Macau Business Daily April 1, 2016

MSCI resumes talks to include Chinese shares in indexes Stock markets Page 14

Friday, April 1 2016 Year V Nr. 1014 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai

Environmental Transformation

www.macaubusinessdaily.com

MIECF The Macau International Environmental Co-operation Forum and Exhibition is underway.

Themed ‘Green Economy – Opportunities for Waste Management’, this year’s mission is to accelerate the transformation of Macau into a green, low-carbon city. Page 2

Tourism

Property

Aviation

Utility

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Package tour visitors drop 34 pct to 569,900 in February

Residential prices up 0.9 pct in February

CAM 2015 lands net profit of MOP153 mln

CEM posts net profit of MOP662 mln for 2015

Helping hand SMEs Galaxy Entertainment Group Foundation. Getting ‘GEG Young Entrepreneurs Business Advisory Service’ off the ground. In tandem with ‘GEG Venture Philanthropy Fund’. The programmes are collaborating with Macau institutions to launch local business talent. Page 8

Negative rebalancing

Pixel pirates Stolen from Bangladesh.

Funnelled into Philippine casinos.

Involving two high‑rollers from Beijing and Macau. And a cool US$81 million. A Filipino lawmaker says almost half can be recovered.

Heist Page 11

19° 23° 19° 22° 19° 22° 19° 22° 19° 22° Today

Thu

20,776.70 -26.69 (0.13%)

China Merchants Holdings

+6.22%

Belle International Holdings

+2.28%

China Mobile Ltd

+1.83%

Lenovo Group Ltd

-1.79%

China Resources Power

+2.84%

China Petroleum & Chemical

+2.00%

China Shenhua Energy Co

+2.35%

China Unicom Hong Kong

+1.99%

HSBC Holdings PLC

-1.33%

Henderson Land Develop-

-1.85%

CK Hutchison Holdings Ltd

-1.56%

Galaxy Entertainment Group

-1.85%

Source: Bloomberg

HK Hang Seng Index March 31, 2016

Wed

I SSN 2226-8294

Fri

Sat

Source: AccuWeather

Rating agencies Standard & Poor’s have cut China’s credit rating outlook. To negative from stable. Citing the nation’s precarious economic rebalancing act. The PRC’s AA- long-term credit rating now has a negative outlook.

In March, Moody’s Investors Service made a similar revision. Page 20

2 Business Daily Friday, April 1 2016

Macau Environment 2016 MIECF gets underway

Tourism

Accelerating the greening of Macau

Package tour visitors dive 34 pct in Feb

Government strives to transform Macau into a green, low-carbon city.

T

he government is striving for a balance between environmental conservation and development by building Macau as a green, low-carbon city, said Chief Executive Chui Sai On (pictured).

Mr. Chui delivered the keynote speech yesterday morning at the opening ceremony of the 2016 Macau International Environmental Co-operation Forum and Exhibition (MIECF), which was themed ‘Green Economy – Opportunities for Waste Management’.

Th e Ch i e f E x e c u t i v e said that environmental

protection was a major policy of Macau, in order to enhance waste management, the Government had been adopting all types of measures, including the implementation of the Macau Solid Waste Resource Management Plan and promoting the “reduced waste at source; separation for recycling” policy.

He added that such measures are in line with the vision of transforming Macau into a city with more favourable conditions for living, tourism, business, travel and recreation. The government also vowed to step up efforts to support the growth of local green industries.

Master plans

The Chief Executive said the government was in the process of formulating Macau’s first Five-Year Development Plan, with the aim of

IBS

transforming Macau into a World Centre of Tourism and Leisure and a commercial and trade co-operation service platform between China and the Portuguese-speaking countries (collectively known as Centre and Platform policies).

He also said Macau’s development created opportunities since the State Council had recently released the ‘9+2’ guidelines for promoting closer co-operation within the Pan-Pearl River Delta area.

There were also development opportunities arising from the country’s 13th FiveYear Plan and from the nation’s Silk Road Economic Belt and 21st Century Maritime Silk Road (collectively known as ‘Belt and Road’ initiative).

Mr Chui said the government was making great efforts to promote industrial integration, further economic development and closer regional co-operation amid the ongoing adjustment period of Macau’s gaming industry.

The 2016 MIECF runs in Macau from 31 March to 2 April. An annual event since 2008, it gathers specialists and academics to share their experience in promoting green industry and protecting the environment.

Occupancy rate at local hotels drops 2.5 pct y-o-y.

Some 569,900 visitors arrived in the Macau SAR on package tours in February, a drastic drop of 34 per cent year-on-year, according to data released yesterday by the Statistics and Census Service (DSEC).

Data from DSEC indicates that package tour visitors from Mainland China totalled 438,000, decreasing 36.7 per cent year-on-year, while those from the Republic of Korea (34,000) and Taiwan (40,000) dropped 18.8 per cent and 24.2 per cent, respectively. In the first two months of 2016, visitors on package tours totalled 1,139,000, down 33.2 per cent year-on-year.

Occupancy rate drop

According to DSEC, there were 106 hotels and guesthouses operating at the end of February 2016, an increase of 8 year-on-year. The number of guestrooms totalled 32,000, up 4,000 or 13.9 per cent year-on-year, with rooms of 5-star hotels (20,000) and 4-star hotels (8,000) together

accounting for 87.5 per cent of the total.

Some 872,000 guests checked into local hotels and guesthouses in February 2016, up 15.9 per cent year-on-year.

Guests from Mainland China increased by 9.1 per cent to 562,000, while those from the Republic of Korea (23,000), Hong Kong (130,000) and Taiwan (36,000) recorded double-digit growth.

The February data also shows that the average length of stay of guests held stable at 1.4 nights. The average occupancy rate of hotels and guesthouses was 78.6 per cent, down 1.8 percentage points year-on-year; 5-star hotels had the highest occupancy rate at 80.5 per cent, down 3.2 percentage points, while the rate for 4-star hotels rose 5.1 percentage points to 79.7 per cent.

4 Business Daily Friday, April 1 2016

Macau TV

DreamWorks channel available in Macau of international TV for DWA. “As the leading OTT The DreamWorks channel in Cantonese and English becomes available today in Macau and Hong Kong, launched by LeEco and DreamWorks Animation (DWA). The DreamWorks channel was previously launched in Thailand, Malaysia and Singapore. HBO Asia deals with sales, marketing and technical services. “We’re pleased to welcome LeEco to the DreamWorks Animation family,” said Eric Ellenbogen, co-head

player in Hong Kong and Macau, LeEco is the perfect platform to bring our content together in one amazing place across a variety of platforms so that families in Hong Kong and Macau can enjoy our series wherever and whenever they want.” The channel is available now for all LeEco members under Le VIP membership and exclusively through LeEco’s SuperTVs, Le Superphones and the Le TV Box.

Utility

CEM posts net profit of MOP662 mln for 2015 The power distributor says it will invest around MOP500 mln this year in building more transmission and distribution infrastructure projects.

I

n 2015, local sole power distributor Companhia de Electricidade de Macau CEM, S.A. (CEM) generated a net profit of MOP662 million (US$82.88), up 8.8 per cent from 2014.

The 2015 annual report was approved yesterday at the Annual General Meeting according to a statement issued by the company.

CEM says that in 2015 power consumption increased by 6.2 per cent to hit another record high of 4,966 GWh, while peak demand also climbed by 4.4 per cent to 883 MW. According to the company, fuel prices plunged at the end of 2015, rendering the power generating cost of Coloane A Power Station more competitive than that of imported power from the Mainland.

In 2015, Macau’s locally generated power significantly increased to 753GWh, up 73 per cent from 2014,

accounting for 15.2 per cent of gross power consumption.

Meanwhile, some 4,054 GWh of electricity was imported from the Mainland to Macau in 2015, down 1.1 per cent from that of 2014 and the first ever negative growth.

Yet, it still contributed to 81.6 per cent of Macau’s electricity consumption.

Developing infrastructure

In 2015, CEM invested over MOP958 million to further improve and develop the infrastructure. The investment amount was 45 per cent higher than annual income.

Of this investment package, almost 78 per cent was invested in the development and maintenance of the transmission and distribution network, while generation projects accounted for about 13 per cent. Multiple new substations were set up and put into operation last

year, including the Depot Primary Substation in Cotai built for the LRT System, Ilha Verde Primary Substation, Wynn Macau and The Parisian Switching Substations.

In addition, CEM says that a number of transmission and distribution infrastructure projects will start in succession in 2016, including the

new Dispatch Centre Building project and three new high-voltage substations with a total investment of approximately MOP500 million at Hospital das Ilhas, Hospital Conde S. Januário, and the artificial island of the Hong Kong-Zhuhai-Macau Bridge.

Moreover, the power distributor vows to hold the

tariff stable. CEM offers Tariff Clause Adjustment discounts of up to 12 per cent to 18 per cent for all Tariff Group A customers. The total subsidy has reached MOP155 million.

Tariff Group A customers are mainly residential customers as well as small and medium enterprises, accounting for 99 per cent of total customers.

Transportation

New legislation ‘unacceptably weak’ says Macau Taxi Passenger Association Three strikes and you’re out, proposes taxi passenger Association.

The Macau Taxi Passenger Association countered the ‘harsher punishments’ proposed by the Transport Bureau (DSAT) for taxi drivers committing illegal acts with proposed penalties of its own. The MTPA suggests that first-time offenders shoulder a MOP5,000 fine, while two-times offenders should suffer a one-month licence suspension and three-strike offenders have their taxi driver’s licence withdrawn for three years,

according to a press release issued by the Association on Wednesday night.

