Macau Business Daily April 27, 2016 by Business Daily

Australia mulls choice of next central bank governor RBA Page 12

Wednesday, April 27 2016 Year V Nr. 1030 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Infrastructure

HK’s artificial island for delta bridge reportedly moves again Page 3

Finance

BNU post MOP510 mln net income in 2015 Page 4

Gaming

Paradise grants electronic table patent to IGT Page 5

www.macaubusinessdaily.com Disaster relief

Japan prepares supplementary budget for earthquake‑affected zone Page 16

Unsustainable rally Gaming Local casino stocks just had their worst week since January. The rebound will falter, say analysts. Given operators are adding new gaming tables, industry revenues are dropping and big spenders are avoiding Macau. Page 6

Korean concerns G D P S o u t h K o r e a’ s first-quarter economic growth. The lowest in three quarters, boosting concerns about a prolonged lowgrowth trend. Central bank data shows real GDP reached US$323.9 bln Jan‑Mar. Page 11

HK HSI April 26, 2016 21,407.27 +102.83 (0.48%) +1.86%

Cheung Kong Property

+1.63%

Galaxy Entertainment

+1.62%

HSBC Holdings PLC

+1.55%

BOC Hong Kong Holdings

+1.45%

Sands China Ltd

+1.42%

Lenovo Group Ltd

+1.41%

CK Hutchison Holdings Ltd

-1.04%

Cheung Kong Infrastruc-

-1.13%

Power Assets Holdings Ltd

-1.42%

Belle International Hold-

-1.43%

Cathay Pacific Airways Ltd

-1.67%

CITIC Ltd

-2.51%

China Resources Power

-2.90%

Source: Bloomberg

China Petroleum & Chem-

View From Afar Politics

Watching the watchers Further repercussions from the UN bribery scandal. President of the New Macau Association (AMN) Jason Chao has called on the Commission Against Corruption (CCAC) to revise current bribery laws. And investigate financial benefits for entities linked to Ng Lap Seng.

23° 27° 22° 27° 21° 24° 22° 25° 24° 26° Today

Thu

Fri

I SSN 2226-8294

Politics Page 3

Sat

Sun

Source: AccuWeather

The European Commission has pronounced. Urging Macau citizens to participate in the electoral process selecting the territory’s Chief Executive. Critiquing the anti-money laundering memorandum. And talking up the increasing bilateral trade between the SAR and the EU in its annual report on the MSAR. Page 4

2 Business Daily Wednesday, April 27 2016

Macau Utilities

Water fee likely to increase by year-end

the water department estimates that the current full cost may have already surpassed MOP7 per cubic metre. Coupled with a possible increase of 10 per cent in the imported price of raw water from the Mainland, Ms. Wong perceives the government will need to raise its subsidies to the water tariff if the water fee is not adjusted by year-end.

The Marine and Water Bureau is planning to raise the city’s water tariff by the end of this year, its director Susana Wong Soi Man told reporters yesterday. According to the Bureau head, the previous full cost of local water supply was MOP6.68 (US$84 cents) per cubic metre, whilst

Politics Five-year plan to collect public opinions until June

Gov’t forecasts positive GDP growth in five years time the public. It’s also a result of many discussions with relevant government departments that will be in charge of monitoring enforcement,” said Lei Ngan Leng, Consultant to the Office of the Chief Executive - who is also a member of the Committee for Development of the World Centre for Tourism and Leisure - at yesterday’s press conference at SAR Government headquarters announcing the draft master plan. “We need to take into consideration that we are in an economic adjustment period. We are targeting to achieve positive GDP growth in five years time. And gaming operators now are still facing lots of changes internally and externally,” added Ms. Lei. “After collecting more opinions, we will decide whether the target of 9 per cent is conservative or not and adjustments will be made accordingly.” The draft plan also indicates that the government will maintain the policy of a gaming tables cap, which seeks to limit the increase of live dealer table numbers to a compounded annual increase of 3 per cent from a base of 5,485 tables recorded at the end of 2012.

Gov’t intends to set the target of increasing nongaming revenues of gaming operators’ total portfolios at 9 pct in 2020. Joanne Kuai joannekuai@macaubusinessdaily.com

he government has kicked off its opinion collection for Macau’s first Five-Year Development Plan running until the end of June. The draft blueprint, which was unveiled yesterday, covers a period extending from 2016 to 2020. One of the main objectives is to “recover the economy and bring back the positive growth of GDP”. For gaming operators in town, the draft also mentions a plan to increase the revenues of non-gaming sectors to 9 per cent by 2020 from the 6.6 per cent recorded in 2014. “This target is set after hearing from enterprises, associations and

PT AD 2016-04-27.pdf

26/4/16

In addition, dealer positions will remain exclusively for local residents. The number of casino workers who don’t have a college degree or a higher academic level will drop to 76 per cent from the 80 per cent recorded in 2014. The percentage of local residents at gaming companies’ managerial level is set to increase to 85 per cent in 2020 from the 80.8 per cent recorded in 2014.

Diversification

The preliminary development master plan sets out seven major targets; namely, maintaining stable economic growth, improving the structure of industries, improving the city’s role as an international tourist destination, improving the quality of life and the quality of education for residents, protecting the environment, strengthening the efficiency of the government and expanding the structure of the legal system. At last Friday’s Legislative Assembly Q&A session Chief Executive Chui Sai On said that he believes at least 70 per cent of the goals set out in the plan would be achieved. At

2:54 PM

Período de recolha de opiniões: 26 de Abril a finais de Junho

“Plano Quinquenal de Desenvolvimento da RAEM (2016-2020) Projecto” Primeira parte

Cidade turística de lazer Cidade propícia para habitar Cidade saudável

Sete objectivos principais

CMY

3. Formação gradual de um sector alargado de turismo de lazer Elevação constante da qualidade de vida dos cidadãos

5. Desenvolvimento contínuo da cultura e da educação Resultado manifesto na protecção ambiental

7. Elevação da eficiência de governação e reforço da construção

4. 6.

Oito grandes estratégias de desenvolvimento e sua implementação

Aperfeiçoamento do mecanismo de gestão articulada, coordenar a construção do “Centro” e da “Plataforma”

Intensificar o conceito de desenvolvimento por inovação e formar um esquema de cooperação para a inovação.

Melhoramento no sistema de políticas públicas, elevar a eficácia das políticas de macro perspectiva.

Criar a nova imagem de “Macau cultural” e elevar a competitividade da cidade.

08 Oito grandes

estratégias de 03

07 desenvolviment

o e sua implementação04 06

Aceleração da construção da cidade inteligente, promover a fusão entre a indústria e a internet.

Planeamento científico Integração intensiva Distribuição adequada

Concretizar a estratégia de “prosperidade de Macau através da Educação” e de “construção de Macau com os talentos”.

Aperfeiçoamento do equipamento básico de software e de hardware e elevar a qualidade dos serviços da área do turismo.

Construção da Zona A das Novas Zonas Urbanas

Metro ligeiro

Obras da quarta ligação

Elevação da competitividade da população, promoção da mobilidade horizontal e a ascensão profissional dos trabalhadores Garantia do acesso ao emprego pelos residentes Atribuição de serviços de apoio aos jovens na procura de emprego e no empreendedorismo Aceleração da criação do regime de acreditação profissional

Ascensão profissional

Apoio às camadas mais vulneráveis

do Estado de Direito

Implementação da estratégica de cooperação regional intensificada, e integração no desenvolvimento nacional.

Planear o aumento dos recursos de habitação pública Construção de 28.000 habitações públicas na Zona A das Novas Zonas Urbanas Construção de 4.000 habitações públicas em cinco locais, após ajustes Fomentar o processo da renovação urbana Atribuição de habitação a cerca de 3.800 agregados familiares entre 2015 e 2018

Promoção das infra-estruturas

Novos avanços na optimização da estrutura industrial

Telefone： 853-2882 3610 Fax： 853-2882 3426 Endereço： Caixa Postal 1201

Introdução

Cidade inteligente Cidade cultural Cidade com boa governação

1. Desenvolvimento estável da economia global

Apresentação da opiniões via internet: www.cccmtl.gov.mo Email： message@gep.gov.mo Morada： Rua do Desporto, no 185 - 195 , Taipa, Macau

Para concretizar o objectivo do desenvolvimento económico e do melhoramento das condições de vida da população, o Governo da RAEM elaborou o seu primeiro Plano Quinquenal de Desenvolvimento, um plano geral que define os projectos relacionados com a vida da população e o desenvolvimento urbano. Nos próximos dois dias, será apresentado à população o conteúdo do Plano. Reserva de terrenos, construção de habitações públicas Maior selecção de emprego numa economia diversificada

Perspectivas Construção do Centro Mundial de Turismo e Lazer

yesterday’s press conference, Director of the Government’s Policy Research Office, Lao Pun Lap, added that many of the objectives remain to be quantified and evaluated, such as the unemployment rate, the percentage of doctors in the population, elderly pension coverage, expenditure on education’s proportion in government finance, and the days of good air quality recorded in a year. Mr. Lao added that a list of such indicators have now been unveiled and specific numbers for each target to be set will be announced once the plan collects public opinions, academic reviews and undergoes its final revision. The plan is set to be ready by the end of this year. When being asked whether such a plan is redundant, as there has already been a Policy Address by the administration the advisor to the Chief Executive stressed that the five-year plan serves as a mid-term blueprint and is complementary to the annual Policy Address. Ms. Lei added that despite a governmental change set to happen in the 2016 to 2020 period, the master plan represents the government’s continuing efforts to transform Macau into a World Centre of Tourism and Leisure, and the change of administration won’t affect the plan’s enforcement.

Complexo hospitalar das Ilhas

Comporta

Construção da cidade inteligente Pretender concluir, em 2017, o estudo do plano para o desenvolvimento da nova era de Megadados Prestação de serviços de Triple play Turismo inteligente, tráfego inteligente, saúde inteligente e Governo inteligente

e.Gov

Protecção ambiental Promoção da redução de emissão a partir da fonte, “poluidor-pagador” Promoção do desenvolvimento da água reciclada Promoção da utilização e desenvolvimento de gás natural Promoção da utilização de veículos eléctricos Definição dos critérios, a gestão e os regulamentos sobre as fontes de poluentes

Educação Inovação do pensamento sobre a educação e o seu conteúdo Reforço da avaliação global do ensino não superior Promoção do desenvolvimento do ensino técnico-profissional e do ensino especial Definição de planos a curto, médio e longo prazo para a resolução das escolas situadas em pódios Elevação da capacidade de inovação, formação de quadros inovadores Promoção da cooperação entre as indústrias, as instituições de ensino superior e os centros de pesquisa, articular com a diversificação adequada das indústrias Fomentar jovens de instituições de ensino superior que reúnam os requisitos para estagiarem e intercambiar no exterior Incentivar o regresso de talentos a Macau Definição do plano de formação de quadros profissionais de língua portuguesa e bilingues na áreas linguística, financeira, jurídica e contabilística

Redução do ciclo de pobreza entre gerações através da educação Aperfeiçoamento do mecanismo para reajustar o valor do Risco Social Implementar atempadamente medidas destinadas a aliviar as dificuldades dos grupos vulneráveis Concluir e implementar o Plano de Desenvolvimento Decenal dos Serviços de Reabilitação de 2015 e 2025 Melhorar os benefícios e subsídios e o regime de apoios aos portadores de deficiência Aumentar o número de vagas dos serviços de reabilitação Aumentar a proporção dos autocarros sem barreiras

Enfrentar o envelhecimento da sociedade Incentivar os casais a terem mais filhos Elevar a competitividade e a capacidade produtiva através da educação Aumento do número total de vagas em creches Incentivar os idosos a participarem nos serviços sociais

A B

Cuidados de Saúde

Construção da cidade saudável Aperfeiçoar a rede de infra-estruturas do sistema de saúde Aperfeiçoar incessantemente o sistema de saúde constituído pelos estabelecimentos de saúde pública, não lucrativos e privados, os três principais suportes no sistema de saúde Consolidar e melhorar o sistema da rede de cuidados de saúde primários Aperfeiçoar o sistema de assistência médica para os residentes de Macau Aperfeiçoar o regime de credenciação e inscrição para o exercício da profissão de cuidados de saúde Observar o princípio dos três níveis de prevenção Desenvolver plenamente as amplas funções do desporto, elevar a qualidade física, o nível da saúde e de vida da população

Vamos continuar amanhã…

澳門特別行政區政府 Governo da Região Administrativa Especial de Macau

Business Daily Wednesday, April 27 2016 3

Macau AMN members present complaint at CCAC headquarters yesterday.

