Counter bid on Savan complex 10 times higher than Macau Legend’s Bid Page 4
Thursday, August 18 2016 Year V Nr. 1111 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming
MGM share deal could see Pansy Ho moving to greener pastures Page 5
www.macaubusinessdaily.com
MICE
Gaming
IPIM disburses MOP16.4 mln in Q2, mostly on conventions/ exhibitions Page 4
Crown facing downturn; plans to spin off local assets Page 5
Wynn Palace Countdown Gaming
It’s number of people, not number of tables. That will determine the success of the new US$4.2 bln Wynn Palace opening on Monday, says integrated resort magnate Steve Wynn. The number of new tables is in line with the gov’t cap. Wynn says there are no breakeven estimates for the property – but exudes characteristic confidence. Pages 6 & 7
Barbara Kraft
Results
Carlsberg to tackle underperforming businesses Page 14
Crime
Chinese police crack down on US$30 bln underground banking business Page 16
Long game
Diverse investment
Finance The MSAR is facing a difficult economic environment and volatility in the international financial markets. So says Monetary Authority of Macao head Anselmo Lin Seng. Regardless, June data shows investment of the city’s financial reserves has been profitable, with July figures out soon. Page 2
International appeal
Q2 transactions reveal the long game for real estate. With signs of the bottom having been reached. It’s time for a rebound. Some 3,882 units and parking spaces valued at MOP19.13 bln were sold in the period. Total building unit purchases and sales rose 101.3 pct.
Banking International assets of local banks. They increased 3.5 per cent q-to-q to MOP1,167.7 bln (US$146.1 bln). But decreased 0.8 pct y-o-y in Q2, according to the Monetary Authority of Macao. The proportion of international business in the local banking sector rebounded slightly in Q2. Page 2
CX profit turbulence Real estate Page 3
HK Hang Seng Index August 17, 2016
22,799.78 -111.06 (-0.48%) Worst Performers
Tingyi Cayman Islands
+2.75%
HSBC Holdings PLC
+0.74%
Cathay Pacific Airways Ltd
-7.31%
China Resources Power
+2.44%
Industrial & Commercial
+0.62%
Hong Kong Exchanges and
-4.69%
China Merchants Holdings
-1.76%
Lenovo Group Ltd
-1.65%
Belle International Holdings
+1.63%
CK Hutchison Holdings Ltd
+0.61%
Li & Fung Ltd
-1.97%
Bank of East Asia Ltd/The
-1.63%
Want Want China Holdings
+1.22%
Hang Seng Bank Ltd
+0.59%
Sun Hung Kai Properties Ltd
+0.74%
Sands China Ltd
+0.47%
China Life Insurance Co Ltd
-1.96%
Swire Pacific Ltd
-1.62%
Cheung Kong Property
-1.82%
Hengan International Group
-1.45%
26° 29° 26° 29° 26° 31° 26° 31° 26° 31° Today
Source: Bloomberg
Best Performers
Fri
Sat
I SSN 2226-8294
Sun
Mon
Source: AccuWeather
Aviation Hong Kong airline Cathay Pacific Airways’ H1 net profit has dived. Plummeting 82 pct amid sluggish Chinese economic growth. Plus falling consumer demand for premium class seats on long-haul routes, sending its shares down almost 8 pct. Page 10
2 Business Daily Thursday, August 18 2016
Macau Finance
Diversifying investment AMCM head: As at July city’s investment of fiscal reserves still profitable. Annie Lao annie.lao@macaubusinessdaily.com
T
he MSAR is facing a difficult economic environment a n d v o l a t i l i t y i n th e international financial market, according to the head of the Monetary Authority of Macao (AMCM), Anselmo Lin Seng. “The financial situation in Macau is more difficult this year. Also, the international finance market and stock market have both fluctuated. We’re currently following the SAR Government’s safety guidelines on investment for the city’ financial reserves,” said the AMCM head, while attending a ceremony for the launch of a new mobile phone application for credit card payment yesterday. The event was held at the Macau branch of the Industrial and Commercial Bank of China (ICBC) – the launcher of the app. Teng noted that with regards to the July figures, the investment of the city’s financial reserves has been profitable, saying an exact figure will be released in the near future.
bond market and stock markets in Mainland China and overseas, added Teng. “We aim to further diversify the city’s investment portfolio based on the economic situation of the city and have a balance in regard to monitoring risk.”
Guangdong investment
With regard to an agreement signed by the local government signed for setting up a Guangdong-Macau Cooperative Development Fund, Mr. Teng commented that the groups are “still discussing the details of the
agreement and we will follow the regulations of Mainland China.” It is planned to use the SAR’s excess financial reserves to invest in the fund as part of the SAR’s Five-year Plan to establish a Macau
Mobile credit
Yesterday, the local branch of the Industrial & Commercial Bank of China (ICBC Macau) launched the city’s first credit card payment for mobile phone application. A total of 17 local businesses have co-operated with ICBC Macau to offer the service. The cumulative daily limit for credit card payment on mobile phones through the
Investment and Development Fund in 2019, as announced by the office of the Secretary for Finance and Economy. Regarding timelines and management of the fund, the AMCM head commented that “when there is a mutual consensus by both parties, we will announce the outcome to the public.”
app is MOP5,000 (US$626). “More people are using e-payment on smart phones. Also, it makes effecting payments for Mainland Chinese in Macau more convenient - on their mobile phones,” commented Anselmo Teng Lin Seng – head of the Monetary Authority of Macao (AMCM) - at the app launch event.
Diverse investment
When asked whether the investment earnings would underperform in relation to the rise of the city’s inflation rate Mr. Teng responded that the “inflation rate is different in different countries so we cannot directly compare the return on overseas investment based only on the inflation rate.” Currently, the city’s investment portfolio includes bank deposits, investment in Mainland China’s
Banking
The Hong Kong dollar was the most represented currency in international banking transactions with 42.4 pct of total international assets.
Hong Kong dollar international banking’s preferred currency International assets from MSAR banks in the second quarter of 2016 grew 3.5 per cent quarter-to-quarter but decreased 0.8 per cent year-on-year. Nelson Moura nelson.moura@macaubusinessdaily.com
International assets of local banks increased 3.5 per cent quarter-to-quarter to MOP1,167.7 billion (US$146.1 billion) but decreased 0.8 per cent year-on-year in the second quarter of the year, according to the most recent data from the Monetary Authority of Macao (AMCM). ‘The proportion of international business in the local banking sector rebounded slightly in the second quarter of 2016,’ notes the AMCM report.
Of the total banking assets held in the SAR, the share of international assets increased 0.3 per cent quarter-to-quarter to 84.9 per cent. As part of international assets, external assets saw a 2.5 per cent decline year-on-year during the quarter, to MOP862.5 billion, while local assets in foreign currencies increased by 4.3 per cent to MOP305.2 billion.
Hong Kong Dollar leading
The Hong Kong Dollar (HK$) was the most represented currency in international banking transactions, accounting for 42.4 per cent of total
international assets, followed by the U.S. Dollar (US$), the Renminbi (RMB) and other foreign currencies, accounting for 41.2 per cent, 10 per cent and 5.5 per cent, respectively. The Macau Pataca (MOP) only accounted for 0.9 per cent and 1.7 per cent of the total international assets and total international liabilities, respectively, as at the end of the second quarter. External interbank loans between April and June dropped 3.5 per cent to MOP394.9 billion when compared with the same period last year.
Liabilities
In terms of total international liabilities Hong Kong’s currency was also the most represented, accounting for 49.6 per cent, with the U.S. Dollar, the Renminbi and other foreign
currencies representing 49.6 per cent, 35.5 per cent, 9 per cent and 4.2 per cent, respectively. Total international liabilities as at end-June saw a 3.8 per cent quarter-to-quarter increase to MOP1,106.5 billion, however, suffering a year-onyear decrease of 2 per cent. Of this amount, external liabilities decreased 5.9 per cent to MOP606.8 billion, while local liabilities in foreign currencies managed to grow by 3.2 per cent to MOP499.7 billion Foreign currency deposits held by local residents and the Macau Government in local banks made up a major part of international liabilities, with these deposits seeing a 0.3 per cent year-on-year drop to MOP445.6 billion at the end of the second quarter, as compared to MOP446.7 billion from the same period last year.
Breaking it down
In terms of region, claims on Hong Kong and Mainland China accounted for 37.7 per cent and 22.5 per cent of total external assets, respectively, as at the end of June this year, followed by the U.S. with an 8 per cent share. Claims on Portugal and the United Kingdom accounted for 2.8 per cent and 2.2 per cent, respectively. Further external liabilities for Hong Kong and Mainland China accounted for 52.5 per cent and 18.1 per cent of the total, again followed by the United States, at 3 per cent. France and Portugal took up respective shares of 1.0 per cent and 0.8 per cent of external liabilities, respectively. Portuguese-speaking countries represented 3.0 per cent and 1.1 per cent of total external assets and liabilities.
