Friday, August 19 2016 Year V Nr. 1112 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor KELSEY WILHELM
www.macaubusinessdaily.com
2 Business Daily Friday, August 19 2016
Macau
CEM calls for deeper digging and use of joint pipelines Infrastructure Page 4
Friday, August 19 2016 Year V Nr. 1112 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor KELSEY WILHELM Retail
Sports retail group sees slight uptick in MSAR and HKSAR revenues Page 7
www.macaubusinessdaily.com
Gaming
Hospitality
VIP junket operators announce placement in new integrated resorts Page 8
Hotel Lan Kwai Fong operator mulls HK$30-50 mln loss for H1 Page 9
MSAR Holds All Aces For Now Gaming
Analysts say the MSAR is expected to remain the dominant gaming destination in Asia for the next decade. But faces threats in 2020 as more visitors discover South Korea, the Philippines and Australia. Gross gaming revenues are predicted to decline this year - before rising to 8 pct in 2019, increasing at a 5 pct clip y-o-y until 2025. Page 8
PC maker
Lenovo’s net profit climbs 64 pct to US$173 mln Page 10
Tech
Rough landing
Tencent’s splurge on entertainment pays off in record profit Page 16
Property Fewest Q2 shop transactions in a decade. Numbers tumble 20 pct q-to-q, according to real estate broker Centaline. Dwindling shop transactions driven by drop in foreign investment, while company closures post record high in a decade. Office units continue to slump, as industrial units stabilise. Page 5
Exhibitor uptick
MGTO Director says exhibitors outnumber supply for upcoming Macao International Travel (Industry) Expo. With booths increasing to 369. A budget of MOP7 mln has been floated. New infrastructure such as the Hong Kong-Zhuhai-Macau Bridge is expected to attract more visitors to future editions.
Keeping it local
Politics The Macau Civil Servants Association defends the non-renewal of work permits for non-resident workers in integrated resort management positions. Adding Gaming Co-ordination and Inspection Bureau ‘impotent’ in fighting cases of violence against casino workers. The group also calls for the abolishment of closed-door government sessions. And urges more transparency for media. Page 6
Plummeting trade Expo Page 4
HK Hang Seng Index August 18, 2016
23,023.16 +223.38 (+0.98%) Worst Performers
China Unicom Hong Kong
+7.74%
Lenovo Group Ltd
+2.24%
Belle International Holdings
-5.54%
Want Want China Holdings
-1.61%
Tencent Holdings Ltd
+5.18%
Sino Land Co Ltd
+2.08%
Cathay Pacific Airways Ltd
-4.87%
China Petroleum & Chemical
-1.23%
New World Development
+3.34%
China Mobile Ltd
+1.55%
China Shenhua Energy Co
-3.23%
Tingyi Cayman Islands
-1.07%
Hang Lung Properties Ltd
+3.03%
China Resources Power
+1.34%
Kunlun Energy Co Ltd
-1.98%
PetroChina Co Ltd
-0.74%
Ping An Insurance Group Co
+2.52%
MTR Corp Ltd
Swire Pacific Ltd
-1.97%
Hong Kong & China Gas Co
-0.41%
+1.17%
27° 30° 26° 31° 26° 32° 26° 30° 26° 31° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Economy Japan exports tumble most since financial crisis. Policymakers meet over yen moves. Economists say there’s a growing risk that weakness in exports will persist as global economic uncertainty shows little sign of receding Page 12
4 Business Daily Friday, August 19 2016
Macau
Expo
Increased interest in MITE Cecilia U cecilia.u@macaubusinessdaily.com
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he Macao Government Tourism Office (MGTO) has taken the helm in organising the Macao International Travel (Industry) Expo (MITE), now in its 4th year, with coordination from the Macau Travel Agency Association (MTAA).
The event runs from September 2 to 4 and over 135 enterprises and entities from 15 countries and regions have confirmed as exhibitors. This year’s edition, aside from continuing the promotion of ‘Smart Tourism’, will include more exhibitions focused on demonstrating the distinctive characteristics of the MSAR, notes the head of the Macau Travel Agency Association.
“Since the Hong Kong–Zhuhai– Macau Bridge will be opening soon, allowing for a half-hour long trip from the Hong Kong International Airport to Macau, this will attract more tourists,” posited Lao Nga Wong, President of MTAA, during the press conference held yesterday. “The successful performance of similar events held in Guangzhou has also encouraged us to hold
CEM
CEM advocates digging deeper CEM: Laying out common pipelines deeper underground can help with congestion and future planning. Annie Lao annie.lao@macaubusinessdaily.com
Local electricity supplier Companhia de Electricidade de Macau (CEM) plans to undertake a relatively deep underground road construction by laying out joint pipelines in the
city, according to a report by TDM Chinese Radio. The consolidation could reduce the impact upon local residents from road excavations in the long-term, notes the broadcaster. Simon Young, manager of Cable and Distribution Equipment Maintenance at CEM, told reporters on the
sidelines of an Electricity Advisory Committee meeting that the current pipelines in the city are shallowly placed when dug underground, noting that he hopes CEM can apply different technology to excavate deeper underground to lay joint pipelines. This could create larger diameters for the pipelines and ensure more space for future development by reducing the amount of road excavations undertaken in the city. Young also commented that the electricity provider needs to consult with the government and other related organisations regarding the use of pipelines throughout the city. CEM will work on recommendations given by the government to carry out the excavation project, notes Young, adding that CEM still has about six kilometres of road excavation projects to be completed this year.
one to strengthen Macau’s tourism industry,” commented the MTAA head.
Increasing demand
MGTO Director Maria Helena de Senna Fernandes also commented positively on the increase in the number of booths - slated for 350 but increased by 19 given higher demand for this year’s Expo. The MGTO head also revealed an estimate of around MOP7millionworth (US$800,000) of investment to hold this year’s event whilst emphasising that exact amounts had yet to be confirmed. The total investment amount is split between the government and MTAA. The reason for the government officially hosting the event, said Senna Fernandes during the press conference, is that the China National Tourism Administration (CNTA) suggested the SAR Government take charge of the event in order to increase the representativeness of the MSAR in terms of tourism. She also explained that the event has shifted to an earlier date this year in order to prevent a conflict in dates of a more important tourism exhibition to be held in China this coming November. This year’s Expo has received support from the CNTA. Other features of the 4th MITE include seminars, a studio showing tourism videos, sales of various products and a folk customs and specialty show. There will also be a China-Portugal Tourism Promotion Seminar and a Travel Mart to facilitate interchanges among tourism operators from China and Portuguese-speaking countries.
Ferries
TurboJET adds Tuen Mun route Politics
Aftermath of tourist bus incident Tourist buses will be prohibited from circulating within 60 metres of the top of the Rua de Entena, according to the Transport Bureau (DSAT), as quoted by Radio Macau. The prohibition comes in the wake of a recent bus crash involving a tourist bus which left 32 hurt, one woman in a coma, and the damaged structural beam of a residential building. Macao Government Tourism Office Director Maria Helena de Senna Fernandes commented on the prohibition on the sidelines of an event yesterday, indicating that the best solution to limit the number of tourist buses near the popular tourist sites will have to take into account different parties. “The first consideration would always be safety,” said the MGTO head. “Negotiations are still ongoing and
the best solution is difficult to come up with but we believe we will be able to sort it out with the help of other offices such as the Office of the Secretary for Transport and Public Works”. She also remarked that certain businesses might benefit if tourists have to walk for a distance from the bus to the iconic tourist site. The August 8 tourist bus crash inflicted significant damage on the residential building, forcing residents to leave their homes for several days, for whom the government was forced to provide temporary housing. Many of the residents have since returned to their homes following the announcement that the building structure has been reinforced and is safe, although some units remain unoccupied. N.M. and C.U.
TurboJET, the Hong Kong based ferry service company, has increased its destinations by one additional sailing service from Tuen Mun Ferry Terminal in Hong Kong to the Macau Outer Harbour Ferry Terminal, according to an announcement published by the ferry operator yesterday.
The new additional sailing service will be available this weekend and will also run next weekend and from September 16 to 18. Departure time for the additional route is 10:10am from the Tuen Mun Ferry Terminal and the estimated sailing time is approximately 40 minutes. A.L.
