MelcoLot interim loss narrows as revenues increase Gaming Page 7
Wednesday, August 10 2016 Year V Nr. 1105 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai SMEs
www.macaubusinessdaily.com
Car market
Forum on Integrated Tourism and Leisure Enterprises and Corporate Social Responsibility held Page 5
Discounts help automotive industry in China increase sales again Page 9
Environmental law
Chinese to curb mining pollution with new legislation Page 10
Automobiles
Tesla is collaborating with Studio City. Four Superchargers will be installed on the property in early Autumn. While Tesla Regional Director says more partnerships are under negotiation in Macau. The territory awaits its first batch of electric vehicles. Page 3
Tourist coach accident update Accident A tourist coach accident left 32 injured. While 22 have already been treated and discharged, 10 remain hospitalised in Kiang Wu as of yesterday. Reparations are being discussed; and the local driver has been arrested. Page 2
Electoral Law under review
Changes to the electoral law passed on the first reading in the Legislative Assembly yesterday. However, some legislators expressed dissatisfaction. Saying the bill did not propose a timeline for universal suffrage. Some voting in favour vowed to review the specifics during further reading.
Weak producers, stable consumers
Politics Page 2
HK Hang Seng Index August 9, 2016
22,465.61 -29.15 (-0.13%) Worst Performers
CITIC Ltd
+3.49%
CNOOC Ltd
+0.97%
Link REIT
China Resources Land Ltd
+3.38%
China Overseas Land &
+0.94%
Li & Fung Ltd
-2.37% -1.31%
Lenovo Group Ltd
-0.92%
Henderson Land Develop-
-0.85%
Want Want China Holdings
+3.11%
Sands China Ltd
+0.82%
China Mobile Ltd
-1.23%
Power Assets Holdings Ltd
Galaxy Entertainment Group
+1.73%
Cheung Kong Property
+0.71%
Cathay Pacific Airways Ltd
-1.08%
Belle International Holdings
-0.74%
Tingyi Cayman Islands
+1.12%
China Construction Bank
+0.55%
Sino Land Co Ltd
-1.01%
MTR Corp Ltd
-0.68%
-0.84%
26° 31° 26° 31° 26° 32° 27° 32° 27° 32° Today
Source: Bloomberg
Best Performers
Thu
Fri
I SSN 2226-8294
Sat
Sun
Source: AccuWeather
China inflation Signs of economic stability. But domestic demand remains fragile in China. With Consumer Price Index growth virtually unchanged from June. Meanwhile, the Producer Price Index, measuring the cost of goods at the factory gate, has dropped. Page 8
2 Business Daily Wednesday, August 10 2016
Macau Politics
Electoral Law amendment passed on first reading Some legislators expressed dissatisfaction that the bill did not propose a timeline for universal suffrage. Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
C
hanges to the electoral law passed on the first reading in the Legislative Assembly yesterday, with a majority vote of 28 votes for and four votes against. Legislators Au Kam San, Ng Kuok Cheong, José Perreira Coutinho and Angela Leong all voted against the proposed changes to the electoral law. The new changes hinge on four key components to be altered: regulating electoral campaign activities, reinforcing the combat of electoral offences, improving the work of
the electoral body and improving the requirements for candidacy and the provisions for incompatibility of legislators. Legislators Au, Ng and Coutinho all expressed their disappointment that the bill did not include a timeline for universal suffrage, evaluating the SAR within the context of international, more democratically developed systems, with Coutinho calling the amendments a “gag law” that “the red pen of censorship is approaching”. “The revision that we’re now doing is limited by the framework put in place by the government,” said Au. Leong, although initially expressing h e r s u pport for the cha ng es themselves, and commenting on the “gray areas” noted that some promotional campaign actions are “difficult to distinguish” and requested the government to “create instructions to clarify”.
of local gaming operator SJM Holdings, had previously expressed surprise over an article of the law in which companies awarded public concessions, which includes local gaming operators, cannot “indirectly or directly intervene” in electoral campaign activities. Leong pointed out that within the local “reality” to “give a declaration without any mistake or dishonesty is difficult”, given the large number of associations a campaigner may be involved in and the activities conducted by each – which, under the new changes, must be declared during the election run-up. Additionally, all candidates, their representatives, their candidacy commission representatives, official supporters and political associations must present accounts detailing all money coming in and out during the election period.
Casinos ‘intervene’
25k
Angela Leong, managing director
One of the key points debated by both
those for and against the proposed changes was a MOP25,000 deposit for candidates to be eligible to run for a seat. “Now you have to deposit money in a certain bank account,” said Ng Kuok Cheong, “it’s like stealing money”. If campaigners cannot achieve an electoral base of at least 300 individuals, the money would not be returned to the campaigners notes Coutinho commenting that: “This is taking away the opportunity for people to be a part of the [campaign] process,” and expressed confusion as to how the specific figure was arrived at.
The majority
Legislator Kwan Tsui Hang, despite also expressing confusion as to the purpose of the MOP25,000 deposit, elected to move forward into the next stage of the changes, noting that “I will give my support to this but it doesn’t mean that we don’t need to review the specifics in the future”. Much voice was given to the right expressed within the Basic Law to vote and be voted for and the need to hear public opinion within the process, for which legislator Sio Chi Wai lauded the central government’s efforts. “This change is beneficial to cementing the one country, two systems policy – reflecting at the same time the opinions of society, protecting the interests of the country as well as the stability and harmony of the society,” said the legislator. Legislator Ma Chi Seng also lauded the changes, stating: “These alterations have as the objective the improvement of the election process so that future elections can be more impartial, public and integral.” This definition of future elections was used various times by Secretary Chan Hoi Fan, who assured that in the lead up to yesterday’s vote “we heard the voice of the public” referring to 225 opinions received from 963 participants during six public consultation sessions. The law changes will proceed to a further debate stage on the specifics of the law.
Accident
Tourist bus crash: Ten still in hospital The injured tourists have filed a criminal action against the local travel agent involved. Kam Leong kamleong@macaubusinessdaily.com
Ten patients remained in Kiang Wu Hospital as at 5:30 pm yesterday following a tourist bus crashing into a residential building on Monday afternoon, the Tourism Crisis Management Office (GGCT) said yesterday. Meanwhile, the Social Welfare Bureau has arranged temporary accommodation for nearly 20 residents of the building affected by the accident. According to the GGCT statement yesterday evening, the ten patients included three who were seriously injured in the crash. One was still in critical situation while the situation of the other two has stablised. Seven other patients have been kept in hospital for observation. On Monday afternoon a tourist bus carrying 44 tourists from several Mainland provinces crashed into the Edifício Wa Keong residence in Rua de Entena near Kiang Wu Hospital on the Peninsula. The tourists had travelled to the city from Shenzhen and were received by a local travel agent. The GGCT statement indicated that the other 22 injured in the crash, who were discharged from the hospital, have filed a criminal action against the
local travel agent. The two parties are now negotiating for compensation, according to the Office. Af t e r th e c rash y est e r d a y , authorities evacuated more than 10 residents from the building. The affected residence has six storeys, accommodating 21 units and six shops.
According to a statement by the Social Welfare Bureau, as at noon yesterday arrangements had been made for seven residents to stay in the Centre for Victims of Disaster in Ilha Verde, while more than 10 residents from five other affected homes have been accommodated by local hotels. Meanwhile, the Land, Public Works and Transport Bureau completed the first-phase reinforcement work for the affected building yesterday evening. According to the Bureau’s
vice director, Cheong Ion Man, the city’s Laboratory of Civil Engineering did not find the building obviously titling or any changes to its condition. Second-phase reinforcement work will be conducted for the residential building once the Fire Services Bureau moves the crashed bus away, the official added. The driver of the tourist bus, a middle-aged local resident, was arrested by authorities on Monday. Still investigating the cause of the accident, local police presume the crash may have been caused by the driver having failed to properly apply the handbrake before leaving the bus.
Business Daily Wednesday, August 10 2016 3
Macau
Electric vehicles Government planning to install 50 electric car charging stations by end of year
Electric Dreams Casino resort Studio City will be the first location in the MSAR to receive a Tesla Supercharger as the first batch of Tesla’s Model S await government authorisation to be delivered to the city. Nelson Moura nelson.moura@macaubusinessdaily.com
S
tudio City will be the first location in Macau to receive top-end electric car manufacturer Tesla’s Supercharger station, the company announced yesterday in an event held at the Melco Crown Entertainment Ltd gaming resort in Cotai. The American company specialises in automotive and energy storage and plans call for the opening of a Supercharging station for four chargers in Studio City in the early Autumn, also enabling registered VIP’s to test Tesla’s premium electric sedan until September 4.
Testing the waters
In November 2015, the Tesla website started operating in Macau, making the territory Tesla’s fifth market in the Asia Pacific region after Australia, China, Japan and Hong Kong. The website allowed local electric vehicles (EV) enthusiasts to place orders for the HK550,200 (US$70,925/ MOP566,704) brand’s Model S, with the first batch of the model arriving in Macau in the first quarter of 2016. However, Isabel Fan, Tesla Regional Director for Hong Kong, Macau and
Taiwan, told Business Daily that while the first batch has arrived in the city, the company is still awaiting government authorisation to deliver them to customers. The Tesla representative did not reveal the number of cars in the first batch included or how many orders from Macau customers were received. In July of this year Tesla also opened a service centre in The Venetian and now Tesla car owners will be able to charge their vehicles at Studio City later this year.
Electric City
Ms. Fan told Business Daily Tesla does not have a goal for a set number of charging stations and would be willing to work with any suitable partner interested in having the Tesla equipment on their premises. “Whenever it is possible it will be under consideration. Our strategy is to implement chargers according to people’s lifestyles, where they eat, shop or spend their time. Studio City is one of the partners with whom we have concluded a partnership, and we have many partnerships under discussion for this opportunity,” Isabel Fan told Business Daily. The Tesla Regional Director said the local government is also supporting
Miss Isabel Fan, Regional Director of Tesla Hong Kong, Macau and Taiwan, shared Tesla’s updates in the region.
EV buyers, mentioning how in 2012 it enforced a 50 per cent tax reduction, with a limit of MOP60,000 (US$7,509) in the acquisition of energy efficient vehicles. Isabel Fan also told Business Daily how the local government plans to install 50 charging stations in 10 car parks by the end of the year, with 400 charging facilities planned for the territory within the next four years. “Macau is a small city so 400 is quite a big number. We’ve started already in Hong Kong but in a couple of years I think Macau can be a good market for EV adoption,” she said.