Business Daily Thursday, August 18 2016 3
Macau
Construction Central Taipa posts most expensive residential units per square metre
Real estate’s long game Nelson Moura nelson.moura@macaubusinessdaily.com
A
total of 3,882 building units and parking spaces valued at about MOP19.13 billion were sold in the second quarter of 2016, according to Statistics and Census Service (DSEC) data. The rise was based on an increased levels of transactions on existing residential units. Total building units purchased and sold rose 101.3 per cent, while parking spaces rose 126.5 per cent, when comparing the second quarter with the first. The period from April to June saw the first increase in volume and value of real estate deals since the same period of last year. Total volume and value of real estate transactions increased in the second quarter of 2016 by 25.91 per cent and 6.1 per cent year-on-year rise, respectively.
Construction
The gross floor area of construction in the private sector totalled 59,000 square metres, providing a total of 559 units, of which 534 are residential units; as well as an additional 347 parking spaces, upon completion.
Completed construction totalled 28 , 000 s q u a r e m et r es, m a d e up of 71 units (of which 51 are residential) and 59 are parking spaces for cars. In the second quarter of 2016, some 3,731 properties were subject to transaction contracts, up by 43.5 per cent quarter-to-quarter; while 4,906 properties were engaged in mortgage contracts, up by 49.4 per cent.
Residential units
Residential units were sold in the second quarter of 2016 at an average price of MOP78,532 per square metre of usable area, up 7.6 per cent from the first quarter. The purchase of residential units in the second quarter increased 145.3 per cent quarter-to-quarter, with sales rising 175.2 per cent. The total volume of residential unit sales and purchases in the second quarter amounted to MOP15.28 billion for 2,981 units. Existing residential units registered a 154.1 per cent increase in purchases and 190.4 per cent in sales, totalling 2,749 units, with value reaching MOP13.5 billion. The area near Taipa City registered the priciest residential units followed
by Coloane, averaging MOP114,580 and MOP102,366 per square metre, respectively. The average price of existing residential units in the second quarter increased by 8.6 per cent quarterto-quarter to MOP75,812 per square metre, while average price of units located on the Macau Peninsula and in Taipa rose by 9.6 per cent and 4.1 per cent, respectively. Baixa da Taipa registered 466 existing residential units sold, the most during the period, while the Areia Preta & Iao Hon came in next with 422 and 242 units sold, respectively. Average prices for the two areas amounted to MOP79,041 and MOP74,702 per square metre, respectively.
Pre-sales
The average price of pre-sale residential units rose by 13.9 per cent to MOP107,227 per square metre in the second quarter, with 232 units sold for a total of MOP1.79 billion. Pre-sale residential units in Taipa saw their average prices rise by 20.1 per cent quarter-toquarter, while the price of those on the Peninsula and in Coloane increased by 12.9 per cent and 10.8 per cent, respectively.
Most pre-sale residential units were sold in Coloane (88 in total) for an average price of MOP104,720 per square metre, followed by the Móng Há & Reservoir area - with 30 units sold for an average price of MOP99,601 per square metre.
Classic buildings
Most of the residential units purchased and sold, 1,287 units, were built between 21 and 30 years ago, for an average price of MOP69,535 per square metre, an 8.2 per cent increase quarter-to-quarter. Some 648 residential units aged 11 to 20 years were purchased and sold during the second quarter, at an average price of MOP75,588 per square metre, a 6.6 per cent increase. Buildings 30 years and older saw the biggest increase in their average square metre price with a 10.7 per cent rise to MOP49,042, with 341 units purchased and sold in the second quarter of 2016.
Offices and industrial property
Office units increased by 2.5 per cent quarter-to-quarter in average price, to MOP100,030 per square metre, while industrial units saw a decrease of 5.6 per cent to MOP41,391 per square metre.
4 Business Daily Thursday, August 18 2016
Macau Opinion
Ashley Sutherland-Winch Culture Strong Macau’s greatest asset during the current re-branding process is offering a cultural experience for tourists. The giant casinos are working feverishly to provide new forms of nightlife, entertainment and family-friendly activities as well as creating the most luxurious experience for their patrons - but for the city at large highlighting our Portuguese and Chinese roots are the stars of the Macau brand. Sightseeing around town is often a secondary activity for tourists, understanding the true beauty of our city once they’ve arrived. They come to Macau for the glitz, glamour and gaming but at some point in their journey they venture out of their hotels to find our cobbled streets and wonder if they’ve been miraculously transported to Lisbon. Then the visitor turns a corner and finds an ancient shrine and is transported back to Asia. While it would not be advantageous for a casino to promote a sightseeing adventure around town to its patrons, causing the casino to lose potential revenue, part of Macau’s citywide brand message should be an encouragement of visitors to take in Macau’s cultural sights and sounds. It is truly rare to find a city as rich in culture as it is in gaming. Las Vegas is unable to provide such an experience to tourists. The Las Vegas brand message offers Vegasspecific attractions where Macau is able to offer a major cultural component to its visitors. Chinese tourists can allow themselves to become enveloped in Portuguese traditions without travelling to Europe, while European and North/ South American tourists can immerse themselves in the unique Asian experience that cannot be replicated in Mainland China or even in Hong Kong. I believe that the issue with re-branding Macau and finding an adequate slogan for our city is a challenge because our city is so diverse. It is impossible to name all of the elements that make Macau unique but we as a city must try to highlight as many as possible. What happens in Vegas may stay in Vegas but if tourists experience the fabulous Eastmeets-West fusion in Macau they will share their story with anyone that will listen. The atmosphere is invigorating and the fusion culture makes for a welcome change to the seasoned traveller who finds Las Vegas too stimulating. It’s the unique culture, not Lady Luck, which makes our city – a former Portuguese colony a winner. Modern day Macau brand is culture strong. Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
IPIM
IPIM disburses MOP16.39 million-worth of subsidies in Q2
T
he Macao Trade and Investment Promotion Institute disbursed a total of MOP16.39 million during the second quarter of the year, according to Business Daily calculations based on information published yesterday in the Official Gazette. The business promotion group attributed the largest portion of the total funding to the Macao Convention & Exhibition Association (MCEA), amounting to 68.6 per cent of the total, for the sponsorship of half of the event expenses for the 4th Tai Hu World Cultural Forum, in the amount of MOP11.25 million. The second largest subsidy from
IPIM, MOP3.48 million, was allocated to the same group - MCEA - to host the Dynamic Macao Business and Trade Fair in Yunnan, Kunming to
cover half of the event’s expenses, accounting for 21.2 per cent of the total subsidies distributed by IPIM during the quarter. A.L.
Funding
Tourism Fund targets Cantonese Opera Tourism Fund grants for the second quarter of this year increased by 17 per cent quarter-to-quarter, reaching MOP495,800 (US$62,076) vis-a-vis MOP423,000 (US$52,961) in the
first quarter of 2016, according to information published in the Official Gazette yesterday. A total of 37 local associations received grants from the Tourism
Fund during the quarter, with 67 per cent of overall funding granted to the Associação de Beneficência «Quatro Pagodes» de Coloane and the Associação de Mútuo Auxílio dos Moradores do Bairro de San Kio, which received MOP100,000 and MOP231,800, respectively. The grants to the two associations were to fund Cantonese Opera and religious events, with the majority of the overall grants from the Tourism Fund used for the same purposes. The third largest grant during the quarter was to Associação Musical Tuna Macaense, who received MOP60,000, to hold the Macanese Band Music Carnival (Espetáculo de Música Variada do Conjunto Musical). The other 34 associations receiving grants each collected MOP3,000 from the Fund, primarily for holding Cantonese Opera events. C.U.
Gaming Consortium offers 10 times what Macau Legend offered for Lao casino
New US$400 million bid Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
A
European/Asian Consortium has made a last minute counter offer for the Savan Vegas Casino and Hotel Entertainment Complex in Laos, worth nearly ten times the current amount being offered by Macau Legend, as released by the consortium in a press release. The new offer for the complex amounts to US$400 million (MOP3.19 billion), as compared to the US$42 million (MOP335 million) offered by the local gaming operator spearheaded by businessman David Chow. The consortium is led by Mr. Werner Kubesch, Chairman of ECAS4 Int’l AG, and consists of ‘several multi-billion US$ entities who prefer to stay anonymous during this ‘bidding phase’ because of their ‘public listed status’. “Our consortium is backed by one of the largest hospitality groups in the world, a well-known European based, but globally active, Casino operator and strong financial partners with extensive regional expertise,” states Kubesch, as quoted in the release. “The pedigree of our Consortium has also been acknowledged by Ms. Kelly Gass, CEO of San Marco Capital, who was assigned by the Lao Government to organize the Auction as being ‘by far’ the most qualified and professional Bidder in the Auction.”