The Association references jurisdictions such as Singapore – which uses a vocational licence points system (VLPS) to levy a fine plus demerit points – 6 to 20 of which over a 24-month period can lead to licence suspension - saying the system creates a ‘clean and healthy taxi’ industry.

With regard to the proposed audio

recording devices in taxis MTPA President Andrew W Scott said: “Does anyone seriously believe a rogue taxi driver scamming visitors to Macau is going to voluntarily allow audio recording devices in his taxi? It doesn’t make much sense, does it?”

The MPTA also proposes that if more than 30 per cent of taxi companies’ taxis are involved in infractions ‘the company should be criminally prosecuted for fraud and certainly should

lose the right to ever organise taxis in Macau.’

‘These proposals are just that – proposals’, says the MTPA press release. The Association hopes that the legislation will be changed dramatically as well as stating it is ‘disappointed’ to have not received acknowledgement or reply from the DSAT regarding a 33-page proposal lodged in September 2014 regarding the taxi industry.

According to the Association, it currently boasts over 5,500 members since its creation in June 2014.

6 Business Daily Friday, April 1 2016

Macau Business

Seeking opportunities in Myanmar

Legislator José Pereira Coutinho is leading a Macau business friendship delegation of a dozen local businessmen to Myanmar, in Southeast Asia. The trip - organised by the Macau Myanmar Friendship Association – will visit Yangon and Bagan departing on Wednesday and returning on Monday. The legislator said that in accordance with Macau’s

goal of diversifying the economic structure and nurturing young talent, the trip aims to let the group of young entrepreneurs get a better understanding of Myanmar’s investment environment, foreign investment policy and the traditional culture of the place in order to promote business activity and cultural exchanges between Macau, Mainland China, Myanmar and the Portuguese-speaking countries.

Aviation

Property

Airport operator’s net profit hits MOP153 mln for 2015

Residential prices up 0.9 pct in February

CAM targets 5.95 million passengers this year.

M

acau International Airport (MIA) achieved a total income of MOP4.39 billion (US$549.7 million), in which the total income of the managing company - Macau International Airport Company Limited (CAM) reached MOP1.22 billion in 2015, an increase of 16.6 per cent compared to 2014. The information was released following CAM’s Annual General Assembly yesterday.

CAM says that in July 2015, shareholders convened an Ext ra o r di n a r y G e n e ra l Meeting, and unanimously adopted the repayment plan to three shareholders. Thus, starting in 2015, the repayment plan was conducted for its three shareholders, by instalments and phases.

Meanwhile, dividends of 2014 preference shares were paid in mid-2015. In this fiscal year, CAM earned a profit of MOP250 million before the distribution of preference share dividends in 2015; after adding in the preparation of dividends and tax deduction, the net profit of CAM will be MOP153 million.

Expanding facilities

The company added that its new target of air freight volume in 2016 is 57,500 aircraft movement, 30,659 tons of cargo and 5.95 million passengers. As the target passenger volume is reaching the capacity of the terminal of 6 million CAM is looking for ways to cope via initiatives like the north extension of the passenger terminal building currently in progress.

CAM says it will continue to move on the extension project at the south side once the north is completed. The main structure and outer wall project are scheduled to be finished in September 2016, with interior decoration commencing in the 4th quarter of 2016 – to be in operation in the second half of 2017.

According to CAM, once the north extension is completed there will be four levels (arrival, departure, mezzanine, offices) with 14,000 square metres for each level.

The whole Passenger Terminal Building will be able to accommodate up to 7.5 to 7.8 million passengers, with more space available for flight waiting, plus commercial and F&B areas. One more loading bridge will be increased and there will be five bridges in total.

The property market slightly declined in February according to official data released by the Financial Services Bureau (DSF) yesterday, showing that property market transactions had dropped by a third, for a total of 268 deals, compared to the 402 transactions registered in the previous month.

The number of transactions in February also dropped 14.38 per cent (313 deals) year-on-year. The average price of a residence for the month was MOP73,733 (US$ 9,232) per square metre, up 0.9 per cent compared to the previous month. Residential prices showed a year-onyear decrease of 17.5 per cent for the month.

Homes under construction throughout February were priced at MOP94,468 per square metre, but posted a decrease in value of 0.92 per cent compared to January, when prices were MOP95,342 on average. This also amounted

to a drop of 26.5 per cent (MOP128,541) year-on-year.

Prices for completed flats amounted to MOP70,712 per square metre in February 2016, indicating a month-onmonth increase (MOP69,507) of 1.73 per cent, or a year-onyear decrease (MOP81,258) of 12.9 per cent.

Per district, data showed that homes located in Taipa were cheapest when compared to those in Macau and Coloane in February, with residential flats in Taipa occupying on average 81 square metres of gross floor area, the largest average for the islands, and costing MOP71,922 per square metre.

Flats in Macau averaged MOP72,299 per square metre, and occupied an average area of 63 square metres. Meanwhile, real estate in Coloane registered as the most expensive, where homes averaging 73 square metres cost MOP92,914 per square metre. A.L.

8 Business Daily Friday, April 1 2016

Macau Opinion

Pedro Cortés Innovate with innovation Yesterday, I had the opportunity to join a luncheon meeting that took place in a neighbouring region where a very high official made a great speech on the region’s political plans to attract innovation that may lead to a different future.

I’m sure Macau politicians also have a vision of innovation. Making Macau an Asian hub for innovation and advanced technology would be something to think about.

The so-called Macau sovereign fund currently in the pipeline could play some part for the venture capital of innovative startup companies. Instead of granting subsidies for grey developments, public funds could be applied to attract innovators from abroad. In addition, university institutes such as MIT or other globally recognized seats of learning could try to play an important role in the development of Macau and overseas youth keen to learn in this competitive market.

A recent study made public concluding that gaming is the maître of all sins may well be a starting point – just another one – in the diversification (once and for all) of the economy towards what is on the cards in the 13th quinquennial plan which sees Macau from a different perspective to the majority of forces trying to lead this city to a better place.

I try, as much as possible, to follow technology. Not that I’m a gadget addict.

But I could say I’m a well informed layman. In this sense, I have seen that automobile giants are betting on the driverless car for the future, which would imply car sharing. That would be great. If I were a taxi driver, I would be thinking about getting another job, as in the near future we may not have to take a cab, just use an app to take us from one side of the city to the other. Hopefully, the light railway will still be necessary for the future, otherwise all the money invested in the system being implemented in Macau will be useless.

There is so much to be done in terms of innovation that it’s likely to be innovative if we had someone talking seriously about it or - why not? - have a Secretary for Innovation and Technology or a specific bureau that would only take projects in the innovation and technology arena - and where even overseas corporations and institutions could get funding for their activities.

Pedro Cortés is a lawyer and frequent contributor to this newspaper.

Business Foundation to help select companies with venture capital and advice

GEG Foundation to incubate SME development Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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he Galaxy Entertainment Group Foundation launched initiatives aimed at encouraging local entrepreneurship and venture capitalism yesterday. The initiative is divided into two parts - one, titled ‘GEG Young Entrepreneurs Business Advisory Service’, partners the fund with the University of Macau and the Macao Young Entrepreneur Incubation Centre in a pro-bono business advisory service; the second, titled ‘GEG Venture Philanthropy Fund”, also partners the fund with the University of Macau and the Macau New Technologies Incubation Centre (MANETIC) to incubate select local businesses.

The Galaxy Entertainment Group Foundation was established in March 2014 and, according to the group’s website: ‘It will be funded initially with HK$300 million (US$38.69 million) and a further commitment of another HK$1 billion later on.”

Venture fund

The Venture Philanthropy Fund expects to maintain a sustainable foundation for re-investment by holding to an ‘expectation that any return on investment on successful ventures will be ‘paid back’ into the Fund, according to a press release. This use of capital from profitable businesses is expected to perpetuate itself in order to further invest in other ventures.

Speaking at the event, Mr. Francis Lui, Vice Chairman of the Foundation, described the process: “When these new incubated companies are making a profit, the Fund will use this profit to put [it] back to more

new potential enterprises to create sustainability for the Fund.” It was not explained how the companies would expand without being able to keep their profit.

The Fund, however, is not open to all Macau companies, only those that are recommended by MANETIC from within its own pool of incubator companies. These recommended companies will then have their projects vetted by the University of Macau’s Faculty of Business members and students of the MBA programme. In the case of the Business Advisory Service, this is restricted to the “availability of faculty members with expertise in the subject area”, and so far it’s unclear as to whether a dedicated group will be set aside to handle the vetting of the venture fund’s applicants.

An amount regarding a cap on maximum investment or total funds available for the project was not available at the time of publication.

Business advice

Professor So Yuk Chow, Dean of the Faculty of Business at the University of Macau described the Business Advisory service as “allowing students to experience first-hand

“I don’t play golf, unlike the other faculty deans, and I’m not good at drinking alcohol.”

Professor So Yuk Chow, Dean of the Faculty of Business at the University of Macau

the process of starting a business and going beyond their textbooks to gain valuable knowledge and practical experience they otherwise would not have learned from their classes.” The Dean also included insights to his business life during the conference, stating: “I don’t play golf, unlike the other faculty deans, and I’m not good at drinking alcohol.”

Applicants for the business advisory service need to have already set up their own company and have successfully obtained funding under the Young Entrepreneurs Aid Scheme, offered by the Financial Services Bureau - whose English version of the website (as at publication) currently lists information on application as ‘Not applicable’. The Portuguese-language version details application procedures including ID copy, M1 form and proof of social security fund payments.

