Zhuhai aerospace fair warms up its engines Airshow Page 16
Tuesday, November 1 2016 Year V Nr. 1163 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Politics
Trade
M&A
Manufacturing
Secretary for Administration and Justice aims to perfect bill presentation to AL Page 3
Container cargo gross weight falls 30 pct y-o-y for first nine months Page 3
Chow Tai Fook to expand into gaming with potential Bahamas purchase Page 7
Japan’s industrial output weaker than expected Page 11
Built to Wynn Gaming
Wynn Macau settles construction disputes with its main contractor, Leighton Contractors (Asia) Ltd, over the Wynn Palace construction, to the tune of US$200 million in additional fees, as well as an addition to the price payable. Wynn also agreed to forego pursuing liquidated damages costs or monetary claims. Analysts say this could push up the overall price tag for the US$4.2 billion project as it indicates a potential hike in capital expenditure for Wynn Palace. Page 6
A winding road to the future
Place to rest my head
Over 1 million tourists checked-in to hotels and guesthouses in September, a 20 pct y-o-y rise, driven by a 20 pct rise in visitors from the mainland, to 643,700 during the month. This comes despite a 20 pct plunge in package tour visitors, with all major visitor markets falling, except for South Korea, which saw a near 50 pct increase y-o-y in visitors on package tours during the month. Meanwhile, outbound tourism from Macau to South Korea soared 130 pct.
Urban planning The Secretary for Transport and Public Works agrees that the current urban planning lacks detailed information, stating that further detailed planning will require more time. Meanwhile, the city’s Urban Planning Committee is calling for in-depth information about the new reclaimed land zones, in particular Zone B, which some comment is missing access and transportation information. Others wish to see height restrictions on public housing buildings near the airport. Page 2
Expansion through entertainment
Expo This year’s MGS Entertainment Show aims to diversify from just gaming offerings, to also focus on entertainment products and services. So says chairman of the Macau Gaming Equipment Manufacturers Association (MGEMA) and organizer of the event, Jay Chun in an exclusive interview with MBTv. This year’s edition should attract the major players in the territory and abroad, with some fresh new additions, says Chun. See the whole interview today on MB.tv at www.macaubusiness.com Page 6
No way back
Tourism Page 4
HK Hang Seng Index October 31, 2016
22,934.54 -20.27 (-0.09%) Worst Performers
Cheung Kong Property
+3.14%
Hong Kong & China Gas Co
+1.33%
AIA Group Ltd
-4.77%
Tencent Holdings Ltd
Bank of Communications
+1.72%
Bank of East Asia Ltd/The
+1.30%
China Mengniu Dairy Co Ltd
-2.65%
Lenovo Group Ltd
-0.80%
Cathay Pacific Airways Ltd
+1.59%
CLP Holdings Ltd
+1.28%
CNOOC Ltd
-1.69%
PetroChina Co Ltd
-0.74%
China Resources Power
+1.54%
Bank of China Ltd
+1.16%
Li & Fung Ltd
-1.29%
Sands China Ltd
-0.74%
China Construction Bank
+1.43%
Belle International Holdings
Want Want China Holdings
-1.25%
China Overseas Land &
-0.62%
+1.08%
20° 26° 20° 26° 20° 25° 23° 26° 23° 27°
-1.06%
Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Yuan rate reform A Chinese central bank top official said yesterday that the authority’s intention to reform the way the RMB exchange rate is set will not be changed. Despite the slide the currency has suffered against dollar during the past weeks, the reform drive will not be affected, the member of the People’s Bank of China monetary policy committee said. Page 9
2 Business Daily Tuesday, November 1 2016
Macau Public Works
Urban planning lacks detailed information Urban Planning Committee members urged the government to provide more detailed information on the city’s public projects Annie Lao annie.lao@macaubusinessdaily.com
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he Secretary for Transport and Public Works, Raimundo Arrais do Rosário agrees with the Urban Planning Committee members that the current urban planning lacks detailed information. The Secretary said that the Land, Public Works and Transport Bureau (DSSOPT) would provide more detailed information on the planning of public projects in the city. The comments came at a general meeting of the committee, held yesterday. “I agreed that more detailed information is needed and should be provided, but all the detailed planning will require more time,” said the Secretary. All the Committee members complained about the simplicity of the planning, in particular urging the government to provide more detailed plans for the development of reclaimed land Zone B. Currently the DSSOPT plans for Zone B include administrative and judicial buildings, with heights ranging from 25 metres to 145 metres, on the east side of the land mass. The reclaimed land zone will run from the south of the Macau
Peninsula - near the Macao Science Center - to the western part, adjacent to Macau Tower and the Nam Van Lake area. “There is unused land near MGM and Mandarin Oriental Hotel, empty for so many years. Especially given that there are a lot of tourists going near the city’s central area, it should not be empty for so long and more information about its development should be provided to the public,” said Paul Tse See Fan, president of the Macau Association of Building Contractors and Developers and also a committee member. Tse commented that the city already has a lot of empty land where proper planning is needed to clearly outline the future development of the city, adding that this information should be provided for viewing by the public and potential investors.
A local architect, and one of the committee members, Rui Leão also disagreed with the draft planning for Zone B. Leão commented that the current plan only provides basic information, noting that: “the plan needs to outline how the public can have access to Zone B area easily by public transport, such as whether there is a need to build pathways or bridges for people to walk there, how easy it is for vehicles to have access into the area and the effect from the city’s Light Rail Transit (LRT) system in this area,” the architect said.
Public housing
Additionally under discussion at the meeting, were the height limitations for the 10,000-odd public housing units to be built by Avenida Wai Long and Estrada da Ponta da Cabrita, near the Macau International Airport in
Food safety
Legislator urges for supervision of online food stores Legislator Si Ka Lon has filed an interpellation with the government questioning the government’s system for inspecting online shops selling food. The legislator pointed out in his query that the current food safety law is incapable of ensuring the safety of food from online-operated shops, noting in particular, incomplete information about the origins, as well as the ingredients of online food products. He queried whether the government has plans on its agenda to improve the current law.
In response, the Civic and Municipal Affairs Bureau (IACM) said it has been operating inspections of restaurants and shop entities that provide online ordering services. For non-entity shops, a task force has been set up to monitor the operation of shops, by acquiring information about the origins, methods of storage, creation, production and delivery of the food products, according to IACM’s response. IACM stated that inspections to sample food products of online shops
are also regularly undertaken. During last year’s inspections, 51 samples were acquired and all passed the safety requirements. Sushi, sashimi, oysters and desserts were the major focus of inspections. A database of online food stores has been created and will be updated continuously, IACM added. Meanwhile, the bureau revealed it is co-operating with other groups to add specifications for the online consumption section in the “Consumer Rights Protection Law”. C.U.
Taipa. The housing will cover an area of 83,742 square metres, where around 4,000 units are currently being built, according to the DSSOPT. Manuel Iok Pui Ferreira, a Committee member disagreed with the presented draft plans for the allowed height of the public housing - 190 metres. “The government needs to reduce its height limits of the public housing to be built there in order to protect the ecosystem in Taipa. Based on the current plan, it will damage the view of the landscape and it will be impossible for people to go there for hiking anymore,” Manuel Iok said. Iok also suggested the Bureau coordinate with the city’s Housing Bureau to collect information on how many applications have been approved and the age range of the local residents moving into the public housing property, in order to build relevant facilities needed for the residents living there. Mak Soi Kun, a legislator and Committee member, also agreed that an environmental assessment needs to be conducted on the impact of the public housing being built. Legislator Mak also urged the government to provide more details on the transport plan for the area. “The amount of people going to the Macau International Airport is increasing. We need to consider the impact on public transportation after the public housing has been built, as more people will need to rely on public transport to get there. Also, this will put more demands on the traffic when people are travelling to the airport,” the legislator said.
Health
AL Budget
Local public hospital accredited by ACHS
2017 AL budget down to MOP182.3 million
The city’s local public hospital, Hospital Conde de São Januário (CHCSJ) has passed an accreditation test set up by the Australian Council of Healthcare Standard (ACHS). CHCSJ passed 47 guidelines measured over a five-day assessment
period, four of which were rated ‘outstanding’: public information services; participation of healthcare users; prevention of patients’ falls; and security management. In particular, the government’s ten-year scheme for improving elderly healthcare services, as well as the launch of the integrated centre for the assessment of children with special needs, received high praise from the ACHS. Aside from launching new schemes, the local public hospital provides healthcare information to the general public through a wide range of media, social platforms and mobile applications. The CHCSJ is the first and only healthcare institution in Macau to be accredited by the ACHS, having previously received its accreditation from the same Australian organisation in 2012. The public hospital obtained three ‘outstanding’ ratings in its 2012 accreditation test. ACHS is an international non-profit organisation founded in 1974. C.U.
The 2017 fiscal budget of the MSAR Legislative Assembly (AL) will total MOP182.3 million (US$22.8 million) for 2017, as announced yesterday in an official dispatch published in the Official Gazette and signed by the President of the Legislative Assembly, Ho Iat Seng. The amount budgeted
for next year’s AL represents a slight decrease of 0.88 per cent, or MOP1.61 million year-on-year. The finalized amount of the fiscal budget for next year was agreed on by all legislators via a vote. The budget meeting was held at the Legislative Assembly two weeks ago.
Business Daily Tuesday, November 1 2016 3
Macau Trade Commercial flight movements increased 5.4 pct y-o-y between January and September 2016
Less movement Container cargo handled in the first nine months of 2016 decreased by 30.1 pct year-on-year, while motor vehicle registrations dropped by 31.7 pct Nelson Moura nelson.moura@macaubusinessdaily.com
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he amount of container cargo gross weight handled in Macau over the first nine months of 2016 registered a 30.1 per cent year-on-year decrease, to a total of 151,917 tonnes, according to Transport and Communications data released yesterday by the Statistics and Census Services (DSEC). The decrease was mainly attributed to falls in container cargo arrivals by sea between January and September, with gross weight of seaborne containerised cargo dropping 32.6 per cent to 134,309 tonnes, with half of the cargo passing through the Inner Harbour. Container cargo coming in to the
MSAR by sea in the first nine months of 2016 registered a 36 per cent decrease, while outgoing cargo rose by 21.2 per cent. As of the end of September, total seaborne cargo decreased by 49 per cent compared to the same month last year, down to 12,822 tonnes. This was largely due to a 53 per cent drop in imports by sea during the month. Cargo movements by land in the first nine months saw a small 2.8 per cent drop year-on-year reaching a total of 17,608 tonnes, with the Cotai Checkpoint handling 87.2 per cent of land-based container movements.