Business Daily Friday, August 19 2016 5
Macau Property
Centaline: Shop transactions post lowest Q2 in decade Local realtor says leasing and transaction volume for shops and offices fell in the first half of the year amid gloomy market sentiment. Cecilia U cecilia.u@macaubusinessdaily.com
A total of 182 shop transactions were enacted in the second quarter of this year, indicating a decrease of 20 per cent compared to the same quarter of last year making the three-month period the lowest quarter of such transactions in the past ten years, as revealed in the property interim review by real estate broker Centaline (Macau) Property Agency Ltd. Centaline noted that the significant decline in the transaction of shops was driven by the slump in foreign investment in the MSAR. The non-local investment in newlyincorporated firms totalled MOP63 million (US$7 million) in the second quarter of this year, an 80 per cent decrease compared to MOP270 million (US$33million) according to official data from the Statistics and Census Bureau (DSEC). Moreover, 228 companies were put out of business in the second quarter of this year, according to the local realtor, quoting official data. This marks the first time in the past decade that more than 200 companies had shut down in the second quarter of a year. “The fierce competition within the retail industry has recently led many shops to lower their prices and some shops were forced to close
down,” said the director of Centaline Macau Roy Ho Siu Hang during a press conference.
Sliding confidence
With regard to the market for office units, both leasing and sales recorded less than satisfactory results in the second quarter, according to the property agent. The downturn in the market was attributed to the slump in confidence resulting from news
that the government is moving some of their offices out of commercial buildings. Official data from DSEC indicates that only 54 transactions were recorded in the second quarter of this year in the commercial buildings market, a decline of around 40 per cent compared to the corresponding period last year. Previously, the government had revealed its intention to lower its expenditure on rent by limiting its use of commercial building units as offices. It also indicated its plan to build a multi-functional building for its own use. Centaline opines that the government’s resolution in
‘abandoning commercial buildings’ has had a negative impact on market sentiment. Nevertheless, the property broker says the industrial units market posted a stable performance, with units leased and transacted in the last quarter showing moderate growth, and that the average transaction price remained the same as last quarter. The realtor says the stable growth in transactions for industrial units was driven by the government’s support of the cultural and creative industries. However, Centaline predicts that the industrial building market may experience some turbulence in the near future due to licensing disputes. It was reported earlier this month that a company was operating a children’s playground in an industrial building unit but was later suspended for lack of a proper licence.
6 Business Daily Friday, August 19 2016
Macau Opinion
Pedro Cortés Panda series The Civil and Municipal Affairs Bureau (IACM) has launched a competition to choose the name of the territory’s newborn pandas. It isn’t a public bid, solely a contest of suggestions. I have no doubt that the pandas offered by our mother country are very important and represent a lot for Macau. There are plenty of tourists that pass there inbetween a shopping mall outing or a noodle shop trip to the Nape area. It’s one of the ex-libris of local tourism and, with the family enlarged, ‘pandistic’ tourists are sure to arrive from all over the world to see the now one-month old offspring. It is without doubt the most important happening of this silly season. Not the opening of a beautiful new resort with a shortage of gaming tables. I have yet to understand this policy in a city in which the gaming industry represents its iron rice bowl. It is such an important event that the so-called democrats criticised it vehemently to the extent that they are launching a civil referendum to choose the nickname of the poor panda. Hopefully, it is not like the last referendum and everyone will be able to vote. Hey! It’s the future of the city that’s at stake with this choice! Children, the elderly, young workers, retired people with scarce resources, the entire population will have a say in the baptism of one of the most important tourist attractions of Macau. Following the choice of IACM the democrats will doubtless employ the courts to challenge the validity of the name. We will have a hiatus and everyone in the city will be off the hook until a decision is made. This is real democracy, where people are called to choose the name of a little panda. These seem to be the relevant matters in a city that wants to be the capital of tourism in Asia. Not the lack of homes for young people. Not the quality of life of future generations. Not the education of the fresh generations. Not the upcoming years of the gaming industry where a policy for post-2020-2022 should already be on the table in order to understand whether those that lead the transformation of the city – the gaming concessionaires and sub-concessionaires – will be able to continue to invest in resorts and other attractions. With democrats like this, we can all rest assured that nothing will change in the political system - unless there is such a change that the pandas start to have a say and will be able to vote in the coming years’ elections. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
Politics Legislators demand permanent committee meetings be open to media
Keeping it local In a press conference focused on the summary of 2015/2016 Legislative Assembly work, the Macau Civil Servants Association (ATFPM) defended the non-renewal of work permits for non-residents in integrated resorts management positions. Nelson Moura nelson.moura@macaubusinessdaily.com
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he Macau Civil Servants Association (ATFPM) has defended the non-renewal of work permits for non-residents in integrated resorts management positions as a way of protecting local jobs. The statements were made during a press conference focused on a summary of 2015/2016 Legislative Assembly (AL) work.
“Are they discussing nuclear bombs or sex problems? What’s the need for closed door committee sessions?” José Pereira Coutinho, President and Director of ATFPM “We think this measure is appropriate because in recent years we notice many management positions in gaming operators are occupied by non-residents despite qualified residents being available. It’s good that after years of gaming concessionaires being in Macau the government is taking measures in this regard,” stated President and Director of the ATFPM and directly elected legislator José Pereira Coutinho.
Local interests
The statements were made after the Labour Affairs Bureau (DSAL) stated that the government is rejecting the renewal of non-resident work permits - known as Blue Cards - in order to allow access for more local residents to leadership positions in integrated resorts. “If there are local workers with qualifications to assume top positions, the DSAL will not approve new applications for manpower imports or requests for renewal,” the Deputy Director of DSAL, Teng Nga Kan, stated in response to an interpolation by legislator Ella Lei Cheng I, according to TDM Radio.
As at the end of 2015, there were 29,840 employees in management positions in the casinos, of which 24,763 were local and 5,077 non-resident workers, according to information provided by the DSAL.
Make bets not war
The ATFPM President also stated he believed that the Gaming Inspection and Coordination Bureau (DICJ) has revealed itself as “impotent” in fighting cases of violence against worker and croupiers inside casinos. “After [aggressions] the gaming operators even dissuade their workers from filing complaints, fearing important VIP clients will stop using their tables. The DICJ has the cameras footage, so they should take action in order to protect casino workers,” said Coutinho. Last month, the gaming labour union Macau Gaming Enterprises Staff Association stated that it had received reports of at least six cases of violence against local dealers in the past three months, urging the government to create a blacklist of attackers to exclude them from premises, Business Daily reported. At the time the DICJ responded by stating that they are cooperating with the Judiciary Police (PJ) to investigate the cases.
Open the doors
Both Coutinho and legislator Leong Veng Chai urged for permanent committee meetings to not be conducted behind closed doors, and to allow the media to scrutinise the proceedings. “The six committees work behind closed doors, which allows abuses and excludes the whole of Macau’s population. Are they discussing nuclear bombs or sex problems? What’s the need for closed door committee sessions?” the legislator stated. Coutinho added that media scrutiny was needed in the meetings, since there were discrepancies between what some legislators said during the meetings and what they stated during Legislative Assembly sessions. A further issue raised was that the session summaries made by the committee presidents after meetings lacked the details and nuances of the exchanges during the meetings and were even some times “biased”. As an example Legislator Leong
Veng Chai mentioned the work of the second standing committee when discussing the proposed smoking ban on integrated resorts. “During the smoking ban discussion in [the] AL, most of the legislators voted in favour of a total smoking ban in casinos. However when the bill reached the committee most of the members voted in favour of the government proposal for allowing smoking rooms inside the casinos, with the two members that maintained their position in favour of the total smoking ban being singled out in the eyes of the public as the only two people against the bill,” Leong Veng Chai stated.
Delayed response
The ATFPM representatives also questioned the use of the question and answer system that mandates legislators submit their question to the government one week in advance of the Q&A session, allowing the Chief Executive (CE) to respond to the question in a favourable way, and without allowing follow-up questions.
“During the smoking ban discussion in AL, most of the legislators voted in favour of a total smoking ban in casinos. However, when the bill reached committee [stage] most of the members voted in favour of the government proposal allowing smoking rooms inside the casinos.” Leong Veng Chai, legislator “When questioned if prison workers, who have 10 hour shifts, could choose to divide those working hours between resting and eating, the CE responded that they would have a day off after those hours. There’s no relation between the question and answer,” said Leong Veng Chai.