Neighbours love Tesla
One of the mentioned reasons for bringing Tesla to Macau is the high adherence registered in the neighbouring city of Hong Kong. Hong Kong was one of the first cities in the Asian Pacific region to accept Tesla models, with the Roadster arriving in 2008 and the Model S in 2010, growing to become one of Tesla’s biggest markets, not just in the region but worldwide, representing 10 per cent of Tesla’s overseas sales last year. In 2015, Tesla sold 2,000 cars in Hong Kong for a total of 4,500 cars on the road and 12 charging stations on its street as at the beginning of this year, according to Calvin Yu, Product Specialist at Tesla Motors HK Limited. Although Hong Kong faces similar issues to Macau such as space and
rent, Yu told Business Daily the great interest Hong Kong residents have in new technologies and EV’s made it easy to expand in the city. Tesla’s success in Hong Kong can also be attributed to the city’s government scheme until March 2017 enabling drivers who purchase a Tesla Model S to save upwards of HK$480,000 in taxes.
“We’ve started already in Hong Kong but in a couple of years I think Macau can also be a good market for electric vehicles adoption” Isabel Fan, Tesla Regional Director for Hong Kong, Macau and Taiwan
Tesla has also signed a nonbinding agreement with Chinese government-owned company Jinqiao Group to construct a Tesla production plant in Sh a n g h a i w i t h a n e st i m a t e d i n v e st m e n t o f US $ 9 b i l l i o n , according to Bloomberg.
Feasible dream
into account ‘acquisition cost, taxes, government incentives, the present values of their future operation and all external costs’ the cost savings from monthly fuel consumption and various maintenance expenditure, purchasing an EV would compensate the high upfront initial cost, with a ‘break-even’ point after 10 years.
Electric Horse
car in about 10 hours depending upon the house’s electric wiring. However, a Supercharger can fully charge the Model S in almost one hour with the model having a range of 470 km. The Model S also has a combination of cameras, radar, ultrasonic sensors and data to automatically steer down the highway, change lanes, and adjust speed in response to traffic and even parking.
A study conducted on Cost Analysis of Battery-powered Electric Vehicles in Macau in December 2012 by the Department of Electromechanical Engineering, University of Macau has shown EV’s could be a cost saving alternative for the territory’s drivers. The study concluded that taking
The new Tesla Model S was first presented five months ago and costs an average of HK550,200, which can be upgraded with premium packages, such as smart air suspension, ultra high fidelity sound and improvement to its trademark auto-pilot driving. Upon purchase, Tesla provides a home charger that can be installed in an indoors parking space that can fully charge the
4 Business Daily Wednesday, August 10 2016
Macau Opinion
José I. Duarte Clearing waters In the last few days, the media has related an ongoing debate about the quality of water that reaches our homes. In some ways, it is an instructive debate. It seems nobody can take for granted the quality of the water in our taps. The government and the holder of the concession assure us that the quality of the water in the public pipes follows international standards and is safe. Once the precious drops get into the buildings’ water systems, we are told, however, all bets are off, and the quality of the stuff is anybody’s guess. The suspicion is that pipes are not properly maintained; they are rusty and possibly infected with bacteria. The responsibility for the maintenance of buildings and therefore their pipes lies with the owners. There are no regulations on these matters and thus, we are told, the government can do nothing. If the government provided incentives to owners, all would become possible, and the quality might be assured. Even without knowing the real extent of the problem this is an interesting argument that deserves a few comments. First, simple considerations on health and safety hazards would suggest this is a matter of public health and safety and therefore of public interest. Shouldn’t we consider knowledge about the state of our water systems an issue of foremost importance, deserving of serious considerations and resources? Not to mention that the quality of the maintenance of the infrastructure should be a factor in determining the value of the properties. Second, is the government powerless? For sure, there is no law or principle that either prevents the government from creating mechanisms to monitor and control the water at the users’ end; or from regulating the obligations of owners concerning the maintenance of their buildings. Owners are, reasonably, entitled to collect rent on their property. Would it be too much to require them to guarantee proper maintenance of their water systems? We can impose, say, annual inspections on vehicles, invoking the safety of our roads. Can we not impose inspections on the quality of a building’s system in the name of public health? Or should car owners also be entitled to have ‘incentives’ to maintain their vehicles? Few would say so! Third, the conclusion is that all would be easier if the government gave some money to the owners. Indeed! That makes things clearer than, apparently, the water that runs through (some) of our taps. José I. Duarte is an economist and permanent contributor to this newspaper.
Tourism
A journey to Grasslands Silk Road MGTO joins tourism exchange event, seeking to enhance co-operation between Inner Mongolia and the SARs.
M
acau G o v e r n m e n t Tourism Office (MGTO) signed a Memorandum of Understanding on Tourism Co-operation with the Tourism Bureau of Inner Mongolia Autonomous Region yesterday to foster mutual exchange and co-operation in the tourism field, according to an announcement issued by the Office. MGTO participated in the event known as ‘Beautiful China – Grasslands Silk Road Tour’ and the Event for Tourism Exchange and Co-operation between Inner Mongolia, Hong Kong and Macau. Jointly organised by the Department of Affairs on Tourism of Hong Kong, Macau and Taiwan of China National Tourism Administration (CNTA), the Tourism Bureau of Inner Mongolia Autonomous Region, Tourism Commission of the Government of the Hong Kong Special Administrative Region and MGTO, the ‘Beautiful China – Grasslands Silk Road Tour’ and the Event for Tourism Exchange and Co-operation between Inner Mongolia, Hong Kong and Macau was held in the Inner Mongolia Autonomous Region from 8 to 12 August. The co-organisers included the Asia Tourism Exchange Centre, the Hong Kong Tourism Board (HKTB) and Travel Industry Council of Hong Kong. MGTO Deputy Director Cecilia Tse and the head of the Communication and External Relations Department, Kathy Iong, participated in the event together with delegates of the travel trade from Macau including the president of the Association of Macau Tourist Agents, Guan Dehui, and representatives of China Travel Service (Macau) Ltd.
Closer co-operation
The ‘Beautiful China – Grasslands
Silk Road Tour’ and the Event for Tourism Exchange and Co-operation between Inner Mongolia, Hong Kong and Macau featured the three destinations’ presentation, announcement ceremony of the incentive travel policy and promotion scheme for Hong Kong and Macau visitors to Inner Mongolia, signing ceremonies, travel mart, familiarization visits along the Grasslands Silk Road, summary discussions, and so forth. Inner Mongolia, Hong Kong and Macau held a joint destination presentation followed by an array of signing ceremonies in Hohhot yesterday, during which the Director of the Tourism Bureau of Inner Mongolia Autonomous Region, Wei Guonan, and MGTO Deputy Director Cecilia Tse signed the Memorandum of Understanding on Tourism Co-operation to enhance mutual co-operation and communication as well as the fostering of the tourism developments of both destinations. CNTA Vice Chairman Li Shihong, and the Vice Chairman of Inner Mongolia Autonomous Regional Government, Yun Guangzhong, Head of Department of Affairs on Tourism of Hong Kong, Macau and Taiwan of CNTA, Liu Kezhi, and Director of the Economic Affairs Department of the Liaison Office of the Central People’s Government in the Hong Kong SAR, Sun Xiangyi, witnessed the ceremony together with other guests.
Maritime Silk Road
On the day, MGTO elaborated upon Macau’s tourism development and presented the latest tourism facilities and products while publicizing Macau’s positioning as a World Centre of Tourism and Leisure. The Tourism Bureau of Inner Mongolia Autonomous Region and HKTB both presented the tourism situation and resources of their destinations as well.
During her speech, Deputy Director Cecilia Tse remarked that with Macau being a major hub along the Maritime Silk Road, the SAR Government will actively support the Belt and Road Initiative. By joining hands with the Mainland authorities, participating in and promoting the work involved, the SAR Government will strive to raise the international influence of the Silk Road cultural tourism brands including the Maritime Silk Road and Grasslands Silk Road to jointly promote regional tourism. By participating in the event, MGTO sought to deepen tourism co-operation between Macau and Inner Mongolia, whilst creating opportunities for members of the travel industry from both destinations to connect and share their latest industry news and tourism products for stronger connections and collaboration. The delegation of MGTO and Macau’s travel trade will pay familiarization visits to a range of major tourism resources and facilities in various places including Hohhot, Xilamuren Grasslands, Baotou as well as Ordos around Inner Mongolia as part of the Grasslands Silk Road until Friday of this week.
Public figures
Edmund Ho’s wife passes away The wife of the city’s former Chief Executive Edmund Ho Hau Wah, Tatiana Lau, passed away on Sunday from a long illness. Her family is to hold a funeral ceremony this coming Saturday. Mrs. Ho was very low profile during her husband’s term as the city’s top official between 1999 and 2009, only making public appearances at events which national leaders attended. The couple has one son and one daughter. Mr. Ho is now serving as vice president of the Chinese People’s Political Consultative Conference.
Business Daily Wednesday, August 10 2016 5
Macau Gaming MGM: Issues of technology related to entertainment offerings delay Cotai project
Technical glitches delay MGM project MGM Cotai has made hiring locals a priority before seeking the support of the SAR Government to hire non-resident workers if necessary. Annie Lao annie.lao@macaubusinessdaily.com
T
echnology issues for non-gaming offerings have been the main reason for delaying the new MGM Cotai project, explained Grant Bowie, chief executive officer and executive director of MGM China Holdings Ltd. while attending the forum on Macao integrated tourism and leisure enterprises and corporate social responsibility held yesterday in MGM’s Grand Ballroom. “We have to take into account there may be things which are more complicated than we expected, than we planned, a lot of that comes down to some of the technology we are introducing in terms of entertainment products,” he explained. MGM said earlier this month that the opening of MGM Cotai is expected to be delayed to the second quarter of 2017, with slight budget increases. However, Bowie stressed that the new property will focus on hiring locals except only when there is a need to hire non-resident workers. “At this point in time, we focus on only hiring Macau people as [we are] trying to create opportunities. Once we have exhausted those
opportunities, we will seek support from the government for imported labour,” he said.
Mass market
The new property will target the
SMEs
Business opportunities for local SMEs Large corporations represent opportunity for local SMEs. Annie Lao* annie.lao@macaubusinessdaily.com
The second edition of the forum for Macao integrated tourism and leisure enterprises and corporate social responsibility, with a theme for collaboration with small and medium sized enterprises (SMEs) was held in MGM’s Grand Ballroom yesterday. The event seeks to achieve the diversification of the city’s economic development and provide opportunities for local SMEs to work with global conglomerates. According to Professor Lei Heong Iok, president of Macao Polytechnic Institute (MPI), all the registered enterprises in Macau, over 90 per cent of them are SMEs, and currently employ about 40 per cent of Macau’s total workforce.
