feb core CPI flat yr/yr vs f’cast +0.1 pct Tokyo March core CPI -0.3 pct yr/yr vs f’cast -0.2 pct Tokyo core CPI marks biggest fall since April 2013 Symbol of deflation re-emerges as consumers spend less BOJ’s consumer price index up 1.1 pct yr/yr in Feb
oil products but excludes volatile fresh food prices, was unchanged in February from a year earlier, government data showed on Friday. That compared with a median market forecast of a 0.1 percent increase and followed flat growth marked in January.
Cheaper beef rice bowls
Continued declines in fuel costs were mostly behind the subdued inflation with a 10.9 percent drop in energy costs offsetting moderate price rises for items such as processed food, hotel rooms and television sets. But some analysts say weak household spending is prompting some companies to hold back on raising prices, or even cut them, to lure consumers who have seen wages barely rise. Last year, a budding economic recovery had allowed restaurant chains to raise the prices of their “gyudon” beef rice bowls - once a symbol of Japanese deflation because intense competition kept their prices so low. But they are once again starting to offer discounts, including restaurant chain Sukiya, which extended a campaign offering the rice bowls 1.6 percent cheaper than usual. If such competitive measures spread, it could threaten the BOJ’s efforts to nudge households into spending more readily because they expect prices will soon rise.
Business sentiment
A Reuters poll showed Japanese manufacturers’ confidence probably deteriorated to the lowest in nearly three years and it is expected to worsen in the coming quarter due to exporters concern over a strong yen and worries over the global economy. Big firms are likely slash their capital spending plan for the new fiscal year beginning in April, according to the survey. Firms tend to be cautious in their spending plans at this time of year, but concern over the outlook for profits makes it unlikely that they will become more ambitious in their capital expenditure budgets later in the year, analysts said. Date due for release this week includes industrial production, which likely declined for the first time in two months in February due to weak demand in Japan and overseas. The Bank of Japan’s quarterly
tankan business sentiment survey was expected to show the headline index for big manufacturers’ sentiment slipped by 4 points to plus 8 points from plus 12 points three months ago, the poll of 23 economists showed. It would be the lowest reading since the June 2013 survey when big manufacturers’ mood stood at plus 4 points. “Worsening sentiment among big manufacturers likely became apparent due to the economic slowdown overseas and the yen’s sharp appreciation,” Tsuyoshi Ueno, senior economist at NLI Research Institute said in the survey. The sentiment index for big non-manufacturers was expected to slip to plus 24 from plus 25 three months ago, worsening for the first time since the September 2014 survey. The poll also showed the sentiment of both manufacturers’ and non-manufacturers will worsen in the coming three months due to uncertainty over the market outlook and the state of emerging economies, as well as sluggish wage recovery. Big firms were forecast to slash their capital spending plan by 0.7 percent for the coming fiscal year, according to the poll. The BOJ will release the tankan survey at 8:50 a.m. on April 1. Earlier last week, the Reuters Tankan monthly survey, which shows a close correlation with the BOJ’s quarterly tankan survey, showed Japanese manufacturers’ confidence waned in March and was unlikely to change much over the next three months. The poll also found industrial production, which will be released on Wednesday, likely fell 6.0 percent in February from the previous month after it increased 3.7 percent in January. Retail sales were seen rising 1.7 percent in February from a year earlier after a revised 0.2 percent slip in January. Household spending was likely down 1.5 percent in February, falling for a sixth straight month. The jobs-applicants ratio probably improved further at 1.29 in February, its highest since December 1991, and the jobless rate was probably steady at 3.2 percent last month, the poll showed. Reuters
In Brief Property
Singapore’s private home resale prices higher The resale prices for Singapore’ s non-landed homes developed by private developers in February rose 0.4 percent from that in the previous month, according to the flash estimates released by the Singapore Residential Price Index yesterday. The increase was mainly driven by prices of homes in the central region, which rose 0.5 percent, excluding small units. In the meantime, prices of homes in the non-central region, excluding small units, rose 0.3 percent. However, prices of small units, which have a floor area of 506 square feet or below, fell 1.1 percent in February. Export
Vietnam’s rice revenue expands Vietnam is expected to see a year-on-year increase of 41.6 percent in rice export volume and 40. 8 percent in export revenue in the first quarter (Q1) of 2016, according to a report by Vietnam’s Ministry of Agriculture and Rural Development yesterday. Specifically, the country is estimated to export some 1.59 million tons of rice worth 692 million U.S. dollars during the period, said the ministry. In March alone, the country is likely to earn US$274 million from shipping 629,000 tons of rice abroad.
Central bank
S.Korea announces candidates for monetary policy board South Korea’s central bank announced yesterday a list of candidates recommended by various state entities to join the monetary policy board, replacing four members who are expected to leave when their terms end in April. The Bank of Korea said the candidates are as following: Cho Dong-chul recommended by the finance ministry; Ko Seung-beom recommended by the Financial Services Commission; Shin In-seok by the Korea Chamber of Commerce and Industry and Lee Il-houng by the central bank. Defence
India unveils Procurement Policy
Commercial heart of crowded Shibuya district in Tokyo.