Corruption New Taiwan Association wants Ng investigation to go further

AMN urges revision of bribery law Nelson Moura nelson.moura@macaubusinessdaily.com

he President of the New Macau Association (AMN), Jason Chao, has urged the Commission Against Corruption (CCAC) to revise current bribery laws in order to investigate the financial benefits for entities linked to Ng Lap Seng and involved in the bribery of UN officials. The demand was made by Mr. Chao through a public presentation of complaints at CCAC headquarters, where the AMN president claimed that the Macau authorities should revise the law and pursue further investigation since they have “jurisdiction over the case”, on the heels of a published UN internal audit which insinuates that some of Ng’s “activities were carried out in Macau”.

The internal audit, published by the Office of Internal Oversight Service (OIOS) of the United Nations (UN), named local billionaire Ng Lap Seng as making use of five non-government organisations (NGOs) affiliated to his real estate firm Sun Kiang Ip Group to curry favour with six departments of the United Nations. This comes after Ng was charged for allegedly bribing John Ashe, a former ambassador of Antigua and Barbuda to the United Nations General Assembly from 2013 to 2014, with more than US$500,000 in exchange for organisational support of the Sun Kian Ip Group for an expo and meeting centre project in Macau.

Under Macau law

According to Article 16 of the UN Convention Against Corruption, states should adopt legislative and other

measures necessary to investigate any possible bribery of a “foreign public official or an official of a public international organisation” when used to gain “undue advantage in relation to the conduct of international business”. Mr. Chao argues that the current law entitled Regime of Prevention and Repression of Acts of Corruption in External Commerce should be expanded to criminalise the bribery of an official of a public international organisation and a foreign public official beyond the conduct of international business. Th e d ea l s p e rf o r m e d between Ng’s associated non-governmental organisations (NGOs) and UN departments were presented by AMN as “relevant to Macau’s law” and fall under the jurisdiction of local law, such as the contribution by the local developer of US$1.5 million

(MOP12 million) to the United Nations Development Programme (UNDP) in order to organise the co-sponsored event ‘High level Multi Stake Holder Strategy Forum on South-South and Triangular Co-operation’. For the event, iPads were offered by the Sun Kian Ip Group to all participants and according to the OIOS report the Sun Kian Ip Group arranged and paid for the accommodation of participants and covered all their local expenses which to Chao proves that the “fund for bribery had originated in Macau”, thus placing the deal under MSAR jurisdiction.

‘Tainted report’

Chao and the AMN also believe some of Ng’s deals with Ashe fall into the category of conduct of international business given that U.S. authorities showed Ng’s

representatives forwarded a changed UN official document referencing SouthSouth News - one of the corporations associated with the Sun Kian Ip Group - to an investment bank in Hong Kong and the International Telecommunication Union. “We and the U.S. authorities speculate that this group was using this tainted report for his financial advantage purposes, which would involve business conduct”, Mr. Chao stated, adding that the AMN would like to see a “revaluation of Macau’s jurisdiction over the case and launch an investigation as soon as possible.” When this newspaper went to print Business Daily still hadn’t received any response from the CCAC on developments of the investigation into Ng Lap Seng and the law revision request by the AMN.

HZMB HK’s artificial island for the delta bridge has reportedly moved again

Drifting away The movement has caused the construction of an undersea tunnel for the Bridge to be halted for a few months, says Howard Winn, the first to disclose movements of the island last September. Hong Kong’s artificial island that accommodates the border crossing facilities for the Hong Kong-Zhuhai Macau Bridge has reportedly moved again by some 3.5 metres, leading to a halt in the construction of an undersea tunnel for the Bridge for a number of months. A senior media worker from Hong Kong, Howard Winn, disclosed in an article at the beginning of this month that the Northwest corner of the reclamation area “has resulted in further delays to another key aspect of the project.” The artificial island will be linked to Tuen Mun in Hong Kong by an undersea tunnel. But Mr. Winn quoted engineers as saying that:

“tunnelling has stopped for a few months as the landing point on the artificial island moved some 3.5 metres requiring remedial work. There are also unconfirmed reports that the tunnel has had to be realigned.” He added that parts of the island - particularly the seawall - have been moving from the effects of the attempts to “speed up the settlement of the reclamation, [with] too much weight applied too quickly.” “This has changed the nature of the marine mud and in effect turned it into ‘toothpaste’ resulting in unanticipated movement,” he quoted engineers as saying. Last September, Mr. Winn was the first to reveal that the

same artificial island had recorded movements of some 20 metres from its location. Hong Kong’s Highways Department later admitted that movements of up to six or seven metres were recorded in different parts of the reclamation. Last year, Hong Kong authorities set back the completion of the super-bridge for the River Delta Region until the end of 2017 from the original deadline slated for the end of this year. But Mr. Winn indicated in

the same article that such a deadline for the cross-boundary bridge is “unconvincing”. According to the media worker, the Highways Department of Hong Kong recently applied for an extension of the use of the land which houses the site office for the Hong Kong Boundary Crossing Facilities to the end of 2020 from its original due date this July. Despite the authority’s explanation that the extension is for remaining works and handling outstanding issues

on the site after the facilities are completed by 2017-end, “engineers are unconvinced by this explanation and say that contractors normally like to close the site office down as soon as possible as they are expensive to maintain,” Mr. Winn wrote. According to the official website for the delta bridge this artificial island occupies a total of 150 hectares, and will serve as a transportation hub and provide clearance facilities for goods and passengers using the bridge. K.L.

4 Business Daily Wednesday, April 27 2016

Macau Opinion

José I. Duarte

To be continued . . . The Chief Executive recently went to the Legislative Assembly for a Q & A session. Several members of the House used the occasion to question the head of government. So far, so good: that’s how things are supposed to work. Many topics were touched upon. Food prices were, not for the first time, among the most topical and caused a sort of public uproar. As is often the case, not all statements or insinuations were as firmly framed or underpinned as we might have hoped. For example, lawmakers asked the CE if rising food prices were a result of imported inflation. Bearing in mind that inflation in Macau is slowing down, overall price increases in China have been quite tame lately and the renminbi has been weakening - that was a curious take. It was possibly framed as a rhetorical question, meant to extract from the CE something more than just a general declaration. According to media reports, the CE argued that, contrary to what people often see in the news, the source of rising prices was not a monopoly in imports; it is retailers who are responsible for the higher prices. He gave the example of pork, citing a great disparity between wholesale and retail prices. The reports do not say if anyone introduced the issue previously, or if the CE decided to prevent any argument along those lines and exculpate the commonly presumed culprits in advance. Anyway, the argument alone does not show what it seems to intend. The fact, if established, that retailers are ‘hammering’ consumers, does not imply, and much less prove that importers and wholesalers cannot or are not doing the same. One thing does not exclude the other. Anyhow, no-one doubts that a more open and competitive market would go a long way in limiting the power of either wholesalers or retailers. Ours is, by any common standard, a very non-competitive market. A representative of the retailers claimed meanwhile that the figures the CE presented to the Assembly were not real, and blamed yet a third party – smugglers. Interesting argument, as one would expect that smuggling would actually force prices down. But never mind. In these kinds of arguments, as is so often the case, each party will select, when not creating, suitable facts. Who will bother to check what they are in reality? José I. Duarte is an economist and permanent contributor to this newspaper.

Politics European Commission calls for greater public involvement in CE election

Get more people in the game! The Commission also said in its annual report on the Special Administrative Region that trade value between the city and the European Union had surged nearly 40 pct y-o-y in 2015. Kam Leong kamleong@macaubusinessdaily.com

he European Commission has urged the local government to increase public involvement in the city’s election of the Chief Executive despite the current impossibility of universal suffrage in the Special Administrative Region. Yesterday, the Commission’s External Action Service issued its 2015 annual report on the political and economic development in Macau in which the organisation commented that the process of the new cabinet of the local government assuming their positions last year ‘went smoothly and was in accordance with the Basic Law.’ Nevertheless, the executive body of the European Union (EU) hopes that the government led by Fernando Chui Sai On will introduce measures to boost public participation in local elections for the city’s top official. ‘For the third time in a row, the Chief Executive was elected uncontested as the only candidate standing for election to the Chief Executive post…While Macao’s Basic Law and other legislative acts do not provide for the possibility of universal suffrage, the EU encourages the Macau authorities to consider ways to promote greater public involvement in

the election of the Chief Executive,’ the report reads. The Commission believes greater public participation in the top-official election would enhance the legitimacy of the post and help the SAR Government increase public support, in addition to strengthening governance. In the report, the EU executive body also remarked that the fundamental rights and freedoms of local citizens ‘continued to be respected,’ adding that local media are still able to express ‘a broad range of views despite some concerns about increasing self-censorship.’ The organisation’s 10-page report primarily wraps up the tasks and policies that the local government has fulfilled and carried out during last year. The EU report, however, contained critiques regarding the anti-money laundering memorandum signed by the Monetary Authority of Macau (AMCM) and the People’s Bank of China last year that seeks to increase co-operation and improve the implementation of suggestions by the Financial Action Task Force (FATF). ‘Observers criticised the agreement for its lack of clarity and detail and questioned the legitimacy of the handing over of sensitive personal information by the AMCM to the Chinese Central Bank,’ the Commission remarked. In response, AMCM issued a statement yesterday, indicating that “the AMCM has been exerting relentless efforts in enforcing the prevention of activities of money laundering and terrorist financing according to the international standards.” ‘The AMCM and the PBOC, follow ing the relevant laws and legal regu lations of Macau SAR and the Main land, respectively, shall strengthen bilateral co-operation in the exchange of regulatory and supervisory infor mation and other relevant aspects of ongoing supervision according to both the MOU and the FATF [Financial Action Task Force] standards,’ reads the statement.

Flourishing EU-Macau relations

On the other hand, the body indicated that the relations between the European Union and the Special

Administrative Region continued to flourish in terms of ‘co-operation portfolio’ and trade relations, despite the city’s economic downturn. According to the report, total bilateral trade between the two regions amounted to 851 million euros (MOP7.66 billion/US$958.6 million) in 2015, which represents a significant increase of 39.3 per cent compared to 2014. In particular, the Union’s exports to the city surged by 39.7 per cent year-on-year to 756 million euros while the city’s exports to the EU jumped 36.5 per cent year-on-year to 96 million euros. ‘The EU thus recorded a trade surplus with Macao of EUR660 million. It remained Macau’s second largest supplier after China, accounting for 22 per cent of its imports in 2015,’ the organisation wrote.