Flying less
The Macau International Airport (MIA) handled 22,801 tonnes of air cargo weight in the first nine months of this year, a 6.5 per cent
year-on-year rise. In the first nine months of the year, commercial flight movements saw a 5.4 per cent year-on-year increase to 40,778 trips. While flight movements to and from Mainland China and Vietnam dropped 4.6 per cent and 30.1 per cent in the same period respectively, movements to and from Thailand and Taiwan increased by 14.5 per cent and 13.7 per cent yearon-year, respectively. Helicopter flight movements between Macau, Mainland China and Hong Kong in the first nine months of 2016 dropped by 24 per cent to 8,017 trips.
Meanwhile 5,785 new motorcycles were registered, a 25.3 per cent yearon-year drop. As of the end of September, the total number of licensed motor vehicles reached 249,013, a 1.2 per cent yearon-year fall from the same month last year, with motorcycles and light automobiles representing 52.3 per cent and 44.6 per cent of the total, respectively. September also saw a 40.1 per cent year-on-year fall in vehicle registrations compared to the same month last year, with 979 fewer vehicles registered.
Fewer cars on the road
The number of mobile telephone subscribers as of the end of September increased by 4.4 per cent year-onyear to 1,895,968, with stored-value GSM card subscribers representing 63.3 per cent of the total. The number of internet subscribers in September also increased, with a 9.6 year-on-year spike to reach 357,105 subscribers.
Motor vehicle registrations in the first nine months of this year decreased by 31.7 per cent year-on-year, with 10,078 new vehicles being registered, according to the DSEC data. Light vehicle registrations saw the biggest decrease between January and September this year, with a 41.9 per cent drop to 3,785 vehicles.
Politics
Secretary Sonia Chan: DSAJ helps legislative process The MSAR’s secretary for Administration and Justice said that the government’s overall planning requires time, in order to prevent mistakes or errors when drafting bills Cecilia U cecilia.u@macaubusinessdaily.com
Coordination with the Legal Affairs Bureau when working on overall legislative planning will strengthen the legislative process, said Secretary for Administration and Justice Sonia Chan Hoi Fan, during an interview with local Chinese newspaper Macao Daily. Chan indicated that, particularly regarding important bills, in order to prevent errors appearing in bills during the final process or to avoid the return of bills from the Legislative Assembly (AL), the government will establish directions prior to the drafting of bills. In technical terms, the Secretary said that the government has cooperated with the AL in drafting technical legislative guidelines and, as such, this will shorten the time required to perform technical adjustments when documents are sent to the AL. “The sharpening of the knife is to assist the woodcutter; we have to sharpen the knife well, and to complete our overall planning by not rushing it,” the Secretary said to Macao Daily. The Secretary added that, with the current load of bills that need deliberation in this legislative year, the government is considering to not
hand in the bills related to consumer protection and taxi regulations to the AL.
New systems
The secretary, meanwhile, revealed her agreement with upgrading the responsibilities of the Office for Personal Data Protection and, as such, to avoid hindrances during operations or cross-border cooperation. Chan also noted that due to the heavy work load of the Identification Bureau (DSI), with more than one million residents visiting the bureau in a year, the government is considering setting up a new department within the DSI to manage public reception work. When asked about the current announcement that the government is recruiting senior technicians, Chan explained this year’s “Focus Recruitment” system has a newly simplified process that separates recruitment into two sections. The new system prevents the re-submission of documents by applicants to related departments, said the secretary. She added that the digitalisation also increases the efficiency of applications. Due to a lack of a fixed schedule and planned frequency, Chan explained that it is not known when the next recruitment opportunities will be available if people missed out this time.
More connected
4 Business Daily Tuesday, November 1 2016
Macau Tourism Increased South Korean visitor numbers unable to turn around downward trend
Package-tour visitors fall 20 pct in September However, the same month saw more visitors staying in local hotels and guesthouses
surge of nearly 45 per cent year-onyear. At the same time, the number of travellers on package tours departing from Macau for South Korea also soared by 130 per cent year-on-year to some 4,700 in the month.
Kam Leong kamleong@macaubusinessdaily.com
Outbound trends
T
he city saw the number of visitors on package tours plunge by 20 per cent yearon-year to some 596,000 in September, as visitation from nearly all major visitor sources dropped despite tourism from South Korea surging, the latest official data released yesterday by the Statistics and Census Service (DSEC) shows. In September, the number of visitors on package tours from Mainland China slumped by 23 per cent yearon-year to some 482,000, while those from Taiwan and Japan decreased by 11.1 per cent and 7.4 per cent yearon-year, amounting to some 32,700 and 13,800, respectively. Declines were also recorded in the number of package tour visitors from Hong Kong, Malaysia and Thailand, which went down year-on-year by 19.6 per cent, 12 per cent and 3.7 per cent, to 12,700, 4,900 and 8,300, respectively. Despite the decreases, the MSAR welcomed some 25,000 visitors on package tours from South Korea, a
Over the course of the month, a total of 9,300 residents travelled outbound on package tours, down by 16.1 per cent year-on-year. In particular, residents outbound on package tours to Mainland China posted a notable decrease of 27.8 per cent year-on-year to 48,500, while those to Japan fell by 14.6 per cent year-on-year to 27,000. The city also saw fewer residents travelling on package tours to Taiwan and Malaysia during the period, with drops of 1.8 per cent and 40.7 per cent year-on-year to 11,400 and some 800, respectively. For the first nine months of the year, the MSAR received a total of 5.4 million visitors on package tours, a slump of 27.8 per cent year-on-year, driven by a 30.5 per cent year-onyear drop in the number of visitors from Mainland China, amounting to 4.29 million. In addition, package tour visitors from Hong Kong and Taiwan dropped by 33.5 per cent and 28.3 per cent year-on-year to 124,200 and 308,600 respectively, during the nine-month period. But those from South Korea,
Japan and Thailand increased by 8.8 per cent, 6.1 per cent and 13.1 per cent - totalling 264,100, 111,900 and 100,100, respectively. The total number of residents outbound on package tours came to 910,300 for the three quarters, a fall of 17.2 per cent year-on-year.
Hotel occupancy up as guests increase
As at the end of September, 107 hotels and guesthouses were operating in the MSAR, providing a total of 36,000 rooms, an increase of 6,200 rooms compared to one year ago. According to the DSEC, the average hotel occupancy rate went up by 3.6 percentage points year-on-year to 82.1 per cent for the month, boosted by a 10.5 percentage point increase in the occupancy of local four-star hotels, to 86.5 per cent.
Meanwhile, the average occupancy rate of five-star hotels rose slightly by 0.6 percentage points year-on-year to 81.3 per cent, while that of threestar hotels jumped by 6.3 percentage points year-on-year, reaching 82.2 per cent. In fact, the growth in the average hotel occupancy rate was attributed to an increase in the number of guests. The DSEC said a total of 1.03 million of guests checked-in to local hotels and guesthouses in September, which represents year-on-year growth of 20.2 per cent. Of the total, 643,700 were from Mainland China, a yearon-year jump of 20.9 per cent. For the first nine months of the year, the total number of hotel guests reached 8.59 million, up by 12.9 per cent year-on-year, driving the average occupancy rate up by 1.2 percentage points year-on-year to 81.2 per cent. Of the total hotel guests for period, those from the mainland grew by 11.3 per cent year-on-year to 5.45 million, followed by those from Hong Kong, which accounted for 1.29 million, an increase of 20.3 per cent yearon-year.
Illegal workers
11 illegal workers in September The number of illegal workers identified in September dropped 80 per cent month-on-month and 85 per cent year-on-year, according to the latest data released by the Labour Affairs Bureau (DSAL), compiled together with the Public Security Police Force (CPSP). The oversight works conducted by the two departments searched a total
of 289 locations, from commercial and residential construction sites to industrial and commercial buildings, finding 11 illegal workers. Last September, the oversight operations apprehended a total of 73 illegal workers, five of whom were apprehended by the DSAL and 68 of whom were caught by the CPSP. A total of 384 locations were searched.
Gaming
More opinions needed The Gaming Inspection and Coordination Bureau (DICJ), with its long-established cooperation with the Social Welfare Bureau (IAS), has concluded that it needs to acquire more stakeholders’ opinions before amending the law regulating gaming workers gambling during non-working hours. Both parties agreed that more opinions are needed in order to ensure and solidify the purpose and
Corporate
Milestone tournament continues charitable tradition
Some 26 teams from local businesses teed off for the Annual Macau Business Charity Golf tournament at Caesars Golf Course on Friday, 28th October in beautiful weather. After successfully finishing 18 holes during the day, the celebrations of the 10th anniversary tournament continued into the night at Grand Coloane Resort with Macau Business’s signature Gala Night, where the golf competitions winners and their chosen charitable association prize money
direction of revising of the law. The Director of the DICJ, Paulo Martins Chan remarked that the amendment seeks to protect workers who are engaged in the gaming industry from developing gambling problems. The Vice-President of IAS, Hon Wai also agreed that the amendments to the gaming laws would help reduce the risk of gaming workers becoming addicted to gambling.
Corporate recipients were announced. Third place was occupied by team MGM I, who chose to donate MOP40,000 to Fuhong Society Macau. First runner-up position was secured by team SUZOHAPP, who opted to donate their MOP60,000 to the Cradle of Hope Association/ International Ladies Club Macau; while the winner’s laurels for the 10th Macau Business Charity Golf tournament were awarded to Caesar Legends, who decided to donate their prize money of MOP100,000 to Macau Special Olympics.