Learning opportunity
Jimmy Lee, purchasing director of Golden Apple Worldwide Trading Co., Ltd, joined the SME programme organised by MGM in October
last year, telling Business Daily that more business opportunities are being created by joining the SME programme, adding he found it challenging to work with corporations. “The big corporations require higher standard services and follow-up, which is more complicated than dealing with orders from local retailers. But because of their requirements, I have learned how to operate my business more systematically and professionally. As a result, I am exposed to more international orders and MGM has offered me a strong reputation,” Mr. Lee said. Representatives from six gaming operators included MGM, Sands China Ltd., and Wynn Macau Ltd. Melco Crown Entertainment, Galaxy Entertainment Group and SJM Holdings Ltd. all attended the event yesterday. The forum is organised by IPIM and supported by the Liaison Office of the Central People’s Government in Macau. *with Cecilia U
mass market and entertainment experience offerings. Some 500 gaming tables could be installed in the new property; however, MGM has not had confirmed the amount of approved gaming tables from the Macau SAR Government yet as it is still awaiting government approval. “ W e h av e t o w o r k c o operatively with the government; we have to accept the decision
the government makes, then we have to make our plan to ensure that we can be successful,” Mr. Bowie added. The Macau Government has said that the table allocation for new projects – subject to a table cap operated by the authorities here – would be linked to issues including the amount of non-gaming provided by new schemes. “MGM has already focused on the mass market. We understand that the market is diversified. We have to be responsive to that. Cotai property has been designed to cater to many different types of customers, with particular focus on non-gaming,” he said.
6 Business Daily Wednesday, August 10 2016
Macau Opinion
Macau’s beggar king SJM prepares for its moment David Fickling
I
nvestors in Macau’s casino stocks don’t have much of an appetite for the territory’s home-grown hero. SJM Holdings, owner of the lotus-shaped Casino Grand Lisboa, doesn’t just trade at a discount to local peers -- it’s valued below even Las Vegas’s casino stocks. If you compare the company’s enterprise value to forecasts of EBITDA over the next 12 months, it looks more like an Appalachian racecourse than a company with more than 2,000 gaming tables and almost 4,000 slot machines in the world’s biggest gambling destination: SJM was the poorest performer of the territory’s six casino stocks during a rebound in prices in July, according to Bloomberg Intelligence’s Margaret Huang. The conventional explanation is straightforward. At a time when Macau’s government is trying to engineer a shift from high-rolling VIP gambling toward family-friendly resorts and mass-market gaming tables, SJM is stuck in the past. The revenue base is too exposed to its 400 VIP gaming tables, and its HK$30 billion (US$3.9 billion) casino in the territory’s Cotai precinct won’t open until well into next year, leaving a significant hangover of capital spending and execution risk. While there’s a lot of justification for that argument, it sells SJM short. The company has some significant challenges over the next 18 months, but there are few stocks more leveraged to a recovery in the city’s casino industry. Some see signs this may
be happening, as Macau’s 50 per cent-plus decline in gaming revenue flattens. For one thing, SJM isn’t nearly as overexposed to the VIPs as conventional wisdom suggests. As a share of the total, the VIP business has long made up a smaller share than those of Sands China, Galaxy Entertainment and Wynn Macau. Then have a look at how net income has declined since the industry peaked around the Lunar New Year of 2014. SJM’s performance has been poor, but not notably worse than that of Wynn Macau, and well ahead of Melco Crown. In valuation terms, however, SJM
started out at the back and has slipped further behind its peers: The first-half results Monday night didn’t prove an easy pill to swallow for those who think this underperformance may soon turn around. Adjusted EBITDA fell 28 per cent from the same period a year earlier, a brutal result even by Macau’s recent standards: MGM’s earnings on the same measure fell 19 per cent in the six-month period, and Wynn Macau’s dropped 16 per cent, while Melco Crown’s rose 31 per cent thanks to the opening of its Studio City casino last October. Still, it’s reasonable to look at SJM’s problems as largely a result of timing.
Its big Cotai development will be the last to open among the big six Macau casino companies, so at this point it’s being compared (rather unreasonably) to the likes of Galaxy and Melco Crown, which have moved past the peak of their capital spending and are back in earnings mode. That contrast probably will be heightened over the coming months, with the US$4.2 billion Wynn Palace opening in less than two weeks and the 3,000-room Sands Parisian less than a month later. By the end of this year, Cotai will, with luck, be escaping its current building-site feel and starting to turn into something a bit more like the Las Vegas Strip -- but SJM, and MGM China, will still be waiting to open their major projects in the area. Once it’s opened, SJM’s Grand Lisboa Palace will have 2,000 rooms and more than 90 per cent of its floor area dedicated to non-gaming activities, sharply increasing the company’s skew to the less glitzy activities the government wants to encourage. It will be just adjacent to the territory’s indoor sports arena and a theme park being developed by Angela Leong, the wife of SJM’s founder and Chairman Stanley Ho, who is herself a director and major shareholder of the company. And there should be few problems funding all the capex. SJM has HK$13.5 billion in cash and bank deposits net of borrowings. Net debt will peak at about 2.5 times EBITDA in December 2017, according to analyst forecasts compiled by Bloomberg, dropping to 1.8 times the following year. Investors might want to consider whether the bills that SJM will be piling up over the coming months represent a disadvantage or an opportunity. Bloomberg Gadfly
Business Daily Wednesday, August 10 2016 7
Gaming Lottery
MelcoLot interim loss narrows as revenues increase The company said it may also reconsider a casino bid in Spain if the plan becomes ‘more concrete’. Kam Leong kamleong@macaubusinessdaily.com
C
hinese sports lottery operator MelcoLot Ltd. posted a narrowed net loss for the first half of the year of HK$12.4 million (US$1.54 million) compared to HK$19.3 million one year ago, driven by revenue from sales of lottery terminals and parts surging in the same period.
Cambodia
According to its filing with the Hong Kong Stock Exchange on Monday night, the operator’s total revenue increased 41 per cent year-on-year to HK$34 million in the six months. The Hong Kong-listed operator is a subsidiary of Melco International Development Ltd., chaired by local gaming magnate Lawrence Ho Yau Lung. For the first half of the year, nearly all of the company’s revenue were
generated by sales of its lottery terminals and parts, which soared by 76 per cent year-on-year to HK$33.6 million, compared to HK$19.1 million during the same period of last year. Nevertheless, the company also saw its revenue derived from the provision of services and solutions for the distribution of lottery products plunge by 92 per cent year-on-year to HK$0.4 million from HK$5 million one year ago. The company explained in the filing that the decrease in net loss was attributable to its declined benefits to employees and the decrease in other
expenses as well as the increase in interest income. For the same period, total lottery sales in China grew 3.5 per cent year-on-year to 194 billion yuan. In particular, sports lottery sales jumped 8.4 per cent year-on-year to 92 billion yuan, according to the official data of the Chinese Ministry of Finance. But the company is not really optimistic about the outlook of the market. ‘We believe the China lottery market will continue to be challenging as a result of the constantly changing regulatory environment. We remain prudent but optimistic about the development of the China lottery market,’ it said.
Another chance, maybe
On the other hand, the lottery operator claimed in the filing that it may ‘reassess the position and revisit the opportunity’ of its terminated bid for a gaming licence to develop a hotel and casino complex near Barcelona in Spain ‘if the development plan of the project becomes more concrete’. In June, the company announced the termination of its deal to purchase 99 per cent of the issued stake of another subsidiary of its parent company, Melco Property Development, who is a bidder for the Spain casino project. The company claimed then that the termination was due to ‘the timetable of the tender process for the casino authorisation and the development of the project remain relatively uncertain’. ‘The exercise was to unlock the company’s potential to explore new business opportunities elsewhere as opposed to committing to an uncertain project for an indefinite time,’ the company wrote in Monday’s filing.
New shopping complex NagaCity Walk to be unveiled this month
NagaCorp net profit up 24 pct in H1 The Cambodian gaming operator saw all segments of its gaming business register year-on-year growth during the six months. Kam Leong kamleong@macaubusinessdaily.com
Ca m b o d i a n ga m i n g o p e rat o r NagaCorp Ltd. posted an increase of 24 per cent year-on-year in net profit to US$125.2 million (MOP1 billion) for the first half of this year, claiming growth was ‘attributable to an increase in business volume across all segments of the gaming business,’ according to its filing with the Hong Kong Stock Exchange on Monday evening. During the six months, the gaming operator generated total revenue of US$277.1 million from its NagaWorld casino resort in Phom Penh. The amount represents a year-on-year increase of 10 per cent. This contrasts with the trend of the local gaming market, for which total gaming revenue in the city dipped 10.5 per cent year-on-year to MOP125.6 billion, according to the official data of the Gaming Inspection and Co-ordination Bureau. The operator’s revenue derived from the VIP segment amounted to some 40.2 per cent of the total, or US$111.6 million, a growth of 4 per cent year-on-year. Total VIP rolling chips in the period jumped 26 per cent year-on-year to US$4.5 billion, while the win rate in the segment fell by 5 percentage points year-on-year to 2.5 per cent. Revenue generated by the casino’s mass gaming tables also rose by 11 per cent year-on-year to US$62 million during the six months. Buy-ins in the segment totalled HK$305.6 million, growing 17 per cent year-on-year.
In addition, the corporation’s revenue from electronic gaming machines jumped by 17 per cent year-on-year to US$103.5 million, with total bills-in up by 18 per cent year-on-year to US$741.8 million. As at the end of June, the Cambodian gaming operator was operating 209 VIP gaming tables, 87 mass gaming tables, and 1,662 slot machines in the property. Meanwhile, the non-gaming
revenue of the group is also up by 14 per cent year-on-year to US$11.4 million. It explained in the filing that the increase was driven by higher hotel occupancy as a result of the growth of ‘Chinese tour groups brought in under the group’s collaboration with Chinese outbound travel agents’.
NagaCity Walk opening soon
Monday’s filing announced that the company’s new shopping complex - NagaCity Walk - is to open this month. The shopping complex is located right next to the group’s casino in the Cambodian capital city. ‘The opening of NagaCity Walk in
August 2016 will mark a significant step in the group’s development. NagaCity Walk will enhance the overall retail experience available to patrons and further strengthen NagaWorld’s appeal to both the VIP market and mass market,’ the company anticipates, saying, ‘It is expected that the opening of NagaCity Walk will draw more visitation from China to NagaWorld.’ Meanwhile, the company said in the filing that the gaming and resort development project in Vladivostok in Russia is expected to be operational in 2018 as scheduled, claiming piling work on the site has been commenced. ‘The Group believes that its strategy to diversify its business geographically and expand into new casino markets will drive revenue growth in the long term,’ it stated.