India unveiled yesterday its ambitious Defence Procurement Policy at the Defence Expo in the western state of Goa. “The policy will give boost to Make In India initiative,” Indian Defence Minister Manohar Parrikar said after inaugurating the Defexpo in southern Goa. More than 1,000 companies from 47 countries are taking part in the four-day defence expo, said to be one of the largest in the country. The state-owned Defence Research and Development Organisation is displaying state-of-the-art military systems and technologies at the expo so as to bring alive the spirit of Make in India.
12 Business Daily Tuesday, March 29 2016
Asia
The financial heart of the city-state. M&A
Cheap buyout plans in Singapore? Not so quick, say minority shareholders They are also flexing their muscles elsewhere in Asia. Paige Lim and Anshuman Daga
S
ingapore managements are increasingly being forced to pay up for taking their companies private as minority investors demand bigger premiums to the depressed market valuations of targets, underscoring a growing trend of shareholder activism in Asia. With the city-state’s nearly 300 small- and micro-cap companies currently trading on average at half the valuations of Asia-Pacific, founders of several firms have lined up plans to take the companies private, analysts say. Minority investors traditionally have had little influence with the management of companies in Singapore, with most of the small businesses owned by families. They’ve also had little support from the bigger institutional investors who mostly steer clear of the smaller companies due to the scarcity of freely-held shares for trading. All these have meant that managements have generally been able to push through their decisions,
including on deals to take their companies private, without much shareholder opposition. But that is changing. “Minority shareholders are getting more educated and are asking management and boards to be more accountable for their actions,” David Gerald, president of investor body Securities Investors Association (Singapore), told Reuters. In January, Singapore Airlines had to sweeten its offer to buy out Tiger Airways by 10 percent after the association weighed on the company to improve its offer. And this month, the founder of OSIM International, who holds about 68 percent of the Singapore massage chair maker, launched a S$300 million (US$219 million) offer to buy out minority shareholders. But some traders are betting on an improved offer as the stock is trading 4 percent above its offer price. DBS Vickers Securities’ analysts said OSIM’s founder would need to increase his price by at least 14 percent to win shareholders’ approval. “People have been able to look at cash-rich listed corporates acquiring
and say ‘hang on, you can afford to pay more’,” said David Smith, head of corporate governance at Aberdeen Asset Management Asia. “You’ll probably see more of this.”
Wave of deals expected
Shareholders are also flexing their muscles elsewhere in Asia. In November, Hong Kong’s minority shareholders scuppered a US$12.4 billion bid by Asia’s richest man Li Ka-shing to merge his listed energy and infrastructure units. In Singapore, attractive valuations and closely-held shares of small companies are presenting an opportunity for managements to pursue take-private transactions. Of the city-state’s around 750 companies, less than a fifth have a free float in excess of S$200 million, data from Thomson Reuters StarMine shows, limiting the appeal for institutional investors to take a stake. And Singapore’s small- and micro-cap companies are currently trading at a price-to-earnings multiple of 13.8 times compared with a multiple of 26.3 for Asia Pacific, StarMine data shows.
DBS Vickers expects a wave of take-private deals among small- and mid-cap companies in Singapore. In a study, it picked PACC Offshore, Pacific Radiance, Pan-United, Tat Hong and Banyan Tree as potential targets. In drawing up the list, the brokerage evaluated criteria such as stocks that had declined by more than 20 percent over the last six to 24 months, very low price-to-book ratio and companies where major shareholders owned more than 50 percent. When contacted by Reuters, a spokeswoman at Pan-United said the company had no plans to privatise. Tat Hong referred to its statement this month that it had been approached in connection with a potential transaction. PACC Offshore, Pacific Radiance and Banyan Tree had no immediate comment. Aberdeen’s Smith urged a more pro-active stance from independent advisers on deals. “What I would want to see, not just in Singapore but around the region is a little bit more backbone from independent advisers and financial advisers to say ‘look, this is not a great offer and you should reject this’.” Reuters
Commodities
El Niño seen cutting Malaysia palm oil output For the first half of calendar year 2016, Malaysian output is expected to decline by a million tonnes. Emily Chow
Palm oil output in Malaysia, the world’s second-largest producer, is estimated to fall by 2 million tonnes from a year earlier in the oil year ending September 2016 due to the effects of El Niño, leading industry analyst Dorab Mistry said. The decline in production, its sharpest in at least seven years, could bring stronger rallies to benchmark palm oil prices, which have risen 5 percent in the last two weeks to a two-year high of 2,726 ringgit (US$676) a tonne on Friday. For the first half of calendar year 2016, Malaysian output is expected to decline by a million tonnes, Mistry added at the Thirteenth International Oils & Oilseeds Conference in Beijing. Production for the first two months