851 Million euros In bilateral trade between the EU and Macau in 2015, according to the report

Nevertheless, it also mentioned that ‘the continued slowing of Macao’s economy in 2015 had an impact on the EU’s trade and investment interests and on the profits of European ventures.’ ‘The EU will continue to work towards deepening its relationship with the Macao SAR, increasing economic and trade links, improving co-operation with business and civil society, and promoting mobility and exchanges with the people of Macau,’ the Commission stated. It claimed priorities would include greater co-operation to diversify the local economy and co-operation on legal and regulatory affairs, research and innovation, in addition to teaming up to fight human trafficking.

Banking

BNU post MOP510 mln net income in 2015 Local bank Banco Nacional Ultramarino, S.A. (BNU) recorded a net income of MOP510.3 million (US$63.88 million) in 2015, up 15.1 per cent from MOP443.3 million in 2014, according to a press release issued by the bank yesterday. The financial results also indicate that in 2015 BNU registered a 21.6 per cent increase in credit granted to clients, attributed to the growth of loans to retail customers and SME’s. Customer deposits recorded an increase of 21.6 per cent mainly as a result of increases in retail, corporate and institutional deposits. As a result, the bank’s loan-to-deposit

ratio stood at 53.1 per cent, allowing the bank to maintain a very solid liquidity position. The bank added that its net interest income has grown by 22.6 per cent due to an increase in business volume. BNU also indicated that despite the strong negative impact of a contraction from the gaming and tourism sectors it had recorded growth of 3.6 per cent in net commissions. Moreover, in 2015 the cost-to-income ratio dropped from 37.0 per cent to 35.0 per cent; cash flow has increased by 13.0 per cent. In terms of credit quality, the overdue

loans for over 90 days ratio stood at 0.2 per cent. The coverage of overdue loans for more than 90 days by total provisions in 2015 was 746.2 per cent, compared to 306.0 per cent in 2014. Charges for depreciation increased 10.0 per cent due to an increase of investment in equipment and software. Pedro Cardoso, CEO of BNU, commented: “In order to differentiate our bank from the competition, we continue maintaining a sharp focus on the quality of the delivery of services. This must be absolutely faultless. Our customers must feel valued and respected at all times.” J.K.

Business Daily Wednesday, April 27 2016 5

Macau Gaming

Paradise grants ETG patent to IGT in a distribution agreement with IGT. It announced yesterday that such an agreement would be terminated upon signing the new patent deal.

Annual net loss anticipated

Local e-gaming machine manufacturer expects to post a loss for the fiscal year ending June 30. Kam Leong kamleong@macaubusinessdaily.com

aradise Entertainment Ltd. has reached a patent deal with U.S. gaming systems company International Game Technology Plc (IGT) for the latter to use its electronic table game (ETG) technology, patents and other intellectual property worldwide apart from in Macau.

In a filing with the Hong Kong Stock Exchange yesterday, Paradise said that the company had agreed to grant IGT ‘the exclusive right to make, have made, use, sell, offer for sale, import and otherwise exploit’ its products outside the Special Administrative Region. For this deal - which has a 15-year term - IGT would need to provide an upfront payment to the local

e-gaming machine manufacturer of US$12.9 million (MOP103.2 million) in cash instalments. In addition, Paradise will also receive earn-out payments for IGT’s placements of its products during the 15-year term based on a flat fee per unit or flat fee per unit per day, which is estimated to range between 3 per cent and 12 per cent of IGT’s sales revenues.

‘This assignment of patents and associated technology and licence deal with the world’s leading gaming technology provider, IGT, is the best path to creating value for LTG Parties and their respective shareholders in markets outside Macau,’ its chairman and managing director, Jay Chun, remarked in the filing. “The directors believe that the transactions will facilitate the expansion and operations of electronic gaming business and increase the revenue base of the Group,” he added Since August 2014, the Hong Kong-listed company has been

Paradise, making and selling electronic gaming machines under the brand LT Game, is one of the major gaming and casino system providers in Macau and the Asia Pacific region. It also provides gaming management services to various Macau casinos and runs a multi-table live gaming area in Casino Lisboa. In another filing on the Hong Kong-listed company yesterday, it warned that a ‘a substantial loss’ for the fiscal year ending June 30 this year would be posted compared to a loss of HK$12 million registered one year ago. Paradise explained that the expected net loss is due to a loss relating to its patent deal with LGT of HK$338 million before taking into account the earn-out payments that it is to receive from the U.S. company. Moreover, another factor driving the net loss is attributed to ‘a decrease in gross gaming revenue of the Group’s casino management business as the operating environment of the gaming industry in Macau remains difficult,’ the company claims.

Brand guidelines

Wednesday Ad outlined.indd 1

4/26/2016 6:23:31 PM

6 Business Daily Wednesday, April 27 2016

Macau Human resources

Wynn Palace hires 3,600 locals

300 have been newly hired since the end of March. The number of Wynn Palace, slated to open in Cotai non-resident workers, however, was this year, has so far hired 3,600 local not available upon Business Daily’s enquiry. Wynn Palace stressed that employees, according to a press prioritising hiring local talent is in release issued by the company line with the government’s policy yesterday. The gaming operator and the company will continue to says that around 1,000 employees provide training and promotion have been internally transferred to opportunities for locals. the new property, while more than

Casino stocks

SAR casino stock rally thought unsustainable as downturn endures

ocal casino stocks just had their worst week since January, and for Invesco Ltd.’s Paul Chan, there’s no let up in sight. A gauge containing Sands China Ltd. and other casino operators sank 5.5 per cent in the five-day period, after rallying at almost triple the pace of the MSCI Hong Kong Index since a January low. The rebound will falter given operators are adding new gaming tables, industry revenues are dropping and big spenders are staying away from the enclave, he says. “What recovery? I haven’t seen any recovery yet,” said Hong Kong-based Chan, the chief investment officer for Asia excluding Japan at Invesco, which oversees about US$772 billion (MOP6.167 trillion) in global assets. “Top-line revenue growth is not improving and they have moved to the mass market now, which is a low-margin business. I don’t think it is a good time for investors to go into the sector.” Gambling revenue in the only city in China where casinos are legal has fallen for almost two years, hurt by Beijing’s anti-graft campaign and increased scrutiny of the middlemen who bring in high-rollers. The resulting squeeze in spending by the biggest gamblers has pushed casino operators to earmark nearly US$20

billion for resorts targeting families and non-gaming revenue, which Fitch Ratings warns could cannibalize on existing properties. A Bloomberg Intelligence gauge of six large casino operators jumped 46 per cent from a five-year low on Jan. 21 before last week, with Wynn Macau Ltd. leading gains on the MSCI index, which advanced 17 per cent. Casino stocks accounted for five of the six biggest losers in the city last week, even as the gauge rose 0.8 per cent.

18 Billion patacas Casino revenue in March

The index of casino shares dropped 1 per cent at 9:35 a.m. on Tuesday. Wynn Macau and MGM China Holdings Ltd. slid at least 1.2 per cent. JPMorgan Chase & Co. said in a report this month the rally may

lose steam as investors lock in profits and the second quarter is traditionally the slowest for Macau in the absence of major holidays. The brokerage downgraded Sands China Ltd. to neutral days before the Macau-based unit of Las Vegas Sands Corp. reported first-quarter profit that missed analysts’ estimates. Some 1,600 tables will be added as new projects open in the next two years, according to Fitch. Macau’s casino revenue sank 16.3 per cent to MOP18 billion (US$2.3 billion) in March, worse than the 15.5 per cent decline estimated by analysts in a Bloomberg survey. VIP revenue, as measured by baccarat that contributes more than half the total gaming revenue, slumped 19 per cent last quarter.

New Projects

Alex Bumazhny, Fitch’s senior director in New York, predicts Macau gambling revenue will fall about 5 per cent this year. “We expect some marginal growth going forward but as bigger projects open, there’s some danger that there could be cannibalization for existing properties,” he said. Sands China is building a US$2.7 billion Parisian Macau project, which will feature a replica Eiffel Tower

when it opens later this year, and will compete with a US$4.1 billion resort from Wynn Macau. The market is big enough to absorb the additional supply, while an improving Chinese economy will boost risk taking by gamblers, according to Michael Ting, a Hong Kong-based analyst at brokerage CIMB Group Holdings Ltd. Several recent Chinese indicators including manufacturing activity, retail sales, exports and industrial output have beaten estimates, buoyed by a surge in new credit to more than US$1 trillion in the first quarter.

Junket Operators

“Under an assumption that the macro environment continues to improve, this is what can drive cash flows,” said Ting, who recommends investors add to their holdings in Sands and Galaxy Entertainment Group Ltd. Still, a tightening squeeze in the VIP business may deter big spenders. Macau’s government is working with new junket operators, who bring in the high-stakes gamblers and lend them money, on a proposal that would see a 100-fold increase in the capital requirements for new entrants, according to people familiar with the matter. The bull argument doesn’t hold water for Alex Wong, who helps oversee US$100 million at Ample Capital Ltd. and says the construction of rival gambling centers in South Korea, Japan and Southeast Asia will lure Chinese visitors away from Macau. “These stocks have been down so much over the last year, so people were expecting things cannot get worse,” said Wong. “I don’t think we would see further momentum from here.” Bloomberg

Business Daily Wednesday, April 27 2016 7

Gaming Las Vegas

Fertitta brothers set to take home the jackpot in Red Rock IPO

n the casino business, the saying goes that the house always wins. In Red Rock Resorts Inc.’s upcoming initial public offering, the Fertitta brothers certainly stand to come out on top. Frank, 54, and Lorenzo, 47, are chief executive officer and director, respectively, of Las Vegas-based Red Rock, a casino operator scheduled to price its IPO yesterday. At the high end of its marketed range, Red Rock could raise US$572.25 million (MOP4.57 billion), making it the largest IPO so far this year, according to data compiled by Bloomberg that excludes REITs, special purpose companies, and closed-end and country funds. The brothers stand to get several jackpots out of the deal: Proceeds from the sale of their casino management unit, annual payments linked to the tax benefits of becoming a public company and a huge chunk of voting rights once the shares are sold. They’ll also get the standard IPO proceeds from selling their own shares. “ I t’ s n o t i d e a l , t h a t

structure,” said Kathleen Smith, principal at Renaissance Capital Ltd., which manages IPO-focused exchange traded funds. “It’s not that we don’t like the family, the issue is with the distributions and that they have so much control,” she said. Red Rock is pitching the brothers’ control over the company as a plus for prospective investors, according to its roadshow presentation. “We’re significantly committed,” Frank said in the presentation. “This is a big part of our family’s wealth and investment and we think it will be a good partnership between us and the public shareholders going forward.”

Casino Management

The biggest windfall -- about US$335 million -- will come from the Fertittas’s casino-management unit. As part of the IPO, Red Rock will buy Fertitta Entertainment for US$460 million minus debt, according to the offering documents. The brothers will each receive US$113.5 million from the sale, while

trusts for the benefit of their six children will receive a combined US$106.8 million. That’s a hefty premium to the valuation given in a management contract filed with regulators in February. According to the filing, if Fertitta Entertainment were to be sold its value would be equal to management fees. Those fees totaled about US$53 million last year, according to the IPO prospectus. The brothers expect to be the sole owners of new super-voting shares in the company after the IPO, according to the prospectus. That will give them 87 per cent of the voting power, assuming the minimum anticipated number of shares are sold. New shareholders will buy into Class A shares that have combined voting power of just 7.3 per cent. The IPO is being managed by Deutsche Bank AG, JPMorgan Chase & Co., Bank of America Corp.’s Merrill Lynch and Goldman Sachs Group Inc.