8 Business Daily Wednesday, August 10 2016
Greater China Price index
Slowing wholesale deflation takes pressure off central bank The consumer price index rose 1.8 per cent in July from a year earlier. Elias Glenn and Yawen Chen
C
hina’s factory price deflation moderated further in July, with prices falling at their slowest pace in two years, taking pressure off the central bank to cut rates as policymakers turn their focus to structural reforms and ballooning credit. A government-led building spree has increased demand for construction materials, but higher prices are also
due in part to speculation in China’s commodities futures market, which has pushed up Shanghai rebar futures up by 50 per cent this year. The producer price index (PPI) fell 1.7 per cent in July from a year ago, the National Bureau of Statistics said yesterday, smaller than June’s 2.6 per cent decline. Analysts expect producer price inflation to turn positive this year for the first time in more than four years, but the recovery at the factory gate is unlikely to lead to a rebound in private investment, which has fallen to record low growth rates. “The improvement of PPI should benefit the corporate sector’s profitability, but is unlikely to encourage private sector investment, as the main
beneficiaries are heavy industries which are dominated by state-owned enterprises,” said ANZ economists in a note. Non-ferrous metals prices rose 2.8 per cent month-on-month in July, while steel prices increased 0.4 per cent. Downstream prices, however, remained subdued in July with the consumer price inflation accelerating at its weakest pace in six months as food price gains slowed. The consumer price index (CPI) rose 1.8 per cent in July from a year earlier, compared with a 1.9 per cent increase in June, and matching this year’s low hit in January. Analysts polled by Reuters had expected a 1.8 per cent gain.
Food prices continued to moderate, rising 3.3 per cent in July compared with a 4.6 per cent gain in June
Consumer inflation has remained well below China’s official target of around 3 per cent in 2016, despite concerns that severe summer flooding, which has disrupted public infrastructure and agricultural production, would increase inflationary pressures. Food prices continued to moderate, rising 3.3 per cent in July compared with a 4.6 per cent gain in June. Prices of pork rose only 16.1 per cent versus a 30.1 per cent increase in June as demand for the Chinese staple meat continued to cool from peaks hit earlier this year. Non-food inflation, however, rose 1.4 per cent, compared with June’s 1.2 per cent gain. Healthcare costs rose 4.3 per cent year-on-year in July, up from a 3.8 per cent gain in June, which Merchants Securities economist Yan Ling in Shenzhen said reflects a wider improvement in demand for such products. Similarly, rises in other price categories showed increasing demand for a wider range of consumer goods and services including horticulture, pet care and retirement services, Yan said. Low inflation means Beijing has room to loosen monetary policy if needed, but policymakers appear to have disparate views over how much stimulus is needed to stoke economic growth, if any, and what form it should take. However, strengthening producer prices mean there is likely less need to ease in the short-term, analysts say. China’s central bank has not adjusted interest rates since October 2015. “Policymakers are likely to focus their attention on more pressing issues, such as addressing credit risks and structural imbalances,” Julian Evans-Pritchard at Capital Economics said in a note. Reuters
Automotive industry
Car sales climb for fifth consecutive month Demand for SUVs has been rising as increasingly affluent Chinese buyers opt for more spacious vehicles. China’s passenger-vehicle sales rose for a fifth consecutive month in July, as General Motors Co. and Guangzhou Automobile Group Co. accelerated deliveries and dealers offered discounts to cut stockpiles in the world’s biggest auto market. Retail sales of cars, sport utility and multipurpose vehicles climbed 23 per cent to 1.6 million units last month, according to the China Passenger Car Association. Deliveries increased to 12.4 million units in the seven months through July. Dealers in China offered discounts on models such as the Audi A4 of about 18 per cent to reduce stockpiles, according to Jochen Siebert, managing director of JSC Automotive Consulting. A gauge of inventory levels fell to an 11-month low and indicated contraction for the first time in that span, the China Automobile Dealer Association said. The government’s purchase-tax cut on vehicles with smaller engines also spurred demand for compact and
mid-size SUVs. “It’s very positive,” Steve Man, an auto analyst at Bloomberg Intelligence, said of the drop in inventory levels. “If we do see an improvement in retail sales at the end of this year before the tax cut ends, we might see automakers in a better position to increase production and we’ll see an improvement in their earnings.” Demand for SUVs has been rising as increasingly affluent Chinese buyers opt for more spacious vehicles. The segment accounted for 35 per cent of total passenger-vehicle sales in the first six months of the year, up from 27 per cent in the first half of 2015. Chinese consumers are picking SUVs over sedans as the selection of products to choose from has grown, according to Man. Pricing competition is intensifying in the sedan segment, driving down inventory levels, he said. Deliveries for GM increased 18 per cent to 270,529 units in July, while Ford Motor Co.’s rose 15 per cent to 88,189 vehicles. Toyota Motor Corp.’s sales gained 5.7 per cent to 97,700 units. Guangzhou Auto’s sales increased 37 per cent to 131,034 units, with its SUV deliveries doubling to 64,814 units. Great Wall Motor Co. deliveries surged 49 per cent to 67,295 units, while Geely Automobile Holdings Ltd.’s climbed 72 per cent to 46,319 units. Bloomberg News
Business Daily Wednesday, August 10 2016 9
Greater China Commodities
In Brief
Pollution crackdown on tin producers could lift prices Shanghai tin prices reached 13-month peaks in early July. Melanie Burton and Ruby Lian
China could ramp up imports of refined tin as a string of environmental inspections at smelters in the world’s top producer of the metal curbs local output. Officials in eight provinces last month began inspecting metals producers including tin smelters, forcing some to shutter production while they look to comply with environmental standards, according to industry officials and analysts. The checks come as a crackdown on pollution spreads beyond steel in the country’s mammoth metals processing and mining industries. “It should have huge impact on the whole (tin) industry,” a trader at a Chinese tin smelter said of the
environmental inspections. He declined to be identified due to the sensitivity of the issue. “It’s ... part of long-term supply side reform not just for the private sector or special smelters.” Affected smelters account for some 45 per cent of China’s annual tin production, or around 110,000 tonnes of capacity, according to tin industry group ITRI. Global refined tin output was around 340,600 tonnes last year. ITRI analyst Cui Lin told Reuters that some producers had cut production from July 25 and would not be able to resume full output until August 15 at the earliest. She added that four smelters in Yunnan province could be shut for longer. Those smelters have a total production of some 42,000 tonnes of tin annualised, according to ITRI figures. The cuts in production of tin, used in everything from electronics to packaging, will likely boost imports of refined metal from global markets, and have already helped push local and
international prices to their highest in well over a year. Momentum is expected to pick up in the third quarter as appetite for tin grows after the slow summer holiday season. Shanghai tin prices reached 13-month peaks in early July at 125,690 yuan (US$18,860) a tonne, while LME tin on Friday hit its highest since early 2015 at US$18,450 a tonne.
Key Points Pollution crackdown to reshape metals industry -trader Could boost refined tin imports, buoy prices Shows environmental push spreading beyond steel “If the cuts are extended, domestic supply tightness will be exacerbated in the short-term, leading to continued upwards pressure on domestic tin prices,” ITRI said in a report in July. An official with Jinlong Mining in Jiangxi province said the company had brought forward a plan to relocate by a week from late July at the request of the environmental inspectors after it failed to meet standards. The official added that other smelters in the region had temporarily suspended production last month due to environmental checks. China produces most of its own tin by smelting, importing additional ore from Myanmar. Its overall refined tin imports slumped by 70 per cent in June, and were down by 5 per cent at 4,220 tonnes for the first six months of the year. Reuters
M&A
Authorities extend Marriott-Starwood deal review The shareholders of both companies approved the deal in April. Mike Stone and Michelle Price
China has extended its review of Marriott International Inc’s acquisition of Starwood Hotels & Resorts Worldwide Inc by up to 60 days, the companies said on Monday. China’s Ministry of Commerce (MOFCOM) review is the only remaining merger clearance for the deal, which is expected to create the largest hotel group in the world with a combined enterprise value of US$36 billion and 1.1 million hotel rooms. Hilton Worldwide Holdings, which would be No.2 behind the combined group, has 775,000 rooms. Marriott and Starwood did not say why MOFCOM needed more time and said their planned merger did not create any anti-competitive issues in China. The merged group would become the largest hotel operator in China with a 4.1 per cent market share, followed by Homeinns Hotel & Management at 4 per cent and China Lodging Group at 3.9 per cent, data from research firm Euromonitor International shows. Marriott’s deal to buy Starwood, the operator of Sheraton and Westin hotels, has been cleared by antitrust authorities in more than 40 countries and territories including the United States, the European Union and Canada. MOFCOM has developed a reputation as a tough deals regulator, but it has only blocked two transactions since China’s antimonopoly law came into force in 2008, compared with 1,447 unconditional clearances, according to data compiled by law firm Norton Rose Fulbright. The regulator generally prefers to impose remedies such as asset divestments
on transactions it believes could harm competition, taking this approach in 26 cases, the Norton Rose Fulbright research shows. Last month, MOFCOM approved AB InBev’s US$100 billion-plus takeover of rival brewer SABMiller subject to SABMiller divesting some Chinese assets. MOFCOM also extended InBev’s review to phase-three, but did not make full use of the extra time. A Chinese company, Anbang Insurance Group Co, abandoned its pursuit of Starwood in April after a bidding war that resulted in Marriott increasing its cash-and-stock bid by US$1 billion. The deal is currently valued at about US$13.4 billion. While Anbang had offered US$14 billion in cash, an acquisition by the Chinese firm probably would have faced scrutiny by the Committee on Foreign Investment in the United States on national security grounds. Once notorious for its lengthy review process, MOFCOM has significantly sped-up approvals over the past 18 months following the introduction of a simple case procedure that takes about
29 days. Still, complex transactions can spend months in limbo. Deals filed via the normal procedure undergo a 30-day phase-one review, which can be extended by 90 days for phase two and by a further 60 days for the final third phase. Including pre-filing consultations with MOFCOM, a deal that goes to phase three could take nine months to clear. Unlike the European Union, MOFCOM does not operate a specific threshold for moving beyond phase one, and may do so for administrative reasons or because the watchdog is short of resources, lawyers said. Reuters
Key Points MOFCOM is last regulator globally to approve the takeover Regulator has blocked two deals, imposed remedies in 26 cases Newly-merged hotel group would have 4.1 pct of China market MOFCOM has extended its review to final ‘phase-three’ stage
Investment
Financial industry FDI down China’s financial institutions received 1.826 billion yuan (US$274 million) in net foreign direct investment (FDI) in the second quarter (Q2) of 2016, the forex regulator said yesterday. The figure is lower than the 3.501 billion yuan in net FDI received in Q1 this year, according to the State Administration of Foreign Exchange (SAFE). Net overseas direct investment from China’s financial institutions, including banks, insurers and securities firms, totalled 37.918 billion yuan in Q2 of 2016, higher than the 11.614 billion yuan in Q1. SAFE has been releasing data on a quarterly basis since 2012. Industry data
Machinery sector improves amid uncertainties China’s machinery sector showed signs of recovery in the first half of 2016, according to an industry association yesterday. The China Machinery Industry Federation (CMIF) said the sector’s value added in the first six months expanded 7.8 , faster than 5.7 in the same period last year and 5.5 for the whole 2015. Profits of machinery manufacturers increased 6.53 , up from 0.13 for the same period last year and 2.5 for the whole 2015. Investment grew just 3.07 from January to June, the lowest H1 expansion since 2008. Liquidating Inc
Guangdong sets up tribunal to handle zombie firms China’s Guangdong province has set up a special court to deal with disputes that arise from the closure of “zombie enterprises”, the official China Daily reported yesterday. The Guangdong High People’s Court unveiled a new tribunal on Monday to help settle legal issues that might arise from the liquidation of province’s 3,385 zombie firms, with a sharp rise in bankruptcies expected in the coming years, China Daily said, citing a local court official. Zombie firms are economically unviable enterprises that survive only with the support of local governments and banks. Stainless steel
Domestic production drives global rise Global production of stainless steel was 0.4 higher in the first quarter than in the same period of 2015 as Chinese mills ramped up their output, despite pledges to reduce over-capacity, industry data showed on Monday. The International Stainless Steel Forum (ISSF) said global stainless production rose to 10.3 million tonnes in the first quarter, with China’s output up 3.8 to 5.2 million tonnes. China, which produces half the world’s stainless, has pledged to cut total steel capacity by around 45 million tonnes this year, and by 140 million tonnes by 2020.
