Vacancies in restaurant and hotel sectors ‘stable’ Employment Page 6
Tuesday, May 31 2016 Year V Nr. 1054 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming
iGaming expert sees potential for local market, citing Philippines as example Pages 7
Infrastructure
MTR awarded MOP474.3 million LRT management and assistance contract Page 4
www.macaubusinessdaily.com
Fixing yuan
Financial crime prevention
Citic Bank official reveals process of RMB’s reference rate mechanism Page 8
HSBC tightens control over the use of safety deposit boxes in Hong Kong Page 9
GDP Continues Downward Spiral
Economy
The city’s Gross Domestic Product (GDP) fell 13.3 pct y-o-y in real terms for Q1. Less investment is cited, along with fewer trade services exported. Both external and domestic demand for Macau’s services and goods declined. While demand for local gaming services experienced a 17.1 pct y-o-y drop. Page 4
Smoke gets in your ‘ayes’ Local gaming labour associations still hope for a full-smoking ban in casinos. citing allegedly weak supervision by the gov’t and poor implementation by gaming operators in executing the current ban on the mass market. The majority of legislators, however, favour maintaining smoking lounges in gaming venues.
Proactive police claim
Crime A rise in the number of gaming-related crimes. But local authorities say the city’s general security has not been affected. Claiming the growth in gaming crimes is due to the police being more active in detecting illegal activities. The JP opened files for 368 cases related to the gaming industry during Q1. An increase of 37 cases vis-à-vis 331 one year ago. Page 2
Do it right
Society Accountability at last. Contractors on public housing projects would be liable for any construction defects says Secretary for Transport and Public Works, Raimundo Arrais do Rosario. In addition, public housing construction would be given priority on expired land concessions. But there’s no plan for renewal of industrial building revitalization measures. Page 3
Private property
Delisting Chinese billionaire Wang Jianlin is splashing the cash. His Dalian Wanda Group is offering US$4.4 bln to buy out its Hong Kong-listed property unit. Representing the biggest ever take-private deal on the Exchange. The group is seeking a higher valuation for the business on Mainland stock exchanges. Page 10
28° 31° 28° 32° 28° 32° 27° 32° 26° 32° Today
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Legislation Page 5
HK Hang Seng Index May 30, 2016
20,629.39 +52.62 (0.26%)
China Resources Power
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Hengan International Group
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Tingyi Cayman Islands Hold-
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I SSN 2226-8294
2 Business Daily Tuesday, May 31 2016
Macau Security Total crime numbers down 7.1 pct in the first three months
Gaming-related crimes jump 11.2 pct in Q1 Despite a rise in the number of gaming-related crimes local authorities say that the city’s general security has still not been affected as the growth in gaming crimes is due to the police being more active in detecting illegal activities.
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he number of gaming-related crimes in the city recorded a year-on-year growth of 11.2 per cent for the first quarter of this year. Nevertheless, the Secretary for Security Wong Sio Chak stressed that the rise does not mean that the territory’s security is being affected by
the downturn of the gaming industry. According to the latest crime data released yesterday by the Secretariat for Security, Judiciary Police (PJ) opened files for a total of 368 cases related to the gaming industry during the first three months of the year, an increase of 37 cases vis-à-vis 331 one year ago.
Illegal immigrants, overstaying visitors
As at the end of March, a total of 7,431 illegal immigrants and overstaying visitors were recorded, of whom the majority were from the Mainland. According to official data, illegal immigrants from the Mainland amounted to 328 in the first three months.
Meanwhile, a total of 3,333 criminal cases were recorded in the Special Administrative Region during the three months, down 7.1 per cent year-on-year. Of total gaming-related crimes, those relating to illegal detainment amounted to 89 cases in the three months, a surge of 32.8 per cent compared to 67 cases recorded during the same period of last year. In addition, loan sharking, totalling 106 cases, soared 55.9 per cent year-on-year from 68 cases one year ago. “Despite the notable growth in the number of loan sharking and illegal detainment [cases], we perceive such an increase is not a significant signal
Meanwhile, overstaying visitors using the Individual Visit Scheme (IVS) amounted to 944 whilst those from the Mainland with other travel documents totalled 5,472. In addition, foreign illegal immigrants and those overstaying in the territory reached 620 and 67, respectively.
showing that the gaming downturn is bringing negative effects to the local security,” said Secretary Wong at a press briefing on the latest crimes data yesterday morning. His secretariat also explained in a press release that the rise in the number of loan-sharking and illegal detainment cases in the three months is due to the security departments taking the initiative to discover the crimes.
Stay safe
According to official data, the majority of suspects and victims involved in gaming-related crimes were not local residents. In addition, most of gaming-related crimes occurred in gaming venues. Meanwhile, the number of crimes related to triad gangs remained at zero as at the end of March, whilst crimes related to criminal syndicates increased year-on-year by one case to a total of four cases at the end of the first quarter. ‘The police department has not received any intelligence indicating any unusual movements from triad gangs due to the adjustment phase of the gaming industry. Hence, the gaming industry has not brought any impact to the city’s security situation,’ the security department noted in the press release. ‘With openings of more big-scale casino projects on the way, we will continue adjusting our police force in order to make effective deployments targeting the new criminal situation so that the city’s security can be assured to stay stable,’ it added. According to the data, the PJ transferred a total of 424 suspects involved in gaming-related crimes to the Public Prosecutor’s Office in the first three months of this year, a growth of 17.5 per cent year-on-year compared to 361 one year ago. K.L.
Tourism
Secretary inks tourism agreement with Cambodia Secretary for Social Affairs and Culture Alexis Tam Chon Weng has brought SAR and Cambodian relations closer with the signing of a ‘Memorandum of Understanding between the Secretary to the Government of the Macao Special Administrative Region of Social Affairs and Culture of China and the Ministry of Tourism of the Kingdom of Cambodia’. “Along with investment flow come the technology of products, exchange of ideas and innovation of management,” noted Secretary Alexis Tam per a release by the Institute for
Tourism Studies. “On the other hand, tourism boosts growth, creates jobs and extends opportunities in related industries. Therefore, we believe that both investment and tourism illustrate the benefits of international co-operation.” The Secretary made the comments at the Cambodia Investment & Tourism Development Seminar in Phnom Penh, Cambodia. After the signing in October last year of a memorandum between the local government and the United Nations World Tourism Organization (UNWTO), the tourism institute
(IFT) was given the goal of establishing the Global Centre for Tourism Education and Training, which will receive a group of 20 Cambodian heritage tour guides and four officials from the APSARA National Authority of Cambodia who will attend a 9-day training programme from June 13 to 21, according to the IFT. Cambodia has initiated a new five-year plan to attract 7.5 million international tourists a year by 2020, including two million Chinese tourists per annum, and approving legislation for foreign
investors to enter the local gaming sector as a way of attracting more Mainland Chinese gamblers to the country, Business Daily reported. “Cambodia is an important member of the ASEAN (Association of Southeast Asian Nations). The Belt and Road Initiative and the ASEAN connectivity have shared visions and convergence of interests in the region, and Cambodia and Macao stand to gain from this; and I believe tourism can leverage its first-mover advantage to take it into effect,” Secretary Tam stated in the seminar. N.M.
Secretary for Social Affairs and Culture Alexis Tam and Secretary of State of the Ministry of Tourism of the Kingdom of Cambodia Mr Tith Chantha signing the memorandum on Monday.
Law
Money laundering: Canada and Macau in talks In order to fight money laundering and terrorism financing activities the Secretary for Economy and Finance Lionel Leong is working to establish a co-operation agreement for financial information exchange between the SAR and Canada, a dispatch by the Chief Executive in the Official Gazette announced yesterday. The signing of the agreement with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) could be delegated to the Macau Financial Intelligence Office (GIF) co-ordinator, notes the dispatch. Macau has already entered into similar agreements with authorities from China, Hong Kong, Japan, Singapore, Indonesia, Thailand, Malaysia, Fiji and Australia, as reported by Business Daily. N.M.
Business Daily Tuesday, May 31 2016 3
Macau Law
Secretary: Contractors to be held accountable for public housing defects Legislative Assembly debates public housing, industrial building revitalisation and taxi regulations Nelson Moura nelson.moura@macaubusinessdaily.com
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ecretary f o r Transport and Public Works Raimundo Arrais do Rosario assured the public yesterday that the contractors on public housing projects would be held accountable for any construction defects. The Secretary’s comments came at a plenary session of the Legislative Assembly (AL) held yesterday, in which the Secretary responded to enquiries covering public housing, industrial building revitalisation and taxi regulations. In response to an enquiry by Legislator Lei Cheng I on construction defects on public constructions and what oversight system the government would create to prevent these issues, Secretary Rosario stated that the “contractors would be held responsible for any damage or defects under the current legislation” with the authorities having conducted “an oversight of the constructions, while awarding external entities for the oversight and quality control.” Additionally, Legislator Ng Kuok Cheong tabled the topic of Land, Public Works’ 1,900 economic housing units being awarded via lottery, with 93 per cent of the 42,600 candidates still unsure of when the housing will be granted.
The legislator enquired when the current evaluation of nine abandoned land concessions would be finished, and if 20,000 public housing units could be provided by the concessions. In response, Secretary Rosario stated that the expired land concession cases are “under the court planned deadline” and that “public housing construction would be given priority, with the government checking if any of the evaluated terrain would have the necessary conditions”. The Secretary also mentioned there were currently “28,000 [units] of public housing planned for construction in New Area Zone A”, besides “4,000 units in other locations.”
Industrial buildings reuse not defined
In response to a proposal for revising the industrial building revitalisation measures dropped in April 2014, Secretary Rosario said the measures hadn’t been renewed due to a lack of requests and that there were no plans to reanimate them. Legislator Leong On Kei argued that the measures haven’t altered or repurposed the use of the target buildings, but have instead led to the demolition or reconstruction of the buildings in order to increase the offer of small and medium parcels, mentioning how Hong
Secretary for Transport and Public Works Raimundo Rosario
Kong has a similar policy where industrial buildings saw their internal structure preserved with some small alterations, and transformed into startup spaces. Secretary Rosario stated that “since the measures experimental period started in 2011, only 15 requests of renewal were received but only two were approved,” with legislator Leong On Kei claiming that the number of requests was low due to the high requirements of the Civil Code, which demand the approval of all building owners for reconstruction. “It’s hard to receive 100 per cent of property authorisations. It’s a heavy duty. Only buildings that have only one owner can be renewed. Will the government change the requirements to maybe just 80 per cent of authorisation?” Long asked, adding that some sections could be provided to SME offices and cultural associations. The legislator also argued that while rents for buildings and commercial establishments increase constantly, industrial building rents with bigger areas remain comparatively low, but that due to legal restrictions the use of industrial buildings is still too limited, with real estate agencies claiming the non-occupancy rate of industrial buildings at around 20 per cent. The prices for industrial units averaged MOP12,001 (US$1,499) per square metre when the measures were first proposed in 2011 but quadrupled to more than MOP50,560 per square metre
last year, while rents for industrial units registered a 20 per cent growth to HK$9 per square foot in 2015, Macau Business magazine reported. In response to Leong On Kei’s enquiry, the director of the Land, Public Works and Transport Bureau (DSSOPT), Li Can Feng, stated there are still three requests under evaluation, and that demanding requirements are essential “for calculating the height of the buildings, the parking limits, which are different for commercial purposes” and for car park expansions, and that “70 per cent of the building flats were smaller than 60 square metres.” With regard to the building owners’ authorisation, Secretary Rosario said “the civil code already has this defined law; if the building residents don’t agree there’s nothing we can do,” while adding that the industrial building purposes would be decided taking into account the “urban planning law” while the recently created Urban Renewal Committee would decide the new “incentives and measures for renewal.”