Business Daily Friday, August 19 2016 7
Macau Retail
Swire Pacific posts slight increase in local revenue Kelsey Wilhelm kelsey.wilhelm@macaubusinesdaily.com
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wire Paci fi c Li m i t e d, parent company of l o c a l s p o r t s r e t a i l e r s, has announced that its operations for the MSAR and the HKSAR have seen a yearon-year increase in revenue of 1 per cent for the first half of the year, according to a filing with the Hong Kong Stock Exchange. The group notes that gross margins were lower for the period ‘principally because of discounting’ while also noting a reduction in operating costs; in particular, costs for advertising. As at the end of the first half year the group operated a total of 186 retail outlets in Macau and Hong Kong, a reduction of two compared to the end of 2015.
Moving on
Swire Pacific Limited, has announced the resignation of the group’s Executive Director, Mr. John Bruce Rae-Smith, effective August 27 of this year, according to a filing with the Hong Kong Stock Exchange. Mr. Rae-Smith confirmed to the company that his resignation is due to his transfer to John Swire & Sons Limited – a conglomerate company incorporating the various subsidiaries headquartered in London. Rae-Smite has been with Swire Pacific since January 1, 2013.
Overall profit for the retail arm of the group in the first half year amounted to HK$59 million, showing an increase of 23 per cent year-on-year. The group attributes
this change to ‘higher attributable profits from the Columbia China associated company, reduced losses from Mainland China and better cost control’.
Columbia, one of Swire’s primary retail brands
Product spread
Swire Pacific, within its trading and industrial segment, operates in a number of areas including food, Taikoo Motors, cold storage, paints and environmental services. With regard to the group’s retail operations in Mainland China, the group suffered a reduction in its total number of shops of five, resulting in a total of 20 shops, due to ‘the closure of loss-making stores’. The group comments that its Columbia China brand recorded a 23 per cent surge in profit year-on-year during the first half of 2016, reaching HK$21 million due to ‘cold weather early in the year’ pushing sales. ‘In general, it is expected that the Trading & Industrial Division businesses will face challenging conditions in the second half of 2016,’ notes the group in the filing.
Telecommunication
Citic affected by CTM operations Citic Telecom International Holdings Limited (Citic), a shareholder of Companhia de Telecomunicações de Macau (CTM), registered a 12.1 per cent year-on-year decrease in total revenue to HK$3.82 billion (MOP3.93/US$493.24 million) in the fist half of 2016, according to a company filing with the Hong Kong Stock Exchange. According to the South China Morning Post, a 25 per cent decline in Citic’s Macau-based mobile operation was one of the causes for the revenue decline. The publication quoted Citic’s Chief Financial Officer David Chan Tin-wai as saying that the company’s mobile business in the territory was mainly hurt by the economic downturn.
In the group’s filing the total revenue decrease was attributed to weaker mobile sales and the continued decline in revenue for more traditional services. Citic’s total mobile sales and
services revenue for the first six months of 2016 decreased 25.2 per cent, amounting to HK$1.46 billion, when compared to the same period of last year. The group’s Internet market share in Macau was around 98.7 per cent, while the broadband market penetration rate amounted to 87.5 per cent as at the end of June this year. N.M.
8 Business Daily Friday, August 19 2016
Greater China Gaming Gaming report: Macau remains top gaming destination in Asia
Threats loom but MSAR still dominant Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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he MSAR is expected to remain the dominant gaming destination in Asia for the next decade, according to analysts at Morningstar in a Consumer Observer report provided to Business Daily. The report notes that this is due to its ‘strongest critical mass of worldclass casino resorts’, amenities and attractions diversification, proximity to China, security and personal safety,
Chinese language use, visa facility and improving infrastructure. The report notes that the MSAR could see threats to its dominance in 2020 from South Korea, the Philippines and Australia. ‘We estimate Macau stands to lose around 875,000 annual visitors’ to the three locations, notes the report, ‘with around 475,000 of those choosing upcoming resort openings in these regions’. This is seen as ‘manageable’ as it only represents some 2.3 per cent of the group’s 2020 forecast of 37.7 million arrivals. This visitation forecast ‘already
assumes 7.6 million Chinese choose an alternative outbound destination to Macau in 2020’.
Lesser threats
Australia is seen as the lesser threat to Macau ‘as its casinos are spread apart from one another’ and only two integrated resorts are expected in the next few years – leading the analysts to believe that only 17,000 annual travellers will be lured away. South Korea is the largest threat, with an estimated 660,000 annual visitors it ‘can take’ from Macau, of
which 393,000 are expected to go to the four new integrated resorts slated for completion on Incheon and Jeju islands. The analysts note that the Philippine casinos ‘do not pose as large a threat as South Korea’ – due to only two large resorts slated for the next several years, and expect around 66,000 to be lured away from Macau to the two new resorts.
Gross gaming revenue
The analysts expect that local gross gaming revenue will decline by 8 per cent this year, before increasing by 3 per cent in 2017, with 5 per cent in 2018, and 8 per cent in the following years up to 2020. Once the new infrastructure projects are opened ‘we then expect growth to be 5 per cent and 6 per cent from 2021 to 2025, driven by increased capacity from reclaimed land,’ notes the report. V I P g r o w th ex p ectati o n s f o r the MSAR are negative for 2016 and 2017, decreasing 16 per cent this year and 3 per cent next year ‘dragged [down] by stringent junket regulation’. In addition, a 6 per cent decline is expected in 2018 due to an assumed VIP smoking ban. Mass gross gaming revenue is expected to stabilise this year, with ‘a decline of just 1 per cent’, with predictions of a 6 per cent reduction in 2017 and a 14 per cent increase in 2018 due to new casino openings and improved infrastructure.
Gaming
Three junkets confirm VIP rooms in Wynn Palace At least three junket operators are launching new VIP rooms in Wynn Palace, the new Cotai project of Wynn Macau Ltd. opening its doors next Monday. Suncity Group, Tak Chun Group and Guangdong Group have already advertised the opening of their new VIP rooms in the new US$4.2 billion (MOP34 billion) property next Monday. The new casino-resort project will house 50 to 60 VIP gaming tables, the company’s chairman and chief executive, Steve Wynn, announced d u ri n g a p r ess c o n f e r e n c e o n Wednesday. Advertisements of the Suncity Group and Guangdong Group show the two operators are also opening new VIP rooms in The Parisian Macao, the new integrated resort of Sands China Ltd. The President of Sands China told reporters in late July that a minority of the gaming tables at the new project, slated to open on September 13, would
be allocated to the VIP segment. Secretary for Economy and Finance Lionel Leong Vai Tac said earlier this month that the government had already received an application for new-tomarket gaming tables for The Parisian
Macao, adding that the application was being reviewed. When asked by Business Daily how many gaming tables they will operate in the new rooms a spokesperson from the Guangdong Group claimed that the
exact number had yet to be confirmed, while there was no reply from Suncity and Tak Chun before this story went to press. Last month, Bloomberg reported that Studio City, controlled by Melco Crown Entertainment Ltd., is planning three VIP rooms as early as this quarter. These operators may include Tak Chun in addition to Suncity. K.L.
Gaming
MCE consolidates Gain resulting from consolidation of Melco Crown Entertainment has no direct impact upon cash flow and dividend policy of the company. Annie Lao annie.lao@macaubusinessdaily.com
A consolidation of the results of Melco Crown Entertainment Ltd (MCE) into the financial statements of the Group has resulted in a 9,000 per cent profit increase year-on-year, according to a statement published by the Hong Kong Stock Exchange.
The group notes that the MCE consolidation of results will not have a direct impact upon the cash flow of the group, and will result in a one-off non-cash, non-recurring accounting gain of approximately HK$10 billion (MOP10.3 billion/ US$1.29 billion) which will be recognised in the company’s consolidated financial statements of the interim results. ‘The gain is mainly due to the excess of the fair value over cost of MCE attributable to the group’s 34.3 per cent equity interest, which is required to be recognised in the interim results as a result of consolidating MCE,’ the statement reads. The gain will also result in an increase in the net assets of the group in the company’s upcoming interim financial statements for the six months ended June 30, expected around late August.
In addition, the gain resulting from the MCE consolidation will not be taken into account in
calculating any declared dividend made by the company, according to the statement.
