Macau Business Daily May 13, 2016

Nissan acquires controlling stake in Mitsubishi Motors M&A Page 12

Friday, May 13 2016 Year V Nr. 1042 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai

www.macaubusinessdaily.com

Heartbreak Hotel Imperial Palace

Transfer of ownership. Empresa Hoteleira de Macau Lda - the operator of Beijing Imperial Palace Hotel and formerly known as New Century Hotel – is now owned by Victory Success Holdings Limited. In lieu of a cash debt. The casino, operating under an SJM gaming licence, ceased business at the beginning of the year for “renovation reasons”. Page 5

Senate ousts Rousseff

Dipping loans Commercial real estate loans plunged in March. Falling 68.7 pct y-o-y to MOP3 bln.

Residential mortgage loans granted dropped 31.4 pct y-o-y. Outstanding balances in both categories witnessed increases.

Impeachment Brazil’s Senate has voted to suspend President Dilma Rousseff from office. Ushering in a new gov’t following months of political turmoil in the recession-wracked country.

Legislators will try Rousseff on allegations she illegally doctored fiscal accounts. Page 16

Property Page 2

Investors

Commerce

25° 29° 25° 28° 20° 29° 22° 26° 24° 27° Today

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sun

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Source: Bloomberg

Source: AccuWeather

Global hedge fund managers discuss sector future and role of China Page 10

Macau-China trade down 27.2pct y-o-y in Q1 Page 5

HK Hang Seng Index May 12, 2016

Wailing wall Society Coloane villagers are up in arms.

Petitioning against the demolition of a 75-year old village wall. No reason has been given why it should be torn down to make way for a developer’s project, they say. While the authorities deny it has any redeeming historical value. Page 3

Gaming

RGB: Sale of Savan Vegas casino terminated by Laos Page 7 19,915.46 -139.83 (0.70%)

Kunlun Energy Co Ltd

+2.64%

Link REIT

+1.94%

Hengan International Group

-2.29%

CITIC Ltd

+2.04%

Galaxy Entertainment Group

+1.41%

Power Assets Holdings Ltd

-2.66%

I SSN 2226-8294

2 Business Daily Friday, May 13 2016

Macau Banking

BNU considers client data sharing legal

Loans Commercial real estate loans plummet 69 pct y-o-y

Sharp contrast in housing New residential mortgage loans amounted to MOP3 billion in March.

Annie Lao annie.lao@macaubusinessdaily.com

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otal residential mortgage loans of MOP3 billion granted in March by the city’s banks represents a 31. 4 per cent increase compared to the previous month, according to the latest official data released yesterday by the Monetary Authority of Macao (AMCM).

Some 93.5 per cent of the total was extended to residents. However, it represents a decrease of 39.9 per cent year-on-year.

In terms of values, new residential mortgage loans approved for residents and non-residents went up

by 33.7 per cent and 5.3 per cent, respectively.

In addition, new residential mortgage loans collateralised by equitable mortgage amounted to MOP700 million, up 2.8 per cent month-onmonth, or fell 58.3 per cent yearon-year. Of these, 81.3 per cent was extended to residents.

The outstanding balance of residential mortgage loans was MOP174.8 billion as at the end of March, up 0.5 per cent month-on-month, or 10 per cent year-on-year; 93.7 per cent of the total belonged to residents.

Outstanding residential mortgage loans to residents and non-residents went up by 0.4 per cent and 1.5 per cent, respectively, month-on-month.

New commercial real estate loans totalled MOP 3 billion, up 13.8 per cent month-to-month, a fall of 68.7 per cent year-on-year, of which, 97.7 per cent was approved for residents.

In terms of values, new commercial real estate granted to residents increasd 26.4 per cent, while those to non-residents fell 78 per cent.

The outstanding balance of commercial real estate loans amounted to MOP167.3 billion, up 0.7 per cent month-to-month and 26.5 per cent year-on-year, some 88.1 per cent of the total granted to residents.

Outstanding commercial real estate loans approved for residents and non-residents increased 0.4 per cent and 3.2 per cent month-on-month, respectively.

At the same time, the delinquency ratio for residential mortgage loans remained virtually unchanged at 0.09 per cent, while that for commercial real estate loans dropped to 0.02 per cent.

Banco Nacional Ultramarino (BNU) has confirmed its data sharing with its parent company to be part of a legal consolidated supervision mechanism, in statements to Business Daily.

In recent months, BNU clients have received a letter requesting an update of personal data and their authorisation for this data to be shared with Macau bank’s parent company Caixa Geral de Depósitos (CGD) in Portugal.

This request has raised concerns that their data would be shared with the Tax Authority of Portugal for effects of tax requests and in the same letter defined as a ‘Know Your Client’ (KYC) letter - clients were informed that refusal to authorise the data sharing would be cause for termination of their banking services.

‘Consolidated supervision is a legal and regulatory requirement that aims to ensure the stability of financial institutions and markets,’ BNU stated to Business Daily, adding such mechanisms are created to ensure ‘parent companies have access to the necessary information of their subsidiaries and branches in order to verify the soundness of their Groups.’

BNU also guaranteed the information wouldn’t be shared with the Tax Authority of Portugal and that discontinuing progressively the commercial relationship due to refusal is ‘legal’.

According to the Monetary Authority of Macau, KYC letters are part of the ‘prevention and suppression of money laundering and terrorist financing crimes,’ and in the BNU Anti-Money Laundering and Combating the Financing of Terrorism Disclosure Statement, KYC letters are considered part of the obligation to identify and perform due diligence on customers and to classify customer’s risk profile based on ML/TF (Money Laundering/Terrorism Financing) risk. N.M.

Aviation

Air Macau passenger volume soars in Q1 Local flag carrier Air Macau Co. Ltd. posted a notable year-on-year jump in the first three months of the year in total passenger volumes, in addition to growth in its passenger load factor, according to the latest operating results released by its parent company Air China.

From January to March, the local airline carried some 691,900 passengers, representing a year-on-year increase of 35.2 per cent compared to 511,600 passengers during the same three months of 2015.

Its passenger load factor, which indicates how much of an airline’s passenger carrying capacity is used, rose by 8.33 percentage points to 73.5 per cent compared to 65.2 per cent one year ago.

In the updates, the national carrier Air China did not disclose how much profit or revenues the local airline had generated in the three months.

Nevertheless, it said Air Macau’s revenue passenger kilometre (RPK), which is a measure of sales volume of passenger traffic, surged 36.7 per cent year-on-year, amounting to 1.19 billion yuan (MOP1.46 billion/US$182.5

million) in the three months.

For cargo traffic, the local flag carrier registered a year-on-year growth of 35.8 per cent in revenue tonne kilometres (RTK) in the quarter, which indicates revenue generated by tonnes of cargo carried multiplied by distance flown.

In addition, the airline’s available tonne kilometre (ATK) load factor grew 7.08 percentage points to 66.8 per cent in the quarter.

For last year, Air Macau recorded a year-on-year fall of 70.6 per cent in its net profit to 31 million yuan, while its revenues dropped 9.29 per cent year-on-year to 2.45 billion yuan.

As at year-end, Air Macau operated a fleet of 18 aircraft at an average age of 9.32 years. The flag carrier, established in 1994 with registered capital of MOP442 million, is 66.9 per cent owned by Air China.

The parent company, meanwhile, registered a year-on-year increase of 44.8 per cent in its profit attributable to shareholders in the first quarter, amounting to 2.44 billion yuan, whilst total turnover jumped 4.38 per cent year-on-year to 26.4 billion yuan. K.L.

Business Daily Friday, May 13 2016 3

Macau Heritage Villagers rally round to protect old wall in Coloane

The Great Wall of Coloane Residents in the area petition to save the wall of Pátio da Greta, which they consider of significant historical value and a tourism attraction.

Annie Lao annie.lao@macaubusinessdaily.com

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wall of the Pátio da Greta in picturesque Coloane Village is facing the possibility of being demolished despite the efforts of residents in the area to protect the wall, which they consider to be of great historical value.

Fred Chan, or Chan Fat, is a local resident living in one of the units located in the Pátio. He told Business Daily that the walls of the Pátio were built in 1941. Local residents consider them a great treasure and an intrinsic part of the history of the village, while tourists also enjoy taking photos at the site.

One of the units located in the area, however, has been earmarked for development into a five-storey building with a basement for commercial use, according to the government’s Official Gazette. While the walls are in

imminent danger of being torn down.

Around 80 people have signed a petition urging a halt to the potential demolition.

“The existence of the walls doesn’t hinder the construction of the new project,” said Mr. Chan “It’s part of [our] history. If part of the wall is to be removed, it would be gone forever.”

Destiny awaits

No exact date for removal of the wall has yet been confirmed according to Mr. Chan, although the new owner at No. 5 of the units had previously submitted an application to the Land, Public Works and Transport Bureau (DSSOPT) seeking permission to remove part of the wall.

The new owner successfully got permission from DSSOPT to remove part of the wall attached to No. 5 of the units. “DSSOPT will send people to see where to cut the wall, but [we] don’t

know when they’ll come; if DSSOPT cut part of the wall, it would affect the part of the wall that is near my father’s house,” Mr. Chan explained.

In March, DSSOPT replied in a written response allowing the new owner to remove part of the wall of Pátio da Greta. It stated that DSSOPT had also consulted with the Cultural Affairs Bureau, who gave tacit permission to cut.

Cultural value

Legislator Au Kam San also submitted a written enquiry

to Ung Vai Meng , President of the Cultural Affairs Bureau, in March, observing that even though the wall had not yet been added to the list of heritage protected items it nevertheless has significant heritage value to the local residents and for many tourists who like to pose for photos by the wall.

Furthermore, local residents have not been given any reason why the wall needs to be demolished. The legislator urges the Cultural Affairs Bureau to undertake a heritage assessment procedure of the whole wall and stop its destruction.

The Cultural Heritage Department of the Cultural Affairs

Bureau replied to his written enquiry last Friday stating in a letter that the wall was built for private residential buildings, and thus does not reflect any significant historic event.

In addition, DSSOPT replied to his enquiry in April that the new owner of the unit needs to submit a detailed report of the project to DSSOPT for assessment before the project can be approved to start.

Moreover, in order for the procedure of digging the ground at the new unit be allowed, the contactor needs to submit the plan for digging. So far, no confirmed date has been set for construction.

