Macau Business Daily March 31, 2016

Financial Reserves income down 48 per cent in 2015 Economy Page 6

Thursday, March 31 2016 Year IV Nr. 1013 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Results

Macao Water announces MOP68 million profit for 2015 Page 6

Telecommunications

3Macau increases data entitlement for 4G customers Page 4

www.macaubusinessdaily.com

Monetary system

G20’s financial heads gather in Paris with global currencies system questions Page 8

Sovereign wealth fund plan almost finalised

Catch 22 Weak global demand. Plus industrial overcapacity in China.

A recipe for national and regional drag this year. In its annual report Asian Development Bank said developing Asia will expand 5.7 pct this year and next.

19° 22° 18° 22° 19° 22° 19° 22° 20° 22° Today

20,803.39 +437.09 (2.15%)

+11.40%

China Petroleum & Chemical

+5.72%

Bank of East Asia Ltd/The

Tingyi Cayman Islands

+7.88%

Hengan International Group

+5.04%

Want Want China Holdings

+7.20%

Bank of Communications

+4.11%

+3.76%

Sino Land Co Ltd

China Life Insurance Co Ltd

+3.69%

China Shenhua Energy Co

New World Development

+3.60%

Belle International Holdings

+3.51% -1.97% -6.20%

Sun

Mon

ICBC and Bank of China post almost flat growth for 2015 Q4 Page 16 Source: Bloomberg

China Mengniu Dairy Co Ltd

Sat

Banks’ results

Asia Growth Page 11 HK Hang Seng Index March 30, 2016

Fri

I SSN 2226-8294

Source: AccuWeather

Economy Of prime importance. Identifying and developing the city’s financial characteristics. In harmony with national policies. Secretary for Economy and Finance Lionel Leong Vai Tac (pictured) also revealed that Macau’s sovereign wealth fund – the Investment and Development Fund – is in its final planning stage. Page 2

2 Business Daily Thursday, March 31 2016

Macau Business

Co-operation between Macau and Changzhou anticipated

The SAR Government and its counterpart from Changzhou in Jiangsu Province in eastern China expects opportunities revolving around co-operating in elderly care, medical services and health services.

The topics were discussed during Chief Executive Chui Sai On’s trip to the city yesterday. Mr. Chui met with Changzhou

Secretary Yen Li, who said that Changzhou has advantages in terms of its economy and technological development. Industry has shifted to high-end manufacturing and from the health industry. For tourism, Li added that the city welcomed more than 5.4 million tourists spending RMB73 billion last year. He believes there are opportunities for the two cities to co‑operate in tourism in the future.

Finance Developing characteristic finance in Macau needs compliance with national strategies

Leong: Diversity to drive characteristics of financial services Human resources, setting up relevant policies and legal systems key to lifting city’s competitiveness, says Lionel Leong.

Annie Lao annie.lao@macaubusinessdaily.com

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o develop Macau’s characteristic financial industry, being in compliance with national policies such as the ‘One Belt, One Road’

strategy is crucial, said Secretary for Economy and Finance Lionel Leong Vai Tac. He attended an economic forum held yesterday by Guangdong-Macau Commerce and Business Federation and Guangdong Entrepreneur Capital Management Association to discuss the development of characteristic finance in Macau.

Mr. Leong said along with the development of regional economic policy, the SAR Government and communities are actively exploring how to promote its characteristic finance to further enhance the degree of diversity in Macau’s economy for youth employment and entrepreneurship.

Secretary for Economy and Finance, Leong Vai Tac, attends a forum on characteristics of financial services.

Currently, Macau’s financial industry, academia, society and government departments have been consistently exploring a path for Macau’s characteristic finance, Mr. Leong said.

He added research needs to be conducted on topics including Macau acting as a Portuguese-speaking region for an RMB clearing platform and developing a finance leasing platform in Macau.

logistics chain for business financing in Macau, the director of the National Economy and Financial Development Institute at Guangdong University of Finance, Li Xi Mei, said at the forum yesterday, according to local media TDM Chinese Radio. Macau can construct a finance leasing business platform, the General Manager of Guangzhou South Copyright Trade Co., Ltd., Huang Huai Cheng, said.

Enhancing competitiveness

Also yesterday, at a plenary session of the Legislative Assembly, the Secretary said that an internal report on Macau’s planned sovereign wealth fund - Investment and Development Fund - is ‘almost finished’. Currently, the authorities are still evaluating several possible proposals, making a financial evaluation, and developing a plan of action.

In reply to legislator Zheng Anting’s oral enquiry, the Secretary said that some abnormal turbulence had been observed in the global financial environment last year, but Macau’s fiscal reserves have still managed to maintain their value. He stressed that the SAR Government would be cautious and only take low risks as pursing high return from investment is accompanied by higher risks.

Chief Executive Fernando Chui Sai On spoke of establishing the MSAR Investment and Development Fund during his campaign for his second term of office in August last year.

Prior to that, the Monetary Authority of Macau had also stated that it was looking into the International Monetary Authority’s suggestion of creating a sovereign wealth fund to better manage its substantial fiscal reserves and buffer the city against external shocks.

“To enhance competitiveness, we need to build up all the supporting elements, such as human resources, relevant policies, and legal system among other fundamental factors,” said Mr. Leong.

The Secretary added that the SAR Government has launched various research initiatives, as has the Monetary Authority of Macau (AMCM), considering ways to set up relevant legal systems and job training for young people within the current financial industry to grasp the characteristic finance’s situation with resources from the government and society.

Mr. Leong says Macau has been acting strongly in financial reserves based on local household savings and the rising competitiveness of its financial sectors. Macau’s economic situation refers to the global environment but the current unemployment rate is relatively low indicating Macau is resilient in the economy, he added.

Industry should maintain stability in its employment rate, quality of products and innovation during the economic adjustment period, he said.

Macau can take advantage of co-operating with Guangdong to build up capital flow, information flow and

Investment fund

Infrastructure

GDI: New sand supply site found A new excavation site has been found to supply sand for Macau’s landfill Zone A new town, according to a statement issued by the Infrastructure Development Office (GDI) yesterday. The site is said to be located on the south side of the construction site of the Hong Kong-Zhuhai-Macau Bridge.

The statement follows

media reports that reclamation work has been stopped in Zone A due to a shortage of sand. The Chief Executive commented on Monday that the SAR Government has been in close contact with Guangdong authorities with regard to resolving the sand supply issue.

GDI’s statement also indicates that the SAR Government has gained full

support from its counterpart in the neighbouring province. The Office says that the sand supply was temporarily restored until March 20, when Guangdong authorities helped and the contractor for Zone A has moved around 5 million square metres. The statement also claimed that the proportion of the landfill was increased from 50 per cent to 75 per cent.

GDI says that the new sand supply site brings more technical difficulties. However, the government is taking the initiative to solve the problem. GDI says it has asked the project contractors to work in accordance with the new plan, and to ensure that a certain number of barges are made available for the new source of sand supply although there are technical difficulties.

A shortage of sand supply occurred at the end of February last year which caused the project to fail in meeting its deadline at the end of 2015. GDI says the SAR Government will continue to communicate with the Guangdong Government and hopefully solve the issue in a couple of months and finish reclamation work of Zone A as soon as possible. B.L.

4 Business Daily Thursday, March 31 2016

Macau In Brief Appointment

Tai Kin Ip to lead DSE According to a dispatch published in Macau’s Official Gazette, Tai Kin Ip has been announced as Director of Macao Economic Services (DSE) with effect from April 5 for one year. The statement also reveals that costs resulting from the appointment will be met by the DSE budget. Another dispatch stated that Lau Wai Meng has been appointed Deputy Director of DSE effective April 5 for one year.

Tai Kin Ip, the newly appointed DSE head, was also announced to be a director of Macau Investment and Development Limited.

Lu Hong is assigned to be Chairman. Macau Investment and Development Limited was established by the Macau SAR (94 per cent share), with Commercial and Industrial Development Fund (3 per cent share) and Macau Trade and Investment Promotion Institute (3 per cent share).

Regional economic issues, trade co-operation and encouragement of investment projects are the main remit of the company.

Auction

Public auction of scrapped goods The Financial Services Bureau (DSF) will hold a public auction of public scrapped entities under the laws of the MSAR including scrapped vehicles, goods and waste materials, according to Macau’s Official Gazette released yesterday. The scheduled date to inspect the goods is from April 6 until April 7 in Macau and Taipa. On auction day, no inspection of items is allowed but they will be shown on a computer display. A security deposit of MOP5,000 should be paid in advance until April 13. The public auction day is on April 14 starting from 10:00 am in DSF’s Lecture Hall.

SMG

Weather detection system agreement Fong Soi Kun, director of the Meteorological and Geophysical Bureau has been assigned by Chief Executive Chui Sai On to be the representative to sign the co-operation agreement with Zhuhai Meteorological Bureau, according to the Official Gazette.

With the construction of the bridge linking Macau, Zhuhai and Hong Kong, the ‘2016 Joint Construction Plan between Zhuhai and Macau for the Weather Detection at the Pearl River’ is a plan to build a weather detection system including storm and lightning detection equipment to provide more complete surveillance information for the regions of Macau and Zhuhai.

Telecommunications ‘Unlimited data plan’ for roaming in Hong Kong announced

3Macau increases data entitlement for 4G customers The telecommunications provider vows to continue to expand its indoor and outdoor coverage.

Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

3

Macau customers will see an incremental increase of 57 per cent in their data plans if they hold a MOP328 (US$41) monthly plan – a rise from total data equating to 3.5 up to 5.5 GB. Customers with a MOP198 plan will see the second largest incremental increase, with a 50 per cent rise and customers with the MOP498 plan will see a 15 per cent rise from their original 7.5 GB allotment, 3Macau announced yesterday.

“Right now we are targeting 99 per cent outdoor coverage and we continue to expand our indoor coverage as well” Mr. Ho Wai-ming, CEO of 3Macau

In addition, the service is launching an ‘unlimited data plan’ for roaming data usage in Hong Kong, effective today. The telecommunications provider boasted a 95 per cent coverage of outdoor areas, which will “continue to be optimised”, said Mr. Ho Wai-ming, CEO of 3Macau.