Business Daily Friday, August 19 2016 9
Greater China Profit warning
China Star anticipates deficit Hotel Lan Kwai Fong operator mulls loss of HK$30 to HK$50 million for H1.
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hina Star Entertainment Ltd. expects to incur a loss of approximately HK$30 million (MOP30.9 million / US$3.87 million) to HK$50 million for the six months ended June 30, according to a filing with the Hong Kong Stock Exchange. The first half results of the company - operator of the Lan Kwai Fong Hotel and Casino on the Peninsula – show a continuing downturn in the group’s operations, in the wake of its profit warning for the first quarter,
in stark contrast to the group’s first half 2015 results, which amounted to HK$168,527,000. The statement warns shareholders and potential investors to exercise caution when investing in the shares of the group. The group notes that the loss is mainly attributable to the downturn in the gaming industry in Macau, a segment that accounted for approximately 85 per cent of its revenue during the last fiscal year. Other factors include losses arising from changes in value of assets. In the group’s latest annual report it noted that the Mainland crackdown on corruption had ‘plunged the gaming industry of Macau into a severe winter, or, as termed by some scholars, an ‘in depth adjustment’ for almost 20 months’. The group’s interim results are expected on August 30. A.L.
Gaming
New Cotai’s bonds in distress as S&P cuts view on local casino Bonds issued by U.S. partners in local casino project Studio City have dropped to distressed levels after gaming revenue in the city entered a third year of declines and S&P Global Ratings lowered its outlook on the project. The 10.625 per cent notes co-issued by New Cotai LLC and New Cotai Capital Corp., units of U.S. hedge funds Silver Point Capital LP and Oaktree Capital Group LLC, were indicated at (U.S.) 42.5 cents (MOP3.39) on the (U.S.) dollar on Aug. 18, according to prices from independent fixed-income firm SC Lowy. The 2019 payment-in-kind notes, which pay interest in additional bonds rather than cash, last traded at 46 cents on Aug. 10 to yield 44.4 per cent, versus 64 cents on June 15 and 73 cents on March 3, according to Trace data. The US$3.2 billion (MOP25.56 billion) Studio City is the latest effort in
Macau to appeal to families and diversify away from gambling, after Chinese President Xi Jinping’s anti-graft drive and a weakening economy stifled the
casino business. It features a Batman ride, magic show and hotels and restaurants. But so far such new facilities in Macau have struggled to attract new customers. Visitors to the city fell 2.6 per cent to 30.7 million in 2015 and were unchanged in the first half of this year. Silver Point Capital and Oaktree Capital own a 40 per cent stake in Studio
City through their funds, with Hong Kong-based Melco Crown Entertainment Ltd. holding the remaining 60 per cent. Oaktree and Silver Point spokesmen in the U.S. declined to comment. There was no immediate reply to e-mailed questions to New Cotai.
S&P Outlook
S&P cut the rating outlook on Studio City’s separate 2020 notes to negative on Aug. 15 on slower revenue and refinancing risk. The credit assessor said it could breach its HK$10.86 billion (US$1.4 billion) senior credit facilities. The yield on Studio City’s 8.5 per cent 2020 notes has climbed 100 basis points this month to 8.4 per cent, Bloomberg-compiled prices show. “Studio City is within an entirely separate credit group and its debt is non-recourse to Melco,” Melco said in an e-mail statement on Aug. 17. “Investors should not assume that Melco will provide any financial support to Studio City or that it would step in for Studio City.” Bloomberg News
10 Business Daily Friday, August 19 2016
Greater China
Key Points Q1 net profit US$173 mln vs US$105 mln year-ago Chairman: Mobile business to turn around in H2 of FY ‘17 Earnings helped by US$132 mln property sale gain PC business slightly better than expected - company Revenue beats estimates; shares up 3.2 pct Tech Lenovo net profit climbed 64 pct to US$173 mln
Lenovo Q1 profit leaps, helped by asset sale, but smartphone losses linger The company said the mobile division - housing Motorola and other operations - won’t make a profit before the fiscal half beginning October 2017. Yimou Lee
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hina’s Lenovo Group , the world’s biggest PC maker, said first-quarter profit jumped nearly two-thirds, helped by a one-off asset sale, but its mobile arm lost money again as a US$3 billion bet on buying Motorola to diversify has yet to pay off. Lenovo said on Thursday net profit climbed 64 per cent to US$173 million for the quarter ended June compared with a year earlier, when profit was hit by restructuring costs. A US$132 million gain from the sale of a Beijing office property boosted profit well beyond the US$130.1 million average estimate of analysts polled by Thomson Reuters SmartEstimates. But the company, which bought the Motorola handset business in 2014 to reduce exposure to a shrinking global PC market, said global smartphone
shipments plunged 31 per cent in the quarter from a year ago. It said the mobile division - housing Motorola and other operations - won’t make a profit before the fiscal half beginning October 2017. “We can completely turn the business around,” Chairman and Chief Executive Officer Yang Yuanqing told Reuters in an interview. Lenovo is eyeing the more lucrative premium smartphone sector, he said, while ramping up marketing expenses. Lenovo previously said it expected a turnaround by this quarter in Motorola’s mobile operations, bought from Google. On Thursday, Yang said Motorola “has made a lot of progress”, though the company declined to give numbers for the operations, saying they’re now merged into its overall mobile business. At 0540 GMT, Lenovo shares were up 3.2 per cent, outperforming a 1.2 per cent gain in the broader market.
The firm’s drive into smartphones comes as growth in the global market slows while competition intensifies. According to researcher TrendForce, Lenovo had a 4.5 per cent share of the global smartphone market in AprilJune, making it a distant seventh after top player Samsung Electronics Co Ltd’s 24 per cent and Apple Inc’s 15 per cent. Like Chinese peer Xiaomi Inc, Lenovo has been focusing on diversifying away from intense competition in low-margin devices in China - still the world’s largest handset market but affected by the slowing Chinese economy. Lenovo has an “urgent need to formulate a sustainable strategy in smartphones, particularly in China,” said Jefferies analyst Ken Hui, citing competition from domestic rivals with extensive sales networks in China such as Huawei Technologies Co Ltd. The company said its share of the global PC market grew over the quarter as it performed “slightly better than expected” thanks to a stronger performance in mature markets. PC shipments fell 2 per cent year-on-year, compared with
a 4 per cent decline in the broader industry. Across the whole company, firstquarter revenue dropped 6 per cent to US$10.05 billion from a year earlier, beating an average of US$9.63 billion estimated by analysts.
‘Chairman and Chief Executive Officer Yang Yuanqing said Lenovo is eyeing the more lucrative premium smartphone sector while ramping up marketing expenses’ “Revenue is better than expected but core profitability is a question mark,” said Jefferies analyst Hui. Reuters
Shipping Hong Kong-flagged coal ship running out of food and fuel
Hong Kong shipping group calls for aid to crew on arrested coal ship Several shipping companies, especially in the dry bulk sector which includes coal and iron ore vessels, have gone bankrupt in what is considered the worst downturn in at least 30 years. Keith Wallis
The Hong Kong Shipowners Association (HKSOA) on Thursday called on the city’s authorities to provide assistance to the crew of a Hong Kong-flagged coal ship off the east coast of Australia that is running out of food and fuel. Local Australian media and Great Britain’s Guardian newspaper reported this week that the Five Stars Fujian, a 180,000 deadweight tonne capsesize class coal carrier, has been sitting in the middle of the Great Barrier Reef for the past month with supplies diminishing and salaries going unpaid. The HKSOA said in a statement that the ship was under detention by the Australian Maritime Safety Authority (AMSA), off the port of Gladstone, for breaches of the Maritime Labour Convention relating to lack of provisions and unpaid wages. “The Hong Kong Shipowners Association, while recognising that Hong Kong has not yet had ratification of
the Maritime Labour Convention extended to it by China, is extremely concerned about the welfare of the seafarers on the ship, and urges the Hong Kong Government... provide all
necessary assistance to the seafarers,” the statement said. It added that the ship’s crew “have effectively been abandoned by the owner of the ship, including the immediate supply of provisions and fuel, as well as the repatriation of the seafarers to their homes if requested by the seafarers.” It was not immediately clear who the owner or manager of the ship were.