Applicants need to further submit application forms to the advisory service with business description, stage of development, and situational analysis of their business to be allowed to also then submit ‘a specific question regarding their main area of expertise or assistance,’ according to the press release. These will then be distributed to seven consulting teams, headed by one faculty member each and comprising FBA undergraduate and postgraduate students who will address the issues raised by the applicant. This process, as previously mentioned, will be based on the availability of faculty members with expertise in the subject area.

Successful applicants will receive ‘advice, options or recommendations in tackling the issues raised’.

Mr. Francis Lui, Vice Chairman of Galaxy Entertainment Group Foundation, speaking at the group’s anniversary celebration.

10 Business Daily Friday, April 1 2016

Macau Economy

Trade with Mainland drops 32 pct y-o-y Total trade volume in the first two months of the year totalled US$150 mln

T

rade volume between the Macau SAR and Mainland China amounted to US$460 million (MOP3.67 billion) in January and February this year, a drop of 32 per cent year-onyear, according to the Ministry of Commerce of the People’s Republic of China’s official data published yesterday.

The trade volume includes exports from Mainland China to Macau valued at US$440 million, a year-on-year decrease of 31.2 per cent; and China’s imports from Macau at US$20 million, with a year-on-year fall of 43.8 per cent, In February alone, the total trade volume was US$150 million, down 47.2 per cent year-on-year, including Mainland China’s exports to Macau of US$140 million, a drop of 46.5 per cent year-on-year, and China’s imports from Macau at US$10 million, a decrease of 56.9 per cent year-on-year.

Investment

In February 2016, 14 Macao-invested projects were approved by the Mainland, dropping 46.2 per cent month-on-month. The actual use of Macau capital amounted to US$40 million, down 10.8 per cent month-on-month.

By the end of February 2016, the accumulated Macao-invested projects approved by the Mainland were 14,438 with the actual use of US$12.87 billion.

In terms of utilised capital, the funds from Macau accounted for 0.8 per cent of the total foreign capital absorbed by the Mainland.

In addition, in the first two months of 2016, the Mainland had three contracted projects in Macau with a combined value of US$4 million. The turnover amounted to US$200 million. By the end of February 2016, the number of labourers dispatched to Macau was 117,940 and the accumulated turnover US$13.64 billion. A.L.

Jay Chun, chairman of Paradise Entertainment Ltd.

Gaming LMG and slot company look overseas for sales

Paradise Entertainment posts HK$149 million loss for 2015 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

P

aradise Entertainment Limited, which operates slot and Live Multi Game machines in 18 casinos in Macau as well as in their overseas operations, posted a loss of HK$149 million (US$19.21 million) for 2015, despite expanding their LMG services throughout the year (see table 1) and adding machine sales to their management operations, as filed with the Hong Kong Stock Exchange.

The group posted a revenue loss of 8.4 per cent for the year which planed at HK$1.09 billion, compared to HK$1.99 billion the previous year.

Aside from the decline in gross gaming revenue for the group’s casino management services, Paradise cited increasing labour costs – the group currently employs 500 individuals - the economic slowdown and the

“The Group expects the government to promulgate more supportive policies to revitalise the economy of Macau” Paradise Entertainment Limited

Paradise Entertainment Terminals Deployment 2015 Month February May June October

Location Grand Lisboa Galaxy Phase 2 Waldo Casino Lan Kwai Fong

‘unexpected depreciation of renminbi’ in the past few months.

Looking outwards

The group celebrated its first outright sale of their LMG terminals in the Palazzo, with 24 machines sold, marking an ‘important milestone for the Group in its path to secure a foothold in the world’s largest gaming machines market,’ said the report. The group stated that it will see more sales in overseas, and believes LMG terminals will soon gain acceptance throughout the U.S. gaming industry.

The group has been plagued by a loss as they wait for approval from the Nevada Gaming Board to sell their LMG terminals in the state. The legislation came through at the end of the year.

The adjusted EBITDBA (Earnings Before Interest, Taxation, Depreciation and Amortization) for 2015 amounted to HK$48.1 million - a 76.3 per cent drop compared to the previous year’s HK$203 million.

Terminal growth

Of the total generated, 18.4 per cent of the revenue came from sale and revenue sharing of LMG terminals, up 5 percentage points from the previous year.

Of the total revenue recorded, 81.6 per

Merchandise trade deficit hits MOP4.22 bln in February

Merchandise exports for February 2016 amounted to MOP710 million (US$88.89 million), up 3 per cent yearon-year, according to data released by the Statistics and Census Service (DSEC) yesterday.

Total merchandise imports amounted to MOP4.93 billion, down 24. 6 per cent year-on-year and the lowest single-month figure since June 2011, with imports of mobile phones and watches down 54.2 per cent 40.8 per cent, respectively. The deficit in merchandise trade amounted to MOP4.22 billion.

The value of re-exports amounted

to MOP617 million, 10.2 per cent up year-on-year, while domestic exports dropped by28.3 per cent, amounting to MOP93 million, including non-knitted or non-crocheted garments at MOP0.88 million and falling 82.4 per cent.

The external merchandise trade reached MOP13.55 billion in the first two months of 2016, down 18.9 per cent compared to MOP16.71 billion in the corresponding period of last year.

Exports to long-haul market drop

Merchandise exports mainly to Hong Kong (MOP1.04 billion) and Mainland China (MOP234 million) increased by 1 per cent and 2 per cent year-on-year in the first two months, with the EU (MOP29 million) and the USA (MOP20 million) dropping 27.7 per cent and 40.6 per cent, respectively.

Non-textiles exports increased 1.8 per cent (MOP1.55 billion) year-onyear, in which electronic components

Correction In yesterday’s edition of Business Daily we mistaken-

ly reported that the sharp devaluation of the renminbi has caused heavy losses of the Financial Reserves in the foreign exchange

Number 78 42 139 63 SOURCE: Company filing

Trade

Total merchandise imports amount to MOP4.93 bln, down 24.6 pct y-o-y, the lowest since June 2011.

Type LMG LMG Slot LMG

(MOP152 million) increased 112.8 per cent, including machines, apparatus & parts (MOP145 million) falling 33.9 per cent. Textiles & garments exported for MOP134 million, up 6.3 per cent.

Also in the first two months of this year, merchandise imports from Mainland China totalled MOP4.31 billion, decreasing 25.5 per cent year-on-year; merchandise imports from the EU totalled MOP2.9 billion, dropping 19.1 per cent compared to the same period of last year.

Imported consumer goods were down 13.7 per cent (MOP7.64 billion), including watches (MOP758 million) and motor vehicles (MOP225 million) which were down by 36.4 per cent and 38.4 per cent, respectively. In addition, mobile phones (MOP1.01 billion), fuels and lubricants (MOP848 million), and construction materials (MOP336 million) dropped 50.2 per cent, 27.5 per cent and 37 per cent, respectively. A.L.

market, with a MOP31 billion accounting loss during the year 2015.

In fact, the number should read MOP5.31 billion. Business Daily apologies to our readers for any inconvenience caused.

cent was generated by the provision of casino services. Paradise Entertainment Ltd. also operates the Kam Pek Casino, operated under SJM licence.

The group, in their filing, said that it ‘expects the government to promulgate more supportive policies to revitalise the economy of Macau’ and praised the reversal of the transit visa policy – saying it will certainly benefit casino operators but sounded a note of trepidation on a full smoking ban deterring customers.

The group is currently ‘actively seeking talent in Macau, Hong Kong and China’ to support its fast growing operations.

Business Daily Friday, April 1 2016 11

acau Macau Hospitality

Heist

Success Universe posts swingeing loss for 2015

Philippines can recover big chunk of stolen Bangladesh millions

Group hopeful as it targets families and the ‘up-rising middle class’.

S

uccess Universe Group Limited, owner of the Ponte 16 hotel and casino, announced a HK$6.7 million (US$864,000) loss for 2015, in a filing with the Hong Kong Stock Exchange published yesterday. The group also posted a 67 per cent loss in shared profit of the associates relating to Ponte 16, amounting to roughly HK$29.3 million as compared to the HK$88.1 million received in 2014.

This loss was the main reason given for the decline in the group’s profits with the second resulting from the decrease in operating revenue from the group’s Mainland operation involving the sale of lottery tickets.

Overall, the group recorded revenue of approximately HK$1.01 billion, corresponding to a 23 per cent decrease in the previous year’s recorded HK$1.3 billion. Gross profit also dropped by 55 per cent, reaching HK$37.2 million, compared to 2014’s HK$82.7 million.

In regard to the Macau operation, the group’s profit decline was ‘mainly attributable to certain regional factors, including […] change in spending behaviour arising from the structural change in the composition of tourists to Macau,’ says the report. Additional factors listed were tighter visa restrictions, implementation of the smoking ban in mass market gaming areas, tighter controls on UnionPay cards and the Renmenbi depreciation.

Adjusted EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation)

amounted to approximately HK$303.7 million.

Revenue from the group’s lottery business amounted to HK$69.6 million for the 2015 year, with the company suffering the same temporary suspension of the ‘paperless lottery sales agency services’ voluntarily committed by the company in line with new regulations by the central government to regulate online ticket sales. The decrease equalled a 65 per cent drop in revenue compared to the previous year’s recorded HK$201.1 million - largely attributed to sports betting on the FIFA World Cup and the suspension. For the segment the group recorded a loss of HK$19.1 million for the year.

The group boasted of hotel occupancy rates averaging ‘over 89 per cent’ for the year.

