Macau Business Daily May 27, 2016

U.S. regulators are investigating Alibaba Group Holding Accountancy practices Page 9

Friday, May 27 2016 Year V Nr. 1052 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming

UMAC professor compares 1920s diversification attempts to current ones Pages 2

Smoking Ban

Studies show smoking bans have significant effect on traditional casino revenue Page 6

www.macaubusinessdaily.com

Workforce

Non-resident workers in construction field comprise 21.4 pct of total in April Page 2

Commercial paper

Chinese central bank could open an exchange market for corporate bills this year Page 8

Tourist Capacity Conundrum Tourism

The Director of IFT’s Tourism Research Centre believes the city’s tourist capacity will revolve around three factors.

Available service quality. Visitor experience. Residents’ tolerance of day-to-day living conditions. But sticking to an agreed plan is critical, he says. And posits the city could one day welcome 40-50 million visitors. Page 5

Driving the Delta Cross-boundary bus or truck drivers for the city and Hong Kong. Possibly in tandem with the completion of the HKZhuhai-Macau Bridge. The local gov’t is mulling amending the laws so that HK drivers can obtain bus and truck driving licences for the territory.

27° 30° 27° 30° 27° 31° 26° 31° 27° 31° Today

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Source: Bloomberg

Source: AccuWeather

Transportation Page 3

Drawing the purse strings

Retail The local drop in purchase of luxury retail goods is part of a worldwide phenomenon. With the sector posting just 1 pct growth in revenue for Q1. Experts look to the Mainland for a rebound. Predicting Hong Kong and Macau will ‘continue to struggle’. Page 4

Leaders visit shrine

G7 summit Leaders of the Group of Seven kicked off a summit in Japan yesterday. Japanese PM Shinzo Abe invited leaders to visit the Ise Grand Shrine to demonstrate what he calls the origin of Japanese culture. Page 10

HK Hang Seng Index May 26, 2016 Want Want China Holdings Tingyi Cayman Islands

+3.11% +2.95%

20,397.11 +29.06 (0.14%) China Mengniu Dairy Co Ltd

+2.71%

Belle International Holdings

-6.34%

CNOOC Ltd

+2.07%

China Resources Power

-1.66%

I SSN 2226-8294

2 Business Daily Friday, May 27 2016

Macau SME’s

Online subsidy for SMEs to include mobile apps

Small and Medium Enterprises (SMEs) who apply for the ‘Financial Support Plan for SME’s Websites’ will be able to use the awarded money to establish a mobile application (APP) for their business, according to the Macao Economic Services (DSE). The support plan, established in September 2014 by the MSAR Government, allows local SMEs to apply for financial help in establishing a website for their business, at a maximum cost of MOP14,000 (US$1750), with an additional subsidy to help cover up to 70 per cent of the maintenance costs in the first

three years of operation, capped at MOP6,000, according to information from the DSE. SMEs with an already established business website can apply for up to 70 per cent of website optimisation costs, capped at a maximum of MOP50,000. Now the DSE is allowing any subsidy candidates who haven’t claimed the financial support yet, or who haven’t seen its application approved, to choose the subsidy to be used for establishing and maintaining a business mobile application, in order to ‘attend the changes in the way the community receives information, by allowing more ways for SME’s to promote their businesses’. N.M.

Human resources Fewer construction workers vis-a-vis one year ago

Non-resident workers up 2.6 pct in April

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total of 181,363 non-resident labourers were working in the Special Administrative Region as at the end of April, up slightly by 2.6 per cent compared to the same month of last year, the latest data released by the Human Resources Office shows.

During the month, the total number of non-resident workers fell by 73 persons compared to 181,436 in March. Of the total, 21.4 per cent were working in the city’s construction field whilst 19 per cent were serving the local hospitality and F&B businesses.

The number of those working in the construction field, amounting to 43,854 as at the end of last month, represented a decline of 9.7 per cent compared to 48,551 workers in the field one year ago. On a month-onmonth comparison, however, the number increased by 146 persons from 43,708.

According to the Office, some 1,860 construction workers were directly hired by the city’s gaming operators.

Meanwhile, the number of those working in the fields of hospitality and F&B rose by 7.2 per cent year-onyear to 47,362 last month compared to 44,187 in the same month of 2015.

Nevertheless, compared to 47,441 workers in the field as at March-end, the number of foreign workers in these areas fell slightly by 79 persons.

Official data also shows that the number of domestic workers in the city grew by 7.8 per cent year-on-year

to 23,683 as at the end of last month, whilst labourers serving the local wholesale & retail business and the real-estate field reached 19,436 and 18,087, respectively.

In terms of region, the number of workers from Mainland China accounted for 64 per cent of the total, amounting to 116,707, remaining flat compared to 115,565 one year ago, and 116,356 one month ago.

A total of 24,963 and 14,630

non-resident labourers were noted as originating from the Philippines and Vietnam, accounting for 14 per cent and 8 per cent of the total, respectively.

In addition, foreign workers from long-haul origins remained flat at 1,175 as at the end of the month.

They were primarily from the United States, the United Kingdom, Australia and Canada, according to the data. K.L.

Business Daily Friday, May 27 2016 3

Macau Transport City considering law amendments for HK drivers to get local bus, truck licences

Developing Macau-HK cross-boundary drivers

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ross-boundary bus or truck drivers for the city and Hong Kong may appear along with the completion of the Hong Kong-Zhuhai-Macau Bridge as the local government is considering amending the city’s laws so that Hong Kong drivers can obtain bus and truck driving licences in the territory.

According to Hong Kong media reports, the HKSAR Transport and

Housing Bureau told the legislative body of Hong Kong on Tuesday that the Macau Government is studying the inclusion of law amendments so that Hong Kong drivers may apply for bus and truck driving licences in the city for an initially-planned cost of HK$1,040 (US$129.5) to HK$1,240.

Nevertheless, the policy would only be open to Hong Kong drivers who provide cross-boundary traffic

services between the two cities, which suggests that Hong Kong drivers would not be able to solely drive buses or trucks in the local territory as non-resident workers.

Upon an enquiry by Business Daily, the Transport Bureau (DSAT) did not confirm affirmatively whether it is studying the inclusion of law amendments for Hong Kong-Macau cross-border drivers.

However, the Bureau stated that ‘the study works on the cross-boundary traffic between Guangdong, Hong Kong and Macau are progressing, whilst that between Hong Kong and Macau is facing more complicated problems as it is an innovative

cross-border transport service.’

‘The two governments are now negotiating on all cross-boundary traffic projects and the needs of related supervision and regulations, prior to meeting the laws of the two cities,’ the Bureau added, claiming details on the new policies would be announced to the public when conditions mature.

Meanwhile, the Hong Kong transport authority said on Tuesday that they would strive to encourage the Macau Government to provide beneficial policies for their drivers, such as allocating a certain period of time for Hong Kong drivers to take their driving exams in the city. K.L.

The Hong Kong-Zhuhai-Macau bridge, currently under construction

Press

Customs

Press Law ready for Executive Council

Customs ink co-operation pacts

The proposed revision to the press law will be submitted for discussion by the Executive Council after June, reports Portuguese-language broadcaster TDM Radio. The information was shared with the broadcaster by the government’s information broadcast system (GCS).

The GCS noted that it will ‘proceed to the final observations’ and that it will ‘do all possible to guarantee’ the conclusion of the revision next month.

The law proposal has been analysed

twice by the Legal Affairs Bureau (DSAJ) over the past two years, in February of last year and last month, reports the broadcaster.

The press law entered into effect in 1990 to guarantee press freedom. ‘It’s a good law in its general principles: it guarantees the liberty of the press.

And these principles that guarantee press freedom should not be interfered with,’ notes the president of the Portuguese and English Press Association of Macau João Francisco Pinto.

Two agreements on anti-smuggling co-operation and tax-free Customs handling have been signed by Mainland China and Macau, according to Macau News. The agreements declare the SAR’s responsibility for fighting illegal goods smuggling in the 80-square kilometre sea territory granted by China last year, while simplifying procedures for tax-free exports, Macau News reported.

In a signing ceremony with the minister responsible for China’s

Customs, Yu Guangzhou, Macau Customs Service director Alex Vong said the two territories now ‘have a joint mechanism’ while ‘through co-operation and arrangement,’ there would be a more accurate mechanism for communication and co-operation, Macau News reported. The Macau authorities also stated that although the agreement was a key move in Macau’s development, they would also face added security challenges, according to Macau News.

Gaming

Book on Macau’s gaming history and law launched Gaming professor’s book reveals how the diversification of Macau’s economy has always been a historical issue University of Macau Professor Jorge Godinho launched the first book of a trilogy focused on the territory’s gaming law and history on Wednesday evening at the Rui Cunha Foundation.

Godinho, who worked for five years for the Monetary Authority of Macau and dedicated 20 years to researching Criminal Law, International Law and European Criminal Law, told Business Daily: “The first book deals in a more conceptual and broad area, discussing the gaming contracts” with a strong focus on the gaming history in the region in the 1920s and 1930s.

The second volume, which the author hopes to publish next year, addresses “the different segments of the gaming industry, games of chance, multiple bets, lottery, sport betting,” while the

third volume will focus on the “penal area and money laundering.”

A history of searching for diversification

The book, edited by the Rui Cunha Foundation, also addresses the history of gaming in the territory, as Godinho believes “it’s important to know the past so the same mistakes are not made again.

[Macau gaming history] is really diverse and has many turns, but there’s not a lot of research into it,” The UMAC professor describes how economic diversification was already on the cards for many years as the Portuguese authorities resisted for decades expanding the gaming industry, seeing gaming as a temporary business and believing Macau should wean itself off its

dependence upon the gaming industry economy.

“In the first half of the 20th Century, there were many attempts to add ‘Western games’ such as roulette, since for a long time only Fan-tan was allowed,” notes the expert. These requests were proposed by local governors

and refused by the Portuguese authorities. The professor draws a parallel between the current economic issues with the ones at the time, as the low profitability of Fan-tan made local businessman demand an expansion in the gaming industry, which Portuguese authorities attempted to restrict.

“There was always the hope that, even though

Photo courtesy of Rui Cunha Foundation

Macau depended a lot on its gaming revenue, that with the future development of the economy, industry, navigation, with the development of the exterior harbour, that dependence would be over. However, that objective was never reached, and in the 60’s, as we all know, the exploration of gaming was approved,” the professor told Business Daily.

4 Business Daily Friday, May 27 2016

Macau Opinion

Pedro Cortés Official languages The Financial Intelligence Office (GIF) is conducting a survey to receive comments from various professionals, including lawyers, on the ‘Report for the National Macao SAR Money Laundering and Terrorist Financing Risk Assessment Report’.

It is a great initiative that we should applaud. Despite the fact that I am, by principle, against the existence of bureaus imposed by foreign countries’ policies, the GIF has a great role in Macau and therefore one must take into consideration that Macau has a high risk of money laundering due to the fact that we have casinos, which are, by default, the privileged stage for such activities.