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of the year is running more than 100,000 tonnes less than the corresponding period a year ago, Mistry said, and the deficit is expected to expand to at least 350,000 tonnes by the end of March. “I shall not be surprised if the deficit for first half 2016, as compared with first half 2015, will be in excess of 1 million tonnes,” he said. “From July we can expect some recovery in Malaysia. However, we have had severe dry weather in Sabah since the second half of January and that is likely to continue until the first half of April. Sabah palm oil production will suffer an extended impact around September 2016.” Mistry, a Singapore-based director with Indian consumer goods company Godrej International, last forecast Malaysian output to drop 1.5 million
tonnes to 18.4 million tonnes due to the El Niño. An El Niño weather event brings scorching heat across Southeast Asia,
“I shall not be surprised if the deficit for first half 2016, as compared with first half 2015, will be in excess of 1 million tonnes” Dorab Mistry, Singapore-based director with Indian consumer goods company Godrej International
affecting the oil palm’s fresh fruit yields and lowering output in Malaysia and Indonesia, which produce about 90 percent of global palm oil. Mistry maintained his estimate for Indonesian palm production to fall by 1.2 million tonnes and that palm prices will reach 3,000 ringgit this year. “Palm oil futures on Bursa Malaysia have already risen to 2,700 (ringgit). I believe we shall touch 3,000 ringgit before long.” Indonesian output is forecast to fall in February to 2.3 million tonnes from 2.44 million tonnes a month earlier due to drought and forest fires, its lowest levels in a year. Its annual palm oil output is expected to fall to 32.1 million tonnes this year, the first decline since 1998, said the Indonesian Palm Oil Association (GAPKI). Reuters
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Business Daily Tuesday, March 29 2016 13
Asia Monetary Policy
Japan’s negative rates a looming headache for central bank Bank of Japan could face difficulties if it wants to expand its asset purchases, as markets expect it will. Lisa Twaronite and Leika Kihara
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riving interest rates below zero, the Bank of Japan (Bank of Japan) has turned a comatose government bond market into an enormous free-for-all, complicating the central bank’s own efforts to kick-start growth and end deflation. The US$9 trillion market for Japanese government bonds had been all but paralysed since the BOJ began a massive monetary easing three years ago that made the bank the dominant buyer. But in the two months since the BOJ announced it was imposing a negative interest rate, JGBs have become a volatile commodity, with prices swinging wildly as below-zero yields confound investors’ attempts to find fair market value. “The JGB market is really in a bubble, when you think about it as an investment vehicle,” said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo. “Their prices have moved away from fundamentals, and people don’t have a traditional way to measure their value.” As the BOJ’s dominance distorts bond market functions and dries up liquidity, the central bank could have a hard time tapering its buying binge when it eventually chooses to exit its “quantitative and qualitative easing” programme. The bank theoretically could just sit on its enormous holdings until the bonds mature, but policymakers are unlikely to want those assets to remain on the balance sheet for decades. On the other hand, it might be difficult to smoothly taper off its asset purchases, much less sell its holdings. So far, the BOJ’s money printing has kept the cost for financing the government’s massive public debt very low. A spike in that cost could stoke market fears Japan may be losing control of its finances, potentially triggering a damaging bond sell-off, some analysts say. “It would be quite tough for the BOJ
to taper such an enormous balance sheet without disrupting markets,” said a person familiar with the BOJ’s thinking. In the meantime, buying bonds that yield less than nothing is creating losses for the exchange-listed BOJ - not an immediate worry for the government but a potential risk to confidence in the guardian of the yen. “The BOJ is sitting on a lot of risk, taking a huge position,” said one fund manager who declined to be named due to the sensitivity of the matter. “How long can they keep buying so many JGBs? Not forever, but a long time.”
Defending policy
BOJ officials publicly say the slide in bond yields into negative territory showed the January 29 move to adopt negative rates was effective in pushing down borrowing costs, and that volatility will fall as market players get used to the concept of negative rates. But some BOJ officials worry that bond yields have become more susceptible to abrupt swings as speculators and newcomers to the market hoard 10- and 20-year JGBs, without much consideration to the risks and term premium.