Arthur Bowring, HKSOA’s managing director, said “there might not be a legal obligation for Hong Kong to provide such facilities, but there is an extremely strong moral and ethical obligation to do so” as Hong Kong has the world’s fourth-biggest merchant fleet. Several shipping companies, especially in the dry bulk sector which includes coal and iron ore vessels, have gone bankrupt in what is considered the worst downturn in at least 30 years. An oversupply of ships amid slowing demand for dry bulk commodities pulled down freight rates to record lows earlier this year. Reuters
2016 11 Business Daily Friday, August 19 2016
Asia ASIA
‘With Chinese airlines offering more direct services to the U.S. and Europe from the mainland, Cathay’s Hong Kong hub is no longer critical’
AVIATION CATHAY SHARES SINK TO THEIR WORST LOW IN SEVEN YEARS
Cathay says premium travel slumping, prompting discounts Cathay Pacific Airways Ltd., Asia’s biggest international carrier, says it’s getting tougher to find premium fliers from Hong Kong. Kyunghee Park
T
HE lack of first and businessclass travelers from the Asian financial center -the worst since the global financial crisis days of 2009 -- is such a dent on Cathay’s financials that analysts are asking whether Chief Executive Officer Ivan Chu needs to find a Plan B. After more than two years at the helm of the marquee Hong Kong airline -his two predecessors stayed for about three years at the top -- Chu is under pressure to revive earnings that have slumped amid an expansion by his Chinese and Middle Eastern rivals. Cathay shares have lost about 27 per cent of their value since Chu took over while passenger yields -- the amount earned by carrying a person per one kilometer, and a key metric of profitability -- slumped to their worst in seven years. With Chinese airlines offering more direct services to the U.S. and Europe from the mainland, Cathay’s Hong Kong hub is no longer critical. The carrier also reported Wednesday that it lost HK$4.49 billion (US$579 million) from fuel hedges in the first half of the year. “Everything is quite negative for them and their business model is ripe for change,” said Shukor Yusof, founder of aviation consulting firm Endau Analytics in Malaysia. “They need to review their hedging and focus on things that have contributed to growth. They should focus more on regional services.” The carrier reported Wednesday an 82 percent drop in first-half net income. Passenger yields fell 10 per cent to 54.3 Hong Kong cents as an economic slowdown in China hurt premium class demand and depressed corporate travel from Hong Kong to London and New York, Cathay said. Security concerns related to terrorism
has also dented travel demand, Chu said in an interview with Bloomberg Television. Hong Kong-based conglomerate Swire Pacific is the largest shareholder of Cathay, owning 45 per cent of the Hong Kong-traded airline. Aviation brought in 20 per cent of revenue last year for Swire, which reported a 27 per cent drop in core profit to HK$3.55 billion in the first half of the year. Cathay launched summer sales for premium class in May, offering as much as 30 percent discounts, in a bid to boost passenger load in low season of business travelers, Chu said.
Adverse factors
There’s more pain to come. Chairman John Slosar said in a statement Wednesday that the business outlook “remains challenging” as the operating environment in the second half continues to face the same adverse factors. “There’s not much we can do about the economic environment,” Chu said in the interview. “We hope it is a short-term issue rather than a long-term one. We are going to have very competitive fares.” Chu was elevated to the top job in March 2014 after his predecessor was named chairman of the group in a reshuffle of top management. Chu, Slosar and Tony Tyler, the three most recent CEOs, all served as chief operating officers. Shares of the carrier had their biggest two-day loss in more than seven years. They fell 4.9 per cent to HK$11.34 in Hong Kong Thursday, extending Wednesday’s 7.3 per cent decline. Credit Suisse Group AG cut the stock to underperform from neutral, while UOB Kay Hian Pte and Bocom International Holdings Co. downgraded it to sell. “We do not expect a recovery in profitability for the second half of
2016 and flag a likely lack of shareprice catalysts in the near term,” Kelvin Lau, an analyst at Daiwa Capital Markets Hong Kong Ltd. said in an Aug. 17 note, maintaining a hold recommendation.
Strong history
Another change in management will do little to boost its earnings prospects, said Martin J. Craigs, chairman of Aerospace Forum Asia. It’s the nature of the airline industry to confront structural and cyclical issues such as the expansion by Chinese airlines and having to hedge fuel, he said, adding Cathay’s management is its “best asset.” “Some of the problems Chu faces are structural, which he can’t really counter,” Craigs said. “All airlines experience external turbulence. Changing management won’t solve all the problems. Cathay has a strong history of getting through difficult times.” Instead of counting on the premium segment, they should focus more on their unit Dragonair and boost their regional services to capture a market
that is switching to rivals in China, said Endau’s Shukor. “Chu needs low-cost, and that should be priority for him right now,” he said. “You have to price your fares more competitively, which they haven’t been doing.” Cathay will add more flights to the U.K. and continue to make long-term strategic investments including in lounges, Chu said.
Butlers, showers
Cathay’s yields have been under pressure as Air China Ltd., China Eastern Airlines Corp. and others offer more direct services from the mainland. 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. “Cathay needs to change their business model from being a hub airline to a more point-to-point airline,” said Mohshin Aziz, an analyst at Malayan Banking Bhd. “But I don’t think that will happen in my lifetime.” BLOOMBERG
CORPORATE
Business Awards registrations deadline extended to 31st August Given the high number of requests, the organisers of the Business Awards of Macau announced today that the deadline has been extended to allow latecomers to join the biggest professional recognition programme in Macau. All nominations, along with any supporting materials, must now be received by 11:59 p.m. on
Wednesday, 31st August . The finalists will be presented at a prestigious celebration dinner on 24th November in the Grand Lisboa’s Grand Ballroom. Up for grabs will be a maximum of 40 Excellence Awards and 11 Gold Awards, judged by an independent panel of jury members representing different sectors of Macau society. For more information, visit www.awardsmacau.com.
12 Business Daily Friday, August 19 2016
Asia In Brief Yangon
Myanmar to launch single-stop inspection at borders with China, Thailand Myanmar will deploy single-stop inspections at border gates with neighboring countries of China and Thailand to prevent illegal trade, official media reported Thursday. Minister of Commerce Than Myint told the House of Nationalities that discussion are underway with the two neighbor countries for the move. The system is aimed at preventing illegal trade and boosting the country’s revenue collected from border trade, he said, adding that work is underway to set up customs checkpoints for border trade complete with X-ray machines to inspect containers. He warned that unscrupulous businessmen and corrupt staff in illegal trade activities in border trade would be punished. Hanoi
Vietnam central bank, AIIB representatives meet to discuss cooperation Representatives of Vietnamese central bank and Asian Infrastructure Investment Bank (AIIB) has met to discuss cooperation in Vietnam’s capital Hanoi. Vietnam is completing its institution and creating favorable conditions to attract more investment in infrastructure sector, Deputy Governor of the State Bank of Vietnam (SBV) Dao Minh Tu told Christopher Legg, Director of constituency of Australia, New Zealand, Singapore and Vietnam at AIIB, according to SBV website on Thursday. Tu expressed his hope that Vietnam and the AIIB will soon select appropriate projects which has economic effectiveness while still securing the target of maintaining sustainable public debt. Legg, for his part, said that based on investment demand and policies of Vietnam, he will urge the AIIB to study on providing financial support for Vietnam. Customs
Singapore hosts four-nation joint customs training program Singapore Customs hosted a joint training program for 20 middle-management officers from the customs administrations of Brunei Darussalam, Indonesia, Malaysia and Singapore from August 15 to 18, according to a media release from Singapore Customs on Thursday. The Joint Customs Middle Management Program (JCMMP) marks the first time Singapore Customs has brought together middle managers from the four customs administrations for joint training. Tapping on the strengths of each customs administration, the program featured trainers from all four customs administrations to enhance the participants’ knowledge and competencies in key customs domains such as digital customs, customs procedures, trade facilitation, enforcement, and compliance.