No date for taxi regulation
Legislator Lam Heong Sang questioned the government on what specific alterations will be made in taxi regulations and their oversight, the creation of new taxi stops and priority lanes, new mandatory rules for taxi drivers and respective incentive measures, to which Secretary Raimundo stated that the current measures look to “perfect the
taxi licence award system, reinforce the fight on taxi infractions, while regularising services without licence.” The Transport Bureau (DSAT) Director also added that “more favourable conditions for picking up and dropping off passengers will also be created, with two experimental taxi stops created in Horta e Costa Avenue, and that the “DSAT, Public Security Police (PSP) and the Legal Affairs Bureau (DSAJ) would hear the proposed suggestions and take different solutions to resolve the taxi irregularities.” Legislators expressed concern that the suggested Chief Executive’s decision to proceed to a pubic tender of 250 taxi licences, with a base price of MOP200,000 and valid for an eight-year period, would give the licences an “investment” or “savings” component, while the proposed revisions would give more responsibility to the drivers for taxi driving licence infractions. Some legislators believed the revisions penalised the drivers too much and suggested they should be awarded to the individual driver through a points system instead of through taxi associations. Other legislators considered the proposed recording services and undercover police as too costly, and that better recording and filming devices would be enough, while the proposed revisions should be clearer, more specific and should take public consultation more into account. When questioned for a specific date for the enforcement of the new regulations, Secretary Rosario said that when any concrete legislation was on paper it would be presented to the AL.
4 Business Daily Tuesday, May 31 2016
Macau Editorial
Changing shortsighted policies It’s not just the gaming operators who complain, although covertly, about the increasing difficulties they experience while trying to recruit skilled workers and renewing existing blue cards for skilled employees. Many other companies are now also complaining. We just don’t understand the long term strategy behind these restrictive measures. If the goal is to force companies to promote local workers to top positions, then it’s not only an inconsequent form of pressure, but also an unacceptable instrument of interference from the government. It’s inconsequent because all companies, local and foreign, are interested in promoting local human resources. This is true for a number of reasons, including better ties to the local society, better return from human investment and better public image. And it’s an unacceptable interference because the government should worry about the bad things in the public administration first lack of transparency; goods and services being adjudicated irregularly; clear signs of cronyism; the inability to implement long term strategies - instead of blackmailing companies with forced promotions that offer quotas and blue card renewals. Let’s be clear: when you promote just to please some government department, you’ll just be contributing to a less than healthy work environment, thus compromising final results. Yes, locals should be promoted, if they have the quality and vocation and if they compete at the same level as foreign workers. It is current practice and it is common sense. More than irrational, forcing inadequate promotions, with unclear objectives that foretell nothing good, at a time when the city still can’t keep up with rising demand, it’s an irresponsibility that must have a face. For a long time now, no-one has taken responsibility for bad government decisions. The least we expect is for the courage to assume responsibility publicly, explaining the reasoning and the advantages that we are unable to find. A few days ago, on a projected 2017 scenario of combined Macau property EBITDA of US$1.1 billion (MOP8.79 billion), Deutsche Bank concluded that 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 the new Cotai mega-projects opening soon, the government is on the right path to creating serious problems with these shortsighted policies. It’s not too late to change, but it needs to happen now, with determination, courage and resistance to exaggerated populist stances that may limit the harmonious growth we all look forward to.
Economy Demands on local gaming services tumble by 17.1 pct y-o-y
Local economy contracts 13.3 pct in Q1 Macau saw both external and domestic demands for its services and goods decline for the first quarter of the year, in addition to less investment pouring into the territory.
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he city’s Gross Domestic Product (GDP) fell 13.3 per cent year-on-year in real terms for the first quarter of this year due to less investment attracted and fewer trade services exported, the latest information released yesterday by the Statistics and Census Service (DSEC) reveals. As the economic downturn continues, the city’s total exports of goods and services fell by 24.6 per cent and 13.7 per cent year-on-year for the first three months of this year, respectively. In particular, exports of gaming services dropped 17.1 per cent in the period, whilst that of other tourism services fell 11 per cent driven by the decrease in visitor expenditure.
In addition to the plunge in external demand, the Special Administrative Region saw domestic demand slacken, as well, in the first quarter, with private consumption expenditure declining 2.3 per cent due to pay growth remaining subdued. Meanwhile, the investment and import of goods shrank by 31.4 per cent and 19.9 per cent year-onyear, respectively. Despite the downturn the government’s final consumption expenditure posted a slight growth of 1.5 per cent year-on-year during the quarter, according to the DSEC.
Less investment attracted
The city’s economic recession is also attributable to a 32 per cent decrease
year-on-year in its gross fixed capital formation - the gauge of investment - as private investment continues to decrease. During the first quarter, total private investment plunged 33 per cent year-on-year. Private investment in construction, in particular, dived 35 per cent year-on-year compared to the same period of last year while that in equipment diminished by 18.9 per cent year-on-year. DSEC explained that the drop in private investment is due to the slowdown in the construction of major tourism and entertainment facilities, as well as the high comparison base for the same period of last year driven by the construction sector. In addition, investment by the government recorded a year-on-year decline of 5.5 per cent, as public construction investment dropped by 6.5 per cent year-on-year, while public equipment investment soared 91.1 per cent year-on-year for the three months. K.L.
LRT
MTR Corp. Ltd. lands LRT service contract Hong Kong’s mass transit railway operator MTR Corporation Ltd. has been awarded a service contract worth MOP474.3 million (US$59.3 million) by the MSAR Government for the provision of management
and technical assistance to the city’s LRT projects. According to yesterday’s Official Gazette, the payment to the MTR operator would be divided into three instalments. The local government will
pay MOP101.7 million to the Hong Kong company for this fiscal year, whilst some MOP267.9 million and MOP104.7 million will be paid for the 2017 and 2018 fiscal years, respectively.
The dispatch by Chief Executive Fernando Chui Sai On also indicates that the total amount allocated to the contract cannot be increased. This is not the first time that the Hong Kong railway operator has provided services to the Special Administrative Region. In 2002, former Chief Executive Edmund Ho Hau Wah entrusted the MTR operator to undertake a preliminary study on the Macau urban railway transport system for some MOP7.52 million. In addition, the operator was granted a contract worth MOP54.1 million last November to provide the first stage of technical support for the contingency plans for the city’s LRT depot. K.L.
Business Daily Tuesday, May 31 2016 5
Macau
Smoking-ban Health group issues statement against legislature favouring smoking lounges
Gaming labour groups stand firm on universal smoking ban Local gaming labour associations still hope for a full-smoking ban inside casinos citing alleged weak supervision by the government and low implementation by gaming operators in executing the current ban on the mass market. Kam Leong kamleong@macaubusinessdaily.com
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wo local major gaming labour unions said their stances on a universal smoking ban inside casinos would not change despite the majority of legislators adopting stances on the pending full-smoking ban bill favouring maintaining smoking lounges inside the gaming venues. Last week, seven of the nine attending members in the second standing committee of the Legislative Assembly (AL), which is in charge of the discussion for the bill amending the Regime for Prevention and Control of Tobacco, expressed their support for the establishment of smoking lounges inside casinos if smoke can be ensured not to spread, according to committee president Chan Chak Mo. “We stand firm on a full smoking ban inside casinos. Even if gaming operators or some legislators suggest that high-standard smoking rooms should be allowed, there have been no actual plans raised so far. We reckon that only a universal smoking ban can guarantee the health of gaming workers,” the director-general of the Macau Gaming Enterprises Staff Association, Choi Kam Fu, told Business Daily yesterday. Currently, smoking is banned on the mass gaming floors of local casinos but is permitted in smoking lounges and VIP rooms. The bill amending the current tobacco regime, which passed its first reading at the AL in July last year, proposes eliminating smoking lounges and prohibiting smoking in all indoor areas of gaming venues.
Low determination
According to Mr. Choi, it is difficult to ensure that the government will strictly supervise violations or whether the gaming operators would strictly obey related regulations if smoking lounges were allowed to be kept. “We still have smoking lounges for the mass gaming floors at the moment. Yet, the government’s supervision is not strong enough and the determination of gaming operators executing the smoking ban on mass gaming floors is low,” the union head
indicated. “According to the complaints filed by employees, some gaming operators even allow gamblers smoking outside gaming lounges on the mass gaming floors,” he claimed. Meanwhile, Ieong Man Teng, the director of another gaming labour union - Forefront of Macau Gaming (FMG) - told Business Daily yesterday that his association’s stance on the full smoking ban remains the same. “The situation of gaming operators violating the current smoking ban on mass gaming floors varies. Some operators are very strict [in abiding by] the regulations but some employees complain that some other operators allow gamblers to smoke,” he said, noting the numerous claims of the same problem.
FMG: Survey to test workers’ stance
Nevertheless, the FMG director added that his association will conduct a survey to collect the latest opinions from gaming workers, which will include their stances on whether smoking lounges should be allowed. He said the result of the survey could be released within these two days. “After all, the [economic] environment is different from last year’s. We aren’t sure if employees still want the same thing or something different. As such, we will conduct the survey to collect their opinions. But for our association, our stance on a full smoking ban remains firm,” Mr. Ieong said.
Health group suggests openspace smoking areas
The stance of the AL sub-committee also triggered an objecting statement issued by the Macau Association of Health Policy on Sunday. The statement indicates that the setting-up of smoking lounges is a false alternative for a universal smoking ban. The Association wrote, in the Chinese language, that no smoking pollution could be fully removed by any high-effect ventilation or filtering systems, as proven by scientific experiments, adding that experiments have also proved that no airtight room could prevent the leakage of tobacco smoke by-products to the outside of a room. Alleging that the setting up of smoking lounges would breach a
framework convention on tobacco control of the World Health Organisation (WHO), the health group suggests in the statement that gaming operators establish an outdoor smoking area instead. ‘The setting-up of outdoor smoking areas does not require any venting or filtering systems. In addition, there is no special cleaning procedure needed for the toxic materials besides cleaning up the cigarette butts,’ the group wrote. Both of the labour unions told Business Daily that they hold open
attitudes to outdoor smoking areas, as suggested by the health group. “The public can discuss the feasibility of this suggestion. But as for indoor, we wish to create a non-smoking working environment for workers in order to maintain their health,” Mr. Choi claimed. Meanwhile, FMG’s Ieong Man Teng said that he welcomes outdoor smoking areas as long as smoking is banned indoors. Meanwhile, the city’s Secretary for Social Affairs and Culture Alexis Tam Chon Weng said over the weekend that it was still too early to say whether smoking lounges would be eventually allowed. But he added that he would be “objective” and “open-minded” to the suggestions submitted by the AL sub-committee.