4 Business Daily Friday, May 13 2016

Macau Finance

Local branch of DBS bank posts MOP31 million profit

The local branch of the DBS bank posted a 50 per cent year-on-year drop for 2015, registering profit of MOP31 million (US$3.88 million) for the year, as published in the Official Gazette. The reduction ‘results primarily from the reduction of gains on interest and services as well as the reversal of last year’s provision to cover unrecoverable credit amounting to

MOP14 million,’ the bank reported. The gains on interest amounted to MOP9 million, a 13 per cent drop, while profit from other activities resulted in MOP28 million, a 21 per cent reduction compared to the previous year. Overall expenses for the branch totalled MOP51 million, a 6 per cent drop, with overall loans amounting to MOP2.31 billion, a 2 per cent increase year-onyear. Client deposits totalled MOP2.24 billion, a 2 per cent increase compared to the previous year.

Retail

Tourism Half of China’s visitors from Hong Kong

Crocodile boss share-sale deal terminated

Travelling across the border

Hong Kong-listed Crocodile Garments Ltd. announced yesterday that its chairman and chief executive officer Lam Kin Ming’s possible deal selling half of the company’s shares has been terminated. The clothing retailer first announced in January this year that Dr. Lam had entered into a memorandum of understanding with an independent third party regarding a possible acquisition of his 472.2 million ordinary shares of Crocodile Garments, which represents 50.5 per cent of the company’s total issued share capital. As at the end of January, the company, whose business is primarily located in Hong Kong and Macau, operated 22 shops for the Crocodile line and seven shops for the Lacoste line.

Survey says Macau is ninth biggest source for China’s tourism market .

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he Macau Special Administrative Region has become Mainland China’s ninth biggest market source of inbound tourism, according to a recent survey by China’s online travel agency Ctrip.

In its 2016 Inbound Travel Trend Analysis Report released this week, the travel service company indicated that China’s inbound tourism industry recorded more than 6.22 million visits during the first quarter of this year, which represents a year-onyear increase of 10.9 per cent, according to Mainland Chinese media reports.

Of the total, those from Macau accounted for 1.7 per cent, suggesting

some 105,700 local residents travelled to the Mainland during the first three months of the year.

In fact, the city’s own official data shows a higher number of local residents travelling to the Mainland in the period.

According to the Statistics and Census Service (DSEC), it recorded a total of 163,000 outbound visits from residents to the Mainland during the three months, of which some 87,900 travelled on package tours whilst the other 75,200 went under individual arrangements.

Hong Kong biggest

The Ctrip report indicates that Hong Kong was the biggest market source of China’s inbound tourism market for the period, claiming the total number of tourists from Hong Kong accounted for some 50 per cent of the total.

Meanwhile, South Korea, following

Hong Kong, is the second biggest inbound tourism source, followed by Taiwan, Japan, Thailand, Singapore, Malaysia, and the Philippines. The South Korea market is the biggest in terms of country On the other hand, the report reveals Beijing, Shanghai and Xian are the three most popular travel destinations for China’s inbound tourists.

In terms of number of visits, Shanghai, Beijing, Xiamen, Guangzhou and Chengdu are the top five cities.

In addition, the Great Wall, Summer Palace and the Forbidden City, which are all located in the country’s capital city, are the three most popular spots in the country for international visitors.

China National Tourism Administration recently predicted the country would receive more than 137 million tourists this year, which suggests a growth of 2.5 per cent compared to some 133 million for 2015. K.L.

Retail

Veeko annual profit to drop 40 pct Hong Kong-listed clothing and cosmetic retailer Veeko International Holdings Ltd. forecasts its net profit will register a year-on-year decline of 40 per cent for fiscal year ended March 31 due to a decrease in both sales and profit amid a weak retail environment and cautious consumption sentiment.

In a filing with Hong Kong Stock Exchange yesterday, the retailer said the drop in sales and profit was primarily attributable to the company’s fashion business segment. But it added that its cosmetic business under the brand Colourmix also saw a drop of 15 per cent year-on-year in profit during the fiscal year.

For the 2014/2015 year, Veeko generated net profit of HK$102.4 million (US$12.7 million). Meanwhile, total turnover reached HK$1.99 billion, up 23.3 per cent year-on-year yet that derived from its fashion business decreased by 7 per cent year-on-year to HK$548 million.

The Group’s operations are principally located in Hong Kong and Macau, Taiwan, Singapore and Mainland China.

Following continuous declines in its business in Taiwan, the retailer announced in March it was closing all of its stores and would cease its fashion retail operation in the region in the same month. K.L.

Business Daily Friday, May 13 2016 5

Macau Opinion

Pedro Cortés Paperwork The recent weeks have been revealing in terms of local news relating to the so-called ‘Panama Papers’. By professional default, I handle matters that involve companies incorporated in the so-called offshore, fiscal paradises or tax havens. That in itself is not a crime. People are free to have such companies. The problem is the confusion that arises between legally owning shares of such companies and illegal activities perpetrated by influential people who sometimes act as frontmen for hidden partners and receive money on their behalf for a long term retirement in exchange for approvals or any other authorisations. That I call corruption. There are local influential people mentioned in these now famous papers.

Again, I do not see anything of an illegal nature in these activities. But, to speak frankly, one may ask why they do not use the Macau system to incorporate their companies and pay taxes here for the respondent activities. I herein show all my solidarity for all those who use such means to pursue their legal activities.

The world is free and round and one must make the best of the opportunities presented. But I do not show or share such feeling for those who hide illegal activities through such firmaments.

It is probably time to extend the legal activities of the Macau offshore companies that were suspended some years ago following pressure from Hong Kong. Macau can be an international centre of multinationals that may use the Region as the jurisdiction to hold their interests worldwide. IPIM has demonstrated expertise in that respect and I’m of the view that it might be part of the diversification that Beijing anxiously wills for Macau.

With such an international centre of holding companies, I’m sure that the legislators and other public figures of Macau would not think about using the British Virgin Islands, Cayman Islands, Bermuda, Belize or any other jurisdiction to pursue their legal activities and, more than that, they would utilise the Region they are obligated to serve, and advertise the benefits of that into the bargain. I already do that on a daily basis and try, on my modest scale, to promote Macau as the place to incorporate the holding companies of multinational entities. All of us would gain a lot in having globally renowned executives arriving at their headquarters for Board meetings here, perhaps defining long term strategies for such corporations. It is, again, free and modest advice from a humble professional who doesn’t hold any companies in those jurisdictions and is not mentioned in the papers, but offers advice full of good intentions.

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

Ownership transfer

Imperial Palace Hotel changes hands Empresa Hoteleira de Macau announced yesterday that the ownership transfer made last October is in lieu of bad debts.

Kam Leong kamleong@macaubusinessdaily.com

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mpresa Hoteleira de Macau Lda, the operator of Beijing Imperial Palace Hotel (formerly known as New Century Hotel), announced yesterday that it had transferred the ownership of the hotel property to a company named Victory Success Holdings Limited.

Empresa Hoteleira posted a notice in Chinese language newspaper Macao Daily yesterday that Victory Success has become the new owner of the property in Taipa since October 22, 2015. The company did

not give additional information on the deal but said the transfer of the property ownership is in the form of a settlement in lieu of debt.

In 2013, the city’s Court of First Instance ordered the seizure of the then New Century Hotel in lieu of an undisclosed debt owed to Hoi Cheng Nga, the head of Energy Travel Agency Ltd. One month after the court order, the hotel property was renamed Imperial Palace.

No official information about Victory Success or whether it is related to Mr. Hoi was available by the time this story went to press.

Empresa Hoteleira was acquired by local businessman Ng Man Sun in 1996. Mr. Ng, also known as Ng Wai or Kai See Wai, was the founder of Greek Mythology Casino inside the hotel property as well.

In 2012, Mr. Ng fell out with his former girlfriend Chen Mei Huan over the ownership of the hotel and the Greek Mythology Casino. Mr. Ng was hospitalised after being attacked by a group of six men inside

the property.

Ms. Chen claimed at that time she owned 80 per cent of the property, whilst Mr. Ng told a court in the British Virgin Islands – where the parent company of Empresa Hoteleira Peckson Ltd. is registered – that the transfer of shares to Ms. Chen in 2011 was just temporary.

C u r r e n t l y , M r . Ng ’ s H o n g Kong-listed company Amax International Holdings still owns some 24.8 per cent stake in Greek Mythology Entertainment, the operator of Greek Mythology Casino, according to the company’s filings with the Hong Kong Stock Exchange.

But the casino, running under the gaming licence of Sociedade de Jogos de Macau S.A. (SJM), ceased operations from the beginning of this year for ‘renovation reasons’. SJM CEO Ambrose So Shu Fai commented earlier this year that the closure of the casino was temporary, assuring that the casino will reopen as soon as possible.

Commerce

Macau-China trade down in Q1 Trade value between the Special Administrative Region and Mainland China plummeted 27.2 per cent year-on-year in the first quarter of this year, reaching US$740 million (MOP5.9 billion), data released yesterday by the Chinese Ministry of Commerce shows.

According to official Chinese data, for the first three months of 2016, Mainland China’s exports to Macau dropped 26.6 per cent yearon-year to US$700 million, while Macau’s exports to the Mainland only accounted for some US$40 million, a decline of 37.5 per cent compared to the same period of last year.

In March alone, the trade value between the Macau SAR and Mainland China reached US$270 million, a 17.6 per cent decline year-on-year, but an 83.5 per cent increase compared to February.

Of this, the Mainland’s exports to the SAR reached US$250 million, a 17.1 per cent decline from a year ago, but an 82.9 per cent surge from the previous month; Macau’s export to the Mainland reached US$20 million, a decrease of 25 per cent yearon-year and 93.7 per cent fall from February.

Macau investment

During the first three months of this year, Chinese authorities approved a total of 76 investment projects by Macau firms, down 36.7 per cent year-on-year. Meanwhile, the actual capital that local firms used for these projects totalled US$180 million, rising 0.9 per cent year-on-year.

In March, the capital that local firms used increased 157.1 per cent to US$90 million compared to February. The number of investment projects by local firms approved by the Chinese

authorities increased 157.1 per cent month-on-month to 36.

As at end-March 2016, Mainland China approved 14,474 projects invested in by Macau firms. Local firms, meanwhile, invested a total US$12.97 billion in these projects, accounting for 0.8 per cent of the total foreign investment China attracted during the period.

On the other hand, Mainland companies were also given four project contracts by Macau firms during the first three months of this year, involving US$20 million.

These four projects generated sales of US$290 million, adding up the accumulative sales that the Chinese companies generated in Macau to US$12.36 billion.

Meanwhile, as at the end of March, some 118,582 labourers from Mainland China were working in Macau, official data states.