Trade Japan reliant on shaky domestic demand more to drive growth
Japan exports tumble most since financial crisis, policymakers meet over yen moves Economists say there is a growing risk that weakness in exports will persist as global economic uncertainty shows little sign of receding. Stanley White
J
apan’s exports tumbled in July at the fastest pace since the global financial crisis with a resurgent yen adding to the challenge of weak external markets - leaving the economy and the government more reliant on shaky domestic demand to drive growth. The yen edged toward a seven-week high versus the dollar, prompting bureaucrats from the Finance Ministry, the Bank of Japan and the financial regulator to hold an emergency meeting to examine the current state of the market. Japan’s top currency tsar reiterated a veiled threat to intervene in response to speculative moves, but traders say few options are available because it could be considered competitive devaluation, something the Group of Seven frowns on. “We are constantly watching for speculative moves and will respond with the necessary steps if needed,” Vice Finance Minister for International Affairs Masatsugu Asakawa said after the meeting. Policymakers are in a bind. Japan’s exports have now fallen for 10 consecutive months, the longest losing streak since losses on U.S. subprime mortgages sparked a global financial crisis that crippled the U.S. financial system. Still, intervention may be unable to stop the yen’s rise as long as investors pare back expectations for U.S. interest rate hikes amid a run of spotty economic data and mixed signals from Federal Reserve officials. In July exports fell an annual 14.0 per cent, which matched the median
Global market uncertainty
Economists say there is a growing risk that weakness in exports will persist as global economic uncertainty shows little sign of receding, which could undermine Japanese policymakers’ efforts to re-energise the economy. “Exports do not have the strength required to lead Japan’s economy,” said Norio Miyagawa, senior economist at Mizuho Securities. “This is a clear message that we need to support domestic demand. Government stimulus will help, but only in the short term. There could be more talk
Economy Overall investment applications expected to rise to US$15.9 bln
Thailand raises investment target in wake of referendum With some of the political uncertainty taken away, more foreign investors have expressed interest in investing in Thailand. Thailand has raised its target for investment pledges this year to US$15.9 billion, officials said on Thursday, hoping that sentiment improved after Thais voted to accept a new military-backed constitution that paves the way for an election in 2017. Having seized power in the May 2014 coup to end prolonged protests, the ruling junta has focused on promoting investment in a bid to pull Southeast Asia’s second-largest economy out of a rut as it faces weak exports and domestic demand. Overall investment applications are now expected to rise to 550 billion baht (US$15.9 billion) this year from 450 billion baht projected earlier, Hirunya Suchinai, secretary-general of the Board of Investment, told reporters on Thursday. “Investment sentiment is getting better and more supportive. That’s why we raised our target for investment applications by 100 billion baht,” she said.
The new target would be 152 percent higher than 2015, when a new investment policy targeting more value-added industry and services led to a slump in investment pledges. In 2015, overall investment applications fell to about 218 billion baht from a record 1.9 trillion baht in 2014 as firms rushed through plans before the policy changes. With the August 7 referendum
“yes” vote taking away some of the political uncertainty, more foreign investors have expressed interest in investing in Thailand, Deputy Prime Minister Somkid Jatusripitak said. “The uncertainty is now gone so we believe investment flows will keep coming in,” he told reporters. Japan Bank for International Cooperation (JBIC) is interested in investing Thailand’s infrastructure fund, and Singapore’s Temasek is keen on buying stakes in Thai firms and infrastructure projects, Somkid said. In January-July, both Thai and foreign investment pledges rose 218 per cent from a year earlier to 320.7 billion baht, with interest concentrated in the farming, automobile and auto-parts sectors, Hirunya said. Actual investment was about 200 billion baht in the first six months of this year, she added. Reuters
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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estimate in a Reuters poll of economists and was the fastest decline since October 2009.
of additional monetary easing.” Exports in July fell due to lower shipments of cars to the United States, ships to Central America and steel to Italy, the data showed. Exports to China - Japan’s largest trading partner - fell an annual 12.7 per cent in July, extending the 10.0 per cent decline seen in June. U.S.-bound shipments fell 11.8 per cent year-on-year, versus a 6.5 per cent annual decline in the previous month. Real exports fell 3.2 per cent in July from the previous month, the fastest decline in 14 months, separate data from the Bank of Japan showed. Real imports fell 1.1 per cent, the first decline in three months, the data showed. The yen has risen around 20 per cent versus the dollar so far this year and further gains would cut deeply into exporters’ earnings and increase deflationary pressure by lowering import prices. The volume of Japan’s imports of oil and kerosene fell 8.5 per cent in July, the first decline in three months, finance ministry data showed. Recent weakness in industrial output and second-quarter data showing the economy ground to a halt suggests Japan’s demand for commodities could potentially weaken further. The BOJ said it will conduct a “comprehensive review” of its quantitative easing and negative interest rate policy at its meeting next month after repeatedly pushing back the timing for its 2 per cent inflation target. Some economists say the BOJ could use the review to ease monetary policy, potentially weakening the yen if bond yields decline further. Prime Minister Shinzo Abe’s cabinet approved fiscal measures worth 13.5 trillion yen earlier this month in an effort to revive the flagging economy and breathe new life into his economic agenda. Reuters
Business Daily Friday, August 19 2016 13
Asia
14 Business Daily Friday, August 19 2016
International Court Banks deny the claims and pledge to contest the action
Australia’s major banks face U.S. class action over rate rigging The suit follows ongoing court action on the matter by Australian regulators, and comes amid increasing scrutiny by global watchdogs on potential market manipulation. Swati Pandey and Cecile Lefort
A
ustralia’s four biggest banks said on Thursday they were among 17 global lenders being sued by U.S. funds for alleged benchmark interest rate rigging, denying the claims and pledging to contest the action. The suit follows ongoing court action on the matter by Australian regulators, and comes amid increasing scrutiny by global watchdogs on potential market manipulation. Recent investigations have ensnared major global lenders and led to hefty fines. In the latest suit naming National Australia Bank, ANZ Banking Group, Westpac Banking Corp and Commonwealth Bank of Australia, two U.S.-based investment funds and an individual derivatives trader have brought a class action in a writ filed in United States District Court for the southern district of New York on August 16. Allegations centre around the banks making hundreds of millions of dollars in profits by setting benchmark bank bill swap rates (BBSW) at levels that benefited their trading books, according to the filing, supplied to Reuters by one of the banks. National Australia Bank, Australia’s top lender, said in a statement it did not agree with the claims, while fourth-biggest ANZ Banking Group
said it would vigorously defend the legal action. No.3 lender Westpac said it was aware that a class action had been filed but was not formally served with any proceedings. “Westpac denies the allegations in this claim and, if served with the claim, will defend those allegations vigorously.”
These three are already facing charges laid by the Australian Securities and Investments Commission (ASIC) for allegedly manipulating the same benchmark interest rates. All three have refuted the claims. A spokeswoman for Commonwealth Bank of Australia - not named in the Australia action - said the nation’s second-largest lender would defend the claim filed in court in the United States. The BBSW is the primary interest rate benchmark used in Australian financial markets to price home loans, credit cards and other financial products.
Earlier this year, statements of claims filed in Australian courts by ASIC revealed rare evidence - including emails, phone calls and electronic chats - that demonstrated what the regulator said was a conspiracy among BBSW panel banks and brokers to fix the prices. The banks “manipulated BBSW so frequently that traders often joked about how easy it was to fix the rate”, according to the writ filed in the U.S. court. “When one ANZ trader sarcastically commented ‘lucky the rate sets are all legit and there is no manipulation within the Australian financial system’, his colleague replied ‘ahahah’,” according to the U.S. filing. Reuters
Key Points NAB, ANZ, Westpac, CBA reject claims, to defend action Filing: two U.S. funds, one trader sue 17 global banks Class action filed in United States District Court Allegations of rigging bank bill swap rate Court action by Australian regulators ongoing
Agriculture Floods have cut crop yields to a 30-year low in France
French floods bring surprise gains to a Ukraine wheat field Floods have cut crop yields to a 30-year low in France, the European Union’s top producer. Camilla Naschert, Isis Almeida and Volodymyr Verbyany
Ruslan Sokol has no idea why prices for wheat he grows on the vast flatlands of central Ukraine have started to recover from five-year lows. A thousand miles to the west, French farmer Stephane Jean knows all too well. While both have suffered from a world grain surplus, their fortunes are now diverging. Floods have cut crop yields to a 30-year low in France, the European Union’s top producer. That’s opened the door for exporters in the Black Sea, where Russia is reaping a record harvest, bins are overflowing in Romania and Bulgaria, and Ukrainian farmers are collecting more than expected.