6 Business Daily Tuesday, May 31 2016
Macau Employment
Manpower stable in hotels, restaurant openings
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he hotel industry saw a ‘stable’ manpower situation for the first quarter of 2016, while the restaurant sector saw ‘similar’ results to a year earlier ‘implying that there were still vacancies available,’ in the sector, according to the most recent data released by the Statistics and Census Service (DSEC) yesterday. A total of 49,606 full-time employees were recorded in the hotel sector in the first quarter of the year, an 8.3 per cent increase year-onyear. Average earnings for employees, excluding bonuses, amounted to MOP16,350 in March, a drop of 0.5 per cent compared to the same period last year. Restaurants, on the other hand, saw a 3 per cent increase year-on-year in full-time employees – amounting to 26,019 – while noting a 3.2 per cent increase in average earnings, at MOP9,130. Employee turnover rate for the
hotel sector amounted to 3.9 per cent, the recruitment rate rested at 3.4 per cent and the job vacancy rate was 2.5 per cent, while that in the restaurant sector saw a 9.7 per cent vacancy rate, a 1.1. percentage point increase year-on-year, while the recruitment rate, 6.5 per cent, and the turnover rate of 5.5 per cent remained similar to the same period last year.
Compensation
The elderly care sector saw the largest increase in salaries for the month of March compared to the previous year, with a 13.9 per cent increase, although average earnings amounted to MOP13,750 per month, as compared to the highest paid sector under evaluation - Electricity, Gas & Water Supply – which saw average monthly earnings for March at MOP28,970, a 1.6 per cent increase year-on-year. On average, non-resident workers in the Electricity, Gas & Water Supply
sector received 56.5 per cent of the salary that their resident counterparts did – MOP30,250 - despite both groups seeing a 1.9 per cent year-onyear increase in March. Cooks in hotels earned an average monthly wage of MOP16,830 vis-a-vis those in restaurants, who earned MOP10,090 monthly. Waiters in restaurants earned more on average - MOP7,550 – than waiters in hotels, who earned MOP9,570 per month. Housekeepers made an average of MOP9,020, a 3.2 per cent increase year-on-year, while childcare attendants and personal care attendants in elderly care saw 12.1 per cent and 18.4 per cent increases in monthly salary, to MOP11,530 and MOP10,790, respectively. The manufacturing sector saw a 3.5 per cent decrease in overall employees, as average earnings in March fell by 3.1 per cent to MOP10,290. Meanwhile the insurance sector saw
a 4.7 per cent increase in employees despite a 2.1 per cent drop in earnings to MOP24,690. The Financial Intermediation Activities sector, for which all vacancies required the knowledge of Mandarin, counted 397 full-time employees – a 5.6 per cent increase year-on-year - with a 4.3 per cent increase in earnings to MOP13,590.
Distribution
On average, the hotel and restaurant sectors saw an equal distribution of female and male employees, while the childcare sector saw 19 male workers as compared to 1,178 female. The elderly care and insurance sectors also displayed a higher female ratio of workers, at 114 to 547, and 182 to 331, respectively. The Manufacturing; Electricity, Gas & Water Supply and Financial Intermediation sectors all saw a higher ratio of male employees than female. Employee participants in vocation training in the hotel sector for the first quarter of the year went up 365 per cent year-on-year, with 99.7 per cent of the participants attending courses during office hours, according to DSEC data. K.W.
Disposal
Amax disposes of non-performing subsidiary
Vanuata, a group of around 80 islands in the South Pacific and the focus of Amax following the disposal.
Gaming investor Amax International Holdings Ltd. has announced the intent to sell its wholly-owned subsidiary Le Rainbow to Mainland Chinese businessman Zeng Weizhan for some HK$5 million (US$622,549), according to its filing with the Hong Kong Stock Exchange last week. The subsidiary, which has been in the red for two consecutive fiscal years, owns a 42.6 per cent stake in a company called LE-Guangxi that provides gaming services to the Guangxi Welfare Lottery Issue Centre. ‘Given the loss-making position of Le Rainbow
Group for the past two years, the Directors consider the disposal allows the group to exit from subsidising the non-performing business of Le Rainbow Group and create a good opportunity for the group to restructure its strategic business position,’ Amax noted in the filing. It added that the disposal would also allow the company to shift its resources, focusing on: ‘pursuing development opportunities of the Group’s existing businesses, inter alia, the Vanuatu gaming business.’ The filing indicates that Le Rainbow posted net losses of some HK$2.5 million and HK$3.4 million for its 2014/15 fiscal year and 2013/14 fiscal year, respectively. K.L.
Business Daily Tuesday, May 31 2016 7
Macau
Gaming
An untapped well A former head of marketing of the Philippine gaming regulatory agency sees potential in iGaming for Macau but also the need for regulation, using the growing Philippines market as an example. Nelson Moura nelson.moura@macaubusinessdaily.com
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Philippines gaming expert believes that the SAR can profit from the online gaming sector, given the success of the industry for Southeast Asian gaming operators so far, although regulation is essential for creating the right investment environment. Chris Tio, the Executive Vice President of business development for DFNN, Inc. - a publicly listed Philippines I.T. company with multiple online gaming licences, and former Head of the Marketing and VIP Services Departments at the Philippine gaming regulatory agency (PAGCOR) - told Business Daily that he thinks the Philippines’ gaming sector is too young to lecture Macau but that the territory could learn a lot from the country’s online gaming growth. “Online gaming is interesting because if you look at it it contributes a significant percentage of revenues to regulators. In the Philippines, there’s huge and dramatic potential for that to continue, and to gain a significant foothold,” notes Tio. “Right now, we’re seeing it but as a hybrid; it’s online but it’s not online, it’s server based games but streamed into physical locations,” Tio stated, adding that international gaming sites can be accessed in Macau but that China would be the main driver for expansion of the online gaming sector. The Philippines permits legal online sports bookmakers, online casinos and bingo, with domestic websites licensed by the government-owned Philippine Amusement and Gaming Corporation (PAGCOR), and Special Economic Zone Cagayan, where licensed online betting operators can target other Asian markets. Despite the Philippines openness towards the online market, Tio considers that regulation is essential and it has helped the sector succeed in the Philippines, with the country seeing total gross gaming revenue exceeding US$2.3 billion (MOP18.39 billion) in 2015. “Regulation of the Internet is very difficult but it’s required, since the government loses out and legitimate investors also. There’s no environment for proper investments to be made because when you’re being
required to invest significant sums in a sector and there’s no protection from grey markets then it might not be the correct investment,” Tio told Business Daily. The gaming expert believes better investment guidelines and openness to online gaming will contribute to gaming coffers, with great investment opportunities to be made as “sports betting is growing significantly, with a dramatic growth to be made in virtual sports” and with a lot of “e-casino products showing dramatic innovation put in”.
Right partner in Manila
Regarding the success of Melco Crown Entertainment’s projects in Manila, Tio justifies the success of the City of Dreams project by Melco’s partnership with locally-run SM Investments Corporation. “I think City of Dreams in Manila has the right partner in the SM group, which is the richest family in the Philippines, and owns all the large malls, the banks; and are the de facto experts in consumer behaviour. So, I think first of all the partnership is very strong with a credible partner, and secondly a lot of the growth that integrated resorts have experienced in the past few years has really been mass market and premium mass, the almost double digit growth of which I think will continue,” Tio told Business Daily, additionally noting his belief that as Macau recovers so Manila will benefit.
New president, same life
With the recent election of controversial candidate Rodrigo Duterte as the new President of the Philippines, Tio sees a lot of ‘apprehension from the business community towards his government’s policies, with the gaming expert believing that the local gaming path won’t deviate from its current course. “He was a very interesting campaigner who compensated for the lack of resources and communication and advertising budget by going out of his way to be controversial to catch more attention - which was very effective as he won by a landslide. But when we look at his economic policies in the city of Davao, where PAGCOR has two casinos, one in a hotel and a satellite casino in another hotel, operations are thriving and were never really restricted.
If you look at Davao, it is generally clean and peaceful, and has a thriving expat community, so we believe that President Duterte will be good for the Philippines and that progress and growth will continue,” Tio noted. When questioned if the President would change any gaming regulations in the country given the recent case involving cyber-criminals diverting US$81 million from an account, later allegedly moving quantities through casinos via junket promoters, the gaming expert sees that more transparency will only be gained if the Philippines’ gaming
agency separates its regulator and operator functions. “That is a decision that needs a lot of political will and a mastery of numbers in Congress. It’s still [too] early to see the actual numbers in Congress, although if you follow the history of politics in the Philippines it’s only natural [when] the administration comes to power [that] legislators will automatically follow its agenda. I believe it will happen; economically it makes sense, the manner by which it should happen is still the most interesting thing to be determined,” Tio stated.
8 Business Daily Tuesday, May 31 2016
Greater China Consumption drive
Beijing bets on du to keep luxury spe In Hainan duty-free shops offering products priced as much as 30 percent less than the mainland have been operating since 2011
Monetary tools
State-run bank reveals details of yuan fixing mechanism The details come amid increased focus on the currency as a resurgent dollar pushes the yuan close to a five-year low
A
Chinese state-run bank has revealed the inner workings of the yuan’s reference rate mechanism, including details on the lenders that provide prices as well as how the system was tweaked following market turmoil in January. The 14 contributors, which must consider the previous day’s yuan closing price, have to take into account movements in baskets of currencies and have the leeway to consider the effects of client supply and demand, said Sun Wei, deputy general manager of financial markets at China Citic Bank Corp., a unit of China’s largest state-run financial conglomerate. He added that the People’s Bank of China spoke with lenders in February before standardizing the system. The details provided by the statebacked bank come amid increased focus on the currency as a resurgent dollar pushes the yuan close to a fiveyear low. The PBOC said last week that it has increased the two-way flexibility of the exchange rate and maintains basic stability, following a Wall Street Journal report that said the monetary authority
had scrapped its market-based mechanism. The fixing responds to dollar moves asymmetrically, analysts at banks including Barclays Plc, Deutsche Bank AG and Bank of America Corp. have said this month. “Our fixing model, and I suppose most analysts’ models, is based on the factors described, that is the previous day’s closing price and the overnight movement in the basket of currencies,” according to Tim Condon, Singapore-based head of Asia research at ING Groep NV, who had said in a Feb. 24 note that the fixings were as “blackbox” as ever. “If the PBOC adheres to the policy, our models should be
“Our fixing model, and I suppose most analysts’ models, is based on the factors described, that is the previous day’s closing price and the overnight movement in the basket of currencies” Tim Condon, Singapore-based head of Asia research at ING Groep
getting better and better at forecasting the daily fixing rate.” The contributors are core market makers and conduct a majority of trades, said Sun. Efforts to prevent market manipulation include a bar on collusion between contributors and elimination of some of the highest and lowest quotes. The PBOC had said in its first-quarter monetary policy report that the daily reference rate takes both the previous day’s closing price and changes in currency baskets into account. The yuan’s 1.6 percent decline this month has investors and analysts watching for any repeat of the turmoil ignited by a surprise devaluation in August, which spurred an estimated US$1 trillion in annual capital outflows, or the volatility in January that roiled global markets. Increasing outflows will fail to spark the same alarm this time round because the PBOC has many policy tools to manage the depreciation, Song Yu, China economist for Goldman Sachs/Gao Hua Securities Co. said in a May 26 interview. “I don’t place a great deal of weight on the fix unless we see a huge divergence between what the mechanism suggests and what the fix is,” said Sue Trinh, Hong Kong-based head of Asian foreign-exchange strategy at Royal Bank of Canada. “I stopped caring around the end of August last year, in the sense that it became obvious a large amount of discretion was being used in setting the fix.” Bloomberg News
Financial crimes
HSBC has introduced stricter rules for the use of safety-deposit boxes in Hong Kong, which customers use to store valuables but which are at risk of being abused for money laundering and terrorism financing. Safety boxes offer clients who lease them the possibility to store items such a jewels, art or any other valuable in a private and highly secure place, for
China’s efforts to lift local consumption, spur domestic tourism and keep within its borders citizens that splurge in Milan or Seoul have spawned a duty-free paradise on the southern island of Hainan that it hopes will satisfy a lust for luxury. Firms such as the owner of the world’s biggest duty-free shopping centre, China International Travel Service Corp Ltd (CITS), are capitalising on a relaxation of duty-free spending restrictions in February, with HNA Group Co Ltd reporting a 160 percent surge in sales. Government initiatives, including 19 more duty-free shops nationwide, come as sales of the types of luxury goods that line duty-free shelves fell 2 percent last year. Market watchers pin the blame on a campaign against demonstrations of wealth among public officials, as well as a slowdown in economic growth. As things stand, the Chinese buy close to 80 percent of their luxury goods abroad in cities such as Paris, London and Tokyo, Bain Consultancy estimated.