Las Vegas

Investors in the IPO aren’t just making a bet on the

Fertitta brothers’ management skills, they’re also gambling on the health of the Las Vegas gaming market. Central to Red Rock’s growth strategy, as laid out for potential investors in its IPO prospectus, is the belief that “our existing Las Vegas portfolio should benefit from improving economic conditions.” The Fertittas know firsthand the pitfalls of depending on that market. In 2007, the brothers took the company, then called Station Casinos, private in a US$9.1 billion leveraged buyout, months before the casinos business was hit by the financial crisis and housing market collapse. Station filed for bankruptcy in July 2009. That could have been the end of the story. Instead the pair, who also own the UFC mixed martial arts league, fought off a hostile offer in bankruptcy court from Boyd Gaming Corp. They pumped about US$250 million of their own money into the company, and emerged in 2011 with a stake twice the size of the one they had before

the buyout, Frank Fertitta said during the road show presentation. Deutsche Bank, which is leading the IPO, advised the bidders and provided debt financing when Station Casinos was taken private. Through the bankruptcy process, Deutsche Bank ended up with a 24 per cent stake in what’s now Red Rock Resorts, which it will sell part of when the casino company goes public. Five years on the Las Vegas economy is stronger, with growth in retail sales, employment and real estate values recovering in recent months. Still, Sin City’s continued prosperity features high on the list of potential risk factors for Red Rock. “We depend on the Las Vegas locals and repeat visitor markets as our key markets, which subjects us to greater risks than a gaming company with more diverse operations,” the company said in the prospectus. Representatives for Deutsche Bank and Red Rock declined to comment on the IPO. Bloomberg

Las Vegas

Boyd Gaming to Buy Cannery Resorts in Vegas for US$230 Million Boyd Gaming Corp. agreed to buy the Las Vegas assets of Cannery Casino Resorts LLC for US$230 million (MOP1.837 billion), its second acquisition there in a week. Boyd will acquire the Cannery Casino Hotel in North Las Vegas and the Eastside Cannery Casino & Hotel adjacent to its existing Sam’s Town, according to a statement Monday. Together with the recently announced acquisition of Aliante Casino Hotel & Spa in North Las Vegas, the purchases expand Boyd

Gaming’s southern Nevada portfolio to 12 properties. The deal is another sign that the socalled locals casino business, which caters to residents of Las Vegas, is

back. Another operator targeting local players, Red Rock Resorts Inc., was scheduled on Monday to sell shares to the public for the first time since the company went private in a 2007

leveraged buyout. Casino revenue in the locals market climbed 2.3 per cent to US$2.15 billion last year, according to CBRE estimates. “This transaction is a great tuckin acquisition that further expands our presence in the Las Vegas locals market at an attractive price,” Keith Smith, Boyd’s chief executive officer, said in the statement. Las Vegas attracted a record 42.3 million visitors last year, helping lift the city’s employment for the fifth year in a row. Some US$13.9 billion in construction projects are planned in the market, Red Rock said in its offering documents. With expected cost savings and operational changes, Boyd said the Cannery casinos should generate US$32 million in earnings before interest, taxes, depreciation and amortization in their first full year under new ownership. Bloomberg

8 Business Daily Wednesday, April 27 2016

Greater China Car industry

Mainland-ma GM hopes its high-tech approach will persuade American consumers to put aside quality concerns and safety worries over Chinese-made products. Bill Savadove

Funding

Alipay owner raises US$4.5 bln Ant Financial said it would use the funds for global expansion and boosting its services to China’s rural areas.

he financial services affiliate of Chinese e-commerce giant Alibaba has raised US$4.5 billion in funding, it said yesterday, calling it the largest single private placement by an Internet company. The move values Ant Financial Services Group at roughly US$60 billion, the Wall Street Journal reported, quoting people familiar with the situation. Previous media reports had said the company aimed to raise US$3.5 billion. Investors included a unit of China’s

sovereign wealth fund and a subsidiary of China Construction Bank, one of the country’s Big Four lenders, according to a statement. Ant Financial - which is reportedly planning to go public - said it would use the funds for global expansion and boosting its services to China’s rural areas. “The capital raised in series B will allow us to invest in the infrastructure, such as cloud computing and risk control, that will underpin our long-term growth in rural and international markets,” Eric Jing, president of Ant Financial, said in the statement. Ant Financial - set up in 2014 to consolidate Alibaba’s finance-related businesses into a single entity - includes online payments arm Alipay, which is estimated to hold 80 percent of the sector in China.

It also includes an investment platform and an online bank, which aims to support small businesses and entrepreneurs, a key theme for Alibaba founder Jack Ma. In e-commerce, Alibaba’s Taobao platform is estimated to have more than 90 percent of the consumer-to-consumer market in China, while its Tmall platform is believed to command more than half of business-to-consumer transactions. But the group is seeking to grow beyond its traditional online sales business, diversifying into such areas as sports and entertainment. Alibaba listed on the New York Stock Exchange in 2014, raising US$25 billion in the world’s biggest initial public offering. Founder Ma, who is also executive chairman, is now China’s second richest person with net worth of US$29 billion, according to Bloomberg Billionaires. AFP

A gigantic robotic arm capable of lifting an entire chassis at a General Motors plant in Shanghai is the US automaker’s secret weapon as it seeks to sell “Made in China” cars to America. The yellow machine - dubbed “Fanuc” by workers after its maker - can lift a one-tonne object and is being used to transport large parts in the body shop of the Cadillac plant. GM hopes its high-tech approach will persuade American consumers to put aside quality concerns and safety worries over Chinese-made products, and other manufacturers hope to follow in its tracks - including Chinese firms themselves - as the auto industry globalises further. GM and its Chinese partner SAIC earlier this year opened the $1.2 billion Cadillac factory to produce luxury vehicles, including the plugin hybrid version of its CT6 sedan, which will be sold in both China and the United States. The US automaker has also announced plans to export to its home market a mid-size SUV, the Buick Envision, made in the eastern Chinese province of Shandong - prompting condemnation from US unions. GM China’s president Matt Tsien said the Shanghai plant is as

Activist investors

National hedge fun as its New York ma

Liang Jian is trying to block buying back all of their U.S.Ye Xie and Bonnie Cao

ctivist investing isn’t a thing in China. It’s culturally frowned upon to be that confrontational. Liang Jian, a journalist-turned-hedgefund manager, is on a mission to change that. Not that Liang, or Nick as he’s known in international circles, would ever be confused with the likes of the brash American activist investors - the Bill Ackmans and Carl Icahns and Dan Loebs. He’s a newbie with a war chest that’s a fraction of theirs and zero experience in the kind of epic battles for boardroom control that have made those men so famous. But what Liang, 40, has begun doing - trying to block Chinese companies from buying back all of their U.S.-listed shares on the cheap - constitutes perhaps the boldest foray yet into the realm of activist investment in the Asian nation. His tactics have raised eyebrows in Beijing’s tight-knit investment and corporate community and earned him scores of admirers and enemies in the process. He’s been called a barbarian, spoiler and lightweight who lacks the financial resources to carry out the kind of counter-offer he’s proposing. Liang is undaunted. “We have to fight for ourselves.” As he tells it, he never intended to become an activist investor when he founded iMeigu Capital Management Ltd. three years ago. He was just looking to manage a little money for himself and a handful of clients with a focus on Chinese Internet stocks traded in New York and Hong Kong. But as corporate executives started putting up a

Business Daily Wednesday, April 27 2016 9

Greater China

ade, US-bound: automakers eye exports cutting-edge as any of its facilities in the United States. “It has, I would say, some of the most advanced manufacturing technologies and capabilities in the auto industry today. The whole purpose of putting all the advanced technology into manufacturing is to build great cars,” he said. Analysts say GM’s size and strength m i ght j u st c o n vi n c e p o t e n ti a l customers. “The ‘Made in China’ is not that much of a stumbling block. It’s who is making it in China,” Namrita Chow, principal analyst for IHS Automotive in London, told AFP. Some major global companies are already manufacturing products or components in China, notably Apple’s iPhone and several parts for Boeing’s Next Generation 737. Doing so allows them to take advantage of China’s much lower labour costs but even so, Chow said transport costs and import tariffs have to be taken into account before it makes financial sense for companies -- both foreign-invested and domestic -- to manufacture in China and sell elsewhere.

“The whole purpose of putting all the advanced technology into manufacturing is to build great cars” Matt Tsien, GM China’s president

nd fights back arket dries up

Chinese companies from -listed shares on the cheap. record US$31 billion last year to buy back these U.S.-listed companies, often with an eye to resell them in China at higher prices, Liang was taken aback. Not only were most of the offers at deep discounts to the IPO prices from just years earlier, but in some cases they didn’t even match their recent market levels. Somebody, he figured, needed to stick up for minority shareholders. Two deals struck him as particularly troubling. Last July, the top executives at E-Commerce China Dangdang Inc., once considered the country’s answer to Amazon.com Inc., said it wanted to repurchase all the shares in the open market for 16 percent less than their average over the prior three months. By that measure, it’s the lowest offer made by any Chinese company seeking to pull its shares off the U.S. market since 2003. Then in February, the founder of online cosmetic retailer Jumei International Holding Ltd. said he was leading a group looking to buy back all outstanding shares for US$7 a piece, less than a third of the IPO price back in 2014. The bid was so low that the company’s US$402 million in cash and equivalents would almost be enough to cover the buyout costs.

‘Noisemaker’

The obstacles facing disgruntled minority shareholders are stark. Through a complex ownership structure, the Chinese management groups tend to control the vote on these deals. And legal challenges are complicated too, given that most of the companies are incorporated in the Cayman Islands, where local law is seen offering little

GM is looking to Cadillac to challenge German dominance in the Chinese luxury segment, while Beijing is seeking to develop the electric car industry with incentives and other government support, creating potential economies of scale for manufacturers. “The overall (plug-in hybrid electric vehicle) market, the predominant volume is going to be here in China,” said GM’s Tsien. “From a standpoint of logic, it would make sense to manufacture in one location and export small quantities into other parts of the world.” GM is not the only company producing in China and hoping to sell into developed markets: Chinese auto makers have long held such dreams themselves. China built its auto sector with the help of foreign companies, who must enter into joint ventures with domestic firms to produce vehicles in what is now the world’s largest auto market. The government wants its companies to move up the value chain to develop their own brands that can gain traction overseas. But sales so far have largely been in developing countries, rather than the coveted US market and Europe, where vehicles must both pass government muster and appeal to sophisticated consumers. Chinese manufacturers going abroad tend to downplay their roots and stress their international credentials instead. Geely, owner of Swedish carmaker Volvo, sells cars in Russia and Turkey and the company said last month that it was considering producing in western Europe.