“I know nothing about the harvest in France, just what I’ve heard from you,” Sokol, 36, said by phone from the Kiev region where he farms wheat, barley, soybeans, corn and sunflowers on 1,000 hectares (2,500 acres). “Prices are low, but there was an increase about a week ago.” After three long years in a bear market, Ukrainian and Russian milling wheat prices are up more than 6 per cent since mid-July, data from researcher UkrAgroConsult show. That follows the deluge in France, where crop damage will send exports plunging to a 15-year low this season, according to InVivo, the nation’s largest wheat shipper. France’s share of the world market is set to fall to 7 per cent from 12 per cent and InVivo, a union of over
200 cooperatives, will need to tap supplies from elsewhere including Black Sea nations to meet demand from customers.
Scraping by
For French farmers, earnings may drop by half to 740 euros a hectare (US$340 an acre), Paris-based agricultural adviser Agritel says. The average 120-hectare harvest will rack up losses of almost 60,000 euros and the proportion of those ending up in the red will increase from 51 per cent in 2015, already the highest since 2009, according to Agritel and Orama, a union of growers’ associations. “I’ve had bad harvests and I’ve had bad prices, but I have never had both” together, said Jean, 53, a third-generation farmer who grows wheat and rapeseed in Thoiry, about a half-hour drive from the Palace of Versailles. “We were able to make a living. This year we won’t. We will have to go
‘For French farmers, earnings may drop by half to 740 euros a hectare (US$340 an acre), Paris-based agricultural adviser Agritel says’
into savings.” Wheat for December delivery were little changed at US$4.43 a bushel on the Chicago Board of Trade by 6:25 a.m. in London. Front-month futures have surged 8.7 per cent this month, paring losses to 5.7 per cent this year. The downpours, which also threaten wheat in neighboring Germany, the second-biggest EU producer, and the Baltic states, will force importers to turn to growers in the Black Sea region to meet their needs. That clears the way for nations such as Russia and Ukraine to sell to markets from Morocco to Algeria.
Future imperfect
Romania and Bulgaria also have the chance to ship to France. Bulgaria’s Vitagrain BG had “very preliminary” talks to sell wheat to France, Chief Executive Officer Martin Roussev said. It’s possible “to see some shipments from Bulgaria to France if the price justifies,” he said, adding that many French traders were awaiting final harvest estimates to decide imports. At least one French trader is also looking to bring grain from Romania, said a person familiar with the deal who declined be identified. Wheat from Bulgaria and Romania doesn’t incur import duties in France as they are part of the EU. A shift to supplies from the Black Sea brings longer-term risks for French growers as their customers find new providers. “It worries me a bit for the future,” said Michel Portier, head of Agritel. “When you are used to buying fruit at a store and the store is closed for construction, you go to another store and you realize that the fruit is just as good.” Bloomberg
Business Daily Friday, August 19 2016 15
Opinion Business Wires
Taipei Times Taiwan’s major hotels expect revenue to pick up in the second half of the year, during the traditional high sales season, after posting a disappointing first half due to sharpening competition and a softening economic environment. Occupancy and room rates should benefit from holidaymakers this summer and from the peak banquet season toward the of the year, but the nation’s slow economic recovery could limit growth. Formosa Regent Taipei— the island’s largest hotel operator by revenue — saw occupancy rates fall to 71.67 per cent in the first half of the year, from 79.05 per cent during the same period last year, weighed by the global economic slowdown and the entry of more competitors.
Korea Herald French bag and travel trunk brand Moynat, owned by the Louis Vuitton Moet-Hennessy group, is launching its first store in Korea on August 26, according to the brand Thursday. The store will be on the first floor of the Shilla Hotel in Seoul. This will be the brand’s fourth boutique in Asia, following stores in Beijing, Hong Kong and Tokyo. The Moynat Gallery Shilla boutique will feature men’s and women’s lines as well as exclusive designs created for the Seoul branch. The store will also offer the brand’s signature personalizing services, which include made-to-order designs as well as hand-painted products by Moynat artists. Created in 1849 by Pauline Moynat, the heritage luggage brand known for its lightweight, waterproof trunks was acquired by LVMH in 2011.
The Star Kian Joo Can Factory Bhd and Box-Pax (M) Bhd managing director Yeoh Jin Hoe will launch a takeover of Aluminum Company of Malaysia Bhd (Alcom) after buying a 59.16 per cent stake. Alcom informed Bursa Malaysia on Thursday that Yeoh, who is also a controlling shareholder of Towerpak Sdn Bhd, had proposed to buy 79.23 million Alcom shares for RM47.72 million (US$11.95 million) or 61 sen a share. The share sale and purchase agreement was executed between Towerpack and Novelis Inc. Alcom said after the completion of the proposed acquisition, Towerpack’s holdings of the voting shares of Alcom will increase from nil to 59.16 per cent.
Straits Times AGV Group, a local firm specialised in hot dip galvanizing, launched its public offering yesterday as it geared up for a Catalist listing. The company is one of the only five in Singapore that provide anticorrosion coating for steel and ironworks. The service is commonly applied in construction, engineering, utilities and telecommunications projects. AGV has put up 26,920,000 at 22 cents apiece for a placement that aims to raise S$4.8 million (US$3.58 million), or S$4.3 million in net proceeds.
Brecht on Brexit
I
n the wake of the 1953 workers’ uprising in East Germany, the playwright Bertolt Brecht mordantly suggested that “if the people had forfeited the confidence of the government,” the government might find it easier to “dissolve the people and elect another.” It is a sentiment that resonates with many in the United Kingdom today, in the aftermath of June’s Brexit referendum. In the heat of the referendum campaign, Michael Gove, then the justice secretary and a leading member of the “Leave” camp, said, “I think the people of this country have had enough of experts from all kinds of organizations with acronyms, who have consistently got it wrong.” His targets were the IMF, the OECD, the LSE, and all the other covens of economists who argued that leaving the European Union would damage the British economy. Unfortunately, Gove was right – not about what would happen to the economy, but about UK voters’ low regard for economic expertise. Despite the near-unanimous view of the economics profession that Brexit would tip the UK into recession and lower its long-term growth rate, voters went with their hearts, not their wallets. The “Remain” campaign was accused of using the economists’ warnings to try to frighten voters into submission. Some have argued that the blame for the referendum’s outcome lies with economists themselves, because they were unable to speak a language that ordinary people could understand. A similar charge is made against bankers and other financiers, who, widely perceived to be arguing from narrow sectoral self-interest, were equally unpersuasive. There is undoubtedly some truth in this criticism, but the problem was not simply over-complex language and impenetrable jargon. The economists all began from the assumption that the UK was doing fine, with GDP growth well above the European average, and unemployment well below. It seemed selfevident that EU membership was good for Britain, especially as we had avoided joining the euro and were thus not tied up in monetary and fiscal knots designed in Brussels and Frankfurt. The problem was that this rosy picture did not resonate with voters outside London and the Southeast of England, for reasons set out with great clarity in a recent speech by Andy Haldane, the Bank of England’s chief economist. Haldane cites national statistics showing that Britain’s GDP is 7 per cent above its pre-crisis peak, employment is 6 per cent higher, and wealth is 30 per cent greater. But, he adds, national income per head is flat. Median real (inflation-adjusted) wages have barely risen since 2005. The UK population has grown, partly owing to immigration. The recorded increase in wealth has come about mainly from increases in property prices in favored areas, especially London, and in the value of occupational pensions. If you are not lucky enough to own property in the Southeast of England, and are not in a final-salary pension scheme, your wealth has stagnated or fallen. The regional breakdown of GDP figures shows that London and the Southeast are the only areas of the
“
Howard Davies Chairman of the Royal Bank of Scotland
UK where people are better off, on average, than they were in 2009, at the trough of the recession. It may well be true that Brexit will exacerbate these inequalities. If intra-European trade barriers are imposed, and companies choose to invest elsewhere to access Europe’s single market, lowerpaid jobs in disadvantaged regions may disappear altogether, or wages will fall further. But that sounds like “expert” talk, and the former Leave campaigners have a response to it: economists are talking down the UK to prove that their gloomy forecasts were correct. If the experts couldn’t be trusted before the referendum, they certainly can’t be trusted now. That is the inauspicious background against which talks on the UK’s future relationship with the EU will soon begin. It is especially unfavorable for the City of London. There is clearly a trade-off between access to the single market, which most financial firms greatly desire, and one of its main conditions: freedom of movement for EU citizens, which is seen as having contributed to wage stagnation in the rest of the UK. So an outcome that benefits London (which, unsurprisingly, voted overwhelmingly to remain in the EU) must be advocated with subtlety and care, lest it be seen as sacrificing the wellbeing of the many to the interests of a few. The strongest argument in favor of remaining in the single market is that putting the City of London at risk jeopardizes the entire UK economy. Financial services may account for only 3 per cent of employment, but they generate 11 per cent of tax revenues. Killing the goose that lays the golden tax egg would be foolhardy: if the economy slows, which seems the best we can expect, those revenues will be sorely needed. And at a time when the UK’s balance-ofpayments deficit is over 5 per cent of GDP (the second largest in the OECD), the financial sector’s 3 per cent-of-GDP trade surplus has been essential to prevent an external blowout. It is no surprise, therefore, that sterling has dropped sharply since the Brexit vote. Some argue that exchange-rate depreciation will narrow the trade deficit by making British exports more competitive, but the experience of 2008, when the pound also fell sharply, is that the impact on the external deficit may not be great. The UK has few price-sensitive exports for which there is significant spare capacity available to expand production. So these are nervous times in London’s financial markets. We need new experts, unadorned with despised acronyms like IMF, to explain the unpleasant facts of economic life to a highly suspicious public. No one should take Brecht’s ironic suggestion seriously. The British people have spoken, and a way must be found to achieve their desires at the lowest possible economic cost.