“We continue to advance our 4G network,” said Mr. Ho when asked about new projects for the upcoming year, explaining that 3Macau “continue to expand our coverage; right now we are targeting 99 per cent outdoor coverage and we continue to expand

CEO Ho Wai-ming speaking at the 3Macau Media Luncheon yesterday.

our indoor coverage as well.”

With regard to the first quarter results so far, Mr. Ho said he was quite satisfied, but when queried if he knew the amount of market share in Macau the CEO said “of course I do but it’s just not convenient for me to disclose it at this moment.”

Consolidated revenue for the company, listed on the Hong Kong Stock

Exchange, totalled HK$22 billion (US$2.84 billion) in 2015, a 35 per cent increase from the previous year. Of this, mobile business total revenue was HK$18.4 billion, a 46 per cent increase from 2014, with HK$14.3 billion of this from mobile hardware revenue. Total profit for the group was HK$1.07 billion in 2015. Total revenue from customers in Macau was HK$1.13 billion.

Bureau and attributed, with oversight conducted by an administrative commission led by President Cristina Gomes Pinto Morais. The fund entered into effect on March 18 but is retroactive from January 28 of this year.

Forum Macau, in the interest of promoting co-operation regarding environmental protection between the Mainland, Macau and Portuguese-speaking countries will have a pavilion in the Macao International Environmental Co-Operation Forum & Exhibition (MIECF) starting today at The Venetian Macao.

the proposal for this year’s plan.

Moreover, preparation for the upcoming 5th Ministerial Conference that will take place this year was discussed.

Up to now, four of Forum Macau’s Ministerial Conferences have been held in Macau. They took place in October 2003, September 2006, November 2010, and November 2013.

During these meetings, participants approved Strategic Plans for Economic and Co-operation. Such plans have identified a number of areas for co-operation — including intergovernmental co-operation; namely, trade; investment and entrepreneurship; agriculture, fisheries and livestock; natural resources; the environment; education; human resources; tourism; transport and communication; finance; culture; radio, cinema and television; health; and sport.

Trade

Yearly fund for Forum Macau The Secretary for Economy and Finance Leong Vai Tac yesterday attributed a yearly fund in the amount of MOP583,300 (US$73,040) to the Permanent Secretariat of Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries, also known as Forum Macau, according to a dispatch published in the government’s Official Gazette yesterday.

The amount was proposed by Forum Macau to the Financial Services

Ministerial Conference

In addition, the Permanent Secretariat of the Forum held a general assembly yesterday morning, with 36 participants from eight countries. The participants summarised the work done last year and passed

Business Daily Thursday, March 31 2016 5

Macau Economy Scholar: diversification key to resolving economic downturn

‘The worst economy in the world’

A research paper blames the Macau gaming industry and proposes ideas to ‘gradually replace’ it with ‘a new leading industry’.

João Paulo Meneses in Portugal newsdesk@macaubusinessdaily.com

I

s Macau’s economy ‘the worst economy in the world?’

This is the thesis defended by Pingping Lu, from the School of Economics of Jinan University, in Guangzhou.

Pingping Lu is the sole author of a research paper published this year in the American Journal of Industrial and Business Management titled ‘Study on the moderate diversification of industrial structure in Macau’, in which he states that when gambling revenues fell for nine consecutive months from 2014 “Macau’s economy has been in severe trauma and has become the worst economy in the world”.

The culprit for this situation? The gambling industry.

And the author presents his research because “it is the best time to recognise and examine the existing growth model and the crux of the dilemma of economic diversification, to stipulate the development direction of the economic and implementation path of economic diversification, and to develop a comprehensive breakthrough strategy while Macau is facing the worst economic downturn moment”.

To Pingping Lu, there’s no alternative, saying: “The moderate diversification of Macau’s economic and industrial structure is not only the key method to resolving the crisis of economic downturn, but also the necessary way to sustainable

development of the Macau economy” Again, the author blames the gaming industry for this weakness.

He explains, based on the appliance of a theoretical model, called the Industrial Gini Coefficient, that “the gambling industry lacks the characteristics of ‘embeddeness’ and ‘correlation effect’ and cannot promote economic sustainable development” or “will not be conducive to the sustainable development of the Macau economy”.

Pingping Lu enumerates four arguments in support of the idea of the “necessity of the moderate diversification of industrial structure in Macau”: the firmly fixed gambling monopoly competition position, strong dependence upon foreign capital, the competition situation, and the future of the gambling industry and what he describes as “single source structure, serious Mainland”.

He goes on to explain that: “Macau not only lacks life resources and needs to rely upon the supply of Mainland China; gambling industry development also needs Mainland China as a strong backing. The Macau gambling industry’s largest source is Mainland tourists, followed by Hong Kong and Taiwan”. The greater the degree of Mainland dependence, “the risk of Macau’s economy will continue to increase”.

Pingping Lu warns of the dangers of “very strong dependence upon international capital”. To this author, “so far there’s no economy in the world which relies upon foreign capital to cultivate their internal development factors and get a great success. International capital is not a charity”.

To achieve a moderate diversification strategy for Macau’s industrial structure (a “large and complete” industrial structure is not possible locally), this paper proposes five steps: C

M

Y

CM

MY

CY

CMY

K

1) Developing a moderately-diversified economic structure of ‘pillar

“The moderate diversification of Macau’s economic and industrial structure is not only the key method to resolving the crisis of economic downturn, but also the necessary way to sustainable development of the Macau economy” Pingping Lu, Scholar at the School of Economics of Jinan University

industry combination (we can cultivate emerging industry [cultural and creative industries, exhibition industry] and gradually replace the current gaming industry as a new leading industry); 2) Promoting the longitudinal diversified development of the gaming

industry to inject new elements and vigour into the overall economy (How? Using the gaming industry such as the development of hotels, commerce, meetings, exhibitions, culture, entertainment and other non-gaming tourism industries); 3) Promoting the development of a cultural creative industry to inject new impetus into the growth of Macau’s economy (Pingping Lu pointed out the promotion of the development of Macau’s overall economy through co-operation among enterprises in Guangdong, Hong Kong and Macau); 4) Reasonably developing the convention and exhibition industry to strengthen Macau’s attraction to the world (the author states that we can enhance Macau’s attraction to the world by reasonably developing the convention and exhibition industry); 5) And lastly, strengthening the efforts for supporting micro, small and medium-sized enterprises and bringing the enthusiasm of micro, small and medium-sized enterprises in moderate diversification of industry into full play as Pingping Lu thinks that “the major enterprises for moderate diversification of Macau’s economy are local enterprises”. This will facilitate the development of Macau’s economy “but also is related to the stability of society”.

Business Daily has contacted Pingping Lu in order to clarify some of his statements, but the author declined, saying he has no time to answer, mainly because he is busy on his graduation thesis, and for “personal reasons”.

6 Business Daily Thursday, March 31 2016

Macau Economy

Financial Reserves income down 48 pct in 2015

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he sharp devaluation of the renminbi has caused heavy losses of the Financial Reserves in foreign exchange markets, with a MOP31 billion (US$3.88 billion) accounting loss during the year 2015.

News of the amount was released yesterday in the annual Monetary Authority (AMCM) report, published in the Official Gazette. In 2015, total revenues of the investments made by the Financial Reserves were MOP2.4 billion, down 48 per cent compared to revenues posted in 2014 of MOP4.7 billion.

Earlier this year, the Secretary for Economy and Finance stated that “the return on the total investment of financial reserves and foreign exchange reserves” showed “positive growth”

despite “the fluctuation of exchange” in the Chinese currency “damaging” the return on money invested.

In remarks to reporters in January, Lionel Leong emphasizsed that “the government will continue to maintain investment” in the Chinese currency.

Overall, as already known, the assets of the Financial Reserves reached late last year were MOP345 billion, MOP100 billion more than in 2014.

The increase is explained by the Monetary Authority as the transfer of the positive fiscal balance of 2013 and with the inclusion of profits from investments.

According to the report, the profits of the Reserve Financial investments were MOP2.4 billion in 2015, reflecting an increase of 0.7 per cent.

Utilities Water consumption increases 1.7 pct

Gaming

Macao Water announces MOP68 million profit for 2015

China Star profit down 49 pct in 2015

Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

Of the total MOP68 million in profit made by The Macao Water Supply Company Limited (Macao Water) in 2015, MOP51.6 million resulted from the main water supply services business of the company. This was helped by a slight increase in local water consumption registered, attributed to ‘multiple construction projects […] and the large-scale entertainment facilities’, says the company’s annual financial results report released yesterday.

The total increase in consumption was 1.7 per cent, amounting to a total of 84.9 million cubic metres consumed last year. Commercial and industrial water use accounted for the majority of the overall water consumption at 50.8 per cent, with domestic water use making up 42.8 per cent and government and municipality use only 6.4 per cent.

Throughout the year Macao Water invested MOP89 million in various projects, including the expansion of

the Main Storage Reservoir Water Treatment Plant (MSR III Project) – which began operation mid-2015.

In addition the group announced it would invest approximately MOP800 million in ‘constructing the Seac Pai Van water treatment in Coloane’ – a plan originally proposed in 2014 and divided into two phases with an estimated cost of MOP1 billion to MOP1.5 billion, reported Business Daily. This will be the fourth such water treatment plant, adding 100,000 cubic metres of daily water supply to the current 390,000 cubic metres.

The group additionally plans to ‘completely replace the remaining zinc coated and asbestos water pipes before 2019,’ it says in the report. Asbestos is a common component in older buildings in insulation and tiling. Materials containing asbestos, when broken, release fibres into the air which if inhaled have been linked to diseases including lung cancer. There is no evidence that the pipes can cause cancer by drinking water

from them, but there is potential danger if the pipes are disturbed and release fibres into the air and inhaled.

84.9 Million cubic metres Water consumed last year from Macao Water

Mid-march profit warning proves accurate.

In line with a profit warning issued on March 14 by China Entertainment Ltd, which controls Hotel Lan Kwai Fong, suffered a 49 per cent profit loss for 2015. Total profit for the year amounted to HK$107.9 million (US$13.9 million) vis-a-vis a posted profit in 2014 of HK$210.01 million.