Buyers in the Middle East “were not worried that this was a Chinese brand”, said spokesman Ash Sutcliffe. “They looked past the Chinese heritage of the company”, focusing on “value for the money”. “In China we really push it on the Chinese-ness of the car,” he added. “In international markets... it’s affordable premium.” State-owned Guangzhou Automobile Group Co. has a sales presence in the Middle East and is also considering setting up production in Russia and Iran, according to state media. Chery Automobile Co. has just relaunched cars assembled in Egypt with a local partner and is eyeing the African market. “We see Africa as a market with huge potential,” Chery International president He Xiaoqing told state media. China exported 755,500 vehicles of all types last year, according to the China Association of Automobile Manufacturers -- down 20 percent from 2014 and little more than three percent of total domestic production. But the largely state-owned firms are competing for a bigger prize than just sales, analysts say -- the chance to be picked by Beijing as a future national champion to lead the Chinese fight in a global market. “Chinese actors are making a point of exporting and have bought some companies to mark themselves out from the pack to the government and show that they deserve to be the consolidator,” said Laurent Petizon, automotive expert at consultancy AlixPartners. “To do that it’s important to show you have an impact abroad,” he added. “But it’s still symbolic for now. AFP

protection to minority shareholders. That didn’t stop Liang from unleashing a torrent of lawsuit threats against Jumei’s leadership in a widely publicized statement in late February. He said he’s working with other minority shareholders to compile their complaints. In the feud with Dangdang, he’s hatched a more developed plan, having put together a competing acquisition bid that, at a valuation of US$468 million, is 13 percent higher than management’s offer. Press officials at Dangdang didn’t respond to e-mails and phone calls seeking comment on the transaction. Jumei officials declined to comment. The Jumei buyout group had called its offer “attractive” back in February, months after founder Leo Ou Chen complained that the company was being “seriously undervalued” by U.S. investors. And in a statement accompanying their bid last year, the chairwoman and the CEO of Dangdang said the proposal provided “superior value” to shareholders and noted how it was higher than the previous day’s close, an argument that’s been echoed by pundits unsympathetic to Liang’s cause. Many of his critics have openly doubted he can come up with the money needed to fund his counter-offer for Dangdang, a perception he’s tried to squelch by teaming up with industrial conglomerate Jiangsu Huaxi Group Co. on the deal. “IMeigu is just a noisemaker,” said Jun Zhang, head of China research at Rosenblatt Securities Inc. in San Francisco. “It won’t have much substantial impact. They are probably doing this for the fame.” To many fellow minority shareholders, though, Liang is something of a hero. “It’s a bold move,” said Peter Halesworth, the founder of Heng Ren Investments, a Boston-based firm that invests in Chinese companies listed overseas. “We appreciate it and other investors should appreciate it. We need investors to raise their voices and push back against low-ball offers.”

Liang was born and raised far from the financial centres in China’s north. The son of rice and banana farmers from a small village in the heart of the country’s southern industrial base, he became the first member of his family to attend college when he made the 1,000-mile journey to the Chengdu University of Technology. He’d go on to try his hand at a couple different jobs before breaking into journalism and deciding with a colleague to launch their own financial news website. They named it Xueqiu - Chinese for snowball, a nod to the book that chronicled the life of their hero Warren Buffett - and scored financial backing from Sequoia Capital. That success in turn led Liang and one of his Xueqiu colleagues to try investing itself in 2013, when they founded iMeigu in Beijing. The timing was fortuitous. China’s Internet industry was booming and many of the companies were flocking to the U.S. market to go public. IMeigu’s lone fund has returned 55 percent from its inception, according to data compiled by Bloomberg through the end of March. (That’s triple the gains in the CSI Overseas China Internet index over that time.) Today, the hedge fund employs a half-dozen people and manages what Liang will only say is a figure in the “tens of millions of dollars.” As the Dangdang and Jumei disputes drag on, Liang doesn’t rule out taking on other corporate executives. More and more Internet firms are pulling their shares out of New York and looking to list back in Shanghai or Shenzhen, a trend driven in part by the Chinese government’s push to support the technology industry. For Liang, raising opposition to these deals isn’t just about eking out a few extra dollars here and there. It is, as he says, “a test of our survival.” For if companies threaten to exit the U.S. whenever their stock prices take a dive, iMeigu’s market niche would eventually disappear, taking with it, perhaps, China’s nascent activist-investor movement. Bloomberg News

National champion

In Brief Public companies’ results

State firms’ Q1 profits fall 13.8 percent Profits at China’s state-owned firms fell 13.8 percent in the first quarter from a year earlier, though the rate of decline eased slightly from the first two months of the year, the Ministry of Finance said yesterday. Total profits at state firms were 432.3 billion yuan (US$66.56 billion) in the first quarter, while revenues fell 3 percent to 9.95 trillion yuan. Pharmaceutical and petrochemical companies saw relatively large profit increases, while profits at building materials, electronics and tobacco companies fell from a year earlier, the ministry said. State planner

Government wants to stabilise property expectations The Chinese government will stabilise property market expectations and increase land supply for housing projects in first-tier and some second-tier cities, the state planner said yesterday. The National Development and Reform Commission (NDRC) issued a 10-point guideline seeking to reinvigorate domestic consumption as the country experiences severe overcapacity. Measures included lowering the cost of logistics, boosting car sales and improving the quality of housing projects, according to a statement on the commission’s website.

M&A

Siliconware Precision freezes stake sale Taiwanese semiconductor test and packaging company Siliconware Precision Industries Co (SPIL) said it has frozen plans to sell a nearly US$2 billion stake to Chinese state-backed conglomerate Tsinghua Unigroup until the incoming Taipei government clarifies its policy on investment from the mainland. The independence-leaning Democratic Progressive Party, seen as less friendly to China, won recent elections in Taiwan and new president Tsai Ing-wen will be sworn in on May 20. SPIL postponed a shareholder vote on the deal in January as the timing of the offer, during the election, left Tsinghua Unigroup a target of anti-China political attacks. Grain production

Food supply shortfall persists Despite bumper harvests, China still has a 9.9 million tonne shortfall in the amount of grain it produces and consumes annually, a senior official said yesterday. In the long term, China’s food security situation is still alarming, Ren Zhengxiao, head of the State Administration of Grain, said during a press conference. China’s food security is now more urgent with a rising population and industrialization encroaching on farmland. China’s total grain output increased 2.4 percent year on year to 621 million tonnes in 2015, the 12th straight year of growth.

10 Business Daily Wednesday, April 27 2016

Greater China

Overcapacity

Top steel making province bans reopening of mills ordered closed China’s steel output rose to a record in March while its steel shipments rose 30 percent from a year ago.

hina’s top steel making province will ban the reopening of steel mills that had been previously ordered to shut down, the official Xinhua News Agency reported yesterday, as soaring steel prices lure back producers. Provincial authorities in Hebei also pledged to step up monitoring of steel mills, punish closed mills that reopen and investigate and sack local officials who allow the reopening of mills and approve illegal projects, Xinhua said. Hebei accounts for just under a quarter of steel production in China, by far the world’s top steel producer and consumer. A jump in steel prices this year has encouraged many producers in China to rekindle their furnaces and ramp up production, potentially

exacerbating a global steel glut that has sparked trade friction with other producers including the United States, Britain and Australia. Some mills in China have been ordered to close as part of the government’s efforts to trim overcapacity. Xinhua quoted a notice from the Hebei government as saying officials were not allowed to permit these facilities to restart production “under any circumstances.” Other mills, facing losses, cooling demand and tighter credit conditions, have trimmed output or suspended production for economic reasons. It was not clear if these mills were included in the ban on resuming production. Australia said on Saturday it would impose duties on certain types of Chinese steel to protect domestic steelmakers, while the United States

and seven other countries called earlier this month for urgent action to address global overcapacity. Chinese steel futures have jumped more than 50 percent so far in 2016 after six straight years of losses. Dalian iron ore futures have risen about 55 percent since the beginning of this year, as investors bet the government

‘The country plans to shed 100-150 million tonnes of domestic crude steel capacity in the next five years’

will take more measures to stimulate the economy. Despite Beijing’s efforts to cut surplus Chinese steel capacity and pressure from other countries to cut exports, China’s steel output rose to a record in March while its steel shipments rose 30 percent from a year ago. China has a total crude steel capacity of 1.13 billion tonnes, but produced about 800 million tonnes of crude steel last year, suggesting more than 300 million tonnes of surplus capacity. The country plans to shed 100-150 million tonnes of domestic crude steel capacity in the next five years, and another 500 million tonnes of surplus coal production, in a bid to tackle huge capacity overhangs that have saddled domestic firms with losses and debts. Reuters

Deal setback

Alibaba weighs appeal against HK panel ruling Regulator said healthcare deal broke takeover code. Chinese e-commerce giant Alibaba Group Holding Ltd said it’s considering whether to launch an appeal against a Hong Kong regulator’s finding that it breached takeover rules by buying an effective majority stake in a healthcare firm in 2014 without extending the offer to all of its shareholders. Alibaba said late on Monday that the Hong Kong Takeovers and Mergers Panel, part of city’s Securities and Futures Commission (SFC) watchdog, found it broke rules by arranging a deal with certain investors in CITIC 21CN, now known as Alibaba Health Information Technology Ltd, at beneficial terms not extended to other shareholders. The SFC ruled that the breach of code in the 2014 investment meant an original waiver to a requirement to

launch a general offer to all investors was invalidated, Alibaba said. But the e-commerce firm said the regulator issued a new waiver in view of the sharp rise in Alibaba Health stock since 2014, meaning Alibaba is not

currently required to launch a full buyout. Alibaba said in the statement it believes it fully complied with the takeover code regarding the investment, worth US$170 million at

the time, which gave it a 54 percent stake in the healthcare business after buying newly issued shares in the company. Alibaba noted it was granted a waiver by the full offer requirement, given that the stock has soared more than six-fold since the 2014 offer. An Alibaba spokesman said the firm is considering appealing against the SFC ruling but declined to elaborate further when contacted by Reuters yesterday. “Alibaba Group believes that the determination by the panel will not affect Alibaba Health’s operations and it intends that Alibaba Health will continue to be the flagship healthcare subsidiary of Alibaba Group,” the e-commerce firm said in its statement. In a separate statement issued late on Monday, Alibaba Health said the company continues to maintain its normal business operations. Reuters

Business Daily Wednesday, April 27 2016 11

Asia GDP

South Korea’s economy slows on weak capex, exports Exports slipped 1.7 percent in the first quarter from the fourth, nearly wiping out a 2.1 percent gain in the December quarter. Christine Kim

outh Korea’s economic growth halved in the first quarter from the previous three-month period as poor exports and stumbling capital investment cast doubts over policymakers’ more optimistic expectations for a near-term recovery. First-quarter growth slowed to 0.4 percent in January-March over the previous quarter, the Bank of Korea (BOK) estimated yesterday, slightly below expectations and the weakest seen since the second quarter of last year. Sequential growth lagged a seasonally adjusted median forecast from a Reuters survey of 0.5 percent, and was below the 0.7 percent rise in the fourth quarter. Shortly after the data release, the finance ministry said the economy

Key Points Q1 GDP +0.4 pct s/adj q/q, slowest in 3 qtrs Facilities investment marks sharpest fall since Q2 2012 Private consumption at near 2-yr low Govt, Bank of Korea see improvement in Q2 Analysts still see rate cut to boost economy

The Bank of Korea (headquarters pictured) said capex is expected to improve past the second quarter.

would step up in the second quarter while the BOK stressed consumption was improving from March thanks to new smartphone and auto releases. Both were met with scepticism from analysts. “There are so many moving parts right now, including whether improvement will be sustainable with the on-going structural reforms. The government sounds too optimistic,” said Lee Sang-jae, chief economist at Eugene Investment & Securities. “Exports are not looking good with the won’s recent strength. We need to see China rebounding but that’s something we can’t count on. Shipments may improve in Q4 at soonest.” On-year, the economy expanded 2.7 percent in the March quarter, which matched the forecast in the Reuters poll. Exports slipped 1.7 percent in the first quarter from the fourth, nearly

wiping out a 2.1 percent gain in the December quarter. As expected, capital investment dropped 5.9 percent in the March quarter to mark its worst performance since the second quarter of 2012 as companies remained hesitant to invest amid global uncertainties. The BOK said capex is expected to improve past the second quarter as major local airlines like Korean Air Lines Co Ltd and Asiana Airlines Inc plan to buy airplanes in the second half of the year. The GDP data shows the government’s efforts to encourage consumers to splurge are struggling to gain traction while exports, the country’s main engine of growth, falter. Private consumption notched its first fall in nearly a year, falling 0.3 percent on-quarter. This was the sharpest decline since the June

quarter of 2014 as the effects of government measures late last year to boost consumer spending faded. Although services rose 0.5 percent on-quarter, a closer look showed these gains were led by real estate and financial insurance services rather than consumer-based retail and food sales. “We may see more of a slowdown in the second half of the year but for now, the second quarter will improve on base effects. This will prompt the Bank of Korea to save its bullets for later,” said Stephen Lee, economist at Samsung Securities, referring to the central bank possibly cutting interest rates from the current 1.50 percent. A majority of analysts currently see the BOK lowering rates soon to prop up economic growth, which Lee said may take place later than some expect as the central bank will want to observe the fallout from on-going structural reform. Reuters

to get cash before the deal gained regulatory approval. It now forecasts a net loss of 470 billion yen, smaller than a 710 billion yen loss estimated earlier. The company is expected to release its results in early May. Toshiba is also in final talks to replace in June Chief Executive Masashi Muromachi, who took over the company last July after

his predecessor and a slew of other top executives resigned for their roles in the scandal. A source told Reuters that Senior Executive Vice President Satoshi Tsunakawa was a leading candidate, noting that he was not embroiled in the scandal. Tsunakawa is credited for having increased earnings at the medical equipment unit. Reuters