6 Business Daily Friday, May 13 2016

Macau Drugs

Drug addiction cases increase 8.63pct in 2015

(ARTM), Augusto Nogueira, stated in the session that the number of drug abusers could be more since, “we only know The MSAR registered 617 cases of drug when people ask for help or get caught addiction in 2015, an 8.63 per cent increase compared to the previous year, by the police.” The director also added ARTM will open a new rehabilitation according to data revealed yesterday centre in Ka-Ho between “June and at a Narcotics Control Commission August” with a capacity for 70 people session, TDM Radio reports. However, for the treatment not just of drug the director of the Association of Rehabilitation of Drug Abusers of Macao addiction but “alcohol and gambling”.

Gaming Analysts say interim report has “nice topics”, with ‘incremental risk to VIP’ if more DICJ inspections

Ticking the boxes Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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espite b e i n g called “benign” and “primarily backward-looking” according to analysts at Union Gaming, the interim review on the gaming sectors and its impact upon the economy, society, quality of life and examination of the concessionaires and sub-concessionaires in the territory seems to ‘reflect the government’s recognition’ of many issues relating to the gaming sector, and ‘may be indicative of forthcoming policy direction,’ note analysts at Bernstein.

The report, published on Wednesday focuses strongly on the developmental impact of the casinos in the territory and growth opportunities from rising purchasing power for those employed in the sector, to SMEs (small and medium enterprises) growth and working relationships with integrated resorts and MICE (meetings, incentives, conventions and exhibitions), with a strong nod to junket operations.

Director of the Gaming Inspection and Co-ordination Bureau (DICJ), Paulo Martins Chan, aside from noting the previously stated points to increase scrutiny on those entering the gaming promotion sector stressed the lack of manpower the Bureau has despite his reassurance that “we have inspectors 24 hours a day, 365 days a year to patrol the casinos”.

The stated need for growth in staff is to accompany the

growing industry and a push to conduct more fieldwork especially for ‘gambling under the table’ - with Bernstein noting that ‘further regulating junket promoters is one of the top priorities for Chan.

‘This represents incremental risk for the junket VIP segment,’ note analysts at Union Gaming, and given the wording on the new proxy-betting ban – leaving integrated resorts to police themselves and report misconduct to the authorities – if Chan gets his way, means increased fieldwork could allow the DICJ to “crack down on those crimes efficiently,” the director said.

Further VIP contraction

Currently, the problem, the director notes, is not legislative, as: “We do have the relevant laws that allow us to prosecute,” but that “it’s difficult to gather evidence as it mostly comes from victims”.

The solution: “We need new methods to collect evidence,” notes the DICJ head.

Aside from phone betting one of the primary methods noticed in the report that ‘gravely damages the social order’, is that of ‘parallel betting’ – when a multiplying effect is applied to bets at VIP casino tables, which is ‘destructive’ for casinos and the government and the ‘obligations arising’ from the collection of these can generate conflicts between interest groups or situations of ‘thief steals from thief’ which could result in the ‘sudden failure of a VIP room or of a player’.

This, added to the gray zones of legislation’ involving debt

collection, motivate the director’s request for additional staff and “an upgrade to our system – including our computer system.” The director noted, however, that all actions the group undergoes must be legal and that “in the end, the power is with the legislators,” some of whom operate casinos. Bernstein notes that none of these issues is new to the market but that the ‘VIP segment may face further contraction and headwinds in the coming quarters.’

Rating

“In the face of international competition we need to discover new customers, new growth points,” noted Secretary for Economy and Finance Lionel Leong Vai Tac at the press conference for the interim report. Receiving 75 per cent of the visitors that Las Vegas received in 2014, the SAR was able to generate around US$7.7 billion in non-gaming revenue, compared to Vegas’ US$10.3 billion, making them ‘comparable to Las Vegas’, states the report.

However, according to a report by Dr. Bo Bernhard, quoted by the interim report, a 31 per cent annual growth rate in non-gaming revenue was registered between 2007 and 2014, compared to a 23 per cent annual growth rate for the gross gaming revenues. For ten ‘principal tourist complexes of fivestars’ in the SAR the ‘average revenue’ of these generated US$250 million, whereas that of Vegas was only ‘US$230 million’ but that of the ’25 top

integrated resorts’ in Vegas was US$380 million, notes the report.

Melco Crown and The Venetian led the way on non-gaming in the report with their 93 per cent and 92 per cent respective ratios.

In an emailed statement to Business Daily, Melco Crown stated that ‘We take pride in the fact that Melco Crown Entertainment’s investment in local employee training, percentage of salary increment, and staff promotion are all above industry average, which is pointed out in the report.’

‘The acknowledgement is a demonstration of MCE’s thought leadership and commitment in the whole person development of our employees and local talent.

We will continue to support the Government’s direction of diversifying the economy in Macau, and contribute in building Macau into a World Centre of Tourism and Leisure,’ reads Melco Crown’s statement.

Sands China, through a press release, also noted that it was ‘pleased to hear’ of the results, further stating it is ‘committed to contributing to the development of Macau into a World Centre of Tourism and Leisure and to contributing to the successful diversification of Macau.’ The resort states that it will ‘continuously adopt appropriate measures to devote resources to social development.’

MICE

The report notes that ‘there’s a certain preoccupation by the government relative to’

the MICE (meetings, incentives, conferences and exhibitions) sector, with ‘the number of expositions in the last years not increasing significantly’. Despite drawing nearly 786,000 participants in the last quarter of 2015, according to data by the Statistics and Census Bureau, the sector is suffering due to the fact that: ‘the majority of the companies linked to the sector of expositions of the MSAR are SMEs, who suffer from limitations relating to a shortage of funding and of human resources, which takes away their capacity for negotiation’.

Aside from these factors, the report notes ‘structural problems’ such as ‘elevated rent of exposition space, lack of flexibility in its function,’ and ‘insufficient amount of transport to the exterior (internationally)’. To combat this, the ‘development of infrastructure, such as the interurban transport network,’ and ‘Hong Kong-Macau-Zhuhai Bridge will ‘significantly resolve’ the problems ‘permitting the MICE sector to be more competitive and organize events and conventions of larger scale (of 5,000 to 10,000 people),’ notes the report. This would also cause ‘tourism to benefit indirectly.

Bernstein notes that: ‘the paradigm shift in Macau’s market towards Mass also incentivises casino operators to add non-gaming elements in their new casino projects.’

Non-residents

The report notes that ‘an escalation of the conflicts and indignations existent in society is predicted, resulting from the opposition to the import of non-resident labour if mechanisms of layoffs occur’, due to the fall in gaming revenue seen since 2014 and subsequent cuts in spending and hiring. The report states that the rise in non-resident workers and their ‘habits and customs’ which ‘bother local residents’ combined with the ‘high procurement of housing, transportation, health services, education’ and resulting ‘elevated inflation rate and increase in rent costs’ will make it ‘easy for negative emotions of local residents against those from outside to intensify’ leading to an ‘even larger dispute between them […] over resources necessary for daily life.’

At the time Business Daily went to press four of the six operators mentioned in the interim report were unavailable for comment on the results.

Business Daily Friday, May 13 2016 7

Macau Golden Visa

Portuguese Consulate to host session on Golden Visa

The Portuguese Consulate in Macau will host an information seminar about Portugal’s Golden Visa on May 17 titled ‘How to obtain the best return and be a citizen of the most promising market in the European Union’, according to TDM Radio. The Golden Visa was created by the Portuguese Government as a way to incentivise investment and employment creation, allowing citizens from outside of the European Union

or the Schengen area to be granted a temporary Portuguese residence permit. Non-residents wanting to apply for a Golden Visa could obtain it by transferring capital equal to or exceeding €1 million (US$1.14 million / MOP9.12 million), the creation of at least 10 job positions, or purchasing real estate property valued at or above €500,00 according to the Portuguese Immigration and Borders Service. Since the system was created in 2012, Chinese nationals have received the greatest number of Golden Visas, with 2,345 as at February this year.

Gaming

Laos casino tender involving Macau groups terminated Tender for the sale of the Savan Vegas Hotel & Entertainment Complex terminated after former owner submits three court motions against Laos Government.

Nelson Moura nelson.moura@macaubusinessdaily.com

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he tender for the sales process for the Savan Vegas Hotel & Entertainment Complex in Laos has been terminated by the Lao People’s Democratic Republic Government, according to a company general announcement by RGB International Bhd. RGB International Bhd originally

out of Penang, Malaysia owns RGB (Macau) Limited, an electronic gaming machine maker, and was one of the six businesses shortlisted for the purchase and operation of Savan Vegas Hotel & Entertainment Complex, located in Savannakhet Province bordering northern Thailand. The tender company shortlist also included Iao Kun Group Holding Co. Ltd., an investor in casino junket room operations in Macau and Australia; and Macau Legend Development Ltd., a Hong Kong-listed casino services firm with casino operations in Macau.

Bids were to be submitted on May 10 and the winning bid would receive the assets of the complex, and a concession agreement to operate it for a 50-year period, Business Daily reported, with the tender management awarded by the Laos Government to San Marco Capital Partners LLC, a U.S.-based private investment firm.

No reason was stated for the termination of the tender, but it came after Dutch-based Lao Holdings N.V., which previously owned 80 per cent of Savan Vegas through Sanum Investment, a Macau-incorporated company, filed three separate legal actions this week ‘in response to specific illegal actions by the Government of Laos and its agents’ in regard to Lao Holdings’ investments in Laos, specifically related to the casino resort, according to a press release by the company.

Seeking repayment

The first action seeks to reopen a claim dating to 2012 for US$890 million, with Lao Holdings accusing the Laos Government of having violated its investor agreements by assessing huge taxes on their investment, Savan Vegas, and threatening to seize the hotel in payment, Business Daily reported.

The second motion requested a new arbitral tribunal to investigate if the casino seizure in 2015 that resulted from the first action was made in violation of international law and ‘breaches of the specific agreements that Laos made with these investors’ including the method of conduct on the sale.

The third action was directed at San Marco Capital Partners LLC, ‘and its sole owner and employee Kelly Gass’ who according to information published by Lao Holdings, ‘since the Government seized Savan Vegas,’ has ‘operated it, and is currently conducting a bidding process to sell it, for the Government’s sole benefit.’

Now Lao Holdings claims ‘significant monetary harm’ which should be determined at trial but is ‘exceeding US$100 million’ as well as ‘80 per cent of the net revenues of the Casino and 60 per cent of the net revenues of the Slot Clubs’.

8 Business Daily Friday, May 13 2016

Greater China M&A

‘Superman’ Li mulls Plan B after O2 deal blocked according to the Bloomberg Billionaires Index:

It was the second setback in the past six months.

