Macau Business Daily April 19, 2016 by Business Daily

Anzac Day Observance in Macau Mon, 25 April 2016 │ 7:30am - 9am │ MGM Macau Followed by Gunfire Breakfast from 8am

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Singapore exports data confirms global weakness Trade Page 11

Tuesday, April 19 2016 Year V Nr. 1025 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Leaks

Ng Lap Seng companies tied to Panama Papers Page 6

Technology

Theft

Page 2

Page 7

86.3 pct of Macau households access Internet

www.macaubusinessdaily.com

Philippines prepared to act against banks in Bangladesh heist

Alipay IPO

Ant Financial could initiate the process of going public in Shanghai as soon as this year Page 8

Home Sweet Home

Society

Standing room only. Macau’s population density increased to 21,100 persons per square kilometre in 2015. Occupying 30.4 square kilometres of land. Water consumption increased 1.7 pct to 84.9 mln cubic metres. While the volume of domestic garbage collected increased 4.6 pct to 229,004 tonnes. Page 3

Residential China’s property market continues to look up. With most surveyed major cities reporting m-o-m rises in new home prices. Of 70 large and medium-sized cities surveyed in March, 62 posted new home price increases m-o-m, up from 47 the previous month, said the National Bureau of Statistics. Page 8

Broadcasting Local public broadcaster TDM’s 2015 profits narrowed to MOP8.1 million. Despite MOP292.4 million in gov’t subsidies. Revenues dropped 7.1 pct y-o-y due to decreased ad sales and sponsorship. Operating costs increased 10 pct, largely due to increased employee wages. Page 4

Beefing up the bench Officials of the Public Prosecutor’s Office of the MSAR met with a delegation from Ministério Público of the Portuguese Republic. Agreements to fight corruption and money laundering were discussed. As was the issue of Portuguese magistrates working in Macau. Judiciary Page 5

Spotlight on new junkets Gaming Analysts say no ‘material impact’. This, regarding the proposed substantial increase in capital requirements for new junket entrants to the MSAR market. Bernstein indicates that the risk remains that further junket regulations may be forthcoming in 2016. Over 141 Licensed junkets currently operate in Macau. Page 6

HK HSI April 18, 2016 21,161.50 -154.97 (0.73%) Li & Fung Ltd

+1.04%

Cheung Kong Infrastruc-

+0.88%

China Merchants Holdings

+0.63%

New World Development

+0.39%

Hong Kong & China Gas

+0.13%

Hang Seng Bank Ltd

-0.14%

Link REIT

-0.21%

CNOOC Ltd

-1.64%

PetroChina Co Ltd

-1.88%

China Life Insurance Co

-1.93%

Cheung Kong Property

-2.22%

Wharf Holdings Ltd/The

-2.22%

Tingyi Cayman Islands

-5.01%

22° 24° 22° 25° 23° 27° 23° 27° 24° 26° Today

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I SSN 2226-8294

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Source: Bloomberg

Public service struggling

Source: AccuWeather

Mainland prices hotting up

2 Business Daily Tuesday, April 19 2016

Macau In Brief Finance

AMCM host financial leasing forum To implement the policy of developing featured financial industries and to promote financial leasing business development in Macau SAR, the Monetary Authority of Macau (AMCM) organised the ‘Development of Financial Leasing Business in the Macau SAR Forum’ in Beijing on 14th April, 2016. At the forum, Mainland specialists, scholars and industry practitioners shared their experiences and made valuable suggestions related to the development of financial leasing in Macau; in particular, their opinions on the enhancement of relevant operating environment by offering more preferential treatment. The AMCM says it will make recommendations on the enhancement of the legal regime and regulatory arrangements for financial leasing business, and report accordingly to the SAR Government.

Technology

86.3 per cent of Macau households access Internet With the popularity of smartphones, the proportion of the population using mobile phones to access the Internet has increased 11.8 pct y-o-y. Annie Lao annie.lao@macaubusinessdaily.com

sers of mobile phones reached up to 559,500 in 2015, increasing 0.6 per cent year-on-year, with a penetration rate of 92. 2 per cent, compared to the previous year, indicating a similar rate, according to the latest survey on Information Technology Usage in Households for 2015, released by the Statistics and Census Service (DSEC) yesterday. DSEC data also revealed that a total of 166,300 Macau households used the Internet in 2015, representing 86.3 per cent of the total households

1,000 Patacas Median spending on online shopping in 2015 Q4

in Macau, and indicating a 2 per cent increase year-on-year. The number of households using fibre optic broadband connection to access the Internet doubted to 36,200 in 2015, while mobile broadband users increased by 1.5 per cent year-onyear, accounting for 141,400.

More online shoppers

In addition, DSEC data shows that communication was the main purpose of using the Internet, accounting for 90.4 per cent, while web entertainment accounted for 76.8 per cent, increasing 3.5 per cent and 1.2 per cent, respectively, compared to the previous year. Some 62,300 online shoppers were also recorded in 2015, up 7 per cent year-on-year. Median spending on online shopping was MOP 1,000 in the fourth quarter of 2015, which is similar to the same quarter of 2014. Median spending on travel services and electronic products stood at MOP

5,000 and MOP1,125, respectively, up 53.8 per cent and 127.3 per cent year-on-year.

Desktops fading

A total of 152,200 households possessed computer equipment, constituting 79.0 per cent of the total, down 2.1 percentage points yearon-year. Households with desktop computers totalled 108,300, down 10.5 per cent year-on-year; those with tablets (92,700) and portable computers (91,500) rose by 14.9 per cent and 7.0 per cent, respectively. The computer penetration rate for the population aged three and above increased 0.5 per cent year-on-year, accounting for 61.1 per cent. DSEC says the data for the survey on information technology usage by Macau households was collected among the population aged three and above in the fourth quarter of 2015 via a supplementary questionnaire of the Employment Survey.

Trade

IPIM promotes Macau in Zhengzhou The 10th China (Henan) International Investment & Trade Fair was recently held in Zhengzhou, cap ital of Henan Province. The Macau Trade and Investment Institute (IPIM) was invited to participate in the event, where - in the ‘Henan, Hong Kong and Macau Exchange and Co-operation Seminar 2016’ - IPIM representatives promoted the unique advantages of Macau in the fields of trade and economy, with a view to developing its role as a service platform for exchange and co-operation between Henan and the Portuguesespeaking Countries. Furthermore, IPIM´s representatives also visited the Zhengzhou Comprehensive Experimental Zone for Airbased Economy, to learn about the development status of the local aviation industry and cross-border e-commerce, and also discussed introducing food and beverages from Portuguese-speaking countries to the Zhengzhou and Henan markets. Security

Public contracts

Self-service for Certificate of Criminal Record

DSSOPT studying feasibility of compensatory clauses

Starting from 20th April 2016, the authorities will provide a self-service for Certificate of Criminal Record application at the Immigration Department Office Building in Pac On, Taipa for the convenience of residents of the outlying islands and persons applying for the renewal of Residence Authorisation. The Public Security Police Force (PSP), the Public Security Forces Affairs Bureau (FSM), and the Identification Services Bureau (DSI) say they have been collaborating to simplify administrative procedures and proactively introduce various facilitation measures for the public.

The Public Works Department says further research is necessary before introducing compensatory clauses to public works contracts. Technical analysis and thorough research need to be conducted with regard to introducing compensatory clauses to the current system of public works contract, said Li Can Feng, Director of the Land, Public Works and Transport Bureau (DSSOPT) in a written reply to legislator Si Ka Lon’s enquiry. Legislator Si submitted a written enquiry on the current direction of introducing compensatory clauses into public works contracts and what new measures can be set up

to avoid indefinite delays of public projects, given several have been consecutively delayed with budget overruns, including Mong Ha Social Housing, the construction of the Light Rail Transit (LRT) system in Taipa, Pac On Ferry Terminal in Taipa, and Zone A project. The DSSOPT Director said in his reply that regarding the legislator’s suggestion the authorities have been studying the technical details and legal feasibility of introducing such clauses to the current system. He added that except for rainy weather affecting the public projects to be finished on time, other reasons resulting in delay include contractors failing to allocate resources to construction and failing to execute the original plans, etc. Thus, the government had extended the period of public projects based on the law. The government now

follows the strengthened requirements to supervise contractors in order to speed up construction, with the law to be strictly enforced to penalise contractors by imposing penalties. In addition, they are required to submit a progress report on projects to the DSSOPT by the agreed deadline. If the contractors are found not to have fulfilled the project’s duties, the relevant penalties will be enforced. In March, during a Legislative Assembly debate, Secretary for Transport and Public Works Raimundo Arrais do Rosário said that the government is inclined to maintain the current system of public works contract, which mandates punitive clauses rather than compensatory clauses. The Secretary said at the time that the current system “is not necessarily worse” and changes would take time to make.

Business Daily Tuesday, April 19 2016 3

Macau Sport

Sports Fund up 17.3pct year‑on‑year in 2016

million (US$4.3 million). Most of the Sports Fund revenue comes from taxes or profit from the ticket sales of sports The Chief Executive has approved the events, donations, heritage or the ceding first supplementary fund for the 2016 of multi-sports venues by the MSAR Sports Fund, according to a public dispatch in the Official Gazette published Sports Bureau (IDG). The fund acts as a financial reserve for the IDG, receiving, yesterday. The new budget will total MOP40.67 million (US$5.1 million), a 17.3 in addition, banking certifications of per cent increase in the approved Sports applicants of public tenders for sports events in Macau. Fund of 2015, which totalled MOP34.67

Environment Population density increased to 21,100 persons per square kilometre in 2015

Increasing density, consumption and waste In 2015, water consumption increased 1.7 pct to 84,939,000 cubic metres. Volume of domestic garbage collected increased 4.6 pct to 229,004 tonnes. Annie Lao annie.lao@macaubusinessdaily.com

acau’s population density i n c r eas e d t o 21,100 persons per square kilometre in 2015 vis-a-vis 20,500 per square kilometre recorded in 2014, according to the Environment Statistics of 2015 released by the Statistics and Census Service

(DSEC) yesterday. It also reveals that Macau’s land area was measured at 30.4 square kilometres. In addition, the data indicates some 229,004 tones of domestic waste, with 124,537 tones of waste from business collected in 2015, up 4.6 per cent and 1.3 per cent, respectively. The Refuse Incineration Plant treated 509,111 tones of solid waste, up 11.3 per cent year-on-year. The total volume of renovation and construction waste sent to landfill amounted to 4,835 tones, up 10.5 per cent.

Increasing water consumption

Official data also indicates that total water consumption amounted to 84,939,000 cubic metres in 2015, up 1.7 per cent year-on-year. Household water consumption accounted for 36,324,000

cubic metres, while the business sector consumed 43,145,000 cubic metres, up 3 per cent and 1 per cent, respectively. However, the government sector posted a decrease of 1 per cent to 5,470,000 cubic metres of water consumption. The Waste Water Treatment Plant treated an average of 192,965

cubic metres of wastewater daily, down 11 per cent year-on-year.