10 Business Daily Wednesday, August 10 2016
Greater China ‘The cost of making China’s contaminated land fit for crops or livestock could reach around US$750 billion, according to Reuters calculations.’
Pollution
Government drafts new rules to curb mining pollution Firms will be forced to implement measures to remediate land and minimise emissions.
C
h i na p l a n s t o ra i s e environmental standards in its highly-polluting mining sector, according to a policy draft circulated by the Ministry of Environmental Protection. Amid rising concerns about the state of its environment, China has declared war on polluters and has drawn up new laws, standards and punishments aimed at forcing firms and local governments to toe the line. The mining sector has been a crucial part of China’s rapid
economic expansion in the last three decades, but poor regulation and weak enforcement of standards has contaminated much of the country’s soil and left parts of its land and water supplies unfit for human use, threatening public health. According to draft rules published on the website of the Ministry of Environmental Protection (MEP) late last week, miners will be forced to treat more than 85 per cent of their wastewater, and they must put systems in place to achieve the “comprehensive utilisation” of tailings and other solid waste.
Firms will also be forced to implement measures to remediate land and minimise emissions while mines are still in operation, rather than treating soil and water long after it has been contaminated. Mining firms will also be pressured to implement measures to protect or even relocate valuable ecosystems. Producers of toxic heavy metals like lead or cadmium also need to make use of biological or chemical technologies to remediate contaminated soil. The new rules will cover metals such as tin, copper, lead and rare earths, as well as minerals like calcium carbonate, though they do not apply to the coal industry, which has separate guidelines. Other government bodies and
state-owned mining firms like Jiangxi Copper and Yunnan Tin have been invited to submit their opinions on the draft rules before August 25. As much as 16 per cent of China’s soil exceeds state pollution limits, according to environment ministry data published in 2015, and farming on 3.3 million hectares of contaminated land across the country has been banned indefinitely. China published an action plan to treat soil pollution earlier this year, saying that it aimed to bring the problem under control by 2020. However, the cost of making China’s contaminated land fit for crops or livestock could reach around 5 trillion yuan (US$750 billion), according to Reuters calculations. Reuters
M&A
BP seeks buyers for half of its Mainland venture The refining and chemicals businesses have been a bright spot for M&A in the oil sector since the sharp drop in oil prices more than two years ago. Arno Schuetze and Denny Thomas
British oil major BP is seeking buyers for its 50 per cent stake in Chinese petrochemicals joint venture SECCO, its largest investment in China, in a deal sources said could fetch US$2US$3 billion. State-owned China Petroleum & Chemical Corp (Sinopec), which owns the other half of the venture and has a right of first refusal, said it was discussing the conditions put forward by BP, but has made no decision. BP is working with Morgan Stanley to sell its shareholding in the SECCO venture as part of a drive to cash out of businesses where it lacks control, three sources familiar with the matter said. A successful deal would mark BP’s first significant exit from a business in China. Situated in Caojing near Shanghai, SECCO is China’s largest petrochemicals refinery and was built at a cost of US$2.7 billion, according to BP’s website. A London-based BP spokesman declined to comment. Morgan Stanley was not available for immediate comment. SECCO, a venture formed in 2001, produces ethylene and propylene, which are used to make resins, plastics and synthetic rubbers. Ba n k e rs sai d Chi n es e stat e
enterprises were unlikely to step in to buy the stake as executives at many of them are distracted by anticorruption probes. BP’s stake has been marketed to existing refinery operators in China, including companies from Japan, South Korea, Taiwan and Europe, the sources added. Bankers said the stake would also
attract interest from Chinese private firms stepping up their presence in petrochemicals. “Even in this low oil price environment, this is one auction that will attract a lot of demand. With most SOEs going slow on M&A, Chinese private enterprises will be active,” one Asia-based oil and gas banker said. The refining and chemicals businesses have been a bright spot for M&A in the oil sector since the sharp drop in oil prices more than two years ago. Lower oil prices have boosted refining profits and
demand for oil products around the world. BP, like other global oil and gas companies, has been sharpening its focus on costs and core businesses as it reels from lower oil prices. U.S. rival Chevron and Britain’s BG Group have also recently sold stakes in Asian ventures as they return their focus to their core home markets. BP has sold more than US$50 billion of assets since the deadly 2010 Gulf of Mexico oil spill in order to pay for clean-up costs and legal bills. This year, it plans to offload between US$3 billion and US$5 billion worth of assets, of which US$1.9 billion has been agreed, it said when releasing second-quarter earnings last month. Reuters
Business Daily Wednesday, August 10 2016 11
Asia Governor replacement
Rajan keeps Indian policy rate on hold at last RBI review Central bank head will leave behind a revamped institution from the one he inherited in September 2013.
I
ndia’s central bank governor Raghuram Rajan yesterday kept the repo rate unchanged at 6.50 per cent at his final policy review after inflation hit a nearly two-year high, but said the policy stance remains “accommodative.” The decision had been widely expected after consumer inflation accelerated to 5.77 per cent in June, near the top of the Reserve Bank of India’s 2-6 per cent range, and above its target of 5 per cent by March next year. Th e m u ch a d m i r e d f o r m e r International Monetary Fund chief economist is due to step down on September 4 after a three-year term to return to academia and family living in the United States. The government has still to pick a successor. Rajan said he expected “upside” risks to his March inflation target, citing a hike this year in the salaries of millions of government employees and sticky core inflation, which excludes food and fuel. “It is appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for policy action,” Rajan said in a statement. “The stance of monetary policy remains accommodative and will continue to emphasise the adequate provisions of liquidity.” Rajan has lowered rates by 150 bps since January last year to their lowest in more than five years, but economists doubt whether the current
easing cycle has much further to run, and expect the next RBI governor to provide at most another 25 bps cut by the end of the year. Rains have been better than average, suggesting food prices that shot up before the monsoon arrived will moderate. But they are stubbornly high in rural areas suffering from the previous two years of drought.
Rajan will leave behind a revamped central bank from the one he inherited in September 2013 when India was mired in its worst currency crisis in more than two decades and inflation was running at a doubledigit pace. The government last week formally adopted Rajan consumer price inflation target of 4 per cent with a plus or minus 2 per cent band a strategy he believes will anchor policy in a country with a history of volatile prices.
Rajan has also persuaded the government to form a monetary policy committee, with three members from the RBI and three chosen by the government to decide interest rate changes. The RBI Governor will cast the deciding vote in case of a tie. In contrast to most economists, bond markets are betting the next RBI governor might take a more relaxed view on timelines to meet the 4 inflation target. Ten-year bond yields have slumped 33 bps since Rajan unexpectedly announced his departure. Whoever takes over will also have to follow through on a campaign to clean-up banks’ high levels of bad debt, leaving bankers worried over profit margins and reluctant to lower lending rates. Reuters
India’s central bank governor Raghuram Rajan
Policy forecast
Bank of Korea seen holding rates this week The Bank of Korea left borrowing costs unchanged at 1.25 per cent in July after cutting in June. Cynthia Kim and Christine Kim
South Korea’s central bank is expected to leave interest rates on hold at its meeting on Thursday and to resume monetary easing before year-end to support a trade-dependent economy hit by falling exports, a Reuters poll found. All 24 economists polled by Reuters said they expected the Bank of Korea to keep rates at a record low 1.25 per cent at its monthly policy review as it monitors the impact of its June rate cut, amid rising expectations the U.S. Federal Reserve will raise rates this year. All but four economists polled expect the Bank of Korea to cut the benchmark rate to 1 per cent by year-end. “The focus of the meeting will continue to be on studying the impact of (recent) policy measures ahead of the implementation of the extra budget,” said Yoon Yeo-sam, fixed-income analyst at Mirae Asset Daewoo Securities. The government announced a 11 trillion won (US$9.93 billion) supplementary budget in June to
aid regional economies hurt by a government plan to restructure indebted companies. The proposal is expected to win legislative approval within weeks. Yoon said a rate reduction is likely in October when the bank next
revises its economic outlook. The Bank of Korea left borrowing costs unchanged at 1.25 per cent in July after cutting in June in response to slowing global trade and an initiative to restructure South Korea’s ailing shipbuilding and shipping industries. South Korea’s central bank is contending with an economy showing mixed signals.
Growth rebounded in the second quarter to 0.7 per cent from JanuaryMarch, while on Monday Standard & Poor’s raised South Korea’s sovereign credit rating. But at the same time, July exports fell at the fastest rate in three months, which could further weigh on factory output after the figure for June missed estimates.