SJM offers MGP garage tour for quiz winners
Continuing in its role as the city’s major sponsor for the SJM Theodore Racing by Prema team competing in this year’s FIA F3 World Cup, SJM is offering racing fans a chance to win one of six spots to tour the Macau Grand Prix garage. Participants, aged 18 and above, can take part in SJM’s racing quiz on its Facebook page from today until Wednesday, November 9 at noon,
answering two questions for a chance to win. Garage tours will take place on November 19, as well as meet-and-greet sessions with the F3 drivers. The winners can also invite a family member or friend to join them on the tour, and will receive a souvenir. Winners will be announced on November 11. The SJM Theodore Racing by Prema team is aiming for a ninth Macau Grand Prix title this year, on the back of driver and two-time winner Felix Rosenqvist.
Business Daily Tuesday, November 1 2016 5
Macau
6 Business Daily Tuesday, November 1 2016
Macau Gaming JP Morgan: settlement agreement may drive up Palace’s total cost
Wynn Macau settles Palace construction disputes The casino operator and its general contractor for the Palace, Leighton Asia, have agreed not to purse their respective claims and cross-claims, as the operator agreed to increase its guaranteed maximum price payable for the project Kam Leong kamleong@macaubusinessdaily.com
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ocal gaming operator Wynn Macau Ltd said it has settled its construction disputes with the general contractor of Wynn Palace - Leighton Contractors (Asia) Ltd over the Cotai project, increasing the total guaranteed maximum price payable to the latter by US$390 million (HK$3.13 billion) and paying an additional fee of nearly US$200 million. In a filing to the Hong Kong Stock Exchange on Sunday evening, the casino operator said it would ‘forego pursuing Leighton Asia for any claim for liquidated damages or monetary claims’. ‘It was agreed that the guaranteed maximum price payable to Leighton Asia under the Cotai Construction Agreement will be US$2.96 billion,’
it wrote. The initial guaranteed maximum price payable to the contractor was set at US$2.57 billion. The casino operator had blamed its contractor for the construction delays on Wynn Palace, while the contractor, a subsidiary of Australianlisted CIMIC Group Ltd, had claimed the scope of work had been changed during the course of work, resulting in extra costs and time. In a statement to the Australian Securities Exchange yesterday, the contractor’s parent company said both parties had agreed ‘not to pursue their respective claims and crossclaims including liquidated damages and extensions of time’. Wynn Macau, publishing a similar statement in its latest filing, added that the agreement will enable the company ‘to avoid protracted dispute resolution proceedings that could require substantial ti m e c o m m i t m e n ts o f s e n i o r
management associated with such proceedings, as well as the inherent uncertainties as to the outcome of such proceedings’.
Extra costs
According to Wynn Macau, the dispute settlement agreement between the parties mandates the casino operator to pay its general contractor an additional US$199.8 million. The casino operator will also release and pay US$21.1 million to the contractor for work completed and accounted for within the guaranteed maximum price; pay US$55.2 million upon the final completion of the works; and pay up to US$45 million when the contractor completes ‘outstanding, defective or non-conforming work’ that is to the satisfaction of the company. Wynn Macau noted in the filing that some US$100 million of the fees
had been paid to the contractor on Sunday, whilst some other US$120.8 million would be paid by yesterday. In January, the casino operator expressed its concerns in a letter to the contractor about the ‘levels of progress in the execution of the [construction],’ indicating the contractor would be liable to pay US$200,000 per day for each day of delay in achieving an interim milestone. Wynn Palace, which opened its doors on August 22 of this year, had initially been scheduled for unveiling on March 25. The date was later changed to June 25, in November last year, as Wynn Macau said in the filing that it was informed by Leighton that ‘Wynn Palace will not be ready to open by the projected early completion date of 25 March 2016’. According to the operator, the scope of work for Leighton Asia u n d e r th e ag r e e m e n t c o v e rs ‘project management, substructure, structural, design and architectural works, facades, exterior finishes, certain interior finishes, mechanical, electrical and plumbing installations and external landscaping works’.
JP Morgan: modestly negative to sentiment
Meanwhile, analyst at JP Morgan, DS Kim, said in his latest research note yesterday that the agreement may boost the total cost of Wynn Palace to above US$4.2 billion. ‘The news is modestly negative to sentiment, as it indicates a potential hike in Palace capex [capital expenditure],’ he said. ‘The announcement itself is bit unclear as to whether this settlement would push the total project budget higher from previous guidance of US$4.2 billion… But, given that [the guaranteed maximum price payable] has been increased by US$400m, we think total Palace capex could turn out to be higher than US$4.2 billion,’ he concluded. According to the analyst, the company’s current US$4.2 billion budget for Wynn Palace was based on its previous guidance, which included, among other factors, the guaranteed maximum price payable of U$2.57 billion, additional fit-out costs, land premiums and costs for pre-opening.
Gaming
More than gaming This year’s MGS Entertainment Show will not only focus on gaming but also products and services that provide entertainment, Jay Chun tells MB.tv Cecilia U cecilia.u@macaubusinessdaily.com
An expanded focus to include entertainment and attract a wider range of participants to this year’s MGS Entertainment Show is on the cards for this year’s edition, says chairman of the Macau Gaming Equipment Manufacturers Association (MGEMA) and organizer of the event, Jay Chun in an exclusive interview with MBTv. “This year we changed the name of the show from ‘Macao Gaming Show’ to ‘MGS Entertainment Show – Creativity and Innovation,” says Mr Chun. “Certainly some of the technologies [in the show] are casino-related, but some of them are just social games.” The chairman remarked that, with the growth of the social gaming market exceeding the growth of land-based casinos, many companies participating in the show will likely focus on the social gaming market. The show will also feature talks by specialists in the industry, notes Chun, in particular by Paulo Martins Chan, Director of the local Gaming
Inspection and Coordination Bureau (DICJ), as well as industry analysts focusing on global trends and the growth of the industry. “These talks are very important for all the participants in this market.
They will be able to understand the trends and the government’s plans for the market,” Mr Chun says.
Expectations
Chun expects most industry players to be present at this year’s edition of the MGS Entertainment Show, indicating that more than 60 per cent of overseas land-based gaming equipment factories will participate in the show, and adding that new exhibitors to the industry from Japan and Taiwan have also been attracted to join this year’s show.
This year’s MGS Entertainment Show, themed ‘Creativity and Innovation’ will run from November 15 to 17 at the Venetian, covering six gaming industry segments: gaming equipment and accessories; gaming promoters (junkets) and VIP clubs; casino fixtures and fittings; promotional services and memorabilia; food and beverage; and entertainment and performance. Watch MGEMA chairman Jay Chun’s full interview online on MB.tv at www.macaubusiness.com
Business Daily Tuesday, November 1 2016 7
Macau Business Previous developer filed for bankruptcy and project has been halted since April of 2016
Bahama deals Chow Tai Fook Enterprises Limited is in the process of acquiring a development project for a nearly finished Bahamas integrated casino resort with a turbulent history Nelson Moura* nelson.moura@macaubusinessdaily.com
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how Tai Fook Enterprises Limited (CTFE) has announced that it is in the process of acquiring a resort being developed in the Caribbean archipelago of the Bahamas, according to a company press release. CTFE has ‘applied to the Government of The Bahamas for approval as a proposed investor and acquirer of the Baha Mar Resort’, notes the release, published through public relations agency PR Newswire, referring to a casino resort project under construction on the island of New Providence in the Bahamas. CTFE will acquire ‘certain assets of the Baha Mar Resort’, through the acquisition of Perfect Luck Assets Limited (Perfect Luck), a special purpose vehicle (SPV). Although not providing financial details on the acquisition, CTFE stated it would invest heavily in pre-opening activities ahead of the official deal completion, as well as employment drives, ‘which have already commenced and will be expanded in the coming weeks and months,’ reads the filing. CTFE Chairman Henry Cheng Kar Shun stated in the release that the company is “looking forward to having Baha Mar join its portfolio of world-class integrated resort
development projects”. Mr. Cheng also currently holds the non-executive directorship position of Macau gaming operator SJM Holdings Ltd. CTFE manages businesses in hospitality, property development and retail, and owns Chow Tai Fook Jewellery, a part of Hong Kong-listed Chow Tai Fook Jewellery Group Ltd. According to CTFE’s press release, the group has been involved in the Baha Mar project since 2011 through one of the company’s subsidiaries, Rosewood Hotel Group, and is in talks with the hotel brands previously involved, including Hyatt and SLS Hotels.
Stuck at the beach
With an initial projected cost of US$3.5 billion (MOP28 billion), the Baha Mar Resort was planned to include four casinos: the Baha Mar Casino & Hotel, Grand Hyatt, SLS LUX and Rosewood, offering amenities such as 2,200 rooms, 284 private residences and a 9,300 square meter casino. The project’s original developer, Baha Mar Ltd, managed by developer Sarkis Izmirlian, invested nearly US$900 million, until the 2008 financial crisis led him to accept US$2.45 billion in construction loans from Export-Import Bank of China (China Exim/CEXIM), according to Bloomberg, and US$150 million from China State Construction Engineering Corp. CEXIM however included in its
provisions that Izmirlian, the developer, could never fire the Chinese construction group. After numerous development problems and delays, in 2015, Baha Mar Ltd filed for Chapter 11 bankruptcy - permitting reorganisation - in a Delaware court in the U.S., claiming to be facing debts of US$2.7 billion. However the U.S. court dismissed the request and the Commonwealth of the Bahamas Supreme Court placed the project’s provisional liquidators in charge. Construction of the development has been on hold since April of 2016, but Bahamas local magazine The Bahamas Investor reported in September that the Bahamas prime minister, Perry Christie, had stated that construction had resumed and that ‘every effort is being made to ensure’ the resort would open ‘before the end of the coming winter season’. On October 25, BMD Holdings Ltd.,
a construction company also directed by Mr. Izmirlian, stated it had sent a letter to the Vice-President of CEXIM claiming it hadn’t received a response to his ‘superior proposal’ to buy The Baha Mar Resort and claiming the sale of Perfect Lucky to CTFC was an ‘entire fabrication’. Then, in another press release on October 28, BMD Holdings Ltd. stated that ‘if indeed Chow Tai Fook Enterprises and CEXIM/Perfect Luck are in negotiations, then it can only serve the interests of the seller and the Bahamas to have a competitive process to achieve the best outcome. BMD stands fully prepared to engage with the seller to achieve such.’ However, in the meantime, it could take until 2018 for the property to begin contributing to the Bahamian economy, notes Standard & Poor’s, a contribution initially estimated to generate 12 per cent of the country’s Gross Domestic Product. * with Bloomberg
8 Business Daily Tuesday, November 1 2016
Gaming M&A
MGM Resorts ready to bet up to US$10 bln on Japan casino Thomas Wilson and Emi Emoto
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as Vegas-based MGM Resorts International could plough almost US$10 billion (MOP79.9 billion/HK$77.6 billion) into a Japanese casino via a publicly traded real estate investment trust, its chief executive said on Monday, as Tokyo inches closer to legalising the industry. Casinos are currently banned in Japan, but the odds of their legalisation have improved sharply thanks to political shifts that could open the world’s next great frontier for high-roller gambling. Chief Executive Officer James Murren said MGM would spend between 500 billion yen and one trillion yen (US$4.8 billion-US$9.5 billion) on
an “integrated resort” - a large-scale project combining casinos with hotels, shopping and conference space - in Tokyo, Yokohama or Osaka. Multiple blue-chip companies would look for an equity stake in an MGM-led project, he said, suggesting high hopes for a Japanese gaming market that brokerage CLSA says could be worth US$40 billion annually. “We think there would be a tremendous amount of demand, and ultimately a public listing of these types of Japanese resorts would be very appealing,” Murren told Reuters in an interview. Rival operators keen to enter the market include Las Vegas Sands Corp, which said in 2014 it would invest up to US$10 billion in Japan.