Improved air quality

In terms of air quality in the city, the survey shows the number of ‘Good’ air quality days increased in 2015 based on the four monitoring stations located in Macau

Peninsula and Taipa. The roadside of Rua do Campo indicated significant improvement with a total of 221 ‘Good’ air quality days in 2015, up by 87 days compared to the previous year while ‘Poor’ air quality days fell by 34 days. Nevertheless, Taipa and Coloane showed an increased number of ‘Poor’ air quality days. The sole ‘Very Poor’ air quality day in 2015 was recorded in January in the high density residential area of the Northern District. Annual acid rain days in 2015 totalled 66, down 11 days year-on-year. The average annual temperature in 2015 was 23.3 degrees Celsius, up 0.5 degrees year-on-year, and the highest average temperature since 1952. Total rainfall of 1,341 millimetres fell in 2015, down by 242.8 millimetres year-on-year.

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4 Business Daily Tuesday, April 19 2016

Macau Construction Hsin Chong Group profit grows 530 pct in 2015

Public broadcaster

Founding an empire

More subsidies, lower profits

sin Chong Group Holdings, formerly known as Hsin Chong Construction Group Limited, has announced a 530 per cent increase in profit, coasting to HK$2.45 billion over the 2015 year, as compared to the HK$388 million made during 2014, according to a filing on the Hong Kong Stock Exchange. This was attributable in part to the 7 per cent increase in revenue, “driven by the strong performance of the construction business,’ says the report. The group says they faced a ‘challenging year in 2015’ yet still achieved an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of HK$2.79 billion in 2015, a 315 per cent increase from the previous year. Group turnover was 92 per cent attributable to its construction business and 7 per cent attributable to property and facility management, a switch from the 90 per cent and 9 per cent ratio experienced in 2014, respectively. This turnover amounted to HK$11.2 billion. Gross profit was also largely attributable to the construction segment, with 82 per cent derived in 2015 – amounting to HK$512 million - compared to the 80 per cent of the previous year. Property and facility management made up HK$93 million of the group’s gross profit.

Macau makes money

Hsin Chong has worked on the majority of large-scale integrated resort projects in Macau and acts as a ‘long term partner’, according to its filing, with Sands since it provided construction management services for the group’s debut project in Macau in 2004. Since then, the group has worked on The Venetian Macao in 2007,

Sands Cotai Central in 2012, and The Parisian Macao. In addition, the group is working on reinforced concrete works and general builders’ works for the podium of the Lisboa Palace. Recent projects, driven by the group’s efforts in Macau, include Hsin Chong’s two construction management services (CMS) contracts to build the Commercial Complex, Sportland and a Composite office building for the Mega City in Hengqin. Further afield, the group was granted a CMS contract for the Garapan Integrated Resort Development in Saipan, as well as the Thai Boon Roong Twin Tower World Trade Centre Project in Cambodia – a 500 metre tall structure.

“Our construction management business is continuing to expand its geographical reach to cover Macau, the Mainland of China, Cambodia and Saipan” Lin Zhuo Yan, Non-Executive Chairman of Hsin Chong Group Holdings

“On top of our current significant projects in Hong Kong and Macau,” said non-Executive Chairman, Mr. Lin Zhuo Yan in the filing, “our construction management business is continuing to expand its geographical reach to cover Macau, the Mainland of China, Cambodia and Saipan.”

For the year 2015 some 49 per cent of the group’s outstanding workload comprised ‘private clients and Macau gaming’, amounting to HK$6.7 billion, with the remaining divided between the ‘public sector and MTR’ – amounting to HK$7.9 billion. The private clients and Macau gaming include clients such as “Kerry Properties, Hang Seng Bank, New World and Hysan Group, The Venetian, Galaxy and SJM.’ Projects for these clients normally run from two to three years.

Wrapping up Macau and moving to Hengqin

The bulk of the group’s operating profit came from property development and investment over the year, amounting to HK$332.8 million, followed by building construction amounting to HK$216.4 million. Macau accounted for HK$4.75 billion in revenues throughout 2015, down from the HK$6.46 billion of 2014 – a 31.6 per cent drop. Currently, the group is working on a variety of projects in Macau including the CDSJ and USJ Green Campus in Ilha Verde, to be completed in May; the upgrade of the Macau Peninsula Waste Water Treatment Plant, to be completed in June next year; the reinforced concrete work on the Lisboa Palace, estimated for completion in July 2017; and the Sportland project in Hengqin, to be completed by September 2019. In addition, the group handles construction management services for The Venetian for its Sands property, Parcel 1 and 2, and Parcel 3, as well as Sands Cotai Central’s Parcel 5 and 6 – all scheduled for completion in December of this year. Services on Sands Cotai Central’s Tower 5B are scheduled to finish in June.

The broadcaster’s profits for 2015 narrowed to MOP8.1 million despite MOP292.4 million in subsidies from the government. Local radio and TV broadcaster TDM - Teledifusão de Macau SA - posted a yearon-year decrease of 38.7 per cent in profits to MOP8.1 million (US$1 million) for 2015 despite receiving subsidies from the government to the tune of MOP292.4 million, a jump of 15 per cent year-on-year. According to TDM’s 2015 annual report, company profits for the year fell by some MOP5.1 million from MOP13.3 million for 2014. Excluding the SAR Government’s subsidies to the broadcaster, TDM would post losses of MOP282.8 million for the year. The government’s subsidies to the company were distributed in two forms – operational subsidies and investment subsidies - amounting to MOP261.4 million and MOP30.9 million, respectively. The amount of the two subsidies respectively represents year-on-year increases of 10.9 per cent and 67.8 per cent. ‘The SAR Government provides subsidies to TDM based on the contract. This allows TDM to run its business and fulfil the obligations with financial stability. In terms of either accounts or finance, there is no difficulty encountered [for the operation],’ the broadcaster remarked in the report.

Revenues down, costs up

According to the report, TDM generated revenues of MOP96.6 million for last year, down 7.1 per cent yearon-year compared to the MOP104 million of one year ago. The drop has been driven

by the decrease in ad sales and sponsorship received. Last year, the company’s sales of advertising declined 10.6 per cent year-on-year to MOP83.9 million from MOP93.8 million in 2014. In addition, the sponsorship that the broadcaster received fell by 16.8 per cent year-onyear to MOP6.3 million from MOP7.6 million. Apart from lower revenues, the public broadcaster noted that its operating costs had grown 10 per cent year-onyear to MOP383 million. In particular, expenses for employees wages jumped 7.93 per cent year-on-year to MOP233.7 million.

292.4 Million patacas Government subsidy to TDM in 2015

‘This is a huge burden but we think this is necessary,’ the company said in the report, adding it was facing difficulties in recruiting employees as its ‘current implemented remuneration has no competitiveness in the labour market.’ As at the end of 2015, TDM employed 631 individuals, an increase of 11 compared to the 620 engaged for 2014. In addition, the company said it had invested MOP41.6 million during the year, primarily for equipment and office construction or renovation. Of the total, some MOP14.2 million has already been expended, according to TDM. K.L.

Corporate

CEM launches Energy Saving Contest

In the interests of promoting energy conservation in the hotel and property management industry CEM and the Energy Sector Development Office

have jointly launched the annual Macau Energy Saving Contest – in effect since 2009. So far, the contest has succeeded in saving over 116.4 kWh of electricity in its seven years in operation and aims to increase awareness of energy conservation among citizens, hotels and property management companies in this year’s edition. The contest runs for six months and is now open for registration. Two categories exist: Public Building Facilities Group and the Hotel Group. Contestants are judged based on six consecutive billing months of electricity consumption from May to October 2016 with winners to be announced in January 2017.

Galaxy offers assistance services to employees

Together with the Overseas Labourer Service of Caritas Macau, Sheng Kung Hui Gambling Counseling and Family Wellness Centre and Associação

de Juventude Voluntária de Macau, Galaxy Entertainment Group is offering employee assistance services to promote a healthy work-life balance, relieve stress and improve performance. Caritas Macau has distributed leaflets describing their employee assistance service and explain their counseling services while Sheng Kung Hui continues to offer its Employee Assistance and Responsible Gaming Promotion programmes – providing a support hotline, face-to-face and on-site counselling, and WeChat online counselling. In addition, the group’s annual Responsible Gaming Awareness Week saw the participation of 4,100 Galaxy Entertainment Group members, compared to 2,900 the previous year.

Business Daily Tuesday, April 19 2016 5

Macau Chief Executive, Chui Sai On, poses for a group photo with the Attorney General of the Portuguese Republic, Ms Joana Marques Vidal (5th left), at the Government Headquarters.

IBS

Justice Portuguese Magistrates now able to work in Macau for a renewable period of 4 years

Portuguese and Macau prosecutors discuss judicial co-operation Agreements to fight corruption, money laundering and magistrates working in Macau were discussed. Nelson Moura nelson.moura@macaubusinessdaily.com

he Attorney General of the Portuguese Republic, Joana Marques Vidal, led a delegation from Ministério Público (Public Ministry or Portuguese MP) of the Portuguese Republic, and visited the Public Prosecutor’s Office (Macau MP) of the Macau Special Administrative Region yesterday as part of a threeday visit to Macau in an attempt to deepen co-operation between the two jurisdictions in the fight against corruption and money laundering, as well as the formation of magistrates and extending the period Portuguese magistrates can work in the MSAR. “We want to keep co-operation between Portugal and Macau, which are united culturally and with the same judicial system. Macau can benefit from the support of the Portuguese Public Ministry and with the exchange of experience,” said Ms. Vidal. The meeting with Macau Prosecutor General Ip Son Sang also included the presence of the Director of the Central Investigation Department and joint prosecutor Amadeu Francisco Ribeiro Guerra, and Permanent Member of the Superior Council of the Prosecutor’s Office Jorge Manuel Alves de Oliveira.

Magistrate service in Macau debated

In a previous statement sent to the news agency Lusa earlier this month

the Portuguese Council for Public Prosecution announced ‘commissions of service by magistrates [in Macau] should have a limited time duration, normally three years, able to be renewed again if exceptional public interest is warranted’ claiming it was ‘totally available to bring magistrates with equal qualifications for those positions’. Following the meeting yesterday, however, Prosecutor Vidal announced there was an agreement that would allow magistrates interested in working in the MSAR to be commissioned for four years, with the possibility of extending the period to eight years. “The number of magistrates required by the Macau MP will be dependent upon how many prosecutors are available in Portugal, which is already limited now; but we haven’t discussed any limitations on the number of prosecutors that can be asked for,” said Ms. Vida. In his statement after the meeting, Prosecutor Ip Son Sang stressed how the “MSAR can benefit from the experience of the Portuguese Public Ministry,” but didn’t comment on the possibility of Macau having a shortage of prosecutors since of the four Portuguese Public Prosecution magistrates working in Macau, one had to return to Portugal after his commission period expired last year and another is expected to do so in August this year, the reason the Macau MP contacted its Portuguese counterpart in order to resolve the

limitation of magistrates’ commissions, Lusa reported. The topic was also touched upon during Vidal’s meeting on Sunday with the Macau Lawyer’s Association (AAM), where she stated that the Portuguese Public Ministry is fully aware that with the Macau legal code being a legacy of the Portuguese penal code, both prosecution offices should “deepen their co-operation through agreements or through magistrate education”, as reported by news agency Lusa. After the Sunday meeting Vidal said the AAM showed interest in keeping the “co-operation with the Portuguese Public Ministry” and she invited Association president Jorge Neto Valente to travel to Lisbon in order to maintain good relationships, Lusa reported. The president of the AAM stated that “it’s always useful to be able to have an opportunity to change impressions and see that we share the same points of view about the necessity of bringing Public Prosecutors from Portugal to Macau.” In January this year the Portuguese Public Ministry announced an agreement for Portuguese magistrates to be able to work in the MSAR, and promised it would be ‘completely available’ to replace any magistrate working on commission in Macau who couldn’t extend the commission period, Lusa reported at the time.