The auction, set to take place on May 10, was ‘unexpectedly terminated by the Lao Government’ states the release, commenting that Macau Legend Development Ltd., one of the bidders for the project, was ‘selected unilaterally as the surprise bidder – without competitive bidding’.
Winning bid?
The original date of the Initial Project Development Agreement signed between the Laos Government and Macau Legend was May 13 of this year; however, a number of delays, including a further push back announced on August 1 has pushed the date back as far as September 10. This comes in the wake of an auditor’s report, contracted by Macau Legend which was unable to find
many supporting documents and information regarding the finances and current state of the complex. Despite the already-signed agreement in effect, the head of the newly formed consortium expresses confidence that this bid will be able to overcome Macau Legend’s. “We are aware Macau Legend has been selected, but with deadlines already missed we hope our counter offer, which is substantially more beneficial to the Lao Government, will be considered favourably,” said Kubesch. “We are confident that our experienced Consortium partners will be able to revive and operate Savan Vegas in a transparent, credible and profitable manner.” The casino and hotel complex was formerly operated by Macau-based Sanum Investments before being seized by the Laos Government for alleged unpaid taxes.
Business Daily Thursday, August 18 2016 5
Macau Gaming
Looking ahead, looking abroad? Gaming analysts’ opinions are divided with regard to the impact of the MGM share movements involving Pansy Ho and speculate that she might be looking beyond the MSAR market. Nelson Moura nelson.moura@macaubusinessdaily.com
Gaming analysts are divided over what immediate impact the MGM Resorts International (MGM) move to increase its share in MGM China Holdings Ltd. (MGM China) might have, but see Pansy Ho’s new share
deal with MGM as a potential shift in focus to beyond the Macau market. MGM increases its shares in its China unit from 51 per cent to 56 per cent upon purchasing part of Pansy Ho’s share in the company at a value of around US$325 million (MOP2.59 billion). Once the deal is completed the
Pansy Ho
daughter of gaming mogul Stanley Ho will see her share in MGM China decrease from 27.44 per cent to 22.49 per cent, according to a Tuesday release by MGM China. The release states that MGM will pay Ho’s holding company Grand Paradise Macau Limited US$100 million in cash, with US$175 million in stock and US$50 million in deferred payments in lieu of the dividends she would have received for holding the shares.
Good or bad?
Analysts at Wells Fargo commented that they’re ‘not sure what MGM gains from this transaction. [The company] already has control of and consolidates MGM China, so we don’t see any immediate benefit from purchasing another 5 per cent, especially when Macau’s fundamentals are still challenged and the tone of many of our industry conversations is very glum,’ the group commented in a release. Union Gaming analysts, while considering that the transaction will have ‘little impact’ on MGM’s consolidated leverage ratio or valuation, consider the share deal to have a ‘significant long-term upside’ following the opening of the MGM Cotai project and the stabilisation of Macau’s economy. The opening of MGM Cotai’s US$3.1 billion property was pushed back again this month to the second quarter of next year, making it the third time it’s been postponed, as reported by Business Daily. The share deal was described by Union Gaming analysts as ‘another signal that Macau has bottomed’, with MGM seeing an opportunity to ‘buy low, sell high’ while increasing its
stake in Macau at a ‘discount’. ‘MGM Resorts is also gaining incremental exposure to Macau without incremental development risk, a key positive in our view,’ the Union Gaming analysts believe.
Looking elsewhere
As part of the deal, Pansy Ho acquired 4 million shares in MGM Resorts from Tracinda Corp - an investment vehicle of former MGM Resorts’ founder Kirk Kerkorian. This will equate to a 4.8 per cent stake in the American gaming company for Ms. Ho, in a move gaming analysts consider a sign of distrust of the local gaming market. MGM China Holdings Limited has announced total revenue for the first quarter of the year of HK$3.6 billion (MOP3.7 billion/US$464 million), a drop of 25 per cent year-on-year, and a 31 per cent decline from the previous quarter, Business Daily reported previously. According to Wells Fargo analysts ‘by continuing to sell down her MGM China and increase her MGM U.S. stake, Pansy Ho is arguably reducing Chinese and increasing U.S. exposure,’ in another signal the local gaming market has ‘bottomed’. Bernstein analysts consider the move as ‘slightly negative’ since it could signal a move by Ho to begin a long-term sell down of her position in MGM China. Wells Fargo considers that the Macau market continues to be ‘fundamentally challenged’ believing there won’t be a recovery, even after the market stabilises, ‘due to a continued policy overhang and weak Chinese economic outlook’, even with gaming offerings and supply growth continuing to increase in the next two years.
Gaming
Packer chases spinoff as Crown Resorts profit falls 23 pct Crown Resorts Ltd., the casino operator controlled by billionaire James Packer, said it’s pursuing regulatory approvals to hive off some of the company’s international investments as the gambling downturn in Macau dents earnings. The Melbourne-based company plans to spin off overseas assets including a US$2 billion (MOP15.97 billion) stake in local casino operator Melco Crown Entertainment Ltd. The separation would shield Packer’s Australian assets from a prolonged downturn in the Chinese gambling hub. “Macau continues to face challenges arising from softer gaming demand, which has adversely affected all casino operators,” Crown said in a statement Wednesday. “Work on the proposed demerger, in particular, to obtain all the necessary approvals, consents and waivers from third parties, including from governments and gaming regulators, is on-going.” When it announced the potential spinoff in June, Crown also said it would explore an initial public offering of 49 per cent of a property trust that would hold some of its Australian hotels. Crown is still evaluating that IPO, the company said Wednesday. “However, Melco Crown believes that revenue trends, particularly in
the mass market segments, will improve as Macau further evolves into a multi-faceted, mass-market-focused destination,” the company further stated. Crown said full-year profit more than doubled to A$948.8 million (US$731 million/MOP5.84 billion) after a one-off gain from the sale of shares in Melco Crown.
Normalised net profit for the company was A$406.2 million (US$312.57 million) for the 12 months to June 30, from A$525.5 million a year ago and slightly below average analysts’ forecast of A$404.71. Normalized profit excludes onetime items and irons out volatile revenue from high-rolling gamblers. Crown has a 27 per cent stake in
Nasdaq-listed Melco Crown. Any new spinoff would also house Crown’s development site in Las Vegas, a 20 per cent stake in Japanese restaurant Nobu and half of U.K. casino operator Aspers Group. After the split, Crown would hold gambling resorts in Melbourne, Perth and a planned luxury hotel-casino in Sydney. Bloomberg News and Reuters
6 Business Daily Thursday, August 18 2016
Macau
Gaming Wynn Palace ready for Monday opening
Wynn: Table number won’t decide Palace performance The American casino magnate doesn’t think his new integrated resort’s success will be determined by the number of gaming tables allocated by the government. Kam Leong kamleong@macaubusinessdaily.com Photos by Barbara Kraft, Roger Davis and Viola Frey Amphora
S
teve Wynn, the boss of gaming operator Wynn Macau Ltd., believes that his new US$4.2 billion (MOP525 million) integrated resort in Cotai - Wynn Palace - “would be fine” despite the operator having been authorised fewer tables than two other gaming operators who have recently opened their new projects on the Strip. “The focus should not be on the amount of tables but the amount of people that are here,” the chairman and chief executive of the company said yesterday. “When you have less [gaming] equipment than more equipment, you tend to have higher utilisation,” he said. Mr. Wynn made his remarks at a press conference at Wynn Palace
prior to the grand opening of the property next Monday. Asked by reporters when he expects to see the multibillion dollar investment break even, he said he had not drawn up estimates, but added “I expect we would be fine. We’ll find out what that is after the opening”.
Cap rules
According to the gaming boss, about 50 to 60 of the gaming tables at the new property will be allocated to the VIP segment. Last week, the MSAR Government authorised a total of 150 new-tomarket gaming tables for Wynn Palace - of which 100 will be available at its opening next Monday - while the remaining 50 will only gradually become available in the next two years. The number of new tables that Wynn Macau was granted is lower than the 250 new gaming tables that its two rivals - Galaxy Entertainment
Group and Melco Crown Entertainment Ltd. – were respectively permitted for the openings of Galaxy Phase II and Studio City in May and October of last year. But Mr. Wynn does not perceive the company’s lower table allocation as due to the new property’s non-gaming offerings. “The table allocation had to do with the cap,” he said, referring to the government’s principle of a compound annual growth rate of no more than three per cent in new gaming tables for a ten-year period from 2013. Mr. Wynn also clarified yesterday that his company had not applied for
400 new-to-market gaming tables from the city’s gaming regulator. “I didn’t apply for 400 tables. We need 280. We got 150. We are 130 short,” the gaming mogul told the press. Wynn Macau has received approval from the Gaming Inspection and Co-ordination Bureau (DICJ) to shift 250 gaming tables from its property on the Peninsula to the new project so that a total of 350 gaming tables can be operational for the opening next Monday.