If a law laying the framework for legalised casinos passes the Japanese parliament, fresh legislation would set out details such as the location of the casinos.
Key Points MGM prepared to invest up to 1 trln yen Investment likely via real estate investment trust Company could invest up to 300 bln yen on regional facility Odds for legalisation of casinos have improved
Expanding involvement
MGM could spend 100 billion yen to 300 billion yen on a resort in a regional area, Murren said, possibly Hokkaido in northern Japan or the southernmost main island of Kyushu, although it was mainly interested in a metro area. The company has previously flagged its desire to invest in a Japanese resort but it has not disclosed details of how it would do so. Murren said he envisaged a REIT where an MGM-controlled operating company responsible for expenses and investment would pay rent to a property company owned by private investors and domestic and foreign companies.
“That could be an interesting way to expand the level of involvement, as there are many investors who are risk averse and looking for yield and others who are more risk tolerant,” he said. A resort in Tokyo, Osaka or Yokohama could be built by 2022-23, Murren said, speaking to Reuters after a closed-door discussion with Japanese and international businesses on casino resorts.
‘A resort in Tokyo, Osaka or Yokohama could be built by 2022-23, says MGM Resorts CEO James Murren’ Beverage maker Suntory Holdings Ltd Chief Executive Takeshi Niinami and ruling Liberal Democratic Party lawmaker Takeshi Iwaya, both prominent casino backers, also spoke at the discussion, people familiar with the matter said. A Suntory spokeswoman confirmed Niinami’s attendance at the event. In April, MGM launched in the U.S. a publicly traded REIT consisting of 10 of its U.S. properties, MGM Growth Properties LLC. Reuters
Business Daily Tuesday, November 1 2016 9
Greater China Central banker
Mainland to maintain exchange rate reform The government has pledged to move toward a market-based exchange rate
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senior Chinese central banker has sought to reassure markets about Beijing’s commitment to exchange rate reform in the wake of a renewed slide in the yuan and worries authorities will be moving to a more interventionist stance to curb currency volatility.
“We should not dream of returning to a fixed rate regime”
basket of currencies,” he said. “China has already taken a step forward and we should continue to move forward. We should not dream of returning to a fixed rate regime.” The yuan is allowed to trade in a band of two per cent above and below a midpoint rate set each trading day by the central bank. Fan’s comments come in the wake of a slide in the yuan to six-year lows last week. Many economists have attributed the weakness in the yuan to dollar strengthening globally, but that hasn’t tempered depreciation fears amid a tenuous economic recovery. The yuan has fallen about 1.6 per cent against the dollar so far this
month, and is on track for its worst month since August 2015 when the PBOC led a one-off sharp devaluation that spread turmoil in global markets. Also yesterday, the Securities Times quoted former central bank advisor Yu Yongding as saying the yuan would face depreciation pressure in the short term. “The yuan will eventually appreciate, but it is hard to predict the time,” Yu said. China’s capital account is closed, but authorities have been struggling to stop the flow of money abroad. The government cannot keep the yuan stable and maintain ample foreign exchange reserves at the same time, Guan Tao, former head of international payments at the State Administration of Foreign Exchange, told the China Securities Journal. Reuters
Fan Gang, a member of the People’s Bank of China monetary policy committee, told the official Securities Times that dollar fundamentals, Chinese macroeconomic conditions and changes in other currencies would be key factors affecting the value of the yuan. Fan emphasised that China should not take a backward step toward fixing the exchange rate. “China should not implement a fixed exchange rate again, nor peg to the dollar or even a
Overtcapacity
Authorities ask coal miners to cap 2017 prices The government intervention is the latest unintended consequence of China’s policy to curb excess in its heavy polluting industries
China’s government has asked the nation’s top coal miners to cap their 2017 supply contracts at or below current spot market levels, sources said, a highly unusual move that reflects Beijing’s growing panic about runaway prices. The National Development and Reform Commission (NDRC) at an emergency meeting on Thursday asked miners to agree to set the prices for their 2017 long-term supply contracts at or below 12 cents per kilocalorie (kcal) for 5,000 kcal thermal coal and for 5,500 kcal thermal coal, two sources who were briefed on the meeting told Reuters on Friday. Those prices are equivalent to RMB600 (US$88.63) per tonne and RMB660 per tonne respectively, according to Reuters calculations. This was the third meeting that the NDRC, China’s top economic planner, has held with the coal industry in a week and the participants included state-owned Shenhua Group Corp, the nation’s largest miner, the sources said. The sources asked to remain anonymous as they are not authorised to speak to the press. The NDRC did not respond to requests for comment. No agreement was reached in the meeting, but the sources expect negotiations overseen by the government to continue over the next few months. Coal for delivery at the Chinese port of Qinhuangdao, the domestic
Real estate firms
Shenzhen tightens bond issue rules China’s Shenzhen bourse tightened rules for listed real estate firms seeking to issue bonds, joining its Shanghai counterpart, in efforts to curb excessive capital flowing into the property market, the China Securities Journal reported yesterday. The Shenzhen Stock Exchange will regulate property developers and their bond issuance application depending on their scale, leverage and risk levels, and the bond proceeds will not be allowed for use in land purchase, the newspaper said, citing a letter from the bourse. The Shanghai Stock Exchange, directly administered by the China Securities Regulatory Commission (CSRC), had implemented similar tightening earlier this month. Rights management
Beijing says farmers need more options
Fan Gang, member of the People’s Bank of China monetary policy committee
Meng Meng and Josephine Mason
In Brief
benchmark price, has risen by more than 50 per cent since the end of June to US$97 a tonne, according to IHS McCloskey. The surge follows government-enforced mines closures that choked supplies to power companies and forced many of them to import. The frequency of the government meetings with the coal industry has surprised veteran traders and experts who say Beijing is trying to prevent big spikes in residential energy bills over the winter, when coal demand peaks to meet heating needs. The government typically encourages miners to sell their coal on long-term contracts in meetings held in December.
“However, this year the coal price soared too much and ... the NDRC bring the meeting in advance,” said Wang Fei, an analyst at Huaan Futures in Hefei. The government intervention is the latest unintended consequence of China’s policy to curb excess in its heavy polluting industries and shift the country, the world’s largest energy market, towards using cleaner, renewable sources. Mine closures and cuts have removed 200 million tonnes of coal capacity, about 80 per cent of the full-year target, triggering the historic rally in global prices. The government has partially reversed its policy over the past six weeks to stabilise prices and replenish inventories, allowing mines to ramp up output by 1 million tonnes per day ahead of the winter, equivalent to 10 per cent of China’s daily output in 2015. Reuters
Chinese authorities recommended separating various rights to rural land, which they say would better protect property rights, improve land circulation, increase farmers’ incomes, and contribute to the development of modern agriculture. China has been looking to reform landholding rights for rural citizens for years as it promotes urbanisation and more efficient, large-scale farms. Farmers in China technically can lose the right to that land if they move away or do not actively cultivate the land. Many have been informally leasing the rights to the land, though a lack of clear rules governing land rights has hampered the development of a healthy market for farmland. M&A
Shanghai Electric buys controlling stake in K-Electric State-backed Shanghai Electric Power Co. agreed to pay buyout firm Abraaj Group US$1.77 billion for a controlling shareholding in Pakistani utility K-Electric, gaining access to 2.5 million customers in the south Asian country’s most populous city. Abraaj is selling its 66.4 per cent stake in K-Electric through its KES Power unit, according to a statement posted on its website, after first investing in the company in 2009. K-Electric was formerly known as Karachi Electric Supply Co. and has exclusive power distribution rights for the city and adjoining areas. Private poll
Funds raise equity, bond exposure China fund managers’ are allocating more funds for mainland equities over the next three months, suggesting they see a rebound from a one-year low, although some remained cautious about the short-term prospects. Eight fund managers polled by Reuters boosted their recommended equity allocations for the next three months to 72.5 per cent from 68.1 per cent a month ago. Those managers increased their recommended bond allocations to 11.3 per cent from 7.5 per cent last month, and also suggested cutting cash holdings to 16.3 per cent from 24.4 per cent a month ago.
10 Business Daily Tuesday, November 1 2016
Greater China New measures
Domestic developers face threat of funding cost jump While they can still raise cash in the dollar bond market at near record lows, the financing costs have already been inching up in recent months
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hina’s developers face higher financing costs after regulators stepped up efforts to rein in the borrowing that has fuelled a red-hot property market. The Shanghai Stock Exchange raised the threshold for property firms to sell the bonds that it regulates, people familiar with the matter said Friday. Along with curbs on home sales and mortgages, the rules will likely strain access to cash and prompt more builders to seek money overseas, pushing up dollar note yields, according to Australia & New Zealand Banking Group Ltd. and Bank of China Hong Kong Ltd.