Up to this point, I am totally in agreement with the GIF. Where I am not in agreement is the fact that such a survey is in English and Chinese only, completely disregarding the existence of Portuguese as an official language in the Macau Special Administrative Region, pursuant to Article 9 of the Macau Basic Law and Decree-Law 101/99/M, of 13 December. English is, on the other hand, an official language in the Hong Kong SAR. The GIF is a public department. The survey not only serves the Chinese professionals but also the Portuguese professionals.

You may argue: well, such professionals must also speak English or, otherwise, they cannot do business in Macau. I completely disagree: it is not the fact that I can speak Spanish or French or even Thai that shall make the government, specifically, one of its bureaus, to make official documents in the language of Cervantes, Victor Hugo or Kulpa Saipradit (yes, googled the name of the famous Thai writer).

A bilingual system must be respected at all levels. It is an obligation of the government to cultivate the use of the two official languages. It has a cost. I completely agree, but it is such cost that makes Macau different from any other Chinese city or any other city in the world. The coexistence of the Chinese and the Portuguese languages is a genuine way of Macau being Macau, whatever that may be. Our common culture is something that should be preserved. In my activity, for instance, there are many concepts that even the Chinese natives use in Portuguese. In this context, I kindly urge the GIF and other departments to make their initiatives available in both languages. We will all win and feel at home - in my case, my first home; in others’ case, their second home.

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

Retail Global luxury downturn relies upon the Mainland for recovery

Bain & Company: Local luxury sector continues to suffer A report indicates that the global luxury market registered just one per cent growth in revenue for the first quarter, foretelling the trend for the year.

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lobal consulting firm Bain & Company predicts that the world’s luxury market will remain flat this year given the continuous impact of global challenges, noting that the city’s luxury sector will continue to suffer.

According to the Bain Luxury Study 2016 Spring Update, released earlier this week, the global personal luxury goods market reached 253 billion euros (MOP2,259 billion/US$282 billion) in revenue for the whole of 2015, an increase of one per cent yearon-year in real terms.

The firm explained that the flat performance is due to a slowdown in the U.S. holiday season, decreased tourism across Europe, instability in the Middle East and a downturn in China, forecasting that the trend would continue throughout this year.

‘The 2015 slowdown seeped into the first quarter of 2016 with only 1 per cent growth – a trend that is expected

to continue throughout the year,’ the firm wrote in a press release.

Macau to struggle

Nevertheless, the report says that the luxury sector in Greater China is showing signs of a rebound. ‘Particularly in Mainland China, which is on the verge of reversing a three-year decline,’ it noted.

But it added that the cases of Hong Kong and Macau would be different.

‘Hong Kong and, to a minor extent Macau, will continue to struggle,’ the press release states, claiming Taiwan, meanwhile, will hold steady in terms of its luxury sales.

And the firm’s expectation has been proven true.

According to official data released on Wednesday by the Statistics and Census Services (DSEC) the local retail sales value of watches, clocks and jewellery fell 18.3 per cent year-onyear to MOP3 billion for the first three months of the year, whilst the sales volume of such products plunged by 12.3 per cent year-on-year.

“The luxury market is stuck in a holding pattern for the foreseeable future,” said Claudia D’Arpizio, a Bain partner and lead author of the study. “All eyes are again on Mainland China, which is the key to unlocking recovery around the world,” she said.

The consulting firm anticipates the personal luxury goods market will continue measured growth of

between 2 and 3 per cent through 2020, generating estimated revenue of between 280 and 295 billion euros.

‘That outcome is heavily contingent upon continuous growth in Mainland China. Chinese shoppers – particularly the middle class – are expected to make up approximately 34 per cent of global luxury consumers in the next four years, well ahead of American and European consumers,’ the report reads.

Young generations the new catalysts

On the other hand, the Bain report indicated that younger generations would be the new catalysts for the world’s luxury sector for the coming four years.

‘Growing spending among Generation X shoppers, as a result of changing consumption habits, and the increasing growth of Generation Y, driven almost entirely by the Chinese middle class, will pump an estimated 50 million new consumers into the market,’ the firm anticipates.

“The luxury market will continue to receive a substantial boost from Generation Y and Generation X. Together with Generation Z, which will continue to make up just a sliver of luxury spending, these younger consumers will comprise three-quarters of the global luxury market by 2020,” the report’s co-author Federica Levato predicts. K.L.

Pachinko

Dynam Japan generates HK726 million profit in 2015 Gaming hall operator Dynam Japan Holdings Co. Limited saw a final profit for the 2015 year of HK726 million, a decrease of 6.7 per cent compared to the previous financial year, according to yesterday’s filing with the Hong Kong Stock Exchange. The group currently operates 442 halls, having opened five ‘high playing cost’ halls and nine ‘low playing cost’ halls throughout the year, while closing four low-playing cost halls in the same period. The group also acquired the Yume Corporation in the fiscal year, adding 39 halls to the group’s chain.

Gross pay-ins amounted to HK$58.15 billion for the year, an increase of 2.3 per cent year-onyear, with revenue amounting to HK$10.73 billion, a 0.9 per cent increase year-on-year.

The group plans to continue ‘crucial’ strategies in their management: ‘multiple hall development and low-cost operations focusing on

low playing cost games,’ notes their release, despite the ‘risk of decreased profitability at pachinko halls,’ even though the low cost games ‘increased visit frequency as well as development of a new customer base’. To implement the low-cost operations model the group is focusing on ‘economies of scale in purchasing gaming machines and general prizes,’ noting

that the group is in a ‘strong and advantageous position to develop the pachinko hall operation business’.

Fine points of the operations include the focus on ‘targeting small business areas with 30,000 to 50,00 residents [and] standardising installation number at 480 gaming machines [with] wood frame halls on land leased for 20 years,’ using second-hand gaming machines and establishing distribution centers,’as well as using ICT (information and communication technology) systems for ball count, pachislot token count and corporate functions.

Business Daily Friday, May 27 2016 5

Macau

Tourism

IFT researcher: 50 million visitors, as long as the city and its residents are ready for them The Director of IFT’s Tourism Research Centre considers that the city’s capacity for tourists will depend upon available service quality, visitor experience, and residents’ tolerance of day-to-day living conditions.

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he city will be able to handle the estimated increases in tourists predicted in the new tourist development plan - presented by the Macao Government Tourism Office (MGTO) - regardless of whether it stays above or below the 40 million mark by 2025, as long as Macau has a plan and adapts to it, according to Leonardo Dioko, Professor at the Institute for Tourism Studies (IFT) and Director of IFT’s Tourism Research Centre, speaking to Business Daily.

The tourism Master Plan presented by the MGTO estimates that total visitor arrivals could increase to a minimum of 33 million in a low visitor scenario with growth of 1 per cent per year, or it could go as high as 40 million in a modest visitor growth scenario with 5 per cent yearly growth.

According to Dioko, adapting to that increase will require meeting challenges such as “developing and managing the necessary land resources, infrastructure, human resources (both quantity and quality), and transportation systems, as well as visitor facilities to absorb such a number.”

Ready or not, here they come

Professor Dioko believes that the paramount factor is not whether Macau is ready for this quantity of visitors, but if Macau residents will be ready.

“This depends utmost upon

‘This depends utmost upon whether that future number of visitors will enhance, rather than degrade, residents’ quality of life.’

whether that future number of visitors will enhance, rather than degrade, residents’ quality of life. Just as important, Macau will need to develop innovative non-gaming visitor attractions as well as events or activities to ensure [that the] visitor experience and satisfaction remain high,” Dioko told Business Daily.

The annual Macao Tourism Carrying Capacity Study, released last year

by IFT, determined that the most appropriate number of visitors that the city should handle per year shouldn’t exceed 33.7 million. However, the IFT’s Tourism Research Centre director mentioned how in 2006 visitor arrivals to Macau totalled around 18.7 million, increasing to 30.7 million ten years later in 2015, without an extensively negative impact upon the city.

“Why hasn’t Macau imploded?

That’s because that rapid growth was accompanied by a commensurate massive development in Cotai, border crossing facilities, shuttle buses. To be fair, there were major hiccups - some of which still exist: Traffic congestion, overcrowding, deterioration in public transport systems, underinvestment in residential housing, delays in the light rail development, and many others. So, to be well ready for the next 10 years, we need to heed the lessons of the last 10,” Dioko stated.

Flexible capacity

adopting a tourism master plan would alter Macau’s tourism destination management from a reactive stance to one that is forward-looking, focused on long-term objectives, and “something that all of us can agree upon.”

“But let me be clear. Whether the plan foresees a 30 million a year or 40 million a year annual visitation, we should stick to the plan. If, 10 years from now, 50 million visitors want to

come, we should - according to the plan - de-market Macau. If somehow we fall far below what the master plan foresees, then we should upshift our tourism commensurately, in accordance with the plan. Once all, if not the majority, of the community agree to the plan (post consultatively), then it becomes incumbent upon all of us - industry, community, government agencies - to make it work. No more, no less,” Dioko told Business Daily.

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The researcher believes tourism capacity in Macau to be a “dynamic variable, not a fixed or static concept” that can be managed through three angles: allocating a certain amount of available resources in the form of tourism facilities, maintaining a high service quality and satisfactory visitor experience, as well as residents’ tolerance of day-to-day living conditions.

“If any of these three conditions change for the worse, Macau’s carrying capacity contracts significantly. If any of these three conditions change for the better, either in quantity or quality or both, we can take on more visitors, even if they already seem many,” Dioko told Business Daily.

Dioko believes that the government’s presented solutions - such as improving the capacity to explore waterfront resources - “make a lot of strategic sense, as they would likely decongest the often-crowded historic city centre,” while the use of applications that inform people of high concentrations of people would also be helpful in terms of safety and ensuring a satisfactory experience.

The professor believes that “finally” Y

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6 Business Daily Friday, May 27 2016

Macau Lottery

China’s lottery sales up 7 pct in April

Lottery sales rose to 34.89 billion yuan (US$5.32 billion) in April, up 7 per cent year on year, it was announced Thursday.

Welfare lottery sales decreased by 0.8 per cent to reach 17.95 billion yuan, while the sports lottery gained 16.6 per cent to 16.939 billion yuan, the Ministry of Finance (MOF) announced. From January to April, lottery

tickets worth 125.67 billion yuan were sold, a year-on-year decrease of 1.4 per cent. April’s lottery sales in south China’s Guangdong Province rose by 4.24 billion yuan from a year ago, while Hunan, Yunnan, Henan and Shaanxi provinces also posted large increases, according to the MOF. Under lottery management rules, money from ticket sales must cover administrative fees and public welfare projects as well as the jackpot. Xinhua

Casinos

Non-smoking kills profits Studies reveal smoking ban affects gaming-exclusive casinos more

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tudies show that smoking bans have a significant impact upon casino revenue, especially when dealing with traditional casinos - where gaming is the exclusive activity - than more entertainment-oriented Las Vegas-style casinos,

with the impact of a total ban only to be felt in one year’s time, studies argue.

A recent study by the Macau University of Science and Technology (MUST) has shown that the current smoking ban restrictions in Macau casinos have impacted gaming operators share

value, especially in ‘traditional casinos’ where ‘97 to 99 per cent of revenue’ comes from gaming, according to news agency Lusa.