Non-gaming earnings to grow
Meanwhile, the company leader expects earnings from the non-gaming segment to increase following the opening of the new casino-resort. “The amount of rooms is increasing, so that will add to the component of revenue from non-gaming. The amount of restaurants is increasing, the amount of shops is increasing, the amount of other facilities is also increasing,” he said. “We don’t charge for a big proportion of the things we offer; we get [the revenue] in steady room rates, in the repeat of visitation and loyalty”. Wynn Palace, the second integrated resort project of the businessman in Macau, offers 1,706 new rooms ranging through five categories and 2,440 square metres of event space as well as other entertainment facilities such as the Performance Lake and the cable car service called SkyCab. As the MSAR Government has requested local casino operators develop more non-gaming elements to diversify the city’s economy rather than relying upon the gaming sector the gaming boss, on the contrary, perceives that the city’s is already diversified.
Business Daily Thursday, August 18 2016 7
Macau “In some cases, the notion of diversification has been misunderstood. Non-gaming is hospitality. Diversity is the offering of the hotels and the diversity they offer in terms of choices,” he said. Mr. Wynn further indicated that developing theme parks in the city may not sound like a good idea. “Every major destination in the world has one thing in common - it is filled with hotels, restaurants, and shopping. People go to a city for their hospitality experiences,” he said. “But they don’t go to theme parks until they have little children with them. Those are not the same people going on vacation or to conventions and meetings”. He added that developing famous medicine clinics in the Special Administrative Region, however, could help attract more visitation from the Greater China region.
Not into price war
When asked by reporters whether the company’s luxury property will join “the price war” to offer discounts on hotel room rates in order to attract more guests, the casino mogul responded with a resounding “No!” “It’s not about price; it’s about experience in this business. Get it
straight. Macau ain’t about price, Macau is about experience,” he said, adding that the property is not directly competing with other operators as it’s aiming at different targets from other casino resorts in town.
Phase II for sure
On the other hand, the Wynn Macau chairman revealed that the company
had reserved two plots of land, occupying some four and seven hectares, respectively, for further development in the city. “There will definitely be a phase two at some point,” he stated. “We’re going to consult the government, look at the market, see what people are looking for; what makes sense to fit in, who we are [and] what will
enhance this place as a whole”. Mr. Wynn indicated that building a garden is one of the ideas but added that the company is now too occupied to think about new development in the Special Administrative Region, given the new completion of the Palace and the recent start of the construction of a new hotel project in the United States.
8 Business Daily Thursday, August 18 2016
Greater China In Brief Trade
Mainland’s imports from HK rise sharply in H1 The Chinese mainland’s imports from Hong Kong reached US$9.99 billion in the first half of 2016, up 130 per cent year on year, the Ministry of Commerce said on Wednesday. The mainland’s exports to Hong Kong hit US$132.7 billion, a decrease of 4.8 per cent year on year, ministry figures show. Trade between the mainland and Hong Kong totaled US$142.69 billion in the first six months, down 0.7 per cent year on year. The figure accounted for 8.3 per cent of the mainland’s total overseas trade in the first six months of this year. The mainland approved 6,333 Hong Kong-invested projects from January to June in 2016, with the actual use of Hong Kong capital reaching US$42.55 billion, up 8.8 per cent from the same period of last year. Investment
China outbound direct investment surges China’s non-financial outbound direct investment (ODI) in the first seven months soared 61.8 per cent year on year, data from the Ministry of Commerce (MOC) showed Wednesday. China’s ODI from January to July hit 673.24 billion yuan (about US$102.75 billion), the MOC said in a statement. The ODI in July alone reached US$13.89 billion, down 9.5 per cent month on month, according to the MOC. Anti-dumping
China approves American company inheriting anti-dumping duty The Ministry of Commerce said Solvay USA Inc. will inherit a 9.7-per cent anti-dumping duty rate for pyrocatechol from Rhodia Inc. effective from Wednesday. In June, Solvay USA Inc. filed an application to the ministry, saying that it had bought out Rhodia Inc. and, therefore, should inherit Rhodia’s anti-dumping duty, according to the ministry’s website. The ministry approved the request after a thorough investigation. In 2012, the ministry decided to levy anti-dumping duties on pyrocatechol imports from the U.S. and Japan for a term of 5 years. Logistics
China, Venezuela to expand cooperation on logistics, energy China and Venezuela agreed to bolster cooperation on logistics and energy at the conclusion of the meeting of the 5th Technical Secretariat of the Venezuela-China High-Level Mixed Committee (CMAN). Venezuelan Minister for Planning and Knowledge Ricardo Menendez held the meeting with the Chinese delegation led by Wu Hongliang, secretary of the CMAN, and Zhao Bentang, Chinese ambassador to Venezuela. At the closing ceremony, Menendez said 5,000 vans and 1,900 heavy refrigerated trucks from China will be added to the distribution fleet under a state program to deal with the shortage of food and medicine supply.
Fund Stock exchange links launch date not yet confirmed
Investors cool on Hong Kong stock market link with “Wild West” Shenzhen The scars from last year’s stock market crash are still fresh, and analysts say an avalanche of foreign funds is unlikely. Saikat Chatterjee
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plan to connect the giant stock markets of Shenzhen and Hong Kong offers global investors tempting access to China’s fast-growing tech sector, but high valuations and a reputation for wild speculation are likely to keep many buyers at bay, money managers said on Wednesday. China’s cabinet approved the long-awaited scheme on Tuesday, marking one of the country’s biggest capital market reforms in over a year, though a launch date has yet to be set. But the scars from last year’s stock market crash are still fresh, and analysts say an avalanche of foreign funds is unlikely as the world’s second-largest economy continues to slow and the yuan currency hovers near six-year lows. The Shenzhen stock market has exploded into the second busiest in the world, and technology stocks account for nearly a quarter of its listings as Beijing encourages new economic growth drivers. But many firms are small and unknown, and overall valuations are already a third higher than in neighbouring Hong Kong and more expensive than other China-focused shares listed abroad. “Investors aren’t very enthusiastic about Shenzhen because the timeline (for the launch) is quite long and there are better plays elsewhere in the Baidu’s, Alibaba’s and Tencent’s rather than looking for value in Shenzhen,” said Alex Wong, reeling off the names of China tech firms which have attracted global attention. Wong is a portfolio manager at Ample Capital with US$100 million in assets under management. Indeed, China’s notoriously speculative markets were little fazed
by the news, with Shenzhen ending only modestly higher and Hong Kong stocks slipping.
Shanghai precedent
Charles Li, CEO of Hong Kong Exchanges & Clearing said the new link would be launched by Christmas if not sooner, a timeline longer than the Shanghai-Hong Kong connect scheme which was implemented in a much shorter time frame in 2014. The Shanghai-Hong Kong link was also launched with much fanfare, but it failed to gain traction for a long time after China’s stock markets plunged more than 40 per cent last summer. “We expect flows to be even weaker under the Shenzhen Connect than under the Shanghai Connect, given the latter covers more stocks that are of interest to global investors, while the Shenzhen Connect doesn’t expand the investable universe in Hong Kong for mainland investors that much,” according to a BofA Merrill Lynch Global Research report.
Huge turnover
Shenzhen is Asia’s busiest exchange, with monthly turnover topping US$1 trillion. Its average daily turnover ranks behind only the New York Stock Exchange, according to the World Federation of Exchanges data. Turnover on some counters outstrip that of larger blue chips, with punters keen to plunge into “New Economy” shares in hopes of making a quick buck. The Shenzhen market has more small-cap stocks than Shanghai, with an average market capitalization of about half of that of Shanghai listed shares, according to East Capital. On Wednesday, for example, the top three traded stocks on the Shenzhen exchange each had a far
higher turnover than the busiest stock on the Hong Kong bourse: the Hong Kong Exchanges and Clearing Ltd. But on a market capitalisation basis, they totaled half of that of the Hong Kong stock market operator.
Cautions ahead
Despite China’s removal of overall investment quotas for both the Shenzhen and Shanghai connect plans, daily investment limits remain and other concerns persist.