“As investors fight to secure some of the rapidly declining float of investable bonds, the market is trading like a department store’s goingout-of-business sale” Neale Vincent, Strategist at Nomura Securities
As a result, the BOJ - which the International Monetary Fund says is reaching the limits of the amount of debt it can swallow - could face difficulties if it wants to expand its asset purchases, as markets expect it will. “If investors are buying long-dated JGBs just because they yield
something, they may be under-estimating the risks,” said another official familiar with the BOJ’s thinking. “The BOJ needs to conduct market operations so that markets don’t become excessively volatile,” the official said. With the market dominated by the BOJ’s massive buying and its policy decisions bent on surprising markets, many market players expect high volatility to persist, giving Japanese investors who still hold a large amount of JGBs a headache. Negative yields make it a challenge to calculate a bond’s fair value, the returns it can be expected to generate through maturity. Market participants say wide spreads between bids and offers also complicate trading, and increase volatility. The average daily trading range of the benchmark JGB futures rose to about 0.44 point after the BOJ’s shock decision to adopt negative interest rates, more than double the average of 0.20 point in the preceding oneyear period. Trading in longer-dated cash bonds became even messier as about three quarters of JGBs, or up to 12 years to maturity, have negative yields, prompting investors to rush to buy 20- and 30-year bonds in panic. “As investors fight to secure some of the rapidly declining float of investable bonds, the market is trading like a department store’s going-outof-business sale,” said Neale Vincent, strategist at Nomura Securities. But many market players say the BOJ’s unpredictable policy is the biggest source of volatility. The central bank announced its negative rates policy only days after Governor Haruhiko Kuroda repeated his stance that negative rates were not among its options - leading to cynicism in the market that there was little point trying to forecast what the bank might do. In addition, with zero percent no longer serving as a floor for various interest rates, traders and investors are unsure how far rates can fall, leading to unusual instability at the short end. BOJ officials say they do not intend to control interest rates because their main policy target is still base money, or cash and deposits. But they cannot turn a blind eye to wild swings in interest rates, particularly a spike in rates. Reuters
In Brief CPI
Malaysian inflation picks up Malaysia’s consumer price index in February rose to a seven-year high at 4.2 percent from a year earlier, government data showed. The inflation rate is the highest since December 2008 when it hit 4.4 percent. The rise was attributed to higher costs for food and consumer goods, according to data from the Statistics Department. The consumer price index was above the median forecast of 4.0 percent in a Reuters poll, and up from 3.5 percent in January. The central bank has an inflation target of 2.5-3.5 percent this year. Infrastructure
Indonesian power plant construction to start The construction of a US$4 billion, 2,000-megawatt coal-fired power station in Indonesia will begin on April 1 after years of delay as land acquisitions are finally complete, Japan’s Nikkei business daily said. PT Bhimasena Power Indonesia, a joint venture set up by Indonesian coal miner PT Adaro Energy Tbk and Japan’s Itochu Corporation and Electric Power Development Co. Ltd. (J-Power), will build and operate the Batang plant in Central Java. Indonesia’s Supreme Court has thrown out a landholders’ lawsuit on technical grounds, paving the way for the government to take over the remaining land for the project. Export
Thai exports surprisingly rise Thailand reported that exports grew in February for the first time in 14 months, thanks to two unusual items - helicopters and an eightfold increase from a month earlier for gold shipments. In February, customs-cleared exports rose 10.27 percent from a year earlier, the Commerce Ministry said. Imports plunged 16.82 percent, nearly double the slide seen in a Reuters poll and an indication that exports traditionally a growth driver in Thailand - remain weak, in spite of the reported February rise. Many imported items are parts assembled into finished goods and shipped out. Malaysia
Former PM named new Petronas adviser Former Malaysian Prime Minister Abdullah Ahmad Badawi was appointed as adviser for state oil firm Petroliam Nasional Bhd (Petronas), replacing another former premier Mahathir Mohamad who was fired from the post two weeks ago. Abdullah’s appointment is effective April 1, Prime Minister Najib Razak said in a statement on Friday. Abdullah, who Mahathir handpicked as his successor, led the ruling Barisan Nasional coalition to its worst electoral outing in 2008 when it lost its parliamentary super-majority for the first time in the country’s history. He stepped down in 2009, paving the way for Najib to take the lead.
14 Business Daily Tuesday, March 29 2016
International In Brief Bankruptcy
Creditors give Abengoa seven months’ grace One of the world’s biggest renewable energy firms, Spain’s Abengoa, said yesterday it had been given a seven-month breathing space by its creditors for restructuring that should stave off the threat of immediate bankruptcy. The company ended 2015 with a debt of 9.4 billion euros (US$10.5 billion). It announced in November that it was filing for preliminary protection from creditors and had been given a March 28 deadline to strike a deal with at least 60 percent of its debt-holders. Under the deal announced yesterday, 75.04 percent of creditors agreed to the grace period. Canada
Balanced budget in about 5 years Canada’s Liberal government believes the federal budget will be balanced in “about” five years due to higher growth spurred by deficit spending, Finance Minister Bill Morneau said. He said the budget unveiled on March 22 will bring economic growth that the government hopes will eventually cancel out the C$17.7 billion (US$13.34 billion) deficit projected for 2019-20, the fiscal year by which the Liberals promised to return to surplus. In the election last year, the Liberals campaigned on running three years of deficits of up to C$10 billion before balancing the books by fiscal 2019-20. Argentina