A 2011 smoking ban in Macau required 50 per cent of a casino property’s total public area to be smoke-free, covering the gaming floor, lobby and restaurant areas, while in 2014 smoking areas were replaced by enclosed smoking zones with negative pressure systems and ventilation systems, as well as a ban in mass market areas, with some exceptions for VIP areas, according to the government smoking regulations. A total ban of smoking in casinos is currently under discussion by legislators in Macau, according to Lusa.

The MUST study claims that these measures greatly affect casinos with more ‘traditional buildings’ where the renovation of their ventilation systems can be complex and even lead to their closure.

The spaces held by Sociedade de Jogos de Macau (SJM) and Galaxy Macau built between 1987 and 1992 were stated as examples, since they possess weak ventilation systems and low ceilings, from a time when ‘the prohibition of smoking was inconceivable,’ Lusa reported. On the other hand, spaces like Sands China and Wynn Macau, established after 2004, already saw their

AL sub-committee supports smoking lounges in casinos

The majority of members of the second standing committee of the Legislative Assembly (AL) support the establishment of smoking lounges in local casinos, the chairman of the sub-committee, Chan Chak Mo, told reporters yesterday after the committee’s closed-door meeting on the fullsmoking ban bill.

According to Mr. Chan, only two members of the committee hope for the implementation of a full smoking ban in the city’s infrastructure built following standards on smoke restrictions from the United States.

According to the researchers, before the restrictions ‘between 80 and 90 per cent of male gamblers identified as active smokers’, with the ban affecting their normal gambling patterns, such as giving them time to reevaluate their bets after interrupting their gambling in order to go to a smoking area, the study revealed.

Money up in smoke

Total smoking restrictions were also proven to have a deep impact upon casino revenue in just one year, a study on revenue performance of casinos after a smoking ban in the state of Illinois in the United States showed. The

gaming venues whilst the other seven legislators agree with the setting up of smoking lounges if smoke can be ensured not to spread.

Currently, smoking is prohibited on the mass gaming floors of local casinos, and is only permitted in smoking lounges and VIP rooms.

The full smoking ban bill, which passed its first reading in the AL in July this year, proposes to cancel the establishment of smoking lounges, in addition to prohibiting smoking in the indoor area of gaming venues. study performed in 2009 by the research division of the Federal Bank of St. Louis (located in the neighbouring state of Missouri) considered the effect of the smoking ban on both revenue and attendance, while comparing the performance of casinos with smoking bans with out of state casinos without bans.

Its results indicated that ‘Illinois casinos suffered losses of more than 20 per cent, well over US$400 million (MOP3.19 billion) in total’ during the first year of a statewide public space smoking ban. Public attendance also registered a downturn in attendance of between 9 to 13 per cent, with a decrease of US$200 million in tax revenue for the state of Illinois, the study demonstrated.

Gaming

Cutting costs Analysts believe Wynn will have the best labour cost reduction scenarios after Wynn Palace opening Incremental labour costs from Cotai projects will affect Wynn Macau, Las Vegas Sands (LVS) and MGM Resorts (MGM), according to a report by Deutsche Bank. Based on a projected 2017 scenario of combined Macau property EBITDA of US$1.1 billion (MOP8.79 billion), all Macau operations are seen as unable to adjust to the changing ‘Macau climate given the future hiring needs’, with ‘further cost mitigation efforts’, with Wynn considered to be the most flexible in terms of cost cutting.

A win Wynn scenario

Wynn is described as having the most favourable scenario, by being able to alleviate pressure from costs by shifting US$100 million of labour costs - 25 per cent of 2015 staff costs to its Cotai Wynn Palace project. This will allow for a ‘greater overall cost base escalation’ after the opening,

bringing Wynn’s Peninsula staff costs closer to US$300 million, the analyst firm stated.

‘Aggregate cost cuts, outside of the expense reductions stemming from lower gaming taxes and junket commissions, were limited in 2015 at Wynn’s Peninsula property,’ while non-gaming related expenses grew 7 per cent year-on-year and gross gaming revenue declined 38 per cent, notes the report.

The analysts stated Wynn cut almost 2 per cent of its US$576 million aggregated non-gaming related operating expenses, via a 28 per cent cut in advertising and promotions. Nevertheless, Deutsche Bank estimates

Wynn’s aggregate non-gaming related costs will rise by almost 50 per cent in 2017, the first full year after the Wynn Palace opening.

LVS versus competition

Las Vegas Sands was considered the most ‘aggressive’ operator when it comes to its cost cutting and expense reduction strategy, showing annualised expense savings of US$250 million and announcing an additional US$60 million of annualised cuts to come in 2016. However, the planned opening of the Parisian project in October 2016 will cause LVS to experience the ‘most difficult time’ of the operators covered in the report.

‘LVS intends to shift about US$140 million of annual labour expenses to the Parisian upon opening, which equates to roughly 13 per cent of 2015 staff costs. Combined with the US$60 million of further expense reductions, LVS believes it can extract US$200 million of costs on an annualised run rate basis as it exits 2016,’ the analyst group stated in the report.

However, Deutsche Bank estimates that LVS will see non-gaming related expense growth of around 12 per cent in 2017, while the competing Cotai properties opening in the same period as the Parisian will make it hard for LVS to balance ‘its cost containment efforts, most notably around advertising and promotions, without risking share losses.’

MGM faces bad debt

According to Deutsche Bank, MGM has been aggressively targeting advertising and promotional costs with 2015 segment expenses down US$34 million or 34 per cent year-on- year, but this was offset by an ‘US$11 million increase in bad debt provisions.’

The new MGM Cotai project is estimated to ‘reduce Peninsula staff costs by US$25 million, or 10 per cent of the 2015 total for the property,’ but non-gaming related costs are believed to increase by 95 per cent in 2017, compared to 2016.

Business Daily Friday, May 27 2016 7

Macau Investment

Chinese investors commit MOP 87 billion to buy Novo Banco

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he Portuguese public was taken by surprise midway through the month by the promise of an investment amounting to MOP87 billion in Portuguese assets.

The stated promise was made by the chairman of China’s Shanshan Group - Zheng Yonggang - while in Lisbon representing Shanghai’s Association of New Entrepreneurs.

The businessman mentioned the possibility of investments of up to 10 billion euros (MOP 87 billion) in several sectors of activity including professional football and real estate, antiques, tourism, advanced technology and financial sectors.

But – Business Daily learned from other Chinese sources – this encompasses a form of pressure and encouragement to buy Novo Banco, created in 2014 to take over the ongoing commercial business of Banco Espírito Santo (BES), that went bankrupt after announcing massive losses.

“Novo Banco will be bought by a Chinese investor,” said Zheng Yonggang during his meeting with journalists in Lisbon, quoted by Portuguese news agency Lusa. Shanghai’s Association of New Entrepreneurs counts among its members Guo Guangchang, the chairman of Fosun - which participated in the first attempted sale of Novo Banco that was blocked by the Bank of Portugal in September. “Guo Guangchang is one of the members of our association and is already involved in this deal”, Zheng said. “I

know they have [not] yet dropped this project,” he stated; information that Fosun didn’t confirm.

The Shanshan Group leader also confided that he owns a “big insurance company that is also interested” in buying Novo Banco, but noted the lack of “competition of some against others” in this deal. “We can join forces for the same project,” he added.

Nobody knows how much Novo Banco will cost, but it is public knowledge that price will be a key factor.

Zheng Yonggang made it clear that

money is not a problem, witness intentions to buy the bank and invest in other Portuguese assets. Which?

Zheng doesn’t yet know but it could be anything - from professional football and real estate, to antiques, tourism, high technology and, of course, finance.

Football?

The Shanshan Group leader revealed that he had been in contact with the president and the chief executive of Sport Lisboa e Benfica, Luís Filipe Vieira and Rui Costa, respectively.

“Football is a good asset to invest in, but there’s no master plan,” said Zheng also in his meeting with journalists in Lisbon.

Shanghai’s Association of New Entrepreneurs met in the same week with Portuguese Prime Minister Antonio Costa, and Zheng Yonggang confided that the meeting discussed the investment deal. The “support” of the Portuguese government and people is one factor in the Chinese investment in Portugal, recognised the leader of Shanghai’s Association of New Entrepreneurs. João Paulo Meneses

8 Business Daily Friday, May 27 2016

Greater China

People’s Bank of China headquarters in Beijing

Mainland markets

Central bank plans commercial paper exchange The central bank has already held several meetings over the issue with commercial banks

T

he People’s Bank of China is discussing with banks the creation of a central exchange for commercial paper, the 21st Century Business Herald reported yesterday, citing multiple anonymous industry sources.

The central bank began researching the possibility of an exchange as early as last year, the paper said, but as concerns over management of the market have mounted this year the urgency of the project has increased.

Commercial paper, sometimes known as corporate bills in China, refers to short-term obligations with

maturities typically up to 270 days and sold by banks, corporations and other borrowers to investors with temporarily idle cash.

In April, sources told Reuters that the central bank is introducing new rules to the country’s corporate bills market requiring banks to shift to electronic forms of issuance. The upgrade comes after recent reports of bill fraud at Agricultural Bank of China Ltd., which domestic media allege originated as a scam by two of the bank’s employees.

The central bank has already held several meetings over the issue with commercial banks, the 21st Century

Business Herald reported, adding that around 10 banks attended the most recent meeting on May 10.

The exchange could be launched as soon as end-2016, the paper cited its sources as saying.

Various forms of short term debt have been at the centre of several high profile bond defaults in China this year.

In late March Dongbei Special Steel Group Co Ltd defaulted on a short term bond, which was a major contributing factor to the bond sell-off in April. More

‘The exchange could be launched as soon as end-2016’

Shadow banking

Equities evolution

Online lending crackdown shutters Guangdong P2P site China’s government approved a plan including rules to limit the activities of P2P lending firms A large Chinese online lending platform accused of illegal operations has suspended operations, one of hundreds that have been shut this year by the government, as China cleans up a sector ridden with stories of Ponzi schemes.

Police in Huizhou, Guangdong province, said on Wednesday night that it had detained 13 executives from Guangdong Huirong Investment Co’s peer-topeer lending platform Esudai (www.esudai.com). The detainees included its legal representative and chairman Jian Huixing.

China’s government approved a plan, following a mid-April meeting, to clean up the country’s online

recently Evergreen Holding Group defaulted on a separate short-term issue in mid May. Until the sell-off in April, driven by fears of eroding government support for bail-outs of state-owned enterprises like Dongbei Special Steel, Chinese corporate bond issuance had growing briskly. Net issuance in the first quarter reached a record 1.3 trillion yuan (US$198.30 billion).

Issuance in the past two months, however, has been far more subdued as investors have moved out of the bond market. Chinese firms scrapped or delayed at least US$15 billion of new bond issuance in April according to Reuters calculations.

The central bank, when contacted

by Reuters, had no immediate comment. Reuters

financial sector, according to people with direct knowledge of the matter, including rules to limit the activities of P2P lending firms.

The plan outlines stricter rules for peer-to-peer (P2P) platforms, where lending quadrupled last year to 440 billion yuan (US$67 billion), according to Citigroup research, forbidding them from holding clients’ capital in-house.

Esudai, which roughly translates to “quick loans”, is accused by the local police of illegally collecting deposits, while executives are accused of taking hundreds of millions of yuan in investor money for their own use.