Corruption concerns

Vidal’s visit also focused on deepening co-operation in the fight

against corruption and money laundering, and after yesterday’s meeting offered the “availability to receive magistrates from the MSAR for formation and internships in organisations against corruption, like the Portuguese Central Department of Investigation and penal action.” Corruption and money laundering have been in focus following the release on April 13 of the annual report by the Commission Against Corruption (CCAC). The report revealed identified ‘active and passive corruption, document falsification, abuse of power, violation of secrecy and unjustified wealth’ concerning the majority of all 262 criminal cases committed by ‘public servants’, Business Daily reported. On the same day Vidal was meeting with the AAM, Legislators Ng Kuok Cheong and Au Kam San, together with other Association for the Initiative of Community Development in Macau members, delivered a letter to the government, urging the Chief Executive to fight the alleged complicity between public employees and contractors connected to public projects, including procurement of goods and services, TDM reported. After Macau, the Portuguese Prosecutor General will travel to Beijing, following an invitation by the Chinese Supreme Prosecutor’s Office, with the purpose of also tightening the bonds between the two countries’ judiciaries, Lusa reported.

Trade

Sina-Luso trade drops 25.54 pct In the first two months of this year, Chinese exports to Portuguese-speaking countries only reached US$4.038 bln, a plunge of 49.16 per cent year-on-year. Trade between China and Portuguese-speaking countries fell 25.54 per cent yearon-year in the January-February period, according to data from the Chinese Customs department published by the Forum Macau. Total commercial trade

amounted to US$11.19 billion (MOP89.39 billion) throughout the two-month period, with Portuguese-speaking countries selling goods amounting to US$7.15 billion to China – a 0.95 per cent increase year-on-year. However, Chinese exports

t o P o r t u g u e s e - s p e a king countries during the same period only reached US$4.038 billion, a drop of 49.16 per cent year-on-year. An 18.26 per cent monthon-month decline was also registered in the total value of merchandise traded in

February – which reached US$5.03 billion during the month. F e b r u a r y a l s o sa w a month-to-month 28.28 per cent drop in goods China sold to Portuguese-speaking countries – amounting to US$1.68 billion, while imports to China from the countries also dropped, down 12.06 per cent monthto-month – hitting US$3.35 billion. Brazil remained the primary trading partner with China, with US$7.63 billion in trade registered throughout

the two-month period – a 22 per cent drop year-onyear, US$3.21 billion of which was conducted in February. Angola came in as second highest partner during the period, logging US$2.45 billion in trade – a 38.4 per cent year-on-year drop, US$1.34 billion of which occurred in February. Both Brazilian and Angolan exports to China in the two-month period dropped extensively, amounting to a 50. 27 per cent and 77.32 per cent year-on-year fall, respectively. K.W.

6 Business Daily Tuesday, April 19 2016

Macau Gaming

Inventive Star increases interest in Imperial Pacific to 65 pct

Inventive Star Limited increased its interest in Imperial Pacific International Holdings Limited to 64.62 per cent, following the acquisition of 40,580,000 shares of the company, according to a filing on the Hong Kong Stock Exchange yesterday. The trade was conducted with an average price of approximately HK0.1554 per share. In August 2014 Imperial Pacific was the subject of an enquiry by the Securities and Futures Commission,

given the ‘concentration of the shareholding of Imperial Pacific International Holdings Limited in the hands of a limited number of shareholders as at 15 July 2014’. The commission warned that given the high concentration, notably 75 per cent in the hands of Inventive Star Limited, who, along with another 18 share holders, commanded 92.61 per cent of the total, the ‘price of the shares of the company could fluctuate substantially, even with a small number of shares traded,’ warning shareholders and prospective investors to ‘exercise extreme caution’.

Gaming

Bernstein: Junket capital control of ‘no material impact’ Gaming analysts predict mass will be the driver of rejuvenated growth beginning in 2016 and continuing through the rest of the decade. Joanne Kuai joannekuai@macaubusinessdaily.com

he potential security deposit increase for local junket operators will not have a material impact, according to analysts from brokerage Sanford C. Bernstein Ltd. Macau’s junket association has proposed to the Macau Government that capital requirements for new junket promoters be raised to MOP10 million (US$1.3 million) from MOP100,000 with at least one Macau resident a shareholder. “We believe this change would have minimal incremental impact on the junket industry, which has been consolidating in the past 24 months, and the remaining active ones tend to be better

capitalised,” said analysts Vitaly Umansky, Simon Zhang and Clifford Kurz in a note released yesterday. “The proposal is mild relative to our expected tightening of junket regulations this year. The risk remains that further junket regulations may be forthcoming in 2016.” The pledge to raise capital requirement aims to set the bar higher and better regulate the sector. If implemented, it would not apply to the existing 141 licensed junkets, just new entrants.

With regard to breakdown by segment of the Macau casino gross gaming revenue released by the government

last week, the gaming analysts also pointed out the “distortion caused by the smoking-related reclassification of Premium Mass and for other reporting shifts by operators”, hence reported adjusted VIP portion of total revenue at “a record low level” of 47 per cent, compared with the official figure of 54.1 per cent. The team added that while the Macau gaming industry will remain volatile over the

near term, they view the industry as a secular growth story driven by the paradigm shift from VIP to Mass. “Due to improvements in transportation infrastructure and the opening of large scale integrated resorts between 2015-2018, mass will be the driver of rejuvenated growth beginning in 2016 and continuing through the rest of the decade – the execution of a supply driven market,” reads the Monday note.

Paradigm shift

In addition, the Bernstein analysts indicate that through their channel checks from last week the gross gaming revenue of Macau casinos amounted to MOP4 billion, implying an average daily rate of MOP571 million, which compares to MOP550 million in the previous week, and MOP580 million in March. “While April is expected to be seasonally soft, should average daily rate remain at this suboptimal level it may weigh on the gaming stocks in the near term,” say the analysts.

Panama Papers Clinton links to Panama Papers reveal Macau connection

Ng Lap Seng companies tied to Panama Papers A list of offshore companies used by individuals with ties to the Clinton family has emerged as part of the Panama Papers investigation and contains corporations linked to billionaire Ng Lap Seng according to a publication under the umbrella of the International Consortium of Investigative Journalists (ICIJ), reported Hoje Macau yesterday. McClatchy Newspapers – who worked in concert with the ICIJ on the leaks - lists the businessman as ‘at the centre of the Democratic fund-raising scandal when Bill Clinton was President.’

The two companies in question are registered in the British Virgin Islands and both list Ng as a shareholder. The offshore company of the South News International Group Ltd. was the most recently established of the two, set up in May 2010, while the older GOLUCK Ltd. was established in 2004. Regarding Ng’s ties to the Clinton’s McClatchy reports that Ng was accused of sending over US$1.1 million to a Little Rock restaurant owner who consequently contributed hundreds of thousands of dollars to the Democratic National Committee.

Restaurant owner Charlie Trie pleaded guilty to violating campaign finance laws but Ng was never charged despite a congressional report criticising the businessman for failing to co-operate in the investigation, reported the publication. Ng reportedly visited the White House 10 times between 1994 and 1996, with his photo taken on various occasions with both Bill and Hillary Clinton, McClatchy reports.

2 Number of offshore companies linked to Ng Lap Seng in Panama Papers, reports McClatchy

Last year, Ng was charged with bribing John Ashe, a former ambassador of Antigua and Barbuda to the United Nations General Assembly from 2013 to 2014. Additionally listed in the McClatchy publication, and with ties to the Clintons, are Gabrielle Fialkoff – finance director for Hillary Clinton’s first campaign for the U.S. Senate; Frank Giustra – Canadian mining magnate and founder of Lionsgate Entertainment - who lent Bill Clinton his plane and has contributed US$100 million to the Clinton Foundation; the Chagoury family – who pledged US$1 billion in projects to the Clinton Global Initiative and billionaire investor and former international fugitive Marc Rich, whom Bill Clinton pardoned before leaving office. K.W.

Business Daily Tuesday, April 19 2016 7

Macau Heist

Philippines prepared to act against banks in Bangladesh heist A Chinese junket operator named two high-rolling gamblers from Beijing and Macau who he said had brought the stolen money into the Philippines.

he Philippine central bank will penalize any financial institution it finds to have broken rules in connection with the laundering of

US$81 million in stolen Bangladesh foreign reserves in early May, Deputy Governor Nestor Espenilla said. “If there really is a serious violation of rules, the bank can be punished,”

RCBC Savings Bank Corporate Center, in Manila, the Philippines.

Espenilla said in an interview late Saturday in Tagaytay, south of Manila. “They can be made to pay fines or made to stop or reduce certain businesses. People from board of directors to branch managers can also be sanctioned,” he said, declining to identify banks or individuals. Rizal Commercial Banking Corp., which received the US$81 million of stolen money, has been at the center of a Senate investigation, with its president and branch manager being asked to testify at a hearing. The funds were wired from Rizal Bank to remittance company Philrem Service Corp. before being sent on to at least two casinos. Almost all of the money is still missing.

Criminal investigation

The results of the central bank investigation will be referred to the anti-money laundering council for its own criminal investigation, Espenilla said. Bangko Sentral ng Pilipinas will need to decide how much of the investigation will be made public as it balances the disclosure with the necessity to ensure the stability of the banking industry, he said. “People can overreact and that can result into a bigger problem,” he said. “It might tip over institutions concerned.” Rizal Bank would consider repaying

Gaming

Solaire Resort and Casino operator sustains US$72.8 million losses in 2015 Bloomberry Resorts Corporation, owner and operator of the Solaire Resort and Casino and Jeju Sun Hotel and Casino, saw a net loss of PHP3.375 billion (US$73.11 million) for the year 2015, according to a filing on the Philippine Stock Exchange. This represents a 220 per cent loss compared to the previous year’s PHP4.072 billion (US$88.19 million) earned in net income. The group attributes this to ‘large increases in depreciation and amortization associated with Sky Tower and interest expenses from additional loan drawdowns made during the year.’ Total revenues for the company grew 7 per cent, hitting PHP34.35 billion, compared to PHP32.11 billion last year. However costs increased 51 per cent from the previous year, hitting PHP26.66 billion – attributed to ‘bad debt, the first-time consolidation of its Korea operation and the full-year impact of the additional

3.375 Billion Philippine pesos Net loss for operator in 2015

expenses associated with start-up operations of the Sky Tower in Solaire.’ EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) declined 49 per cent, dropping to PHP5.182 billion from the PHP10.08 recorded a year ago, due to an increase in bad debt and the PHP780 million ‘drag from the Company’s Korea start up,’ states the report. Gross gaming revenues for the company and non-gaming revenues hit ‘all-time highs’ amounting to PHP32.46 billion and PHP1.89 billion, respectively, and amounting to a 5 per cent and 49 per cent increase, respectively. This comes ‘despite a difficult gaming environment and the introduction of more competition with the opening of a new property in Entertainment City’. Revenues ‘still continued to come mostly from gaming and from the Philippines,’ stated the report, with gaming accounting for 94 per cent and hotel and F+B operations only making up 5 per cent. Expenses increased by 51 per cent compared to the previous year, topping PHP26.66 billion – attributed primarily to the operation of Sky Tower, with 5 per cent attributed to the company’s Korean operations. K.W.

part of any funds that can’t be recovered if it’s found to be liable, its president told a five-hour Senate hearing in Manila on April 12. “If we’re found liable, I would recommend to the board to set aside a certain sum,” President Lorenzo Tan said. Casino junket operator Kim Wong has said that he turned over about US$5.5 million received from two Chinese nationals to the country’s Anti-Money Laundering Council since March 31, and has pledged to return another 450 million pesos (US$9.8 million) that he received from one of the men as a debt payment. About US$18 million remained with Philrem, Wong told the Senate on March 29, a claim that Salud Bautista, president of the remittance company, denied during the Senate hearing. Bautista said the company had delivered all US$81 million to Wong’s group. The central bank is working with other regulators on measures that would strengthen the nation’s anti-money laundering powers by including casinos in its coverage, easing the bank deposit secrecy law, and increasing penalties, Espenilla said. “We have to make our financial system as unattractive as possible for bad money to come in,” the deputy governor said. The central bank plans to ease rules on foreign exchange to encourage more people to transact in the formal market to reduce black-market activities, Espenilla said. Bloomberg

8 Business Daily Tuesday, April 19 2016

Greater China Shenzhen continued to be the top performer.