If the experts couldn’t be trusted before the referendum, they certainly can’t be trusted now
”
16 Business Daily Friday, August 19 2016
Closing
Tech
Tencent Q2 sales and profit beat analysts’ estimates
Tencent’s splurge on entertainment pays off in record profit The operator of popular social network services is paying upfront for rich media titles to tap the purchasing power of its billion-plus users and appeal to advertisers.
T
encent Holdings Ltd.’s shopping spree on premium content from Game of Thrones to NBA broadcasts has again helped defy investors’ expectations and a slowing Chinese economy. Second-quarter sales and profit beat analysts’ estimates as the operator of the WeChat and QQ social network services splashed out on mobile games and content -- including anything from anime and comics to novels. That strategy paid off as users surged and online advertising revenue swelled 60 per cent, confounding fears about marketing cutbacks. Its shares rose 5.2 per cent to a record in Hong Kong. Tencent is paying upfront for rich media titles to tap the purchasing power of its billion-plus users and appeal to advertisers. It’s an approach mirrored by Alibaba Group Holding Ltd., which -- while making forays into cloud computing and overseas -- is also shelling out for videos, music and games to cater to a domestic audience hungry for highquality programming. Costs overall for Tencent almost doubled in the quarter. The question is how long China’s largest social media service can keep
spending to outpace the decelerating economy. “Tencent was able to take market share from existing players, thanks to the amount of traffic volume its mobile apps brought in,” said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. But “the main drivers for cost, like content acquisition and bank handling fees, won’t go away any time soon.” Founder Ma Huateng has shown a new-found willingness to go big when it comes to content. It’s leading an US$8.6 billion investment in Supercell Oy, a signature acquisition that will bring the Clash of Clans studio into the fold. Those blockbusters could anchor the type of tent-pole entertainment that helps it assemble a Marvel-like universe of movies, comic books, online videos and T-shirts. It’s already laid the foundations for an emerging entertainment empire by building League of Legends into a domestic powerhouse. The Supercell deal is something of an anomaly for a company that’s previously preferred taking smaller stakes in strategically important businesses. That’s because it needs to hold its own against Alibaba and search giant Baidu Inc. on digital entertainment. Tencent has merged
its QQ Music unit with China Music Corp., combining some of the country’s most popular Spotify-like services. Its Tencent Video goes toe-to-toe with Alibaba’s Youku Tudou and Baidu’s IQiyi. Its online advertising business raked in 6.5 billion yuan (US$980 million), fueled by a video streaming service whose NBA games attracted twice as many unique viewers during the latest season. Tencent is even getting into Periscope-like live-streaming with “Now,” a new service designed to capitalize on a phenomenon that’s taking China by storm. While a force in social networking, Tencent is still a relative newcomer to online advertising, with ad revenue that Credit Suisse Group AG estimates runs at about a sixth of Facebook’s. However, investors are keeping a close eye especially on self-service ads on WeChat’s Moments feature, which executives identified as their single biggest growth opportunity when it comes to advertising. There were five times as many marketers using the self-service option last quarter than in the previous three months. “It resulted in Weixin Moments becoming our largest ad-revenue generating inventory,” Chief Strategy Officer James Mitchell told analysts on a call. It’s in gaming however that Ten cent clearly dominates. Reflecting a focus on smartphone titles, mobile gaming revenue alone more than doubled to 9.6 billion yuan. That
outpaced a 52 per cent rise in overall revenue to 35.7 billion yuan. Tencent has now beaten analysts’ expectations for profit and revenue in all but one of the past six quarters. On Wednesday, it reported a 47 per cent climb in net income to a record 10.74 billion yuan, handily beating estimates. Revenue from Value Added Services, a category that includes games and messaging, climbed 39 per cent to 25.7 billion yuan.
‘While a force in social networking, Tencent is still a relative newcomer to online advertising, with ad revenue that Credit Suisse Group AG estimates runs at about a sixth of Facebook’s’ WeChat had 805.7 million monthly active users and the mobile version of QQ had 666.5 million users at the end of the quarter. Popular games included shooting title Cross Fire and Naruto Mobile, based on the hit manga series. Bloomberg
Virtual reality
Automotive
Debts
Nokia cuts price for OZO virtual reality camera
China’s biggest air-con maker bets US$2 bln on electric cars
Shanghai looks to issue municipal bonds in its free trade zone
Nokia has cut the price of its OZO virtual reality camera by 25 per cent from its initial launch price, the Finnish company said on Thursday. Nokia, whose main business is now t e l e c o m s n e t w o r k e q u i p m e n t, s t a r t e d selling the camera earlier this year as the first device to be produced for its digital media business, one of its new hopes for future growth. Having launched the device at US$60,000 in the United States and Europe, Nokia has now priced it at US$45,000, saying it was also taking the camera to the Chinese market next month. The spherical camera features eight sensors and microphones and is designed for making 3D movies and games that can be watched and played with virtual reality headsets. Nokia said the virtual reality market was developing quickly and the new price reflected that. Nokia, known for its once-dominant phone business which it sold to Microsoft in 2014, is also bringing its name back to the handset market after a new company backed by its former executives teamed up with Foxconn to buy the rights to the brand.
Gree Electric Appliances Inc., China’s largest air-conditioner maker, is going ahead with a plan to diversify its business outside of home appliances by paying 13 billion yuan (US$2 billion) to buy an electric-vehicle manufacturer. The appliance maker, which announced its intention to buy Zhuhai Yinlong New Energy Co. in March, will fund the purchase by selling 834.9 million new shares at 15.57 yuan apiece, about 19 per cent lower than the stock’s last traded price, according to a filing to the Shenzhen stock exchange. The company’s shares have been suspended from trading since February. Gree is making the purchase in order to support the Chinese government’s push to clean up the environment and promote greener technologies, Chairman Dong Mingzhu said in an interview in Beijing in March. Yinlong started manufacturing batteries for electric vehicles in 2009 and has a line of seven electric passenger cars and 18 electric buses, according to its website. Gree gets about 86 per cent of its revenue from manufacturing air conditioners and parts. It sells two out of every five air-conditioners in China, according to data from Euromonitor International.
The Shanghai city government is weighing an issue of up to 5 billion yuan (US$750 million) of municipal debt in its free trade zone, according to a notice on the zone’s website, kickstarting a long-anticipated offshore renminbi bond market there. Media have previously reported that Shanghai was exploring the possibility of such an issue in early August, following the release of the city’s latest five-year plan. The amount issued is likely to range from three to five billion yuan initially, the statement said. The launch of the offering will mark the opening of an offshore renminbi bond market in the free trade zone (FTZ). Shanghai Clearing House, one of the three central securities depositories in China, held a conference in London in late April to promote the FTZ renminbi bond market. The free trade zone bond market offers foreign investors the option to open settlement accounts via an international or domestic central securities depository. This frees them from having to deal with Chinese clearing houses, as is the case for foreigners investing in regular onshore bonds outside the free trade zone.