‘Chinese buy close to 80 percent of their luxury goods abroad in cities such as Paris, London and Tokyo, Bain Consultancy estimated.’ Infrastructure
HSBC boosts oversight of safety boxes in Hong Kong A report commissioned by the federal government of Switzerland highlighted how safety boxes can be vulnerable to financial crimes
Farah Master
instance a bank’s vault. “The nature of a safe deposit locker means it has the potential for misuse for criminal purposes,” HSBC, Hong Kong’s biggest bank, said in an emailed statement in yesterday. “We have introduced several clauses to the conditions of lease for safe lockers to further strengthen our defences against financial crime and to enable us to co-operate with law enforcement agencies when required.” HSBC, which is also Europe’s biggest bank by assets, did not elaborate on the changes that it was introducing or whether the new terms were being changed elsewhere. But it said the new, stricter rules, would apply also to oldtime customers who started to lease the safety locker before December 18, 2014.
A report commissioned by the federal government of Switzerland highlighted in December how in certain circumstances safety boxes can be vulnerable to financial crimes. HSBC agreed in 2012 to pay US$1.92 billion in U.S. fines for failing to stop hundreds of millions of dollars in drug money from flowing through the bank in Mexico, and has promised to fix the problems. The bank, which has also been caught up in a tax evasion scandal at its Swiss unit, has since been carrying out a thorough exercise to upgrade its compliance and risk globally. HSBC said it was reaching out to customers asking them not to deposit any property of illegal nature such as illegal drugs, offensive weapons, stolen property or guns. Holdings which could become a nuisance, for instance explosive, were also not allowed. Earlier yesterday, the South China Morning Post reported that HSBC has been sending letters to clients mentioning the tighter rules as of last month. Reuters
“The nature of a safe deposit locker means it has the potential for misuse for criminal purposes” HSBC emailed statement
Authorities add pipelines, d The pipelines will have an annual capacity of 11 million tonnes, or 220,000 barrels a day A group of Chinese companies plans to build new pipeline and storage facilities in eastern Shandong province, the hub for the country’s independent refineries, providing much-needed infrastructure as crude oil imports into the region surge. Shandong, home to nearly 20 independent oil plants nicknamed “teapots” due to their relatively small processing capacity, posted a 65 percent increase in crude imports in the first four months of 2016 on a year ago, customs data showed. This equates to an extra 851,000 barrels per day. The rapid increase has led to weeks of delays in discharging cargoes at Qingdao port, the country’s single-largest oil port by volume, and has helped drive a trucking boom to haul crude and refined products. Three local companies, led by Qingdao Port International Co. Ltd, plan to build two side-by-side 216-kilometre pipelines to link Qingdao’s Dongjiakou port area with Weifang, which is home to several teapots. The pipelines will have an annual capacity of 11 million tonnes, or 220,000 barrels a day, Qingdao Port said on its website last week. Qingdao accounts for nearly 30
Business Daily Tuesday, May 31 2016 9
Greater China In Brief
uty-free paradise enders at home “Whether it is Burberry or Richemont recently, many brands in the space have noted that the future of luxury demand will be about the Chinese and incrementally at home,” said HSBC analyst Erwan Rambourg in Hong Kong, who recommends buying CITS shares.
Less choice
In Hainan, which is closer to Hanoi than Beijing, duty-free shops offering products priced as much as 30 percent less than the mainland have been operating since 2011, under a trial program aimed at developing the island as a tourist destination. Customers could initially only buy up to 8,000 yuan (US$1,220) worth of duty-free goods, twice a year. From February 1, they have been able to make
purchases any time of the year provided the total does not exceed 16,000 yuan. At the same time, stores have also been able to sell goods online for collection at airports. In Hainan’s provincial capital Haikou in the north of the island, HNA’s duty-free sales have since rocketed. In the island’s city of Sanya, state-controlled CITS opened the country’s first duty-free shopping centre in 2014. The skylit, flower-shaped edifice is about nine soccer pitches in size and filled with shops stocking over 300 brands including from Burberry Group PLC and Compagnie Financiere Richemont SA, as well as goods such as baby formula. “It’s definitely much cheaper,” said 20-something handbag shopper Zhang Pei Pei, “But the choice of products is less.” CITS declined to comment when contacted by Reuters.
Hotel rush
Hainan’s balmy climate and over 60
beaches is a draw for developers, with Sanya on the island’s southern tip dotted with luxurious resorts completed or under construction. That city - three times the size of Singapore - has over 1,000 hotels with 30 more due to open in its Haitang Bay area in the coming years. One of those is the US$1.7 billion Alantis project of Chinese conglomerate Fosun International Ltd and the owner of South Africa’s Sun City casino resort, Sol Kerzner. “Fosun is optimistic in the future development of Sanya,” the company said in an email to Reuters. Near the capital Haikou, property and aviation conglomerate HNA plans to develop a deep-water port, international sports stadium and motor racing circuit, as well as an artificial isle similar to Dubai’s Palm Islands. Its aim is to become the country’s first duty-free retail brand, HNA said in emailed comments.
Cosmetic
But for all the glamour, there are plenty of Chinese ready to spend holiday money on products that are more or less in reach on a daily basis. On one weekday afternoon in CITS’ mall, queues snaked out of beauty stores from Chanel SA, Estee Lauder Companies Inc. and L’Oreal SA, while the outlets of upmarket watchmakers appeared near-empty. “I just want to buy cosmetics,” said He, a 30-something from south-western mainland city of Chongqing, who did not provide her surname. “For other things like bags, I will just take a look.” In agreement was Huang Cheng, a 26-year-old engineering student from Shanxi province in northern China. “We don’t really want to buy the big brands,” he said, gesturing to the empty watch shops. “The main reason is just to buy daily necessities.” Hong Kong-based CLSA analyst Aaron Fischer said the limited number of duty-free zones is unlikely to materially boost domestic spending on luxury goods. He also said price was not the only reason for shopping outside of China. Buying luxury goods in the country of origin gives “a greater feeling of satisfaction,” he said. Reuters
depots at “teapot” oil hub percent of China’s total crude imports of 7.46 million barrels per day between January and April. The project, estimated to cost more than 1.5 billion yuan (US$229 million), is undergoing an environmental assessment prior to a final investment decision. The pipelines will eventually be extended to central and northern parts of the province to reach more plants, and to carry 30 million tonnes a year. The companies have also started building an 11.3 million-barrel crude
oil storage site in Weifang, which is a transfer point and home to several teapots including the 100,000 barrelper-day Sinochem Hunrun Petrochemical Corp. State-run oil group CNOOC earlier this month completed construction of a terminal at Yantai port able to dock 300,000-tonnage very large crude The project is estimated to cost more than
1.5 Billion Yuan
carriers, due for operation end of June, said a CNOOC official. CNOOC had by end-2015 also laid a 300-km crude oil pipeline linking Yantai with Zibo, and built a 9.5 million-barrel storage site at the port area, said the official. State-run Sinopec Corp has been a dominant operator of oil pipelines in the province, but terminal and storage facilities have been under strain since Beijing last year allowed smaller plants to import crude, also granting them permits to export refined fuel. “There is now an urgent market requirement to push these companies to invest,” said Dong Xiucheng, professor of China Petroleum University. Reuters
Bank’s cooperation
AIIB, EIB agree to strengthen links The Asian Infrastructure Investment Bank (AIIB) and the European Investment Bank (EIB) yesterday agreed to broaden cooperation to support investment in “strategically important” projects. The two institutions signed a framework of cooperation to expand partnerships in areas including the joint financing of infrastructure projects worldwide and the establishment of a regular dialogue mechanism between the two entities, according to a statement released by AIIB. The EIB is the longterm lending institution of the European Union owned by its member states. It is the world’s largest lender for climate related investment and a global leader in issuing green bonds. Aviation data
Domestic airports traffic up 10 pct Passenger numbers at China’s airports hit 915 million in 2015, up 10 percent year on year, the civil aviation authority announced. Passenger traffic at airports in Beijing, Shanghai and Guangzhou accounted for 27.3 percent of all airport traffic, according to a report released by the Civil Aviation Administration of China (CAAC), posted on its website yesterday. There were 26 airports with annual passenger numbers exceeding 10 million, up from 24 in 2014, accounting for 77.9 percent of all airport traffic, said the report. China had 210 airports at the end of 2015, eight more than the previous year. Coal production
Shanxi reports sharp output decline Coal output in Shanxi Province, China’s largest coal-producing region, was down 21.3 percent year on year in April as local authorities moved to cut capacity. Local coal mining companies with annual revenues of more than 20 million yuan (US$3.1 million) churned out 58.2 million tonnes of raw coal last month, the provincial statistics bureau said yesterday. The northern region faces severe overcapacity as the country’s economy slows. Last year, the coal mining industry in Shanxi reported a massive loss of 9.4 billion yuan, or roughly 10 yuan per tonne of coal. Logistics
Jan-April rail freight volume down China’s rail freight volume fell 7.9 percent in the first four months of 2016 from a year earlier to 1.05 billion tonnes, the country’s top economic planner said yesterday. For April, the amount of cargo moved by railways declined 4.5 percent year-on-year to 260 million tonnes, the National Development and Reform Commission (NDRC) said on its website. Rail freight volume for coal fell 10.4 percent year-on-year to 140 million tonnes in April, it added.
10 Business Daily Tuesday, May 31 2016
Greater China
Wang Jianlin, Chairman of China’s Wanda Group, delivers a speech for opening ceremonies of the Wanda Cultural Tourism City in Nanchang last Saturday
Delisting
Wanda Group offers US$4.4 billion to privatize property unit Company’s head joins a growing number of Chinese tycoons seeking loftier valuations for their companies.