“Investors aren’t very enthusiastic about Shenzhen because the timeline (for the launch) is quite long and there are better plays elsewhere in the Baidu’s, Alibaba’s and Tencent’s rather than looking for value in Shenzhen” Alex Wong, portfolio manager at Ample Capital Expectations of further weakness in the yuan may also keep international investors away. It has lost more than six per cent of its value since Beijing suddenly devalued it last August. “In terms of my portfolio, I haven’t done anything around Connect yet as A-shares are underperforming and we also have a view that the Chinese currency may depreciate,” said Arthur Kwong, head of Asia-Pacific equities, at BNP Paribas Investment Partners. Reuters
10 Business Daily Thursday, August 18 2016
Greater China
Aviation Hong Kong flag carrier net profit tumbled 82 pct in H1
Cathay Pacific’s H1 profit plunges on China slowdown, shares slide In a bid to rein in costs, Cathay has stopped hiring and replacing non-critical staff and is “restricting non-essential discretionary spending”.
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athay Pacific Airways Ltd. reported first-half profit that missed analysts’ estimates as losses from jetfuel hedges mounted and competition with Chinese carriers cut passenger yields. The shares dropped the most in a year. Net income in the six months through June fell 82 per cent to HK$353 million (US$45.5 million), Asia’s biggest international airline said Wednesday. That fell short of the HK$1.07 billion median estimate in a Bloomberg News survey of four analysts. Sales declined 9.3 per cent to HK$45.7 billion.
Key Points Cathay H1 net profit down 82 pct vs H1 2015 China slowdown, competition main headwinds Sales of lucrative premium class tickets slump Chairman: H2 outlook remains challenging Chief Executive Officer Ivan Chu has struggled to revive profitability at the marquee Hong Kong carrier as passenger yields -- the money earned from carrying a passenger for one kilometer, and a key measure of an airline’s profitability -- slumped again amid competition with Chinese
and Middle Eastern airlines. Chu, who has stuck with the airline’s fuelhedging policy amid the plunge in oil prices, has ordered more than $10 billion in new aircraft to take on rivals. “Cathay needs to prove it can cut costs but still be perceived as premium,” said Will Horton, an analyst at CAPA Centre for Aviation. “That would be an accomplishment the cards are stacked against being a highly efficient premium airline. Not even Emirates has achieved that.”
Hedging loss
Shares fell 7.3 per cent to HK$11.92 in Hong Kong, making Cathay the world’s worst airline stock on Wednesday. They tumbled as much as 7.8 per cent earlier. Cathay reported a HK$4.49 billion in fuel-hedging loss in the first half, smaller than some analysts estimated, and compares with the HK$3.74 billion loss a year earlier. Passenger yields fell 10 per cent to 54.3 Hong Kong cents. Cathay is among airlines that didn’t benefit fully from the drop in oil prices as the level at which it has hedged is higher than the spot market price. Cathay said in March that 60 per cent of its fuel needs this year is hedged at an average US$85 a barrel. Brent crude now trades at about US$48.57 a barrel. Rival Singapore Airlines hedged 37.5 per cent of its fuel needs in the July-September
period at an average US$81 a barrel, compared with 42 per cent at US$87 in the April to June quarter. Cathay will have “a hard time” for the next two to three years because of its fuel hedging, John Hu, an analyst at Morningstar Investment Service in Shenzhen said August 8. “ W e ex p e c t t h e o p e ra t i n g environment in the second half of the year to continue to be impacted by the same adverse factors as in the first half,” Cathay Chairman John Slosar said in the statement. “We expect passenger yield to remain under pressure. The benefits from lower fuel prices will continue to be partially offset by losses on our fuel hedging contracts.” The company is “adequately hedged” on oil and will keep its policy this year and next, he told reporters in Hong Kong Wednesday. Cathay and its unit Dragonair carried 2.7 per cent more passengers in the first six months of this year, taking the number to 17.2 million. Traffic during the period rose 2.3 per cent from a year ago, while capacity increased 4.2 per cent. Cathay’s yields have been under pressure as Air China Ltd., China Eastern Airlines Corp. and other carriers offer more direct services from the mainland, making it less attractive to hop via Hong Kong. That’s coming at a time when the Middle East’s ‘Big Three’ -- Emirates, Etihad Airways and Qatar Airways -- expand more into Asia and offer luxuries such as butlers and shower rooms.
Third runway
Chinese carriers have added 25 per cent to 30 per cent more direct
international flights so far this year, Eric Lin, an analyst with UBS Group AG in Hong Kong, said August 9. That compares with a 2.6 per cent increase for Cathay during the same period, according to the company’s June operations statement. Cathay Pacific also faces other challenges. The Hong Kong city administration scrapped a fuel surcharge starting February and is now imposing a levy to finance a third runway at the Chek Lap Kok airport. Authorities have started imposing a fee of between HK$70 and HK$180 per passenger who fly out of Hong Kong for the HK$141.5 billion expansion of the airport. While these fees won’t have a significant direct impact on Cathay’s financials, it limits an airline’s ability to raise fares and will put pressure on yields, K. Ajith, an analyst at UOB Kay Hian Pte, said before earnings. Also, the Hong Kong airport plans to increase parking and landing fees by as much as 27 per cent for airlines starting Sept. 1. The fees in the territory account for about 10 perent of Cathay’s total costs, CIMB Group Holdings Ltd. said in June. Hong Kong aviation authorities told airlines to remove fuel surcharges from Feb. 1, cutting Cathay’s ticket prices by 6 per cent to 7 per cent, which is a “disaster” for the city’s flag carrier given its fuel-hedging policy, according to a CIMB Group Holdings Ltd. note dated June 25. Airlines charged HK$109 for long-haul and HK$24 for shortha u l f l i ghts f r o m H o n g K o n g before the levy was eliminated, according to the Civil Aviation Department. Bloomberg
Business Daily Thursday, August 18 2016 11
Asia Aviation Airline hopes to attract budget-conscious travellers
Singapore Airlines’ budget division aims for growth via European flights Management says the airline aims to add more European routes, but does not elaborate on destinations or time frame. Aradhana Aravindan
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ingapore Airlines Ltd’s low-cost carrier division aims to grow by increasing its number of nonstop flights to Europe, a senior executive said, hoping to attract budget-conscious travellers to popular long-haul routes. Budget Aviation Holdings also aims to raise the proportion of connected flights between its short-haul Tiger Airways and medium-to-long-haul Scoot brands from a single-digit percentage, its chief executive, Lee Lik Hsin, told Reuters on Wednesday. “We do expect this (connectivity) to grow, and when I say grow I actually mean multiple fold,” Lee said. “The ingredients for being able to operate to Europe, we think we now have them - aircraft and connectivity.” Budget Aviation was created this year after parent Singapore Airlines took Tiger private and paired it with Scoot.
Scoot announced its first Europe-bound flight on Tuesday. Regular flights between Singapore and Athens begin next year, bringing Scoot into competition with full-service Gulf carriers which have been increasing market share on Asia-Europe routes. Lee said he aimed to add more European routes, but did not elaborate on destinations or time frame. Airlines have been benefiting from a drop in oil prices as well as a travel boom in Southeast Asia which has spurred many regional carriers to order several hundred aircraft from Airbus Group SE and Boeing Co. “There is room for growth,” Lee said. “The overall travel market will continue to grow and the overall budget travel market will continue to grow.” Budget Aviation has nine Boeing 787 planes on order for Scoot, and 39 new-generation Airbus A320s for Tiger. Lee said his firm would for now continue to use only those two types of aircraft.
Scoot and Tiger operate under separate licences but share an organisational structure for some functions and cost-saving via economies of scale.