Non-current assets in Macau accounted for HK$967 million at the end of 2015.

A

lmost h a l f o f the US$81 million that hackers stole from Bangladesh and funnelled into Philippine casinos can still be recovered, a senior Filipino lawmaker investigating the audacious cyber heist said Thursday.

As much as US$34 million remained in two casinos and a foreign exchange brokerage, senator Ralph Recto said, citing testimonies from a marathon hearing on Tuesday.

“Our law enforcement agencies must act swiftly to recover any portion of the loot that is still within Philippine soil,” Recto said in a statement.

“It is very important to recover as much of the money and return it to Bangladesh.

The money was stolen from a poor country,” he added.

On February 5, unidentified hackers shifted US$81 million from the Bangladesh central bank’s account with the US Federal Reserve to a nondescript bank in Manila and then to the casinos, where the trail went cold.

The brazen heist highlighted how the Philippine’s banking loopholes and anti-money laundering laws have made the impoverished and corruption-weary Southeast Asian nation a dirty money destination.

Philippine law exempts

casino transactions from scrutiny by the country’s anti-money laundering council without a case filed in court.

A casino junket operator, Kim Wong, testified in the Senate on Tuesday that two high-rollers from Beijing and Macau shifted the US$81 million to dollar accounts in Manila’s Rizal Commercial Banking Corp (RCBC).

Wong said he did not know that the money was stolen from Bangladesh and that he merely helped the two men -- who are also his casino clients -- open bank accounts.

He offered to return US$4.3 million of the money, which he said remained in his account in Solaire, one of the Philippine capital’s gleaming billion-dollar casinos.

But by Recto’s own calculations, far more can be recovered including US$17 million that Wong claimed was still with exchange brokerage Philrem, US$10 million from a destitute casino in the north, US$5.5 million that Wong picked up from the house of Philrem’s owner and a further US$2.3 million in the Solaire casino account of the Macau man who allegedly brought the US$81 million to the Philippines.

Solaire has pledged to return the money.

The senate is scheduled to resume its investigation next week. AFP

12 Business Daily Friday, April 1 2016

Greater China Steel Production

Baosteel expects higher 2016 output Total steel capacity in China is estimated at around 1.2 billion tonnes and is expected to further increase this year.

David Stanway and Ruby Lian

China’s top listed steelmaker Baoshan Iron and Steel Co. Ltd (Baosteel) expects its total output to rise about 20 percent in 2016, even as the country steps up efforts to slash a massive capacity glut amid a rise in anti-dumping complaints.

China has been aggressively shipping out its surplus steel products and selling them, according to other producing nations, at unfairly low prices. Exports hit a record 112 million tonnes last year and as recently as this week, India’s Tata Steel put its British operations up for sale, blaming a glut in cheap Chinese steel for the move.

Total steel capacity in China is estimated at around 1.2 billion tonnes and is expected to further increase this year, according to the China Iron and Steel Association.

Baosteel’s huge Zhanjiang steel production base, with an annual capacity of about 9 million tonnes, goes into operation later this year, its board secretary Zhu Kebing said.

Baosteel, the listed arm of China’s No.2 steel producer - the Shanghai-based Baosteel Group, produced 22.6 million tonnes of crude steel in 2015, and is likely to produce 27.1 million tonnes this year, Zhu added yesterday.

“As a result of the completion of main production lines at the Zhanjiang project in 2016, the scale of the company’s output will show an increase,” he said. Zhu, however, added that steel prices, currently near decade-lows, are expected to remain weak.

The plunge in the prices of steel amid a slowdown in China’s economic growth has taken a toll on producers’ earnings, with Baosteel

reporting an 82.5 percent year-onyear slump in 2015 net profits to 1.013 billion yuan (US$156.70 million).

Other steel firms fared even worse last year. Maanshan Iron & Steel reported losses of 4.8 billion yuan after a modest profit in 2014, Hunan Valin Steel also posted a loss of 2.96 billion yuan, while the Angang Steel Company reported losses of 4.59 billion yuan.

With China’s steel capacity surplus at around 400 million tonnes and average utilisation rates at under 70 percent, the government is aiming to shut around 100-150 million tonnes of capacity in the next five years.

Baosteel to benefit from reforms

Local governments are currently working out how the capacity closure targets will be divided among producers, Zhu said.

“Looking over the long-term, China’s steel demand has already hit a peak and some capacity needs to be withdrawn from the market, or merged and restructured, and this will benefit the company by raising our market value,” he added.

Increased buying from Chinese steel mills has buoyed iron ore prices this year, but Zhu does not see this rally lasting.

Spot iron ore prices have risen 24 percent so far in 2016, but have fallen 16 percent from this year’s high of US$63.30 a tonne reached on March 8.

“The price increase in March was the result of many different factors, and short-term fluctuations are normal, but (we) don’t think it is sustainable,” he said, adding that iron ore will remain oversupplied this year. Reuters

AIIB

Infrastructure bank eyes first loans to India India is also in talks with the World Bank, the Asian Development Bank, Germany’s KfW and the New Development Bank.

Manoj Kumar

India hopes to receive one of the first loans issued by the China-led Asian Infrastructure Investment Bank (AIIB) later this year, as it looks to raise US$500 million for solar power projects from the newly created lender, Indian officials said.

Funding for clean energy projects would allay fears of environmental lobbyists that the bank’s relaxed lending criteria could promote dirty fuels like coal in developing economies, like India, that are in a hurry to ramp up energy output.

The multilateral investment bank, which has authorised capital of US$100 billion, plans to join global clean-energy initiatives, and

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could fund eco-friendly investment projects to avoid allegations of promoting pollution.

India, the bank’s second biggest shareholder after China, is looking to borrow from the AIIB, a senior official said, to back Prime Minister Narendra Modi’s plan of expanding installed solar capacity to 100 gigawatt by 2022.

“In about six months, funds could start flowing from AIIB,” Tarun Kapur, joint secretary at the Ministry of New and Renewable Energy, told Reuters.

Interest on the loan is likely to be 2-2.5 percent and would be linked to LIBOR - a floating benchmark based on the rate at which commercial banks lend to each other - for a term of over 15 years.

The AIIB, which is headquartered in Beijing and was launched in January, did not comment directly on borrowing by India but said it was developing a project pipeline in a number of countries.

“It is expected that the first loan decisions will be taken later this year,” it said in written answers to questions submitted by Reuters.

Billions sought

India is in talks with the World Bank, the Asian Development Bank, Germany’s KfW and the New Development Bank, set up by big emerging economies that form the BRICS bloc, to raise more than US$3 billion in the financial year that starts April 1.

India has requested US$500 million in financing from the ADB to support rooftop solar, and a similar sum to expand transmission networks to connect to solar

AIIB president Jin Liqun.

parks. The ADB signed a cooperation agreement with the U.S. Agency for International Development (USAID) to back the solar power expansion.

India estimates it needs to invest up to US$100 billion in solar power in the next 6-7 years to meet its ambitious

target of boosting capacity by roughly 17 times from current levels of 5,800 megawatts.

“Financing is not an issue but we need cheaper funds,” said Kapur. After hedging costs of about 6-7 percent, the cost of funding from the AIIB funds works out at just below 10 percent, compared to domestic rates of about 12 percent, he said.

Another official at the finance ministry who has been liaising with the AIIB, said initial talks had taken place on clean energy projects and more proposals could soon be submitted on other priority areas.

The AIIB is expected to lend US$10 billion-US$15 billion a year for the first five or six years and could start operations in the second quarter of 2016.

AIIB president Jin Liqun said earlier this year that the bank has a good pipeline of co-financing projects and stand-alone projects. Reuters

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Business Daily Friday, April 1 2016 13

Greater China Stock exchange

Global funds return to mainland’s markets Most investors are focusing on specific “new economy” industries.

Nichola Saminather

G

lobal funds are cautiously venturing back into Chinese equities after prices collapsed to 4-1/2-year lows in February, taking advantage of cheaper valuations to buy stocks they believe will benefit from China’s shift to a consumption-led economy.

Foreign investors are tentatively buying in sectors linked to the main themes of the 13th Five-Year Plan released earlier this month, including urbanization, consumption, internet growth, green development and innovation.

The MSCI China index has gained 17 percent since February 12 and while foreign investors are still net sellers the scale of net selling has shrunk to US$272 million from March 1 to March 25 versus an average of US$2.1 billion over the previous four months, according to EPFR Global data.

Most investors are focusing on specific “new economy” industries, which make up only a small proportion of the market, while avoiding those sectors linked to the “old economy”.

“China’s transition to a consumption and service-led economy is likely to be a bit painful, and it’s worse for the stock market because 70-80 percent of the market is highly dependent on the infrastructure and investment-led economy,” said Tan Eng Teck, senior portfolio manager at Nikko Asset Management in Singapore.

Shanghai Stock Exchange entrance.

“But the remaining 20-30 percent is growing, and we like those sectors because they’re in a multi-year growth phase.”

Beijing’s five-year plan aims to create at least 10 million urban jobs, boost research and development investment to 2.5 percent of gross domestic product by 2020, develop alternative energy sources and reduce emissions, and expand internet penetration.

Tan’s preferred sectors include tourism, insurance, environment and healthcare. Among the biggest holdings in Nikko’s China equity fund and Shenton Greater China Fund are Ping An Insurance, internet firm Tencent and China Traditional Chinese Medicine Co. M&G Investments combines the internet and consumption growth themes, with recent purchases including an online travel agency listed

in the U.S., said Matthew Vaight, M&G portfolio manager for global emerging markets in London.