Key Points All 24 analysts see rate on hold on Thursday Majority of respondents see rate cut soon Inflation is well below the central bank’s 2 per cent target. Another potential setback is an anti-corruption law due to take effect next month, which bars providing gifts and lavish free meals to civil servants and others, which could put a dent in retail sales. DBS Bank economist Ma Tie-ying, among the four in the Reuters poll who does not expect a rate change this year, said better-than-expected second quarter growth data and improving investment indicators reduce pressure for another cut. “Barring fresh downside risks to the growth outlook, the BOK may not rush to cut rates again in the near term,” said Ma. Reuters
12 Business Daily Wednesday, August 10 2016
Asia In Brief Cyber security
Australia sets up unit against online terrorism finance Australia has set up a cyberintelligence unit to identify terrorism financing, money laundering and financial fraud online, the government said yesterday, because of “unprecedented” threats to national security. The measure expands on a major platform of conservative Prime Minister Malcolm Turnbull, who narrowly won re-election last month after promising to improve Australia’s cybersecurity and transform the economy into a tech-savvy business hub. Justice Minister Michael Keenan said the new unit, set up under moneytracking agency the Australian Transaction Reports and Analysis Centre, would investigate online payment platforms and financial cybercrime to crack down on money-laundering and criminal networks.
Private survey
Australian business conditions resilient The poll was conducted ahead of the Reserve Bank of Australia’s decision last week to cut interest rates to a record low of 1.5 per cent.
A
ustralian business conditions cooled a little in July after a very strong run, though firms reported solid demand for labour that could augur a pick up in jobs growth ahead. National Australia Bank’s monthly survey of more than 500 firms showed its index of business conditions dipped 3 points to +8 in July, off the highest since the global financial crisis but still well above the longrun average. Its index of business confidence eased a point to +4 in July, after rising
3 points in June. Sales stayed strong in the month and the survey’s employment index held above average at +4. “Encouragingly, the employment component managed to hold onto the gains seen in June, suggesting on-going employment growth,” said NAB’s chief economist Alan Oster. “Despite the cacophony of events including Brexit and the recent Federal election - that have posed a risk to market sentiment in the past month or so, firms are continuing to report positive levels of business confidence.” Oster said the survey pointed to solid economic activity in the short
term, with forward orders and capital expenditure both above their longrun average. The survey was conducted ahead of the Reserve Bank of Australia’s (RBA) decision last week to cut interest rates to a record low of 1.5 per cent. Oster said longer-term headwinds to the economy meant further stimulus might be needed next year, especially if the RBA wanted inflation to return to its 2 to 3 per cent target band. Underlying inflation slowed to a record low of 1.5 per cent in the year to June, prompting the latest easing in policy. “We now expect the RBA will need to provide further support through two more 25 basis-point cuts in May and August 2017, which should be enough to stabilise the unemployment rate,” said Oster. Reuters
Ministry data
S.Korea says manufacturing sluggish South Korea’s manufacturing sector has remained broadly sluggish in recent weeks due to a delayed recovery in the country’s exports, the finance ministry said yesterday in its monthly assessment of the local economy. Private consumption has continued to improve, but this has been largely due to government policy efforts, the statement added. South Korea’s July exports fell at the fastest annual rate in three months to record a 19th straight month of decline, with all top industries seeing falls in shipments. M&A
Sim Lian founder offers to take over Singapore firm The founder of Sim Lian Group Ltd is leading an offer to buy the Singapore-based real estate firm and delist it, in a deal that values the company at S$1.09 billion (US$808.2 million). Coronation 3G, an investment holding company led by Sim Lian founder and Executive Chairman Kuik Ah Han, has offered S$1.08 for each share, representing a premium of 15 per cent to the stock’s last closing price of S$0.94. Sim Lian would become the latest among a growing number of Singapore companies which are going private. Infrastructure
New terminal for Jakarta’s airport The main airport serving the Indonesian capital Jakarta yesterday opened a new terminal that will allow the overcrowded aviation hub to handle tens of millions more passengers a year. Air passenger numbers are soaring in Indonesia, the world’s biggest archipelago nation and Southeast Asia’s top economy, as a growing middle class increasingly chooses to fly but ageing infrastructure is struggling to keep up. The US$380 million terminal at Soekarno-Hatta International Airport, a vast, futuristic-looking structure, will be able to handle about 25 million passengers a year once fully operational by March next year.
Confidence rises
Corporate Indonesia gears up for consumer demand revival Helping support consumer activity are signs economic growth is gaining momentum. Cindy Silviana and Eveline Danubrata
Indonesian firms ranging from restaurant chains to snack makers are stepping up investment and launching new products as improving economic conditions and easier access to credit drive a spurt in consumer demand in the country of 250 million people. Consumption, which typically makes up more than half of Indonesia’s gross domestic product, is often seen as a key indicator for the health of the overall economy. A consumer confidence index from the country’s central bank released on Monday posted its highest reading since March 2015. “There is a revival in the purchasing power of Indonesians,” Prijono Sugiarto, president director of Indonesian conglomerate PT Astra International Tbk, told reporters last week. “Slowly but surely, it’s improving.” Astra, which derives most of its revenue from auto distribution, posted a 12 per cent fall in net profit for the six months ended June 30 from a year earlier due to weaknesses at its financial services and mining equipment businesses. The company expects the launch of its new line of cars and motorcycles to support its performance in the second half of this year, Sugiarto said.
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
Business Daily is a product of De Ficção – Multimedia Projects
Helping support consumer activity are signs economic growth is gaining momentum and a relaxation in the central bank’s rules for property loans, which take effect this month. Data last week showed Southeast Asia’s largest economy grew a stronger-than-expected 5.18 per cent in the second quarter, its fastest pace in 2-1/2 years. This marks a pickup from 2015, when the economy posted its weakest growth in six years as consumers reined in spending. Companies are now starting to turn bullish on the outlook for this year: A survey of 25 “relatively large” Indonesian companies published by Nomura last week shows that 89.5 per cent of respondents expect more favourable business conditions in the next 12 months. “There seems to be widespread recognition that the government’s reform efforts are on the right track,” Nomura said. PT Mayora Indah Tbk, one of Indonesia’s biggest confectionary makers, has raised its revenue target by 20 per cent to 17.5 trillion rupiah (US$1.3 billion) for 2016, company commissioner Hermawan Lesmana told Reuters. The company, which is known for its Kopiko candies and Beng Beng wafers, is benefiting from lower raw material costs as imports have
become cheaper due to the stabilisation of the Indonesian currency, Lesmana said. So far this year, the rupiah has strengthened nearly 5 per cent against the dollar as investors turned more confident about key government programmes such as infrastructure building and a tax amnesty scheme. Indonesia’s PT Indofood CBP Sukses Makmur Tbk (ICBP), the consumer brands unit of PT Indofood Sukses Makmur Tbk, is running out of milk production capacity due to “tremendous sales growth in the first half”, said Indofood Sukses corporate secretary Werianty Setiawan. The company plans to add manufacturing lines and roll out new brands for potato chips and instant noodles. Reuters
Business Daily Wednesday, August 10 2016 13
Asia Destination clauses
Japan’s Jera raises pressure on LNG exporters LNG exporters are also coming under pressure from the United States. Osamu Tsukimori
Japan’s Jera, the world’s biggest importer of liquefied natural gas (LNG), is raising the pressure on exporters to allow it to resell gas it has to take under long-term supply contracts. Most LNG contracts forbid importers from reselling their cargoes under so-called destination clauses. But, soaring supply, especially from Australia and North America, and slumping demand has importers unable to absorb their contracted volumes. As a result, they are seeking more flexibility. Jera, a joint venture between Tokyo Electric Power and Chubu Electric Power, took over its parent companies’ existing fuel contracts last month. With an annual off-take of 40 million tonnes, it’s now the world’s biggest LNG buyer, topping Korea Gas Corp. Jera’s Chief Fuel Transactions Officer and Senior Executive Vice President, Hiroki Sato, told Reuters that he did not want to have any further discussions involving destination clauses with producers. “I’m aiming to have destination clauses out of the discussions,” he said. Sato is keen to see Japan’s big LNG importers join together to put pressure on exporters and extract more beneficial terms. To strengthen Japan’s negotiating position further, he would welcome if Tokyo Gas and Kansai Electric
merged LNG procurement like Jera and hoped that LNG purchases could be consolidated. “Grouping Japanese buyers to two or three firms roughly the size of KOGAS would be best to lower energy cost and improve Japan’s trade balance,” he said.
Government support
Jera has repeatedly voiced its opposition to destination clauses, but now hopes get more government support. The European Commission in 2004 ruled that destination clauses infringe competition. Now, Japan’s Fair Trade Commission (JFTC) is exchanging information with the government on destination clauses. “If JFTC judged that the clause would hamper fair market principles,
then that would become a big weapon,” Sato said. LNG exporters that use destination clauses are also coming under pressure from the United States, where Cheniere Energy started exporting this year and sent its first cargo to Asia last month through the newly expanded Panama Canal. As opposed to the contracts from most new Australian LNG projects, U.S. LNG is priced off domestic spot markets and does not include destination restrictions. For Jera, less than 10 per cent of its contracted supplies are completely destination free. The vast majority come with conditions such as profit-sharing of re-sold cargoes or an obligation to seek pre-approval from sellers.
To get more LNG without destination clauses, Jera plans to take more stakes in U.S. LNG projects, and is in talks with European utilities to sign flexible supply contracts. This would increase the company’s spot volumes to over 20 per cent in 2020, up from around 11 per cent now, Sato said. Sato expects the LNG oversupply to continue as production outpaces supply and that the annual overhang would be 50 million tonnes by 2020. This compares to output of around 70 million tonnes from the biggest exporter, Qatar. The supply overhang has helped pull down Asian spot LNG prices by 70 per cent since their 2014 peaks to US$5.80 per million British thermal units. Reuters
M&A
HDFC Life and Max Life to create insurer giant in India The deal is expected to kick-start consolidation in India’s lucrative yet crowded US$50 billion insurance sector. Devidutta Tripathy
India’s HDFC Standard Life Insurance Co Ltd reached agreement on Monday to take over smaller rival Max Life Insurance in an all-stock deal to create the nation’s top private life insurer valued at nearly US$10 billion. The companies, which began deal talks in June, said HDFC Life shareholders would own 69 per cent of the new company and Max Life share-
Key Points Companies agree terms of share swap Relative valuation of HDFC Life 69 pct, Max Life 31 pct Deal to create top Indian private life insurer holders 31 per cent. As part of the deal, Max Life is to be merged into parent Max Financial Services, which in turn will combine its life insurance business with HDFC Life, making it a publicly traded company. Based on the current share price of Max Financial, the combined entity will be valued at about 650 billion rupees (US$9.73 billion), HDFC Life Chief Executive Amitabh Chaudhry told a news conference. In the first stage of the transaction, Max Life shareholders will get one share of Max Financial Services for every 4.98 shares of Max Life.