The drop, as published Tuesday in a fling with the Hong Kong Stock Exchange, is party attributed to ‘a significant decrease in revenue from service income from gaming operations as a result of the recession in the gaming industry in Macau.’

Of the total revenue recorded for the year of 2015, HK$885.5 million came from external customers in Macau, as compared to the HK$1.17 billion recorded in 2014. Service income from mass market table gaming operations accounted for the lion’s share of revenue for the year, amounting to HK$684.7 million, a 34 per cent decrease from the previous year’s HK$917.9 million recorded. Service income from VIP rooms table gaming operations in 2015 saw a significant drop from the HK$82.6 million recorded in 2014 to the HK$32.5 million recorded in 2015.

Service income from slot machine operations halved, recording only 45.8 per cent of the amount made in 2014 – HK$7.27 million and HK$15.86 million, respectively.

Overall, states the filing, ‘of the total revenue for the year, HK$877.9 million or 84 per cent was generated from hotel and gaming service operations.”

Received profit streams from the gaming promotion business in 2015 accounted for HK$4.74 million, an HK$8,000 increase from the previous year.

The second largest revenue stream for China Star Entertainment came from the sale of health products, resulting in HK$160.4 million, with the hotel accommodation side of its company coming in a close third at HK$115.06 million, both businesses seeing small but not significant reductions in their revenue compared to the previous year. K.W.

Business Daily Thursday, March 31 2016 7

Gaming Bankruptcy

Atlantic City downfall tests New Jersey’s record rescuing cities The casino resort hub may shut down much of its functions next week for lack of cash.

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tlantic City is gambling with New Jersey’s reputation for rescuing distressed local governments.

The casino resort hub, whose finances have been battered by the expansion of gaming in nearby states, may shut down much of its functions next week for lack of cash –- an unprecedented action for a New Jersey municipality. Governor Chris Christiehas suggested that bondholders may need to make “sacrifices” and refused to extend short-term help, marking a potential shift for a state that hasn’t let a single locality default or go bankrupt since the 1930s.

“It is a blow toward New Jersey local credit quality and the assurance that investors have,” said Matt Fabian, a partner at Concord, Massachusetts-based Municipal Market Analytics. “It should no longer be said that it has a great reputation for local governments.”

Atlantic City has been dependent on the casino industry since the late 1970s, when New Jersey gave it an East Coast monopoly that was lost when other states legalized gambling.

The 39,000-person city has seen the property-tax base plummet by 64 per cent in five years, with a third of its betting parlors shutting down in 2014. Others have demanded tax rebates as real estate values slide, further straining its finances.

Pushing legislation

This year, Atlantic City was counting on legislation that would allow it to tap additional gambling money to close its deficit, only to see the measure rejected by Christie, who said the local officials haven’t done

enough to reduce spending. Left with a US$33.5 million shortfall, Mayor Don Guardiansaid he won’t be able to pay employees from April 8 until at least May 2 as he waits for tax collections to trickle in.

Christie is pushing legislation with the Senate’s Democratic leader that would allow New Jersey to take over the city, after an earlier appointment of an emergency manager didn’t lead to significant changes. Opposed by Guardian and the city council, the bill is stalled in the Assembly, where Speaker Vincent Prieto, a Democrat, rejects a provision that would let the administration change or end labour contracts.

Christie has faulted them for failing to endorse the legislation and said workers won’t bear the city’s financial burdens alone. During a radio interview Thursday, he said bondholders “are going to have to make sacrifices as well.’’

The city has US$247 million in general-obligation debt and owes US$190 million of tax refunds to casinos. Guardian told reporters last week that the debts should be renegotiated.

Dimming faith

Investors have demanded higher yields on some uninsured city securities, reflecting the increased risk that payments won’t be made.

Tax-exempt bonds due in December 2033 last traded March 22 for an average of 65 cents on the dollar to yield 9 per cent, more than three times those on top-rated securities, data compiled by Bloomberg show.

That price is down from as much as US$1.06 in April 2014.

A shutdown could push up yields on bonds sold by Atlantic City and other distressed borrowers in New Jersey, said Ted Molin, senior credit analyst at Wilmington Trust Co., which oversees US$4 billion of municipal debt.

“A concrete event like that definitely would cause spreads to widen and would taint the state and probably a lot of the good credits in the state,’’ he said.

When asked about investors’ concerns, Brian Murray, a spokesman for Christie, said “there is a bipartisan solution on the table and just one person is obstructing that solution from proceeding, Speaker Prieto.’’

The governor doesn’t need the legislature to help Atlantic City, said Tom Hester, a spokesman for Prieto. “The speaker isn’t blocking anything,” he said. “The governor already has the authority to save Atlantic City from financial disaster.”

While some New Jersey cities have furloughed workers for a day, Atlantic City would be the first to implement a prolonged shutdown, according to the state’s Department of Community Affairs. But it’s not

“It is a blow toward New Jersey local credit quality and the assurance that investors have” Matt Fabian, Partner at Municipal Market Analytics

the first that’s threatened to take that step. Camden did in 1999, only to withdraw a bankruptcy petition after the state came through with more aid.

“It’s so hard to tell nowadays what’s negotiating and what’s real,’’ said Dan Solender, who manages $18 billion of state and local debt as head of municipals at Lord Abbett & Co. in Jersey City, New Jersey. “The way it’s sounding, it’s sounding real now.’’

“No real path”

After making payments on bonds and to schools, the city’s cash balance will be just US$1.8 million on April 1 and will be depleted the following week, according to estimates Guardian provided to the state this month. The mayor said many employees have volunteered to keep working and he’s still evaluating which services would cease.

Even after forgoing paychecks temporarily, the city will again run out of money this year, Guardian said. He said he plans to meet debt obligations in May. Ratings companies are skeptical: without state action, Atlantic City is headed toward default or bankruptcy, according to Moody’s Investors Service. Yet a previous bout of stepped-up oversight did little to help: Standard & Poor’s cut the city’s grade twice in in 2015 as the appointment of the emergency manager, who left in January after a year, heightened concerns of potential losses for bondholders. The company in January cut Atlantic City four levels to CCC-, nine steps into junk.

“There’s no real path right now,’’ Solender said. Bloomberg

Revel Atlantic City stands in Atlantic City, New Jersey, U.S.

Las Vegas Sands

Billionaire Adelson names son-in-law as CFO of Las Vegas Sands Las Vegas Sands Corp. named Patrick Dumont, son-in-law of top shareholder Sheldon Adelson, as its chief financial officer.

The appointment fills a vacancy left open since July 2013, when Kenneth Kay stepped down from the role.

“Patrick has been providing strong leadership to the financial function and handling the principal duties of the CFO role very effectively for some time,” Adelson said in a statement Wednesday.

Adelson has been predicting a turnaround this year in Sands’ Macau business, its largest unit, after

a sharp decline in betting by high rollers following a Chinese government crackdown on corruption. The billionaire has also proposed building a US$1 billion stadium in Las Vegas that could house a professional football team, saying it would bring more visitors to the city. Sands shares are up 20 per cent in 2016.

Dumont will get paid US$1.2 million in base salary and is eligible for a bonus of as much of 100 per cent of his annual pay. He was also granted options for 650,000 shares.

Kay became CFO of MGM Holdings Inc. last year. Bloomberg

8 Business Daily Thursday, March 31 2016

Greater China G20 meeting

Zhou, finance chiefs to discuss crisis planning in Paris forum international monetary reform, so they’re natural allies to the Chinese on this issue.”

Key discussion points will include global currency coordination in a multi-polar world, as well as spillovers to emerging markets from Fed policy, a French official speaking on condition of anonymity said at a press briefing in Paris.

The event gives central bank governor an opportunity to build on his argument that the global monetary system is too reliant on national reserve currencies.

Safety net

Andrew Mayeda and Mark Deen

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inance chiefs and central bankers from the Group of 20 will take a break this week from their efforts to rejuvenate the anaemic global recovery, and instead contemplate another challenge: how to retool the world’s financial plumbing to prepare for the next crisis.

People’s Bank of China Governor Zhou Xiaochuan, German Finance Minister Wolfgang Schaeuble and U.K. Chancellor of the Exchequer George Osborne will be among the policy makers meeting today in Paris to discuss the world’s financial architecture. They will be joined

by IMF Managing Director Christine Lagarde, OECD Secretary-General Angel Gurria, and economists including the London Business School’s Helene Rey. The event gives Zhou an opportunity to build on his argument that the global monetary system is too reliant on national reserve currencies such as the dollar, an idea he has been pushing since the 2008 global financial crisis. This week’s meeting is being billed as “Nanjing II,” a sequel to a similar conference in the Chinese city on the same date in 2011, where Lagarde and then-French

People’s Bank of China Governor Zhou Xiaochuan.

President Nicolas Sarkozy held out the possibility of adding the yuan to the International Monetary Fund’s basket of reserve currencies.

The IMF approved that move, a long time goal of Zhou’s, last year.

Monetary system

This year’s gathering, held at the French Finance Ministry, will include sessions on challenges to the international monetary system, global capital flows, the world financial safety net and monetary policy. Zhou, Lagarde and French Finance Minister Michel Sapin will

speak at a press briefing at the event’s conclusion today.

The event was organized by the French at the request of China, which holds the G-20 presidency this year. China has made reforms to the world’s financial architecture a priority of its term, forming a working group chaired by France and South Korea to study the issue.

“China wants a much more closely managed system, where private-sector decisions can be managed by governments,” said Edwin Truman, a former Federal Reserve and U.S. Treasury official. “The French have always favored

IPOs

Debt fears weigh on Hong Kong debuts of mid-sized banks Demand from retail investors - key to the success of IPOs in the island city accounted for just 2.8 percent of the shares on offer Elzio Barreto

Shares of two mid-sized Chinese lenders traded lower on their Hong Kong debuts yesterday in the face of tepid investor demand after they raised a combined US$2.6 billion last week in the world’s two largest IPOs so far in 2016.

The cold reception underscores rising concerns about earnings growth at financial firms in China as non-performing loans soar to the highest in a decade.

China Zheshang Bank Co Ltd traded at HK$3.94 compared with the HK$3.96 IPO price, while Bank of Tianjin Co Ltd fell to HK$7.36 versus its offer price of

Hong Kong Stock Exchange trading floor.