Esudai has raised over 7 billion yuan from 330,000

investors since it was founded in 2010, according to its website.

Huizhou government officials visited Esudai’s offices on May 20 for inspections, the company said on its website, adding that it is cooperating in the investigation and has operated legally and transparently for six years.

It said customer deposits and withdrawals have been suspended.

The Esudai website was accessible yesterday

“Good platforms welcome government regulation for a simple reason: without good rules, bad players push out good players” Wang Zhijian, CEO of FuYin, a Shanghaibased P2P platform

morning, but Reuters was unable to reach the company by phone.

A top executive at a Shanghai investment firm, Zhongjin Capital Management, or Wealthroll, last week confessed on state television to operating a Ponzi scheme.

Police accused Zhongjin last month of “illegal fundraising” - a loosely defined term applied to irregular behaviour in China’s energetic but opaque shadow-banking sector.

Some people in the industry say the heightened scrutiny will eventually weed out bad players, giving the stronger companies opportunity for growth.

“Good platforms welcome government regulation for a simple reason: without good rules, bad players push out good players,” Wang Zhijian, CEO of FuYin, a Shanghai-based P2P platform, said at a financial forum last week, adding a lack of regulation forced all platforms into unfair competition.

A customer of Dianrong. com, one of China’s most high profile P2P players that has raised over US$200 million from investors including Standard chartered Private Equity and Tiger Global, said the recent crackdown and scandals do not deter him from putting money into the site.

“The government does not want to kill the sector,” he said. Reuters

One year after bubble b The Shanghai Composite peaked on June 12 after a logic-defying rally that added US$6.7 trillion to the value of Chinese stocks Kana Nishizawa

It’s been almost 12 months since China’s equity market embarked on a precipitous decline that would erase US$5 trillion of value, and the nation’s stocks have rarely been this subdued.

For the past two weeks, the Shanghai Composite Index hasn’t strayed more than 51 points from the 2,800 level.

Volatility on the gauge is the lowest since December 2014, while turnover has crumbled to levels more than 80 percent below last year’s peak. Margin debt, which fuelled 2015’s bull market, has dropped by more than 1.4 trillion yuan (US$213 billion) on China’s equity exchanges as investor interest dwindled.

The muted trading masks convulsions in the nation’s financial markets as an economic slowdown deepens and the authorities step up measures to prevent capital outflows. Rising corporate defaults are prompting concern over the size of China’s debt burden, commodity prices are plunging as another speculative mania ends, while the yuan is heading for its steepest losses this year.

While state support for the stock market is limiting declines in the benchmark gauge, RS Investment Management says expensive valuations mean there’s little incentive to chase gains.

Business Daily Friday, May 27 2016 9

Greater China Investigation

In Brief

U.S. SEC probes Alibaba accounting methods The SEC focused on the accounting for logistics firm Cainiao Network, which is around 47 percent-owned by Alibaba U.S. regulators are investigating Alibaba Group Holding Ltd’s accounting practices to determine whether they violated federal laws, the Chinese e-commerce giant said.

Alibaba said the Securities and Exchange Commission launched the investigation earlier this year. Questions about its growth rate and its relations with affiliated companies have dogged the firm for years.

The latest investigation highlights how far Alibaba has to go to improve transparency, as it also fights sales of fake items, while a continuing acquisition spree creates uncertainty over its earnings.

It was not immediately clear what prompted the SEC investigation. Alibaba said that it was cooperating with the authorities, and that the SEC advised it

the investigation should not be seen as an indication the company had violated federal securities laws.

The SEC focused on the accounting for logistics firm Cainiao Network, which is around 47 percent-owned by Alibaba, accounting practices applicable to related-party transactions in general, and operating data from its annual “Singles’ Day” sale, according to Alibaba’s annual report filed on Tuesday.

Some merchants in China have questioned whether results from the November 11 Singles’ Day promotion, which have exceeded the combined sales of the Black Friday and Cyber Monday shopping events in the United States, are as high as reported by Alibaba. Last year it reported about US$14 billion in transactions on Singles’ Day, when shoppers are encouraged to treat themselves to special deals.

Cainiao, started jointly in 2013 by Alibaba, Yintai Holdings, Fosun Group, Forchn Holdings and five major delivery companies, has in the past been unconsolidated in Alibaba’s financial statements, raising questions among some investors and analysts.

Alibaba said its latest annual report disclosed for the first time Cainiao’s

Securities and Exchange Commission headquarters

revenue, net loss, assets and liabilities.

Alibaba spokesman Robert Christie said those figures are “exactly the kind of robust and transparent information that will address the underlying issues in SEC’s inquiry”.

There are no other undisclosed SEC inquiries, Christie said.

Upgrading logistics

Through Cainiao, Alibaba is trying to take a lead role in developing China’s fragmented package delivery industry, as e-commerce spreads beyond urban hubs and requires a more robust logistics network.

In partnership with delivery businesses, Cainiao crunches reams of data on everything from order trends to delivery routes and weather patterns to increase efficiency.

Last March, Cainiao completed its first funding round, raising around 10 billion yuan (US$1.53 billion). Investors included Singapore’s Temasek Holdings and GIC Pte Ltd, Malaysia’s Khazanah Nasional Bhd, and China’s Primavera Capital.

Noted short-seller Jim Chanos of Kynikos Associates, who has been betting on a huge decline in Alibaba shares, last year called Alibaba’s delivery and warehousing infrastructure “a risk”, according to a report he sent out at a conference last November which was seen by Reuters.

Alibaba “appears to control Cainiao via 48 percent stake and consolidates the results via equity method”, Kynikos said. “Cainiao’s business is capitally intensive. It is unclear how much of this capital will be spent by Alibaba versus the delivery partners.”

Hedge-fund manager John Hempton of Bronte Capital, who has been shorting shares in Alibaba, said the company’s accounting for acquisitions was, “The next shoe to drop”.

Up to Tuesday’s close, Alibaba’s stock had fallen 12.3 pct in the last 12 months.

Reuters

burst, national stock market has gone quiet “You still have an artificially high P/E multiple and that needs to come down as the A-share market adjusts to fundamentals,” said Tony Chu, a Hong Kong-based money manager at RS Investment Management, which oversees about US$17 billion. “Pain is likely going to continue.”

Since May 9, the Shanghai Composite has closed between 2,850.86 and 2,806.91, with the average daily move being 0.4 percent. That compares with January, when swings of more than 3 percent were common, or the 5 percent moves that were a regular feature of July’s turmoil. A gauge of 30-day volatility has fallen to 17, after peaking at 65 last year, and below the level of Japan’s Topix index.

The drop in turnover has been even more dramatic. The value of shares traded on the Shanghai exchange fell to 118 billion yuan on Wednesday, the lowest level for a full day since October 2014, and down from a record 1.3 trillion yuan in June.

“It’s rather unusual for A shares to be rangebound,” said Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong. “Usually it’s like a pendulum.”

The Shanghai Composite peaked on June 12 after a logic-defying rally that added US$6.7 trillion to the value of Chinese stocks in just 12 months, or

“Pain is likely going to continue” Tony Chu, a Hong Kong-based money manager at RS Investment Management

more than the size of Japan’s entire equity market. While the index has since tumbled 45 percent, and is the world’s worst-performing benchmark measure this year, its price-to-earnings ratio is still higher than a gauge of emerging market peers.

Money that once surged into the stock market found other outlets. Daily turnover on the nation’s commodities futures markets jumped by the equivalent of US$183 billion in just two months before prices of iron ore to cotton started to reverse in May. Signs of economic stress are growing. At least 10 issuers have reneged on onshore debt obligations this year, spurring renewed concerns about corporate defaults. The central bank on Wednesday weakened its yuan fixing to the lowest in five years as a stronger dollar threatened to end the stability that’s prevailed in the

country’s currency market for much of the year.

The Shanghai Composite has flatlined since May 9, when the gauge tumbled 2.8 percent after a front-page article in the People’s Daily warning about the nation’s high levels of debt damped hopes for more monetary easing. Intraday declines below 2,800 have been erased by the close of trading, leading to speculation government funds were shoring up the market at that level before MSCI Inc.’s decision next month on whether to include the country’s shares in benchmark indexes.

The Shanghai Composite closed 0.3 percent higher at 2,822.44 on Thursday after falling as much as 1.2 percent to 2,780.76.

“It’s going to be in this range for a bit longer,” said Pauline Dan, head of Greater China equities at Pictet Asset Management Ltd. in Hong Kong.

“There is really no catalyst for it to go up.” Bloomberg News

Graft probe

Finance ministry misspent 332,000 yuan in Q1 China’s top graft-buster agency recovered 332,000 yuan (US$50,624) in misspent funds from the finance ministry in the first quarter of this year, according to a statement on its website yesterday. Several party members were disciplined for accepting inappropriate financial and other gifts while one former company head was found to have taking advantage of his position, the Central Commision for Discipline Inspection (CCDI) also said in the statement.

Markets

Regulator mulls expanding banks’ access to futures China is considering whether to expand commercial banks’ participation in the country’s futures trading market, the stock market regulator said at a forum in Shanghai on Wednesday.

Commercial banks could be permitted to trade future contracts other than gold and silver, such as energy and agriculture products, in the future as authorities hope to encourage participation by institutional investors. Their participation could help improve the pricing of commodities in China’s futures market, according to Fang Xinghai, vice chairman of China Securities Regulatory Commission.

Expansion

ZTE plans to open 23 flagship stores ZTE Corp., China’s second-largest maker of networking gear, plans to open 23 flagship stores by the end of this year to drive sales of its smartphones and consumer devices. About 20 outlets will be created in major Chinese cities while the company plans one each on Germany, Russia and Mexico, said Adam Zeng, chief executive officer of ZTE’s mobile devices business. ZTE is taking a leaf out of the strategy of Apple Inc., which uses its iconic stores in prime locations around the world to drive sales of iPhones, iPads and Macbook computers.

Defence

Regional security mechanism needs Beijing ASEAN and its partners should strengthen the cooperation mechanism on defence, whose effectiveness needs the support and assistance of China, Vietnamese Defence Minister (DM) Ngo Xuan Lich has said. Lich made the statement on Wednesday when he attended the 6th ASEAN-China DM informal meeting held in the Lao capital, which followed the 10th ASEAN DM meeting.

The meeting provided a platform for ASEAN and local strategic partner to exchange views on matters commonly concerned in defence and military areas, establish and maintain the political mutual trust between ASEAN and China, and strengthen the cooperation and coordination between ASEAN and China, he said.

10 Business Daily Friday, May 27 2016

Asia

Italian Prime Minister Matteo Renzi, President of the European Commission Jean Claude Juncker, French President Francois Hollande, Canadian Prime Minister Justin Trudeau, German Chancellor Angela Merkel, US President Barack Obama, Japanese Prime Minister Shinzo Abe, European Council President Donald Tusk and Britain’s Prime Minister David Cameron visit the Ise Grand Shrine in Ise, Mie prefecture, Japan, 26 May 2016 G7 meeting

Japan’s Abe takes leaders to shrine as economy tops agenda With Britain and Germany resisting calls for fiscal stimulus, Abe will urge the G7 leaders to adopt a flexible fiscal policy Matt Spetalnick and Minami Funakoshi

J

apanese Prime Minster Shinzo Abe escorted Group of Seven (G7) leaders to the Shinto religion’s holiest site yesterday before a summit covering topics from risks to the global economy to refugees and China’s maritime assertiveness.