Siddharth Philip

H

ong Kong’s “Superman” is facing more kryptonite as he tries to expand his European mobile-phone carrier holdings.

European Union regulators on Wednesday said they vetoed billionaire Li Ka-shing’s proposal to buy U.K. carrier O2 for as much as 10.25 billion pounds (US$15 billion) because of concerns it would hinder competition and create higher prices. Li’s CK Hutchison Holdings Ltd. wanted to merge its own 3 unit with Telefonica SA’s business in the country.

It was the second setback in the past six months for the 87-year-old Li, whose history of investment acumen prompted the Hong Kong media to give him the superhero nickname. Now that the bid for O2 has been rejected, investor attention will probably shift to another of Li’s proposed deals - a merger of its telecom business in Italy with that of VimpelCom Ltd.’s Wind Telecomunicazioni that would create the country’s largest carrier.

“With Asia saturated, investors were looking forward to the European telecom deals,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong.

CK Hutchison said it’s “deeply disappointed” with the decision and will consider its options, which

include a legal challenge.

Here are some other possible next steps for Li, who’s worth about US$28 billion,

Double down on Italy

Li’s Hutchison wants to combine its 3 Italia’s assets with those of Wind Telecomunicazioni in a deal valued at 21.8 billion euros (US$25 billion).

The proposal would reduce the number of competitors in the country and pose some of the same issues for the European Commission as the O2 plan.

That doesn’t bode well for the Italian deal, said Erhan Gurses, a London-based analyst for Bloomberg Intelligence.

“The combined unit’s spectrum position, as well as the potential impact on mobile pricing, may call for structural remedies,” Gurses said.

The companies could agree to divest part of the merged network and sell some spectrum to appease antitrust authorities, Gurses said. Still, the Italian government has said it won’t oppose the merger, unlike in the U.K.

Retreat

Hong Kong business magnate Li Ka-shing.

Hutchison could consider exiting the mobile-phone business in the U.K. and Italy because boosting market share there without significant capital investment will be difficult, said Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong.

“Hutchison overpaid to enter the mobile-phone business, and now the only

way they can make money is by achieving economies of scale,” Lun said. “It would be devastating to Li Ka-shing as they’ll either have to get out or try for organic growth.”

With rising competition in the U.K., Hutchison may find it more difficult to compete with bundled offerings and mobile virtual operators such as Virgin and Tesco Mobile, Gurses said.

“It may be harder and harder for Hutchison to turn a profit,” Gurses said. “In such a situation, a potential exit can’t be ruled out.”

Sit tight

Li could also just leave the businesses as they are, said Dickie Wong, executive director of research at Kingston Securities in Hong Kong.

It’s not like the European phone business is losing money. In the U.K., subscriber numbers are rising and profits - measured in terms of earnings before interest, taxes, depreciation and amortization - rose 25 percent to 686 million pounds last year. In Italy, Ebitda climbed 11 percent to 276 million euros.

“Telecom is one of their key focus areas, and they did the best they could,” Wong said.

“I don’t think they’ll sell their telecom business if the deals don’t go through. They’re likely to take the wait-and-watch approach.” Bloomberg News

Inc jurisdiction

State entities argue they have ‘sovereig The legal argument concerns whether companies controlled by the Chinese government can be protected under the U.S. Foreign Sovereign Immunities Act. Matthew Miller and Michael Martina

Some Chinese state-owned entities, backed by the key government agency that oversees major state industrial companies, have adopted a controversial defence when they face U.S. lawsuits: You can’t touch us because we enjoy sovereign immunity.

Aviation Industry Corporation of China (AVIC), China’s biggest stateowned aerospace and defence company, has used the strategy twice, while state-owned China National Building Materials Group Co (CNBM), a stateowned building products company, successfully used it in a case involving allegations that Chinese-made drywall led to health problems for U.S. homeowners.

China’s Foreign Ministry in October complained to the U.S. government over attempts by plaintiff lawyers to serve the drywall lawsuit on the State-owned Assets Supervision and Administration Commission (SASAC), which is responsible for 106 government-owned enterprises with 4.7 trillion yuan (US$722 billion) in assets, including CNBM and AVIC. The ministry argued in a diplomatic note that U.S. courts have no jurisdiction over suits against a country’s “state-owned properties.”

The legal argument concerns whether companies controlled by the Chinese government can be protected under

the U.S. Foreign Sovereign Immunities Act (FSIA), which was passed by Congress in 1976, even when their U.S. subsidiaries are involved in commercial disputes.

The use of sovereign immunity by Chinese state-owned conglomerates is a reflection of how China’s state capitalism and legal regime is increasingly running into conflict with Western regulation and jurisprudence, particularly as the country’s overseas investment rapidly grows.

Some legal experts say the sovereign immunity defence, intended under international law to shield governments from legal rulings made by a foreign power, isn’t a new or unexplored area of the law, but that it typically does not apply to commercial cases.

AVIC did not respond to a request for comment. A CNBM spokesman said case had been decided according to U.S. law but declined further comment.

SASAC did not respond to a request for comment.

Foreign Ministry spokesman Lu Kang told reporters at a regular briefing on Wednesday: “We demand that the host country earnestly respect and safeguard Chinese companies’ legal interests abroad.”

Lu said he was unclear about specific cases.

Behind big walls

In March, AVIC challenged a more than $70 million arbitration judgment against it in a U.S. federal district court in Dallas, arguing that it may enjoy sovereign immunity as a Chinese stateowned enterprise. That case is still to be resolved.

The Sixth Circuit of the U.S. Court of Appeals ruled in December in AVIC’s favour in a separate case, by ordering a Michigan federal district court to re-examine its decision not to dismiss a

lawsuit brought by Global Technology Inc (GTI) in a breach of contract case.

The more senior court said that the lower court should have more thoroughly weighed AVIC’s sovereignty immunity arguments. The case is now back with the lower court, where the parties have agreed to a court-supervised mediation.

Clashes between the U.S. and Chinese legal systems have emerged in other arenas.

“I think there is a mentality in China that, hey, we are behind these big walls and nobody can touch us,” said Bill Perry a Seattle-based trade litigator with law firm Harris Moure.

Chinese audit firms also have withheld working papers of Chinese firms listed on U.S. stock markets during investigations by U.S. regulators, stating that Chinese state secrecy law prohibited them from doing so.

A U.S. judge held Bank of China Ltd in contempt in November for refusing to surrender account records on customers accused of selling counterfeit luxury goods.

The bank argued that providing the records would violate Chinese laws, but complied with the order in January after the judge imposed a daily fine of US$50,000.

‘Alarming and disturbing’

The on-going AVIC arbitration judgment concerns a case led by Tang Energy Group, a Dallas-based clean energy company. In December, it got a multiparty arbitration award against AVIC and its offshore subsidiaries for breach of contract.

The arbitration panel from the International Centre for Dispute Resolution in Dallas found that AVIC had failed to fulfil its commitments to help fund a West Texas wind farm and develop a global wind energy business as part of a joint venture agreement.

Business Daily Friday, May 13 2016 9

Greater China Strait relations

In Brief

Taiwan adds tourists to squabbles with Mainland The number fell 10 percent on month to 363,878 in March, according to Taiwan’s Tourism Bureau.

Ben Blanchard and Faith Hung

China and Taiwan have added tourism to their bones of contention since the pro-independence opposition swept to power in January elections, trading accusations about who is to blame for a decline in Chinese visitors to the selfruled island.

China has made no secret of its dislike for incoming President Tsai Ingwen, who takes office on May 20, and for her Democratic Progressive Party (DPP), which has traditionally favoured independence.

Since the polls, Taiwan has accused China of effectively kidnapping its citizens from Kenya on suspicion of involvement in fraud, and reacted angrily to China casting doubt on its observer status at the World Health Organization.

Now the Chinese tourists who visit Taiwan - 4.2 million last year - have become the focus of discord.

The number fell 10 percent on month to 363,878 in March, according to Taiwan’s Tourism Bureau.

That is still up on a year ago, but those who service the visitors, including the bus companies that shuttle tour groups around, say they are feeling the pinch.

“Chinese tourists took about 4,000 tour buses a month this time around last year, but now it’s only 2,800,” said Lu Shiao-ya, chief of the National Joint Association of Tourist Buses.

“China is using its tourists as a bargaining chip against Taiwan’s new government,” he added.

If Tsai’s inauguration speech next week upsets Beijing, which still claims the island as its territory after the defeated Nationalists fled there at the end of the civil war in 1949, many fear China could really turn the screws on tourist numbers.

“This kind of political interference would only result in hurt feelings for people on either side of the Taiwan Strait,” said Tung Chen-yuan, spokesman for Taiwan’s incoming government.

The travel industry is nervous.

“Everyone is waiting to see how China will react to the inauguration speech,” said Golden Kou, a vice president of EVA Airways, Taiwan’s second-largest carrier.

Two tour agents said they had been told to restrict the numbers they send to Taiwan since the election.

“The National Tourism Administration told us in February and March to cut the number of tourists we send to

Taiwan,” an agent in the coastal city of Xiamen, which lies across the strait from Taiwan, told Reuters.

“From Xiamen the number of tourists has fallen sharply, down more than 50 percent,” said the agent, who asked to be identified only as Chen.

An agent in Guangdong province, who gave his family name as Kuang, said Chinese were still “still fascinated with Taiwan”, but government had cut the numbers allowed to visit.

A Beijing source with knowledge of China’s policy on Taiwan tourism said there had been technical problems in some provinces, including Henan, which ran out of application forms for Taiwan tourist permits.

The Taiwan Affairs Office did not respond to a request for comment, and the relevant office at the China National Tourism Administration declined to comment.

Chinese state media blames Taiwan.

This week, the ruling Communist Party’s official People’s Daily said Taiwan’s fiddling with the quota system was causing the fall in numbers. Reuters

Probe

Boyaa says chairman under investigation Online game developer Boyaa Interactive International Ltd said its chairman is being investigated by judicial authorities in China, although details of the probe were not yet known - sending its shares sliding 20 percent to a record low. Chairman Zhang Wei, who is also a controlling shareholder of the company, had been detained, Hong Konglisted Boyaa said in a statement late on Wednesday, adding that business operations remained normal. “The company has not received any notice of an investigation or a request to assist in any investigation,” Boyaa said in the statement.