In the deal to combine their life insurance businesses, Max Financial Services’ shareholders will get 2.33 shares of HDFC Life for every Max Financial share held. HDFC Life is also paying a non-compete fee totalling 8.5 billion rupees in cash to Max Financial’s founders over four years, the companies said. Indian mortgage lender Housing Development Finance Corp , which currently owns a majority of HDFC Life, will hold about 42.5 per cent in the insurance company after the deal,
while Britain’s Standard Life Plc will have about 24 per cent of HDFC Life. Current sponsors of Max Financial will own 6.6 per cent of the merged entity, while Japan’s Mitsui Sumitomo Insurance Co. which currently owns a stake in Max Life will get about 7.5 per cent of the combined entity. Before the announcement, Max Financial shares closed 1.7 per cent lower, while HDFC shares rose 1.9 per cent in a Mumbai market that gained 0.3 per cent. Insurers see plenty of room for growth in the world’s second-most populous nation of 1.3 billion, where relatively few people hold insurance policies. However, strong competition and high capital requirements have seen the top players gaining
market share and smaller companies struggling. In a market dominated by state-run Life Insurance Corp, the top four of the 23 private sector insurers account for 65 per cent of the private sector insurance market, according to HDFC. HDFC Life is currently the third-biggest private sector life insurer in India, while Max Life is fourth-biggest. The companies have a combined market share of 10.8 per cent based on new business premiums received for insuring individuals. The companies expect the merger to be completed within 12 months, HDFC’s Chairman Deepak Parekh said at the news conference. Reuters
14 Business Daily Wednesday, August 10 2016
International In Brief Trade
Rising German imports narrow surplus A rise in German imports outstripped a modest gain in exports in June, data showed yesterday, narrowing the trade surplus as Europe’s largest economy ended the second quarter struggling to maintain its strong momentum from the start of the year. Soft industry orders and uncertainty generated by Britain’s vote in June to leave the European Union are clouding the business outlook, meaning foreign trade, once Germany’s growth engine, is unlikely to inject fresh dynamism into the economy. Seasonally adjusted exports were up 0.3 percent on the month, yesterday’s data from the Federal Statistics Office showed. Oil industry
Venezuela says OPEC, non-OPEC meeting soon A meeting between OPEC and non-OPEC countries may take place “in the coming weeks,” Venezuelan Oil Minister Eulogio del Pino said on Monday, as the crisis-stricken South American nation seeks to prop up weak oil markets. “We are actively promoting a meeting of producers, which we estimate could take place in the coming weeks, so that OPEC and non-OPEC countries can sit down to see what the scenario for the winter looks like,” Del Pino told state television.
EU fiscal rules
Portugal and Spain officially off budget deficit hook Lisbon must find savings worth 0.25 per cent of GDP to bring its budget deficit to 2.5 per cent this year.
E
U member states let Portugal and Spain off the hook yesterday, deciding against fines for their repeated breach of budget deficit rules meant to bolster growth and the public finances. EU Commissioner for Economic and Financial Affairs Pierre Moscovici said the decision reflected “an intelligent application” of the Stability and Growth Pact (SGP) which sets the fiscal rules member states are supposed to follow. The move confirms an earlier ruling by the EU Commission. “By giving more time to Spain and Portugal to bring their public deficits below (the ceiling of) three per cent (of GDP), the Council sets new credible fiscal trajectories, which will contribute to strengthening both their economies and the euro area,” Moscovici said in a statement. “Stability and growth require a
strong determination to put public finances in order. I trust that Spain and Portugal will respond accordingly,” he added. The European Commission agreed late last month not to impose fines of up to 0.2 per cent of Gross Domestic Product for fear of stoking even more anti-European Union sentiment in the wake of Britain’s shock vote to quit the bloc. The final decision rested with the 28 member states in the European Council where many such as France and Italy argued Brussels should cut them more slack as they try to get their economies back on track amid public anger at continued austerity. Germany in contrast championed the SGP rules as the only way forward, saying that sound public finances are the only foundation for growth. After six years in recession, Spain reported a 2015 budget deficit of 5.1
“Stability and growth require a strong determination to put public finances in order. I trust that Spain and Portugal will respond accordingly”
Fiscal law
Brazil to modify debt relief bill for states The Brazilian government will make changes to a controversial bill that limits the spending of cash-strapped states, Finance Minister Henrique Meirelles said, in a last-minute effort to fast-track the approval of austerity measures. Meirelles said the government will remove from the bill on state debts measures that would limit their expenditures on state employees. Their current expenditures will be addressed in separate legislation that will re-work the country’s fiscal responsibility law. Interim President Michel Temer has struggled to approve the state debt bill in Congress as he faces resistance from governors that want to relax some austerity obligations.
Pierre Moscovici, EU Commissioner for Economic and Financial Affairs
Pierre Moscovici, EU Commissioner for Economic and Financial Affairs
Shortfall
Kuwait posts budget deficit after 16 years of surplus
Industry
U.K. trade drags on growth U.K. industrial production barely grew in June as the economy lost momentum before the Brexit referendum. Output rose 0.1 percent following a 0.6 percent drop in May, the Office for National Statistics said in London yesterday. Manufacturing declined for a second month. While economic growth accelerated to 0.6 percent in the second quarter, the improvement was heavily centred on April. Caution was taking hold in the run-up to the June 23 vote, and surveys show the surprise decision to leave the European Union has delivered a hefty blow to confidence and business activity.
per cent of GDP, way off the 4.2 per cent target set by the Commission. For this year, the Council said Madrid must find savings equivalent to 0.5 per cent of GDP to bring the deficit down to 4.6 per cent, and then 3.1 per cent in 2017 and 2.2. per cent in 2018. “All windfall gains must be used to accelerate deficit and debt reduction, and Spain must be ready to adopt further measures should budgetary risks materialise,” the Council said in a statement. “Fiscal consolidation measures must secure a lasting improvement of the government’s budgetary balance in a manner conducive to economic growth,” it said. Portugal must find savings worth 0.25 per cent of GDP to bring its budget deficit to 2.5 per cent this year, compared with 4.4 per cent in 2015. The Commission last month warned both countries that should they fail to meet the new targets it would consider suspending their EU structural funds but this would be only at a later date and after discussion with the European Parliament. AFP
Ratings agency Moody’s says fuel price reforms will boost Kuwait’s credit ratings. Lower oil prices have pushed Kuwait into a rare budget deficit, ending 16 straight years of surpluses for the energy-rich Gulf state, the finance minister said. The OPEC member recorded a budget shortfall of 4.6 billion dinars (US$15.3 billion) in the fiscal year which ended on March 31, Anas alSaleh said in a statement carried by the KUNA news agency late Monday. It was the first shortfall since the fiscal year to March 1999. Revenues dropped by 45 per cent to US$45.2 billion while spending was cut by 14.8 per cent to US$60.5 billion, the minister said. Oil income was US$40.1 billion, a slump of 46.3 per cent from the previous year, he said.
Oil accounted for 89 per cent of total revenues, down from 95 per cent in previous years. Saleh told parliament last month that Kuwait plans to tap international debt markets through bond issues to finance the deficit. He said the emirate would borrow up to US$10 billion in US-denominated bonds from international markets, in both conventional and (Islamic) sukuk issuance. The ministry will borrow another US$6.6 billion in both conventional and Islamic instruments from the domestic market, Saleh said. In previous years Kuwait built up a sovereign wealth fund worth around US$600 billion that is invested mostly in the United States, Europe and Asia.
Kuwait is projecting a deficit of US$28.9 billion in the current fiscal year which began on April 1. As part of efforts to reduce the shortfall, the cabinet last week decided to raise the price of petrol by up to 83 per cent, the first increase in almost two decades. Last year, it raised the prices of diesel and kerosene. It has also decided to lift electricity and water charges on foreign residents.
‘Oil accounted for 89 per cent of total revenues, down from 95 per cent in previous years’ The ratings agency Moody’s said late Monday that the fuel price reforms will boost Kuwait’s credit ratings because they will lower current expenditures and bolster government finances. AFP
Business Daily Wednesday, August 10 2016 15
Opinion Business Wires
Bangkok Post The private sector expects the value of Thailand’s cross-border trade to grow by 15 per cent this year. Niyom Wairatpanich, a vice-chairman of the Thai Chamber of Commerce, said the private sector is fully confident that trade value will reach 1.7 trillion baht. Thailand’s border trade normally includes trade with neighbouring countries and transhipments through them. Crossborder trade prospects are expected to flourish once the government’s planned special economic zones (SEZs) start up, Mr Niyom said. SEZ development is a major policy aimed at boosting investment and trade in border areas.
The Asahi Shimbun Among his many provocative statements on the campaign trail, Republican presidential nominee Donald Trump suggested he would support pulling U.S. troops out of Japan unless Tokyo picked up more of the tab for hosting U.S. bases. The comment thrust the highly controversial issue back in the spotlight, as it has continued to resurface for more than 50 years. For nearly 40 years, the Japanese government has paid a total of 6.6 trillion yen (US$64.70 billion) to U.S. forces in Japan in the name of “omoiyari yosan” (sympathy budget) for hostnation support.
An economic myth of Olympic proportions
A
New Zealand Herald Uber could be banned in New Zealand if it fails to comply with safety laws, Transport Minister Simon Bridges says. While this was not the Government’s preferred option, passenger safety was paramount, Bridges said yesterday. Speaking to reporters at Parliament, Bridges said Uber was mocking the law by not properly checking its drivers’ criminal and medical histories. Under rule changes announced in April, all drivers need to have a passenger or “P” endorsement to be able to operate a passenger service vehicle.