“I’m quite concerned on Chinese property,” said Jenny Zeng, Hong Kong-based portfolio manager & head of credit research for Asia fixed income at AllianceBernstein. “For Chinese developers, we are underweight as sales will slow down and margins will be further squeezed.” While developers can still raise cash in the dollar bond market at near record lows, the financing costs have
already been inching up in recent months as authorities’ determination to cool the real estate market becomes clearer. Average yields on dollar bonds from Chinese developers and other Asian high-yield issuers have risen 15 basis points this month to a four-month high of 6.6 per cent, after dropping to a record low in September. The jump in dollar bond yields comes at a bad time for many Chinese developers. They sold US$6 billion in offshore notes in the third quarter, the highest since 2014, while their onshore offerings slumped to the lowest in five quarters. Firms that have broken the law or
tried to inflate land prices in cities that have property curbs can’t issue bonds regulated by the Shanghai exchange, the people familiar said Friday. The ban also applies to companies that have violated pledges on how they would use the proceeds or haven’t deployed funds raised previously with exchange-regulated bonds, they said. “The rally in offshore property bonds likely has come to an end and from now on we will see rising yields,” said Owen Gallimore, a credit analyst in Singapore at ANZ. “The latest bond sale rule is part of a gradual trend that is seeing funding tightened.” Bloomberg News
“The rally in offshore property bonds likely has come to an end and from now on we will see rising yields” Owen Gallimore, a credit analyst in Singapore at ANZ China’s real estate industry accounts for about a third of economic output, raising the stakes as the government tries to thread the needle in preventing a bubble without prompting broader fallout. The sector accounted for 63 bankruptcies this year, the biggest contributor to 507 restructurings in the nation. Goldman Sachs Group Inc. said October 28 investors should reduce exposure to Chinese investment-grade and high-yield property bonds.
Illegal HK sales
Authorities meet foreign insurers as part of crackdown Regulators have uncovered illegal capital outflows of US$8.43 billion so far this year, through underground banks China’s insurance regulator recently visited foreign life insurance firms and intermediaries in Beijing as part of investigations into the illegal sale of insurance products in Hong Kong to Mainland Chinese, the official Shanghai Securities News reported yesterday. The report comes after China’s biggest bank card provider, statecontrolled UnionPay, said on Saturday it will tighten regulations on how Mainland customers can use its debit and credit cards to purchase Hong Kong insurance products, potentially restricting another gateway for capital flight. China, which has ramped up a crackdown on illegal outflows of funds this year, is concerned that buying overseas insurance has become a way for Chinese to move money abroad amid concerns over yuan depreciation, volatile stock markets and a slowing economy, avoiding capital restrictions. The investigation arm of the China Insurance Regulatory Commission (CIRC) found that some insurers were
mis-selling insurance products, using underhanded marketing methods, the paper said, without disclosing its sources. These practices have disrupted the Mainland insurance market, the paper reported the CIRC as saying. The paper did not name the foreign companies
that the regulator visited or say what it unearthed during the visit. The CIRC was not immediately available for comment. China has seen a pick up in capital outflows amid concerns about a slowing economy and further depreciation in the yuan currency, which has weakened to six-year lows. That has prompted the government to plug some overseas investment channels. New insurance premiums from Mainland Chinese visitors in Hong
Kong surged to HK$16.9 billion (US$2.18 billion) in the second quarter this year, more than double the volume for the same period of 2015, Hong Kong government statistics show.
Key Points Illegal Hong Kong insurance sales to Chinese disrupting mkt-CIRC China ramps up crackdown on illegal fund outflows amid yuan fall AIA shares slide on UnionPay curbs on card use for insurance buy Regulators have uncovered illegal capital outflows of US$8.43 billion so far this year, through underground banks. Overseas insurance products can serve as a store of wealth and as offshore collateral for other potential investments such as property, analysts and insurance sector insiders say. O n F ri da y , Chi n a’ s f o r ei g n exchange regulator told banks to strengthen checks on foreign exchange transactions to make sure they were genuine and based on actual needs. Reuters
Business Daily Tuesday, November 1 2016 11
Asia Official data
Japan industrial output stalls in worrying sign for economy Economists say output may not pick up much in coming months Stanley White
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apan’s industrial output stalled in September in a worrying sign that the economy, already struggling to mount a sure-footed recovery, may be losing some momentum due to weak consumer spending and exports. Separate data showed retail sales fell more than expected in September from a year ago, further evidence that private consumption remains a drag on growth. Industrial output was unchanged in September from the previous month. That compares with the median estimate in a Reuters poll of a 1.0 per cent increase and followed a 1.3 per cent increase in August, data by the Ministry of Economy, Trade and Industry showed yesterday. The cautious view and other data showing weak consumption and falling consumer prices could heighten expectations that the Bank of Japan will yet again push back the timing of its price target. “I don’t expect output to rise significantly for the time being,” said Norio Miyagawa, senior economist at Mizuho Securities. “Domestic demand simply is not strong enough. The BOJ has sent a message that monetary policy is on hold for now. We need more effort from the private sector to increase wages.”
Industrial output was flat in September as declines in semiconductor and personal computer production offset gains in autos and construction equipment. Manufacturers surveyed by the ministry expect output to rise 1.1 per cent in October and gain 2.1 per cent in November, but their forecasts are often overly optimistic, economists say. Overall inventories fell 0.4 per cent versus a 0.3 per cent increase in the previous month, but there were signs that high inventories in some industries could curb future output, according to Daiju Aoki, economist at UBS Securities.
Inventories of mobile phones and car navigation systems jumped 14.1 per cent, the fastest gain in six months. Inventories of construction equipment also rose 1.2 per cent in September. In the July-September quarter, industrial output rose 1.1 per cent, faster than a 0.2 per cent gain in the previous quarter, but economists say growth could moderate slightly in October-December. Retail sales fell 1.9 per cent in September from a year earlier, slightly more than a median market forecast for a 1.8 per cent annual decline due to lower spending on apparel and daily necessities, separate data from the trade ministry showed.
That marked the seventh consecutive month of declines in retail sales, highlighting underlying weakness in the economy. One stand out was domestic auto sales, which rose an annual 2.3 per cent in September, faster than a 2.1 year-on-year increase in August, as the BOJ’s negative interest rate policy pushes down rates on car loans.
Key Points Sept output 0.0 pct vs forecast +1.0 pct Manufacturers see output up in Oct, in Nov Sept retail sales fall more than expected Yen’s gains add to weakness in exports, capex Having moved to a new policy framework that targets interest rates rather than base money only last month, the BOJ is likely to hold off on expanding stimulus at a meeting ending today. Sources have told Reuters the central bank will cut next fiscal year’s inflation forecast slightly, reflecting weak consumption and falling import costs. The policy review may also extend the timeframe for hitting its ambitious inflation target. At present, the BOJ projects inflation to reach 2 per cent during the fiscal year ending in March 2018. Reuters
Factory output
South Korea recovery uneven despite positive data Statistics Korea said service-sector output fell 0.6 per cent in September on a seasonally adjusted basis Christine Kim
South Korea’s industrial output r o s e m o r e tha n ex p ect e d i n September thanks to gains in car and semiconductor production, data showed yesterday, but underlying w ea k n ess es i n c o n s u m p t i o n underscored a fragile recovery in Asia’s fourth-largest economy.
Key Points Sept output +0.3 pct s/adj m/m (Reuters poll -0.5 pct) Output helped by car manufacturing, semiconductors Retail sales hit by cancelled Samsung Galaxy Note 7 Factory output rose a seasonally adjusted 0.3 per cent on-month in September, better than the median 0.5 per cent fall in a Reuters survey and rebounding from a 2.4 per cent decline in August. The Statistics Korea data showed
manufacturing output in cars rose 5.7 per cent and semiconductors 4.6 per cent from August. Car manufacturing rose in monthly terms as summer strikes at Hyundai Motor Co eased off September. Separately, retail sales dropped 4.5 per cent last month, its worst
fall since February 2011, dented by the discontinued fire-prone Galaxy Note 7 smartphone by Samsung Electronics Co Ltd. “Fourth quarter numbers will show a more dismal picture as we are running out of reasons that can boost output before year-end,” said Park Jung-woo, an economist at Korea Investment & Securities. Park said October exports data today was more important than the output numbers as consumption was unstable, increasing the economy’s
reliance on exports. A finance ministry official told Reuters some of the weaknesses in yesterday’s data were due to temporary factors and the economy continued to grow, though the recovery remained uneven. On an annual basis, industrial output fell 2.0 per cent in September after a revised 2.2 per cent gain in August, It compared to a median 1.5 per cent fall tipped in the Reuters survey. Statistics Korea said service-sector output fell 0.6 per cent in September on a seasonally adjusted basis following a revised 0.8 per cent rise in August. Reuters
12 Business Daily Tuesday, November 1 2016
Asia Default risks
Singapore Inc faces US$12 billion debt scramble The latest sign of strain has been an increase in borrowers asking bondholders to cut them some slack
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ingapore companies, highly exposed to slowing global trade and a lacklustre commodity market, face a financing scramble in 2017, as more than US$12 billion of their bonds falls due and banks grow wary of lending to the resources sector. That could trigger more blood-letting in a market that has already seen some high-profile corporate defaults, such as oil services firm Swiber Holdings, which hit the skids in July and went into judicial management this month.
Key Points
five times their core profit, a level that usually prompts concern among credit analysts, and more than a third of that group were at least twice that level.
Light scrutiny
The structure of Singapore’s capital markets has left them particularly vulnerable as global trade cools and Chinese growth slows. Commodities have been a mainstay after a frothy 2013 and 2014, and private banking has loomed large, fuelling smaller bond deals. In 2014, private banks accounted for almost half of investments into
Singapore dollar corporate debt, a central bank report said last year. Their participation has helped encourage smaller issues that are not assessed by credit rating agencies and yet are targeted at private wealth investors, analysts say. That is now changing - at considerable cost for firms. Property firm Oxley Holdings, whose short-term debt dwarfs its cash balance, according to its latest accounts, saw yields on its bonds due 2019 jump 220 basis points to 7.5 per cent in the past quarter. And banks, under pressure to increase provisions for bad loans, are pulling back from indebted sectors like real estate, commodities and oil and gas, which dominate Singapore’s outstanding S$53 billion (US$38 billion) of local currency corporate bonds.