Property market

March home prices rise at fastest rate in 2 years China’s housing market bottomed out in the second half of 2015.

hina’s home prices in March gained at the fastest pace in almost two years but that growth may slow as local authorities tighten home purchase requirements in the two top performing cities on fears of a bubble forming. Shenzhen continued to be the top performer, with home prices surging 61.6 percent from a year ago, followed by Shanghai with a 25 percent gain. Prices in the two cities were up 3.7 percent and 3.6 percent respectively from a month earlier. Average new home prices in 70 major

cities rose 4.9 percent last month from a year ago, picking up from February’s 3.6 percent rise, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) yesterday. March prices were up 1.1 percent compared to a month ago. China’s housing market bottomed out in the second half of 2015 on a series of government support measures, but a strong rebound in prices in the biggest cities has sparked concerns that some markets may be overheating, driving Shanghai and Shenzhen’s authorities to tighten downpayment requirements for second homes and raising the eligibility bar for non-residents. While home sales in the two cities plunged as much as 52 percent after the tightening, prices eased only by single digit, according to data from China Real

Estate Index System (CREIS). April’s official data, which will reflect the impact of the tightening measures, is due to be released in mid-May. Area of property sold in the first quarter grew 33.1 percent to a near threeyear high, according to data from the

e-commerce platforms through Alipay and also manages Yu’E Bao, the nation’s largest money-market fund. The company is currently targeting a private round of fundraising for at least US$3.5 billion at a valuation of about US$60 billion, people familiar with the matter said in April. Ant Financial declined to comment in an e-mailed statement. China’s stock listing rules requires companies to be profitable for at least three years and accumulate a profit of more than 30 million yuan (US$4.6 million). The entities also need to generate accumulated cash flow of at least 50 million yuan, or post a total of 300 million yuan for revenue in the latest three years, according to the regulations. Ant Financial meets those measures, said the people, who have direct knowledge of its earnings. The people didn’t say how much the company would seek to raise or at what valuation it would have at listing. An IPO at a US$60 billion valuation would be the biggest on the mainland since Agricultural Bank of China Ltd. listed in Shanghai in 2010. Ma, China’s second-richest man according to the Bloomberg Billionaires Index, said last year he was open to a Hong Kong listing if regulators welcomed it. Alibaba’s own plans to list in Hong Kong in 2014 were derailed because the city wouldn’t waive a ban

on multiple share-class structures and the e-commerce operator instead held a record IPO in New York. Alibaba is entitled to about onethird of Ant Financial’s stake with regulatory approval, according to a 2014 filing to the U.S. Securities and Exchange Commission. Alibaba has perpetual rights to 37.5 percent of the finance arm’s pre-tax earnings until it acquires the stake, the filing said.

4.9 Per cent Average amount new home prices in 70 major cities rose last month from a year ago

National Bureau of Statistics (NBS) on Friday. While property in China’s top-tier cities is booming, prices in smaller centres, where most of China’s urban population lives, are still sinking and complicating government efforts to spread wealth more evenly and arrest slowing economic growth. “(Monthly) price rises among cities still showed big differences. Cities with big rises were concentrated in the firsttier and, in part, the hot tier-two cities. Their growth is much faster than other cities, with the rest of the second-tier and third-tier cities relatively stable,” Liu Jianwei, a senior statistician at the NBS, said in a statement accompanying the data. The NBS data showed 40 of 70 major cities tracked by the NBS saw year-on-year price gains, up from 32 in February. Reuters

Going public

Alipay owner could start Shanghai IPO process this year An offer at a US$60 billion valuation would be the biggest listed in Shanghai since 2010. Lulu Yilun Chen

Alibaba Group Holding Ltd.’s finance affiliate is planning an initial public offering on Shanghai’s main board in what could be China’s highest IPO valuation since 2010, according to two people familiar with the matter. Zhejiang Ant Small & Micro Financial Services Group Co. has been profitable for three years, enabling it to meet the listing requirements, and may begin the process as soon as this year, the people said, requesting not to be named because the matter is private. The owner of Alipay, China most popular payments system, prefers a dual listing with Hong Kong if it gets regulatory approval, the people said. Ant Financial, which is controlled by Alibaba founder Jack Ma, dominates payments on China’s biggest

‘Jack Ma said last year he was open to a Hong Kong listing if regulators welcomed it’ Ant Financial paid Alibaba 502 million yuan in the December quarter, compared with 411 million yuan a year earlier, according to an Alibaba filing. That implies Ant Financial had pre-tax profit of at least 1.3 billion yuan for the period. The company posted net income of 333 million yuan in 2011, according to filings from the local branch of the State Administration for Industry & Commerce. An alternative option would be for Alibaba to receive a one-time payment equivalent to 37.5 percent of the value

of Ant Financial determined prior to its IPO, which would amount to at least US$22.5 billion based on its current valuation. The agreement was brokered after a dispute between Alibaba and Yahoo! Inc. in 2011. At the time, Alibaba transferred Alipay into an entity that was controlled by Ma, citing concerns that it wouldn’t be permitted to conduct business in China while it had foreign ownership. Ant Financial has evolved from an outsider in an industry that needed “stirring up,” as Ma described two years ago, to an online giant now working with the largest state-owned players. The country’s sovereign wealth fund China Investment Corp. and an investment vehicle of China Construction Bank Corp. are leading its latest round of fundraising, people have said. Ant Financial also counts the national social security fund as a backer. Ant Financial’s micro lending business handled about 30 billion yuan of loans in January. More than 200 million users buy financial products through Ant Financial via services including Yu’E Bao and Zhao Cai Bao, a platform that lets small businesses and individuals borrow from investors, the company said in August. JD.com Inc., Alibaba’s largest competitor, said its finance unit raised 6.65 billion yuan in January, according to an announcement. Bloomber News

Business Daily Tuesday, April 19 2016 9

Greater China In Brief

Chinese construction workers look at white collar workers walking past in front of a billboard in the Central Business District (CBD) area in Beijing.

Paramount deal

Alibaba to invest in Hollywood

Growth evolution

GDP increasing at slowest quarterly pace since 2010 Over the weekend the statistics bureau revised quarterly growth figures

hina’s economy expanded a seasonally-adjusted 1.1 percent in the first quarter of 2016 from the fourth quarter of last year, National Bureau of Statistics data showed, the lowest quarterly expansion on record since 2010. The slower-than-expected quarterly growth rate comes amid other signs the Chinese economy is stabilising in the first quarter, including positive surprises from trade, inflation, output and credit. Analysts had expected quarterly growth of 1.5 percent for the first quarter, but the statistics bureau did not release quarterly figures when it issued annual figures on Friday. “The 1.1 percent growth rate clearly

illustrates that China’s economy still faces downward pressures,” Zhou Hao, senior economist at Commerzbank, wrote in a research note on Monday. “If we calculate the seasonally adjusted GDP growth based on the qoq numbers, we find that there is a big gap (0.4 percent point) between headline GDP growth (non-seasonally adjusted) and the seasonally adjusted GDP growth. As economists, we always prefer the seasonally adjusted qoq numbers, which better tell the underlying growth momentum,” he added. Over the weekend, the statistics bureau also revised 2015 quarterly growth figures for three quarters. In the first quarter of 2015, quarterly growth was revised upwards to 1.4

percent from 1.3 percent. In the second quarter, it was revised downwards to 1.8 percent from 1.9 percent, while in the fourth quarter, quarterly growth was revised downwards to 1.5 percent from 1.6 percent. The 2015 third quarter quarterly economic growth figure remained unchanged. The statistics bureau also revised quarterly growth figures for 2014 in two quarters. For the first quarter, the quarterly figure was revised upwards to 1.7 percent from 1.6 percent, and in the third quarter, the figure was revised upwards to 1.9 percent from 1.8 percent. The 2014 quarterly economic data for the second and fourth quarters remained unchanged. Reuters

Infant food

Tax rules to cool grey market for baby formula Sales made on overseas websites have benefited smaller premium brands. Rachel Chang

Foreign infant formula makers such as Danone may see a small but rapidly growing channel to the Chinese consumer close off as the government tightens a tax loophole that allowed lower prices on goods sold through websites operating outside of China. Products sold on websites and shipped overseas to Chinese consumers face an effective tax increase of 11.9 percent starting this month as the government overhauls an e-commerce system that inadvertently gave some foreign companies, including Australia’s a2 Milk Co. and Bellamy’s Australia Ltd., a pricing edge over similar imported products available in China’s domestic market. Chinese authorities are cracking down on a grey market spawned by a cottage industry of websites and apps that made ubiquitous such practices as “daigou,” where Chinese living abroad order baby formula, diapers and vitamins online on behalf of mainland consumers looking to avoid taxes. The regulation may pose a challenge for some foreign companies including

‘As much as 15 percent of the US$8.5 billion baby formula industry in China was fuelled by purchases on overseas websites’

Danone, whose Nutrilon and Cow & Gate brands are sold through such overseas websites. Foreign companies “need to move toward direct sales because of what the Chinese authorities are doing to quash the grey market,” said James Bascand, an analyst at Forsyth Barr Ltd.