Commerce

Lebanon joins Belt and Road Initiative China welcomes Lebanon’s participation in the Belt and Road Initiative, Foreign Minister Wang Yi said Wednesday during a meeting with his Lebanese counterpart, Joubran Bassil. The two ministers are in the Qatari capital for the 7th Ministerial Meeting of the China-Arab Cooperation Forum, which is to open on Thursday. The Belt and Road Initiative, which comprises the Silk Road Economic Belt and the 21st Century Maritime Silk Road, was announced in 2013 by Chinese President Xi Jinping. The aim is to build a trade and infrastructure network connecting Asia with Europe and Africa along the ancient Silk Road.

Tourism

gn immunity’ in U.S. courts AVIC, in its March filing, asked the U.S District Court in Dallas to vacate the judgment, arguing that the panel was unfairly constituted and that it exceeded the scope of its mandate by naming AVIC’s offshore entities in its judgment. It also claimed sovereign immunity in the dispute.

The claim of sovereign immunity is “alarming and disturbing,” said Greg Levesque, a senior adviser to Tang.

“Anyone working with AVIC or its subsidiaries has to wonder if a dispute arises whether they’re going to claim immunity or act responsibly.”

‘That’s U.S. law’

In the drywall case, China’s Foreign Ministry called SASAC’s inclusion in the lawsuit “extremely ridiculous”.

“The U.S. court’s acceptance of the lawsuit and the attempt to serve on SASAC through various channels has seriously infringed on the national sovereignty and interests of China,” its diplomatic note said.

In March, the judge in the case dismissed CNBM from the suit, reasoning that plaintiffs had not proven the company conducted any commercial activity related to drywall in the United States.

James Stengel, a partner of the New York office of law firm Orrick - which represented CNBM in the suit, said the sovereignty doctrine “is highly relevant” for Chinese state-owned companies.

“You can make the argument that a different economic and political system gives Chinese companies an advantage in some ways. But that’s U.S. law, and the U.S. government has made a clear decision that we will recognise the sovereign immunity of appropriately structured enterprises,” Stengel said. Reuters

Mainland visitors to NZ “outstrip all other markets” China will be New Zealand’s largest market for tourist spending by next year and will be the fastest growing market in terms of visitor numbers, according to an official forecast yesterday. Total tourism expenditure is forecast to grow by 65 percent to 16 billion NZ dollars (US$10.92 billion) in 2022, according to the forecast from 2016 to 2022 from the Ministry of Business, Innovation and Employment (MBIE).

Meanwhile, total visitor arrivals to New Zealand were expected to grow 5.4 percent a year, reaching 4.5 million visitors in 2022 from 3.1 million in 2015, said the report.

Cyber security

Envoy urges internet providers to fight terrorism A Chinese envoy to the United Nations on Wednesday called on internet service providers to enhance self-discipline and take initiative in the fight against terrorism. While speaking at a Security Council meeting here on terrorism, Liu Jieyi, China’s permanent representative to the UN, urged to cut off terrorists’ channels for spreading terrorist ideologies as “the internet and social media have been used by terrorists as a new platform to spread terrorist ideologies.”

10 Business Daily Friday, May 13 2016

Greater China Investors’ angle

Hedge fund managers ditch decorum in shouting match over Mainland’s economy 1,800 hedge fund industry executives are gathering in Las Vegas to discuss global hedge funding environment.

Simone Foxman and Saijel Kishan

A

fiery exchange between money managers Emanuel Friedman, Milton Berg and Don Brownstein broke with the polite decorum of the SkyBridge Alternatives Conference, one of the biggest annual events for the hedge fund world.

That’s because the topic was China.

Friedman, co-founder of hedge fund EJF Capital, said he was reminded of overblown reactions to the late 1990s Asian financial crisis: “People said, ‘Well Korea, it’s finished, it’s collapsed. People are in the streets.”’

“The issue is not that,” shot back fellow panellist Berg of MB Advisors.

“The issue is not that!” Friedman then shouted, “People are in the streets!” his volume rising as he repeated it five more times.

China, where a currency devaluation sent shock waves worldwide last year, is dividing the biggest names in finance more than any other market. Larry Fink of BlackRock Inc. said in April that China’s aggressive

policy to stimulate the economy is working and the risk of a bubble bursting is only about 20 percent.

Billionaire investor George Soros said last month that the nation’s debt-fuelled economy resembles the U.S. in 2007-08, at the onset of the global financial crisis.

The clash Wednesday at the Bellagio hotel in Las Vegas, where 1,800 hedge fund industry executives are gathering, contrasts with last year’s meeting, where many money managers expressed confidence in China.

Last May, Passport Capital’s John Burbank - now a China bear - predicted that China would come through its economic slowdown “strong and positive.” Michael Novogratz, who at the time ran Fortress Investment Group LLC’s macro fund business, predicted that the country was on the brink of “one of the greatest bull markets we’ve seen.”

‘Herd mentality’

China Investment Corp.’s Roslyn Zhang and others found themselves on the defensive on Wednesday’s panel. The CIC executive said hedge fund managers, many of whom have never been to China, were succumbing to a “herd mentality” in betting against the yuan.

“They really don’t know much about China but they just spend two seconds and put on the trade,” she said. “Should we pay 2 and 20 for treatment like this?” she said, referring to industry fees, traditionally 2 percent of assets and 20 percent of profits.

Zhang, a managing director at the nation’s largest sovereign wealth fund, said investors fail to grasp that China’s massive size requires largescale construction, pushing back at concerns that the country is building “bridges to nowhere.” She said the country’s leverage and militarization compare favourably with the same metrics in the U.S. “When you put that all together, China is actually not that scary,” she said. “If you’re worried about China, you should be twice as worried about here.”

Bearish bass

If Zhang was spearheading the bulls, then Kyle Bass was leading the bears.

Bass, of Hayman Capital Management, said at a later discussion that China’s economy was already experiencing a hard landing, creating “one of the biggest macro imbalances the world has ever seen.” Bass, who’s highlighted woes in the nation’s banking sector, said economies closely tied to China, such as Hong Kong and Malaysia, are beginning to stumble.

Credit in Southeast Asian emerging

markets including Malaysia and Thailand has grown “recklessly” and Hong Kong’s property market is in “free fall,” he said.

Money managers on stage with him mostly agreed. “It may be a little slower than Kyle thinks,” said Kenneth Tropin, founder of the US$12 billion macro hedge fund Graham Capital Management. But a spike in commodity prices, driven by Chinese retail investors, is a sign that “things may become unglued,” he said, adding, “it’s a question of timing.”

“I would rather put my money with a communist government than a capitalist government.”

Don Brownstein, Structured Portfolio Management’s

At least five commodities in China gained more than 50 percent from their recent lows in just over two months as daily turnover on the nation’s futures markets jumped by the equivalent of US$183 billion.

Vote Sanders

Paul Brewer, chief investment officer of Rubicon Fund Management, said China’s woes are worse than the U.S. subprime housing crisis.

Leon Cooperman, who runs equity hedge fund Omega Advisors, was more sanguine about prospects for the world’s second-biggest economy.

China has been slowing for years without thwarting a three-year rally in U.S. stocks. “It’s overemphasized as an issue,” he said.

“We are going to have ripples in China,” said EJF’s Friedman. “But this is a very powerful country. And the people who use it as some kind of bogey man - it’s make believe.”

Structured Portfolio Management’s Brownstein concurred. “China came out of a huge, huge mess and it is a huge country with a very, very diverse population,” he said. “I would rather put my money with a communist government than a capitalist government.”

Berg suggested: “Vote for Bernie Sanders.” Bloomberg News

Business Daily Friday, May 13 2016 11

Asia Government chages

As Philippines faces new president, central bank gives stability Elected president Duterte said during a forum that the central bank is doing a good job.

Karl Lester M. Yap

P

hilippines’ central bank Governor Amando Tetangco has emerged as a pillar of stability for investors grappling with a brash incoming president who hasn’t provided much clarity on his economic plans.

A veteran of 11 years as chief of Bangko Sentral ng Pilipinas, Tetangco, 63, has brought inflation down to the lowest in two decades, boosted foreign reserves more than four-fold and navigated the economy through the 2008 global financial crisis without it falling into recession.

With his term coming to an end in July 2017, Tetangco’s challenge now is sustaining those successes through uncertain times. Rodrigo Duterte, a tough-talking mayor with little economic policy experience, won the May 9 presidential election, heightening risks in the Southeast Asian economy. Investor concern ahead of the vote prompted the currency to fall and stocks to slide.

“During this transition period with a lot of uncertainty over possible policy changes, Bangko Sentral ng Pilipinas acts like an anchor for investors,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong.

“Tetangco certainly has tremendous credibility. He has a very impressive track record, steering the economy through uncertainties with a steady hand.”

‘Hot water’

Duterte’s comments about the central bank ahead of the election had already raised warning bells. He said the bank and anti-money laundering unit that Tetangco heads will be in “ hot water” should he become president because they are suspected of having been the source of information that Duterte allegedly had hidden wealth.

The central bank has denied it’s the source of that information and said it does not engage in partisan politics.

Philippines’ central bank Governor Amando Tetangco.

Duterte subsequently said during a forum with Philippine Star editors on May 4 that the central bank is doing a good job.

Duterte will need to convince investors he has a team able to build on the success of an economy that’s grown on average more than 6 percent annually in the past six years.

He may get some early help from Tetangco, who is forecast to hold the benchmark interest rate at 4 percent on Thursday.

Cabinet appointments

The incoming president this week hinted at possible cabinet appointees, including former agriculture secretary and businessman Carlos Dominguez, who may be tapped to head the finance or transportation departments. Duterte will take

office on June 30.

“The people Duterte is surrounding himself with are experienced and know that central bank

“The people Duterte is surrounding himself with are experienced and know that central bank independence is important” Jonathan Ravelas, Chief market strategist at BDO Unibank Inc.

independence is important,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila. “I don’t think that is something to worry about. Why fix it if it ain’t broke?”

An economics graduate from the Ateneo de Manila University, Tetangco started his career with the central bank in 1974. He worked his way up from statistician at the bank’s economic research department to becoming one of three deputy governors and eventually the head of the bank. Tetangco was an adviser at the International Monetary Fund from 1992 to 1994.

The central bank is in the process of transitioning to an interest-rate corridor by early June, a move it said will boost the effectiveness of its benchmark rate. Bloomberg News

April meeting

Some in Bank of Japan stressed readiness to ease more A summary exposed differences within the board on how to assess the economy.

Leika Kihara

Some Bank of Japan policymakers stressed the need to expand monetary stimulus further if needed to hit their price target, a summary of opinions from discussions at the central bank’s April rate review showed yesterday.