“The overall travel market will continue to grow and the overall budget travel market will continue to grow” Lee Lik Hsin, Chief Executive Officer of Budget Aviation Holdings Pte Ltd at Singapore Airlines Limited Bringing the two under the same brand or licence would involve regulatory, commercial and other considerations, of which an internal review would be necessary before making any commitment to change, Lee said. “Of course, we will not exclude any possibilities,” he said. Reuters
In Brief Trade
Singapore’s external trade down 10.6 pct in July Singapore’s non-oil domestic exports (NODX), a key gauge of the export performance of the small and highly open economy, decreased by 10.6 per cent in July yearon-year, said International Enterprise (IE) Singapore on Wednesday. Following a 2.4-percent decrease in the previous month, the decline was due to the drop in both electronic and non-electronic NODX. On a monthly basis, NODX shrank 1.8 per cent in July, following June’s 13-per cent contraction, also owing to decline in both electronic and non-electronic NODX. Energy
South Korean oil imports from Iran double in Q2 South Korea’s crude oil imports from Iran more than doubled in the second quarter due to the lifted sanctions on the Persian country, a government report showed on Wednesday. Imports of Iranian crude oil reached 25.35 million barrels during the April-June period, up 123.3 per cent from 11.35 billion barrels tallied in the same period of last year, according to the Ministry of Trade, Industry and Energy. It came after Iran and world powers reached a framework nuclear agreement to remove all economic sanctions. Before the sanctions, the Persian nation was South Korea’s largest source of oil imports. Steel
Vietnam’s steel prices to rise
M&A
Deal pending Australian Foreign Investment Review Board approval
Philippines’ Universal Robina buys Australian snacks maker for US$461 mln The sixth-largest outbound acquisition by a firm in the Southeast Asian nation highlights the confidence of Philippine companies in shopping overseas. Neil Jerome Morales
Philippine snacks and beverage manufacturer Universal Robina Corp is buying the maker of Snack Brands Australia (SBA) for A$600 million (US$460.86 million), stepping up its Asia-Pacific expansion. The sixth-largest outbound acquisition by a firm in the Southeast Asian nation highlights the confidence of Philippine companies in shopping overseas at a time of relatively strong domestic economic growth. Universal Robina said its subsidiary, URC International Co will buy 100 per cent of Consolidated Snacks Pty, which uses the SBA brand name for its salty snacks, from Toccata Securities Pty and Hopkins Securities Pty. “URC plans to create a wider footprint in the Oceania region with SBA providing a solid anchor
in the highly competitive Australian fast moving consumer goods and retailing market,” the company, a unit of Philippine conglomerate JG Summit Holdings , told the Philippine Stock Exchange.
Key Points Sixth largest outbound M&A for a Philippine company Deal highlights confidence amid strong domestic economy Acquisition to be funded by long-term debt, other sources The deal, which will be funded by long-term debt financing and other sources, requires the approval of the Australian Foreign Investment Review Board.
“Philippine companies are in a very healthy state that they can look at companies outside to acquire,” Noel Reyes, chief investment officer of Security Bank Corp, told Reuters. “Now is the best time to buy companies being sold on the premise that you are going to reap the benefits of higher sales when these economies start improving.” The Philippine economy likely expanded at an annual rate of 6.7 per cent in April to June, slightly weaker than the 6.8 per cent rise in the first quarter, but still enough to retain the country in the list of fastest growing economies in Asia, a Reuters poll showed. In 2014, Universal Robina acquired Griffin’s Foods, New Zealand’s leading snack maker, from Australia’s Pacific Equity Partners for US$608 million, the fifth-largest outbound Philippine M&A. Shares in Universal Robina fell 0.2 per cent by the midday break, after a one-hour trading halt. Manila’s main stock index was down 0.1 per cent. Reuters
Vietnam’s domestic steel prices are expected to rise in the near future, thanks to increasing consumption demand, according to Vietnam Steel Association (VSA) on Wednesday. Nguyen Van Sua, VSA’s vice chairman said the selling price of steel billets and bars in Vietnam had risen since July. Specifically, steel billet prices increased from US$300 to US$310 per ton in July to US$315 to US$325 per ton at the beginning of August. The prices of steel bars also climbed from US$308 to US$315 per ton to US$330 to US$338 per ton, Vietnam’s state-run news agency VNA quoted Sua as saying on Wednesday. Crime
Cambodian police arrest Chinese man with over 4 kg of rhino horn A Chinese man has been arrested when arriving at Cambodian capital airport with more than 4 kg of rhinoceros horns in his luggage, the Cambodia Daily reported Wednesday, citing an official. The man was traveling from Namibia but arrived at Phnom Penh International Airport on Sunday afternoon on a Qatar Airlines flight that originated in Doha, said Leang Hay, chief of customs at the airport. “We decided to check the target after we learned what country he’d been traveling from,” he was quoted as saying by the newspaper. The seizure-eight pieces of horn weighing 4.38 kg--was the fifth major seizure of rhino horn at a Cambodian airport since 2012, he said.
12 Business Daily Thursday, August 18 2016
Asia Bonds
South Korea’s US$487 bln pension fund seeks China yields Chinese sovereign bonds have benefited from a global haven hunt exacerbated by Britain’s decision to leave the European Union. Kyoungwha Kim and Heejin Kim
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outh Korea’s retirement fund plans to buy more bonds in China and is considering India as it hunts for higher yields in developing nations. The National Pension Service aims to pump some of its 533 trillion won (US$487 billion) of assets into China, according to Chief Investment Officer Kang Myoun Wook. It is also looking at putting money into India, where yields are the highest among major Asian nations. The fund, slightly overweight emerging markets for now, is reviewing when to beef up investments further, Kang said. “Chinese yields are high and issuance is considerable,” said Seoulbased Kang. “China is one of the markets which, together with India, we have a keen interest in among emerging markets.” Global inflows into Chinese debt are helping drive a rally that sent the benchmark 10-year yield to a decadelow of 2.64 per cent. That’s still almost
twice as high as South Korea’s 1.44 per cent. Aiding NPS’s plan to join a global move of retirement savings into riskier markets will be the won’s 5.9 per cent surge in the past three months, which gives an incentive to export-dependent South Korea to encourage outflows. Chinese sovereign bonds have benefited from a global haven hunt exacerbated by Britain’s decision to leave the European Union. The Asian nation’s yields prompted global funds to boost their holdings of local debt by the most in two years in June. Chinese authorities have since February allowed all types of medium- to longterm overseas investors to access the interbank bond market. While NPS finds the efforts to open China’s bond market “very encouraging,” concerns remain about limits on fund repatriation and the currency’s instability, Kang said. With outflows surging to an estimated US$1 trillion in 2015, China has stepped up scrutiny of cross-border transactions and frozen quotas for a program that
lets individuals invest abroad. The yuan has weakened 2.1 per cent this year, the most in Asia. MSCI Inc. cited accessibility concerns when it said in June that it wouldn’t include Chinese stocks in its indexes. Citigroup Inc., which owns benchmark bond gauges, said the same month that it is seeking client feedback that can be used in any potential review. China’s inclusion in global indexes will facilitate NPS’s investments, said Chi Young Hye, the fund’s chief spokeswoman. The fund has plowed about $300 million into Chinese equities through an investment quota, she added.
Market depth
“There’s no doubt that China needs to increase the depth of the markets, enhance policy transparency, facilitate fund withdrawals and keep the currency’s stability,” Kang said. NPS will invest 2.4 trillion won in overseas bonds by 2017 to take total holdings of such assets to 24.3 trillion won, according to a five-year fund proposal approved in May. The fund said it aims to increase its holdings of foreign bonds, stocks and alternative assets to more than 35 per cent by 2021 from 24.3 per cent in 2015. HSBC Holdings Plc has been named its
custodian for the China push. Low returns are a challenge for Korea’s pension system, which is facing pressure from a rapidly aging population. The government’s Statistics Office estimates the proportion of South Koreans aged 65 and above will climb from 13 per cent to 40 per cent by 2060. NPS, set up in 1988 to manage pensions for private-sector workers and the selfemployed, returned 4.6 per cent in 2015 following a gain of 5.3 per cent the previous year.
Target return
The public fund is targeting an annual return of 5 per cent in the next five years. To help achieve this, it aims to reduce holdings in domestic bonds to around 40 per cent by 2021 from 53 per cent in 2015, while raising its proportion in local and foreign equities to 45 per cent from 32 per cent. The MSCI All-Country World Index has climbed 19 per cent from a trough in February, versus a 10 per cent gain in Korea’s benchmark Kospi index of stocks. The nation’s 10-year sovereign yield fell 73 basis points this year to an all-time low of 1.36 per cent on July 28. In China, a two-year sovereign bond rally will continue, sending its benchmark 10-year yield to 2.5 per cent this year, according to a Bloomberg survey of traders and analysts.
Global trend
“NPS is following a global trend of seeking opportunities abroad,” said Seungwoo Lee, a global asset allocation strategist at Mirae Asset Daewoo Securities. “Returns are better abroad rather than at home. The aging population is also one of the reasons for NPS to seek higher yields to pay pensions for more beneficiaries.” As global central banks flood markets with liquidity, asset prices are artificially inflated, making it harder for NPS to invest, spokeswoman Chi said. “The Chinese government has a strong will to open up financial markets and they have great potential to grow,” said Lee Kyungjik, head of the NPS’s global public-market investment division. “I am sure China will eventually accommodate big investors like us.” Bloomberg
“China is one of the markets which, together with India, we have a keen interest in among emerging markets” Kang Myoun Wook, Chief Investment Officer at South Korea National Pension Service
Economy
Philippines’ Q2 GDP perceived stronger due to election spending boost Karen Lema
The Philippines is set to remain one of the Asia’s fastest growing economies in the second quarter, thanks largely to election spending and accelerated public and private investments ahead of the May 9 polls. Seasonally-adjusted gross domestic product in April-June likely grew 1.8 per cent from the first quarter, picking up from 1.1 per cent in the first three months of the year, a Reuters survey showed. “Growth remained resilient during the quarter thanks in part to the tailend of the election campaign, which likely fuelled private consumption alongside strong peso-denominated remittances growth,” Joseph Incalcaterra, economist at HSBC in Hong Kong. However, the Philippines was not totally immune from softening global demand as second quarter growth likely took a slight hit from sluggish exports. Exports shrank 7.5 per cent in the first half from a year earlier.