Abe greeted U.S. President Barack Obama and other G7 partners oneby-one at Ise Grand Shrine in central Japan, dedicated to sun goddess Amaterasu Omikami, mythical ancestress of the emperor.

Led by a white-robed priest, each leader walked across a bridge, took part in a tree-planting ritual, strolled through the expansive grounds and posed for a group photo.

Abe has said he hopes the shrine

visit will provide an insight to the heart of Japanese culture. Critics say he’s catering to a conservative base that wants to put religion back in politics and revive traditional values Concerns about the health of the global economy and Europe’s refugee crisis are among the top issues on the G7 agenda.

European Council President Donald Tusk said yesterday he would seek G7 support for more global aid for refugees.

“If we (G7) do not take the lead in managing this crisis, nobody would,” Tusk told reporters. A flow of migrants from Syria and elsewhere to Europe has confronted the continent with its biggest refugee crisis since World War Two. Other summit topics include terrorism, cyber security and maritime security, including China’s increasing assertiveness in the East and South China Seas, where Beijing has territorial disputes with Japan and several Southeast Asian nations.

Leaders will refer to maritime security in statements issued after the summit ends on Friday, including a call for respect for the rule of law and opposition to provocative acts

that try to change the status quo by force, Japanese media said.

China’s state-run Xinhua news agency told the G7 to keep out of its affairs.

“The G7, in order not to become obsolete and even negatively affect global peace and stability, should mind its own business rather than pointing fingers at others and fuelling conflicts,” it said.

Although full agreement on macro-economic policy looks hard to come by, the G7 leaders are expected to promote monetary, fiscal and structural policies to spur growth in their communiqué when the summit ends.

With Britain and Germany resisting calls for fiscal stimulus, Abe will urge

Key Points Concerns about global economy, refugee crisis top agenda G7 leaders also to discuss Chinese assertiveness at sea China tells G7 to mind its own business

the G7 leaders to adopt a flexible fiscal policy, taking into account each country’s own situation.

Abe hopes, some political insiders say, to use a G7 statement on the global economy as cover for a domestic fiscal package including the possible delay of a rise in the nation’s sales tax to 10 percent from 8 percent planned for next April The G7 leaders are also expected to reaffirm their previous commitment to stability in the foreign exchange market.

On Wednesday night, Abe met Obama for talks dominated by the arrest of a U.S. military base worker in connection with the killing of a young woman on Japan’s southern Okinawa island, reluctant host to the bulk of the U.S. military in Japan.

The attack has marred Obama’s hopes of keeping his Japan trip strictly focused on his visit on Friday to Hiroshima, site of the world’s first atomic bombing, to highlight reconciliation between the two former World War Two foes and his nuclear anti-proliferation agenda.

The G7 groups Britain, Canada, France, Germany, Italy, Japan and the United States. Reuters

Budget presentation

New Zealand sees surpluses as economy resilient Nation’s economy has taken a hit in recent quarters from a sharp drop in dairy exports Rebecca Howard and Charlotte Greenfield

The New Zealand government yesterday said its finances are looking strong, predicting budget surpluses over the next four years as robust migration, construction activity and tourism support an economy facing heightened external risks.

Finance Minister Bill English said the government expects to post a NZ$668 million surplus in the year to June 2016, a sharp turn from a deficit of NZ$401 million forecast in the December half-year economic and fiscal update.

“The pace of growth picked up in the second half of 2015 and was stronger than anticipated,” English said during the annual budget presentation. The result is upward revisions to both tax revenue and the operating surplus before gains and losses.

“These gains are sustained across the forecast period by on-going strength in net

“The pace of growth picked up in the second half of 2015 and was stronger than anticipated” Bill English, New Zealand’s Finance Minister

migration inflows, construction activity and spending by visitors,” he said.

The government is now forecasting a NZ$719 million surplus in the year to June 2017, versus a prior forecast of NZ$356 million. It is also more optimistic about future surpluses.

New Zealand’s economy has taken a hit in recent quarters from a sharp drop in dairy exports - its mainstay foreign exchange earner - and a slowdown in its key trading partner China.

However, English said the underlying momentum is expected to see annual average gross domestic product growth accelerate from 2.6 percent in June 2016 to 2.9 percent in June 2017. It will then increase to 3.2 percent in the June 2018 year.

He underscored, however, there are “key risks” to the economy, including a sharp downturn in China, persistently low global inflation, a possible British exit from the European union and geopolitical risks.

Domestically, Treasury said weak inflation is a risk

Bill English, New Zealand’s Finance Minister

to the economy. However, “monetary policy is expected to remain accommodative,” with one further 25 basis point interest rate reduction expected in 2016. Interest rates are currently at record low 2.25 percent.

The New Zealand budget was a stark contract to Australia where the budget deficit is estimated at A$37.1 billion, or 2.2 percent of the country’s gross domestic

product (GDP) in 2016/17. In Australian the aim is to balance the books by 2020/21.

The budget brings forward some spending previously earmarked for the following year’s budget.

New spending over the next four years includes a NZ$411 million investment in science and technology for grants and research and NZ$2.1 billion for public infrastructure. Reuters

Business Daily Friday, May 27 2016 11

Asia Investment

In Brief

Australia’s private spending drags down growth Mining investment suffered a 12.0 percent drop as the boost from a once-in-alifetime mining boom continued to unwind Ian Chua

Australian business investment fell last quarter, severely dragged by the battered mining sector, but a modest upgrade to overall spending plans helped take the sting out of a disappointing report.

Figures from the Australian Bureau of Statistics yesterday showed total private new investment fell 5.2 percent in the first quarter to an inflation-adjusted A$30.6 billion (US$22.0 billion), although analysts had forecast a smaller 3.0 percent drop.

“Overall, these figures support our view that investment is going to remain the weak spot of the Australian economy for some time yet,” said Paul Dales,

Australia & New Zealand economist at Capital Economics.

Mining investment suffered a 12.0 percent drop as the boost from a oncein-a-lifetime mining boom continued to unwind. Manufacturing fared no better, falling 10.3 percent.

Promisingly, investment by “other selected industries” including services rose 1.8 percent.

A n a l y sts w e r e a l s o pleased to see a slight upgrade to overall spending plans for the year ending June 2017 to A$89.2 billion, from A$84.0 billion initially, thanks again to the “other selected industries” category.

“The emergence of a sustained upswing in

investment by the service sectors is a key element in the economy’s successful transition from growth led by mining investment to strength across the broader economy,” said Andrew Hanlan, senior economist at Westpac.

“Investment intentions of the service sectors will

Key Points Private new capital expenditure falls more than expected in Q1 Spending by miners and manufacturers drop sharply Investment plans for next fiscal year upgraded, offers hope

be of particular interest to policymakers, including the RBA.” While the survey does not cover a large chunk of the services sector, such as education and healthcare, it does provide a general guide to business spending plans.

A decade of madcap expansion saw mining investment quadruple to reach 8 percent of Australia’s A$1.6 trillion annual gross domestic product (GDP). Now, it’s heading rapidly back to around 3 percent.

GDP figures due next week are generally expected to show the economy grew a modest 0.6 percent last quarter, the same pace as the fourth quarter. Reuters

B

angladesh police are reviewing a nearly forgotten 2013 cyber heist at the nation’s largest commercial bank for connections to February’s US$81 million heist at the country’s central bank, a senior law enforcement official said on Wednesday.

The unsolved theft of US$250,000 at Sonali Bank involved fraudulent transfer requests sent over the SWIFT international payments network.

It is not widely known outside of Bangladesh, and in fact was treated as a cold case until Bangladesh police revived the investigation after thieves in February also used the SWIFT network to steal US$81 million from Bangladesh Bank.

Sonali Bank said it had informed SWIFT about the 2013 heist at the time and also unsuccessfully tried to recover the money from the recipients in Turkey, said one bank source.

Thieves in the 2013 robbery used tactics similar to those used by the yet-to-be-identified criminals in the Bangladesh Bank heist-using the SWIFT money-transfer system to divert bank funds, said a senior bank official. Authorities are now reviewing the case to see if there are any links that can help them track down the criminals behind the Bangladesh Bank heist.

At Sonali Bank, hackers installed key-logger software on a computer to gain passwords to other systems, then sent fraudulent transfer requests over SWIFT, said the senior bank official who is part of its IT operations.

South Korean consumer sentiment fell to a threemonth low in May, a central bank survey showed, casting a cloud on prospects for improvement in Asia’s fourth-largest economy. The composite consumer sentiment index (CCSI) fell to 99 in May from 101 in April, the Bank of Korea said. It was the lowest reading since February this year. A reading below 100 indicates consumers who expect economic and living conditions to deteriorate in the coming month outnumber those who see them improving. The survey results contradicted recent policymakers’ comments that sentiment has been broadly picking up in South Korea, aiding the recovery.

Thai economy can withstand global volatility

Bangladesh probes 2013 hack for links to central bank heist

Krishna N. Das and Ruma Paul

South Korea consumer sentiment dips

Central bank

SWIFT theft

Thieves in the 2013 robbery used tactics similar to those used by the yet-to-be-identified criminals in the recent case

Survey

Police arrested two employees who had responsibility for initiating and approving money transfer instructions, but they were later freed without being charged.

Sonali Bank Managing Director Pradip Kumar Dutta told Reuters that the attackers remain at large and no money has been recovered.

“We could not find out what happened,” the official said.

The Sonali Bank cyber heist is the fourth documented case involving fraudulent SWIFT messages and the earliest known case to surface. It is not known whether any of the robberies, including the two attacks on Bangladesh banks, are related.

The two other cases that have come to light are a US$12 million theft from Banco del Austro in Ecuador

‘Thieves in the 2013 robbery used tactics similar to those used by the yetto-be-identified criminals in the Bangladesh Bank heist’

in January and an attack on Vietnam’s Tien Phong Bank in December that was not successful.

The Sonali Bank theft was reported

by Bangladesh media at the time, but has faded from public memory.

Police said they only recently became aware of similarities with the central bank heist.

“This is an interesting issue that we’ve come to know,” said the senior police official, who declined to be identified further. “We’ll have to look into it.”

News of these attacks has tested faith in the security of SWIFT, a key conduit for global financial transactions that is used by more than 11,000 banks and other institutions.

Regulators and banks have already implemented reviews of SWIFT security measures to determine whether other banks could be vulnerable to similar attacks.

SWIFT spokeswoman Natasha de Teran declined to comment on the Sonali case.

“We are actively looking into other possible instances of such fraud, but we will not comment on individual entities,” she said.

Bangladesh’s Anti Corruption Commission, which investigated the Sonali case, did not have an immediate comment. Reuters

Thailand’s central bank chief said yesterday the economy was strong enough to withstand global economic volatility and he saw no change in the export outlook despite a slump in April shipments.