Non-performing loans have risen at all Singapore’s three banks in the latest quarterly results, reflecting a decline in loan quality across sectors. The latest sign of strain has been an increase in borrowers asking bondholders to cut them some slack. Ezra Holdings, Rickmers Maritime, Otto Marine and Marco Polo Marine are just some of the companies that sought bondholder consent this year to loosen the conditions, or covenants, attached to their loans. “It will continue to be busy, but the question is whether loosening covenants will be adequate to give these companies the lifeline that they need,” said Kevin Wong, Singapore-based partner with law firm Linklaters. “There is a risk these consent solicitations may lead to full-blown debt restructurings.” Reuters
US$12.4 billion of Singapore bonds fall due by end-2017 Banks pulling back as non-performing loans rise Third of companies highly leveraged at 10+ x core profit Bond issuers exposed to struggling commodities market
It has also seen an increase in the number of bond issuers trying to renegotiate the terms of their credit to stay afloat, a disturbing signal in a market skewed to retail buyers and smaller issues subject to light scrutiny. Corporate leverage has risen to increasingly risky levels, according to credit analysts and investors, while banks are becoming more circumspect about extending financing as the quality of their loan books causes concern. Between now and the end of 2017, according to Reuters data, US$12.4 billion of bonds falls due, but corporate balance sheets in the city state are looking strained. A Reuters study of 228 non-financial companies’ half-year earnings shows that 74 had net debt more than
Financial district in Singapore
Manufacturing
Thai factory output unexpectedly rises The Bank of Thailand has forecast the economy will grow 3.2 pct this year
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hailand’s industrial output unexpectedly rose for a second straight month in September, helped by stronger sales of air conditioners and jewellery, but the gain was much smaller than in August, suggesting a recovery remains fragile. The Industry Ministry said yesterday its manufacturing production index (MPI) in September was up 0.6 per cent from a year earlier. A Reuters poll had forecast a fall of 0.3 per cent. In August, output rose a revised 3.18 per cent from a year earlier, rather than the 3.13 per cent increase reported earlier which was the highest growth in 40 months. Industrial goods accounted for 81 per cent of total exports in September, which unexpectedly rose 3.4 from
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a year earlier, earlier customs data showed. Shipments are worth about two-thirds of the economy.
the dire situation is turning around. On Friday, the finance ministry said it expects exports this year to shrink less than it initially forecast. Separately, the commerce ministry
said exports might not contract this year, with commodity prices expected to improve along with higher oil prices and global demand. The Bank of Thailand has forecast the economy will grow 3.2 per cent this year, up from 2.8 per cent last year. Reuters
Key Points Sept factory output +0.6 pct y/y vs -0.3 pct in Reuters poll Gains in air conditioners, jewellery, home appliances Sept capacity utilisation 65.23 pct vs Aug’s revised 64.42 pct Jan-Sept output +0.06 pct y/y
Capacity utilisation rose to 65.23 per cent in September from August’s revised 64.42 per cent. Exports have contracted in the past three years but there are indications Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U 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
Business Daily Tuesday, November 1 2016 13
Asia Stressed sector
In Brief
S.Korea to create state-backed ship financing company New vessel orders won by South Korean shipbuilders between January-September fell by 87 pct compared to the same period in the previous year Joyce Lee and Cynthia Kim
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outh Korea said yesterday it plans to establish a statebacked ship financing company with an initial capital of 1 trillion won (US$871.73 million) to help improve the financial health of Korean shipping companies.
Key Points S.Korea to provide 6.5 trln won for shippers to acquire new vessels S.Korean shipbuilders’ new orders fell more than global orders Daewoo Shipbuilding M&A eventually possible but no immediate plan in placeministries
and shipping industries following the collapse of Hanjin Shipping Co Ltd, which applied for court receivership in August. Daewoo Shipbuilding & Marine Engineering Co Ltd, one of the world’s three largest shipyards, all in South Korea, is currently suffering from a big drop in orders. The trade ministry said Daewoo’s main creditor, state-backed Korea Development Bank (KDB), would take into consideration any future improvement in Daewoo’s operations and market conditions before potentially pursuing a sale or some other form of merger or acquisition of Daewoo. As of now, there is no plan to sell Daewoo, a high-ranking financial
regulator clarified in a press briefing yesterday. New vessel orders won by South Korean shipbuilders between January-September fell by 87 per cent compared to the same period in the previous year, steeper than a 72 per cent drop in global orders, the trade ministry said. The steeper drop in orders was partly due to less domestic orders compared with competitors in Japan and China, a high-ranking trade ministry official told reporters. Following the recent ruling by the International Maritime Organization (IMO) on tighter sulphur regulations, the ministry said in the statement that it plans to increase the number of LNG bunkering terminals to more than three by 2020, as the demand of LNG as a marine fuel is expected to rise. The IMO set the new requirements last week, which will see sulphur emissions fall from the current maximum of 3.5 per cent of fuel content to 0.5 per cent and they would come into effect from 2020. The statement added, Seoul seeks to place an order for LNG bunkering vessels in 2017, led by the Korea LNG Bunkering Industry. Reuters
S.Korea plans to increase LNG bunkering terminals to over three by 2020 The government would provide financing of 6.5 trillion won (US$5.67 billion) in total so that local shipping firms could acquire new vessels, said a government statement. The measures were announced to support struggling local shipbuilding
M&A
DBS pounces on ANZ assets to extend push DBS Group plans to buy Australia and New Zealand Banking Group’s wealth and retail businesses in five Asian markets - part of a big private banking push for the Singapore lender and the first significant retreat from Asia for ANZ. The businesses in Singapore, Hong Kong, China, Taiwan and Indonesia, will be sold for around S$110 million (US$80 million), in a deal that underscores how smaller players in private banking are being squeezed out due to lack of scale. DBS said the ANZ transactions will be completed over 15 months and are set to add S$200 million to income in 2017 and S$600 million the year after. South Korea
Finance ministry says consumption expected to rebound South Korea’s finance ministry said yesterday consumption-related economic figures are expected to rebound in October, despite uncertainties like troubles at Samsung Electronics Co Ltd and a pending rate hike in the United States. The finance ministry’s statement followed dismal private consumption figures for September that showed declines in both retail sales and services, which the government said were due to temporary factors. Airlines
Qantas flags profit dip as airlines
Global downturn
Japan’s top 3 shippers to merge container ops The three firms reported operating losses for six months to end-September and lowered their full-year forecasts Tim Kelly
Japan’s top three shippers yesterday said they will integrate their container shipping operations to create the world’s sixth-largest player, joining a growing trend of consolidation in an industry battling its worst-ever downturn. O v e rca p ac i t y a n d a n a e m i c economic growth globally have left hundreds of ships idle in the industry’s worst slump since its birth in the 1950s and 1960s, which culminated in the collapse in August of South Korea’s Hanjin Shipping Co Ltd. Nippon Yusen KK, Mitsui OSK Lines Ltd and Kawasaki Kisen Kaisha Ltd said they would form a joint venture that they expect to create annual cost benefits of about 110 billion yen (US$1.05 billion).
Key Points Venture would rank 6th globally Firms expect US$1 bln benefit annually from integration Nippon Yusen, Mitsui, Kawasaki shares jump nearly 10 pct Three Japanese shippers lower annual earnings forecasts
“The aim of becoming one this time is so none of us become zero,” said Tadaaki Naito, the president of Nippon Yusen, at a joint news conference in Tokyo. Container shipping has seen a wave of mergers and acquisitions as companies try to grab a bigger share of a depressed market. “This merger ... is a response to consolidation in Europe that is creating mega carriers. It is necessary to stay competitive,” said Eizo Murakai, Kawasaki Kisen’s president.
Rough seas
In other shipping industry developments, the world’s No.3 player, CMA CGM of France, is in the process of acquiring Singapore’s Neptune Orient Lines (NOL). German container shipping line Hapag-Lloyd AG agreed earlier this
year to merge with United Arab Shipping Company (UASC). In China, former state-controlled rivals COSCO and China Shipping Group have merged to create China COSCO Shipping Corporation, the world’s No.4 container shipper by capacity. Separately, China M e rc h a n t s G r o u p i s b u y i n g logistics group Sinotrans & CSC Holdings Co. Underscoring the depth of the downturn, China COSCO Holdings, the flagship listed unit of COSCO, warned of a loss for the year on Friday as it failed to capitalise on a market recovery in the third quarter. The Japanese joint venture, to be owned 38 per cent by Nippon Yusen and 31 per cent each by Mitsui OSK and Kawasaki Kisen, will be formed on July 1, 2017 and begin operations in April 2018, they said in a joint statement. Shares in the companies - whose combined fleet of over 2,000 vessels includes tankers, dry-cargo carriers and container ships - jumped almost 10 per cent. Reuters
Australian flagship carrier Qantas Airways Ltd warned yesterday that half-year profit could fall nearly a sixth, sending its shares into wild gyrations amid concerns about the effects of a price war hammering airline earnings globally. By calling out the impact of cut-price international airfares, the so-called “Flying Kangaroo” joins Hong Kong’s Cathay Pacific Airways Ltd, Dubai’s Emirates Airline and Air New Zealand Ltd which have complained about competition in recent weeks. The warning, contained in Qantas’s first ever quarterly earnings update, also underscores comments from CEO saying it competed with 30 airlines on the key Londonto-Australia route. Oil market slump
Singapore considers measures to help marine sector The Singapore government is considering whether to help the city-state’s marine and offshore engineering (M&OE) sector, which is facing a prolonged downturn due to the slump in the oil market, the trade and industry minister said yesterday. “The government is studying, in consultation with the M&OE industry and financial institutions, the need for measures for the sector,” S. Iswaran said. He did not elaborate what future steps might be, but said companies can also tap on measures that are already in place, such as government-backed loans that help small businesses deal with cash flow concerns and financing needs.