Internet firm Baidu and mobile operator China Unicom are among the top 10 holdings of M&G’s Global

“China’s transition to a consumption and serviceled economy is likely to be a bit painful, and it’s worse for the stock market” Tan Eng Teck, Senior portfolio manager at Nikko Asset Management in Singapore

Emerging Markets fund.

However, Vaight cautions that some “new economy” stocks are overvalued, and sees opportunities for value investors in “relatively dull but under-appreciated areas of the market,” such as some packaging and plastic pipe companies.

Banks and commodity sectors are seen as value traps. Vaight warns that banks are keeping many struggling “old economy” companies going when they should not.

Tan cautions overcapacity in commodities sectors such as steel and aluminium means that prices, despite very low valuations, could yet fall further.

Barings Asset Management also favours “beneficiaries of rising consumption and technological outfitting as Chinese companies move up the value chain,” investment director William Fong said in a note last month.

For instance, Barings is investing in China’s population expansion and improving environmental standards through a utility company that supplies water to Hong Kong, Shenzen and Dongguan, he said.

Barings also likes Chinese entertainment companies, betting on increases in both the number of cinemagoers and locally produced films.

“With share price valuations having moved quite sharply in recent weeks, we have taken the opportunity to reassess companies we previously liked but where we felt the price was too high,” said Fong. Bloomberg News

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14 Business Daily Friday, April 1 2016

Greater China Stock Indexes

MSCI restarts talks on including Mainland shares in emerging index Inclusion in the MSCI emerging markets index, which is the benchmark for more than US$1 trillion in investor assets globally, would be a coup for China.

I

ndex provider MSCI said yesterday it would resume discussions with investors on including Chinese mainland-listed shares in its main emerging equity benchmark, though it expressed concern about barriers to investment.

The company will make a decision in June on whether or not to include 5 percent of A-shares’ (mainland) free float-adjusted market capitalisation.

Inclusion in the MSCI emerging markets index, which is the benchmark for more than US$1 trillion in investor assets globally, would be a coup for China which is seeking to boost its stock markets.

It will also potentially bring billions of dollars into Chinese shares from funds that passively track the index.

The mainland Chinese market rallied around 50 percent in the first half of 2015 then slumped over 30 percent from mid-June after MSCI decided not to include A-shares. This also coincided with signs that China’s economy was slowing.

The exclusion was attributed to investors finding it difficult to move

money in and out of China.

The reopening of the consultation follows recent changes by China to improve access to the A-shares market for international institutional investors, MSCI said.

In February, the government said it would relax its US$81 billion Qualified Foreign Institutional Investor scheme which allows some foreign investors to buy shares and bonds in China.

MSCI said it would seek feedback on the effectiveness of these changes.

But it warned that concerns remain over “significant liquidity risks” that could result from further voluntary local share trading suspensions.

which dramatically reduced market liquidity.

“Widespread market trading suspensions after the market sell-off in the second half of 2015 and early 2016 have created a precedent, and market participants’ desires are that the Chinese authorities should implement measures that would prevent such a situation from occurring again,” MSCI said.

The company also expressed concern about “anti-competitive” clauses that restrict financial institutions from launching products linked to

indexes that contain A-shares.

Such products, even if listed internationally, currently need pre-approval from local Chinese stock exchanges, a rule not seen in other emerging markets.

“This issue may become a roadblock to the inclusion of China A-Shares in the MSCI Emerging Market Index if not addressed by the local Chinese stock exchanges,” MSCI added.

MSCI is also seeking feedback on reclassifying Pakistan as an emerging market and Peru to frontier market.

Reuters

Flak

China’s handling of last summer’s equity sell-off drew flak for share suspensions and caps on selling

‘MSCI said its decision to include ‘A’ shares would depend on investor feedback regarding the effectiveness of the QFII rule changes’

Business strategy

Dalian Wanda may take property arm off HK bourse Dalian Wanda Commercial Properties said its parent firm is in the early stages of considering a general offer that could result in it being taken private.

Adam Jourdan and Clare Jim

Chinese billionaire Wang Jianlin’s Dalian Wanda Group is looking to take its real estate arm off the Hong Kong bourse less than two years after its IPO, unhappy with its share performance and preferring to place its bets on an upcoming Shanghai listing.

Mainland-listed firms typically command higher valuations than those in Hong

Kong, helped by large pools of retail investors. An index tracking dual-listed companies, shows mainland listings trade at an average 34 percent premium to the same company listed in Hong Kong.

Dalian Wanda Commercial Properties Co Ltd, China’s largest business property developer, said its parent firm is in the early stages of considering a general offer that could result in it being taken private.

The offer would be no less than HK$48 per share, the company said in a statement, a level in line with its IPO price. Its shares, which have halved in value since June, surged 18 percent yesterday though they stopped short of HK$48.

It did not state a reason for the potential privatisation but a source with knowledge of the matter said the group felt that the Hong Kong shares were undervalued, which could hurt the pricing for its planned listing on the mainland.

The source, who was not authorised to speak on the matter, declined to be identified. Officials at Wanda

Commercial declined to comment.

It remains to be seen, however, how the company’s shareholders will react to the privatisation plan. Investors, who helped it raise around US$4 billion in its IPO, include China Life Insurance Co Ltd, Och-Ziff Capital Management Group, and Kuwait Investment Authority, according to Thomson Reuters data.

Wanda Commercial said in November it was seeking to raise about 12 billion yuan (US$1.9 billion) in its Shanghai offering.

Although property prices in top-tier cities are robust, Chinese developers are facing

tough times, hurt by sinking prices in smaller cities, which are home to the majority of the country’s urban population.

Wa n d a C o m m e r c i a l , which expects a decline of nearly 40 percent in sales this year, said last week that it would scale back investment and construction in small cities due to oversupply.

Weakness in China’s property and related sectors, which account for an estimated 20 percent of gross domestic product, has been a big drag on Chinese growth, which hit a 25-year low in 2015 and is set to slow again this year. Reuters

Business Daily Friday, April 1 2016 15

Greater China Real Estate

Regional property market gap widens The weakness in property and related sectors, accounting for an estimated 20 percent of GDP, has been a big drag on Chinese growth.

Xiaoyi Shao and Clare Jim

W

hile property prices in top-tier Chinese cities are booming, prices in smaller cities, where most of China’s urban population lives, are still sinking, complicating government efforts to spread wealth more evenly and arrest slowing economic growth.

Property has a special place in the psyche of Chinese investors, far outstripping stocks and bonds as a vehicle for their savings, so sliding property prices have a big impact on individual wealth and domestic consumption.

“As the real estate market is tied to many comprehensive industry lines and consumption, it is one of the key industries to support the Chinese economy,” said Albert Lau, CEO of property firm Savills China.

The weakness in property and related sectors, accounting for an estimated 20 percent of GDP, has been a big drag on Chinese growth, which hit a 25-year low in 2015 and is set to slow again this year.

A property revival could also play an important role in China’s recent pledge to lift 50 million people out of poverty by 2020.

The regional variations in the market are stark.

In top-tier cities, prices rose at their fastest pace in almost two years in February, with Shenzhen, Shanghai and Beijing prices surging 56.9 percent, 20.6 percent and 12.9 percent from a year earlier, prompting policies to try and cool the market in some cities.

But further down the pecking order, many places are still grappling with the excesses of the last debtfuelled property frenzy, which began

in around 2005 and finally ran into the sand in 2014, leaving a huge backlog of unsold and unfinished developments.

In the port city of Tangshan, a big steel-producing city in the northern province of Hebei, developers built frenetically in the boom years, creating a surplus of properties that analysts estimate could take up to 13 years to unwind.

Ghost developments

For the 18th consecutive month, home prices in Tangshan fell in February from a year earlier, official data showed.

It is littered with unfinished buildings - Reuters counted at least 10 such housing projects there last week - and each one represents countless individual misfortunes, as developers abandon projects and run off with downpayments.

On one ghost development called “Youth Zone”, a lifeless block set in withered grass, graffiti on a steel door into the site reads: “Give me back my home”.

A 50-year-old investor who gave her surname as Ma said four years ago she made a downpayment of 120,000 yuan (US$18,400), several years of savings, for a new apartment on another project. Soon after, it ground to a halt and the developer went missing, along with her money.

“There aren’t many people around in Tangshan who haven’t been caught in a property trap in recent years,” she said.

Her sister paid nearly 600,000 yuan

Key Points First-tier city property prices booming, led by Shenzhen Smaller cities struggling with unsold, unfinished inventory Tangshan Feb home prices fell on year for 18th month Local initiatives to revive their markets largely failing Property sector accounts for about 20 pct of GDP

for an apartment in Youth Zone, but the cash-strapped developer stopped work last year.

Mo Bin, president of Country Garden Holdings, the 7th-largest property developer by sales in China, is optimistic, however, that government tax and stimulus policies will reinvigorate housing investment in the smaller cities.

“We are a brand-name seller in third and fourth-tier cities, and we don’t have many years’ worth of inventory to clear; in the future we will raise selling prices, not cut them,” he said.

Economic key

But not all share that view.

Hu Baosen, president of Central China Real Estate, a developer focused on investments in the province of Henan, said his company was moving out of property development to focus on selling property-related services.

“I am not optimistic on the outlook for the housing market in tier-three and tier-four cities,” he said.

“I reckon the destocking process in Henan province may last for the next five years.”

Local officials have used innovative methods to try to revive their property markets, a task made particularly urgent given many of them depend on selling land to developers to fund their budgets.