C
hinese billionaire Wang Jianlin’s Dalian Wanda Group Co. is offering HK$34.5 billion (US$4.4 billion) to buy out its Hong Kong-listed property unit as it seeks a higher valuation for the business on mainland stock exchanges. Wanda Group will pay HK$52.80 for each Hong Kong-traded share of Dalian Wanda Commercial Properties Co., the company said in a statement yesterday, 10 percent higher than an earlier offer of at least HK$48 and 3 percent higher than its last trading price of HK$51.25 before trading was halted April 22. Wang, who controls Wanda Commercial’s Beijing-based parent, told China Central Television May 22 that the unit is “substantially undervalued” and must proceed with the privatization. The billionaire has been seeking investors to help purchase as much as 14.41 percent of the shopping-mall operator and
re-list it in mainland China, according to a document sent to prospective backers. Going-private deals that aim to relocate overseas share listings to Shanghai or Shenzhen have been under the spotlight after China’s stock regulator voiced concerns such transactions could flood its market. Wanda’s transaction is pending shareholder and regulatory approvals, according to the statement.
Higher valuations
In its pitch to investors, Wanda Group cited an average valuation of 29 times estimated full-year earnings for mainland listings, based on four companies engaged in managing free-trade zones and industrial parks. Wanda Commercial was trading at about 6.4 times before trading was halted in April, according to data compiled by Bloomberg. Wanda Group will proceed with plans to buy out the property unit after considering whether to scrap the deal in the wake of Chinese regulatory concerns, people familiar with the matter had said. Wang joins a growing number of Chinese tycoons seeking loftier valuations for their companies by moving their listings from Hong Kong or New York. Evergrande Real
Estate Group Ltd. may consider going private and list in China given its chairman’s view that the developer’s valuation in Hong Kong is distorted, Citigroup Inc. said in an April 18 report. U.S.-listed SouFun Holdings Ltd., China’s biggest real estate web portal, is seeking to move its shares to the Shanghai stock exchange via a backdoor listing.
Room for arbitrage
Such deals have drawn regulator scrutiny, with the China Securities Regulator Commission saying in
‘Wang, who controls Wanda Commercial’s Beijing-based parent, told China Central Television May 22 that the unit is “substantially undervalued” and must proceed with the privatization’
early May it’s conducting research on their possible impact. Regulatory concerns have recently roiled shares of U.S.-traded Chinese companies such as Qihoo 360 Technology Co. that have announced privatization plans. If Wanda Commercial has not gone public on a mainland exchange by either August 31, 2018, or two years from the Hong Kong de-listing, Wanda Group will buy back the shares at a level guaranteeing a 12 percent annual return for domestic investors and 10 percent for those overseas, according to the document sent to prospective backers, a copy of which was obtained by Bloomberg News. The 14.41 percent figure Wang is seeking investors for represents the portion of the company not controlled by him and other mainland shareholders. The proposal promises a “relatively large room for arbitrage” for investors given that the property arm’s Hong Kong-listed shares are “seriously undervalued,” the company said in the document. Wanda Group said March 30 it was considering offering HK$48 or more for the developer’s Hong Kong shares, causing the stock to surge as much as 22 percent the following day. Bloomberg News
M&A
Domestic and Japanese suitors eye sale of CIT plane leasing unit CIT, among the world’s top 10 lessors, has said it is looking to sell or spin-off its Commercial Air unit by the end of the year as it focuses on domestic banking. Anshuman Daga and Denny Thomas
U.S. lender CIT Group Inc has kicked off the sale of its aircraft leasing assets by inviting more than a dozen entities to consider bidding, including China’s HNA Group, Industrial and Commercial Bank of China’s ICBC Leasing, and Japan’s Orix Corp, sources familiar with the matter said. The sale of CIT’s Commercial Air unit could fetch between US$3 billion to US$4 billion, with Century Tokyo Leasing, sovereign wealth fund China Investment Corp, CDB Leasing, plus some global pension funds and insurers, also invited to bid for the assets, the sources added. The strong line-up of Chinese and Japanese suitors
in the auction underscores the growing importance of cashed-up Asian lessors who are pouring billions of dollars into a sector that offers stable, long-term and dollar-based revenue. It also signifies the shifting balance of the global
‘The strong line-up of Chinese and Japanese suitors in the auction underscores the growing importance of cashed-up Asian lessors’
aviation industry to Asia, which is seen as the engine of growth. First-round bids for CIT’s leasing arm, which owns, finances and manages a fleet of more than 350 planes, are due in June, said the sources, who declined to be named as the information has not been publicly disclosed. CIT
Commercial Air has assets valued at around US$11 billion. CIT, among the world’s top 10 lessors, has said it is looking to sell or spin-off its Commercial Air unit by the end of the year as it focuses on domestic banking. “We do not comment on price or participants in the process,” a CIT spokesman said when
asked about the auction. A spokeswoman from China’s HNA Group said the company was not aware of a possible bid. Orix, Century Tokyo Leasing and ICBC Leasing, a unit of ICBC, declined to comment. CIC did not comment. CDB Leasing could not be reached for comment. Reuters
Business Daily Tuesday, May 31 2016 11
Asia Payment systems
New credit card scrutiny sends Indonesians back to cash A new government decree requiring credit card providers to submit transaction details appears to be scaring consumers with card activity falling in April. Gayatri Suroyo and Fransiska Nangoy
I
ndonesia’s plan to track all credit card transactions in a bid to crack down on rampant tax evasion is pushing people back to cash, stifling government efforts to track illicit money flows. A new government decree requiring credit card providers to submit transaction details - including customer and merchant identities - to the tax office as of May 31 appears to be spooking consumers with card activity falling in April. The return to paper currency in the already heavily cash-based economy is a temporary setback not only for the government’s drive to boost tax revenues but also its fight against money laundering, corruption and terrorism finance.
And for consumers wary of increasing scrutiny on their transactions, a preference for paper means carrying around envelopes full of hundreds of bank notes in a country where the largest currency denomination is 100,000 rupiah. Erwin Karya, a Jakarta-based associate director with real estate agent Ray White, said clients were now starting to use cash instead of card to pay property booking fees - non-refundable deposits used to book properties before home downpayments. “People don’t want to risk swiping credit cards for booking fees,” he said. “For 10-25 million (rupiah), they just pay in cash for the booking fee.” Indonesian central bank data showed credit card transaction values dropped 4 percent in April from
the same month a year ago, the first on-year decline in the six years of public data records. The number of credit card transactions, meanwhile, fell by two million in April from a month before, to 23.7 million transactions. Bank Central Asia, one of the largest credit card providers, saw its transactions fall 15 percent and card cancellations more than double in April, head of the bank’s consumer card business Santoso told Reuters. “I don’t think they’re all avoiding
Key Points Indonesia seeks to boost tax revenue Wants to monitor all credit card transactions from May 31 Card payments dropped 4 pct in April, first dip in 6 years Move to cash makes it difficult to fight illicit flows
taxes, but some did say they feel their privacy disturbed - they’re not comfortable,” Santoso said, noting most of the cancellations came from self-employed individuals. Other providers face the same problem, said Steve Martha, chairman of Indonesia’s credit card issuers association. “People should be incentivised to use cards, not penalised,” he said. Cash, which in Indonesia is already used for 85 percent of transactions, is difficult to track, making it challenging for governments to fight money laundering, corruption and terrorism financing. About 7-8 million Indonesians own credit cards, some using more than one, for a total of 16.9 million credit card, catered by 22 banks and one non-bank issuer. These include the country’s biggest banks Bank Mandiri, Bank Central Asia, and foreign players like HSBC, Citibank and Standard Chartered. Under pressure from falling exports, Jakarta launched last year measures to boost tax revenues, including a tax amnesty for those willing to relocate back home money hidden in offshore accounts. Only 10 percent of Indonesia’s 250 million population are registered with tax authorities and annual tax revenues amount to 11 percent of gross domestic product, $30 billion less than what it should be, President Joko Widodo has said. Credit card bills and other electronic payments can be effectively used to track down corruption cases, said Agus Santoso, deputy head of Indonesia’s Financial Transaction Reports and Analysis Centre. It will be harder to prove cases if people go back to cash, he said, but he didn’t expect the trend to last in the long run. “There’s no way people choose to carry millions of rupiah in cash in a bulging wallet to pay for high-end stuff,” he said. Finance Minister Bambang Brodjonegoro stood by his decree. “If there are things that they are afraid to declare, it means their income is more than what they say to the tax office,” he told reporters on the side-lines of a conference in Jakarta earlier this month. Reuters
M&A
Philippines’ telcos consolidate with San Miguel assets acquisition While the deals will reinforce the two leading companies, it also will allow for a third competitor to enter the market. Neil Jerome Morales
The Philippines’ top two telecoms firms agreed to b u y c o n g l o m e rat e Sa n Miguel Corp’s assets in the sector for nearly US$1.5 billion in a joint deal they said will significantly upgrade slow internet services that have been a drag on one of Asia’s fastest-growing economies. In separate statements yesterday, Philippine Long Distance Telephone Co and Globe Telecom Inc said they will acquire subsidiaries of food-to-power group San Miguel that include a prized 700-megahertz frequency. The transaction is valued at 69.1 billion pesos (US$1.48 billion), they said. PDLT and Globe will each acquire 50 percent of the San Miguel telecoms business just a few months after San Miguel’s attempts to seal a joint venture with
Australia’s Telstra Corp Ltd collapsed. The deal is subject to shareholder and regulatory approvals. Internet connectivity in the Philippines is among the slowest in the world, according to data analytics firm Ookla, despite the country’s rapid economic growth. The country’s president-elect, Rodrigo Duterte, last week warned telecoms players to shape up or face the prospect of foreign competition. While the deals will reinforce the leading pair’s grip on the market, PLDT and Globe both said they will return certain radio frequencies to the government, allowing for a third competitor to enter the market. Speaking at a news conference after the deal was announced, Ray Espinosa, PLDT’s head of regulatory affairs, said the deal won’t require the approval of the Philippines’ Congress.