14 Business Daily Tuesday, November 1 2016
International In Brief GDP
Euro zone growth steady as expected Euro zone economic growth was unchanged in the third quarter from the second as expected and inflation picked up in October due to a smaller decline in energy prices, preliminary data showed yesterday. The European Union’s statistics office Eurostat said gross domestic product in the 19 countries sharing the euro rose 0.3 per cent quarter-on-quarter in the JulySeptember period, the same as in the second quarter. Consumer prices rose 0.5 per cent year-on-year in October, Eurostat estimated, picking up from 0.4 per cent in September and 0.2 per cent in August as the drag on the index from energy diminished. Diversification
German pension giant seeks outside help Bayerische Versorgungskammer, Germany’s biggest pension fund, is hiring more external managers as it diversifies away from low-yielding government and covered bonds. “We will invest more in assets such as high yield, emerging-market debt and infrastructure where we rely on external experts,” Andre Heimrich, who helps oversee 75 billion euros (US$82 billion) as BVK’s chief investment officer, said in an interview in Munich. “We will increase the share of third-party funds managing our investments to 65 per cent over the next three years from 45 per cent.”
Currency swap deal
Egypt moves closer to IMF loan Officials consider the loan crucial to reviving an economy weighed down by rising inflation and a hard currency shortage Tarek El-Tablawy
E
gypt has reached a currency swap agreement with China valued at US$2.7 billion, moving closer to meet the terms required to clinch a US$12 billion loan accord with the International Monetary Fund. The agreement is being processed by the Chinese authorities, an Egyptian central bank official said, speaking on condition of anonymity. The official didn’t provide additional details on when the deal was reached, the terms or when the funds might arrive. There was no immediate comment from the People’s Bank of China. Egypt, struggling with a crippling dollar shortage, needs to boost its foreign reserves by as much as US$6 billion in bilateral support before the IMF Executive Board can meet to review its loan request. The Arab country has already secured US$3 billion from Saudi Arabia and the United Arab Emirates and less than
US$1 billion from G7 countries. “There’s a chance the funding will be expensive, but regardless of the agreement’s structure, we need every penny we can get,” said Hany Farahat, the Cairo-based senior economist at CI Capital, a subsidiary of Commercial International Bank, the nation’s biggest publicly traded lender.
Lagarde’s comments
IMF’s managing director, Christine Lagarde, told Bloomberg Television in an interview last week that she hoped the board would Egypt’s loan request in a few weeks. Egyptian officials consider the loan crucial to reviving an economy weighed down by rising inflation and a hard currency shortage that has left the dollar trading in the black market at nearly double the official exchange rate. The currency crunch has crippled business activity and fuelled shortages in key commodities, while the price increases have fanned discontent
in a country already frustrated by a new value-added tax and a rise in electricity costs. Egyptian officials are widely expected to either devalue or float the pound in a bid to boost liquidity, lure new investments and quash the currency black market. They are also expected to cut energy subsidies.
‘Egyptian officials are widely expected to either devalue or float the pound in a bid to boost liquidity’ China has been Egypt’s top trading partner since 2013, with total trade increasing by almost 30 per cent since then to US$10 billion in 2015, according to data compiled by Bloomberg. Of that amount, US$9.1 billion were Chinese goods flowing into the North African country. Bloomberg News
Nissan plant
Britain wants tariff-free trade for motor industry Britain told Nissan it would aim for tariff-free trade with Europe for the motor industry after Brexit, persuading the Japanese company to invest in the country’s biggest car plant, a cabinet minister said on Sunday. Last month Nissan’s CEO Carlos Ghosn said he would need a guarantee of compensation to offset any tariffs imposed when Britain leaves the European Union, before deciding whether to build new models at the Sunderland factory in northeast England. Business Secretary Greg Clark said the government was determined the motor industry would remain competitive. Development
Saudi Arabia approves rules for real estate funds Capital markets regulator approved rules for exchange-listed real estate funds as part of efforts to ramp up investment in the kingdom’s housing market. The kingdom requires private money to help finance construction of around 1.5 million homes planned over the next seven or eight years. The “real estate investment traded funds”, publicly offered and traded on the Saudi stock exchange, would invest in residential, commercial, industrial, and agricultural real estate, periodically distributing part of their income to holders of the fund.
Monetary head
Bank of England Governor ready to serve full term Carney is due to hold a quarterly BoE news conference on Thursday and could make an announcement on his decision then William Schomberg
Bank of England (BOE) Governor Mark Carney is leaning towards deciding to serve a full eight-year term, despite critics calling for him not to extend his time in charge of the British central bank, according to news reports. Carney, who has come under fire from supporters of Brexit for his stance in the EU referendum campaign, has said he will announce by the end of the year whether he will take up an option to stay at the Bank until 2021 rather than stick to his current departure date in mid-2018. The Financial Times reported the Canadian, who joined the BoE in 2013, was ready to serve a full eight-year term instead of five. The BBC also said people close to Carney believed he was leaning towards staying for eight years. Those reports contrasted with others in newspapers over the weekend that said Carney was more
likely to announce that he would leave in 2018. The Sunday Times said Carney was unhappy with British Prime Minister Theresa May’s office and had a closer relationship with former finance minister George Osborne, who had recruited him, than with the current minister Philip Hammond.
“I hope Mark Carney stays, that will reduce levels of uncertainty” Martin Sorrell, chief executive of group WPP Earlier this month, May took the unusual step of criticising the Bank of England’s low interest rates, prompting push-back from Carney who said he would not be told how
to do his job by politicians. The governor is expected to confer with May and Hammond before making a decision, the FT reported. Last week, Carney said his decision whether to stay would be based on personal rather than political considerations, and he would need to find some time to make up his mind. Carney continues to be criticised by supporters of Brexit for warning before the June 23 Brexit vote of the likely hit to be Britain’s economy from a vote to leave the European Union. Daniel Hannan, a pro-Brexit Conservative member of the European Parliament and a persistent Carney critic, told BBC radio that the governor needed to avoid getting involved in political issues. “It’s up to him (whether he extends his stay) but if he does stay it’s got to be on the basis that he’s not the rock star banker who presumes to tell Scotland whether to stay in Britain, which way to vote, and rather sticks narrowly to his brief,” Hannan told BBC radio. But others have rallied behind Carney. Martin Sorrell, chief executive of the world’s biggest advertising group WPP, said he hoped Carney would stay to help ease Britain’s economy through the volatility of the Brexit process ahead. “I hope Mark Carney stays, that will reduce levels of uncertainty,” Sorrell told Reuters. Reuters
Business Daily Tuesday, November 1 2016 15
Opinion
Singapore banks are far from escaping their oil slick Christopher Langner a Bloomberg Gadfly columnist
How inequality found a political voice
O
il is still causing Singapore banks to lose their footing. The city-state’s three biggest lenders posted another spike in nonperforming loans because of souring advances to energy companies. Given the rate of deterioration, it may be wishful thinking to predict the worst is behind them. While United Overseas Bank Ltd. and Oversea-Chinese Banking Corp. were sanguine about the increase, their latest results show just how much pain the oil and gas industry is inflicting. UOB’s bad-loan ratio rose to 1.6 per cent at the end of September from 1.3 per cent a year earlier, the bank said Friday. It described the higher allowance for nonperforming loans as within expectations and said coverage remained strong. OCBC, whose NPL ratio climbed to 1.2 per cent from 0.9 per cent, said its provisioning remained healthy. DBS Group Holdings Ltd., the biggest of the three, posted yesterday a ratio of 1.3 per cent, also up from 0.9 per cent. Indeed, such levels of soured debt are manageable for well-capitalized banks, and UOB and OCBC qualify on that count, with common equity Tier 1 capital ratios of 13.4 per cent and 15.1 per cent, per cent among the strongest OCBC’s NPL ratio in the region. Still, for energy services sector dig a little deeper and at the industry level the picture is a lot less reassuring. A staggering 18 per cent of OCBC’s onbalance-sheet loans to the offshore energy services sector have gone sour. The bank has total oil and gas exposure of S$14.1 billion (US$10.1 billion), about S$12.2 billion of which is held on its balance sheet. About 42 per cent of that is to services companies, it said in a presentation to investors on Thursday. Perhaps more telling was OCBC’s 43 per cent jump in net loan allowances in the first nine months of the year to S$421 million. That means the bank has been forced to review how much of its advances it expects to go bad. Overall, OCBC’s bad debt increased 34 per cent from a year earlier to S$2.6 billion, while UOB’s rose 37 per cent to S$3.5 billion. UOB said nonperforming loans increased by S$440 million in the third quarter compared with the end of June, most of which the bank attributed to the oil and gas sector. The bank has S$13.2 billion of exposure to the industry, with 4 per cent of total loans to oil and gas companies, according to its latest report. UOB posted a 96 per cent jump in net loan allowances in the past nine months to S$542 million. The bank’s shares fell 2.3 per cent after the earnings on Friday, the most in three months. DBS reported total exposure of S$23 billion to the oil and gas industry at the end of June. In a call with investors after secondquarter earnings, Chief Executive Officer Piyush Gupta suggested less than 2 per cent of those loans had gone bad. DBS set aside S$366 million for credit losses during the period, almost three times the figure a year earlier. That surge was largely attributed to the unexpected bankruptcy of oil services company Swiber Holdings Ltd. As OCBC’s numbers showed, the problems in the oil and gas sector are deepening and broadening. There are a lot more NPLs to come. Bloomberg Gadfly
18
I
t took a long time for widening inequality to have an impact on politics, as it suddenly has done in recent years. Now that it is a central issue, national economic priorities will need to shift substantially to create more equitable, inclusive economies and societies. If they do not, people could embrace explosive alternatives to their current governments, such as the populist movements now sweeping many countries. Political leaders often speak of growth patterns that unfairly distribute the benefits of growth; but then they do relatively little about it when they are in power. When countries go down the path of non-inclusive growth patterns, it usually results in disrespect for expertise, disillusionment with the political system and shared cultural values, and even greater social fragmentation and polarization. Acknowledging the importance of how economic benefits are distributed is of course not new. In developing countries, economic exclusion and extreme inequality have always been unconducive to long-term high-growth patterns. Under these conditions, pro-growth policies are politically unsustainable, and they are ultimately disrupted by political dislocations, social unrest, or even violence. In the United States, rising inequality has been a fact of life at least since the 1970s, when the relatively equitable distribution of economic benefits from the early post-World War II era started to become skewed. In the late 1990s, when digital technologies began to automate and disintermediate more routine jobs, the shift toward higher wealth and income inequality became turbocharged. Globalization played a role. In the 20 years before the 2008 financial crisis, manufacturing employment in the U.S. rapidly declined in every sector except pharmaceuticals, even as added value in manufacturing rose. Net jobs loss was kept roughly at zero only because employment in services increased. In fact, much of the added value in manufacturing actually comes from services such as product design, research and development, and marketing. So, if we account for this value-chain composition, the decline in manufacturing – the production of tangible goods – is even more pronounced. Economists have been tracking these trends for some time. Massachusetts Institute of Technology economist David Autor and his colleagues have carefully documented the impact of globalization and labour-saving digital technologies on routine jobs. More recently, French economist Thomas Piketty’s international bestseller, Capital in the Twenty-First Century, dramatically widened our awareness of wealth inequality and described possible underlying forces driving it. The brilliant, award-winning young economists Raj Chetty and Emmanuel Saez have enriched the discussion with new research. And I have written about some of the structural economic shifts associated with these problems. Eventually, journalists picked up on these trends, too, and it would now be hard to find anyone who has not heard of the “1 per cent” – shorthand for those at the top of the global wealth and income scales. Many people now worry about a bifurcated society: a thriving global class of elites at the top and a stressed-out class comprising everyone else.