‘Daigou’ industry

Sales made on overseas websites have benefited smaller premium brands such as a2 Milk and Bellamy’s that haven’t invested as much into direct sales networks in China. UBS Group AG estimates that 55 percent of a2’s infant formula sales comes from the Chinese gray market. Infant milk formula is a top daigou product, according to a Nielsen report. That’s driven by Chinese consumers’ preference for imported goods, especially after a formula milk contamination episode in 2008 that killed at least six babies. Bellamy’s shares surged more than eight-fold last year while a2 Milk’s stock tripled. A2 Milk is “well placed to respond to the regulatory controls,” Managing Director Geoffrey Babidge said at an investor presentation in Sydney April 12. It’s “business as usual” for Bellamy’s in the e-commerce channel, Chief Executive Officer Laura McBain said. Danone didn’t immediately respond to requests for comment. In recent years, as much as 15 percent of the 55 billion-yuan (US$8.5 billion) baby formula industry in China was fuelled by purchases on overseas websites. The changes now effectively align grey market prices with infant milk formula sold directly in China, according to an April 13 UBS report. Imports sold online were previously

subject to a parcel tax of 10 percent, which retailers of small-ticket items like infant milk formula could avoid by limiting amounts for each transaction. Value-added and consumption duties will apply now instead. The Ministry of Finance said April 13 that it also requires dairy companies to obtain an ingredient registration certificate from the Chinese Food and Drug Administration starting in 2018.

Overseas dominance

Overseas brands have been dominating China’s infant formula market since the melamine contamination scandal nearly a decade ago. Four of the top five suppliers of baby milk powder in the country are foreign companies, with Nestle leading the pack at 14.8 percent share of the market, followed by Mead Johnson Nutrition Co., according to Euromonitor International. Mead Johnson President Peter Kasper Jakobsen said during the company’s January earnings call that “it’s clear that inadvertently the China regulations have created a tilted playing field that is very much tilting in favour of imported products sold through e-commerce.” With the rule change, companies will be challenged with finding suitable local Chinese partners to distribute their products. The new tax levy “makes it incrementally harder to profitably send infant formula into China,” UBS analyst Jordan Rogers wrote last week on a2 Milk. The “transition will require additional marketing costs, and could be more difficult because of industry-wide price reductions and the mid-end and premium segments becoming increasingly competitive.” Bloomberg News

Alibaba Pictures Group Ltd. agreed to invest in two Paramount Pictures movies as the Chinese company extends its foray into Hollywood. The unit of e-commerce giant Alibaba Group Holding Ltd. will invest in “Teenage Mutant Ninja Turtles: Out of the Shadows” and “Star Trek Beyond,” which will be released in North America this summer, according to a statement yesterday. Financial terms weren’t disclosed. The deal is the latest example of Chinese funds flowing into Hollywood and builds on Alibaba’s relationship with the studio - the Chinese company invested in last year’s “Mission: Impossible – Rogue Nation.” Offshore debt

EximBank plans dual currency notes offshore The Export-Import Bank of China is planning to tap the offshore market with multi-tranche, dual currency senior notes, marking its second direct issuance of offshore debt since its dollar senior notes issued in 2014. The notes consist of five-year and 10-year U.S. dollar notes, as well as three-year EUR notes. The expected notes ratings are Aa3 and AA- from Moody’s and S&P, respectively. The joint lead managers and book runners for the dollar notes are Bank of China, Bank of Communications Hong Kong branch, Barclays, Citi, HSBC, Mizuho Securities and MUFG. Imports tariffs

Finance minister says Trump is ‘irrational’ Chinese Finance Minister Lou Jiwei called Donald Trump an “irrational type” in an interview published Sunday, slamming the Republican presidential frontrunner’s calls for a trade war with the Asian giant. Lou told The Wall Street Journal that the United States “wouldn’t be entitled to world leadership” if Trump’s proposal to impose tariffs as high as 45 percent on Chinese imports was realized. China is a frequent target of the brash New York real estate developer in his campaign for the White House. Trump has accused the world’s second largest economy of manipulating its currency too. Citigroup report

Commodities have seen bottom Commodities have passed the worst of a rout amid brighter prospects for Chinese demand, a weaker dollar and signs of tighter supplies, according to Citigroup Inc. “There is growing evidence that virtually all commodities have stared at a price bottom and are groping for a return to normal,” analysts including Ed Morse said in a report received yesterday. Petroleum and natural gas markets are recovering, while industrial metals are advancing as China’s property market picks up, they said. Iron ore’s rally will fade amid oversupply.

10 Business Daily Tuesday, April 19 2016

Greater China Private debt

S&P sees more defaults in state enterprises Premier Li Keqiang has pledged to withdraw support from so-called zombie firms that have wasted financial resources and dragged down economic growth. David Yong

hina’s state-owned enterprises are likely to suffer more defaults over the next year as the government shows its readiness

to shut companies in industries struggling with overcapacity, according to Standard & Poor’s. “In a major policy shift, the central government appears willing to close and liquidate struggling enterprises in the steel, mining, building materials, and shipbuilding industries,” S&P analyst Christopher Lee wrote in a report yesterday. “We believe this stance will exacerbate the problems of companies in these cyclical and capital-intensive sectors, which are facing sluggish demand amid slowing investment growth.” The warning follows S&P’s decision earlier this month to cut China’s sovereign rating outlook to negative from stable because

economic rebalancing is likely to proceed more slowly than it had expected. Moody’s Investors Service also downgraded the outlook to negative in March, highlighting surging debt and the government’s ability to enact reforms. The revisions were biased, Finance Minister Lou Jiwei said in Washington on Friday. Premier Li Keqiang has pledged to withdraw support from so-called zombie firms that have wasted financial resources and dragged on economic growth, which is at the slowest in a quarter century. China’s central bank has lowered benchmark interest rates six times since 2014, underpinning a jump in debt

to 247 percent of gross domestic product. China Railway Materials Co., a state-backed commodities trader, is seeking to reorganize debt and halted trading on 16.8 billion yuan (US$2.6 billion) of bonds this month. Baoding Tianwei Group Co. last year became the first government-backed company to renege on onshore bonds. Sinosteel Corp. defaulted on onshore debt in October. Leverage among the largest stateowned enterprises has reached a “critical” level, according to Lee. It is likely to worsen in 2016 as a weak top line is not fully offset by cost cuts and capital expenditure reductions, he wrote in the report. Bloomberg News

EU Telcos

Hutchison’s U.K. mobile deal to face EU veto within weeks Britain’s antitrust watchdog last week urged the EU to halt the merger of Three and O2. Aoife White

CK Hutchison Holdings Ltd.’s US$14.5 billion bid for Telefonica SA’s U.K. mobile-phone business has failed to win over European Union antitrust regulators who are expected within weeks to formally block the deal creating Britain’s biggest operator. The European Commission wasn’t convinced that Hutchison’s offers to sell space on its network to so-called virtual operators would create enough rivalry to prevent potential price increases, according to two people familiar with the negotiations. The EU, backed by U.K. antitrust and telecom agencies, is holding out for Hutchison’s Three and Telefonica’s O2 to offer to sell part of their network infrastructure to a new rival, the people said.

‘Telefonica, Spain’s largest phone company, is relying on the deal to cut its debt load’

Barring a last-minute breakthrough, Hutchison is focusing on whether it could win approval for a bid to merge its Italian operations with VimpelCom Ltd., another deal that would reduce the number of mobile-phone operators from four to three. The EU opened an in-depth probe into that transaction last month. Hong Kongbased Hutchison is already preparing to challenge any EU move to block the U.K. deal in court, a process that can take years, the Sunday Telegraph reported.

An EU ban may halt a wave of consolidation in the European telecommunications industry after regulators cleared mergers in Germany, Austria and Ireland. It would be the first merger to be blocked since Margrethe Vestager became competition commissioner in 2014, though opposition to a Danish mobile deal forced the companies to ditch the proposal last year. Hutchison declined to immediately comment. Telefonica didn’t immediately respond to a request for comment. O2 declined to

comment ahead of a formal EU decision. The European Commission declined to comment, saying its investigation is on-going. It has a May 19 deadline to make a decision, but could issue a ruling as soon as the end of April. Britain’s antitrust watchdog last week urged the EU to halt the merger of Three and O2, saying it risked “long-term damage to mobile-phone markets.” Only a sale of mobile network infrastructure to a new network operator - almost unstitching

It would be the first merger to be blocked since Margrethe Vestager (pictured) became competition commissioner in 2014.

the deal - would allay their concerns. There’s “no taker” for such a solution, Hutchison said last week. It argues that its other efforts to boost phone networks go beyond what’s been offered in previous deals and would stoke competition in the U.K. Regulators are increasingly sceptical of this approach. Mobile virtual network operators lack the clout of network owners to effectively compete, one of the EU’s top merger officials said last week. The EU blocked the Danish deal because it didn’t see “a commitment to a fourth network operator, which we thought necessary,” Carles Esteva Mosso said. Hutchison has never tried to seriously allay concerns from the EU and U.K. regulators over network sharing arrangements which, as the deal currently stands, would see it with a foot in both camps by working with rivals Vodafone Group Plc and BT Group Plc. Withdrawing from either deal isn’t a solution because one of the networks would be left out in the cold, without the kind of coverage its rivals could offer. Telefonica, Spain’s largest phone company, is relying on the deal to cut its 49.9 billion euro (US$56.3 billion) debt load as it strives to maintain its credit rating. Bloomberg News

Business Daily Tuesday, April 19 2016 11

Asia Trade

Singapore exports tumble in March

Crane silhouettes in Singapore Harbour.

Demand in key markets remains weak. Jongwoo Cheon and Masayuki Kitano

ingapore’s exports tumbled in March as sales to China, the United States and Europe contracted in a sign the trade-dependant economy remains vulnerable as weak global demand puts its manufacturing sector to the sword. Non-oil domestic exports (NODX) slumped 15.6 percent in March from a year earlier, trade agency International Enterprise Singapore said in a statement yesterday. That missed the median forecast of a 13.2 percent contraction in a Reuters poll. In February, exports unexpectedly rose thanks to a surge in shipments from the statistically volatile pharmaceuticals sector. “If there’s no dramatic pick-up, I

think NODX would almost certainly be negative for the year,” said Vishnu Varathan, senior economist for Mizuho Bank in Singapore. “Maybe from second half of the year, we could see very marginal growth, but taking into consideration that the first half may be weaker than anticipated, NODX could contract for another year, although one would like to think that with China stabilizing this contraction turns out to be something shallow.” Last week, Singapore’s central bank unexpectedly eased its exchange-rate based monetary policy as growth stalled in the first quarter, darkening the outlook for the city-state economy. The latest data point to a rocky ride for the trade-dependent economy, and underscores why the central bank had to act.

Exports to China, Singapore’s top overseas market, fell 14.0 percent in March from a year earlier, compared with a 1.2 percent slide in February. The world’s second-largest economy grew at its slowest pace in seven years in the first quarter, but Chinese consumer, investment and factory sectors showed nascent signs that its economic slowdown may be bottoming out. Shipments to the United States declined 6.2 percent last month, compared with February’s 4.2 percent expansion.