While additional bandwidth will be good for the incumbent telecom players, sector watchers said, new entrants are seen facing steeper hurdles. “It’s not that easy to come in,” Wilson Sy, director of Philequity Management Inc, a Manila-based fund management company that handles more than 20 billion pesos (US$427 mln) in assets, told Reuters. “Capital expenditure is so huge...Additional players will find it difficult versus those who are entrenched.” Reuters
Key Points Sale follows collapse of talks between San Miguel, Telstra Deal to cure country’s slow internet connectivity buyers Some assets to be returned to govt for sale to future rival Steep hurdles for potential new entrants - fund manager
12 Business Daily Tuesday, May 31 2016
Asia HHRR
Noble Group’s CEO resigns in surprise move The company came under the spotlight in February last year when it was accused of overstating its assets Anshuman Daga
E
mbattled c o m m o dity trader Noble Group announced the surprise resignation of CEO Yusuf Alireza yesterday and said it planned to sell a U.S. unit to bolster its balance sheet as it seeks to regain investor confidence. Alireza, a former Goldman Sachs banker had steered Asia’s biggest commodity trader to sell assets, cut
business lines and take big writedowns as it battled weak commodity markets and the fallout from an accounting dispute. “With this transformation process now largely complete, Mr. Alireza considered that the time was right for him to move on,” Noble said in a statement. It appointed senior executives William Randall and Jeff Frase as
co-chief executive officers and said it would begin a sale process for Noble Americas Energy Solutions, “expected to generate both significant cash proceeds and profits to substantially enhance the balance sheet.” Noble came under the spotlight in February last year when it was accused by Iceberg Research of overstating its assets by billions of dollars, claims which Noble rejected. Its shares have since plunged by about 75 percent and its debt costs have risen as the company has been hit hard by credit rating downgrades and weak investor confidence. “The first task is to stabilize the situation and convey stability and continuity,” said Nirgunan Tiruchelvam, an analyst at Religare Capital Markets. “That would be the immediate task of somebody in this business which has volatility,” he said. Noble won the backing of banks earlier this month to refinance its debt. In February, Noble reported its first annual loss since 1998, battered by a US$1.2 billion write-down for weak coal prices. The company’s shares slumped 65 percent last year, knocking it out of the benchmark Straits Times index. Reuters
Key Points Yusuf Alireza moving on after transformation -company Sale of U.S. energy solutions unit to unlock cash Two senior executives appointed as co-CEOs
Portfolio reshuffle
Japan’s Mizuho sees assets shrinking The bank plans to reduce the unprofitable portion of mortgage loans Taiga Uranaka and Taro Fuse
Mizuho Financial Group’s US$1.8 trillion of assets are set to shrink over the next three years as the lender plans to reduce holdings of mortgage loans and bonds to counter higher regulatory costs and ultra-low returns, its CEO said. A reduction in assets will be a major shift for Japan’s
second-largest lender which has grown assets by nearly a third over the past decade. Mizuho CEO Yasuhiro Sato also said the lender will hold off on large-scale acquisitions that cost billions of dollars amid concerns about the global economic outlook. “An acquisition of a U.S. bank, for instance, would cost at least 1 trillion yen (US$9.1
billion). Under the current uncertain environment, an investment of such scale has been moved back,” he told Reuters in an interview. The bank continues to look for acquisition opportunities and is targeting Asia’s banks, brokerages and asset management companies, he added. “Deals like 100-200 billion yen are within our scope,” he said. Relatively unscathed by the global financial crisis of 2008, Mizuho and rival Japanese banks have built up
Key Points Says US$1.8 trln assets likely to shrink over three years To reduce unprofitable loans including low-rate mortgages To hold off on large scale acquisitions amid uncertainty ultra-low interest rate loans by not rolling them over. He also said the bank will reduce holdings of bonds used for trading activities. The bank plans to reduce the unprofitable portion of mortgage loans, which can be done by tying up with regional lenders outside major cities, instead of engaging in a race-tothe-bottom competition nationwide, he said. Banks now have to consider attracting younger generations with convenience and new services, Sato said. “And this is where fintech can be utilised.” Sato said the bank plans to launch a new business teaming up with fintech (financial technology) companies and it is currently studying several possibilities. He declined to elaborate. Mizuho is also trying to transplant its successful bond underwriting business in the United States to Europe and Asia, Sato said. Reuters
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their assets by aggressively expanding overseas. But regulators globally are now requiring banks to set aside more capital to withstand shocks like the collapse of Lehman Brothers in 2008, making it costlier for banks to own assets. The Bank of Japan’s negative interest rate policy has further driven down already ultra-thin returns from loans, adding pressure on Mizuho and rivals to review their asset portfolio. Sato said the bank will continue to expand assets in growth areas but will trim unprofitable assets such as
Business Daily Tuesday, May 31 2016 13
Asia Stock exchange
In Brief
Economic zone becomes fourth firm to list on Cambodian bourse Cambodia Securities Exchange’s CEO said more work was needed to attract new listings on the bourse Prak Chan Thul
A Cambodian special economic zone debuted on the domestic stock market yesterday after an initial public offering raised around US$8.2 million, becoming only the fourth company to list on the country’s stock exchange. The Cambodia Securities Exchange (CSX), a joint venture with South Korea’s bourse, was launched in 2011 but has struggled to attract listings as domestic firms have been reluctant to commit to the level of transparency required and
have grappled to meet listing rules. The Phnom Penh Special Economic Zone (PPSEZ), operator of a 357-hectare park on the outskirts of the Cambodian capital Phnom Penh, had offered 11.5 million new shares priced at 2,860 riels (US$0.71) each. “Our decision to go public is rooted in our desire to keep growing,” said Cambodian tycoon Lim Chhiv Ho, chairwoman of PPSEZ, at an official opening ceremony in Phnom Penh. PPSEZ’s shares opened at 2,840 riels each and then hit a high of 2,980 riels
before retreating to 2,900 riels. CSX’s CEO said more work was needed to attract new listings on the bourse. “Even though there are good companies listed, the choices are few for investors,” CSX CEO Hong Sok Hour said, adding that
“Our decision to go public is rooted in our desire to keep growing” Lim Chhiv Ho, Cambodian tycoon, Chairwoman of Phnom Penh Special Economic Zone
the exchange plans to offer free-of-charge advice service to firms and will launch a new platform so that small and medium size companies can list. Many Cambodian firms are unwilling to provide financial statements or to comply with taxation laws, according to investors. The other three firms listed on the bourse are state-run Phnom Penh Water Supply Authority, Taiwanese garment maker Grand Twins International and the state-run Phnom Penh Autonomous Port. Chhiv Ho said that the funds from the IPO will be used to expand the PPSEZ and a new 53-hectare zone near the Thai-Cambodia border that aims to attract foreign investors. Reuters
Military industry
Indian missiles, copters, subs - Ambani’s ambitious defence plan Reliance’s ambition is greeted with scepticism by many in the defence world. Paritosh Bansal, Sanjeev Miglani and Promit Mukherjee
Anil Ambani’s Reliance Group has never made a military helicopter, missile system or submarine in its history but that isn’t stopping the Indian tycoon from seeking to win contracts to manufacture all of that military hardware and more. Known for taking some ambitious bets over the past decade, some of which have failed to deliver, Ambani’s plans to turn Reliance into a major defence company may be one of his boldest yet. It has already bid for 840 billion Indian rupees (US$12.5 billion) in Indian government contracts, senior executives said, though it hasn’t yet won any of those. The success of the strategy will depend partly on whether he can persuade government officials and international partners that he can build sophisticated equipment and partly on whether Prime Minister Narendra Modi can get India’s notoriously slow procurement process to work. Modi has made defence a big part of his “Make in India” programme. As part of any defence contract, he is demanding foreign companies tie up with a local partner, transfer technology and move some manufacturing to India. At stake is US$250 billion in defence contracts the government is expected to award over the next 10 years as it looks to upgrade the military’s aging equipment. “We hope to have a significant share of this pie,” said R K Dhingra, chief executive of Reliance Defence. He predicted the company will “emerge as a key player in the defence sector over the next few years.” An Indian military official involved in defence procurement said Reliance is overreaching in wanting to make everything from ships to planes. Some rivals and potential partners for the contracts said Reliance will struggle to master the manufacture of such a wide range of sophisticated military hardware. “There is no quick money in this branch,” said Jan Widerstrom, head of Saab India Technologies, a unit of Saab AB . “It requires a lot of experience, high tech culture, investments and a long-term business plan.” Still, Saab and Reliance are working
together in developing the next generation Combat Management System for the Indian Navy and Coast Guard. Recently, Reliance’s lack of experience and questions about its ability to handle sensitive technology and intellectual property counted against it in its bid to partner with the Russians to build 200 Kamov helicopters, said a Russian diplomat in New Delhi, who declined to be identified in this story because they weren’t speaking in an official capacity. The contract, estimated to be worth a little over $900 million went instead to Indian state-controlled company Hindustan Aeronautics Ltd. Ambani should identify core areas and concentrate on them rather than “be an inch deep and a mile wide,” said Nitin Gokhale, founder of defence website Bharat Shakti.
Reliance group
The Reliance conglomerate split into two in 2005 after a bitter feud between Anil Ambani and his older brother, Mukesh. The latter got the flagship Reliance Industries, with interests in petrochemicals, oil and gas exploration, refining and textiles. Anil got telecoms, power, entertainment and financial services businesses. But some of his businesses struggled, especially an ill-timed foray into infrastructure, and debt piled up. Its Reliance Infrastructure arm, which includes the defense operations, aims to be debt free in the current financial year ending March 2017, according to Lalit Jalan, who is acting CEO of the unit. To get there it plans to sell assets, including road projects and a stake in a power distribution company for about 180 billion rupees, according to another senior Reliance executive.
“We hope to have a significant share of this pie” R K Dhingra, Chief Executive of Reliance Defence.
Ambani entered the defence sector last year, when he took a controlling stake in a company that made warships and energy exploration vessels, in Modi’s home state of Gujarat, called Pipavav Defence and Offshore Engineering Co Ltd, for about 20 billion Indian rupees. That became Reliance Defence and Engineering Ltd. Since then, Reliance has bought hundreds of acres of additional land to build an aerospace facility and another shipyard in other parts of the country. It has also signed more than half a dozen joint venture agreements with foreign companies, including one with Rafael Advanced Defence Systems of Israel, to bid for Indian government contracts as they come up. An Israeli defence industry source said for Rafael the idea is that if it wins tenders, Reliance will produce some components for missiles and other systems.
Building experience
Ambani has said that lack of experience is being held against his company. “Despite a committed reformist mindset at the top, we are still seeing opportunities being denied to new players on grounds of lack of experience,” Ambani told a ‘Make in India’ summit on defence in March. Reliance Defence has been building an experienced team. Dhingra earlier headed Lockheed Martin’s India operations, and the company has hired a slew of senior army and navy officers who have executed large defence projects from conception to delivery, the Reliance executive said. The group’s experience in managing complex projects in India, including building roads and power plants should help it, the executive said. For design, technology and complicated weaponry, Reliance would have a foreign partner, he noted. Reliance expects to spend up to 20 billion rupees over the next three years in upgrading facilities as it gets business, keeping its outlay low as it waits for contracts, the executive said. Thanks to its Pipavav shipyard, Reliance expects the naval part of its business to be the first to take off, he said. It plans to bid for a US$7.5 billion submarine contract that the government is expected to give out to replace the navy’s ageing and accident-prone fleet and narrow the gap with rival China’s rapidly modernizing fleet. Ambani also has plans to bid for contracts in the future to make nuclear-powered submarines. Reuters
Department store
South Korean sales growth at 3-mth high South Korea’s department store sales in April rose at their fastest pace in three months, final government data showed yesterday, as warmer weather and more holidays in the month pried open consumers’ wallets. Combined sales at department stores run by Hyundai Department Store, Lotte Shopping and Shinsegae Co rose 4.3 percent in April from a year earlier, the Ministry of Trade, Industry and Energy said. This accelerated from a 0.3 percent growth in March and was the best performance since a 9.0 percent jump in January. Industry survey
Australia's new homes sales fall in April Sales of new homes in Australia fell in April after a surprisingly strong surge the previous month, an industry survey showed yesterday, an outcome that still pointed to healthy home construction. The Housing Industry Association (HIA) said its survey of large-volume builders showed new home sales fell a seasonally adjusted 4.7 percent in April, down from March when they jumped 8.9 percent. “The trend in new home sales reiterates that the peak for the cycle has passed, but the descent we’re now observing is very mild,” said HIA Economist Diwa Hopkins. Virtual currency
Australia to auction confiscated bitcoins Around A$16 million (US$11.49 million) worth of confiscated bitcoins will be auctioned in Sydney next month, the first such auction outside the United States, as demand for the digital currency surged to its highest in nearly two years. The sale will take place on June 20-21 and involve 24,518 coins, said auction organiser financial services group Ernst and Young yesterday. U.S. Marshals auctioned off more than 170,000 bitcoins in 2014 and 2015, confiscated after the closure of Silk Road, a black market website. Trades involving the Chinese yuan are estimated to account for as much as 95 percent of bitcoin’s trading volume. Commodities
Indonesia says coal output to fall next year Indonesia expects its coal production to edge down in 2017, as smaller miners cut output due to lower prices for the commodity, a government official said yesterday. It’s natural selection. The small mines that are not efficient will not be strong and will die,” Bambang Gatot, director-general of coal and minerals, told reporters at an industry event. Smaller miners are expected to face difficulty marketing their coal and “will face obstacles”, Gatot said. Indonesia is expected to produce 419 million tonnes this year and 409 million tonnes in 2017, Gatot said.