The summary also showed the BOJ’s decision to keep monetary policy steady at the April meeting was based on the predominant view in the board that the central bank should take more time to examine how its decision in January to adopt negative interest rates would affect the economy.

“When necessary, the BOJ should take additional steps because

downside risks to the economy and prices are large,” one of the nine board members was quoted as saying at the April 27-28 meeting, a view echoed by several other members.

The BOJ held off from expanding stimulus at the meeting, defying market expectations for action even as soft global demand, an unwelcome rise in the yen, and weak consumption threatened to derail a fragile economic recovery.

The summary exposed differences within the board on how to assess

the economy, with one member disputing the BOJ’s baseline scenario forecasting a moderate recovery.

“A scenario projecting a pick-up of momentum in the virtuous economic cycle doesn’t seem to be that persuasive,” the member was quoted as saying With the effects of the BOJ’s stimulus programme becoming increasingly

uncertain, some members called for a more flexible approach to achieving the 2 percent inflation target.

“As it will take considerable time for the price target to be achieved, the BOJ should enhance the durability and sustainability of the current policy,” one member said, though the summary provided no information on how exactly that could be done. Reuters

Key Points Board wanted time to examine effect of negative rates Doubt voiced on BOJ’s upbeat scenario-summary of views One member called for fine-tuning of policy framework Governor Kuroda explaining quantitative easing program.

12 Business Daily Friday, May 13 2016

Asia In Brief Forecast

Malaysian March factory output up Malaysia’s March industrial production grew 2.8 percent from a year earlier, supported by growth in the manufacturing and electricity sectors, government data showed yesterday.

Electricity output grew 7.7 percent year-on-year slowing from the previous month’s pace of 10.5 percent, data from the Statistics Department showed.

However, mining output declined. Factory output in February had expanded 3.9 percent year-on-year, supported by growth in the electricity, manufacturing and mining sectors. Industrial production expanded 3.3 percent in the first quarter compared with the same quarter last year, on growth in the manufacturing and electricity sectors.

Central bank

Japan’s lower house approves new board member Japan’s lower house of parliament gave its approval yesterday for Takako Masai, an executive at Shinsei Bank Ltd and an advocate of aggressive monetary easing, to join the Bank of Japan’s policy board. Masai, a 51-yearold executive officer of the Japanese commercial bank and an expert on currency markets, would replace former commercial banker Koji Ishida, who voted against the BOJ’s decision in January to deploy negative interest rates. Ishida’s fiveyear term expires on June 29. Masai’s addition would give Governor Haruhiko Kuroda a firmer grip on board members if he were to expand monetary stimulus further.

South Korea’s import prices decline at slower pace Trade

South Korea’s import prices in April dropped at a slightly slower pace than they did in March in annual terms, central bank data showed yesterday, enabling the central bank to keep its expansionary monetary policy amid low inflation. Import prices in won terms fell 7.2 percent in April compared with a year earlier, extending their longest falling streak since records of the data began on September 2012, data from the Bank of Korea showed. That compared with a 7.6 percent decline in March, which was revised up from a 7.7 percent drop reported earlier.

M&A

Nissan taking US$2.2 billion controlling stake in Mitsubishi Motors

The country’s finance minister has instructed the tax office to scrutinise names in the data leaked from a Panamanian law firm to chase possible unpaid taxes.

The head of the tax office Ken Dwijugiasteadi told a news press conference that the Panama Papers mentioned 1,010 Indonesian people and 28 firms as having set up shell companies abroad.

Tax officers have combed through around 800 names and found out that 272 of them have tax identifications, he said, adding that they are still reviewing the rest.

Out of those identified, the tax office has issued letters requesting 78 taxpayers to revise their tax reports.

“We have asked them to clarify whether the assets mentioned in the Panama Papers are included in their tax reports,” he said, adding that most people deny having offshore assets, referring to the data obtained by the International Consortium of Investigative Journalists as “just media reports”.

“But then I attached our data, and then they started to correct their tax

reports. If the data still doesn’t match, we will start an investigation,” Dwijugiasteadi said.

He refused to disclose how much money the 78 might owe the government, based on the tax office’s findings.

Southeast Asia’s largest economy is facing a sizable revenue shortfall this year as the resource-rich country can no longer rely on commodity-related income.

Dwijugiasteadi, who was appointed in March, has made improving individual compliance his priority this year. There are around 27 million registered taxpayers in Indonesia when there should be more than 120 million eligible to pay, out of Indonesia’s 250 million population.

The government plans to offer a tax amnesty programme, giving low rates to previously untaxed assets, to improve people’s compliance. But the controversial plan, which was due to be implemented early this year, has been delayed by parliament. Many analysts say the programme might not start until near the end of the year. Reuters

Maki Shiraki and Naomi Tajitsu

Nissan Motor Co has agreed to take a 34 percent stake in Mitsubishi Motors Corp , taking de facto control with a US$2.2 billion bet that bails out its smaller, scandal-hit rival.

The deal is a lifeline for Mitsubishi Motors, which is mired in its third scandal in two decades, but should also be a boost for Nissan. Japan’s number two car maker has struggled to make inroads into Asia outside China, in countries like Thailand and the Philippines, where Mitsubishi’s models are popular.

Mitsubishi and Nissan already cooperate on development and manufacturing with a partnership dating back to 2011, but that deal does not currently involve any cross-shareholding.

Under yesterday’s deal, which both companies said will help Mitsubishi “regain trust”, Mitsubishi Motors will issue new shares to Nissan at a 5.3 percent discount to Wednesday’s close, raising 237.4 billion yen (US$2.18 billion). That will hand Nissan just over a third of the group - enough to wield control, under Japanese shareholding rules.

Nissan Chief Executive Carlos Ghosn said the two would now share and jointly develop technology, and could realise “billions” in synergies by coordinating purchasing, plant utilisation and cooperating in growth markets.

“We believe this will be a win-win situation... We believe we can help and support and grow together, better than if Mitsubishi was doing this on its own,” he told reporters at a joint press conference in Yokohama, south of Tokyo.

Ghosn said Nissan will be able to nominate a third of Mitsubishi Motors’ board, adding he believed that would

Nissan Chief Executive Carlos Ghosn.

also be led by a Nissan executive.

Mitsubishi admitted last month it overstated the fuel economy of at least four of its models - mini cars sold in Japan, including two sold under Nissan’s badge.

That has badly hit Mitsubishi, wiping US$3 billion off its value and bruising a brand already losing market share, as investors fretted over potential compensation costs.

Ghosn said he had been “reassured”

by Mitsubishi Motors’ Chief Executive Osamu Masuko over the size and scope of the fuel economy troubles, which Masuko said had accelerated discussions.

Mitsubishi Motors shares, down around 45 percent since it admitted misconduct over mileage on April 20, were untraded just before closing up 16 percent at the daily limit.

Taking charge

Tax information

Indonesia tracks 78 names mentioned in ‘Panama Papers’ to correct reports The government plans to offer a tax amnesty programme, giving low rates to previously untaxed assets, to improve people’s compliance.

Indonesia has started to probe the tax reports of 78 individuals after finding differences between their wealth reports and data from the “Panama Papers”, the head of the country’s tax office said yesterday.

Business Daily is a product of De Ficção – Multimedia Projects

Nissan will gain a leg up in Japan’s small car market - where it is dwarfed

by Suzuki and Toyota’s Daihatsu and in key emerging economies. Asia excluding China accounted for about 7 percent of its global retail sales in April-December.

“The biggest benefit to Nissan would be Mitsubishi’s presence in Southeast Asia,” said Koji Endo, autos analyst at Advanced Research Japan.

Mitsubishi has strong brand recognition in the region, while Nissan has been less successful at establishing a presence.

But it will also face the much tougher task of ensuring a turnaround at Mitsubishi, without full control.

“Taking a one-third stake feels a bit like a half-measure,” said Kiyoshi Yamanaka at T&D Asset Management.

“For investors, it would be cleaner if they made Mitsubishi Motors a fully owned subsidiary, as Toyota did with Daihatsu, and then took firm control of righting its governance.”

An industry banker familiar with the deal said Mitsubishi Motors was now likely to reshuffle its top management, but dampened expectations of a full takeover. Sister companies in the sprawling Mitsubishi family are unlikely to sell, he said.

Mitsubishi Heavy Industries Ltd, Mitsubishi Corp, and the Bank of Tokyo-Mitsubishi UFJ, together with subsidiaries held roughly a 34 percent stake in the automaker before the deal. That is now diluted to around 22 percent.

None have yet commented.

Group companies bailed out Mitsubishi Motors in 2004, but had not been expected to step in this time.

Mitsubishi Corp reported its first ever loss this week.

For Mitsubishi, the need for a deal had grown.

Mitsubishi Motors said on Wednesday said it had enough cash to weather the fuel-economy scandal - but also warned that non-compliant data may have been used to calculate the fuel economy for more of its cars than previously announced.

After Mitsubishi admitted last month to overstating the fuel economy of four of its mini-vehicle models, analysts estimate the automaker is facing up to $1 billion in compensation payments to its customers, along with payments to Nissan.

The deal would give Nissan a bigger stake in Mitsubishi than its 15 percent holding in alliance partner Renault.

The French automaker holds a 43.4 percent stake in Nissan.

The three brands’ combined annual global sales would be about 9.3 million vehicles, approaching the group sales of industry leaders Toyota Motor Corp and Volkswagen AG. Reuters

Chief Executive of Nissan Carlos Ghosn said the two would now share and jointly develop technology.

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 Friday, May 13 2016 13

Asia Overcapacity

Obama, Turnbull discuss global steel glut Last month, China and other major steel producers failed to agree on measures to tackle the overcapacity crisis.

U

.S. President Barack Obama and Australian Prime Minister Malcolm Turnbull yesterday discussed by telephone the global glut in steel supply, which many blame on chronic overcapacity at Chinese producers of the construction material.

China’s steel production hit a record high earlier this year as rising prices, and profits, encouraged mills that had been shut or suspended to resume output.

“The two leaders ... discussed the need to work together to address the global glut in steel,” the White House said in a statement, adding that the conversation covered a wide range of economic and defence issues.

China, the world’s top steel producer and exporter, is also the fifth-largest importer of steel, buying an equivalent of 13.57 million tonnes of crude steel last year.

Last month, China and other major steel producers failed to agree on measures to tackle the overcapacity crisis, prompting the United States, European Union and others to call for urgent action.

China plans to shed 100-150 million tonnes of domestic crude steel

capacity in the next five years in a bid to help tackle huge capacity overhangs that have saddled domestic firms with losses and debts.

Turnbull said that he had raised the issue with top Chinese officials and that while he welcomed their commitment, more than “strong intentions” were needed.