The Korea Herald South Korea’s state financial watchdog yesterday said it will launch a new farreaching financial information service next month as part of efforts to bridge the information divide. “The Financial Information Network (FINE) will offer financial consumers various kinds of useful information, which is necessary in making financial transactions,” the Financial Supervisory Service (FSS) said. The portal is scheduled to open September 1, it added. The FSS and some public and private financial groups have already provided finance-related information on separate websites. But FINE will offer integrated services through links, the FSS said.
ccording to Olympic legend, hosting the Games is an economic boon for the chosen city and country. In reality, the Games are more often a boondoggle, as Rio de Janeiro is finding out. First, consider how the games are awarded to a host city. The International Olympic Committee (IOC), an unregulated global monopoly, conducts a biannual auction whereby the world’s cities compete against one another to prove their suitability. Business executives – often from the construction industry – who stand to gain from the Games’ preparation usually lead a prospective city’s bidding process. Among other things, cities will offer lavish sporting venues, ostentatious ceremonial spaces, newly built transportation networks, luxurious accommodations for athletes, and media and broadcasting centres. The outcome of this process is predictable: winning cities usually overbid. The cost of hosting the Summer Olympics these days runs from US$15 billion to US$20 billion, including venue construction and renovation, operations and security, and additional infrastructure. The total revenue for the host city from its share of international television contracts (roughly 25 per cent, with the other 75 per cent going to the IOC), international and domestic sponsorships, ticket sales, and memorabilia is US$3.54.5 billion. In other words, costs comfortably exceed revenues by US$10 billion or more. Those vying for their city to host the Games often argue that any short-term deficit will turn into long-term gain, because tourism, foreign investment, and trade will grow, to say nothing of improved national morale. Again, the empirical evidence does not support this extravagant claim. Consider tourism. During July and August 2012, the number of tourists visiting London, the host city for the Summer Games that year, actually fell by 5 per cent. The shops, restaurants, theatres, and museums around the event space in Piccadilly Circus all reported next to no business during the 17 days of the Games. As it happens, everyday tourists avoid Olympic host cities during the Games, owing to crowds, transportation delays, inflated prices, and possible security threats. As a result, hosting the Games does more harm than good for tourism, which thrives on word of mouth. If tourists are avoiding a city – or having a negative experience because of the Games – they will have nothing good to report back to their family and friends. Beyond tourism, no smart business makes investment or trade decisions simply because a city has hosted the Olympics. If anything, the expense to the city creates fiscal distress, implying a less favourable business environment in the future.
“
Andrew Zimbalist Professor of Economics at Smith College and the author of Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup
Another drawback to hosting the games is the public scrutiny a city receives. Rio de Janeiro’s preparations to host this year’s Summer Games did its international image no favours. A city once known for its natural beauty and fun-loving lifestyle is now known for corruption, violence, bad traffic, pollution, political instability, and the Zika virus. One area where some host cities – but not all – can actually realize long-term gains is in infrastructure spending. In Rio’s case, one could argue that the city will benefit from improvements to its international airport and downtown port. But this is not a valid reason to become a host city; it is merely a consolation prize. A billion dollars of productive infrastructure development does little to make up for the other US$19 billion spent on the Games, which will not improve the city for most of its residents or regular visitors. Consider the US$2.9 billion subway line (originally budgeted at US$1.6 billion) connecting the Games’ beachside event space to Barra da Tijuca, a wealthy suburb ten miles away. This new infrastructure will boost property values in Barra da Tijuca, while doing nothing to improve Rio’s horrendous street traffic. The bulk of Rio’s workers living north and west of downtown will have just as difficult a commute as ever. Examples like this abound. The city built a new golf course on the protected wetlands of the Marapendi Natural Reserve, which will degrade the ecosystem and consume vast amounts of water – a preciously scarce resource in Rio. It also built bus lanes that run between Olympic venues, which will ease travel for IOC executives but only further congest the city’s now-narrower roadways for everyone else. Along with pointless and disruptive infrastructure, the Rio Games have exacted a human cost. To make room for the 32 sport venues, the athletes’ Olympic Village, the broadcasting and media centre, the ceremonial green space, and to beautify the surrounding landscape, the Rio government has evicted more than 77,000 residents from shantytowns or favelas since 2009, the year the city was awarded the Games. Ultimately, hosting the Olympic Games is a big economic gamble for any city. Less developed cities with inadequate infrastructure must spend more to meet the IOC’s transportation, communications, and hospitality requirements; more developed cities have the infrastructure, but not necessarily the land, and risk disrupting thriving industries to bring the Games to fruition. Project Syndicate
Beyond tourism, no smart business makes investment or trade decisions simply because a city has hosted the Olympics.
”
16 Business Daily Wednesday, August 10 2016
Closing Gaming
Las Vegas gamblers shun Olympics
It turns out Americans don’t really want to gamble on the Olympics after all. Las Vegas gamblers, able to wager on the Summer Games for the first time in 16 years, have largely stayed away from the events in Rio de Janeiro. Outside of a few big bets on basketball and soccer, sports book operators say the total Olympics handle has been underwhelming. Vegas sports books haven’t taken Olympics wagers since the 2000 Summer Games in Sydney. Following a push by U.S. Senator John McCain to ban betting on amateur sports, Nevada casinos
compromised: They stopped taking bets on the Olympics, Little League and other little-wagered events but stayed open for college athletics. The Nevada Gaming Commission last year reopened gambling on the Olympics, approving a proposal brought by a group of the state’s casinos. The Games end August 21, and wagering will likely pick up as the U.S. basketball teams advance and soccer reaches the knockout stages. There’s also the chance that an intriguing storyline could emerge that drives wagers moving forward. Bloomberg News
Commodity markets
LME to launch gold spot, futures contracts London currently dominates the global over-thecounter gold trade with an estimated US$5 trillion changing hands every year. Clara Denina
T
he London Metal Exchange (LME) said yesterday it is planning to launch spot and futures contracts for gold and silver in the first half of 2017, adding to its list of products which includes copper and aluminium. The 139-year old exchange is working in collaboration with the World Gold Council, an industry body backed by gold mining companies such as Barrick Gold and Goldcorp, and is supported by five banks and proprietary trader OSTC, which have committed to provide liquidity. “The initiative has been driven by the need for greater market transparency, to support and aid on-going regulatory change, provide additional robustness to the precious metals market, broaden market access,” the exchange and its partners said in a statement. Financial market transparency has been a major focus for regulators after evidence of price manipulation in lending rates between banks in the Libor scandal in 2012. As regulators continue to review commodity markets, the bullion industry is braced for further changes that could ultimately include a mandatory central clearing or more expensive bilateral trading. Banks and bullion operators have looked for ways to preserve London’s role as a major global trading centre, while increasing transparency of a market which can trace its roots back to the 17th century.
The London Bullion Market Association (LBMA), another industry body whose members are mostly banks, refiners and dealers, separately asked exchanges and technology firms in October last year to bid for services such as a gold exchange or a clearing platform. London currently dominates the global over-the-counter gold trade with an estimated US$5 trillion changing hands every year, while New York’s Comex contract sets the benchmark for futures. The LME plans physically delivered spot, futures and options contracts. The gold will be 100 ounces in size (worth around US$133,600 at current prices) and silver 5,000 ounces. All
contracts will be cleared through LME Clear, the exchange’s clearing house, which has an annual traded notional value of US$12 trillion.
Liquidity
The World Gold Council CEO Aram Shishmanian said that they had initially engaged with around 30 firms, but only Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis and Societe Generale signed up to support the contracts from the launch day. After the transformation of precious metals benchmarks in 2014, led by a regulatory drive to make them more robust to attempts of manipulation, banks have become more cautious. Several of them have run into trouble with regulators over misdemeanours in their precious metals trading business. The benchmarks are widely used by producers, consumers and investors to trade and value the metal. Gold
and silver are among the eight major market benchmarks that are regulated by Britain’s watchdog Financial Conduct Authority (FCA). The LME, which runs the platinum and palladium price benchmarks, will look at extending spot and futures contracts to these two metals, the LME’s chief executive Garry Jones told Reuters. The world’s oldest and largest market for industrial metals, owned by Hong Kong Exchanges and Clearing had suspended a clearing service for OTC gold and silver trades in 2014, which was run in conjunction with London clearing house LCH.Clearnet, when market-making members including UBS and JPMorgan stopped providing data to participate in price-setting mechanisms. The exchange also operated a 10,000 ounce silver contract in the 1970s, which was suspended the following decade. Reuters
Results
Nuclear plant project
Inc co-operation
Sina Weibo reports rising revenue
Beijing warns UK ties at ‘crucial juncture’
Alibaba offers to help global tech companies navigate China
Chinese social media giant Sina Weibo reported rising revenues in the second quarter of 2016 due to strong advertising, marketing and user growth. The Twitter-like service beat market expectations by raking in a net revenue of US$146.9 million in Q2, up 36 per cent year on year, according to a financial performance statement released by Weibo Corporation yesterday. Advertising and marketing were the major revenue contributors, increasing 45 per cent year on year to US$127.2 million in Q2. “Weibo is benefiting from the strong adoption of social marketing with key account and small-andmedium-sized enterprise revenues growing 73 per cent and 107 per cent year on year respectively in Q2,” said Wang Gaofei, Weibo’s CEO. User growth continues to be robust. Monthly active users in June 2016 grew 33 per cent year on year to 282 million, 89 per cent of which were from mobile users, where Sina Weibo has seen video become increasingly popular. Average daily active users in June 2016 grew 36 per cent year on year to 126 million. Weibo estimated that its net revenue in Q3 will be between US$168 million and US$173 million. Xinhua
China’s ambassador to Britain urged London yesterday to approve a Beijing-funded nuclear power plant as soon as possible, warning that relations between the two countries were at “crucial historical juncture”. “Right now, the China-UK relationship is at a crucial historical juncture. Mutual trust should be treasured even more,” Liu Xiaoming wrote in an article in the Financial Times newspaper. “I hope the UK will keep its door open to China and that the British government will continue to support Hinkley Point - and come to a decision as soon as possible so that the project can proceed smoothly.” On July 28, Britain’s new government said it was delaying final approval of the £18-billion (US$23 billion) project to build Hinkley Point, the country’s first new nuclear plant in a generation. The China Guangdong Nuclear Power is due to take a £6-billion stake in the project, which will be led by French energy giant EDF. Analysts warned the delay could jeopardise ties between Britain and China, the world’s second biggest economy, at a time when London needs to build strong trade ties following its vote to leave the European Union. AFP
Alibaba Group Holding Ltd. is extending a hand to companies such as SAP SE keen on operating in China, proffering a window into a market that’s increasingly hostile to foreign technology. China’s largest e-commerce company is aiming to help them comply with local regulations and sell their products, as it seeks news areas of growth to combat a slowing economy at home. Its new AliLaunch program makes use of its cloud computing platform and can help clients with joint ventures and marketing. Its biggest customer so far is Germany’s SAP, which will sell its Hana data-software and services on Alibaba’s cloud. Securing an influential Chinese partner has become key to cracking the domestic market. China has championed home grown services over foreign technology, after saying last year it will block software, servers and computing equipment. A tightening of regulations on everything from data to content has also threatened the ability of U.S. companies to participate in China’s US$465 billion market for information products. Alibaba Cloud “‘is able to help its overseas technology partners comply with data security laws in the country,” Alibaba Vice President Yu Sicheng told a conference in Beijing. The company said it aims to sign up 50 partners over the next 12 months. BloombergNews