HK$7.39. The benchmark Hang Seng index was up 1.6 percent in late-morning trade.

Zheshang Bank’s initial public offering raised about US$1.7 billion and Bank of Tianjin’s deal another US$950 million, with both offerings pricing near the bottom of expectations.

Demand from retail investors - key to the success of IPOs in the island city - accounted for just 2.8 percent of the shares on offer, Zheshang Bank said in a filing on Tuesday. Bank of Tianjin said mom and pop investors subscribed for 0.6 percent of the retail portion, underscoring weak appetite for the deals.

The institutional tranche for both

IPOs was slightly over-subscribed, the banks said.

Bad debts rising

Underscoring investors’ worries, China’s fifth-largest lender said late on Tuesday maintaining even a timid 1 percent profit growth in 2016 would be a stretch because of a slump in corporate banking as bad debts mount.

The Zheshang Bank and Bank of Tianjin deals come after three other medium-sized lenders raised a combined US$2.3 billion late last year. Though all three deals priced near or at the bottom of expectations, Bank of Jinzhou Co Ltd’s shares are up 30 percent, while Bank of Qingdao Co Ltd has climbed 3.8 percent and Bank of Zhengzhou Co Ltd is up 18 percent since their debuts in December.

China’s non-performing loans (NPLs) reached a 10-year high of 1.27 trillion yuan at the end of 2015, while special mention loans, or debts that could potentially turn sour, rose to 2.89 trillion yuan.

Zheshang Bank is among the 12 socalled nationwide joint stock commercial banks, whose assets accounted for 18 percent of China’s banking industry.

China has 133 so-called city commercial banks similar to Bank of Tianjin, which are growing faster than their larger peers but have assets worth only 10.5 percent of the industry.

By contrast, the country’s top five banks, including Industrial and Commercial Bank of China (ICBC) and Bank of Communications Co Ltd, made up about 41 percent of total industry assets, according to China’s banking regulator. Reuters

IMF staff members recently warned that the global financial safety net has become increasingly fragmented, making it harder to respond to crises in a world roiled by volatile capital flows.

In a report released this month, the Washington-based fund said defences haven’t kept up with the growth of external debt in recent years.

As a result, a system-wide shock could overwhelm the world’s crisis resources, which include nations’ foreign- exchange reserves, central-bank swap lines, regional funds such as the euro area’s European Stability Mechanism, and the IMF itself, the lender said.

One way to strengthen the safety net would be to expand the network of currency swaps between the world’s central banks, said Truman, now a senior fellow at the Peterson Institute for International Economics in Washington. During the financial crisis, the Fed opened swap lines with counterparts such as the European Central Bank, the Bank of Japan and the Bank of England.

But big central banks such as the Fed would probably face political resistance to extending swaps to emerging markets, Truman said. Bloomberg News

Business Daily Thursday, March 31 2016 9

Greater China Money management

Fortunes reverse for hedge funds that won in past selloffs Managers investing in Asia have had no respite in 2016 as markets across the region have tumbled.

Bei Hu

Asia-based hedge funds that navigated market turbulence in the past are struggling with the ferocity of this year’s carnage.

Hao Advisors Management’s US$328 million Greater China Focus Fund, which surged 149 percent last year amid a stock rout in Asia’s biggest economy, lost 6.1 percent in the first two months of the year, according to a document obtained

by Bloomberg News. Trivest Advisors’ US$622 million TAL

China Focus Fund, which hasn’t posted a single losing year, lost 8.4 percent in the first two months of 2016, according to a document.

Violent market swings this year have spelled a reversal of fortunes for hedge funds in Asia, which as a group managed to post gains in 2015 even as peers in the U.S. and Europe stumbled. This year, they’ve been stymied by a global selloff spurred by weak oil prices, concerns about U.S. interest rate increases as well as uncertainties about the Chinese

economy. Asian hedge funds plunged on average 5.6 percent in the first two months in the worst start to the year on record, according to Singapore-based data provider Eurekahedge Pte.

‘More variables’

“The general trend in the hedge fund industry is that there is a smaller percentage of funds that can get it right consistently,” said Alex Mearns, Eurekahedge’s chief executive officer. “The economic environment is not determined by

fundamentals anymore. There are more variables coming into play which do make it harder to navigate.”

About 75 percent of Asia-focused hedge funds lost money this year through February, as did 92 percent of funds focused on Greater China, according to Eurekahedge data.

Managers investing in Asia have had no respite in 2016 as markets across the region have tumbled. The Shanghai Composite Index is among the world’s worst-performing major benchmarks this year after sliding almost 18 percent, while the MSCI China Index is down 7.2 percent.

There are some exceptions to the widespread losses. Triada Capital’s Asia credit long-short hedge fund gained 4.5 percent this year. The Hong Kongbased firm was co-founded by three women who previously worked at London-based hedge fund CQS Management and Deutsche Bank AG.

Trivest, Hao

Trivest, the Hong Kong-based firm that oversees nearly US$902 million of assets, has made an annualized 11 percent for investors since inception in July 2010 and had no previous annual loss, even amid turbulent markets that saw the MSCI China Index tumble 20 percent in 2011 and 10 percent last year.

The firm is led by Wu Huimin, a founding partner of Prime Capital Management, one of the oldest and largest China-focused hedge fund managers; Xue Lan, a former head of China research at Citigroup Inc.; and Sun Lu, a former executive director at Indus

Capital Advisors, according to the document.

Hao Advisors’ fund, which bets on rising and falling stocks, is led by Chief Investment Officer Zhang Hao, who previously worked at Prime Capital. The fund has posted annualized returns of 89 percent for investors since its inception in August 2014, according to the document.

The market turmoil also led to a 5.7 percent loss at Parametrica Global Fund, which uses computer models to bet on rising and falling stocks, in the same two months. It had made money every calendar year since January 2009, translating into a nearly 15 percent return on an annualized basis as of February, according to the document.

Parametrica Asset Management, a Hong Kong-based firm overseeing US$472 million at the end of February, was spun off from Millennium Partners and is led by Ju Xiongwei, a former senior fund manager at the New York-based hedge fund led by Izzy Englander. Parametrica is starting an Asia-focused pool early next month, according to the document.

The documents obtained

by Bloomberg News didn’t provide further details on the funds’ returns for this year.

Trivest’s Wu and Xue didn’t reply to e-mails seeking comment. Eva Feng, Hao’s Hong Kong-based chief operating officer, declined to comment on the numbers as the information is private, as did Gabriel Ng, head of finance, risk and compliance at Parametrica. Bloomberg News

10 Business Daily Thursday, March 31 2016

Asia Industry Data

Japan’s factory output down most since 2011 The decline was exaggerated by oneoff factors caused by the Lunar New Year holidays in China and Asia generally.

Tetsushi Kajimoto

J

apan’s factory output in February fell the most since 2011 when a devastating earthquake ruptured the supply chain, stoking fears of another recession and renewing pressure on policymakers to take evasive action.

The data followed passage of the fiscal 2016 budget on Tuesday, paving the way for Prime Minister Shinzo Abe to announce a new fiscal stimulus or drop the planned 2017 hike in sales tax after first quarter economic growth data due on May 18 is published.

The announcement may also be made around when Abe hosts a summit of the Group of Seven richest nations from May 26 to May 27.

Key Points Feb output -6.2 pct mth/mth vs forecast -6.0 pct Big drop due to one-off factors, output seen flat as trend Govt, BOJ under pressure to offer fresh stimulus measures Output seen up 3.9 pct in March and 5.3 pct in April Analysts expect GDP to resume moderate growth in January to March although some fear a second straight quarter of contraction - the definition of a technical recession - because of weak exports and tepid consumption.

“It’s fully possible Japan may suffer a second straight quarter of contraction,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

With inflation stalling, consumer spending weakening and China’s slowdown threatening to undermine the export-reliant economy, the Bank of Japan is also under pressure to act again after it unexpectedly adopted negative rates less than two months ago.

As speculation lingers that Abe may call a snap election for parliament’s lower house to coincide with a July

poll for the upper chamber, analysts bet Abe will adopt fresh stimulus targeting consumers and again delay raising the sales tax.

But some are sceptical about sustainability of such stimulus. “It may support the economy near-term but they won’t be a fundamental solution.

Structural reform such as immigration policy to secure the labour force is needed to fix Japan’s rock-bottom growth potential,” said BNP Paribas’ Shiraishi.

Trade ministry data showed industrial output fell 6.2 percent monthon-month in February, largely in line

with economists’ median estimate.

It followed a 3.7 percent rise in the prior month, which was the first gain in three months.

It was the biggest drop since March 2011, when the devastating earthquake and tsunami struck Japan’s north-eastern coastal areas.

The decline was exaggerated by one-off factors caused by the Lunar New Year holidays in China and Asia generally - Japan’s key export markets - and Toyota Motor Corp’s halting of factory production for a week following an explosion at a steel plant.

Excluding such factors, analysts see factory output remaining flat as a trend due to weakness in external and domestic demand, dragged by sluggish sales of smartphones and tame capital expenditure at home, in China and in Asia generally.

“Industrial output probably declined in the first quarter. I expect the economy to have barely grown even with the extra Leap Year day pushing up consumption in February,” said Toru Suehiro, senior market economist at Mizuho Securities. Reuters

Taxpayers

Indonesia tells 23 banks to supply credit card charges Slumping exports plus weak consumption and company profits have crimped tax collection for years.

Indonesia’s Finance Ministry, which faces a sizable revenue shortfall this year, yesterday instructed 23 banks to share data on their customers’ credit card transactions with the tax office.

A decree put on the ministry’s website directed the banks to submit the data by May 31.

Among the 23 banks are Indonesia’s biggest lenders such as Bank Mandiri, Bank Rakyat Indonesia and Bank Central Asia as well as branches of foreign banks HSBC, Citibank and Standard Chartered.

Slumping exports plus weak consumption and company profits have crimped tax collection for years. Also, in a country of 250 million, there are only 27 million registered taxpayers when there should be 120 million, according to the tax office.

Finance Minister Bambang Brodjonegoro has said the administration may miss its 2016 revenue target by

250 trillion rupiah (US$18.81 billion), and the shortfall could make the government trim spending.