“Now, the President and I have agreed that Australia and the U.S. will intensify our collaboration to ensure that the overproduction of steel is addressed,” Turnbull told reporters in Melbourne.

“We need to address this issue because it is important that the viability of steel makers in our country, and in the U.S. and other nations, is preserved and not undermined by the exporting or the dumping of very cheap steel made in places where it is being produced at way below the real cost.”

Key Points Obama, Turnbull discuss steel supply glut during telephone call Many blame China overcapacity for global glut Beijing has said already taking sufficient steps to curb output Chinese officials have said that they are already taking sufficient steps to curb capacity, while state news said blaming China for the global steel industry crisis was a lazy excuse for protectionism that would be counter-productive. Reuters

14 Business Daily Friday, May 13 2016

International In Brief Taxes

US queries banks on Panama Papers New York’s banking supervisor has asked four investment banks including US group Goldman Sachs and France’s BNP Paribas for details of any offshore dealings related to the Panama Papers scandal, according to a source close to the matter.

The regulator, the New York Department of Financial Services, launched a review after the leak of 11.5 million confidential documents from Panama-based law firm Mossack Fonseca. The four investment banks Goldman Sachs, BNP Paribas, Standard Chartered and Canadian Imperial Bank have until May 23 to respond to the New York supervisor’s information request.

Kuwait

OPEC meeting to focus on dialogue, not market action

M&A

LSE, Deutsche Boerse to hold merger votes after Brexit referendum Both exchange groups will give investors the opportunity to see the outcome of the June 23 consultation.

L

ondon Stock Exchange Group (LSEG) and Deutsche Boerse plan to hold shareholder votes on their proposed merger after Britain’s referendum on whether to stay in the European Union, three sources familiar with the matter said.

Both exchange groups will give investors the opportunity to see the outcome of the June 23 referendum before deciding on the proposed tie-up, though no final decision has yet been taken about the exact date of the votes, one of the sources said, speaking on condition of anonymity as the matter isn’t public.

The dates for the votes are likely to be announced in late May or early June, another of the sources said.

LSEG and Deutsche Boerse declined to comment.

Initially there were some expectations that LSEG would hold a shareholder meeting to approve the merger with Deutsche Boerse before the British referendum.

This would have forced U.S. group Intercontinental Exchange (ICE) to file any counterbid seven days before that meeting, with Britain’s future in the EU still very much in doubt.

For ICE, LSEG would be a more attractive target with Britain inside the EU. But earlier in May, ICE, owner of the New York Stock Exchange, announced it was shelving plans to make a counterbid for LSEG, giving the British exchange more time to finalise its merger documents with Deutsche Boerse.

Deutsche Boerse still needs to file a full set of merger documents with German regulators, which could take several weeks.

The two European exchanges have presented their proposed deal as “Brexit” proof given their combination would straddle the EU and Britain, should it leave.

But bankers and politicians in Frankfurt are concerned the tie-up could undermine Germany’s financial centre, citing the planned seat of the merged group in London and a possible UK exit from the EU. Reuters

November’s U.S. election.

About 10 executives from leading European banks took part in the meeting, along with British Foreign Secretary Philip Hammond, secretary of state for business Sajid Javid and Norman Lamont, trade envoy to Iran, a British official told Reuters.

British banks including Barclays, HSBC and Standard Chartered as well as some from other European countries attended, sources familiar with the matter said.

The United States and Europe lifted sanctions in January under a deal with Iran to limit its nuclear programme, but other U.S. sanctions remain, including a ban on Iran-linked transactions in dollars being processed through the U.S. financial system.

That has left Europe’s banks nervous of resuming trade despite encouraging words from the U.S., after lenders including BNP Paribas and Standard Chartered paid out billions of dollars in fines to resolve allegations of past sanctions-busting.

Standard Chartered said after the meeting: “Will not accept any new clients who reside in Iran, or which are an entity owned or controlled by a person there, nor will we undertake any new transactions involving Iran or any party in Iran”.

international community, and this meant overcoming “the reality of what the European banks are finding in practice”.

“We’re trying to bridge that gap... to allow these European and global banks to support European businesses in resuming normal trade and investment patterns with Iran,” Hammond said.

Banks’ fears are exacerbated by the differing tone of rhetoric between federal U.S. officials and State laws, many of which still ban pension groups and funds from investing in overseas companies that do business in Iran, Tom Stocker, a Pinsent Masons lawyer with expertise in trade sanctions, said.

“It is all well and good for Kerry to give warm rhetoric but it needs to be backed with a clear general license issued by the U.S. authorities to conduct trade in Iran,” Stocker said.

Ayatollah Ali Khamenei, the most powerful figure in Iran, has also blamed delays in the resumption of trade squarely on the United States.

“The U.S. Treasury ... acts in such a way that big corporations, big institutions and big banks do not dare to come and deal with Iran,” Khamenei said in March.

European banks fear that legal business could be retroactively made illegal if sanctions were to be re-imposed. Reuters

‘The dates for the votes are likely to be announced in late May or early June’

OPEC member Kuwait does not expect any coordinated action to be decided during the group’s upcoming meeting in Vienna on June 2, the country’s acting oil minister said yesterday. The “focus of the meeting will be to think and look around ... about what could be done further to stabilise the markets,” Anas al-Saleh, told Reuters in Tokyo, Japan, on the sidelines of a Kuwait-Japan business seminar.

Prices decline

German chemicals sector squeezed Germany’s mighty chemicals and pharmaceuticals sector - which includes global giants such as BASF and Bayer - is feeling the squeeze from falling oil prices, prompting the industry’s federation yesterday to cut its full-year growth forecast. “It was mixed start of the year for the chemicals and pharmaceuticals industry,” the VCI federation said in its quarterly report. “In comparison with the weak preceding quarter, output in Germany’s third-biggest industrial sector expanded strongly,” the report said.

Companies also felt the pressure from imports, said VCI president, Marijn Dekkers, who is chief executive of Bayer.

Cameron against fraud

U.K. banks face money laundering crackdown Prime Minister David Cameron said the U.K. plans to make financial services companies liable for their employees’ complicity in money laundering and fraud, in an extension of proposed laws against tax evasion. Announced to coincide with an anti-corruption summit in London yesterday, Cameron said the developed world must “get its house in order” and gave further details of a register of owners of high-value properties in London to prevent it being used as a hiding place for plundered money.

Cameron’s government said last month that companies whose staff help people evade tax would face unlimited fines under proposed U.K. rules.

Trade ties

Kerry seeks to soothe European bank nerves over Iran European banks fear that legal business could be retroactively made illegal if sanctions were to be re-imposed.

David Brunnstrom

U.S. Secretary of State John Kerry told Europe’s top banks they have nothing to fear from resuming business with Iran, as long as they make proper checks on trade partners and pursue “legitimate business”.

European banks, some of which have been punished for breaking sanctions imposed on Iran, are sceptical it is now safe for them to restore trade ties with the country and have largely held back since the lifting of some restrictions in January.

“We want to make it clear that legitimate business, which is clear under the definition of the agreement, is available to banks,” Kerry said on Thursday during what is likely to be his last trip to London before

Bridging the gap

Hammond said the strategic objective was to draw Iran back into the

Business Daily Friday, May 13 2016 15

Opinion Business Wires

The Times of India The government may have plugged the tax loophole in the double-tax avoidance agreement (DTAA) with Mauritius and Singapore, but it may need to amend the treaty with Cyprus and the Netherlands to ensure that all gaps are filled to ensure that companies pay tax at least in one jurisdiction. Tax consultants said that the current tax treaty with Cyprus provides for exemption from payment of capital gains tax. But being a non-cooperative tax jurisdiction, there is a 30% withholding tax on certain income. Cyprus is one of the tax havens which investors globally tap.

Philstar British banking giant Hong Kong and Shanghai Banking Corp. (HSBC) and Dutch financial conglomerate ING Bank said they expect Philippine economic growth rebounding in the first quarter of the year on the back of robust private consumption and higher investments.

HSBC economist Joseph Incalcaterra said growth likely accelerated in the first quarter to above seven percent from 6.3 percent in the fourth quarter of last year.

“We think growth may exceed seven percent year-on-year in the first quarter – its best performance in nearly three years,” he said.

The Star A seasoned fund manager, Mark Mobius expressed optimism that the ringgit will improve and that issues surrounding 1Malaysia Development Bhd (1MDB) will not have a long-term impact on Malaysia.

According to Mobius, who is the executive chairman of Templeton Emerging Markets Group, foreign funds would eventually return to Malaysia given the undervaluation of the ringgit and the inexpensive valuations of Malaysia’s market. “The ringgit is so undervalued now... a lot of companies here are doing well, so funds will come back,” he explained at a press conference at the Global Islamic Finance Forum 5.0 here yesterday.

Rescaling China’s debt mountain

T

here is widespread agreement on two facts about the Chinese economy. First, the slowdown has ended and growth is picking up. Second, not all is well financially.

But there is no agreement on what happens next.

The good news is that domestic demand continues to grow. Car sales were up nearly 10% in March over the same month in 2015. And retail spending grew at an annual clip of 10% in the first quarter.

The most dramatic increase, though, is in investment. Real estate investment is growing again, following its collapse in 2015. Industrial investment, especially by state-owned enterprises, has been rallying strongly.

At the root of this turnaround is enormous credit growth, as the authorities, concerned that the earlier slowdown was excessive, encourage China’s banks to lend. Credit growth, known in China as “total social financing,” grew at an annual rate of 13% in the fourth quarter of 2015 and again in the first quarter of this year – that is, double the rate of annual GDP growth. Since the financial crisis erupted in September 2008, China has had the fastest credit growth of any country in the world.

Indeed, it is hard to point to another credit boom of this magnitude in recorded history.

The bad news is that credit booms rarely end well, as the economists Moritz Schularick and Alan Taylor have reminded us. China’s credit tsunami is financing investment in steel and property, sectors already burdened by massive excess capacity. The companies doing the borrowing, in other words, are precisely those least capable of repaying.

The International Monetary Fund, which tends to adopt a conservative posture on such matters (not least to avoid antagonizing powerful governments), estimates that 15% of Chinese loans to nonfinancial corporations are at risk. With nonfinancial corporations’ debt currently standing at 150% of GDP, the book value of the bad loans could be a quarter of national income.

It still may be possible to sell off vacant apartments for a fraction of their construction cost. It may be possible to sell off rolling mill machinery to other countries, or as scrap. But where the loans at risk are concentrated – in steel, mining, and real estate – suggests that losses will be substantial.