14 Business Daily Tuesday, May 31 2016
International In Brief Reforms
Greece tells lenders it can’t implement extra demands Greece has told its European and International Monetary Fund creditors it cannot implement some of the extra changes sought in exchange for fresh bailout loans, three sources close to the talks said yesterday. The move, if confirmed, could further delay the disbursement of the bailout funds which Athens badly needs to pay off IMF loans in June and European Central Bank bonds maturing in July and increasing state arrears. Last week, after months of negotiations, Greece and its lenders concluded a key bailout review, opening the way for debt relief that Greece has long desired. Monetary critics
Schaeuble says ECB not pursuing best for Germany German Finance Minister Wolfgang Schaeuble said yesterday that the European Central Bank’s responsibility for the entire euro zone meant the institution was not implementing the best monetary policy for Germany. He said it was necessary to recognise that “the ECB has to pursue a policy in a currency union for all 19 member states that is not the optimal monetary policy for Germany”. Schaeuble also said that all institutions, including the ECB, needed to be open to being debated publicly. In recent weeks the ECB has been subject to criticism from some German politicians for its ultra-low interest rates.
Nigeria currency
Buhari leaves traders guessing on devaluation prospects President said that he would “keep a close look at how recent measures affect the naira and the economy.” Robert Brand and Elisha Bala-Gbogbo
N
igerian President Muhammadu Buhari’s Sunday speech has left foreign-exchange traders with little clue as to the fate of the naira. Far from clarifying the government’s approach on the currency, following central bank Governor Godwin Emefiele’s pledge last week to adopt a more flexible exchange-rate policy, Buhari’s words have left the market as confused as ever. While Lagos-based Financial Derivatives Co. saw a change of tack from the president - who once likened letting the currency weaken to “murder” - NKC Independent Economists said he signalled continued resistance to reducing the naira’s value. “Based on the president’s recent comments, it is clear he remains firmly opposed
to the idea of a devaluation,” Cobus de Hart, an analyst at Paarl, South Africa-based NKC, said in an e-mailed response to questions yesterday. “Whether this implies that he may overturn the Central Bank of Nigeria’s decision to allow more flexibility in the interbank market remains to be seen, but what has become more clear is that, even if the CBN goes ahead and introduces some sort of new foreign-exchange arrangement for the interbank market, it will likely not be a fully flexible regime.”
Flexible system
Emefiele said on May 25 a more flexible exchange-rate system would be unveiled “in the coming days,” sending naira forward contracts to record highs as traders anticipated a devaluation. Nigeria has held the naira at 197-199 per dollar since March 2015, even as other
oil exporters from Russia to Colombia and Malaysia let their currencies drop amid the slump in crude prices since mid-2014. Foreign reserves dwindled as the central bank of Africa’s largest oil producer defended the peg, while foreign investors, fearing a devaluation, sold Nigerian stocks and bonds. Buhari, who has opposed weakening the currency since coming to power last year, didn’t specifically refer to the central bank’s statement in a speech Sunday marking his first year in office. He said only that he would “keep a close look at how recent measures affect the naira and the economy.” “We cannot get away from the fact that a strong currency is predicated on a strong economy,” Buhari said. “The measures we must take, may lead to hardships.” Nigeria’s economy - Africa’s largest - is headed for a recession, Emefiele said last week as the central bank left its policy rate on hold. Gross domestic product fell by about 0.4 percent in the three months
Euro-area
Economic confidence improves Euro-area economic confidence rose for a second month in May as the European Central Bank prepares to present updated economic projections that could provide further clues about the impact of its stimulus program. An index of executive and consumer sentiment increased to 104.7 from a revised 104.0 in April, the European Commission in Brussels said yesterday. That’s the highest level in four months and compares to a median estimate for an increase to 104.4 in a Bloomberg News survey of economists. ECB officials meeting in Vienna on Thursday are expected to keep their ultra-loose policy unchanged. Easing transactions
Danske bank eliminates human element Danske Bank A/S is pitching a new product to help clients net their currency transactions and reduce the need for human traders. The second-biggest Nordic bank won a contract last week with Sweden’s government to provide the service and is now using that success to attract corporate clients. “For Danske Bank to be the primary, one-and-only supplier of cash management and foreign currency dealing to the Swedish state - that’s not something I will stop talking about with clients,” said Johan Wennerberg, head of cash management at Danske’s Swedish corporates and institutions division.
“The antidevaluation lobby has succumbed to the reality of the day.” Bismarck Rewane, Chief Executive officer at Financial Derivatives
through March from a year earlier - the first quarterly contraction since 2004 - as oil output slumped amid militant attacks on pipelines and as the central bank’s foreign-exchange restrictions led to shortages of imported goods, including fuel. That left the central bank - and Buhari - no choice but to let the currency weaken, said Bismarck Rewane, chief executive officer at Financial Derivatives. “Nigeria has been compelled to make a currency adjustment because of market forces and the deteriorating state of the economy,” Rewane said by phone on Sunday. “The anti-devaluation lobby has succumbed to the reality of the day.” Emefiele said last week the central bank would allow the currency to trade at a market-related level on the interbank platform while continuing to allocate dollars at a fixed rate to strategic industries. Buhari’s comments “raise concern in relation to what proportion of trade will be shifted to the interbank market, assuming the CBN’s decision is not overturned completely,” De Hart at NKC said. Bloomberg News
Crude market
Iraq joins Middle East rivals increasing oil exports The new supplies risk delaying a re-balancing of a global market still awash with oil Florence Tan and Rania El Gamal
Iraq will supply 5 million barrels of extra crude to its partners in June, industry sources familiar with the issue said, joining other Middle East producers by lifting market share ahead of an OPEC meeting this week. Iraq, which is the second-largest producer in the Organization of Petroleum Exporting Countries (OPEC), had already been targeting record crude export volumes from southern terminals next month of 3.47 million barrels per day. Saudi Arabia, Kuwait, Iran and the United Arab Emirates, also plan to raise supplies in the third quarter. A recovery in global oil prices from 12-year lows to above US$50 a barrel and rivalry between Saudi Arabia and Iran have dampened expectations that OPEC will rein in supplies at Thursday’s meeting. While additional exports could make up for shrinking output and supply disruptions elsewhere, the
new supplies also risk delaying a re-balancing of a global market still awash with oil. “OPEC is indeed increasing supplies, practising their market share first strategy,” said Victor Shum, managing director of downstream energy consulting at IHS, referring to a Saudi-led drive to boost OPEC’s production to take back market share. He said that additional oil from Saudi and Iraq may slow down a re-balancing of the global market, although this could be countered by supply disruptions from other places and strong seasonal demand. Iraq’s Oil Marketing Company (SOMO) allocated 5 million more barrels of Basra Light crude loading in June to upstream partners including PetroChina, Eni and Lukoil, three sources familiar with the matter said.
Key Points Iraq allocates 5 mln bbls more Basra Light to partners in June Joins other Middle East producers in raising supplies in Q3 Rising Mideast production may delay re-balancing of market
Foreign companies are paid in oil under technical service contracts (TSCs) signed with SOMO, although payments have been delayed after the oil price drop squeezed Iraq’s budget. A Gulf industry source said the additional oil was given “because of the pressure from the TSC contractors”. Iraq is also obligated to meet payments to contractors as part of conditions of an International Monetary Fund loan, he said. The additional supplies come from an expansion of the Luhais and Artawi fields in southern Iraq. Iraq wants to increase its oil output by up to a third by 2020. SOMO could not be immediately reached for comment. A source from one of the companies that received the oil said the additional 1 million barrels of Basra Light was sold two hours after SOMO’s notification, signalling that demand for Iraqi crude remained firm amid expectations the official selling prices (OSPs) would rise in July. Still, spot premiums for June supplies have dropped to 40-80 cents a barrel, down from more than US$1 in May, on the big export volume and a rise in June’s OSPs, traders said. Reuters
Business Daily Tuesday, May 31 2016 15
Opinion Business Wires
BANGKOK POST The Securities and Exchange Commission (SEC) is considering imposing civil sanctions, meaning tougher penalties, for unfair securities trading practices such as insider trading and share manipulation. The criminal law for fraud will be maintained. The new rule would allow the SEC to fine offenders up to three times the amount of benefits received, said Somchai Pongpattanasin, SEC assistant secretary-general. The current law governing unfair trading practices sets the maximum fine at two times of offenders’ benefits but grants a 50% discount as clemency if offenders decide to settle the case.
THANH NIEN NEWS Vietnam’s central bank has permitted commercial lenders to resume dollar loans to export businesses starting June 1, two months after it banned that activity, amid economic difficulties. In a circular released on Friday, the State Bank of Vietnam said that local banks and subsidiaries of foreign banks are allowed to offer short-term dollar loans to export companies until the end of this year as long as these companies will be able to pay off their debts from their export revenues. On March 31 the central bank tightened dollar lending in an attempt to prevent dollarization.
Alibaba’s emptying cave shows a scramble for growth
THE STRAITS TIMES AirAsia Bhd, the region’s biggest discount carrier, got an offer of about US$1 billion to buy its aircraft-leasing company, amid a surge in the business in the continent. The airline intends to divest the business at some point, group chief executive officer Tony Fernandes said in an interview with Bloomberg Television on Monday (May 30). The offer for Asia Aviation Capital Ltd, the leasing company that’s fully owned by AirAsia, needs to be discussed further with the board, Mr Fernandes said, declining to offer further details.