Some have tried to get migrant workers and farmers to buy up excess inventory, but so far have not hit their targets, said Chen Yajun, vice-head of the planning department of the National Reform and Development Commission (NDRC).

China’s system of residential registration, and the welfare benefits that flow with it, have in practice been a barrier to such buyers, he said.

Lau, at Savills China, said real demand for houses in these cities would require economic renewal first.

“Most third- and fourth-tier cities in China have not achieved economic maturity and diversity, and rely heavily on export processing or other traditional industries. As a result, destocking in these cities tends to lag behind.” Reuters

In Brief Forex

Regulator buys stocks via new platform China’s foreign exchange regulator has bought mainland stocks worth over 27 billion yuan (US$4.18 billion) via three low-profile investment firms it controls, the official Shanghai Securities News reported yesterday. Buttonwood Investment Platform Ltd, 100 percent owned by the State Administration of Foreign Exchange (SAFE), and Buttonwood’s two fully-owned subsidiaries, have bought shares in a total of 13 listed companies, the newspaper reported, citing top 10 shareholder lists in the companies latest earnings reports.

Shanghai Securities News said the investments are part of SAFE’s strategy to diversify investment channels for the country’s massive foreign exchange reserves.

Stock market

Funds cut equity allocations Chinese fund managers slightly reduced their suggested equity exposure for the next three months to 71.3 percent from 71.9 percent a month earlier, as the market remains wary of the timing of the next U.S. interest rate rise, a Reuters poll showed. The poll of eight fund managers conducted last week recommended an increase in bond allocations to 12.5 percent from 10.6 percent a month ago. They recommended reducing cash holdings to 16.3 percent from 17.5 percent earlier. Seven fund managers forecasted on average that the Shanghai Composite Index would be around 2985.7 points.

Brokerage

Guosen defaults on dim sum yuan bond A unit of China’s Guosen Securities, one of the country’s largest brokerages, has defaulted on a Hong Kong-traded yuan bond, the Financial Times reported yesterday, citing a document seen by the paper. A company official at Guosen Securities’ Hong Kong unit told Reuters there had been no breach of offshore yuan bond covenants and said the FT report contained “exaggerations”. The parent company said the Hong Kong unit was preparing a statement to be issued later yesterday.

A default would be the first debt breach by a state-owned enterprise in the offshore bond market in nearly two decades, the FT said.

Yuan

Innovative tools to manage exchange rate risk China will create more innovative tools to manage yuan exchange rate risk while steadily and cautiously pushing forward with yuan convertibility under the capital account, the cabinet said yesterday. The state council said in a statement detailing reform priorities for 2016 that China would continue with state-owned enterprise reforms. China will also deepen market-based exchange rate and interest rate reforms this year while pressing ahead with resource price reforms.

16 Business Daily Friday, April 1 2016

Asia Ratings

Singapore banks’ outlook lowered by Moody’s The ratings firm said it expects the lenders will have to bolster their provisions for loan losses and this will dent profits.

D

BS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. had their credit rating outlooks lowered to negative by Moody’s Investors Service, which said it expected a further weakening of conditions for the three largest Singaporean lenders as economic growth slows.

“A more challenging operating environment for banks in Singapore in 2016, and possibly beyond, will pressure the banks’ asset quality and profitability,” Moody’s said in a statement, citing a slowdown in economic and trade growth both domestically and in the wider region.

Singapore’s economy, among the most vulnerable in Asia to swings in global demand, is facing pressure amid a slowdown in China and a weaker environment for energy and commodities.

Ructions in the world economy are coming at a time when cracks are

showing in the island’s traditional pillars of growth such as manufacturing and electronics, and as it faces an aging population.

The nation’s expansion is forecast to slow to 1.9 percent in 2016, according to a Bloomberg survey of economists.

Loan losses

The ratings firm said it expects the lenders will have to bolster their provisions for loan losses and this will dent profits. It noted that leverage in the Singaporean economy remains elevated and that there will be a “challenging deleveraging cycle” for the country’s companies. In addition to the impact of slowing Asian

‘OCBC rating at Moody’s is one step below the assessor’s top score’ growth on domestic borrowers, the banks will also face headwinds from its foreign loan book, Moody’s said.

Oil and gas borrowers are a “looming risk” to the lenders, according to Moody’s, which estimated that their exposures to oil and gas services firms ranged from 13 percent to 24 percent

of common equity Tier 1 capital.

OCBC and UOB each carry Aa1 ratings at Moody’s, one step below the assessor’s top score. DBS Group is currently rated Aa2, the third-highest Moody’s grade, while its subsidiary DBS Bank Ltd., ranked one level higher at Aa1, also had its outlook revised to negative.

While the situation for the lenders has weakened, Moody’s did underscore that they maintain “very strong” capital buffers, loan loss provisions and pre-provision income.

They also have robust funding and liquidity profiles, and support from the Aaa rated government is “very strong,” the firm said. Bloomberg News

Monetary Policy

India intervenes via state-run banks to curb rupee’s rise Traders said they expect the rupee could appreciate further.

Neha Dasgupta

India’s central bank bought as much as US$1 billion over Wednesday and yesterday to prevent the rupee from strengthening too much after the currency hit threemonth highs as investors poured funds into emerging markets, two traders said.

As recently as last month the Reserve Bank of India (RBI) had intervened frequently to defend the rupee after it hit its lowest since September 2013, but a rapid

turnaround in fortunes has persuaded the central back to buy dollars to prevent excessive appreciation.

RBI Governor Raghuram Rajan has frequently criticised central banks that undertake policies that devalue currencies and said the Indian central bank only intervenes to prevent excessive volatility.

Despite repeated bouts of dollar buying, the rupee struck a three month high of 66.1700 per dollar yesterday and was on course to post a

gain of 3.2 percent in March - its biggest monthly gain in 2 1/2 years.

Traders estimated the RBI had sold around US$1 billion during the past two days trying to halt the rupee’s ascent.

The rupee’s appreciation reflects a broad move into high yield emerging markets by investors, as central banks for major economies - notably the Bank of Japan and European Central Bank - have adopted a more dovish stance.

That trend was reinforced earlier this week as comments by U.S. Federal Reserve Chair Janet Yellen made investors realise that U.S. interest rates could rise more slowly than they had earlier thought.

Traders said they believe the RBI would be reluctant to see the rupee appreciate too much, and would prefer to keep the currency within a range. Several traders said they reckoned the central bank would favour stabilising the market between 65.50 to 66.00 rupees per dollar in the near-term.

“The RBI won’t let the

rupee appreciate that much, even though they say they are not devaluing,” said the head of currency trading for a major Indian bank.

Traders said they expect the rupee could appreciate further, after foreign investments into Indian debt and equity surged to a one-year high of US$3.3 billion in March, reversing outflows from earlier this year.

The RBI’s latest dollar purchases will boost foreign exchange reserves, which stood at a record high of US$355.95 billion on March 18, according to the latest data. Reuters

Business Daily Friday, April 1 2016 17

Asia Factories Performance

South Korean industrial output near 6-1/2 yr high The data showed semiconductor production jumped 19.6 percent in February from a month ago.

S

outh Korea’s industrial output surged at the fastest rate for more than six years in February over January, Statistics Korea data showed yesterday, as demand for smartphones and cars drove factory activity.

Output rose by a seasonally adjusted 3.3 percent in February on monthly terms, following a downwardly revised 2.1 percent fall in January. The initial reading for January was down 1.8 percent.

February’s growth rate was the fastest since a 3.7 percent gain in September 2009 and far outperformed a median 0.2 percent decline tipped in a Reuters survey of 12 analysts.

Factory data tends to be volatile, even after adjustment for seasonal factors.

“I think industrial output has finally hit bottom and is now coming up. I don’t see any huge issues through end-Q2 but recovery in consumption will be key going forward,” said Park Jung-woo, an economist at Korea Investment & Securities.

“In the short term, we may see many market expectations for a rate cut in April or May die down.”

The data showed semiconductor

production jumped 19.6 percent in February from a month ago while sales of durable goods, including cars had risen 3.6 percent over the same period.

Tech giant Samsung Electronics Co Ltd recently launched its new flagship Galaxy S7 smartphones, for which it saw pre-orders surge.

Car sales were helped by a tax cut revived by the government early this year aiming to boost consumption.

A finance ministry official said the data for March was expected to be even better as the decline in exports is expected to have eased somewhat and investment will likely pick up.

Adding to the optimism, a survey published earlier in the day showed business sentiment ticked up for the first time in five months, although overall sentiment still remained gloomy.

On an annual basis, February’s industrial output rose 2.4 percent, beating a forecast of no change tipped in the Reuters survey. This compared with a revised 2.2 percent fall in January.

Service sector output in February inched up a seasonally adjusted 0.3 percent on monthly terms, although failing to recoup a revised 1.3 percent fall in January. Reuters

Tech giant Samsung Electronics Co Ltd recently launched its new flagship Galaxy S7 smartphones, for which it saw pre-orders surge.

18 Business Daily Friday, April 1 2016

International In Brief Turkey

Economy grows 4 per cent in 2015 Turkish output grew a stronger-than-expected 4 percent in 2015, official data showed yesterday, as robust domestic demand provided cheer for an economy that has been weighed down by political and security concerns in recent months. Spillover effects from the conflict in neighbouring Syria have dented Turkey’s key tourism industry and relations with major trade partner Russia, while investor confidence has been hit by uncertainty generated by an election cycle last year.