A plan for the tax amnesty programme could cover some of the shortfall, but political wrangling has delayed parliamentary approval at least until next month.

Earlier this month, Brodjonegoro said that if parliament rejects the amnesty bill, the government will rely on tax audits, especially of individuals, to see “whether their (tax) payments match their wealth”.

Shift to foreign cards?

Achmad Baiquni, chief executive of state-controlled lender Bank Negara Indonesia, said the decree on credit-card transactions “could help crosscheck people’s spending, whether they fit their income reports”.

He said his bank has no problem with providing the transactions, if

required, as they are not among the data banks can refuse to disclose.

Jahja Setiaatmadja, president-director of Bank Central Asia, warned that the data collection may scare

“They may apply for credit cards to foreign banks outside of Indonesia, maybe to Singapore.

All credit cards can be used anywhere anyway” Jahja Setiaatmadja, President-director of Bank Central Asia

customers from using credit cards issued by domestic banks.

“They may apply for credit cards to foreign banks outside of Indonesia, maybe to Singapore. All credit cards can be used anywhere anyway,” he said.

Taxpayers in Southeast Asia’s largest economy pay income tax based on their own self-assessments. The tax office often says lack of secondary data hinders its ability to check reports.

In yesterday’s Finance Ministry decree, government agencies in charge of specific sectors, such as the food and drug regulatory authority and social security provider, are also required to share some data with the tax office.

The website of the Indonesia Credit Card Association says there are more than 14 million card holders in the country and 350,000 merchants accept cards. Reuters

Business Daily Thursday, March 31 2016 11

Asia GDP

In Brief

ADB cuts Asia growth forecast for 2016

Consumer

Singapore’s customer satisfaction drops The overall customer satisfaction in Singapore dropped 0.93 points, or 1.3 percent, in 2015, the first time of decline since 2011, according to the 2015 national score for Customer Satisfaction Index (CSISG) issued yesterday. The index, which is evaluated on a 0 to 100 scale, came in at 70.2 points last year. The decline was partly attributed to the drop in customer satisfaction in the finance & insurance industry and the healthcare sector, both of which fell 2 percent year on year, according to the Institute of Service Excellence at Singapore Management University (ISES) which issued the index.

The ADB forecast growth in China would slow to 6.5 percent this year from 6.9 percent in 2015.

Manolo Serapio Jr

T

he Asian Development Bank slashed its economic growth forecast for developing Asia this year, citing global headwinds and a weaker outlook for China.

Developing Asia will expand 5.7 percent this year and in 2017, the Manila-based lender said in its latest Asian Development Outlook released yesterday.

In its December outlook report, the ADB had forecast 2016 growth for the region at 6.0 percent.

The region, which groups 45 countries in the Asia Pacific, grew 5.9 percent last year.

“Risks are tilted to the downside as tightening U.S. monetary policy may heighten financial volatility, further moderation in China could spill over into its neighbours, and producer price deflation may undermine growth in some economies,” said ADB chief economist Shang-Jin Wei. The ADB forecast growth in China, the world’s second-largest economy, would slow to 6.5 percent this year from 6.9 percent in 2015, its weakest expansion in a quarter of a century.

Growth is projected to slow further to 6.3 percent in 2017, ADB said.

The bank’s 2016 forecast for China, down from a December estimate of 6.7 percent, is at the lower end of

Banks

Japan’s lending rate hits record low

Beijing’s own target of 6.5-7 percent as the government presses ahead with painful reforms, though Premier Li Keqiang has vowed that would not lead to a hard landing.

Weak prices for oil and other commodities also cast a shadow over the prospects of Asia’s commodity-dependent economies, the ADB said.

In the United States, expanding private consumption and investment will be tempered by weak external demand, the ADB said. U.S. Federal Reserve policymakers have cited continuing risks from a shaky global economy in halving the number of potential interest rate hikes this year to two.

Growth in India will slip to 7.4 percent this year from 7.6 percent in 2015, but should recover to 7.8 percent in 2017, the ADB said.

For all of South Asia, ADB forecast growth at 6.9 percent in 2016 and 7.3 percent in 2017, versus growth of 7.0 percent last year.

Economies in Southeast Asia are projected to expand 4.5 percent this year, from 4.4 percent in 2015, and by 4.8 percent in 2017.

For East Asia, ADB sees growth at 5.7 percent in 2016 and 5.6 percent in 2017.

The region grew 6.0 percent last year.

Central Asia is estimated to expand by 2.1 percent this year and 2.8 percent in 2017, following growth of 2.9 percent in 2015, the bank said.

Annual inflation in developing Asia is expected to recover to 2.5 percent this year from 2.2 percent in 2015 as domestic demand strengthens, ADB said. A rebound in global commodity prices next year should lift inflation to 2.7 percent, it said. Reuters

Politics

Myanmar swears in first president without army links Relations between the armed forces and election winner Suu Kyi will define the success of Myanmar’s most significant break from military rule since the army seized power in 1962.

Members of Aung San Suu Kyi’s victorious National League for Democracy (NLD) were in tears yesterday as Myanmar swore in its first president with no military ties in more than half a century.

Htin Kyaw, a close friend and confidant of the Nobel peace prize laureate, was hand-picked by her to run Myanmar’s government because a constitution drafted by the former junta bars the democracy champion from the top office.

In a short address to the chamber, Htin Kyaw reiterated Suu Kyi’s stance on the importance of changing the 2008 charter, which entrenches the military’s powerful position in politics, and called for national reconciliation.

NLD lawmakers were emotional at the scale of the achievement after decades of struggle, including years when many of them were jailed or, like Suu Kyi herself, put under house arrest.

Relations between the armed forces and Suu Kyi will define the success of Myanmar’s most significant break from military rule since the army seized power in 1962.

Tension had simmered in the runup to the November election and as

the NLD prepared to take power.

Suu Kyi wants to demilitarise Myanmar’s politics but effectively needs the support of the military to do so.

The armed forces are guaranteed three ministries and control a quarter of parliamentary seats - enough to give them a veto over constitutional amendments and potentially limit the scope of Suu Kyi’s reforms.

Suu Kyi is poised to steer the government from within, acting as a super-minister overseeing education, foreign affairs, electric power and energy - and the president’s office.

Before Htin Kyaw addressed the parliament, he and two newly elected vice presidents held the junta-drafted constitution in their hands and took the oath simultaneously, repeating after the parliament speaker Mahn Win Khaing Than: “I will always be loyal to the Union of Myanmar and will always put non-disintegration of the union, national unity and perpetuation of sovereignty at the forefront,” read the first line of the oath.

Myanmar army chief Min Aung Hlaing attended the ceremony.

Hti n Kya w, e l ected by th e NLD-dominated parliament this month, runs a charity founded by Suu Kyi and has been a trusted member of her inner circle since the mid-1990s.

He is not a lawmaker.

Hundreds of diplomats and representatives of non-governmental organizations attended the ceremony.

Events at the presidential palace and an official dinner were planned to celebrate the occasion. Reuters

New Myanmar President Htin Kyaw (L) and Aung San Suu Kyi (R) arrive at the Union Parliament to take the oath in Naypyitaw

Japanese lending rates hit a record low in February, the first month in which the central bank’s negative interest rate policy was applied, offering signs of hope for the ailing economy but underscoring the hit to commercial banks’ profit margins. The average lending rate for the balance of loans made by domestic banks stood at 1.098 percent in February, extending a record low for a fourth straight month, data released by the Bank of Japan showed yesterday. Loans extended for longer than a year were charged an average interest of 1.084 percent.

Stores sales

S.Korean sales hit

by New Year Sales at South Korea’s department and discount stores dropped in February from a year ago on distortions caused by the earlier arrival of Lunar New Year this year compared to 2015, data from the trade ministry showed yesterday.

Combined sales at department stores run by Hyundai Department Store, Lotte Shopping and Shinsegae Co slipped 1.9 percent on-year, according to final data from the Ministry of Trade, Industry and Energy. That compared with a 9.0 percent rise in January. Discount store sales over the same period dropped 7.0 percent in February, after jumping 11.0 percent in the previous month.

M&A

Air NZ considering selling stake in carrier Air New Zealand Ltd, the biggest shareholder in Australia’s No. 2 carrier Virgin Australia Holdings Ltd said yesterday it is considering selling its 25.9 percent holding. Air New Zealand said it has hired investment banks First NZ Capital and Credit Suisse to advise on its options, including a possible sale of all or part of its stake. It added that its CEO Christopher Luxon, will resign from Virgin Australia’s board, effective immediately. “Air New Zealand does not want a large minority equity position in Virgin Australia as it focuses on its own growth opportunities,” it said in a statement.

12 Business Daily Thursday, March 31 2016

Asia Monetary policy

S.Korean central bank chief says 2016 growth may miss forecast The governor added that South Korea cannot escape low growth and low inflation with monetary policy alone.

S

outh K o r e a ’ s central bank chief reiterated yesterday that its current monetary policy is supportive of growth but propped the door open to possible easing in future by

adding the economy is recovering at a slower pace than earlier thought.

“Just because our monetary policy seems less accommodative than other countries on the surface does not mean that it is restraining growth,” Bank of Korea (BOK) Lee Ju-yeol said at a news conference held to mark his second year in office.

“We must also keep in mind that we are at risk of capital outflows unlike countries with reserve currencies.”

Lee said the BOK was more wary early this year, referring to a surge in the dollar

after the U.S. Federal Reserve raised interest rates for the first time in a decade last December. The dollar has since lost some steam, easing downward pressure on emerging market assets such as the Korean won.

His comments yesterday mirrored Lee’s recent scepticism in previous months over the effectiveness of domestic rate cuts.

The governor added that South Korea cannot escape low growth and low inflation with monetary policy alone, and said structural reform and increased competitiveness should also play

a role in boosting economic growth.

Still, despite his hesitance about cutting rates, analysts believe the central bank is

‘The Bank of Korea next reviews policy and announces its revised economic forecasts on April 19’

Bank of Korea headquarters.

likely to lower borrowing costs again in April to give the economy a push.

“I don’t think there’s anything new here - the governor is keeping to his previous stance and he’s gone on to cut rates right after comments like these before,” said Peter Park, a fixed-income analyst at NH Investment & Securities.