Key Points March NODX -15.6 pct y/y vs -13.2 pct forecast March NODX +0.2 pct m/m sadj vs +2.3 pct forecast NODX to U.S., Europe, China fall

Sales to Europe dived 39.1 percent in March on-year after rising 16.1 percent in February. That came as exports of pharmaceuticals to the continent slid 59.4 percent and personal computers’ shipments also fell some 41.5 percent. On the whole, exports of pharmaceuticals tumbled 30.9 percent from a year earlier, while annual domestic exports of electronics slipped 9.1 percent in March. Singapore’s electronics sector has been underperforming neighbours such as South Korea and Taiwan due to cut-throat competition, as well as the city-state’s lack of popular high-tech products such as smartphones. Activity in local factories in March shrank for a ninth straight month in March, although the contraction was less than in February as new orders improved, a survey showed. Reuters

Inflation

New Zealand Q1 prices top expectations While most economists are expecting the next rate cut to come in June, they have not ruled out a cut at the April 28 meeting. New Zealand’s consumer price index (CPI) was slightly higher than expected in the March quarter, adding to the view the central bank may hold off on cutting rates again until June rather than make a move this month. The consumer price index rose 0.2 percent in the quarter, bolstered by higher prices for cigarettes, food, as well as increased housing-related costs, Statistics New Zealand data showed yesterday. Annual inflation was 0.4 percent. Economists polled by Reuters had

forecast a 0.1 percent rise for the quarter and an annual rise of 0.4 percent. While economists had expected inflation to be slightly more tepid, it was in line with Reserve Bank of New Zealand forecasts in the March monetary policy statement. In March the central bank surprised markets with a 25 basis point rate cut to 2.25 percent and signalled more to come. While most economists are expecting the next rate cut to come in June, they have not ruled out a cut at the April 28 meeting. Yesterday’s CPI data, however, makes that possibility more remote. The CPI data “detracts from the case for an April official cash rate cut,” said Westpac Bank Chief Economist Dominick Stephens. While the headline number was in line with the central bank’s

forecast, Stephens noted an upside surprise from non-tradables inflation which was stronger than the RBNZ expected. ASB Economist Nick Tuffley said the data also suggests the “RBNZ may see little urgency to deliver the next rate cut at the April official

cash rate review, and may prefer to wait until the June monetary policy statement.” Ahead of the CPI data, pricing indicated an 85 percent chance of a rate cut by June, but that pricing has now adjusted to a 75 percent chance. Reuters

12 Business Daily Tuesday, April 19 2016

Asia Elections

South Korea’s finance head seeks policy consistency He also urged officials to step up efforts for proposed structural reforms.

outh Korea’s finance minister yesterday stressed the importance of policy consistency after defeat for the ruling party in a parliamentary election raised questions about the government’s ability to implement key economic reforms. “As much as there are concerns from ratings agencies like Moody’s and Fitch on whether structural reform can be sustained after the recent parliamentary election, keeping policy consistent is important,” Finance Minister Yoo Il-ho told senior ministry officials in a meeting.

“If legislative delays worsen ahead of Korea’s next presidential election, … , it could reduce the government’s ability to pass credit-positive reforms” Moody’s Investor Service

South Korea’s Finance Minister Yoo Il-ho.

Yoo met with his ministry officials soon after his arrival from overseas where he participated in meetings of the International Monetary Fund and G20 finance ministers and central bankers last week. South Korea’s ruling conservatives suffered a surprise defeat

in a parliamentary election last weak, prompting ratings agencies to voice concerns about President Park Geun-hye’s ability to pursue her reform agenda to boost a sluggish economy. “The (Saenuri) Party’s loss of its plurality in parliament will make

it more difficult for President Park Geun-hye to pass proposed structural reforms. This is credit negative because a lack of reforms threatens to weigh on Korea’s growth outlook,” Moody’s Investor Service said in a report yesterday. “If legislative delays worsen ahead of Korea’s next presidential election, scheduled for December 2017, it could reduce the government’s ability to pass credit-positive reforms,” the ratings agency said, noting the frequently deadlocked parliament even before last week’s elections. Currently, three key proposals to reform the labour market, boost the services industry and ease regulations in Asia’s fourth-largest economy are sitting in parliament. Last week, Fitch Ratings said the election results increased risks to the South Korean economy. The election result “will likely make passage of any potentially contentious legislation, including that pertaining to labour market and services sector reforms, more difficult,” Fitch said. The finance minister also urged the officials to step up efforts for proposed structural reforms to be passed through parliament before the outgoing lawmakers’ term officially ends in late May. The elected parliament will start work on May 30. Reuters

Scandal

Malaysian PM’s brother takes leave from CIMB role Nazir Razak has been dragged into a scandal involving political funding and alleged misuse of money from state fund 1MDB. The Malaysian prime minister’s brother, Nazir Razak, announced yesterday that he was taking voluntary leave of absence from his role as chairman of CIMB Group Holdings Bhd amid an independent review into money transfers to his personal account. Nazir was dragged into a scandal around political funding and alleged misuse of money from state fund 1Malaysia Development Berhad (1MDB) after the Wall Street Journal reported last month that he received US$7 million in funds from his elder brother, Prime Minister Najib Razak, before the 2013 elections. “Nothing I did was illegal or compromised my position at CIMB, but given the media attention, I understand that it makes the stakeholders uncomfortable. So, I want to make sure that the institution does the right thing in dealing with this,” Nazir told a news conference after the bank’s annual general meeting, explaining his decision to take leave. Nazir, a leading Malaysian corporate figure, had said earlier that he believed the

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money came from legitimate fund-raising, and said that CIMB bank staff disbursed the funds to ruling-party politicians on the instructions of his brother. At yesterday’s news conference, the banker spoke of Najib’s request for assistance, and said it was the first and last time he had been asked for such help. “My brother asked for some help and I agreed after I assessed that it would not involve anything illegal or misuse of my position at CIMB, or any inappropriate use of CIMB’s resources,” Nazir told a news conference after the bank’s annual general meeting. “I acted based on what I knew at that time and of course, given all the controversy surrounding 1MDB and sources of political funding since 2014, I regret it,” he added. The CIMB board has accepted Nazir’s decision to go on leave. The bank has engaged Ernst & Young to assist in the reviews.

he had not accepted money from any state entity for personal gain. A government-appointed attorney-general this year cleared Najib of any criminal offence or corruption, saying the funds were a political donation from the royal family of Saudi Arabia. Last week, Saudi Arabia’s Foreign Minister Adel al-Jubeir said the donations were “genuine”. Such donations are not considered illegal in Malaysia. In an interview with Reuters last year, Nazir said political uncertainty facing the government led by his elder brother is the biggest concern for foreign investors.

Share price falls

Nazir’s decision to go on leave will benefit corporate governance and transparency, said Tony Fernandes, founder of Malaysian budget airline AirAsia. “Class act by Chairman of CIMB Nazir Razak,” Fernandes said in a posting on social media website Instagram. “Voluntarily has taken leave from today to allow an independent investigation into the $7 million transfer.”

Najib has stonewalled repeated calls to step down as prime minister since reports last year that a US$681-million deposit into his account was linked to 1MDB. Transactions involving 1MDB, which had a debt of over US$11 billion, are being investigated in several countries, including the United States and Switzerland. Najib has denied any wrongdoing, saying that

Key Points Nazir Razak takes voluntary leave of absence Makes way for inquiry into money transfers from PM Najib Nazir says regrets decision now after 1MDB controversy

Reuters

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Business Daily Tuesday, April 19 2016 13

Asia In Brief

Airlines in Asia Pacific will need 226,000 new pilots by 2034 according to Boeing’s latest forecast.

Investment alternatives

Thailand to sell US$570 mln in savings bonds Thailand plans to sell government savings bonds worth 20 billion baht (US$570 million) next month to help finance the country’s budget deficit and refinance maturing debt, a senior finance ministry official said yesterday. The five- and 10-year bonds should be well received at a time of low deposit rates, Suwit Rojanavanij, head of the ministry’s Public Debt Management Office, told reporters. Big commercial banks offer savings rates of just 0.5 percent. The bond coupons will be decided later and cover a 15 percent tax, Suwit said. Five-year bonds yielded 1.4 percent yesterday and 10-year bonds yielded 1.7 percent.

Training centre

Airbus sets up Singapore academy as Asia faces pilot shortage Chicago-based Boeing also has a training centre in Singapore, a key regional hub for the aerospace industry. Kyunghee Park

irbus Group SE is setting up its second academy to train pilots in Asia, where a rash of start-up airlines and new aircraft coming in is causing a surge in demand for captains and first officers. Airbus will open the centre in Singapore in partnership with Singapore Airlines Ltd. The facility - with eight simulators - will add to the three the European plane maker has already set up in Toulouse in France, Miami and Beijing. The centre will be able

to offer training courses for as many as 10,000 pilots, according to Airbus. Two decades of economic growth in the region have spawned a dozen new airlines across Asia, which Airbus and Boeing Co. both forecast will become the world’s largest travel and aerospace market in two decades. Airlines in Asia Pacific will need 226,000 new pilots by 2034, making up 41 percent of the global figure, according to Boeing’s latest forecast. “Asia is moving towards a severe pilot shortage,” said Mark D. Martin, a Dubai-based consultant to the airline industry. “Rapid steps will have to be taken immediately.” Asia’s travel boom is leaving several airlines desperately short of pilots. The region is transporting 100 million new passengers every year, according to Sherry Carbary, vice president of flight services for Boeing. Led by Asia, the global number of air travellers

is expected to double to 7 billion by 2034, according to the International Air Transport Association. Airbus expects to have some 50 instructors and 25 support staff at its Singapore centre, set up near the Seletar airport. The facility is only for airline pilots and not for students with no experience wanting to become pilots. Airbus also provides training service agreements with airlines, which could include providing advice and training programs designed by the plane maker. It has these agreements with such carriers as Indonesia’s Lion Air and Vietjet in Vietnam. Chicago-based Boeing also has a training centre in Singapore, a key regional hub for the aerospace industry. The U.S. plane maker has other facilities in Shanghai, and Incheon and Gimpo in South Korea, as well as Brisbane and Melbourne in Australia. Bloomberg News

Structural changes

Australian parliament debates make‑or‑break labour reform Opinion polls showed support for Australia’s ruling Liberal Partyled coalition lingering at its lowest level since Turnbull assumed office last September. Colin Packham

Australia’s parliament returned for a special sitting yesterday to debate crucial labour reform bills which are likely to be blocked in the upper house Senate, leading to the dissolution of both houses and an election on July 2. Prime Minister Malcolm Turnbull in March recalled parliament from a seven-week recess, only the forth

time in more than 50 years that a special session has been demanded. The bills are likely to be blocked in the Senate by smaller parties such as the influential Greens and the main centre-left opposition Labour Party. A decision is expected this week. The government has proposed a regulator for the construction industry, opposed by the main opposition Labour Party and trade unions, many of which believe the watchdog would place undue oversight over their operations. Greens leader Senator Richard Di Natale reiterated his party’s rejection of the legislation. “It tells us that the number one priority isn’t innovation, it’s not bringing us into a new economy, it is not tackling climate change and the loss of the Great Barrier Reef, the jobs that are going because we’ve got inaction in managing that transition to a new economy,” he said. “Their number one priority is their own survival.” Opinion polls showed support for Australia’s ruling Liberal Party-led coalition lingering at its lowest level since Turnbull assumed office last September. Support for the coalition was 49 percent, a Newspoll found yesterday,

on a two-party preferred basis where votes for minor parties are redistributed to the two main blocs according to preferences.