U.S. court to hear debt injunction appeal on April 13 A U.S. appeals court will hold a hearing on April 13 to analyse the possible lifting of injunctions that have restricted Argentina from paying off some of its debts, according to an order issued by the court late on Friday. On Thursday, the U.S. government asked the 2nd U.S. Circuit Court of Appeals in New York to uphold the lifting of the injunctions, given the country’s efforts to settle litigation over bonds in default since 2002. The brief was filed following a visit to Argentina by U.S. President Barack Obama. Iran
Data Market
EU privacy court cases loom over EU-U.S. pact EU data protection authorities are assessing the limits the framework sets on the scope of U.S. surveillance activities. Julia Fioretti
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hree cases on the legality of bulk data collection pending at the top European Union court could spell trouble for a new transatlantic data pact that will underpin billions of dollars in digital trade. EU and U.S. officials clinched an agreement on the Privacy Shield framework on Feb. 2 after two years of difficult talks aimed at ensuring that Europeans’ data transferred by companies across the Atlantic would be afforded the same level of protection as in Europe. The Privacy Shield, much like its predecessor, Safe Harbour, will allow companies to shuffle Europeans’ data to U.S. offices easily by committing to respecting EU data protection standards and thereby avoiding EU limits on moving data outside the 28-nation bloc. EU data protection authorities are assessing the limits the framework
sets on the scope of U.S. surveillance activities, a particularly thorny issue since former U.S. intelligence contractor Edward Snowden leaked details of American mass surveillance programmes in 2013. Safe Harbour was struck down by a top EU court last year on grounds that it did not protect Europeans’ data enough from being accessed by U.S. spies. “Bulk collection is obviously a key issue,” said Isabelle Falque-Pierrotin, chair of the group of 28 EU data protection authorities, at a hearing in the European Parliament. “The judge has not yet settled this.” She said the European Court of Justice (ECJ) would hear three cases, the first on an agreement between the EU and Canada on sharing airline passenger data for law enforcement
Key Points EU-U.S. data transfer pact agreed in February EU privacy regulators assessing safeguards against U.S. spying Data transfers are part of companies’ everyday business Top EU court to rule on bulk data collection this year
Corruption
Brazil debates economic cost of graft investigation Petrobras suspended payments in projects suspected of being part of the corruption, affecting 12,000 refinery operators and shipyards.
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razil’s former president Luiz Inacio Lula da Silva is raising hackles after warning that the mega Petrobras corruption probe is paralyzing essential sectors of the Brazilian economy, like oil and construction. Many saw Lula’s comments as a cynical attempt to deflect public attention from a two-year-old investigation, now that he has been implicated in the widening corruption scandal. But the issue he touched on, invoking the IMF as an authority, is at the centre of a growing debate among analysts and economists. At a meeting with union organizers in Sao Paulo on Wednesday, the former machinist said the probe was necessary but asked “whether it’s not possible to combat corruption without closing companies... and without causing unemployment.” According to the IMF, he said, a 2.5 percentage point contraction in Brazil’s economy was attributable “to the
panic created in Brazilian society.” “When this is all over, there could be a lot of people in jail, but there could also be millions of unemployed,” he said. The IMF in January projected that the Brazilian economy would shrink by 3.5 percent this year, 2.5 percentage points more than its previous estimate. In 2015, the Brazilian economy sank 3.8 percent. According to GO Associados consultancy, the corruption probe has reduced Brazil’s GDP by about 3.6 percentage points, taking into account direct and indirect effects as well as the incomes of hundreds of thousands of employees. Unemployment, meanwhile, has continued to climb, rising to 8.2 percent in February compared to 5.8 percent a year earlier. Maurice Obstfeld, the IMF’s chief economist, attributed the worsening outlook to the “political configuration” of Brazil, with the “initiation of impeachment proceedings (against
Rouhani says can provide Pakistan gas within months Iranian President Hassan Rouhani said on Saturday that Iran had completed work on its side of a much-delayed pipeline pumping natural gas to Pakistan and would be in a position to provide gas to its energy-starved neighbour in a few months. Rouhani spoke at a news conference while in Pakistan for two days of talks focused on increasing Pakistan’s electricity imports from Iran, boosting trade relations and reviving plans for a pipeline between the two countries.
purposes and two on the retention of communications data by telecoms companies. Four people familiar with regulators’ deliberations said the cases were particularly relevant to the Privacy Shield, given that its legality under EU law hinges on bulk surveillance being allowed when it is necessary and proportionate to the risk. Washington has set out how it meets that standard. Should EU law on bulk data collection become more restrictive, U.S. commitments on its surveillance practices could fall short of EU standards, the people said, putting the Privacy Shield on shaky ground. “We have negotiated the Privacy Shield based on the current state of law in the EU,” a senior U.S. government official said. “If the law changes, we’ll have to go back and relook at how we handle these things.” EU data protection authorities will publish their opinion on the Privacy Shield on April 13, before the ECJ rulings. While it is non-binding, it is influential because they enforce data protection law across the EU and can suspend individual data transfers. The framework needs to be approved by member state representatives before taking force. Reuters
Former Brazilian president Luiz Inacio Lula da Silva.
current President Dilma Rousseff) and the increasing scope of corruption allegations.” These factors, he said, “have undermined confidence, as has the continued deterioration of the fiscal outlook.”