The weakness seen in exports in April should be temporary, Bank of Thailand Governor Veerathai Santiprabhob told reporters on the sidelines of an investment forum. Exports, worth about two-thirds of Thailand’s economic output, in April shrank 8 percent from a year earlier in dollar terms.

But the fall was just 1.55 percent in baht terms.

Investment

Myanmar to push lessdeveloped regions The nation will reduce tax on foreign investors in a bid to woo them to invest in less-developed regions, an official report said yesterday. “Less developed regions in Myanmar could see an increase in investment if tax were to be reduced to make such business ventures more attractive,” the Department of Investment and Companies was quoted as saying. The measure will be included in the new foreign investment law which is currently being drawn up, the department revealed. Less developed areas cover Chin, Kayah and Rakhine states where primary requirements are basic housing and road infrastructure.

Restructure

Takata hires Lazard, seeks cash infusion after air bag deaths Takata Corp confirmed on Wednesday it has hired investment bank Lazard Ltd to lead a financial restructuring in an effort to resolve costs stemming from its recall of tens of millions of faulty air bags linked to at least 13 deaths and more than 100 injuries worldwide. Takata’s board of directors in February named an outside steering committee to develop a comprehensive restructuring plan to address the financial and operational issues related to its recall of the defective inflators. Takata’s outside committee said it retained Lazard as it is “expeditiously seeking new investment for Takata”.

12 Business Daily Friday, May 27 2016

Asia

Private survey

Japanese manufacturers’ mood hits 3-yr low The service-sector index fell to 19 from 23 in April and is seen slipping further to 18 in August Tetsushi Kajimoto and Izumi Nakagawa

C

o nfidence a t Japanese manufacturers tumbled to a three-year low in May and is seen recovering only modestly in the next three months, a Reuters poll found, in a sign the yen’s rise is taking its toll on exporters of cars and electronics.

The Reuters Tankan, which tracks the Bank of Japan’s quarterly tankan survey, found the service sector’s mood also fell in May, reflecting weak domestic demand despite the central

bank’s aggressive monetary stimulus.

The monthly poll of 510 big and mid-sized firms between May 9 and May 23, of which 250 responded, comes after data out on Monday showed sharp falls in exports and manufacturing activity, piling pressure on policymakers to do more to spur flagging growth.

The Reuters Tankan sentiment index for manufacturers fell to 2 in May from 10 in April, dragged down by key industries exporting cars, electronics and precision machinery. It is seen bouncing to 5 in August.

The service-sector index fell

to 19 from 23 in April and is seen slipping further to 18 in August, weighed by retailers worrying that a stronger yen may dampen spending by Chinese and other foreign tourists.

“Our business results are in line with the same period last year but somewhat undershooting the budget.

The impact from the yen’s rise is large, putting us in a tough situation,” a manager at an electric machinery maker said in the survey, which companies answer anonymously.

Japanese officials have threatened in recent weeks to intervene in foreign exchange markets as the yen bolted to 18-month highs, but they failed last week to win assent from global partners to weaken the strong currency, which Tokyo fears could do further damage to

the sputtering economy.

Automakers also suffered from effects of last month’s earthquakes that crippled supply chains in Japan’s southern manufacturing hub of Kumamoto, while a mileage-cheating scandal at

Key Points May manufacturers’ sentiment index +2 vs +10 in April Kumamoto quakes, mileage-cheating scandal hit car makers Service-sector firms’ index +19 vs +23 in April Manufacturers sentiment seen up, service sector down Reuters poll closely correlates with BOJ tankan

a carmaker curbed orders at factories, the poll found.

Mitsubishi Motors 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.

“We have been affected by declining orders since the Kumamoto quakes and the mileage-cheating scandal,” a manager at a transport equipment producer said in the survey.

The BOJ tankan last month found that confidence among Japan’s big manufacturers had hit the lowest in nearly three years and was seen worsening in the coming quarter.

Some analysts fear the economy could contract this quarter after dodging a return to recession early in the year. Reuters

Industrial figures

Singapore factory output grows at fastest pace in nearly 2 years Manufacturing sector has been a drag on the city state’s economy over the past year or so Masayuki Kitano

Singapore’s industrial production in April grew at the fastest pace in nearly two years thanks to healthy output of electronics and pharmaceuticals, but analysts remain wary over the outlook due to sluggish global demand.

Manufacturing output rose 2.9 percent from a year earlier in April, the largest increase since August 2014, data from the Singapore Economic Development Board showed yesterday. The median forecast in a Reuters survey was a contraction of 0.3 percent.

On a month-on-month and seasonally adjusted basis, factory output rose 4.8 percent in April, exceeding the median forecast of an increase of 0.8 percent.

“If you look at some leading

indicators such as the U.S. semiconductor book-to-bill ratio, I think there is some potential for the electronics sector to continue to cushion some of the other more sluggish sectors,” said Jeff Ng, an economist for Standard Chartered Bank.

“Given that a lot of the world demand is still pretty sluggish, there will be some pockets of growth in some sectors but I don’t see a broadbased recovery... It’ll be at best I guess stabilisation,” he added.

Singapore’s manufacturing sector has been a drag on the city state’s

and hobbled overall growth.

The boost to industrial production in April came from solid expansions in the output of electronics and pharmaceuticals.

Electronics output expanded 10.9 percent from a year earlier, after increasing 5.8 percent in March, while the volatile pharmaceuticals sector saw a 17.7 percent jump in April, after expanding 28.4 percent in March.

Marine and offshore engineering output fell 21.7 percent in April from a year earlier, after sliding 34.9 percent in March. Reuters

Key Points April industrial output: +2.9 pct y/y; +4.8 pct m/m Median forecasts: -0.3 pct y/y; +0.8 pct m/m April electronics output +10.9 pct y/y Pharmaceuticals output +17.7 pct y/y

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 Aivi Remulla 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 Founder & Publisher

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economy over the past year or so, with local exporters and oil rig builders hurt by slack global demand and a slump in oil prices.

Underscoring the challenges that lie ahead for the factory sector, Singapore slashed its export forecasts for this year on Wednesday after the trade-reliant economy barely grew in the first quarter.

Last month, Singapore’s central bank unexpectedly eased its exchange-rate based monetary policy as slackening global demand knocked its manufacturing sector

Business Daily Friday, May 27 2016 13

Asia M&A

In Brief

Australian watchdog deals blow to US$6.5 billion Asciano bid The buyout group may have to appease the regulator by offering to sell some assets Byron Kaye

Australia’s antitrust watchdog yesterday raised fresh concerns about a planned A$9.1 billion (US$6.5 billion) takeover of rail and port giant Asciano Ltd, potentially forcing the Canadian-led buyout consortium to restructure the deal.

The Australian Competition and Consumer Commission (ACCC) had been due to give a final decision but instead warned the deal may give Asciano’s new owners too much control of the freight chain, and said it

needed two more months to consult with industry players before it could make a ruling.

The buyout group - led by Canada’s Brookfield Asset Management Inc and including companies from China, the Middle East and Australia - may have to appease the regulator by offering to sell some assets, Lonsec Stockbroking general manager equities

Key Points Regulator concerned about market power in ports Brookfield has already made changes due to regulator concerns ACCC delays final ruling until July 21

and research Bill Keenan said.

“It’s going to need some more adjustment to get it through,” he said.

Brookfield agreed to modify its initial solitary bid for Asciano in January after the regulator expressed concern that it would have freight trains and tracks in Western Australia state.

A month later, it offered to end a bidding war with Australian stevedoring company Qube Holdings Ltd and make a joint offer for Asciano’s port assets only, leaving the rest to China Investment Corp (CIC) and others. That move was also partly aimed at easing anti-trust concerns.

The deal would cement Sydney-based Qube’s position as Australia’s biggest stand-alone ports company, and give Beijing’s sovereign wealth fund CIC a slice of the railways business in one of China’s biggest trading partners.

But the regulator yesterday said that as Qube already had nationwide cargo handling operations, taking ownership of Asciano’s ports could give it unfair access to services contracts.

Asciano’s port business “may provide preferential access to Qube ... and raise rivals’ costs”, ACCC Chairman Rod Sims said in a statement.

“There are also concerns regarding foreclosure of rival stevedores,” Sims added.

The ACCC said it would take industry submissions and give its final decision on July 21.

In a statement, Qube said it was confident it could overcome the regulator’s concerns. Asciano said it still recommended the takeover, due to be voted on by shareholders on June 3.

Asciano shares were flat, in line with the broader market. Qube hares were up 0.6 percent in mid-session trading. Reuters

Economic regulation

South Korea’s Park facing last chance to push through reforms Changes are crucial because growth in Asia’s fourth-largest economy halved between January and March from the previous quarter Jack Kim and Christine Kim

Thwarted in the last parliament, South Korean President Park Geun-hye may be facing her last chance to push through a series of bills aimed at bolstering a flagging economy despite a legislature that will soon be in opposition control.

Park, in the fourth year of a single five-year term, faces an uphill battle to pass legislation to loosen the notoriously rigid labour market, boost the services industry, and ease regulations to create jobs and growth in Asia’s fourth-largest economy.

These changes are crucial because growth in Asia’s fourth-largest economy halved between January and March from the previous quarter, while the unemployment rate for South Korea’s youth hit a record 12.5 percent in February.

Despite a parliamentary majority, Park’s conservative Saenuri Party chose not to force through legislation to make the labour market more flexible, fearing public backlash over worries about job security.

But the makeup of the new parliament, and tweaks to the legislation, may help improve its chances.

When South Korea’s

new parliament first sits on Monday, Park’s conservative Saenuri Party will hold only 122 of 300 seats, the opposition Minjoo Party will hold 123 and the People’s Party, led by independent Ahn Cheol-soo, will hold 38.

Park may yet find the reform path made easier by the smaller People’s Party if it forces the two main parties to compromise.

“The People’s Party has come to be more than just a swing vote,” said independent political commentator Yu Chang-seon. “It is a power that can strongly influence the biggest and second biggest party, a force that eclipses the 38 seats it holds.”

Leader Ahn, a former software entrepreneur and 2012 presidential candidate, said his People’s Party was in principle receptive to the government’s labour reforms.

“Politics is all about solving problems, and parliament has to stand at the centre of that,” he told reporters on Tuesday.

Ahn’s stance could force the Minjoo Party to be more amenable to compromise with the government.

Kookmin University political scientist Hong Sunggul said the Minjoo Party would want to avoid being blamed for the kind of

gridlock that made the previous four-year parliament one of the least productive ever. With the proposed changes to labour laws, the president wants to make it easier for companies to fire underperformers, base wages on merit, shorten work hours, ease outsourcing rules and expand unemployment insurance.

An official at the finance ministry, speaking on condition of anonymity, told

Reuters that a review of the bills before resubmitting them to parliament will be underway soon.

“There may be changes that would likely be to reflect the recent shift in parliament,” the official said.

“We may have a situation that is more conducive to compromises compared to the time parliament was more or less divided two ways,” said Kookmin University’s Hong. Reuters

Retailing

India says Apple must sell locally-sourced goods India has said Apple Inc must meet a rule obliging foreign retailers to sell at least 30 percent locally-sourced goods if it wishes to open stores in the country, a senior government official told Reuters. Apple is hoping to expand its retail presence in India, one of the world’s fastest-growing smartphone markets, at a time when sales in the United States and China have slowed. A change in legislation last year exempted foreign retailers selling high-tech goods from the rule, which states 30 percent of the value of goods sold in the store should be made in India.