W
THE STAR Exports of Malaysia’s plastics industry registered a 8.5% growth from RM11.94 billion in 2014 to RM12.96 billion in 2015. Malaysian Plastics Manufacturers Association (MPMA) president Datuk Lim Kok Boon said in a statement that moving forward, the industry would face challenges such as managing rising costs. This is particularly, with the impending increase in minimum wage, effective July 2016. Other challenges, he added, include the more stringent criteria and increased processing fees of employing foreign labour, the goods and services tax issue, sustainability issues, competition with emerging economies and a mild recovery in the economies of the European Union and Japan.
hen the Persian woodcutter Ali Baba found a cave full of treasure hidden in the forest, he didn’t spend it all at once. He took home just enough to live on comfortably, and passed on the secret to his children, and his children’s children, and his children’s children’s children. That’s a good way of making the most of a finite store of wealth. So it’s striking that Alibaba, the Chinese e-commerce company whose accounting is under investigation by the SEC, has taken exactly the opposite approach. The company raised US$25 billion in the world’s biggest initial public offering. Billions more have come in since then through bonds and loans. Suppose the core business isn’t making as much as investors suppose. What do you do with the cash? Sceptics have frequently raised questions about Alibaba’s numbers. Its growth numbers seem improbable and figures for spending strain credulity, Barron’s argued last September. “The numbers are wonky,” according to John Hempton, of Sydney-based fund Bronte Capital. Jim Chanos, the hedge fund manager who made his name betting against Enron, is shorting the stock “for accounting reasons,” he told CNBC earlier this month. If you wanted to keep all your plates spinning for as long as possible - perhaps long enough for the core business to catch up with the world’s perception of it - kicking all that cash back out the door on acquisitions would be an odd method. But that’s what Alibaba’s been doing.
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David Fickling a Bloomberg columnist
companies. About US$12 billion of its post-IPO acquisitions have been of shares traded on public markets, such as those of the online video company Youku Tudou, the dating app Momo, and the baby-clothes retailer Zulily. Its private deals have been solid, too: In the last six months alone, Alibaba put down US$1 billion on the ride-sharing app Lyft and another US$1 billion on Lazada, a Southeast Asian online retailer whose shareholders, including Tesco, Rocket Internet, and Investment AB Kinnevik, presumably would notice if they weren’t getting paid. The deals don’t make much sense as a way of bringing other companies’ cash flows in-house, either. The three public companies Alibaba has taken control of since its IPO - Youku Tudou, Momo, and the Chinese lotteries business AGTech - have racked up net losses of US$361 million over the past eight quarters, while operating cash flows came to just US$61 million, according to data compiled by Bloomberg. That’s a poor return on the US$6.8 billion in cash it paid for them. Here’s an alternative theory: Regardless of any potential issues around how it accounts for its affiliated logistics business and some of the hardto-compute numbers generated by its Singles Day promotion, the major issue worrying Chairman Jack Ma is that Alibaba is approaching the limits to growth in its core business. It has an already dominant market share, and Chinese retail spending looks to be nearing a peak. Alibaba generates a lot of cash and is spending it looking for new revenue streams to justify the ample valuation it’s been given by public markets. Investors should stop wasting time worrying about whether the company is a house of cards, and start asking the harder questions about whether its boring old core business is running out of puff.
...the major issue worrying Chairman Jack Ma is that Alibaba is approaching the limits to growth in its core business
Acquisitions since IPO
Since its September 2014 IPO, the company has shelled out US$24 billion for acquisitions, according to data compiled by Bloomberg. Alibaba’s New York-listed shares, on an average forward P/E multiple of 28 since listing, represent a pretty attractive acquisition currency that could be used in place of precious cash reserves. In fact, all but US$530 million of the total has been plain-vanilla cash deals, the data show: Nor is Alibaba buying into obscure private
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Bloomberg News
16 Business Daily Tuesday, May 31 2016
Closing Opening markets
Latest China debt moves may bring index inclusion
about attracting foreign capital” and there is now a greater probability of its government bonds (CGBs) entering global benchmark indexes, according to JPMorgan, which Chinese government bonds could receive at least US$155 runs the most widely used emerging bond indexes. “The billion of investment flows should the relaxation of rules potential inflow impact for China is significant if CGBs around foreign participation lead to their inclusion in various global indexes, JPMorgan said yesterday. China has are to be included in GBI-EM (emerging index) and other frequently used cross-over investment grade indices. In been gradually easing foreigners’ access to onshore debt markets and on Friday the state foreign exchange regulator our estimate, China could see potential (passive) inflows of US$155 billion as a result of inclusion by three major index said foreign institutions would be allowed to remit funds providers,” JPM told clients in a note. Reuters freely. The latest developments suggest China is “serious
Urbanisation
For many Chinese migrants, the lure of the city is fading Analysts say mainland’s massive stock of unsold homes is evidence that the urbanisation drive is faltering Brenda Goh and Clare Jim
A
fter two decades trying to make a life in China’s entrepreneurial city of Wenzhou, Ji Shouquan and his brother Shoufang are ready to head home. They say they have no hope of stepping onto the city’s housing ladder and it is getting more difficult to earn a decent wage. China is relying on millions of internal migrants taking up jobs in cities to boost the urban population and consumption. It hopes this will fuel more sustainable long-term economic growth and reduce the country’s reliance on big industry and exports that powered the country’s rise in the last three decades. But migration is slowing down and workers are more reluctant to travel across the country to find jobs, trends that could undermine these efforts. “It’s really tough to make money,” said Shouquan, who earns about 5,000 yuan (US$767) a month as a sound technician in a karaoke lounge. “Of the six or seven friends who used to work at the KTV, only two of us are still holding on. Most have gone home.” His taxi-driver brother, Shoufang, said that’s what they’ll probably end up doing too. Both have scrimped enough to buy property in their home town of Fuyang in the largely agricultural province of Anhui in eastern China, where home prices are about a fifth of the cost of Wenzhou, which is in the neighbouring province of Zhejiang. “It’s unrealistic for migrant workers
like us to buy in Wenzhou, unless you’ve got your own business,” Shoufang said. Government data shows that the number of migrant workers in 2015 reached close to 169 million. But that was up just 0.4 percent from 2014 - the weakest rise since the global financial crisis in 2009. The number of migrants searching for jobs outside of their home province dropped 1.5 percent - the first decline in six years. The government wants 60 percent of its population of almost 1.4 billion to be urban residents by 2020, up from 56.1 percent in 2015. Analysts say China’s massive stock of unsold homes is evidence that the urbanisation drive is faltering as migrants struggle to build a future away from their villages or towns. Despite some signs that house prices are recovering from a downturn, official data shows that the inventory of unsold homes in China rose in the year to April by 4.5 percent to 450 million sq metres.
M&A
The National Development and Reform Commission, the state planning agency, did not immediately respond to a request for comment. Housing built in many third-and fourth-tier cities was initially designed to absorb demand from the government’s urbanisation drive. But a lack of job prospects and access to social services has meant migrants continue to take their chances in China’s biggest and most expensive urban centres - or head back home. “Urbanisation should be based around human beings, and not just driven by man-made cities,” said Wang Jun, a senior economist at China Centre for International Economic Exchanges, a Beijing-based think-tank. However, some industry watchers said the main impediment to migrants buying homes and settling in other cities is a lack of access to local services, such as free schooling for their children and healthcare. Under China’s system of internal passports, or hukou, migrants in search of better jobs in urban areas leave behind the public services they are entitled to as residents of their home towns and villages. Losing such privileges discourages many from
leaving in the first place. “If China’s urbanisation was growing at its planned rate there would not be any (housing) oversupply. The main bottleneck for China’s urbanisation is the issue of hukou,” said Alan Chiang, managing director of Shenzhen-based real estate consultancy DTZ. Newcomers to a city are less likely to spend money if they do not have the social safety net that hukou brings, such as providing access to medical insurance and basic education, analysts say. On a more practical level, hukou is needed if a person wishes to marry or open a bank account. While Beijing is encouraging cities to provide more hukou, local governments place a cap on them to avoid a drain on local resources. Economists estimate China can meet its migration goals, but they say cities are falling behind in providing hukou to migrants. By 2020, China wants 45 percent of the people living in an urban setting to have hukou, compared with 36 percent in 2013. “Hukou and high property prices are two overlapping issues; hukou is actually the first hurdle. You want to have a hukou, but in order to get a hukou, you have to have a substantial investment in a certain place,” said Siah Hwee Ang, who covers China affairs as a professor of the School of Marketing & International Business at Victoria University of Wellington. “But it’s not as if a lot of money will solve your problems. So housing is actually the second problem, rather than the first.” Reuters
Key Points Government aims to boost urban population, increase consumption Hopes migrants take up jobs in cities, become bigger consumers But pace of internal migration slowing down in China Migrants seeking work outside of their home province is falling
Intellectual property
Finance Minister
China Life, China Taiping Disney vows to guard rights Thailand plans to double interested in S.Korea insurer as Snow White seen at Wanda park tax breaks for new projects China Life Insurance and China Taiping Insurance have expressed initial interest in acquiring ING Life Insurance Korea in a sale that could fetch about US$3 billion, two sources with direct knowledge of the deal said yesterday. Kyobo Life Insurance, which previously confirmed it had placed an initial bid to buy South Korea’s fifth-largest life insurer, was dropped by seller MBK Partners, one of the sources said. The sources declined to be identified as the sale process was confidential. Increased Chinese interest in ING Life Insurance Korea follows Anbang Insurance Group’s purchases of German insurer Allianz’s South Korean businesses for more than US$3 million in April and last year’s purchase of a 63 percent stake in the country’s Tongyang Life Insurance for 1.1 trillion won (US$923.80 million). Private equity firm MBK acquired the life insurer for 1.8 trillion won from the Netherlands’ ING Groep in 2013. At the time, MBK agreed to use the ING brand for five years. ING Life Insurance Korea has 30 trillion won in assets, with book value of 4.2 trillion won by end-2015. Reuters
Walt Disney Co. said it’s prepared to take action to protect its intellectual property rights after performers dressed as Snow White and Captain America were sighted at Dalian Wanda Group Co.’s new theme park and entertainment complex in China. “We vigorously protect our intellectual property and will take action to address infringement,” the company said in an e-mailed statement yesterday in response to Bloomberg News queries about the characters, who resembled the Disney ones, that were on display at Wanda’s park over the weekend. “Our characters and stories have delighted generations, these illegal and substandard imitations unfortunately disappoint all who expect more.” Billionaire Wang Jianlin on Saturday officially opened the Wanda City park in Nanchang, the first of his conglomerate’s 15 planned theme park and entertainment projects in China. “The non-Wanda characters were operated by individual stores within Wanda Mall. They do not represent Wanda,” Wanda said in an statement Sunday in response to Bloomberg’s queries. The company declined to comment on Disney being prepared to protect its intellectual property. Bloomberg News
Thailand plans to double tax breaks for private investors this year to boost sluggish investment, a senior finance official said yesterday. Somchai Sujjapongse, the ministry’s permanent secretary, told reporters the proposal will be submitted to cabinet by today. Investors will be able to double their tax deductions if they start a project in this year, said Somchai, adding that new projects will not need to be completed within a year to qualify. The junta that seized power two years ago in a May 2014 coup has focused on driving public infrastructure investment and private investment to boost economic activity. But consumption and exports have been persistently weak and Thais are deeper in the red than most in Asia, with record household debt at 81.5 percent of GDP. The finance ministry on Monday reiterated its stance that the economy will likely improve in the second and third quarters compared with the first quarter, driven mostly by public investment. The ministry predicts 3.3 percent economic growth this year, slightly higher than the central bank’s 2016 economic growth forecast of 3.1 percent. Reuters