The growth exceeded a forecast of 3.9 percent in a Reuters poll, helped by a strong showing in the final quarter when the economy expanded 5.7 percent, according to data from the Turkish Statistics Institute.

WTO

Canada launches complaint against US Canada has filed a complaint against the United States over countervailing duties imposed on imports of supercalendered or glossy printing paper, the World Trade Organization (WTO) said yesterday. In its proceeding filed on Wednesday, Canada said the U.S. measures were inconsistent with several provisions of the WTO’s Agreement on Subsidies and Countervailing Measures.

Under WTO rules, the United States has 60 days in which to settle the dispute through bilateral talks, after which Canada could ask the WTO to adjudicate on the case.

Retail

Germans cut spending Unemployment was unchanged in March, ending a five-month run of falls, and weaker retail sales at the start of the year pointed to a slowdown in private consumption on which the economy is increasingly relying for growth.

Unemployment, adjusted for seasonal swings, was steady at 2.728 million, the Labour Office said, bucking expectations in a Reuters poll of economists for a drop of 7,000. It was the first month since last September the jobless total has not fallen.

DZ Bank economist Michael Holstein said Germany could no longer expect routine falls in unemployment.

Labour reforms

French protesters return to streets The nation faced fresh protests over labour reforms yesterday, just a day after the beleaguered government of President Francois Hollande was forced into an embarrassing U-turn over constitutional changes. The Eiffel Tower was shut by the strike, dozens of schools were closed or barricaded by students, train services disrupted and more than 200 demonstrations held across the country. The Socialist government is desperate to push through reforms to France’s controversial labour laws, billed as a last-gasp attempt to boost the flailing economy before next year’s presidential election.

Macro-Data

British current account deficit balloons Chancellor of the Exchequer said the numbers underscored the importance of Brexit referendum.

William Schomberg and Ana Nicolaci da Costa

B

ritain’s current account deficit widened to a record high at the end of last year, highlighting a weak spot in an economy coming under sharper focus ahead of a vote on whether to remain in the European Union.

Official data also released yesterday showed the country’s economy grew slightly faster than previously thought in the fourth quarter, giving a boost to sterling.

Meanwhile, a measure of consumer confidence remained stuck at its lowest level in more than a year, hurt by worries about the EU referendum and the euro zone’s persistent economic problems.

The deficit in the current account was the eye-catcher. It shot up to the equivalent to 7.0 percent of gross domestic product from 4.3 percent of GDP in the third quarter. It was more than expected.

Finance minister George Osborne said the numbers underscored the importance of Britain voting to remain in the EU in the referendum

on June 23.

“Today’s figures expose the real danger of economic uncertainty and shows that now is precisely not the time to put our economic security at risk by leaving the EU,” Osborne said.

The value of sterling has weakened sharply since the start of year on concerns about the outcome of the EU referendum. Bank of England (BoE) Governor Mark Carney has said a vote to leave the bloc would test the “kindness of strangers” on whom Britain relies to cover its balance of payments shortfall.

For 2015 as a whole, the current account deficit stood at 5.2 percent of GDP, the biggest since records began in 1948, the Office for National Statistics said.

Key Points Current account deficit hits record high GDP growth revised up in Q4 and 2015 Sterling rises on stronger growth Osborne warns of Brexit risks

The ONS figures showed a fall in income from British direct investments abroad while more money flowed out to foreign investors in Britain.

The imbalance in flows has grown as Britain’s economy expanded more strongly than many other countries over the past three years.

Stronger growth, household pressure

The ONS said that Britain’s economy grew 0.6 percent in the fourth quarter compared with the previous three months, higher than a previous estimate of 0.5 percent, helped by the country’s dominant services sector.

GDP was 2.1 percent bigger than in the fourth quarter of 2014, stronger growth than the previous estimate of 1.9 percent.

Economists taking part in a Reuters poll had expected no change to the previous ONS estimates for gross domestic product.

In 2015 as a whole, Britain’s economy grew by 2.3 percent, higher than a previous estimate of 2.2 percent.

After two years of strong growth, Britain’s economy began to slow in late 2015 although it remains one of the leaders among the world’s rich countries.

Consumer demand remains the main driver of growth and spending by households grew by 0.6 percent in the fourth quarter, unchanged from the previous three months.

BoE data showed growth in consumer lending over the 12 months to February was its strongest since 2005.

However, real household disposable income fell 0.6 percent as rises in incomes failed to keep up with a pickup in prices and the ratio of savings fell to a record low, the ONS said. Reuters

Inflation

Euro zone prices stay negative in March but ‘core’ rises The ECB expects inflation to average just 0.1 percent this year before a pickup in 2017.

Jan Strupczewski and Balazs Koranyi

The fall in euro area inflation slowed this month while core figures, which strip out volatile food and energy prices, accelerated, mildly positive news for the European Central Bank as it struggles to revive anaemic price growth.

Annualised inflation picked up to -0.1 percent from -0.2 percent, in line with expectations, as rising food and services prices offset another big fall in energy costs, data from Eurostat showed.

The inflation tick-up, presaged by surprisingly high German figures on Wednesday, is the latest in a string of slightly positive data for the 19-nation currency bloc, indicating that the euro zone’s tepid domestic recovery remains on track despite

headwinds from abroad.

The ECB has been battling ultra-low inflation for years and unveiled an unexpectedly big stimulus package this month, cutting rates deeper into negative territory, expanding monthly asset buys by a third and offering free loans to banks.

Core inflation, a figure closely watched to gauge underlying trends, picked up to 0.9 percent from 0.8 percent, broadly in line with its recent trend and with expectations, alleviating some fears that low energy prices are feeding into the cost of other goods and services.

The ECB especially fears these socalled second-round deflationary effects from falling crude prices as they could lead to low price growth becoming entrenched.

Still, inflation remains far below the ECB’s target of nearly 2 percent and is not expected to return to target over the next three years. This indicates the central bank will have to keep rates exceptionally low and keep the door open to even more stimulus.

Indeed, the ECB expects inflation to average just 0.1 percent this year before a pickup in 2017. But the forecasts could prove overly pessimistic, analysts say, as the bank assumed Brent crude prices of US$34.9 for the year, more than 10 percent below the prevailing level.

Still, recent data about the euro zone’s economic health indicate that the bloc’s domestic recovery is on track despite headwinds coming from a slowdown in emerging markets, particularly China. Reuters

Business Daily Friday, April 1 2016 19

Opinion Business Wires

China Daily China is very likely to meet the target of having 15 percent of its energy demand coming from renewables by 2020, said the head of the International Energy Agency. Fatih Birol, executive director of the Paris-based IEA, said on Wednesday that he doesn’t see any reason for China to fail to reach the target as long as the country’s push for renewable energy continues. “China has made some major moves in energy transition. It is No 1 in wind energy production, No 1 in solar energy production and No 1 in hydropower energy,” Birol said.

Learning without theory The Star Malaysia will be able to meet its gross domestic product (GDP) growth projection this year, based on existing policy measures that have been put in place to counter current global economic challenges, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz. “I believe we are on track to achieve the GDP growth trajectory ... if we were not, you would see more measures being introduced,” she told reporters on the side-lines of the Responsible Finance Summit here yesterday. Bank Negara last week announced its GDP growth projection of between 4% and 4.5% for Malaysia this year.

Bangkok Post The national e-payment scheme, including Any ID, e-tax and a rise in the number of electronic data capture (EDC) machines, is expected to be in place by July, says Finance Minister Apisak Tantivorawong. The first stage of the plan, Any ID, is a system that enables people, even those who lack a bank account, to transfer money using a mobile phone and ID. Expansion of EDC, which runs in tandem with Any ID, will be divided into two phases. The first phase will encourage companies, state agencies and individuals who register with the value-added tax (VAT) system to install card payment machines.

The Korea Herald The South Korean government reaffirmed its pledge to support the growth of the nation’s biotechnology and health care sector at the Bio Korea 2016 international convention, which kicked off Wednesday. The convention … comes amid Seoul’s efforts to turn it into the country’s next economic growth engine.

To help achieve the goal, prime minister said the government would create a special committee tasked with overseeing all legislations linked to biotech and health care in order to improve related tax, financial and pricing regulations.

H

ow can we improve the state of the world? How can we make countries more competitive, growth more sustainable and inclusive, and genders more equal?

One way is to have a correct theory of the relationship between actions and outcomes and then to implement actions that achieve our goals. But, in most of the situations we face, we lack such a theory, or if we have one, we are not sure that it is correct. So what can we do? Should we postpone action until we learn about what works? But how will we learn if we do not act? And if we act, how can we learn whether we did the right thing?

New advances in machine learning and biological anthropology are shedding light on how learning happens and what makes a learning process successful. But, while theories are important, most of what we learn does not depend on them.

For example, there may be a theory of what makes a cat a cat, but that is not how toddlers learn to recognize them. As Harvard’s Leslie Valiant argues in his 2013 book, we learn the concept of “catness” in a theory-less way by inferring it from a set of pictures of animals that are appropriately labelled as either cats or non-cats. And the more examples we see, the more we become “probably, approximately correct.”

We learn to recognize the spoken language without knowledge of linguistics, and voice-recognition software uses a theory-less learning algorithm called a “hidden Markov chain” on a set of audios and their texts, rather than by using linguistics, as Ray Kurzweil tells us in his book How to Create a Mind.

To the chagrin of many of us academics, theory is often dispensable.

Biological evolution is also based on a theory-less algorithm, one that learns which genotypes generate better-adapted individuals without having a theory of which changes in the genome will improve performance. It just uses random variation and selection of the fittest, over and over again.