Another analyst, Shin Dong-soo at Eugene Investment and Securities, noted the BOK is growing more reserved about lowering interest rates but stressed the time is to act is now.

Shin said the bank may not be able to wait much longer to cut as four new board members will need to settle in after April and especially if the Fed raises rates again later this year. Four monetary policy board members will be replaced after next month’s policy meeting as their terms end.

Lee acknowledged yesterday there is underlying weakness in the economy at present from weak exports and slowing consumption and as a result, GDP growth this year would likely fall under 3 percent, the BOK’s current forecast.

He also said inflation would remain low for a while, although the dissipating effects from low global oil prices would likely take prices higher in the second half of the year.

The Bank of Korea next reviews policy and announces its revised economic forecasts on April 19. Reuters

Restructure

India’s Tata Steel puts British business up for sale For the year ending March 2015, the company took a write-down of a little over a billion dollars in its consolidated numbers.

Promit Mukherjee

India’s Tata Steel, Britain’s largest steelmaker, put its entire UK business up for sale to stem heavy losses, a move that would draw a line under its almost decade-long foray into Britain’s declining steel industry.

After a marathon board meeting in Mumbai, the steel giant said the financial performance of its UK arm had deteriorated sharply in recent months, following years of weak conditions which have already forced it to shed hundreds of jobs.

Blaming high manufacturing costs, domestic market weakness and increased imports into Europe from countries like China, Tata saw little change in the competitive position of its UK operations, which employ about 15,000 people and include Port Talbot, Britain’s largest steel plant.

As a result, Tata said in a statement its European arm would “explore all options for portfolio restructuring,

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including the potential divestment of Tata Steel UK, in whole or in parts”.

“Given the severity of the funding requirement in the foreseeable future, the Tata Steel Europe Board will be advised to evaluate and implement the most feasible option in a timebound manner,” it added.

Tata Steel bought Anglo-Dutch steelmaker Corus in 2007 and has since struggled to turn the giant around.

The company said it remained in talks with the UK government, which has expressed concern about job losses in the industry. Port Talbot, though far from its 1960s peak, still employs about 4,000 people, and Tata is one of the most significant private companies in Wales.

Unions welcomed the decision not to shutter the plants but called on Tata to be a “responsible seller” and on the government to play its role.

“We don’t want just want more warm words, we want a detailed plan

of action to find buyers and build confidence in potential investors in UK steel,” Roy Rickhuss, general secretary of steelworkers’ trade union Community, said.

The opposition Labour party called on the government to save an industry it described as “the cornerstone of our manufacturing sector”. Labour leader Jeremy Corbyn again suggested a part nationalisation of the steel industry if necessary.

The government has said it is ready to work with Tata.

Tata’s troubles Most steel companies, including top producer ArcelorMittal , have been hit by plunging prices due to overcapacity in China, the world’s biggest market for the alloy, making Tata’s task of finding a buyer all the more difficult.

“Tata Steel might not be able to find an immediate buyer for the UK business, but after six months that could

be possible as Europe is expected to take some action on the cheap imports that is flooding the region,” said Ashish Kejriwal, an analyst with brokerage Elara Capital in Mumbai.

Tata Steel is the second-largest steel producer in Europe with a diversified presence across the continent. It has a crude steel production capacity of over 18 million tonnes per annum in Europe, but only 14 mtpa is operational.

Two of its three main units, Port Talbot and Scunthorpe, are in Britain, with the remaining operations in the Netherlands.

Its share price has halved in the past five years, a period in which it recorded asset impairment of more than US$2.88 billion related to the UK business.

For the year ending March 2015, the company took a write-down of a little over a billion dollars in its consolidated numbers. However, the tide seems to be turning for the India operations, and many analysts expect it to post an improved operating profit from the next fiscal year.

Tata also said in its statement that it was still in talks with investment firm Greybull Capital over the sale of its British long products unit, which makes steel for use in construction.

Talks with Greybull were announced last year. Reuters

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Business Daily Thursday, March 31 2016 13

Asia Tourism

Thailand eyes luxury visitors, operators say keep them safe Crime and accidents, and the perception Thailand is becoming a mass market, could pose a bigger threat to the government plan.

Amy Sawitta Lefevre

T

hailand needs to do more to keep its tourists safe if it wants to achieve its objective of attracting more high-end travellers, operators say, or it risks losing out to its up-and-coming neighbours.

With its palm-fringed beaches, Buddhist culture and racy nightlife, Thailand has been the poster child for Asian tourism for decades, attracting a range of visitors from backpackers and adventure-seekers, to families and culture vultures.

In recent years, increasing numbers of Chinese tourists have joined the mix. But dark clouds could be forming even as a record 32 million tourists are expected this year.

The industry, which accounts for 10 percent of gross domestic product, has been resilient to political upheaval over the last decade that has included violent street protests and military coups.

Even a deadly 2015 bomb attack on a Bangkok shrine popular with tourists failed to dent arrivals to any discernable degree.

But crime and accidents, and the perception Thailand is becoming a mass market, could pose a bigger threat to the government plan.

The murder of two British tourists in 2014 hit world headlines. This month, two French women filed complaints of rape.

Woeful road safety, accidents at

sea, scams and even angry elephants have added to what seems like a never-ending litany of bad news.

“Visitor volume is high but with that the probability of crime also increases,” Surapong Techaruwichit, chairman of the Hotel Association of Thailand, told Reuters.

“We need to reassure tourists that Thailand is safe.”

The government’s Tourism Authority now wants to focus on “quality tourism”, and has launched a campaign to attract visitors who spend more, and hopefully stay out of trouble.

“Many people say tourists come here because it is a cheap destination. This needs to change,” Tourism and Sports Minister Kobkarn Wattanavrangkul told a tourist safety workshop last week.

‘Nothing goes wrong’

But luring more discerning travellers might not be so easy.

“If we want to attract the high end we need to reassure them. Meeting our target luxury-traveller target will be harder after the recent negative publicity,” said Surapong.

The figures can be frightening.

Fourteen U.S. citizens died of unnatural causes in Thailand from January to June 2015, higher than the 11 who died in France, a top destination for U.S. tourists, according to U.S. State Department figures.

Thailand had the second-highest number of deaths of British nationals in 2014 after Spain, which is the top holiday spot for Britons, British Foreign Office figures show.

Major General Surachet Hakphan, commander of the Tourist Police, says things will change. The men and women in his division will focus on safety, he said.

“Elephants trampling on tourists and tourists having their legs

cut off by speed boats, this won’t happen any more,” Surachet told Reuters, referring to two recent fatal accidents.

Jason Friedman, managing director at J.M. Friedman & Co. - Bespoke

“Visitor volume is high but with that the probability of crime also increases” Surapong Techaruwichit, Chairman of the Hotel Association of Thailand

Hospitality Services, said despite the bad news, Thailand had managed to preserve its image as a holiday paradise.

“People want to believe Thailand is a great place and nothing goes wrong here - this is a perception that works in our favour,” Friedman told Reuters.

For Friedman, who focuses on the high-end, the bigger risk is the volume of arrivals creates the impression that Thailand has become a mass market. Or as Friedman puts it: industrial tourism.

Tourists wanting off-the-beatentrack travel need not look far, he said.

“The industrial-strength tourism will push people away. They have started looking for remote beaches in Cambodia or Myanmar,” he said. Reuters

Financial impact

Takata puts worst-case recall costs at US$24 bln Expenses stemming from Takata air-bag recalls have totalled about 607.8 billion yen.

Yuki Hagiwara and Takako Taniguchi

Takata Corp., the supplier behind the auto industry’s biggest recall ever, estimated that a comprehensive callback of its airbag inflators would total about 2.7 trillion yen (US$24 billion), according to a person familiar with the matter. The shares plunged to a record low.

The worst-case recall scenario would involve 287.5 million airbag inflators, said the person, who asked not to be identified because the company’s deliberations are private. Takata and the automakers still have to determine how the costs are shared, the person said.

A representative for Tokyo-based Takata declined to comment.

Takata plunged by about 20 percent to 414 yen, hitting the lower daily limit in Tokyo trading. Honda Motor Co., a Takata shareholder and its biggest customer, fell 3.6 percent, while Nissan Motor Co. declined 3.7 percent and Toyota Motor Corp. dropped 2.5 percent.

The projection by Takata

exceeds a February estimate by a Jefferies Group LLC analyst by about US$7 billion and reinforces concerns about the company’s viability. The worst-case cost figure is almost four times more than the revenue Takata has forecast for the fiscal year ending this month. It also amounts to almost six-times more than the total assets on its balance sheet as of the end of 2015.

Splitting costs

“Even if this is the worstcase simulation, it shows the company has seen some possibility,” Ken Miyao, an analyst with Tokyo-based market researcher Carnorama, said by phone. “The question is how much the carmakers want to split the costs. But even if Takata only bears half of the cost, this would still be beyond their scope.”

Daicel Corp., the Japanese airbag inflator maker that’s been in talks with Takata to boost supply of the components, rose 1.8 percent.

Ningbo Joyson Electronic Corp. gained as much as 6.8 percent in Shanghai trading, while Autoliv Inc. traded 1.3

percent higher in Stockholm just after the market opened.

The National Highway Traffic Safety Administration has said Takata air-bag inflators have caused nine

fatalities in the U.S. by rupturing and spraying plastic and metal shards at motorists. The regulator is investigating all Takata inflators that use a chemical propellant

that’s been banned from future models and is giving the company until as long as the end of 2019 to determine the root cause of the flaw or prove the inflators are safe.

Root cause

Moisture seeping into Takata’s inflators was determined to be the reason Takata air bags have ruptured by Orbital ATK, a researcher hired by a coalition of automakers that announced its findings last month. Challenges with determining root cause of the rupture issue have held back automakers and the supplier from deciding how the companies will divvy costs.

Expenses stemming from Takata air-bag recalls have totalled about 607.8 billion yen, Takaki Nakanishi, an analyst with Jefferies, wrote in his Feb. 24 report. He estimated future expenses assuming an average cost of about 9,000 yen per unit.