Rate cut in view

Results

Toshiba takes write-down on U.S. nuclear unit Westinghouse The laptops-to‑nuclear conglomerate said the reversal was prompted by its weaker financing abilities for nuclear projects. Makiko Yamazaki

Japan’s Toshiba Corp said yesterday that it booked an impairment charge of US$2.3 billion for the past financial year on U.S. nuclear unit Westinghouse, a much-anticipated move to address lingering doubts over its book-keeping. The 260 billion yen write-down is a reversal of Toshiba’s long-time refusal to mark down the 330 billion yen goodwill value of Westinghouse despite a deterioration in the nuclear business since the 2011 Fukushima disaster. Toshiba bought Westinghouse in 2006 for US$5.4 billion. Investors have said that concerns over the value of the business have been a major reason behind the lack of recovery in Toshiba’s share price following a US$1.3 billion accounting scandal last year. The laptops-to-nuclear

conglomerate said the reversal was prompted by its weaker financing abilities for nuclear projects after the scandal led to a business overhaul and a slew of credit-rating downgrades. Toshiba, however, raised its earnings estimates for the year ended in March as it booked a pre-tax profit of 590 billion yen from the sale of a medical equipment division to Canon Inc using an unusual method

12 Business Daily Wednesday, April 27 2016

Asia Monetary head

Time ticking for choice of Australian central bank chief The main contender is RBA Deputy Governor Philip Lowe. Wayne Cole

ustralian Treasurer Scott Morrison is running out of time to anoint a new head of the central bank as an early election looms large in the decision process. The long-serving and highly regarded head of the Reserve Bank of Australia (RBA), Glenn Stevens, retires in September after a decade at the helm. An election will be called in the next couple of weeks and convention is that the government does not make major position choices during the campaign. Either Morrison announces very soon or risks the opposition Labour party getting the pick, with the latest polls showing the race is neck and neck. The main contender is RBA Deputy Governor Philip Lowe, a career central banker of 36 years who has been groomed for the top role. Stevens was asked at a parliamentary hearing in February what qualities were needed for a governor. “I think the deputy governor has all the admirable qualities needed and more, more than me,” he said. “A thick skin is probably the primary one, actually.” His opinion should carry weight

given Morrison called Stevens the “rock star of central bankers” last year. Financial markets also consider Lowe a safe pair of hands as the economy weathers the end of a once-in-acentury boom in mining investment and shifts to more service-led forms of growth. “Lowe has spent his whole career learning the performance art of central banking, and it is very much an art form,” says Paul Bloxham, chief economist Australia at HSBC and himself a former RBA staffer. “He would be the perfect continuity play - the easiest handover you could imagine. And wouldn’t you want continuity when the RBA deserves much of credit for Australia’s success?” So far, the government has been noncommittal, saying a range of candidates were being considered. It is easy to see why competition

for the post would be fierce. It boasts an annual salary of a million dollars, a minimum seven-year term, lots of travel and a great retirement package. Also, financial markets hang on your every word as it is arguably the most important job in the economy.

Could have been a contender

One name in the frame is David Gruen, a former RBA staffer and currently deputy secretary on economic matters at the Department of Prime Minister and Cabinet. Another, Martin Parkinson, is also at the Department of Prime Minister and Cabinet and served as Secretary to the Treasury from March 2011 to December 2014. The current Treasury Secretary, John Fraser, might also be on the short list. He already sits on the RBA’s nine-member policy board and has market experience through a long

stint at Swiss bank UBS. The links to Treasury reflect the way the two institutions orbit each other at the centre of policy making-power. Some former executives from the major commercial banks were touted for a while, but that seems highly unlikely now given a rash of scandals in the financial sector. There have been suggestions Morrison could pick someone from offshore, as the Bank of England did with Canadian Mark Carney. Yet, with an election looming it would be a brave government that argued it could not find a native that was up to the job of setting Australia’s interest rates. There’s also the question of morale at the central bank. Should Lowe replace Stevens then his job comes open, and so on down the line. Without that, many of the best and brightest might feel the chance of career progress is gone and seek work elsewhere. Having won so much acclaim for its performance in the wake of the global financial crisis, it would be a poor reward if the RBA’s line of succession were broken now. Reuters

Glenn Stevens retires in September.

Key Points Decision likely soon on replacement for RBA chief Stevens Market betting favours RBA deputy Lowe for the role RBA’s record of success means odds against an outsider

Elections

Hong Kong’s Filipino domestic workers vote to clean up back home Voting started earlier this month in Hong Kong, where more than 93,000 Filipinos are registered to vote. Kate Bartlett

Twerking, selfie-taking, picnicking and performing impromptu dance routines Hong Kong’s 180,000-strong community of Filipino workers fill the city’s public spaces on Sundays, their day off, to relax and party. But for the past few weeks the colourful gatherings have turned political, as the Philippines heads towards an election in which its migrant workers could swing a tight race. Bands thrash out rock ballads backing their favourite candidates in the walkways and public squares of Hong Kong’s financial district, and campaigners wear t-shirts bearing political slogans to drum up support. “It’s important to vote for change,” said 49-year-old Winnie Blaza, a domestic helper who has not lived

Business Daily is a product of De Ficção – Multimedia Projects

in her home country for 20 years. “I became a migrant worker because of poverty. We migrants are supporting candidates who want to help.” The majority of Hong Kong’s Filipino workers are domestic helpers, an often-abused underclass in the wealthy city, whose plight has been highlighted by several recent legal cases. But there is a sense of empowerment now, as they form part of a key demographic candidates are keen to corner: the 1.3 million Filipinos who are registered to cast absentee ballots. Blaza is backing controversial candidate Rodrigo Duterte, who leads the polls despite remarks about the rape and murder of an Australian missionary that sparked protests from diplomats, the Catholic Church and women’s groups.

Likened by some to controversial US Republican candidate Donald Trump, he is held up by supporters as a maverick with a solution to corruption and crime.

‘Every vote counts’

For Filipina voter Madeline, 26 - who has a nursing degree but gets a higher salary working as a maid in Hong Kong - the ballot box is a chance to clean up politics. “Crime is very rampant, especially corruption in the government,” she said, without specifying her favoured candidate. Filipinos working overseas - primarily in Asia, North America and the Middle East - sent more than US$25 billion in remittances home to their impoverished country last year, giving them extra political clout. “The votes of migrant workers can be a game-changer,”

added Eman Villanueva, an activist for Migrante, a political party that campaigns for the rights of foreign workers.

“I became a migrant worker because of poverty. We migrants are supporting candidates who want to help” Winnie Blaza, Philippines’ domestic helper working in Hong

“This is a close fight and every vote counts.” Duterte’s son visited Hong Kong as part of the campaign,

as did rival candidate Mar Roxas. US-educated investment banker Roxas and Grace Poe, a movie star’s adopted daughter, are among those taking on Duterte, a tough-talking mayor who has been accused of running death squads in his city. Voting started earlier this month in Hong Kong, where more than 93,000 Filipinos are registered to vote, and ends on election day in the Philippines, May 9. But, whichever candidate they favour, most simply want to make a living back home. “The long term goal is to have jobs available in the Philippines so we don’t have to leave our country to survive,” says Villanueva. For Blaza, return is the ultimate aim. “I really want to go back to my family,” she said. AFP

Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Wednesday, April 27 2016 13

Asia In Brief

Malaysian Prime Minister Najib Razak heads the advisory board of 1MDB.

Insurance

SCB close to hiring Morgan Stanley Siam Commercial Bank (SCB), Thailand’s No. 3 lender, is close to hiring Morgan Stanley to advise on a potential sale of a significant stake in its life insurance unit, people familiar with the matter said. A second investment bank is also likely to be brought in when the sale process kicks off, the people said, speaking on condition of anonymity as the information was not public. Some bankers and analysts say that the entire SCB business - SCB Life Assurance Public Co - could fetch around US$2 billion, based on a multiple of 2-2.5 times its embedded value of more than 30.42 billion baht (US$865 million) at the end of 2013. EXECUTIVE RECRUITMENT

BSI Singapore’s interim CEO to leave bank

State funds

Malaysia’s 1MDB says in default on some bonds Abu Dhabi’s IPIC and 1MDB are locked in a dispute over obligations to International Petroleum Investment.

Malaysia Development Bhd (1MDB) said yesterday it did not pay a US$50.3 million coupon on a US$1.75 billion bond, following a stand-off with Abu Dhabi sovereign fund IPIC, triggering cross-defaults on some of its other bonds. The troubled state fund, which is at the centre of a multi-billion-dollar graft scandal, said in a statement it would meet all its other liabilities. The Malaysian fund said the missed interest payment caused a cross-default on its 5 billion ringgit (US$1.28 billion) sukuk (Islamic bond) due in 2039 and a 2.4 billion ringgit sukuk due between 2021 and 2024. The two state investment funds are locked in a dispute over 1MDB’s obligations to International Petroleum Investment Co (IPIC) under an

agreement reached last June. IPIC said 1MDB was in default of the agreement after the Malaysian fund failed to pay it US$1.1 billion. IPIC, which guaranteed the bond, said on Monday it would make the interest payment on a US$1.75 billion bond that was due on Monday but only after 1MDB defaulted. The Abu Dhabi fund has claimed that 1MDB and its sole shareholder, Malaysia’s Ministry of Finance, have failed to meet the obligations agreed upon in, including the full payment of US$1.1 billion, which includes interest. “1MDB has and will continue to undertake discussions with all bond and Sukuk holders to explain the background of the dispute,” 1MDB said in the statement. IMDB’s debt rationalisation plan announced last year enables it to meet all its existing debt obligations, the fund said. 1MDB said there would be no cross-default on an US$800 million loan from the Social Security Organisation, although a “material adverse effect” clause could be triggered.

“1MDB has and will continue to undertake discussions with all bond and Sukuk holders to explain the background of the dispute” 1MDB statement

The Malaysian fund also said there would be no cross-default on its other remaining debt. It has two other bonds: the US$1.75 billion 1MDB Energy Limited, which pays a fixed rate 5.99 percent; and the US$3 billion 1MDB Global Investments Limited notes with a fixed rate of 4.4 percent.