While biological evolution through sexual reproduction requires generations, we can learn from each other much more quickly through cultural evolution, explaining why humans have made so much progress. According to Robert Boyd, Peter Richerson, and Joseph Henrich, our ability to imitate is at the core of our success as a species. It is what makes cultural evolution possible, cumulative, and powerful. It is what allows us to learn from others and hence to make progress much faster than if we were to learn by ourselves.

In addition, because imitation, like genetic replication, is not perfect, we accidentally discover other ways of doing the same thing (or even new and better things).

We humans are wired to imitate others, and we especially prefer to imitate the most successful among us. This makes evolutionary sense, as the features of the successful are more likely to be related to their success than those of others.

But this may lead to errors when what we imitate is unrelated to success. Advertising has exploited this weakness in our wiring, making us think that if George Clooney is cool and wears something, maybe we can be cool by wearing it, too.

More constructively, the business world uses

Ricardo Hausmann Former minister of planning of Venezuela, is Professor of the Practice of Economic Development at Harvard University.

imitation through the practice of benchmarking, whereby companies share performance information so that they can all learn what is achievable and whom to try to imitate, thus facilitating the identification of “best practices.” To improve, you can start by imitating what successful companies do, without a good theory of why.

Benchmarking has been moving to the policy arena, including issues such as sustainable development, the business environment, competitiveness, gender parity, and, more recently, inclusive growth. Some of these applications create good measures of performance, allowing users to assess outcomes and track progress.

Good examples of these benchmarking exercises are the World Economic Forum’s Global Gender Gap Index or the United Nations’ Human Development Index. They are theory-less in the sense that they do not tell you how to improve performance; but they do tell you if you did improve – that is, they inform about changes in “fitness.”

Other indicators, in my view, confuse measures of performance with measures of hypothetical causes of performance. They confuse the “what” and the “how,” and they inappropriately put both in the index. They attempt to be more theory-driven than our knowledge allows.

T w o exa m p l e s o f t h i s a r e t h e W E F’ s G l o b a l Competitiveness Index and its new Inclusive Growth and Development Index. For example, competitiveness has to do with the ability to increase market share without sacrificing margins or lowering wages, something that reflects superior productivity. The inclusiveness of growth has to do with the disparities of income and growth across different regions and social groups.

But this is not what these indexes really measure.

Instead, the indexes include variables – what they refer to as the “policy space” – that are supposed to cause either competitiveness or inclusive growth.

And the authors do not even check whether they do. (In the case of competitiveness, my co-authors and I have found that they don’t.)

Confusing “what” and “how” is counterproductive. It has led country after country, including Colombia, Mexico, Morocco, and Saudi Arabia, to try to improve their competitiveness ranking by working on things that are in the index but that do not really improve their performance. And they are late in finding out, because they do improve their ranking in the index.

We do not really know what could make growth more inclusive, countries more competitive, and development more sustainable in each country and region; and we should not pretend that we do. We can help the world make progress by measuring the outcomes we care about, facilitating imitation and tracking performance. But confusing means and ends will have us all dressing like George Clooney and wondering why we do not really feel all that cool. Project Syndicate

“We do not really know what could make growth more inclusive, countries more competitive, and development more sustainable in each country and region; and we should not pretend that we do”

20 Business Daily Friday, April 1 2016

Closing Trade links

Sri Lankan parliament to be briefed on deals with China

Wickremesinghe said that an agreement will also be signed with India and parliament will be briefed on the agreements in order to ensure the process is transparent.

Sri Lanka’s Prime Minister Ranil Wickremesinghe “The draft texts of the agreements will be submitted (pictured) yesterday said that parliament will be briefed on the deals Sri Lanka is expected to sign with China and to parliament and through parliament to the public,” India. Wickremesinghe told members of the ruling United he said.

The prime minister also said that Sri Lanka is in talks with National Party that Sri Lanka and China are to discuss the EU to regain the EU GSP plus trade concession, while an economic plan soon. He also said that Sri Lanka and expects the ban imposed on Sri Lankan fisheries products China are expected to sign a free trade agreement next by the EU to be lifted by the end of this year. Xinhua month.

Rating

S&P cuts China sovereign credit outlook to negative The news is unlikely to be welcomed by Chinese officials, many of whom have publicly criticized the previous Moody’s downgrade as baseless.

Pete Sweeney and James Pomfret

S

&P cut its outlook for China’s sovereign credit rating yesterday to negative from stable, but maintained the rating at AA-, saying the government’s reform agenda is on track but likely to proceed more slowly than expected.

The downgrade for China’s outlook follows a similar move by ratings agency Moody’s Investor Services in early March.

At the same time, S&P also downgraded the outlook for Hong Kong, a special administrative zone of China, to negative, while reaffirming the Asian financial centre’s AAA rating.

“Our outlook revision on Hong Kong reflects our similar action on the People’s Republic of China... which reflected economic imbalances in China that are unlikely to diminish at the pace we previously expected,” S&P said in a statement.

The news is unlikely to be welcomed by Chinese officials, many of whom have publicly criticized the Moody’s downgrade as baseless.

Linus Yip, strategist at First Shanghai Securities Ltd in Hong Kong, said that investors need time to study the logic of S&P’s downgrade to understand the implications.

“China is still likely to be an A+ credit, which is still much better than all emerging market peers and many middle income and developed countries” London-based Sanjiv Shah, CIO at Sun Global Investments

The yuan currency weakened slightly in offshore markets after the S&P news but later steadied.

“This has been well flagged - a greater than expected slowdown and worries about very high levels of bad debt in the economy, especially with respect to loans to struggling industrial companies and property lending,” said London-based Sanjiv Shah, CIO at Sun Global Investments.

“However, it should be noted that China’s rating is a high AA- and even if this eventually results in a downgrade, China is still likely to be an A+ credit, which is still much better than all emerging market peers and many middle income and developed countries.”

The Chinese government has grown increasingly active in trying to control the conversation over its economic outlook both at home

and abroad, concerned that negative sentiment could encourage capital flight that would sabotage attempts to reinvigorate growth through investment.

Investors, both foreign and Chinese, have grown increasingly nervous as growth in the world’s second-largest economy has cooled to a 25-year low, raising questions about Beijing’s ability to deliver on promised reforms such as shedding bad debt and reducing industrial overcapacity without setting off a financial crisis or a spike in unemployment.

Chinese stock markets remain subdued after a bone-rattling crash in the summer of 2015 that only recently showed signs of bottoming out, and money flowed out of yuan-denominated assets at record rates as the currency slid against the dollar last year. Reuters

Fraud

Retail

Politics

Unpaid Mainland investors claim money back

Hong Kong sales plunge the most in 17 years

South Africa opposition moves to impeach president

More than 100 Chinese investors descended on the Shanghai offices of Jinlu Financial Advisors yesterday demanding their money back from investments, including those tied to a martial arts film whose box office figures were inflated.

Investors on the scene told Reuters that the asset manager invested in movies, real estate and various other sectors and had failed to pay out on investments maturing on or after March 25. They said they had not been informed of reasons for the delayed payments.

According to the investors and Chinese media reports, those movies include Ip Man 3, whose distributor admitted last week to buying 56 million yuan (US$8.66 million) in tickets to bump up sales.

The Chinese film industry has been “blighted” by cinemas and distributors cheating to inflate box office figures through accounting ploys or other tricks, such as claiming ticket sales that exceed an auditorium’s capacity, state-owned Xinhua news agency said in its report on the Ip Man 3 fraud last week.

Investors crowded into Jinlu’s offices, filled with shouting and cigarette smoke, as security guards blocked them from entering certain parts of the building. Reuters

Hong Kong’s retail sales in February have plunged the most since 1999 as fewer Chinese tourists visited the city during the Lunar New Year holiday.

Retail sales dropped 21 percent in February to HK$37 billion (US$4.8 billion) year on year, according to a statement from Hong Kong’s statistics department. Combining January and February, sales fell 14 percent. The monthly decline is the worst since January 1999 when sales were also down 21 percent.

Chow Tai Fook Jewellery Group Ltd., the world’s largest-listed jewellery chain, and Sa Sa International Holdings Ltd. reported slumping sales over the holiday when mainland Chinese tourists to the territory dropped 12 percent during February 7-13.

Mainland China tourists “are unlikely to come back in the short term,” said Forrest Chan, an analyst at CCB International Securities. Hong Kong residents are also consuming less due to stagnant property values and the weak stock market, he said.

Chinese visitors are projected to fall 3.2 percent for the year, according to the Hong Kong Tourism Board, with average spending dropping 4 percent to HK$6,948. Bloomberg News

Following a judgement by the Constitutional Court in the much anticipated Nkandla case, the opposition Democratic Alliance (DA) has officially begun the process to impeach President Jacob Zuma, it was announced yesterday.

In the ruling handed down yesterday, the court found that Zuma failed to uphold, defend and respect the Constitution as the supreme law of the land by disregarding Public Protector Thuli Madonsela’s report on the Nkandla case, in which Zuma was accused of abusing public funding worth 246 million rand (about US$16 million) in security upgrades at his private home at Nkandal, KwaZulu-Natal Province.

The DA said this pivotal judgment confirms its long-held contention that Zuma seriously violated the Constitution when he sought to undermine the Public Protector’s remedial actions by instituting parallel investigative processes, and his subsequent failure to implement her remedial action.

“Today’s ruling is clear in this regard: President Jacob Zuma’s action amounts to a serious violation of the Constitution, and constitutes grounds for impeachment,” the DA said in a statement. Xinhua