Probe did ‘no damage’
Reaction to Lula’s statements has been swift. Antonio Cesar Bochenek, the president of the Association of Federal Judges of Brazil, said the corruption probe “has done no damage... and has allowed for the recovery of three billion reais (US$800 million), as well as goods and property.” “Impunity increases corruption and corruption causes disastrous damage to the economy,” Bochenek told newspaper O Estado de Sao Paulo. For Jose Robalinho Cavalcanti, president of the National Association of Attorneys of the Republic, “Lula does himself a disfavour with such declarations because... he was in charge of running the country and knows very well that the economic situation is formed much more by economic policy than any investigation.” Brazil has been rocked by allegations that construction companies colluded to overbill state oil giant Petrobras by billions of dollars, bribing corrupt executives and politicians to look the other way. About a hundred people, from Petrobras executives to owners of Brazil’s largest construction companies, have already been convicted. Since then, “the banking system has suspended credit to the implicated companies and other associated companies,” said Gesner Oliveira, president of the Administrative Council of Economic Defense (CADE). His organization has proposed punishing corrupt companies but not excluding them from participating from public tenders. AFP
Business Daily Tuesday, March 29 2016 15
Opinion Business Wires
THE TIMES OF INDIA The Shanghai branch of the State Bank of India will launch a special desk to woo potential Chinese investors as part of its efforts to attract investments from China under the ‘Make in India’ campaign. The special China desk … will be largely based on the lines of the Japan desk set up in New Delhi, SBI officials attending the ‘India-China Business Forum’ being held in the Chinese city of Wuxi said. The special desk will provide advisory services, they said. More than 20 Indian firms are taking part in the India-China Business and Investment Forum.
Entrepreneurship as a diplomatic tool
THE AGE Australia is one of seven countries that Forbes magazine says is the “most likely to suffer a debt crisis” within the next three years. China, whose economy has faltered in the past two years, comes No. 1 on the list of seven, but Australia is No. 2. Sweden, Hong Kong, South Korea, Canada and Norway complete the list of infamy. Using data for both private and public debt compiled by Switzerlandbased Bank of International Settlements, the magazine looks at the rate of growth of credit compared with gross domestic product, paying particular attention to when credit growth begins to fall.
PHILSTAR Economic restrictions, poor infrastructure and bureaucracy remain the major concerns pulling back Philippine trade and investment from reaching their full growth potential, according to a report by the Nordic Business Council Philippines (NBCP). In its 2016 country report of the Philippines, NBCP identified key challenges that continue to affect the country’s competitiveness as a trade partner and investment destination. Topping the list are the economic restrictions in the 1987 Constitution which limit foreign participation in several industries. As a result, the NBCP said the Philippines for decades has been lagging behind with ASEAN-6 peers.
JAKARTA GLOBE Bank Mandiri says it will soon lower its lending rates, following the recent benchmark interest rate cut by the central bank as part of efforts to boost Indonesia’s economy, the state-controlled lender said. Bank Indonesia cuts its benchmark interest rate, the BI rate, by 25 basis points on March 17, after cutting the rate by 50 basis points at policy meetings in January and February, amid pressure from the government to boost economic growth. Rohan Hafas, Bank Mandiri’s corporate secretary, said on Sunday that the lender plans to cut lending rates for sectors it considers “ideal.”
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rmenia and Turkey have long been at odds. Divided over a tragic past, the neighbouring countries do not have diplomatic ties, and their border remains closed. Despite this, in November 2014, a group of Turks travelled to Armenia for Start-up Weekend, an event where aspiring entrepreneurs hone and pitch their ideas to investors and experts. In mixed teams, young Armenians and Turks worked together to build new ventures. “We weren’t focused on being Armenian or Turkish – just on being the best,” a Turkish participant noted. That sentiment is exactly what the people who backed the trip – diplomats from the United States and the European Union – had hoped to achieve. For decades they have struggled to find common ground for Armenians and Turks to begin a dialogue. The common personality types, values, and single-minded focus of entrepreneurs created an opening. Entrepreneurship has become a catalyst for progress in similarly thorny situations worldwide. The focus on job and wealth creation has become a “talking point” upon which nearly all governments can agree – or at least find little with which to disagree. That has made it a handy tool for a new form of diplomacy. Whether in Africa, Asia, Latin America, or the Middle East, entrepreneurship has improved individual capability, capacity, and connectivity. It has stimulated not only economic activity but also social mobility. An emphasis on entrepreneurship stands the traditional foreign-aid paradigm on its head, because it is based on the assumption that the engine of development is local talent, a class of people – equally distributed throughout the world – with the capacity to innovate and commercialize their innovations. In Africa, mobile money platforms such as M-Pesa in Kenya and Paga in Nigeria have solved a key problem for millions in their respective countries and across several continents: the lack of financial services. Through a simple text message, anyone with a cellular handset is able to send and receive money. That has helped move money. More importantly, it has given millions of individuals an opportunity to start their own businesses. Unlocking human creativity and ingenuity is lifting millions out of poverty and helping improve national infrastructure. As fossil fuels contribute to global warming, entrepreneurs in Asia, Latin America, and Europe are pioneering a variety of alternative energy solutions. Start-ups such as Optima Energia in Mexico are harnessing wind, sun, and biofuels to offer sustainable and scalable energy options. “An entrepreneur is a person with the vision to see a new product or process and the ability to make it happen,” writes Steven Koltai in his forthcoming book, Peace Through Entrepreneurship. A former US State Department official who set up the Global Entrepreneurship Program (GEP) in 2009, Koltai describes entrepreneurship as a “job-creating machine.” It is the difference between opening a restaurant and reimagining what the experience of eating could be like. Entrepreneurs create new things that in turn create consumer demand for those things. Last week, GEP, along with the Ewing Marion Kauffman Foundation, the Brazilian NGO ANDI, and the city of Medellín co-hosted the Global Entrepreneurship Congress in Medellín, Colombia.