Ringgit falls

The stand-off between the two state firms has worried markets and left bondholders uncertain about who would pay them their interest payment. Malaysia’s Sovereign Credit Default Swap - a type of insurance that protects against a country defaulting or restructuring its debt - rose 4 basis points (bps) to 165/170 bps. A Malaysian parliamentary committee investigating 1MDB said in a report this month the Malaysian sovereign fund sent a total of US$3.5 billion to a British Virgin Islands-registered company to a company called Aabar Investments PJS Ltd. But IPIC said that while the firm had a similar name to its subsidiary it did not belong to IPIC or its subsidiary. IPIC said it had not received any payments from the BVI company, which was wound up last June, nor assumed any liabilities on its behalf. What happened to the US$3.5 billion after it went to the British Virgin Islands could not be determined, the Malaysian parliamentary report said. Malaysian Prime Minister Najib Razak heads the advisory board of 1MDB. Money-laundering investigations concerning the fund are now underway in at least six countries including the United States, Switzerland and Singapore. Reuters

Swiss bank BSI said Raj Sriram, the interim CEO of its Singapore unit, would leave the bank and Renato Cohn, member of BSI’s group executive board, would become acting CEO. “Raj will guarantee a smooth handover to Renato in the upcoming weeks and will leave the bank accordingly,” BSI said in a statement received by Reuters yesterday. It said Sriram will take a break from his professional career. BSI was recently sold by Brazil’s Grupo BTG Pactual SA to EFG International AG. Japan’s GPIF

New chief says won’t change basic asset allocation Japan’s Government Pension Investment Fund (GPIF) will not change its basic asset allocation even though yields for Japanese government bonds are falling due to the effects of the central bank’s negative interest rate policy, its new chief said. The country’s trillion-dollar public pension fund, which targets keeping 35 percent of its total assets in JGBs and 25 percent each in domestic and foreign stocks, also needs to hedge against foreign currency moves to protect its assets from volatile market movements, Norihiro Takahashi told Reuters in an interview yesterday. Scandal

Results

Hyundai Motor Q1 profit dips on weakness of SUV segment Operating profit declined 16 percent to 1.34 trillion won, while revenue rose 7 percent to 22.35 trillion won. South Korea’s Hyundai Motor posted its ninth straight quarterly profit drop as it trailed rivals in tapping soaring demand for sport utility vehicles in China, its biggest market. Hyundai’s strength in smaller,

fuel-efficient sedans helped the automaker outperform the industry during the global economic downturn, but has left it reeling from a consumer shift to gas-guzzling sport utility vehicles (SUVs) in recent years, driven by a slump in the price of oil. Hyundai Motor, the world’s fifth-biggest automaker together with affiliate Kia Motors, reported yesterday a net profit of 1.69 trillion won (US$1.47 billion) for the first quarter, down 12 percent from the year-ago quarter and compared with the 1.46 trillion won average estimate of 14 analysts polled by Thomson Reuters I/B/E/S. Operating profit declined 16 percent to 1.34 trillion won, while revenue rose 7 percent to 22.35 trillion won. Hyundai Motor’s global sales declined 6 percent to 1.1 million vehicles in the first quarter. In China,

Hyundai’s first-quarter vehicle sales fell 10 percent despite the country’s tax cuts on small car purchases, as Chinese local rivals such as Great Wall Motor offered cheaper SUVs. Hyundai, together with Kia, have the highest sales exposure among major automakers to emerging markets, including China, Russia and Brazil, making them vulnerable to a slowdown in those markets, according to Macquarie Securities. In the U.S. market, where appetite for SUVs and trucks has been strong, Hyundai posted flat sales in the first quarter, weighed down by its sedan-heavy line-up. Strong demand for large SUVs and trucks in North America helped U.S. automaker General Motors Co post bigger-than-expected profits for the first quarter. Reuters

Mitsubishi used non‑compliant data since 1990s Mitsubishi Motors Corp used fuel economy testing methods which were not compliant with Japanese regulations since the 1990s, the Nikkei newspaper reported yesterday, helping send its share price sliding 9 percent. Citing unnamed sources, the business daily said the testing methods may have been used on dozens of models. Mitsubishi said last week it overstated the fuel economy of four domestic models, including two produced for Nissan Motor Co, and that it used testing methods which were not compliant with domestic regulations going back at least to 2002.

14 Business Daily Wednesday, April 27 2016

International In Brief Results

BP’s first quarter earnings fall 80 pct British oil major BP yesterday reported an 80 percent year on year fall in core earnings for the first quarter, when oil prices touched a near 13-year low, but the result was better than analysts had expected. BP’s quarterly underlying replacement cost profit, the company’s definition of net income, was US$532 million in the first three months of the year, compared with a forecast loss of US$140 million in analyst consensus figures provided by BP. Compensation

Utilities get extra time to pay nuclear surcharge German utilities should be allowed more time to pay a surcharge of some 7 billion euros (US$7.9 billion) for the storage of nuclear waste from decommissioned plants, a member of the nuclear commission said yesterday. “Our proposal is that the utilities pay the surcharge when they start making money again,” Juergen Trittin, a co-head of the government-appointed commission, told the Frankfurter Rundschau a day before it publishes its recommendations. Sources familiar with the plans told Reuters last week that the surcharge would be at the lower end of a range of 6-18 billion euros discussed.

Results

StanChart profit rebound Standard Chartered posted stronger-than-expected first quarter results and said restructuring costs were in line with its plans, lifting its shares by 10 percent yesterday. Chief Executive Bill Winters said the results, including a bumper statutory profit that was more than double the previous quarter, reflected “good progress on our strategic objectives.” Investors responded positively to the emerging markets-focused bank’s pre-tax profit of US$589 million, against a loss of US$4.05 billion in the final quarter of 2015. M&A

U.S. approves Charter’s Time Warner Cable The U.S. Justice Department on Monday gave antitrust approval to Charter Communications Inc’s proposed purchase of Time Warner Cable Inc and Bright House networks, which would create the second-largest U.S. broadband provider and third-largest video provider. The Justice Department’s approval carried conditions designed to protect competition, coming at a time when the pay television industry faces stagnation due to new competition from over-the-web rivals like Netflix and Hulu.

TTIP

French minister says chances of EU-US trade pact ‘fading’ Earlier this week, US President Barack Obama and German Chancellor Angela Merkel made a joint pitch for more transatlantic trade.

he chances of reaching agreement over an ambitious US-EU free trade deal are “fading”, France’s minister of state for foreign trade said yesterday. Asked about the likelihood of such a deal being reached before the end of US President Barack Obama’s term in January 2017, Matthias Fekl told France’s RTL: “No, I don’t think so. The likelihood, or risk, of reaching any accord is fading.” His remarks were made a day after US and European negotiators began a 13th round of talks on the

Transatlantic Trade and Investment Partnership (TTIP) in New York, which are expected to last a week. Fekl is France’s envoy to the talks. TTIP aims to ease non-trade barriers and harmonise bureaucratic rules that impede commerce and investment between the European Union and the United States. Should the agreement succeed, it would create the world’s largest freetrade zone. Earlier this week, US President Barack Obama and German Chancellor Angela Merkel made a joint pitch for more transatlantic trade, vowing to complete the US-EU pact in the face of mounting opposition in Europe. On the eve of his visit, tens of thousands of people demonstrated in Germany against the proposed pact which has raised fears it would erode ecological and labour market standards, and in protest over the secrecy shrouding the talks.

TTIP also face a threat in the form of a British referendum on exiting the EU which is to take place in June. As one of the largest trading economies of the bloc, Britain would play a major role in the pact, but if it votes to leave the EU, it could deal a devastating blow to TTIP’s prospects. It has also invoked growing anti-free trade talk in the US presidential election race and growing suspicions among the American public because details of the talks are secret. AFP

‘TTIP aims to ease non-trade barriers and harmonise bureaucratic rules’

Guru online

Buffett makes it easier to be sure he hasn’t drifted away at 85 Anyone with an Internet connection will be able to stream video of the question-and-answer of Berkshire Hathaway’s annual meeting. Noah Buhayar

For years, most Berkshire Hathaway Inc. shareholders had to fly to Omaha, Nebraska, pay jacked-up hotel rates and line up early on a Saturday to hear Warren Buffett at the company’s annual meetings. No longer. When “Woodstock for Capitalists” returns on April 30, anyone with an Internet connection will be able to stream video of the question-and-answer session online for the first time, thanks to a partnership with Yahoo! Inc. As Buffett put it in his annual letter to shareholders two months ago, the arrangement could reduce attendance, which strained the event space last year. More importantly, it’ll allow a greater number of investors to check on the 85-year-old billionaire and his 92-year-old sidekick, Charles Munger. “If we were partners with you in a small business, and were charged with running the place, you would want to look in occasionally to make sure we hadn’t drifted off into la-la land,” he wrote. “Shareholders, in contrast, should not need to come to Omaha to monitor how we look and sound.” Consider it Buffett’s latest foray into the digital age. While the Berkshire chairman and chief executive officer has long joked about still having a flip phone and hardly bothered to

update the company’s website from its 1990s dawn-of-the-Internet design, he did join Twitter in 2013. But, even there, he’s proven reticent to jump in with both feet: His account had just seven posts as of Monday afternoon in New York. Yahoo will be handling the technical aspects of beaming the executives around the world. In return, it gets to sell ads and sponsorships alongside the live stream.

Stock splits

The webcast is the latest evolution of a meeting that drew a couple dozen people a year in the 1970s when shareholders gathered in the cafeteria of an insurance subsidiary. Because Buffett opted against splitting the stock as it soared in value, owning a piece of Berkshire meant being part of a fairly exclusive group. That changed in 1996 when the billionaire divided Class A shares by 30 to prevent fund managers from carving them up in trusts and selling lower-priced interests. These “B” shares were later split 50-for-1 to help Berkshire facilitate its purchase of railroad BNSF in 2010. While the A shares trade for more than US$200,000, a B share can be purchased for anyone with about US$145 who is willing to settle for lower voting rights.

Overflow rooms

Attendance at the annual meetings

has climbed steadily as owning a piece of Berkshire became more accessible. Buffett’s increased recognition as one of the greatest investors has helped, too. Last year’s gathering drew a record crowd of more than 40,000 people, filling the CenturyLink Center’s main arena and its overflow rooms. Some investors already seem to be opting for the webcast. The Omaha World-Herald reported this week that hotels - especially those a bit farther from downtown - still had rooms available. That’s a stark contrast with last year when accommodations were so scarce that one couple ended up renting a guest room in a senior-living facility, according to the newspaper, which is owned by Berkshire.

Underwear, candy

For those who make the trip this year, attractions include a cookout, a 5-kilometer fun run and an exhibition hall the size of three football fields where Berkshire’s dozens of subsidiaries - from Fruit of the Loom to See’s Candies - sell their wares. There are also scores of informal gatherings during the weekend that allow investors to reconnect and swap ideas. And, just like going to a favourite band’s concert, there’s the allure of being in the same room with Buffett and Vice Chairman Munger, rather than watching them online. Reuters

Business Daily Wednesday, April 27 2016 15

Opinion Business Wires

The Phnom Penh Post Newly-appointed transportation minister Sun Chanthol met with representatives of the nation’s logistics and transportation industries yesterday to discuss the problems and bottlenecks that are keeping basic transport costs high, reducing the Kingdom’s trade competitiveness and putting a burden on both citizens and infrastructure. The minister discussed the sector’s challenges with representatives of the three biggest industry bodies – CAMTA, CamFFA and CAMBA – as well as private sector transportation companies.

Jakarta Globe The World Bank approved a US$500 million results-based loan program last week for state utility company PLN as part of its efforts to prop up the Indonesian economy by providing much-needed infrastructure, the lender revealed in a statement on Monday. The Power Distribution Development Program for Results is seeking to bring electricity to parts of Sumatra that are not yet connected to the national grid. By getting access to electricity local residents can improve their productivity and competitiveness, said Dhruva Sahai, a senior analyst at the World Bank. Sahai is also one of the program’s team leaders.