“… we’ve got inaction in managing that transition to a new economy” Richard Di Natale, Senator and Greens leader

Turnbull retained his lead as preferred prime minister over Labour leader Bill Shorten. But his popularity has waned amid perceived dithering over tax reform, a rejection of calls for an investigation into major banks and planned cuts to spending on hospitals and schools. The sagging polls and likely early election will add pressure on Australia’s Treasurer Scott Morrison to issue a voter friendly budget on May 3. But analysts said Morrison faces a difficult task of addressing a ballooning budget deficit of about A$40 billion (US$30.67 billion) this year while shoring up electorate support. Bloomberg News

Lending volume

Indonesia’s loan growth slows Indonesia’s loan growth in February slowed to 8.2 percent from a year ago, the weakest pace since November 2009, data from the Financial Services Authority showed yesterday. The central bank has eased policy at every meeting so far this year, cutting its benchmark rate by a total of 75 basis points, to boost loans and economic growth. Last week, it announced a plan to switch its benchmark rate to the seven-day reverse repo in a bid to better guide market rates. Analysts said the change should eventually lead to more lending by banks. Bank Indonesia has previously said it targets 12-14 percent loan growth at year-end. Financial support

Japanese govt to back quake-hit companies The Japanese government yesterday promised to support companies affected by a series of quakes on the southern manufacturing hub of Kyushu, but declined to say whether the disaster would affect the timing of a sales tax hike next April. Chief Cabinet Secretary Yoshihide Suga told a news conference that the government would give necessary financial support including companies impacted by the quakes and the government could utilise reserved fund of 350 billion yen (US$3.24 billion) as needed. Auto industry

Australia’s new vehicle sales jump New vehicle sales rose 2.2 percent in March, from February, the largest increase in five months and the second highest seasonally adjusted sales result on record. Yesterday’s data from the Australian Bureau of Statistics showed 100,295 new vehicles were sold in March, seasonally adjusted. That was 4.2 percent higher than in March last year.

14 Business Daily Tuesday, April 19 2016

International In Brief Monetary shift

Morocco to adopt flexible exchange-rate steps Morocco will decide how and when it will shift to a flexible exchange-rate system when an International Monetary Fund delegation visits the North African kingdom next month, central bank Governor Abdellatif Jouahri said. Authorities will discuss the time-frame and the required steps with IMF officials, he said. Bank Al-Maghrib is “considering widening the bands for fluctuation of the dirham, then observing how the market deals with this change, a process that typically takes a few years,” Jouahri said in an interview in Washington, where he attended IMF and World Bank meetings. Watchdog

EU’s antitrust chief looking closely at Android The European Union antitrust chief, who has already charged Google with favouring its own shopping service in internet searches, said yesterday that she was now examining its deals with phone makers and operators. The comments by European Competition Commissioner Margrethe Vestager follow a year-long investigation into Android, the world’s most popular operating system for smartphones, triggered by two complaints. A decision on the shopping service could come this year. Like the Android case, it could lead to a fine of up to US$7.4 billion or 10 percent of Google’s 2015 revenue, and force it to change its business practices. Stockpile

Russian grain reserves reach 23 million tons Russia’s grain reserves reached 23.3 million tons on April 1, 2016, up 1.6 percent year on year, according to the Russian State Statistical Data (Rosstat). According to the Rosstat, the reserves of wheat, millet and buckwheat increased 12.7 percent, 90 percent, and 34.1 percent, respectively, while those of rye and barley decreased 32.9 percent and 20.7 percent respectively, Russian newspaper Kommersant reported yesterday. Russia’s grain reserves have been increasing since 2013, when a drought in the previous year led to a minimum of 17.9 million tons. Results

Morgan Stanley profit slumps 54.4 pct Morgan Stanley’s quarterly profit more than halved as the Wall Street bank’s trading and investment banking businesses took a hit from market volatility early in the year. Earnings applicable Morgan Stanley’s common shareholders fell 54.4 percent to US$1.06 billion, or 55 cents per share, in the quarter ended March 31, from US$2.31 billion, or US$1.18 per share, a year earlier. Excluding an accounting adjustment, the bank also earned 55 cents per share. Analysts on average had expected earnings of 46 cents per share, according to Thomson Reuters I/B/E/S.

The analysts polled predicted that the Egyptian pound would weaken in the coming financial year. GDP

Egypt’s economy to grow 3.5 pct Before the 2011 uprising the economy grew about 7 pct annually for several years. Eric Knecht

gypt’s economy will grow by just 3.5 percent over the 2016/17 fiscal year, widely missing the government’s target of 5.2 percent and dipping below last year’s growth rate, a Reuters poll found. The economy grew by about 4.2 percent during the 2014/15 fiscal year, the government has said. Egypt’s fiscal year runs from July through June. Though the poll predicts that economic output will dip during the next financial year, it also sees the economy picking back up in 2017/18 to reach 4 percent growth. The poll questioned 13 analysts for the gross domestic product and consumer price index and five on the Egyptian pound. “We expect this year is likely to be a tough one for Egypt owing to the short-term pain caused by the devaluation of the pound and the on-going troubles in the tourism sector,” said Jason Tuvey, Middle East economist at London-based Capital Economics. “That said, we think the foundations are starting to slowly fall into place for a rebound in 2017.” Before the 2011 uprising that overthrew former president Hosni

Mubarak and drove away tourists and foreign investors, the economy grew about 7 percent annually for several years. But even that pace was barely enough to produce work for the large number of Egyptian youths entering the job market. The central bank has been trying to balance the need for economic growth while keeping inflation risks at bay, but has been forced to raise interest rates in recent months to dampen price rises. It raised key interest rates by 50 basis points in December, citing inflationary pressures. In March, it raised interest rates by 150 basis points to avoid fuelling price

“That said, we think the foundations are starting to slowly fall into place for a rebound in 2017” Jason Tuvey, Middle East economist at Londonbased Capital Economics

rises after devaluing the currency by 12 percent. Analysts polled put core inflation, which removes volatile food items like fruits and vegetables, at 11 percent for the coming fiscal year. That would be an increase from the current level, which reached an annual rate of 8.4 percent in March. “As for inflation, we think that the fall in the pound has further to run and that will keep inflation elevated at least for the start of next year, before it then begins to grind lower,” said Tuvey. The analysts polled predicted that the Egyptian pound would weaken in the coming financial year, reaching 9 pounds to the dollar in 2016/17 and 9.5 the year after. The official pound rate is now 8.87 to the dollar, while on the black market the rate is about 10.25 to the greenback. A black market for dollars has sucked up liquidity from the banking system while the central bank kept the pound artificially strong and rationed dollars through weekly auctions, putting a strain on foreign reserves. Foreign reserves have fallen by more than half since 2011, to reach US$16.56 billion in March. Reuters

M&A

Spain’s Caixabank launches new takeover bid for Banco BPI Spanish bank has been trying to buy dos Santos out and gain full control of BPI for at least a year. Jose Elías Rodríguez

Spain’s Caixabank said yesterday it was making a fresh takeover offer worth around US$1 billion for the 56 percent of Portuguese lender Banco BPI that it does not already own, after a key obstacle was removed on Sunday. The offer, of 1.113 euros per share, is conditional on the Portuguese bank eliminating a 20 percent cap on any one shareholder’s voting rights, the Spanish bank said in a statement to the stock market regulator. Portugal’s government approved a measure late on Sunday to end such shareholder voting limits at its banks, helping clear the way for the offer. Before that was passed, the shareholder limit prevented Caixabank from being able to use the full weight

of its 44 percent stake in BPI in overcoming Angolan billionaire investor Isabel dos Santos’s resistance to Caixabank taking over BPI and detaching its majority-owned Angolan bank, BFA. With Caixabank’s voting rights limited to 20 percent, the lender’s influence at BPI was little more than that of dos Santos, the daughter of Angola’s president who owns 18.6 percent through Lisbon-based holding company Santoro Finance. Caixabank and Santoro are BPI’s two largest shareholders and the On Sunday BPI announced the collapse of a deal agreed earlier this month for Caixabank to at last buy out Dos Santos and at the same time reduce its exposure to BFA by selling down its stake to Dos Santos. BPI owns 50.1 percent of BFA while Unitel, the Angolan telecom firm dos Santos controls jointly with state oil company Sonangol, holds 49.9 percent, but new European banking rules took effect this month which required BPI to make full provision for BFA’s lending risks or else face

daily fines. Santoro said in a statement on Saturday that under the deal dos Santos had wanted BFA’s shares to be listed in Lisbon, something Portuguese regulators opposed. Trading in BPI has been suspended since April 8, when the shares closed at 1.191 euros. Caixabank’s shares were down 3 percent at 2.598 euros per share by 0844 GMT yesterday. Caixabank expects the acquisition, which it hopes to close by the end of the third quarter, to hit its core capital solvency ratio by between 0.97 and 1.46 percentage points, depending on acceptance levels. The lender reiterated it maintained a full-loaded core capital ratio goal of over 11 percent of assets following the buyout, in line with its 2015-2018 strategic plans The Spanish bank said it saw annual cost synergies from the deal of around 85 million euros by the third year and revenue synergies of 35 million euros per year. It estimated restructuring costs of around 250 million euros. Reuters

Business Daily Tuesday, April 19 2016 15

Opinion Business Wires

Bangkok Post Mandatory chip-embedded card issuance for debit and ATM cards will come into effect on May 16 nationwide in a move aimed at enhancing financial security, says a senior Bank of Thailand official. “Debit cards issued by commercial banks must be chip-embedded starting from May 16, [while] ATMs will support chip cards as well,” said Nisarat Trairatvorakul, senior director of the payment systems policy department. The main aim of the move is to boost financial security since chip-embedded cards are currently the most effective mechanism to prevent ATM skimming, she said.

Unsustainable development goals?

The Star Malaysia will meet its economic expansion target even as risks to global growth mount and greater volatility may persist in capital flows, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said. Price pressures are “quite contained” due to lower fuel and commodity costs and slightly slower demand, Zeti said in an interview here last Saturday. Until there is more clarity to the growth and inflation outlook, the current monetary stance remains accommodative and supportive, she said. Zeti, … , has helped to curb inflation and keep monetary policy steady to support domestic demand.

The Straits Times The Immigration & Checkpoints Authority (ICA) is set to roll out the new BioScreen system, which captures the thumbprints of visitors arriving and departing at Singapore’s checkpoints, as part of its on-going efforts to enhance security levels. Starting from Wednesday (April 20), the system will be introduced progressively at the passenger halls of sea and land checkpoints. Air checkpoints will soon follow as a lead-up to full implementation of BioScreen in the months ahead, ICA said. ICA added that the system, … , will enable it to strengthen its verification of travellers’ identities.