“It is not difficult to imagine how hard it will be for Takata to rebuild its financial standing if the expenses are apportioned,” Nakanishi wrote. “The Japanese automotive industry cannot avoid seriously adopting an exit strategy from the Takata issue.” Bloomberg News

14 Business Daily Thursday, March 31 2016

International In Brief Monetary policy

ECB will not take rates to “absurdly” negative levels The European Central Bank will not move interest rates into “absurdly” negative territory and negative rates are not the bank’s main policy instrument even if further cuts can not be ruled out, Executive Board Member Benoit Coeure said. Although negative rates could reduce banks’ profitability, lenders actually increased their interest margins last year when the deposit rate was already negative and banks should feel reassured by the ECB’s latest moves, Coeure was quoted yesterday as saying. The ECB unveiled an unexpectedly large stimulus package this month.

Layoffs

Boeing says it will cut about 4,000 jobs by mid-2016 Boeing Co will eliminate about 4,000 jobs in its commercial airplanes division by the middle of this year as it looks to control costs, a company spokesman told Reuters. The plane maker will reduce 1,600 positions through voluntary layoffs, while the rest are expected to be done by leaving open positions unfilled, spokesman Doug Alder said. “While there is no employment reduction target, the more we can control costs as a whole the less impact there will be to employment,” Alder said.

The job cuts will include hundreds of executives and managers, but will not done through involuntary layoffs, Alder said.

M&A

Brazilian tycoon ups stake in Carrefour Peninsula Participacoes Ltda, the investment vehicle of Brazilian billionaire Abilio Diniz’s family, has raised its stake in Carrefour SA, just weeks after the French retailer nominated the tycoon for a board seat. In a statement yesterday, Sao Paulobased Peninsula said it had bought an additional 2.98 percent stake in Carrefour through a web of unidentified controlled entities. It brings the Diniz family stake in Carrefour to 8.05 percent, it said. “This investment is in line with the longterm strategy followed by Peninsula, and reflects the belief in Carrefour’s growth potential,” it said.

Debt restructure

Russian minister supports relieving VEB Russian Economy Minister Alexei Ulyukayev said yesterday he supported a decision to restructure state development bank VEB’s debts to the central bank as part of rescue measures for the troubled lender. Prime Minister Dmitry Medvedev told VEB’s supervisory board on Tuesday that the government would provide 150 billion roubles (US$2.2 billion) to recapitalise VEB. But other support measures are still being discussed. “Of course we support the decision to reclassify as another instrument the liabilities of VEB before the Bank of Russia,” Ulyukayev told journalists.

Consumer index

Euro-area economic confidence falls to lowest in 13 months The latest data contrasts with a string of encouraging indicators.

Piotr Skolimowski

E

uro-area economic confidence fell to the lowest level in more than a year just as the European Central Bank deployed fresh stimulus to spur growth and quash the threat of deflation.

An index of executive and consumer confidence slumped for a third month, declining to 103.0 in March from a revised 103.9 the previous month, the European Commission in Brussels said yesterday. That’s the weakest since February 2015 and compares with a median estimate for a reading of 103.8 in a Bloomberg survey of economists.

“The continued drop in the economic sentiment clouds the view of an improving eurozone economy in March” Bert Colijn, Economist at ING in Amsterdam

On Friday, the ECB will ramp up monthly bond purchases to 80 billion euros (US$89 billion) from 60 billion euros, as part of new measures that also include lower interest rates and a potential borrowing subsidy to euro-area banks. Announcing the package on March 10, President Mario Draghi said growth momentum had been weaker than anticipated at start of the year but that he expects the

economic recovery to “proceed at a moderate pace.”

“The continued drop in the economic sentiment clouds the view of an improving eurozone economy in March,” said Bert Colijn, an economist at ING in Amsterdam. “This means that even though economic sentiment in the eurozone is still well above its long-term average, the overall declines in survey indicators hint at somewhat weaker GDP growth this quarter than in the fourth quarter.”

Sentiment among consumers fell to minus 9.7 from minus 8.8 the previous month, the report showed, while confidence in the services sector

declined to 9.6 from 10.8 in February. Measures for construction and industrial confidence also dropped.

The latest data contrasts with a string of encouraging indicators from the 19-member currency area. The closely-watched German Ifo Business Climate survey improved for the first time in four months in March and Markit Economics’ Purchasing Managers Index of manufacturing and services rose to a three- month high.

The survey was conducted before March 22 when suicide blasts on the Brussels airport and the city’s subway killed more than 30 people and left scores of others injured. Bloomberg News

Bankruptcy

Puerto Rico draft rescue bill guided by U.S. The Obama Administration advocates allowing Puerto Rico to restructure its debt in a court-sanctioned process.

Patrick Rucker and Nick Brown

A U.S. congressional draft bill to steer Puerto Rico through its economic crisis was released on Tuesday with elements of U.S. bankruptcy law opposed by creditors who want to keep the island’s debt talks out of court.

The draft, circulated by the U.S. House of Representatives Committee on Natural Resources, includes sections of the U.S. Bankruptcy Code that allow bankrupt entities under certain circumstances to force creditors to take reduced pay-outs.

An official draft of the bill is expected to be released on April 11 after a public comment period.

Puerto Rico has US$70 billion in debt, with major bond payments due in coming months. It also has an unfunded state pension liability of nearly US$44 billion.

The bill “provides Puerto Rico with tools to impose discipline over its finances, meet its obligations and restore confidence in its institutions,” Utah Republican Rob Bishop, the committee’s chairman, said in a statement.

“We appreciate the constructive efforts by Chairman Bishop and the House Natural Resources Committee to begin drafting legislation to address Puerto Rico’s fiscal and economic crisis. But the current draft needs improvements,” said a statement from a Treasury spokesperson. “Final

legislation must provide Puerto Rico with tools to achieve a lasting, workable solution to this crisis and create a path to recovery for the people of Puerto Rico.”

The Republican-led panel’s bill would create a federal board to oversee the island’s finances, monitor its accounting and help curb spending.

It would also require Puerto Rico to make efforts to restructure debt consensually with creditors.

If those talks failed, the island or its public entities could file for a court-supervised debt restructuring process based on key statutes within U.S. bankruptcy law. That would allow Puerto Rico to force such deals on holdout creditors.

The bill’s elements were unexpected because creditors and House Republicans had largely opposed bankruptcy for Puerto Rico.

The Natural Resources Committee had said that “retroactively adding territories” like Puerto Rico to the federal bankruptcy code “is ill-conceived and would undermine the rule of law.”

A congressional aide stressed that the draft legislation was not a bankruptcy law, and does not directly add Puerto Rico to U.S. bankruptcy code, though it follows similar language.

House Minority Leader Nancy Pelosi criticized the “sweeping powers of the oversight board proposed” in the bill.

The bill in its final form may include language that protects an existing consensual restructuring deal between creditors and the power utility, PREPA, the congressional aide said. PREPA earlier this year reached the deal with creditors holding roughly 70 percent of its US$8.3 billion in debt.

“The bill in its current form is fiscally irresponsible,” financial adviser Stephen Spencer of Houlihan Lokey said in an emailed statement. The company’s clients include major Puerto Rico creditors such as OppenheimerFunds and Franklin Advisers.

“As we showed with the PREPA deal, fair solutions can be reached between Puerto Rico and its creditors that benefit all stakeholders.

However, the Discussion Draft Bill is worse for creditors than Chapter 9,” Spencer said.

How the oversight board treats the island’s General Obligation bonds, which is typically regarded as the most senior debt, versus pension payments is also a source of concern for creditors.

The oversight board will look at each bond issued and make a determination on how it relates to other creditors under the existing law, the congressional aide said. If the GO bonds are constitutionally protected and within their limits then the board would take that into consideration, the aide said. Reuters

Business Daily Thursday, March 31 2016 15

Opinion Business Wires

The Times of India Markets regulator Sebi on Tuesday banned from the stock market 246 entities. These firms had together circulated funds through multiple companies and bank accounts and then used the money in the market to artificially inflate the price of a stock and made illegal gains amounting to about Rs 1,600 crore, which is suspected to have been done to avoid capital gains tax. A Sebi probe found that between January 2013 and December 2015, there were several irregularities in the trading of Kailash Auto shares.

Benchmarking ourselves, and the economy, into the ground

Philstar The Philippines is embarking on an ambitious plan to become a regional manufacturing, services and agribusiness hub starting 2022 under the Comprehensive National Industrial Strategy (CNIS). The CNIS is the country’s blueprint for overall industrial development strategy covering the sectors of agriculture, manufacturing, and services. The CNIS outlines a threephase approach aimed at making the Philippine a manufacturing, services and agribusiness powerhouse in the region by year 2022 to 2025. Under the CNIS, the country is targeted to become hubs in regional and global production networks for automotive, electronics, machinery, garments, and food.

The Straits Times Maybank Singapore has come out tops in the annual Customer Satisfaction Index of Singapore, the bank said in a statement yesterday. This is the first time Maybank has ranked first in the index, ahead of the local banks and a huge leap from its seventh place ranking last year.

The index is produced by the Institute of Service Excellence (ISES) at Singapore Management University. Maybank said its improved performance was the result of a two-year “customer experience transformation journey.” In the last two years, the bank has also rolled out a monitoring system to track customer experience indicators.

The Korea Herald Lotte Group founder Shin Kyuk-ho on Tuesday was replaced from the board room of the retail giant’s hotel unit, putting an end to his 43-year-grip amid an ugly succession battle between his two sons. Shareholders in Hotel Lotte, the de facto holding company of Lotte Group Korea, approved a motion that requested to reappoint registered board members at a general assembly held in Seoul. The list, however, did not include the Lotte founder’s name, which automatically and officially removes him from the boardroom he has led since 1973.

T

he problem in our financial markets, and by extension in our economy, lies in our fund managers.

Specifically, the benchmarks used to judge and reward fund managers fail at their most elemental task: protecting investors and deploying capital where it will be best used.

That’s the radical assertion of Paul Woolley, a veteran IMF official and fund manager, and Dimitri Vayanos, of the London School of Economics, in a newly published paper (Download it scanning QR code).

The arrangements under which most of the world’s money is managed pair a false assumption - that markets are efficient - with a counter-productive set of incentives that all but compel fund managers to cook up financial bubbles.