The Times of India Having cut interest rates, RBI governor Raghuram Rajan (pictured) on Monday put the onus on real estate developers, asking them to reduce prices to encourage more people to buy properties. Rajan’s remarks came against the backdrop of low demand for housing projects, leaving developers with unsold inventories. Delivering the Y B Chavan Memorial Lecture here, Rajan also cautioned startups against chasing revenues through deep discounting and said that it was not a viable business model. On revival of the real estate sector, the RBI governor said, “My sense is that there is a little bit of everything that needs to happen.”

Fed Chair Janet Yellen noted in her latest remarks that the labour-force participation rate had “turned up” and that “room for improvement” remained

The Fed’s gamble on surplus labour

n recent weeks, the US Federal Reserve has buoyed markets by adopting a more gradual approach to policy normalization. Fed Chair Janet Yellen’s most recent public remarks, in late March, were more dovish than anticipated. And, at its last meeting, the Fed suggested that it would pursue two, rather than four, quarter-point interest-rate hikes in 2016. In response, investors have sold the US dollar and bid up equity prices and US Treasuries, and commodities and emerging-market assets have surged. At first glance, these developments are curious. For one thing, the Fed’s decision appears to be at odds with signs that US inflation is accelerating. If, as some have suggested, the Fed is responding to fears about global growth, it would not make sense that risk assets – above all commodities and emerging markets – are rallying. But there is a logical thread that explains these apparent inconsistencies, one that centres on a potentially high-stakes Fed gamble. Before we get to that wager, it is worth considering other proposed explanations for the market rally. The first centres on monetary easing by the European Central Bank and the Bank of Japan. But negative interest rates and flat yield curves harm banks’ earnings; links between extraordinary monetary policies and growth or inflation remain tenuous; and surely monetary policy is subject to diminishing returns by now. Another view focuses on OPEC countries’ oil-supply restraint, claiming that it is helping to support oil prices and thus high-cost producers in North America. But this logic rests more on correlation than causation. OPEC has not decided to cut production, and only a handful of its members have agreed to freeze output. A genuine reduction in global excess supply awaits a decline in output, as existing wells, deprived of capital investment, run dry. A more plausible explanation for improved market performance is waning pessimism. Fears of recession in the United States, the United Kingdom, or Germany – countries with full employment and rising real household incomes – were always a bit odd. So was the notion that financial-market gyrations would have the atypical impact of significantly denting household or corporate spending. And in China – a country that may be experiencing slowing GDP growth, but is nowhere near recession – rising household income and consumption are helping to offset the decline in fixed-asset investment. This brings us back to the Fed and its gamble. Policymakers’ change of heart likely arose from a re-think about slack in the US economy, especially in the labour market. Indeed, in her recent remarks, Yellen noted that the labour-force participation rate had “turned up” and that “room for improvement” remained. If the Fed now believes that the economy has greater capacity for above-trend expansion without generating much inflation, it can, to paraphrase John Lennon, “give growth a chance.” Faster growth and slower policy tightening are great news for asset prices. A gentler Fed also means less risk of dollar appreciation – an unambiguous benefit for commodity markets and dollar-indebted emerging economies. Finally, a stable dollar takes pressure off the renminbi,

“

Larry Hatheway Group Head of Multi Asset Portfolio Solutions and Group Chief Economist at GAM.

which should slow outflows of “hot” capital from China, removing another source of risk from the global financial system. Given these implication, it is little wonder that markets turned up. But with US core inflation on the rise, the Fed is taking a big risk. After all, the core consumer-price index is already at 2.3%, led by 3.1% inflation in services (both figures are up by more than half of a percentage point year on year). Housing inflation, which comprises about a quarter of the CPI index, has also accelerated, to 3.2%. And price growth in health-care services, which had slowed in recent years, has jumped to 3.9%, double the rate recorded a year ago. The Fed prefers to watch core “private consumption expenditure” inflation, which stands at a more subdued 1.7%. PCE goods prices are still falling, and services prices are rising just 2.1%, roughly unchanged over the past year. But the focal point for the Fed is the labour market. According to a March report, the civilian participation rate has increased by half a percentage point from its September 2015 lows, and now stands at 63%. The same survey indicates that nearly six million Americans, who are not currently in the labour force, want to work. Another six million are working part-time for economic reasons. In part, low levels of US labour-force participation reflect structural factors. Nearly every sub-category – by gender, education level, age cohort, or race – has been declining in the US since 2000. Yet labour supply is typically also cyclical, picking up as the economy improves and job opportunities arise. Until now, that cyclical pattern has been absent in the post-crisis “new normal.” What might an increasingly elastic labour supply mean for Fed policy? The answer depends on how much surplus labour is available. Suppose it is 1.5 million workers – a conservative figure that would still leave the civilian employment-to-population ratio well below its post-war peak. At plausible rates of US job creation, it would take 12-18 months to absorb those new entrants. That labour influx would dampen wage and price pressures, allowing the Fed to proceed gradually with interest-rate normalization. The bigger the pool of available labour, the longer the Fed can go slow. This recalls former Fed Chair Alan Greenspan’s experiment in the late 1990s, when he let the US economy boom, on the hunch – which proved to be right – that productivity was accelerating. Might Yellen be willing to make a similar wager on labour supply? For now, the politics of populist discontent – from Donald Trump’s presidential campaign to the potential of a British exit from the European Union – are capturing the world’s attention. But the US employment and inflation reports are the real sources of clues about the future. It is there that one should look for the factors most likely to drive the biggest wagers – for policy and for markets alike. Project Syndicate

In part, low levels of US labour-force participation reflect structural factors

The Asahi Shimbun Japanese global logistics company Nippon Express Co. is targeting Islamic markets by improving its halal credentials ahead of the implementation of the TransPacific Partnership (TPP) free trade pact. With an expected boost from the TPP in its sights, the company is working to provide Islam-friendly services in Southeast Asia as well as in Japan. This year, Nippon Express gained the Japan Halal Association certification for its warehousing and distribution service in Japan. Its Malaysian subsidiary obtained a halal certificate in 2014 from the Department of Islamic Development, a certifying body within the Malaysian government.

”

16 Business Daily Wednesday, April 27 2016

Closing Sex crime fight

India makes panic key a must for all mobiles

All mobile phones sold in India will have to have a panic button from the start of next year, an official said yesterday, as the country grapples with large numbers of sex crimes against women. The button would allow users to call emergency services by pressing a single key on their phone, a telecommunications ministry official told AFP. “No cell phones can be sold without the provision for

panic button from January 1, 2017,” he said, requesting anonymity. The ministry said it was also making inbuilt GPS compulsory from January 1, 2018. India has struggled to curb high levels of sexual violence, a problem that shot to global prominence with the fatal gang rape of a student in Delhi in December 2012 as she returned home from the cinema. India is the world’s second-largest mobile market and notched up its billionth mobile phone subscriber in October, according to the country’s telecoms regulator. AFP

Extra budget

Japan preparing US$4.5 billion in quake-relief spending The extra spending will come on top of fiscal stimulus measures the government is now considering. Leika Kihara and Takaya Yamaguchi

apan is preparing an extra budget of more than US$4.5 billion for reconstruction of areas hit by this month’s deadly earthquakes, sources said, but the central bank is unlikely to grant any relief to banks in the stricken region. The government is preparing an extra budget of more than 500 billion yen for reconstruction and aims to put it into effect by June 1, when the current session of parliament ends, the sources told Reuters yesterday.

The quakes on the southern island of Kyushu killed about 50 people and damaged at least 5,000 homes. Still, Finance Minister Taro Aso told parliament the economic damage has yet to reach the threshold for putting off a scheduled sales tax hike in April next year. “I don’t think we’re at this stage yet,” Aso said yesterday, though he added that there is a chance the hit to the economy could end up being bigger than expected. The extra spending will come on top of fiscal stimulus measures the government is now considering as

the world’s third-largest economy skirts recession due to weak global demand, the hit to exports from a strong yen and sluggish consumption. The Bank of Japan (BOJ) will likely debate whether the economy needs another blow of monetary stimulus when its board meets for a two-day rate review ending on Thursday. BOJ Governor Haruhiko Kuroda, summoned to speak in parliament yesterday, made no direct remark on monetary policy. But he said he does not see a need to grant any exemption from negative interest rates to financial institutions

facing an inflow of donations and subsidy funds after the quakes. “Negative interest rates apply to only a small portion of financial institutions’ excess reserves, so most of them receive a net interest rate payment from the central bank,” Kuroda said. Under its negative interest rate policy decided in January, the BOJ charges a 0.1 percent interest to a portion of excess reserves financial institutions park with the central bank in the hope that they would boost lending instead of hoarding cash. Some lawmakers have said the policy would penalise regional financial institutions that could see a sharp increase in excess reserves as quake-related donations and subsidies flows in. Abe has said Japan will proceed with next year’s scheduled sales tax hike unless the country is hit by a severe natural disaster or a market shock of the scale of the collapse of Lehman Brothers in 2008. Reuters

Japanese earthquake victims 78-years-old Hisatomi Kikuchi (L), and his son 52-years-old Kadsuhide Kikuchi (R), arrange their loads at an earthquake evacuation centre in Minamiaso, Kumamoto Prefecture, southwestern Japan, 19 April 2016.

Trade

South Korea

Helping measures

Philippine imports up by 1.2 pct in February

President Park Geun‑hye Cambodia pledges support says QE should be considered for those hit by drought

Philippine imports jumped by 1.2 percent to US$5.414 billion in February from US$5.351 billion a year ago, the Philippine Statistics Authority (PSA) said yesterday. The increase was due to the positive performance of seven out of the top ten major imported commodities for the month led by telecommunication equipment and electrical machinery. The other six positive performers were: industrial machinery and equipment, medicinal and pharmaceutical products, transport equipment, miscellaneous manufactured articles, other food and live animals, and plastics in primary and non-primary forms. From January to February, total imports amounted to US$12.239 billion, higher by 15.8 percent compared with US$10.569 billion in the same period of last year. China remained as the country’s top source of imports accounting for 16.7 percent of our total payments during the period. Japan came second with 12.6 percent share, followed by the United States with 9.5 percent. Xinhua

South Korea President Park Geun-hye said a version of quantitative easing that would involve changing the central bank’s charter to let it buy more types of securities should be “positively” considered, according to media yesterday. “My position is that we consider this positively. We will make efforts to try and move in that direction,” Yonhap News Agency quoted Park as saying in a roundtable with local chief editors at the Blue House. Foreign media were not invited. At present, the central bank is allowed to buy only treasury bonds and government-backed securities. The Blue House declined to comment on the issue or confirm the president’s remarks. Park had been asked her opinion on the ruling Saenuri Party’s economic campaign pledge, which had involved suggestions that the Bank of Korea (BOK) be enabled to buy bonds from the Korea Development Bank (KDB) or buy mortgage-backed securities to boost monetary stimulus. To do this, the BOK’s charter must be amended via parliamentary approval. Reuters

Cambodian Prime Minister Hun Sen said yesterday he has ordered help for those hit by the worst drought in half a century, including bringing in water by truck to the worst-affected regions. Cambodia, like its neighbour Thailand, is grappling with its worst drought in decades but there have been do deaths reported and no information on damage to crops. “Today, I launch a large-scale campaign to distribute water,” Hun Sen said at a ceremony to inaugurate a new road in Banteay Meanchey province, 386 km from the capital Phnom Penh. On Friday, Hun Sen took to Facebook to call on people not to waste water and said that the government would fund the transportation of water. Cambodia is grappling with soaring temperatures which have hit as high as 41 degrees Celsius. The country is experiencing water shortages in 18 out of 25 provinces, said Keo Vy, a spokesman for the National Centre for Disaster Management. “We have had drought before but it has never been at this level,” he said, adding that authorities have also dug wells to try to ease the crisis. Reuters