New Zealand Herald Fonterra has continued to lose farmers to its competitors, based on latest production data. The co-operative’s market share last year ran at about 85 per cent, down from 96 per cent at the time of its inception in 2001. Chairman John Wilson said last month there had been anecdotal evidence of loss of market share. Farmers considering leaving Fonterra lodged their “cease” notices in February, but the coop will not know until July whether they have followed through. AgriHQ expects New Zealand’s total dairy production to be down by 2.5 per cent this season, which ends on May 31.

rom 2000 to 2015, the Millennium Development Goals (MDGs) focused minds and budgets on global poverty, significantly boosting people’s prospects in some of the world’s poorest countries. The new set of global targets, the Sustainable Development Goals (SDGs), aim to build on that progress, not only in eradicating poverty, but also in addressing a number of other challenges, such as broadening access to education and protecting the environment. But, this time, there are significant headwinds. Recent geopolitical developments, such as the Middle East’s refugee crisis, are complicating government budgets and agendas. And commodity prices and emerging-economy investments, factors that bolstered progress toward achieving the MDGs, are now slumping. Without bold innovation, the new development agenda will be far from sustainable. As it stands, aid budgets from major donors are being surreptitiously redeployed. In most major donor countries, aid is being redirected to stem the flow of refugees from the Middle East, especially Syria. The refugee crisis has also changed domestic priorities. In Sweden, some 30% of the aid budget is now being used to look after arriving refugees; in Switzerland, the comparable figure is 20%. Other aid funds among the major donors are being redeployed for security, allotted to climate-change adaptation and mitigation, and pledged for other national goals. In the United Kingdom, for example, a shift toward allocating resources to priorities more clearly “in the national interest” was spelled out in a new aid strategy in 2015. As for emerging economies, new aid flows do not look as promising as they did five years ago. By one estimate, Chinese aid rose from US$630 million in 2000 to US$14.4 billion in the period 2010-2012. But the country’s on-going economic slowdown probably augurs a decelerating growth in aid budgets. And other emerging economies are not likely to pick up the slack. Brazil, touted in 2010 as an “emerging aid player,” is now in economic and political crisis, as is South Africa. These challenges are being compounded for developing countries by new financial regulations in the advanced countries that are hampering flows of investment and finance to the developing world. Weakening developing-economy incomes further is a global demand slowdown and commodities crash, which, as Nobel laureate Angus Deaton has demonstrated, has been disastrous for most of the developing world. To cap it all off, the expansionary monetary policies adopted by major economies are fuelling instability. In this difficult context, achieving the SDGs – which would be ambitious even in the best of times – will require monumental effort. To maximize the chances of success will require, first and foremost, that every dollar channelled toward development is used as efficiently as possible. This means rethinking the way aid is delivered and asking hard questions to the elaborate web of international agencies that deliver it, not least about the cost-effectiveness of their operations. Consider the World Food Program, which announced in July 2015 that it had no choice but to reduce aid to Syrian refugees in Jordan and Lebanon – a move that risked leaving 440,000

Ngaire Woods Dean of the Blavatnik School of Government and Director of the Global Economic Governance Program at the University of Oxford.

refugees without food, thereby spurring yet more perilous voyages across the Mediterranean. This decision partly reflects inadequate aid flows; but it may also be rooted in the costs of the WFP’s own operations. An OECD review of the WFP points to the “high cost of logistics,” as well as “issues in using international tenders,” as a problem affecting efficiency. While nobody has offered a straightforward value-for-money comparison between the WFP and other providers of relief, some organizations are highly efficient. BRAC, a Bangladeshi development organization known as the “world’s largest NGO,” seems able to deliver aid for a fraction of the cost of Western-dominated international organizations. As the United Kingdom’s Department for International Development pointed out in making its case for a strategic partnership with the organization, BRAC innovates in order to respond more effectively to the specific needs of the poor. For example, it pioneered the use of mobile-phone technology in health care, and championed the provision of cash (or income-generating assets) to those in extreme poverty. Cash transfers are an interesting case. The idea of giving money to the neediest is an obvious and powerful one. But it has long run up against a Victorian belief that the poor are improvident and likely to waste money on alcohol, tobacco, and gambling. Yet that is not what happened in Mexico, when poor families received cash transfers. Instead, their children ended up as well nourished and healthy as those on a food program that cost 20% more to administer. Similar results have been shown in Ecuador, India, and Uganda, as well as in international humanitarian relief programs. And a study in Zimbabwe showed that, as the poor use their newly acquired cash to purchase goods and services from others in their community, they also generate more income for others. Of course, not all aid can be replaced with cash transfers. But in some cases, such an approach offers the opportunity for huge efficiency gains relative to aid delivered through complex and costly institutions. Imagine eliminating the costs of designing elaborate programs, conditions, monitoring systems, and training schemes for the poor. Imagine a WFP that is no longer arranging the logistics, procurement, storage, and distribution of 3.2 million metric tons of food, and taking 120 days to obtain and move food to recipient countries. The WFP reports that it is increasing its use of cash and voucher transfers. Perhaps it should be pressed to justify doing anything else, and its administrative costs for delivering cash should be compared to those of BRAC. In a challenging global economic and geopolitical environment, achieving the SDGs will be possible only if we make the most of every multilateral development dollar. And that may mean giving many more dollars directly to those who need them. Project Syndicate

“To maximize the chances of success will require, first and foremost, that every dollar channelled toward development is used as efficiently as possible”

16 Business Daily Tuesday, April 19 2016

Closing Deepening links

Pakistan’s largest bank granted Chinese licence

Pakistan’s largest bank, Habib Bank Limited, said yesterday it had won a licence to operate a branch in the Chinese city of Urumqi, the first South Asian bank to be granted such a licence. The opening of the Pakistani bank in Urumqi (pictured), the capital of the violenceprone far-western region of Xinjiang, which borders Pakistan, will deepen ties between the two countries that last year signed a US$46 billion agreement for infrastructure and energy projects. Up until April Pakistan’s government held a 42.5 percent stake in Habib, the

country’s oldest bank. But it sold off its shares as part of Prime Minister Nawaz Sharif’s plan to privatize 68 public institutions, bringing in more than US$1 billion. Pakistan last year signed an agreement for projects worth US$46 billion with China to set up a so-called China-Pakistan Economic Corridor, in a boost to Pakistan’s crumbling infrastructure and energy sector. In return, China will get a free trade zone in Pakistan’s Gwadar port and access to the Arabian Sea. New Pakistani roads will open up routes for Chinese goods into Europe and the Middle East from landlocked Xinjiang, which borders Pakistan. Reuters

Energy reposition

Chevron seeks buyers for Myanmar gas assets Company’s net daily natural gas production in Myanmar last year averaged 117 million cubic feet. Denny Thomas and Anshuman Daga

.S. oil and gas major Chevron Corp has put its Myanmar gas block stakes worth an estimated US$1.3 billion up for sale, banking sources familiar with the matter said, in what would mark the biggest M&A transaction involving the country’s assets. The sale is part of Chevron’s efforts to preserve cash and retreat from non-core assets in the wake of sliding oil prices. It is also seen as setting the tone for deals in a country that investors hope will see continued reforms after a historic election win by Aung San Suu Kyi’s National League for Democracy last year. The sources said suitors could number about half a dozen and would likely include Australia’s Woodside Petroleum, Thailand’s PTT Exploration and Production, Japanese trading houses and Chinese companies. “Companies understand that Myanmar is in a very good position as you have export markets like China and Thailand and a growing domestic market,” said Adrian Pooh, a Singapore-based analyst at energy consultancy Wood Mackenzie.

“It’s kind of one of the last few remaining exploration plays with good prospects as well.” The sources said buyers would be keen to acquire all three assets bundled together. Chevron is working with an U.S investment bank on the deal, they added, declining to be identified as

Key Points Sale is the biggest deal involving Myanmar assets Deal could attract about half a dozen bidders - sources Myanmar seen as one of the last good remaining exploration plays

Anti-corruption law

the sale process has not been made public. Chevron, which has been operating in Myanmar for two decades, declined to comment. Woodside declined to comment on whether it was interested in Chevron’s assets. But it highlighted its recent exploration successes in the Rakhine Basin, where it is the largest holder of acreage, as well as its partnerships across its six exploration blocks in Myanmar. Thailand’s PTT Exploration and Production did not immediately respond to requests for comment. Chevron owns 28.3 percent of the Yadana and Sein gas fields operated by France’s Total SA in the Andaman Sea, which mostly supplies Thai power plants and also has a stake in the pipeline company that transports

Oil infrastructure

the gas to the Thai border. Some of the gas is also supplied to Myanmar. Last year, it also signed a production sharing contract in exploration Block A5 in the Rakhine Basin. Its subsidiary holds a 99 percent stake in this exploration block. Chevron’s net daily natural gas production in Myanmar last year averaged 117 million cubic feet, making up 2.2 percent of the company’s annual gas output in 2015. Myanmar’s previous record deal was Singapore’s Sea View Hotel Ltd’s US$1 billion purchase of a hotel property in 2005, according to Thomson Reuters data. Chevron is also seeking buyers for its Asian geothermal energy blocks valued at about US$3 billion, sources familiar with matter have said. Reuters

Rating

Mainland criteria for capital China calls for talks after Moody’s downgrades South punishment in graft cases Costa Rica abandons project Korea banking to ‘negative’ The maximum penalty for convicts found guilty of embezzling or accepting bribes worth 3 million yuan (about US$463,000) or more in an “extremely serious case” with “extremely vile impact” will be the death penalty, according to a new judicial explanation. The ruling was jointly issued yesterday by the Supreme People’s Court and the Supreme People’s Procuratorate. A two-year suspended death sentence may be issued if there are mitigating factors. In cases where the death penalty is deemed too severe, convicts may receive a life sentence. The ruling is a supplement to the Criminal Law, which was revised in late 2015. The new ruling set the minimum of “a large amount of money” at 30,000 yuan, for “a huge amount of money” the minimum is 200,000 yuan, while for “an extremely huge amount of money” the minimum was set at 3 million yuan. The severity of the crimes is to be taken into consideration. The judicial document also clarified its stance on certain scenarios. If an official learns that a “person of interest” has accepted bribes but does not return or report it, the official will be considered as complicit in the crime. Donating dirty money to charity groups or using it for a public cause will not reduce the severity of the crime. Xinhua

China’s Foreign Ministry yesterday called for talks after Costa Rica’s state-run oil company Recope said last week it had decided to abandon a US$1.5 billion refinery upgrade project it was working on with China National Petroleum Corp (CNPC). In 2009, the two firms formed a company called Soresco, with each putting in US$50 million. But the project has been paralysed since 2013 by Costa Rica’s comptroller after complaints of conflicts of interest in the feasibility studies. Chinese Foreign Ministry spokesman Lu Kang said he had noted the media reports on the issue, adding that relations have been developing well in recent years. “As for individual problems that arise during our cooperation, we hope the relevant companies in both countries can continue to increase communication, understand each other’s concerns and find an appropriate resolution,” he told a daily news briefing. Costa Rica made the surprise move of breaking off its decades-long relationship with Taiwan in 2007, now only recognised by a handful of small countries, including the rest of Central America. China lent Costa Rica nearly US$400 million in 2013 during a visit by Chinese President Xi Jinping. Reuters

Ratings agency Moody’s yesterday downgraded its outlook for South Korea’s banking system from stable to negative, predicting a deterioration in creditworthiness over the next year. “While our previous stable outlook had anticipated some weakening of profitability and pressure on asset quality, the operating environment for banks is deteriorating amid Korea’s diminished growth outlook and on-going corporate sector restructuring,” sais Sophia Lee, a Moody’s Vice President and Senior Credit Officer. The agency’s report assumed economic growth of 2.5 percent in 2016 - the slowest rate since 2012 - with external demand remaining weak. The report said government efforts to address burning issues like high household debt would trigger policy measures that “negatively affect” the banks’ profitability and asset quality. Collective household debt in South Korea stood at a record high of close to a trillion dollars at the end of December. The fact that inflation is currently running well below government targets leaves room for further interest rate cuts by the Bank of Korea - a move that could further depress lending margins, Moody’s said. AFP