South Korea

Household debts keep record-breaking trend South Korea’s household debts kept a record-breaking trend in the first quarter on the back of record-low interest rates, central bank data showed yesterday.

Household credit, which includes household debts owed to financial institutions and purchase on credit, reached 1,223.7 trillion won (US$1.03 trillion) as of endMarch, up 1.7 percent from three months earlier, according to the Bank of Korea. The first-quarter figure was the highest since the bank began compiling the data in the fourth quarter of 2002. From a year earlier, the household credit jumped 11.4 percent, or 125.4 trillion won.

Financing

Berli to raise US$6 bln via equity Thailand’s Berli Jucker Pcl said it planned to sell bonds and new shares via a rights issue and a private placement to raise up to 214 billion baht (US$6.02 billion) and pay debt used to fund its acquisition of Big C Supercenter Pcl. Berli, the retail flagship of Thai tycoon Charoan Sirivadhanabhakdi’s TCC group, secured a USD$6.2 billion short-term financial deal with 15 banks to buy the hypermarket operator from France’s Casino in March.

The company said in a statement yesterday that it would issue up to 2.4 billion new shares.

M&A

SGX in talks to buy London’s Baltic Exchange

South Korean President Park Geun-hye in a Parliamentary session

The Singapore Exchange (SGX) is in exclusive talks to buy London’s Baltic Exchange, which has been at the heart of the global shipping industry for centuries, the two companies said on Wednesday. Founded in 1744, the Baltic Exchange is no longer a forum for chartering vessels but owns benchmark indexes for global shipping rates and provides a trading platform for the multi-billion dollar freight derivatives market. Earlier on Wednesday, sources told Reuters the Baltic and SGX had entered into advanced talks, with one putting the value of a potential deal at about US$100 million.

14 Business Daily Friday, May 27 2016

International In Brief Fed’s Bullard

Tight U.S. labour market to put pressure on inflation U.S. labour markets are relatively tight and may put upward pressure on inflation, St. Louis Federal Reserve President James Bullard said yesterday. “By nearly any metric, U.S. labour markets are at or beyond full employment,” Bullard said in an OMFIF lecture in Singapore. “In short, labour markets are relatively tight,” he said. “This may put upward pressure on inflation going forward.” Bullard noted that there was a divergence between the financial market’s expectations for U.S. interest rate rises and the median projections among Fed policymakers.

Privatisations

Kazakh sovereign fund seeks over US$6 billion Kazakh sovereign wealth fund Samruk-Kazyna plans to raise more than US$6 billion from privatisations over the next five years, using the proceeds to help its companies repay debt, the fund’s managing director told Reuters yesterday.

The sale will start with small companies. Public offerings of stakes in the fund’s crown jewels, such as national oil company KazMunayGaz, will be the last deals to happen and will take place after 2018, Berik Beisengaliyev said in an interview. “The balance sheet value of those assets (earmarked for privatisation) is between US$6.0-7.3 billion at the current exchange rate,” Beisengaliyev said.

Results

RBC says bad loans rose 19 percent in Q2 Royal Bank of Canada (RBC) said yesterday bad loans increased by C$583 million ($450 million), or 19 percent, in the second quarter from the quarter before, largely due to a rise in credit to oil firms that had turned sour.

Canada’s biggest banks are seeing an increase in energy clients struggling to pay back loans following a sharp decline in the price of oil.

Bank of Montreal said on Wednesday it had set aside more funds to cover losses.

Despite the warning, RBC reported a 7 percent increase in second-quarter profit from the same quarter a year earlier.

Forex case

Citigroup to pay US$425 mln over manipulation Citigroup Inc has agreed to pay US$425 million to resolve civil charges that it tried to manipulate foreign exchange and interest rate benchmarks.

In announcing the settlement on Wednesday, the Commodities Futures Trading Commission said Citigroup affiliates also made false reports in connection with ISDAFIX benchmark rates and dollar Libor rates during the financial crisis to protect its reputation. The CFTC accused Citigroup of trying to manipulate the benchmarks by certain traders putting in false data to benefit their own trading positions. The various actions occurred between 2007 and 2012.

Growth data

UK business investment falls ahead of EU referendum The services sector, which makes up 80 percent of the UK economy, showed signs of losing steam.

Ana Nicolaci da Costa and William Schomberg

B

usiness investment in Britain fell in early 2016, a sign that uncertainty caused by the country’s impending referendum on European Union membership is weighing on companies.

Growth in the economy slowed to 0.4 percent in the January-March period, the Office for National Statistics confirmed yesterday, and many economists said it might lose further momentum in the second quarter.

Business investment fell in annual terms for the first time in three years, depressed by weaker spending on offices and other non-residential buildings. Weak trade figures again dragged on growth, leaving consumers as the economy’s drivers.

The Bank of England has previously said uncertainty hanging over the June 23 referendum was crimping investment, especially in the commercial real estate sector where transactions dropped 40 percent in the first quarter of this year.

Chris Hare, an economist with Investec, said the figures might suggest that a lot of the economic slowdown derives from concerns around the referendum, something which could lift quickly if the country votes to stay in the 28-nation EU. “But the downside risk is that more of the slowdown relates to underlying weakness,” Hare said.

The ONS said the economy grew by 2.0 percent versus a year ago, below expectations that the data would confirm an initial estimate of 2.1 percent annual growth in the first quarter.

Business investment was weaker than expected, slackening by 0.4 percent year-on-year in the first quarter after rising 3.0 percent in the fourth quarter of last year.

Business investment also declined compared with the fourth quarter although the 0.5 percent decline was less steep than a 2.0 percent fall between October and December 2015.

Key Points First decline in y/y investment since early 2013 ONS confirms economy slowed 0.4 pct in Q1 Household spending picks up a bit of speed Dominant services show signs of losing momentum

The government in recent weeks has stepped up its warnings of the risk of Britain leaving the EU, and the Bank of England recently said a Brexit could tip the economy into recession.

World leaders and international organizations from U.S. President Barack Obama to the International Monetary Fund have echoed these concerns.

Earlier this month, the heads of 15 major international companies that are major investors in Britain, including GE, Cisco, Mars and Airbus, called for Britain to remain in the EU and said future investment decisions could be affected by a decision to leave the bloc’s single market.

The BoE earlier this month cut its economic growth forecast for this year to 2.0 percent from 2.2 percent and also stepped up its warnings on the economic risks of Brexit.

The economy grew 2.3 percent in 2015, the ONS said.

Household spending rose by 0.7 percent in the first quarter, picking up a bit of speed from late last year.

Consumer spending has been the main propellant of Britain’s recovery from the financial crisis and policymakers have said they want to see greater investment by businesses to secure a more balanced economy.

In another sign of the slowdown, output in the services sector fell 0.1 percent in March, its first decline since August of last year. Reuters

Official visit

Putin says EU needs Russia to stay on global stage EU-Russia relations are at a low ebb over the conflict in Ukraine that broke out in 2014, with European sanctions still in force against Moscow Russian President Vladimir Putin claimed in an article published yesterday that the EU would not be a global player without his country’s help as he prepared to visit the bloc for the first time in almost a year.

Putin, who starts a two-day visit to Greece on Friday, also called for an energy alliance with Europe and the relaxation of visa rules for Russians travelling to the EU. “A rightful position of the Old Continent in the new international realities can only be secured by combining capacities of all European countries, including Russia,” Putin said in the article in the Kathimerini daily.

“We believe our relations with the EU do not face any problems that we cannot solve. To get back to a multifaceted partnership, the deficient approach of one-sided relationships should be abandoned. There should be true respect for each other’s opinions and interests.”

EU-Russia relations are at a low ebb over the conflict in Ukraine that broke

out in 2014, with European sanctions still in force against Moscow.

The sanctions on Russia’s banking, defence and energy sectors expire in July. Extending them will require a unanimous vote, and EU leaders are expected to discuss the issue next month.

Putin is due to meet Greek President Prokopis Pavlopoulos and Prime Minister Alexis Tsipras in Athens on Friday.

On Saturday, he will join celebrations for the 1,000th anniversary of the Russian presence at the ancient monastic community of Mount Athos in northern Greece, one of Orthodox Christianity’s holiest sites.

Greece has repeatedly sought the help of Russia, a fellow Orthodox country, as it descended into economic crisis over the past six years.

Tsipras is believed to have requested Russian financial assistance last year as the country teetered on the verge of bankruptcy, although Russian officials have publicly denied any approach.

Russian companies have also been repeatedly linked to Greek energy and transport privatisation deals that were never completed.

However, Putin indicated in yesterday’s article that Russia remains interested in tenders involving Greek rail assets and the port of Thessaloniki.

Kathimerini said a deal between Russian oil giant Rosneft and Greek refiner Hellenic Petroleum could be signed during the visit.

Putin was last in Europe in June, when he visited Italy and held talks with Prime Minister Matteo Renzi and Pope Francis.

Tsipras visited Moscow for talks with Putin twice last year, in April and June, ahead of his re-election in September. AFP

“We believe our relations with the EU do not face any problems that we cannot solve.”

Vladimir Putin, Russian President

Russian President Vladimir Putin speaks to the media during a news conference after the ASEAN-Russia Commemorative Summit in Sochi, Russia, 20 May 2016

Business Daily Friday, May 27 2016 15

Opinion Business Wires

BANGKOK POST Two German carmakers, Volkswagen and BMW, will set up international purchasing offices in Thailand to procure auto parts to serve operations worldwide. According to Noshir Desai, general manager for procurement at Volkswagen Group’s Asean regional office, the company has decided to move its purchasing office from Kuala Lumpur to Samut Prakan. The new unit is scheduled to start up in August at Scania’s assembly plant, which handles the group’s Swedish buses and trucks.

Thailand is home to about 700 companies supplying Volkswagen, compared with 200 in Malaysia, Mr Desai said.

THE ASAHI SHIMBUN The Japanese Olympic Committee on Wednesday established a team to investigate whether any illegal payments were made during its successful bid for the Tokyo 2020 Olympics. Media has reported that the bid team made payments totalling more than US$2 million (222 million yen) to a Singapore bank account linked to Papa Massata Diack, son of disgraced former international athletics chief Lamine Diack. The investigative group, consisting of two lawyers and a certified public accountant, will hold its first meeting on Thursday, the JOC added.

JAKARTA POST The government is hoping to settle all regulations contained in its 12 economic policy packages by the end of this month, in a bid to speed up the stimulus on the economy. As of Tuesday, the government had completed 194 of the total 203 regulations — including both new and revised rules — that have been pledged since September 2015 when the first economic package was launched. The remaining nine regulations were still under discussion, Coordinating Economic Minister Darmin Nasution said at a press conference after a limited meeting at the State Palace on Tuesday.