The Reuters poll also showed GDP probably grew 6.7 per cent in April to June quarter from a year ago, slightly slower than the downwardly revised 6.8 per cent for the first three months. If that projection is correct, that is enough to make the Philippines the fastest growing economy, side by side with China, in Asia so far. India has yet to release Q2 GDP data.
growth to 7 per cent to 8 per cent and make a dent in reducing poverty and unemployment. Strong domestic demand and a low and stable inflation have allowed the central bank to stand pat on policy since a 25 basis point rate hike in September 2014. Reuters
Key Points Q2 GDP growth seen at 1.8 pct q/q and 6.7 pct y/y Full-year 2016 seen at 6.3 pct, within govt target Data due on Thursday, Aug 18 at 0200 GMT Philippine President Rodrigo Duterte’s economic managers have predicted annual growth of as much as 7.0 per cent in the second quarter, due to a burst of campaign spending before the election he won. 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
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In the Reuters poll, growth for all of 2016 was seen accelerating to 6.3 per cent, within the government’s 6 per cent to 7 per cent growth target, after last year’s 5.9 per cent expansion. Duterte has promised to increase spending on infrastructure during his six-year term to lift economic
14 Business Daily Thursday, August 18 2016
International Results Danish brewer sees slowdown as Russian inflation bumps UP costs
Carlsberg says to tackle underperforming businesses The chief executive plans to focus on big cities, craft beer and core markets. Nikolaj Skydsgaard
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anish brewer Carlsberg promised to address poorly performing parts of its business after half-year results came in slightly below expectations on Wednesday, sending its shares down by 4 per cent. The Copenhagen-based company said it was sticking to a forecast for full-year organic operating profit growth in the low-single figures in percentage terms.
Chief Executive Cees ‘t Haart, who took the job in June 2015, indicated that more changes would be made as part of his seven-year strategy to boost growth. “We have a number of operations which are not contributing in the way that we would have liked. We are evaluating these and we are taking action,” the Dutchman told reporters. Soon to become the third largest brewer in the world behind Heineken following the planned mega-merger of AB Inbev and SAB Miller, the group
last week announced the sale of its 59 percent share in African subsidiary Carlsberg Malawi Limited to local Castel Group. The chief executive said more assets were “on the list” to be divested but declined to name them in order not to weaken his negotiating position. His plan is to focus on big cities, craft beer and core markets. As part of his strategy, Carlsberg has shed 2,080 white collar employees, sold assets in Britain, closed 11 breweries in China and written down the value of its ailing Russia business.
Glass half full?
By 0820 GMT, Carlsberg shares were
down 3.9 per cent at 653 Danish crowns after the company reported a six-month operating profit before special items of 3.45 billion Danish crowns (US$522 million), down 4 per cent from same period last year. Total sales volumes fell 1 per cent due to lower volumes in countries such as Britain, Poland and Finland, but organic revenue grew by 4 per cent. Analysts said it was not all doom and gloom. “The new strategy of finding a balance between volume growth and value creation is already showing its effects,” said Sydbank analyst Morten Imsgard.
Key Points Half-year results slightly below expectations But brewer maintains profit outlook for year CEO says will tackle poorly performing operations Carlsberg maintained its 2016 profit outlook but the impact on operating profit from foreign exchange was raised to 600 million Danish crowns (US$91 million) from 550 million. Carlsberg has faced problems in Russia because of tighter regulations and a weak economy, but showed improvements in its Eastern European region with stable volumes and an 8 per cent increase in net revenue organic growth over the six months. Rival brewer Heineken delivered a slightly better than expected half year result in August, with Western Europe and Asia Pacific offsetting weak markets in Russia and Africa. The world’s largest brewer, Belgium based AB Inbev reported quarterly profit slightly below expectations after economic problems in Brazil hit sales. Reuters
Employment Jobless claims fell 8,600 in July after increasing 900 in June
U.K. labor market shows strength as jobless claims decline The potential weak spot in the latest data was job vacancies, which continued their downward trend this year. Scott Hamilton
The U.K. labor market showed signs of continued resilience after the country’s referendum on European Union membership, according to the first official numbers since the vote. Jobless claims unexpectedly fell 8,600 in July after increasing 900 in June, the Office for National Statistics in London said on Wednesday. Economists had forecast a rise of 9,000 in the number, which can be volatile from month to month and includes some very low earners claiming benefits.
“If fears of the pre-Brexit jitters proved unfounded, maybe the post referendum doom and gloom may equally prove to have been overcooked” Alan Clarke, an economist at Scotiabank in London
In the second quarter, employment rose by 172,000 to a record 31.8 million people, exceeding the median estimate in a Bloomberg survey. The unemployment rate held at 4.9 per cent and basic wage growth accelerated to 2.3 per cent. Most of the unemployment data were collected before the June 23 vote to quit the EU, meaning they don’t reflect much of its impact on the economy. Bank of England officials unveiled a package of stimulus earlier this month as they predicted an economic slowdown will cause unemployment to increase.
Alan Clarke, an economist at Scotiabank in London, said the labor data “provide a glimmer of hope” for the economy. “If fears of the pre-Brexit jitters proved unfounded, maybe the post referendum doom and gloom may equally prove to have been overcooked,” he said. “The acid test will be the next few months to see if hiring stalled in the aftermath of the vote. I suspect that will take longer to show up.”
Vacancies decline
The potential weak spot in the latest data was job vacancies, which continued their downward trend this year. Openings at companies fell 7,000 in the three months through July to 741,000, the lowest since October 2015.
Experimental monthly data from the ONS, which may provide an indication of future trends, showed employment fell in June alone and the unemployment rate rose to 5.1 per cent. Surveys in recent weeks have indicated some hiring was being put on hold in the run-up to the EU referendum as uncertainty prompted employers to defer recruitment. Markit said this month that the number of people being hired for full-time positions slumped the most in seven years in July. Total wage growth, including bonuses, rose an annual 2.4 per cent in the second quarter, up from 2.3 per cent. While the new National Living Wage is feeding into the wage figures, the ONS said it can’t quantify its impact. Bloomberg
Business Daily Thursday, August 18 2016 15
Opinion Business Wires
The Phnom Penh Post Bassaka Air has said it plans to continue serving the Cambodian domestic market, bucking analyst predictions that the airline would abandon this increasingly competitive air space once it secured a licence to operate in the more lucrative Chinese market. “[We] have no plans to stop [domestic flights], we may even increase flights during peak season,” said Rodante Ponio, commercial services manager at Bassaka Air. The Chinesebacked Cambodian airline launched scheduled service in late 2014 with daily flights from Phnom Penh to Siem Reap using two Airbus 320-200s leased from Hong Kong-based hotel and casino operator NagaCorp.
Taipei Times CTBC Financial Holding Co has scuttled plans to fully acquire Royal Bank of Scotland Group PLC’s (RBS) Malaysian unit, but said this would not affect its plans to expand further into Asia. CTBC Financial inked an agreement with RBS in April, which stated that the required regulatory applications for the sale of the Malaysian unit would be completed before November 15. However, progress on the NT$6.1 billion (US$195 million) acquisition had fallen behind expectations, dimming the likelihood that the process might be completed before the deadline, CTBC Financial senior vice president Rachael Kao told an investors’ conference this week.
Bangkok Post SET-listed Sappe Plc, the maker of Sappe functional drink, has agreed to acquire a 40 per cent stake in All Coco Co, the producer of coconut products, for 140 million baht (US$4.04 million). The acquisition is aimed at exporting Thai coconut juice to the world market. The transaction is expected to be finalised in early October. Under the agreement, Sappe will increase its holding in All Coco to 51 per cent in 2018 and 60 per cent in 2020. Sappe’s chief executive Piyajit Ruckariyapong said the objective of the investment in All Coco is to expand the company’s fruit juice portfolio, which contributed 60 per cent of its total revenue of 1.44 billion baht in the first half of the year.