This is why the supposedly painless solution, debt-for-equity swaps, will not be painless. Yes, bad loans can be purchased by asset-management companies, which can package them up and sell them off to other investors. But if the asset managers pay full book value for those

“

Barry Eichengreen Professor at the University of California, Berkeley, and the University of Cambridge

loans, they will incur losses, and the government will have to foot the bill. If they pay only market value, it will be the banks that incur losses, and the government will have to repair their balance sheets.

This leaves three unpalatable options. First, the authorities can issue bonds to raise the funding needed to recapitalize the banks. In doing so, they would effectively transform the corporate debt problem into a public debt problem. This would place the financial burden squarely on the shoulders of future taxpayers, which would not enhance consumer confidence.

It also would not enhance confidence in the public finances. Public debt in China is still relatively low; but, as any citizen of Ireland can tell you, it can balloon when banking crises strike.

Alternatively, the central bank could finance the repair by providing credit. But, while the authorities relied on this approach in 1999, the last time they were faced with a serious bad-loan problem, running the money printing press is not compatible with officials’ other stated goal: a stable exchange rate. We saw last August how investors can panic when the renminbi exchange rate moves unexpectedly. Currency depreciation may not only precipitate a destabilizing spiral of capital flight; it could also destabilize the banks, from which money leaving the country must first be withdrawn.

The final option is to imagine that the bad-loan problem will solve itself. The banks would be encouraged to “evergreen” their loans: to roll them over when repayment falls due. The fiction that the banks are well capitalized will be maintained. Borrowers that need to be liquidated or reorganized will instead stay alive, thanks to the drip-feed of bank finance. The result will look familiar to aficionados of Japan’s banking crisis: zombie banks lending to zombie firms, which apply artificial pressure on viable firms, stifling their growth.

Financing bank recapitalization through bond issuance is probably the least bad option. This doesn’t mean that it will be painless. Nor is there any assurance that Chinese policymakers will opt for it. But if they don’t, the consequences could be dire. Project Syndicate

The bad news is that credit booms rarely end well

The Korea Herald The Korean economy is facing pressure from all sides that will make it harder to sustain growth amid high youth unemployment, rapidly changing demographics and slow manufacturing growth. With cash-strapped companies in conventional industries expected to go through restructuring soon, more people of all ages will be out of jobs and face difficulties in finding work in a slow market. This will increase Korea’s unemployment rate, while growing costs for restructuring and welfare will add burden to fiscal spending as the country will have to finance them with debts to maintain its socioeconomic well-being.

”

16 Business Daily Friday, May 13 2016

Closing Impeachment

Brazil Senate puts Rousseff on trial She has not been accused of corruption, but the scandal at Petrobras encouraged opposition lawmakers to oust her for disguising the size of the government’s budget deficit.

Anthony Boadle and Maria Carolina Marcello

B

razil’s Senate voted yesterday to put leftist President Dilma Rousseff on trial in a historic decision brought on by a deep recession and a corruption scandal that will now confront Michel Temer, the vice president who succeeds her.

With Rousseff suspended during the Senate trial for allegedly breaking budget rules, the centrist Temer will take the helm of a country that again finds itself mired in political and economic volatility after a recent decade of prosperity.

The 55-22 vote ends more than 13 years of rule by the left-wing Workers Party, which rose from Brazil’s labour movement and helped pull millions of people out of poverty before seeing many of its leaders face corruption investigations.

Fireworks rang out in some neighbourhoods across Brazil after the vote at the end of a 20-hour session in the Senate. Police had briefly clashed with pro-Rousseff demonstrators in Brasilia on Wednesday, exchanging volleys of tear gas and rocks.

The impeachment process began in the lower house of Congress in December and Rousseff, a 68-yearold economist and former Marxist guerrilla who was Brazil’s first female president, is unlikely to be acquitted in a trial that could last as long as six months.

A two-thirds majority is needed in the Senate to convict her but the scale of her defeat in the vote yesterday showed how little support she has.

“Today we are trying to overcome this situation by removing an irresponsible government. We have no alternative,” said Senator Blairo Maggi, one of Brazil’s biggest soy farmers, who is slated to become agriculture minister in Temer’s government.

Rousseff has denied any wrongdoing and called her impeachment a “coup”.

Temer, a 75-year-old centrist and constitutional scholar who spent decades in Brazil’s Congress, now faces the challenge of restoring economic growth and calm at a time when Brazilians, increasingly polarized,

are questioning whether their institutions can deliver on his promise of stability.

In addition to a towering budget deficit, equal to more than 10 percent of its annual economic output, Brazil is suffering from rising unemployment, plummeting investment and a projected economic contraction of more than 3 percent this year.

“Only major reforms can keep Brazil from moving from crisis to crisis,” says Eduardo Giannetti da Fonseca, an economist and author in São Paulo who has written extensively about the country’s socioeconomic problems.

But those changes, including an overhaul of pension, tax and labour laws and a political reform to streamline fragmented parties in a mercenary Congress, could remain elusive at a time of turmoil.

Many Brazilians are concerned that the end of Workers Party rule could bring back bad times for the poor, who have made great strides in the last decade.

“Has Dilma made mistakes? Of course. But the Workers Party has done so much for us, for the people,” said Benedito Polongo, a 63-yearold janitor outside a shiny Brasilia

business centre, who said he had no job or bank account before the party came to power. “I fear that those who come after her will erase all that has been done for the poor.”

Wild cards

Rousseff’s government made a lastditch effort to annul her impeachment but it was rejected by the Supreme Court on Wednesday.

An aide said Rousseff planned to dismiss most of her cabinet, save for the central bank president and the sports minister, who is in final preparations for the Olympics in Rio de Janeiro in August.

The move is meant to frustrate a smooth transition for Temer, whom Rousseff deems a traitor because of his efforts, as leader of the party that was her main ally in Congress, to unravel that coalition and force party colleagues to resign from government posts.

Tensions between pro- and anti-government demonstrators flared in some small demonstrations across Brazil, but the mood remained largely calm as most Workers Party supporters appeared resigned to her ouster.

Brazilian markets have for weeks rallied as investors welcomed the likely dismissal of a president they believe crippled the economy, were largely unchanged on Wednesday.

Wild cards remain for Temer himself, including still-pending investigations by an electoral court into

financing for his and Rousseff’s 2014 re-election campaign.

Then there is the far-reaching kickback probe around state-run oil company Petroleo Brasileiro SA, which has ensnared dozens of corporate and political chieftains and helped set the scene for the discontent that hobbled Rousseff.

Rousseff, energy minister and chief of staff to her predecessor before taking office in 2011, was chairwoman of Petrobras at the time when much of the graft occurred.

She has not been accused of corruption, but the scandal at Petrobras encouraged opposition lawmakers to oust her for disguising the size of the government’s budget deficit in the lead-up to her re-election.

Temer has not been accused of wrongdoing in the scandal either, but some of his allies and party colleagues have. Prosecutors say they are far from finished with the probe.

Though many lawmakers have expressed their desire to join forces and get on with a recovery upon Rousseff’s exit, dozens of parties are jockeying for power in the Temer government and angling to position themselves for new elections in 2018.

“Temer may have a honeymoon, but let’s not forget this was a shotgun wedding,” said Mauricio Santoro, a political scientist at the State University of Rio de Janeiro. “Reforms aren’t easy at the best of times and these are for sure not the easiest.” Reuters

A screen shows the result of the voting session on the impeachment of Rousseff in the Brazilian Senate in Brasilia yesterday.

Results

Rebooting biz

Stock markets

Taiwan PC maker Acer’s Q1 profit plummets

Sharp names Foxconn vice chairman as new president

SGX introduces update on long-suspended companies

Taiwan’s struggling personal computer maker Acer said yesterday its net profit fell 73 percent year-onyear in the first three months to March due to huge losses from foreign exchange. The company, once the world’s second largest PC maker, reported a net profit of T$46 million (US$1.43 million) in the first three months, compared with T$173 million in the same period last year, it said in a statement.

Consolidated revenue came in at T$56.32 billion, down from T$67.95 billion in the 2015 first quarter, it added, saying the figures reflected around T$900 million of losses in foreign exchange due to the appreciation of the Taiwan dollar. The company did not give further details for the decline in consolidated revenue.

Gross profit in the first quarter was T$6.67 billion while operating income rose 54 percent on-year to T$866 million, despite the decline in consolidated revenue, it said.

“The results reflect Acer’s effective product mix strategy according to regional market needs and inventory management,” the company statement said.

“Acer’s gross profit and operating income are better-than-expected which show that it’s doing fine with inventory control and product management,” said Arther Liao, an analyst at Fubon Securities. AFP

Japanese electronics maker Sharp Corp named a Foxconn vice chairman as its new president on Thursday, after reporting an annual loss that more than tripled due to slumping display prices and slower sales of client Apple Inc’s iPhones.

In its first results since agreeing a US$3.5 billion stake sale to Taiwan’s Foxconn in April, Sharp said operating loss ballooned to 162 billion yen (US$1.5 billion) in the financial year ended March from the previous year’s 48.1 billion yen.

The result was nevertheless better than the 170 billion yen Sharp forecast in March.

Net loss widened to 256 billion yen from 222.35 billion yen.

Sharp also said Tai Jeng-wu, vice chairman of Foxconn, formally known as Hon Hai Precision Industry Co, would become its president.

The 30-year Foxconn veteran, a close aid to Foxconn founder Terry Gou, will become the first outsider to lead the century-old Japanese company.

Tai is fluent in Japanese, played a key role in Foxconn’s negotiations with Sharp, and has extensive experience running Foxconn’s operations in Shenzhen, people at Foxconn told Reuters. Reuters

Singapore Exchange (SGX) is introducing a half-yearly report to update shareholders on companies with shares suspended for 12 months or more, SGX announced yesterday.

This is one of several initiatives that SGX is planning to improve regulations of listed companies continuing obligations as well as at the listings admission stage, said the bourse.

SGX’s Chief Regulatory Officer Tan Boon Gin said SGX has acknowledged there is room to improve, particularly at the time of admission, adding SGX needs to work with the industry to make sure the bourse admit the right companies.

As for companies post-listing, Tan noted as part of enhancements in SGX’s oversight, the report covers 20 companies and sheds light on their developments, particularly if they have made few, or even no disclosures in recent times.

In the report, SGX provides information on actions it has taken, and its engagement with the companies, directors, special auditors, judicial managers and/or liquidators.

SGX’s engagements with the companies were aimed at achieving a sharing trading resumption proposal, or extracting an exit offer for minority shareholders should a delisting occur. Xinhua