THE STAR Telekom Malaysia Bhd earnings for its first quarter surged 150% to RM322.43mil versus RM128.91mil a year ago. It said on Wednesday that revenue grew 2.9% onyear to RM2.85bil from RM2.77bil, driven mainly by higher contribution from Internet services revenue. Earnings per share were 8.58 sen compared with 3.47 sen previously. Elaborating on the financial results, it said group operating profit (EBIT) for first quarter grew 15% on-year to RM279.9mill compared to RM243.4mil a year earlier due to higher revenue and better cost management.

How the West was lost

R

ecent political discourse on both sides of the Atlantic has raised a disturbing question that is becoming increasingly difficult to dismiss: Are the United States and Europe turning away from the policies of openness that have historically driven their economic success?

In the US, Donald Trump, the presumptive Republican nominee for president, is waging verbal war against virtually every trade agreement his country has ever struck. He has threatened to tear up the highly successful North American Free Trade Agreement and pledged to block any attempt to move forward with the recently concluded Trans-Pacific Partnership (TPP).

Should Trump’s views become part of the Republican Party’s platform, the shift will redraw the political landscape regarding free trade. After all, the Republicans have traditionally been the standard-bearers of free trade in the US – in contrast to the Democratic Party, which has had to contend with sceptical voices from the trade unions that make up part of its constituency.

Meanwhile, Trump’s likely opponent in the general election, Hillary Clinton, seems to have folded the flag and adopted at least part of the anti-trade tirades of Trump and her left-wing primary opponent, Bernie Sanders.

Suddenly, she has turned against the TPP agreement, despite having supported it previously. She is opposing US President Barack Obama’s tentative plan to have it ratified by Congress immediately after the November election.

This behaviour is without precedent. Never before have the leading contenders for the US presidency fuelled fears that free trade will undermine America’s prosperity. Whichever candidate prevails in November, the consequences are likely to be serious.

In Europe, the situation is only marginally better.

Austria’s entire political spectrum has come out firmly against the proposed Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union. And public opinion seems to be undergoing a similar shift in Germany, a country that owes its affluence to its success in global markets. Even in the Netherlands, which used to have free trade in its DNA (and would hardly exist without it), vocal campaigners are threatening to hold a referendum to reject any trans-Atlantic trade deal.

“

Carl Bildt Sweden’s foreign minister from 2006 to October 2014 and Prime Minister from 1991 to 1994, when he negotiated Sweden’s EU accession.

Given the history of the West, these are perplexing developments. Europe’s rise began when its ships started to explore the world for new markets and opportunities. This underpinned not only rising wealth, but also innovation.

To open up markets, after all, is also to open up minds.

Similarly, in the decades since the end of World War II, the security of the West has been built first and foremost on the economic success of the US, Western Europe, and Japan – success that was driven by integration, trade, and innovation. According to nearly every indicator one can think of, the remarkable growth in trade during the past quarter-century has given mankind some of its best decades ever.

That is why it’s impossible to imagine achieving ambitious global development goals without placing free trade and globalization at the centre of the strategy. If the West, losing faith in itself, turns away from the very practices that made it successful, where does that leave poor and developing countries?

Fortunately, all is not yet lost. But rescuing the West’s trade agenda will require exceptional leadership and perseverance. This will be a decisive year. The trade agreements involving the US, Asia, and Europe are important not just in terms of traditional goods, but also in terms of the free flow of data. While trade in physical goods is showing signs of stagnation, data flows have increased by a factor of 45 during the last decade.

If Obama can ensure the ratification of the TPP and bring the TTIP negotiations to a conclusion, he will have laid the groundwork for future progress. If he falls short on either task – or, catastrophically, fails on both – the world will face a far more uncertain future.

Political leaders who still believe in the West must dedicate themselves to the defence of free trade and the construction of an ever more open world.

They must do everything they can to prevent the introduction of protectionist measures and the erection of barriers to globalization. Project syndicate

Rescuing the West’s trade agenda will require exceptional leadership and perseverance.

This will be a decisive year.

”

16 Business Daily Friday, May 27 2016

Closing Offshore debt

Economic planner warns against irregular issuance debt should carefully consider trends in international Some Chinese firms are improperly issuing offshore debt, China’s economic planning agency said yesterday, warning that violators will be punished and signalling concern over firms’ offshore debt as the yuan resumes its slide against the dollar. The National Development and Reform Commission’s notice also said that issuing firms, underwriters and law offices that do not follow proper notification and registration procedures will be added to a national blacklist and punished. Firms issuing foreign

capital markets and strengthen risk management, the commission added in a notice posted on its website.

The yuan’s weakness against the dollar exposes Chinese companies who have borrowed dollars overseas - or engaged in hedging contracts - to rising risk of forexrelated losses. China experienced record net capital outflows of around US$463 billion in 2015, according to a recent report by the Washington, D.C.-based Institute of International Finance. Reuters

M&A

Wanda Commercial buyout offer delayed by regulator’s queries Wang Jianlin is planning to delist the Hong Kong real estate vehicle and then relist it in Shanghai Clare Jim

A

plan by China’s richest man, Wang Jianlin, to take his Hong Kong-listed commercial property unit private is being held up by questions from the city’s market regulator, according to company insiders, delaying an announcement on the offer.

Dalian Wanda Commercial Properties, whose shares have been halted since April 25, was expected to publish details of the proposed delisting as early as May 2, said two of the sources with direct knowledge of the plan. They declined to be named as details of the discussions were private.

Wang is planning to delist the Hong Kong real estate vehicle and then relist it in Shanghai, hoping to benefit from higher valuations seen on the mainland.

The nature of the questions the Securities and Futures Commission (SFC) has for the Dalian Wanda Group, the parent of the property unit, and why there was such a delay, were unclear.

The SFC declined to comment.

Wanda Commercial also declined to comment.

It is not unusual for the SFC to question companies before they delist as buyout offers need regulatory approval.

One person familiar with the situation said, though, that the way the buyout had been structured was rare in Hong Kong and this was causing regulatory headaches.

Dalian Wanda has set up a special vehicle to buy all the shares of the property unit. Investors who wish to own shares in the future

mainland-listed company have subscribed for shares in the vehicle in an offer that has been oversubscribed.

They will receive up to 12 percent annual interest on their holdings if the property arm fails to relist in China within two years.

Meanwhile, it is unclear what investors in the current Hong Kong-listed entity will get.

According to an announcement late in March from Wanda Commercial, Dalian Wanda Group was preparing to offer a minimum of HK$48 a share, the same as the original IPO price in December 2014. But a source told Reuters earlier this month that Dalian Wanda was considering offering a 10-20 percent premium on the IPO price in a bid to secure shareholder approval.

Lack of communication

Some cornerstone investors in Wanda Commercial’s US$4 billion Hong Kong IPO said they fear they are being treated unfairly in the buyout plan compared with investors who have been wooed to bet on the company’s relisting in China.

Cornerstone investors in IPOs receive guaranteed allocation in exchange for agreeing to retain their

stakes for a set amount of time, typically six months.

“They haven’t come to talk to us at all since the delisting announcement,” Timing Investment Chairman Jiang Ming told Reuters in a phone interview. The firm, which invests in media, construction and finance, bought US$100 million worth of Wanda Commercial shares as a cornerstone investor in the IPO. Jiang said it is “a little unfair” for Dalian Wanda to offer new investors the high yields while investors who had supported the company since the start were ignored. He added Timing would approve the delisting if it was offered a premium of at least 15 percent above the IPO price.

“Cornerstones were shocked and they couldn’t comprehend the delisting. They trusted the company’s

‘Dalian Wanda has set up a special vehicle to buy all the shares of the property unit’

strategy, but now it’s changed. This relationship is changed,” one of the company insiders said.

Major cornerstone investors in the IPO included Kuwait Investment Authority (KIA), Och-Ziff Capital Management and Dutch pension fund manager APG. KIA and APG declined to comment on the delisting when contacted by Reuters, while Och-Ziff didn’t immediately reply to a request for comment.

“Cornerstones went in at HK$48, while many hedge funds went in at HK$30 plus (after the listing). Everyone has a different view of what the company is worth, and the group did itself no favour when they went out pitching to new investors promising them an eventual listing would be at three times the earnings multiple,” said a Singapore-based hedge fund manager, whose clients hold around 3 percent of Wanda Commercial.

The hedge fund manager said the shares were bought before the take-private announcement, and he will likely accept the offer if it comes in at 10 percent or more above the IPO price.

Inside the company there is far from universal agreement about the plan. One of the insider sources said: “There’s no guarantee of higher valuation in (China) but then you’re delisting from Hong Kong. There’s a big risk involved and it may damage your reputation.” Reuters

China’s richest man, Wang Jianlin

Results

Overcapacity

Electronic money

Lenovo swings to full-year loss on M&A costs

Hebei pledges cuts as G7 vows joint action

Japan regulates virtual currency after Bitcoin scandal

China’s Lenovo Group Ltd yesterday reported its first loss in six years, with earnings pulled down by acquisition and restructuring costs as well as weak sales of smartphones and personal computers (PCs).

The world’s biggest PC maker booked a net loss of US$128 million for the business year ended March, from US$829 million profit a year earlier.

The result compared with the Thomson Reuters SmartEstimate loss of US$123.6 million.

Revenue fell 3 percent to US$44.9 billion. Discounting the impact of foreign exchange, revenue rose 3 percent. In the fourth-quarter alone, revenue fell 19 percent.

The results come as Lenovo curbs its reliance on the slowing PC industry in favour of smartphones and servers. It said profit was pulled down by costs of multi-billion dollar acquisitions in 2014 - for the Motorola handset division of Google Inc and low-end server arm of International Business Machines Corp.

It also booked a charge of US$923 million for costs related to restructuring and clearing its smartphone inventory. Reuters

China’s top steel-making province aims to shutter capacity equivalent to about a month of production, amid warnings over a global glut of the metal from world leaders gathered in Japan for an economic summit.

Hebei, the north-eastern province that makes nearly a quarter of China’s steel, has pledged to close down 14.2 million metric tons of annual capacity this year, according to a report by the official Xinhua news agency. That would account for nearly four weeks of last year’s output of 187.9 million tons. Xinhua cited a letter of commitment signed by the provincial government and companies. They also promised to cut about 17.3 million tons of iron-making capacity.

Group of Seven leaders agreed to work together to tackle oversupply in China’s economy at a meeting that specifically discussed steel, Japanese Deputy Chief Cabinet Secretary Hiroshige Seko told reporters at the Ise-Shima summit in central Japan. China’s steel exports surged to a record last year, prompting trade action from India to the U.S. Bloomberg News

Japan has passed a law regulating virtual currency, after the country found itself at the epicentre of a multi-million dollar embezzlement scandal following the spectacular collapse of the Tokyo-based MtGox Bitcoin exchange.

Once one of the largest, most established exchanges for the cryptocurrency, MtGox collapsed in 2014 after a suspected theft worth nearly half a billion dollars, which hammered the digital currency’s reputation.

Japanese lawmakers passed a bill late Wednesday stipulating that all “virtual currency” exchanges must be regulated by the country’s Financial Services Agency.

The new law defines a virtual currency as something with an “asset-like nature” that can be exchanged for goods and services.

Digital currency exchanges must now register with the financial watchdog and verify the identity of customers opening accounts.

The new legislation aims to “tackle issues of money-laundering and protect users”, Japan’s Financial Services Agency said in a statement. AFP