The Unseemly Squeeze Trapping Not-Quite-Luxury Brands
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ith th e shin e coming off gold-plated sellers like Burberry and Cartier-owner Richemont, it’s reasonable to focus on the prospects for Pandora, Michael Kors, Kate Spade, and other so-called affordable luxury players. In years past these labels have managed to lure shoppers who covet brand-name purses, jewelry, and shoes, but are only interested in more-palatable price points. You might think that, if global currency swings and economic uncertainty cause big spenders to pause on purchases of US$3,500 Prada purses, they might still splurge on a US$500 Kate Spade handbag. Indeed, shares of some accessible-luxury brands have outperformed their higher-end peers this year. But that’s not how luxury works. The ultra-rich who fancy a new top-line Gucci or Louis Vuitton handbag aren’t inclined to trade down. Meanwhile, more cost-conscious consumers, who are more likely to be worried about losing their jobs than the super-rich when times get tough, are staying away. And it’s going to be harder to crack the value mind-set of millennials, the favored target of many of these labels, according to analysts at Bernstein. Ubiquity and overexposure are the enemy of luxury, and some U.S. labels are also fighting to re-engage shoppers after a swelling of retail locations, an outlet building boom, and an increased reliance on discounts drove them away. In a rare occurrence last week, Pandora came up short of analysts’ sales and profit estimates. The Danish jewelry maker had ridden a wave of demand that made it the second-best performing stock last year in Bloomberg Intelligence’s luxury peer group, but this time falling same-store sales in Brazil, Canada and the Caribbean led to a miss. It’s hard to see a crisis brewing with 20 per cent second-quarter sales growth, but the hiccup is a red flag for luxury investors. It was a similar picture at Michael Kors, where comparable sales fell 7.6 per cent from a year earlier, more than the already-depressed estimate for a 4.6 per cent drop. A decline in mall traffic and tourism, as well as a flurry of discounts at department stores, led the company to cut its
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Shelly Banjo Bloomberg Gadfly columnist
Andrea Felsted Bloomberg Gadfly columnist
full-year sales forecast. To regain cachet and maintain profit amid declining shopper traffic, companies like Kors, Ralph Lauren and Coach are slashing promotions and pulling goods from downmarket department stores. They’re also culling lower-priced products and trying to introduce higher-quality goods, such as monogrammed leather bags. Coach said last week that this strategy is helping. Its bags and other products priced at more than US$400 made up 40 per cent of fourthquarter sales, up from 30 per cent the year before, and it posted annual sales growth at its own stores for the first time in more than three years. That still wasn’t enough for a punchy revenue forecast for 2017 -instead, the company offered a pace of low-to-mid-single digit percentage growth. But clambering up market doesn’t always work. Take British luxury brand Mulberry. It sought to take its handbags more upscale, but failed to inject sufficient style and quality to justify those fatter price tags. While it lacked the credibility to play in the highest luxury echelons, it also neglected its core customers. The result was a string of profit warnings and the ouster of its chief executive. Meanwhile, increased competition is coming. Newer contemporary brands like Mansur Gavriel and Clare V. are making inroads with younger fashion shoppers. And higher-end luxury brands, such as Prada, are introducing some lower price points to attract both local shoppers and the lesswell-off Chinese consumers who have now started to travel. Affordable luxury can expect an unseemly crush to stay ahead. Bloomberg Gadfly
The ultra-rich who fancy a new top-line Gucci or Louis Vuitton handbag aren’t inclined to trade down
The Korea Herald A senior researcher at Samsung Electronics said automotive is the next big thing in the information technology sector, at a tech seminar in Seoul on Wednesday. “Automotive will ultimately be the next big thing in the information technology sector and it‘s just a matter of time,” said Kim Do-kyun, a senior researcher at Samsung Electronics’ memory business division, at the Mobile & IoT Forum held in Yangjae, southern Seoul. Automotive has a vast array of electronic components, which include system-on-chip, a central processing unit and camera and display, he said.
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16 Business Daily Thursday, August 18 2016
Closing Litigation
action is very much a last resort,” Tom Uber sues London over rules forcing drivers to take English exam Elvidge, Uber London’s general manager, Uber Technologies Inc. is suing London’s transport regulator in the latest skirmish over rules that may harm the controversial company’s business. Uber will ask London judges to decide the legality of rules that require drivers from non-English speaking countries to pass a language exam, the company said in a statement. The measures also force Uber to notify Transport for London of any changes made to its mobile-phone app. “This legal
said in the statement. “We’re particularly disappointed that, after a lengthy consultation process with Transport for London, the goalposts have moved at the last minute and new rules are now being introduced that will be bad for both drivers and tech companies.” San Francisco-based Uber has fought with regulators around the globe over the technology that traditional taxi companies say threatens their existence.
Crime 450 Chinese nabbed for suspected involvement in underground banks, money laundering
Chinese police crack down on US$30 bln underground banking business The crackdown included an investigation into the country’s biggest underground banking case involving US$64 billion-worth of illegal transactions.
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hinese police have busted underground banks that handled 200 billion yuan (US$30.2 billion) in illegal money transfers this year, the Ministry of Public Security (MPS) said on Wednesday. Police said they arrested 450 suspects involved in 158 cases of underground banking and money laundering, according to a notice posted on the MPS official website. Beijing has been fighting illegal cross-border outflows in an attempt to slow capital flight as its yuan currency weakens to near six-year lows. A special task force, jointly launched by the MPS, the central bank, and the foreign exchange regulator, uncovered illicit banking services in 192 locations this year, the notice said. On Wednesday, China state broadcaster CCTV separately reported that police in the southern city of Shenzhen recently busted an underground bank that handled 30 billion yuan in transactions over a six-year period. Police arrested 26 major suspects in four different cities, the report said. The underground bank was disguised as a trade company. “The key (problem) is that underground banks have become
channels for drug dealers, smugglers, and economic criminals to transfer funds,” Shu Jianping, head of the anti-money laundering unit at the Ministry of Public Security, told CCTV.
Beijing started a campaign against illegal banking in April last year and uncovered over 170 cases of money laundering and illegal fund transfers involving more than 800 billion yuan as of last November. The crackdown included an investigation into the country’s biggest underground banking case involving US$64 billion worth of illegal transactions. Although the crackdown has curbed underground banking to
some extent, illegal activities using those “grey capital” networks are still spreading and becoming more elusive as collusion between banks in different regions is rife, the notice said. Underground banks are channels for transferring money obtained through illegal activity, including public funds embezzled by corrupt officials, an earlier Xinhua news agency report on the crackdown said. Reuters
Telecom
Mobile games
Insurance
China Unicom H1 profit skids to 16-year low
Tencent profit beats estimates Ping An Insurance’s H1 as mobile games lure spenders profit up 17.7 pct
China Unicom Hong Kong Ltd’s first-half net profit plunged 80 per cent to a 16-year low, as China’s second-largest telecom service provider racked up heavy expenses to market its fourth-generation (4G) network. In a securities filing on Wednesday, the company said net profit tumbled to 1.43 billion yuan (US$215.67 million) for the six months ended June, matching a preliminary estimate released in July. That was down from 6.99 billion yuan a year earlier and is China Unicom’s lowest interim profit since 2000. Revenue edged down 3.1 per cent to 140.26 billion yuan from a year earlier. China Unicom chairman Wang Xiaochu told an earnings briefing that he is expecting a profit turnaround next year after recording a net profit decline last year for the first time since 2010.
Tencent Holdings Ltd. posted a second-quarter profit that beat analysts’ expectations as the company lined up more mobile games and media content to tap the purchasing power of more than a billion Chinese. Net income climbed 47 per cent to a record 10.74 billion yuan (US$1.6 billion) in the three months ended June, the Shenzhen-based company said. That compares with the 9.52 billion-yuan average of analysts’ estimates compiled by Bloomberg. Tencent is trying to get people to spend more in mobile games on apps including WeChat and QQ, after dominating desktops in the world’s third biggest gaming market with League of Legends and other hits. It’s leading an US$8.6 billion investment in Clash of Clans studio Supercell Oy and plans to distribute its flagship title to the more than a billion users of its two social networking services.
Ping An Insurance (Group) Co of China , the country’s second-largest insurer by market value, reported on Wednesday a 17.7 per cent rise in first-half net profit on gains in its internet finance and life insurance businesses. Net profit was 40.78 billion yuan (US$6.15 billion) for the first six months of the year compared with 34.65 billion yuan in the same period last year, according to a filing to the Hong Kong stock exchange. Ping An is the only Chinese and Asian insurer named among nine peers as globally systematically important insurers by the Financial Stability Board. Its total premium income was 256.87 billion yuan in the first half, according to the filing. That compared with 212.28 billion yuan in the year-ago period.