Anne-Marie Slaughter President and CEO of New America.
Elmira Bayrasli Co-founder of Foreign Policy Interrupted.
The gathering brought together entrepreneurs, investors, researchers, and policymakers from more than 160 countries to share best practices and work to bolster start-up growth and build the ecosystems in which they operate. Medellin itself is busy transforming itself from a cocaine capital into a start-up hub. Silicon Valley seized on this phenomenon some time ago, rolling out the red carpet for world leaders such as Indonesia’s President Joko Widodo, India’s Prime Minister Narendra Modi, and China’s President Xi Jinping. These world leaders are looking for the Silicon Valley secret: the magic ingredients that will create an equally vibrant innovation ecosystem in their countries. Entrepreneurs themselves, however, do not depend on innovation or technology. As Koltai points out, Starbucks built an enormous enterprise around serving a cup of coffee, a centuries old beverage. Today Starbucks employs roughly 182,000 people worldwide – 50,000 more than Facebook, Google, and Apple combined. An Argentine, Jordanian, Malaysian, or Spaniard who can visualize and create thriving global demand for a product or service – just as Spain’s Amancio Ortega did with Zara – is just as much an entrepreneur as the next Bill Gates is. From Lahore to Lagos, Mexico City to Mumbai, governments are looking at their own populations as pools of talent waiting to be tapped. It is time for diplomats to do the same. They should support and encourage job creators and problem solvers, and turn development assistance into investments. They should include entrepreneurship in economic policies and trade agreements. They should press governments to allow entrepreneurs to develop their innovations as a component of human flourishing and as an essential source of sustainable solutions for often-intractable problems such as disease, climate change, migration, and war. Indeed, entrepreneurship, as a channel for young men and women to express themselves, is a compelling weapon in the fight against terrorism and violent extremism. It is an outlet to build and add value rather than destroy it. This is especially important in the Middle East, which is, as the Brookings Institution has noted, experiencing “an unprecedented ‘youth bulge.’” More than 30% of the region’s population – over 100 million people – is aged 15-29, and a significant number of these young people are unemployed. For them, entrepreneurship and the ability to gain control over their own destinies isn’t an option; it is an imperative. Similarly, entrepreneurship is not just a commercial or economic option for diplomats and policymakers. In a world with ever more pressing challenges – from pandemics to poverty and resource depletion to religious extremists – it is becoming a vital tool of foreign policy. Project Syndicate
“From Lahore to Lagos, Mexico City to Mumbai, governments are looking at their own populations as pools of talent waiting to be tapped”
16 Business Daily Tuesday, March 29 2016
Closing M&A
Japan’s NTT to buy Dell Systems for US$3 billion Dell plans to sell the division as part of a wider effort Nippon Telegraph & Telephone Corp.’s unit agreed to buy technology services businesses from Dell for US$3.055 billion. The acquisition would be NTT Data Corp.’s largest, helping increase its sales outside Japan, where a shrinking and aging population has stymied economic growth. Dell (founder Michel Dell pictured), which paid US$3.9 billion for what was formerly known as Perot Services in 2009, is selling some assets before completing a record deal - the US$67 billion takeover of software and storage systems provider EMC Corp.
to raise as much as US$10 billion from the disposal of assets that aren’t core to its business, Re/code reported earlier. NTT Data has spent more than 72 billion yen (US$634 million) buying companies since 2011, about 62 billion yen of it outside Japan, according to data compiled by Bloomberg. Overseas sales had risen to 450 billion yen by the year ended March 31, 2015, compared with more than 208 billion yen in the 12 months to March 2012. Bloomberg News
Results
Bank profits flat-line as bad debts continue to soar Analysts said some banks appear to be delaying recognising some loans as soured. Shu Zhang and Matthew Miller
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hina’s Big Four state-run banks this week are set to report annual earnings growth that likely flat-lined after around a decade of terrific profitability, as a surge in soured loans continued unabated while economic expansion weakened. Profit growth has slowed in recent years while the sector tackles its greatest challenge since the global financial crisis, with bad loans at a 10 year high while funds set aside to cover the losses fall close to regulatory limits.