By judging fund managers on benchmarks based on the market capitalization of companies, we end up rewarding those who manage their own career risk.

Worst of all, we badly serve money owners, who lose out in the end, and the economy, which suffers under-investment in the most productive companies and over-investment in so-called “hot stocks.” The result: boom and bust.

Those looking for an explanation of secular stagnation in the economy might want to take note.

“Above all the present system has been bolstered by the academic theory of efficient markets. The victims are the economy and the ultimate asset owners who are dispersed, unaware of what is being perpetrated against them and powerless,” Woolley and Vayanos write.

“Capitalism is in danger of dying by its own sword unless the present absurdities are recognized and addressed.”

Strong words, but a look at the results produced during the era of greatest growth of benchmarked fund management tends to bear them out.

At its base, and like its close cousin, the idea of “shareholder value maximization,” the use of market-capitalization benchmarks is the negative spillover of the efficient market hypothesis. That is the idea that stocks and bonds are perfectly priced to reflect the best guess of their actual ability to create income and value.

But as markets are not efficient, and are made less so by assuming they are, we end by destroying value.

A large proportion of fund managers are tasked with beating a market-cap index without taking too many huge bets, or beating an index of other fund managers’ performance. Even those managers without those benchmarks are subject to them, as investors follow the market and the competition and judge accordingly.

James Saft Reuters columnist.

to judge and minimizing the conflicts of interest inherent in giving money to someone whose skills and probity you cannot know in advance.

In practice, benchmarking as now employed ends in distortion.

Consider the situation of a fund manager who underweights a hot stock, because she believes it has gone past its likely fundamental value. The more the stock goes up, the more she lags her index or peers and the more likely she is to lose the account. Being only human, she, therefore, will cut her underweight and buy in. That drives over-valued stocks even higher, a phenomenon exploited by momentum investors, who game those tethered to benchmarks by buying what just went up and selling what just went down.

All of this, the authors argue, explains the otherwise hard-to-fathom anomaly of riskier stocks underperforming safer ones, something we’ve seen in U.S. stocks over the past 70 years and in many other asset classes. It also helps to explain why stocks tend to keep traveling in the same direction, called momentum. Managers crowd into highly volatile, highly risky stocks, which become overpriced and ultimately underperform. Dotcom bubbles ensue, with the attendant costs to savers and the economy.

Meanwhile, the asset management industry enjoyed a profit margin of 39 percent in 2014, according to consultants BCG, more than double that of the much-reviled pharmaceutical sector.

So now that we find ourselves here, what do we do?

Woolley and Vayanos argue that the key lies in value investment strategies, which try to exploit differences in fundamental value and market pricing. While value tends to do better, it requires patience, achieving better risk-adjusted returns only over the medium or longer term.

This is especially true in current markets, which are distorted every few years by the latest hotstock phenomenon. This, unfortunately, requires a leap of faith by savers, who are by design giving their money to people who might outperform the broad markets perhaps over only 10 years.

This requires nerves of steel and the willingness not to watch financial television.

The upside, however, is more money for retirement for the saver and a bigger, more smoothly growing economy for everyone.

“As markets are not efficient, and are made less so by assuming they are, we end by destroying value”

Chasing your tail

In theory, this is supposed to keep fund managers honest, giving investors clear standards by which

Reuters

16 Business Daily Thursday, March 31 2016

Closing Insurance

Disasters cost US$92 billion in 2015: Swiss Re US$3.5 billion. This was followed by a storm in the Natural and man-made disasters cost US$92 billion in 2015, compared with US$113 billion in 2014, the Swiss reinsurer Swiss Re said in report yesterday.

Global insured losses were US$37 billion, far below the US$62 billion annual average of the last 10 years, it said. The biggest single insured-loss of the year was the twin explosions at the port of Tianjin (disaster location pictured), north-eastern China, in August which was estimated to cost between US$2.5 and

United States in February, which left insurers with a bill of US$2.1 billion. Out of 353 disaster events, 198 were natural catastrophes, the highest number in any one year, Swiss Re said.

The report is the final version of a preliminary estimate last December which said all disasters in 2015 cost US$85 billion.

Around US$80 billion of the US$92 billion losses came from natural disasters. AFP

Banks

ICBC, BoC report near-flat profit growth Analysts are predicting a tough year for both banks.

T

wo of China’s Big Four state-owned banks yesterday reported near-flat net profit growth in the fourth quarter of 2015, as margins continued to shrink amid a growing pile of bad debt.

The world’s largest lender, Industrial and Commercial Bank of China Ltd (ICBC) reported profit that was unchanged from the same period a year prior, while Bank of China Ltd (BoC), the country’s fourth-largest lender, said profit rose 2 percent.

“In 2015, financial risks emerged in multiple fields and threatened to spread under the pressure of downward trends in the economy, declining corporate profits, and tumbling capital markets,” ICBC said in its annual results statement filed at the Hong Kong and Shanghai stock exchanges.

Net interest margins (NIM) - the difference between a bank’s borrowing rate and interest earned on loans - also fell at the two lenders, a sign that falling interest rates are squeezing returns from loans.

ICBC’s NIM fell to 2.47 percent as at the end of December from 2.53 percent at the end of June, while that at BoC fell to 2.12 percent from 2.14 percent at the end of September.

For ICBC, profit rose 0.04 percent to 55.4 billion yuan (US$8.55 billion) in the three months through December, in line with the 53.8 billion yuan average estimate extrapolated from 14 analysts polled by Thomson Reuters on their expected yearly profit.

For the whole of 2015, profit rose 0.5 percent to 277.1 billion yuan.

At BoC, fourth-quarter profit rose 2 percent to 39 billion yuan, above the 36 billion yuan estimate extrapolated from analysts polled by Thomson Reuters on their expected annual profit.

For 2015, net profit rose 0.7 percent to 170.85 billion yuan.

The non-performing loan (NPL) ratio at ICBC rose to 1.5 percent as at end-December, from 1.44 percent at end-September, while BoC’s was flat.

“In 2016, the domestic and global economy are going through a period

Key Points ICBC Q4 profit flat, BoC rises 2pct NIM shrinks at both lenders Non-performing loan ratio rises at ICBC, flat at BoC China banks face tough year -analysts

Oil prices

of deep adjustment and face a lot of uncertainties. China’s economy is challenged by big downward pressure, putting pressure on asset quality,” BoC President Chen Siqing said after the bank released earnings.

Future friction

Analysts are predicting a tough year for both banks.

Skinnier net interest margins and higher non-performing loans could mean ICBC’s profit falling 3.3 percent this year, according to March research note from China Merchants Securities (HK).

At BoC, analysts are divided on whether its global footprint is a help or a hindrance.

“BoC should prove to be more

M&A

resilient than peers amid the current operating environment thanks to its larger overseas exposure,” China Merchants Securities said.

But given that a large proportion of BoC’s overseas loans originate from currency arbitrage, the business could shrink this year as the market expects further yuan depreciation, said Daiwa Capital Markets in a March note.

BoC’s return on equity fell to 14.53 percent from 17.28 percent in 2014 and 18.04 percent in 2013.

“For the NPLs because of the slowdown of economy or price of reform, we do expect even higher NPL pressure compared to last (year), so this will remain the biggest challenge,” said Edmond Law, banks analyst at UOB Kay Hian. Reuters

Financial push

Indonesia cuts fuel subsidies Sharp-Hon Hai takeover finally sealed The Indonesian government yesterday reduced

China pledges to step up credit support for consumers

subsidized-fuel prices as the global prices of the commodity decrease.

The reduction was conducted on two types of fuels, a low-grade RON88 fuel, locally known as premium fuel and diesel fuel, Indonesian Energy and Mineral Resources Minister Sudirman Said said at the State Palace.

Premium fuel price was cut from 6,950 rupiah (some US$0.520) per litter to 6,450 (about US$0.484) per litter, and diesel fuel price was reduced from 5,650 rupiah (equal to US$0.423) per litter to 5,150 rupiah (some US$0.386) per litre, he said.

Minister Said disclosed that the decision was made after considering the on-going uptrend of global oil prices.

“Therefore, we maintain those new prices to be able to sustain for the next three or six months,” he said.

The minister added that the new price is to be effective on April 1.

The prices cut will be followed by the reduction of transport cost by about 3 percent, Transport Minister Ignasius Jonan said.

“I have sent instruction letters to the authorities to reduce transport cost,” he said. Xinhua

China’s central bank has urged lenders to step up financing support for consumers in some areas and develop new credit products, in its latest effort to support a slowing economy.

The government has been trying to spur consumption to support growth and reduce the economy’s reliance on investment and exports, but there are signs that retailers are shedding staff and slowing expansion plans as shoppers tighten their wallets.

The move to boost credit support for consumers in areas ranging from green cars to tourism comes as authorities in some big cities have sought to cool the housing market by raising mortgage down payment requirement for some buyers.

In guidelines yesterday jointly issued by the People’s Bank of China (PBOC) and the banking regulator, the authorities said they would “vigorously promote the development of consumer finance, to better meet the need for financing in new consumption areas”.

The guidelines, dated March 24, were published on the central bank’s website yesterday.

Financial institutions will be encouraged to innovate with consumer credit products, allowing consumers to apply for loans online. Reuters

Taiwan’s tech giant Hon Hai said yesterday it had finally sealed a takeover of Japanese electronics maker Sharp in a “historic” deal worth 389 billion yen (US$3.5 billion).

It is the first foreign acquisition of a major Japanese electronics firm and comes after weeks of delays, with Hon Hai buying a 66 percent controlling stake.

But the cash injection from Hon Hai - the multi-national owner of Foxconn, the world’s biggest iPhone and iPad maker - is well down from the original 489 billion yen put on the table in February.

Hon Hai put the brakes on the takeover last month, soon after it was first announced, to review new information from Sharp, believed to relate to the company’s sizeable liabilities.

Hon Hai’s colourful founder Terry Gou said he was “thrilled” by the “strategic alliance”.

“We have much that we want to achieve and I am confident that we will unlock Sharp’s true potential and together reach great heights,” he said in a statement.

Sharp’s president and CEO Kozo Takahashi added that the move was to merge forces and “accelerate innovation”. Reuters