While banks ramped up lending during a government stimulus drive during the meltdown, much of that lending went to industries where rapid expansion developed into over-supply as economic growth tapered, raising the risk of default and dragging on profits. For 2015, analysts estimate net profit at the Big Four to range from 1 percent growth to 1 percent decline, showed Reuters calculations based on data from Starmine SmartEstimate. Bank of Communications Co Ltd, China’s fifth-biggest lender, reports earnings today, followed on Wednesday by Industrial and Commercial
Bank of China Ltd (ICBC) and Bank of China Ltd (BOC). China Construction Bank Corp and Agricultural Bank of China Ltd report on Thursday. Fitch Ratings, in a research note on March 22, said banks are likely to announce “continued subdued earnings growth amid margin compression and asset deterioration.” Six cuts in the central bank’s benchmark interest rate over 17 months has narrowed lenders’ net interest margins - or the difference between interest earned on loans and funds extended. Analysts expect slow economic growth and reforms to prompt more cuts.
Surging bad debt
Non-performing loans (NPLs) reached a 10-year high of 1.27
trillion yuan (US$195 billion) last year, or 1.67 percent of all loans outstanding as of December, showed data from the China Banking Regulatory Commission. However, analysts said some banks appear to be delaying recognising some loans as soured. The potential real bad loan ratio may be 8 percent to 9 percent, banking analyst Li Nan at Beijing Gao Hua Securities wrote in a recent report. Hinting at the extent of the problem, the regulator has issued a series of notices in recent weeks highlighting the risk of debt extended to industries suffering over-capacity, and advising banks to quickly dispense of bad loans. The central bank is also preparing to let banks accept debt-for-equity swaps to lower leverage in the corporate sector. “This is a way to avoid an explosion of non-performing loans,” said a senior Big Four banker, who was not authorised to speak publicly on the matter and so declined to be identified. “When a loan is converted to equity, it increases efficiency, (by) taking it off the balance sheet.”
Lowering provision
Chinese banks are required to set aside funds equivalent to at least 150 percent of bad loans to cover losses. That loan loss provision for the sector as a whole was 181 percent at the end of last year. But, at September-end, it was as low as 153.7 percent at BOC and 157.6 percent at ICBC. Banks have been lobbying for a lower minimum provision ratio to free up funds. “Everyone knows banks are having a tough time. But there is also an easy way to boost profits immediately - lowering provisioning requirements,” said a Big Four banker. Seven lenders may have received permission to lower loan loss provision ratios, financial magazine Caixin reported last week citing unidentified sources. Reuters
Infrastructure
Forecast
Reform
S. Korean builder confident Chinese think tank sees of Saudi housing deal Q1 growth at 6.7 pct
Foreign service trade deficit in China narrows
A South Korean constructor that jointly won a US$20 billion housing deal with Saudi Arabia said yesterday it was confident the project would go ahead despite the impact of slumping oil prices on the Gulf nation’s coffers. Under the deal, for which a memorandum of understanding was signed in Seoul last week, a three-party consortium will build 100,000 housing units and related infrastructure for a new town near the capital Riyadh over the next 10 years. The consortium includes two South Korean firms, Daewoo Engineering & Construction and Hanwha Engineering & Construction, along with local construction firm Saudi Pan Kingdom. Share prices of Daewoo and Hanwha have declined on the Seoul stock market in recent days, amid questions as to whether the oil-rich kingdom would be able to fund the massive project given the current oil price squeeze. But Daewoo Construction spokeswoman Hong Soo-Jin said the company was “fully confident” the project - the biggest-ever overseas construction deal won by South Korea - would be realised. Hong noted that it was a pet project pushed by King Salman bin Abdulaziz, who took the throne last year. AFP
China continued to see a deficit in foreign service trade in February but the volume continued to narrow, data from the State Administration of Foreign Exchange (SAFE) showed yesterday. Income from trade in services stood at US$19.5 billion last month, while expenditure was US$35.5 billion, resulting in a deficit of US$16 billion. The deficit narrowed from the US$20.7 billion seen a month earlier. Distinct from merchandise trade, trade in services refers to the sale and delivery of intangible products such as transportation, tourism, telecommunications, construction, advertising, computing and accounting. The State Council has pledged measures to improve the development of trade in services, including gradually opening up the finance, education, culture and medical treatment sectors. SAFE began issuing monthly data on service trade in January 2014 to improve the transparency of balance of payments statistics. Since the start of 2015, it has also included monthly data on merchandise trade in its reports. Last month, China saw a surplus of US$25.9 billion in foreign merchandise trade. Xinhua
China’s economic growth will remain subdued in the first quarter of 2016, expanding by around 6.7 percent before gradually stabilizing in the second quarter, a government think tank forecast yesterday. The predicted growth would be a further slowdown from the 6.8-percent expansion seen in the previous quarter, due to slower industrial production and investments, and weak consumption and exports, according to a report released by the National Academy of Economic Strategy. The institution expects consumer prices to grow by around 2.2 percent in the first three months. However, with government pro-growth policies gradually bedding in, it’s likely that the economy will remain “on a stable track,” the report said. On the back of stronger fiscal and monetary support, the academy forecast growth in the second quarter would pick up at round 6.8 percent. To arrest the economic downturn, China has cut interest rates and the reserve requirement ratio of banks several times since 2014. As authorities push supply-side structural reform, the academy expects further easing to lower financing costs for the real economy. Xinhua