“
Michael Spence a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business
Still, despite these long trends, the political and policy status quo remained largely unchallenged until 2008. To understand why it took politics so long to catch up to economic realities, we should look at incentives and ideology. With respect to incentives, politicians have not been given a good enough reason to address unequal distribution patterns. The U.S. has relatively weak campaign-finance limits, so corporations and wealthy individuals – neither of which generally prioritizes income redistribution – have contributed a disproportionate share to politicians’ campaign war chests. Ideologically, many people are simply suspicious of expansive government. They recognize inequality as a problem, and in principle they support government policies that provide high-quality education and health-care services, but they do not trust politicians or bureaucrats. In their eyes, governments are inefficient and self-interested at best, and dictatorial and oppressive at worst. All of this began to change with the rise of digital technologies and the Internet, but especially with the advent of social media. As U.S. President Barack Obama showed in the 2008 election cycle – followed by Bernie Sanders and Donald Trump in the current cycle – it is now possible to finance a very expensive campaign without “big money.” As a result, there is a growing disconnect between big money and political incentives; and while money is still a part of the political process, influence itself no longer belongs exclusively to corporations and wealthy individuals. Social-media platforms now enable large groups of people to mobilize in ways reminiscent of mass political movements in earlier eras. Such platforms may have reduced the cost of political organizing, and thus candidates’ overall dependence on money, while providing an efficient alternative fund-raising channel. This new reality is here to stay, and, regardless of who wins the U.S. election this year, anyone who is unhappy with high inequality will have a voice, the ability to finance it, and the power to affect policymaking. So, too, will other groups that focus on similar issues, such as environmental sustainability, which has not been a major focus in the current U.S. presidential campaign (the three debates between the candidates included no discussion of climate change, for example), but surely will be in the future. All told, digital technology is shuffling economic structures and rebalancing power relationships in the world’s democracies – even in institutions once thought to be dominated by money and wealth. A large, newly influential constituency should be welcomed. But it cannot be a substitute for wise leadership, and its existence does not guarantee prudent policies. As political priorities continue to rebalance, we will need to devise creative solutions to solve our hardest problems, and to prevent populist misrule. One hopes that this is the course we are on now. Project Syndicate
Digital technology is shuffling economic structures and rebalancing power relationships in the world’s democracies
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16 Business Daily Tuesday, November 1 2016
Closing Theme park
Universal Studios breaks ground in Beijing Mainland China’s first Disneyland opened this June Construction has begun on a US$7 billion dollar Universal Studios theme park in Beijing, state media said yesterday, as the studio looks to challenge Disney in China’s booming leisure market. The complex is due to open in 2020 and has secured investment of RMB50 billion (US$7.4 billion), the official Xinhua news agency said. China is promoting consumer-driven growth and theme parks are being built in the country faster than anywhere else in the world, with more than 300 projects reportedly funded in recent years.
in the commercial hub of Shanghai at a cost of US$5.5 billion. Another U.S. giant, DreamWorks Animation, is cooperating on an entertainment district in Shanghai. Last year 21 theme parks opened, according to state-run media, and the National Business Daily newspaper said another 20 are under construction. Box office receipts in China are booming, with Universal films such as Harry Potter and Transformers big hits among Chinese cinemagoers. AFP
Zhuhai fair
In big week for air expos, defence jets beat civil aviation China has pulled the covers off a classified stealth jet, after displaying the export-oriented Shenyang J-31 in 2014 Tim Hepher and Brenda Goh
F
rom Zh u ha i i n southern China to Florida, hawkers of civil and military aircraft - and the money to finance them - will try to drum up new business at aerospace expos this week, conscious their high-risk industry is approaching a turning point. After U.S. weapons firms beat profit forecasts, analysts say tensions in eastern Europe and Asia are reversing a post-Cold War slump in defence spending that’s good news for military aircraft makers. At the same time, commercial aviation is faltering after record orders in recent years. “Civil is weakening and turning very spotty in places, whereas defence is growing in U.S. and world markets,” said Teal Group consultant Richard Aboulafia. “It’s a combination of a re-armament cycle coupled with something of a ramp-up based on regional tensions and fears.” China’s biggest aviation event - Airshow China, starting in Zhuhai today - underlines the trend in what is a banner week for the industry. A defence trade show takes place in Jakarta and an air finance conference in Hong
Kong, as well as the annual U.S. business jet jamboree in Orlando, Florida. Topping Airshow China’s agenda is the last-minute public debut of the J-20 stealth fighter - a warplane China hopes will narrow a military gap with the United States. Ability to project air power is key for China as it flexes muscles on territorial disputes in the East China and South China seas. It’s the second successive edition of the biennial Zhuhai show at which China has pulled the covers off a classified stealth jet, after displaying the export-oriented Shenyang J-31 in 2014. Western analysts say the J-20 moves up a gear in terms of China’s ability to punch beyond its territory, though it may lack the clout of its lookalike, the U.S. F-22 Raptor. The Xian Y-20 strategic cargo carrier, similar to the U.S. C-17 aircraft, will also be present.
to take flight this year, but industry sources say this will slip to 2017. “When it was launched the C919 was supposed to fly in 2014. Now it is 2016 and it hasn’t flown, because developing a commercial jet has been much harder than they expected,” said China aerospace expert Bradley Perrett of Aviation Week. The delays mean the jet is launching into a civil aviation market looking softer due to
slowing growth - a subject set to dominate discussion on business jets when 1,000 financiers gather at the twoday Airline Economics conference this week in Hong Kong. With more than a million millionaires and over 200 billionaires, China should also be among the most promising markets for private jets. But belt-tightening and Beijing’s corruption crackdown have hit demand for large models, which resisted a post-financial crisis drop in industry sales. The plight of the business
C919 launch - when?
Another hot topic at Zhuhai will be the outlook for the much-delayed launch of state-owned aircraft maker Comac’s 150-seat C919 passenger jetliner - Beijing’s civil aerospace effort to challenge the domination of Airbus Group and Boeing Co. The C919 is currently scheduled
Forex
Debt-for-equity
jet trade will dominate the U.S. National Business Aviation Association’s Florida get-together this week. “Previous declines always rebounded,” said Daniel Hall, senior valuations analyst at Flight Ascend consultancy, referring to business jet sales. “This has clearly not.”
Indo defence
Underlining the current divide between civilian and military aviation fortunes, foreign sellers are expected to flock to the November 2-5 Indo Defence arms exhibition in Jakarta, just weeks after Indonesian jets staged exercises on the edge of a South China Sea area claimed by Beijing. With Indonesia’s arms imports up threefold since 2010, according to the Stockholm International Peace Research Institute, competition between suppliers is brutal. Delegates at the event will seek updates on a tentative decision by Indonesia to buy Sukhoi Su-35 fighters from Russia. Potential rival suppliers are fighting to stay in contention to supply Jakarta with fighters, in what one Western source described as a test for efforts by President Joko Widodo to enforce more transparency in big-ticket deals. Rivals Lockheed Martin, Sweden’s Saab and owners of Europe’s Eurofighter will all attend Indo Defence. Reuters
Tourism
Indonesia beefs up Mainland top banks requirements for large transfers consider new swap units
Foreign visitors to Japan already at 20 million
Indonesia’s central bank told banks yesterday to attach an underlying document for any large outgoing transfer of foreign currencies starting in November. Indonesian banks routinely report their foreign exchange traffic to Bank Indonesia (BI). The new regulation requires them to add a supporting document detailing the purpose of every transfer of foreign currencies worth more than US$100,000. Therefore, banks must ask customers for such a document before processing a transfer. BI said in a circular letter that the new regulation was issued “to support more transparency and to increase the amount of information available regarding foreign exchange traffic”. BI listed the documents it would accept, which include export and import documents, purchase agreements, loan agreements, invoices for various transactions, proof of a deposit account in an offshore bank and an estimate of living costs abroad. A bank which accepts an order for a large transfer without proper supporting documents faces a fine of 5 million rupiah (US$383.23) for every transfer. Reuters
The number of foreign visitors coming to Japan in the first nine months of the year leapt compared to a year earlier with the number likely already hitting a record 20 million visitors and eclipsing the total visitors for the whole of 2015, the Japan Tourism Agency said yesterday. According to the agency, for the first nine months of the year the number of visitors jumped 24.1 per cent from the same period a year earlier totalling 17.98 million, with numerous estimated to have already exceeded 20 million. The previous record for the entire year was 19.74 million logged in 2015 the agency said. The number of visitors could have been higher, the agency said, but were impacted by powerful earthquakes in Kumamoto Prefecture in April as well as a firm yen which dissuaded some travellers. The agency said however that owing to eased visa restrictions for some countries and a growing number of new routes from major hubs, including both air and sea ports, a significant uptick in visitors, particularly from Southeast Asian countries, was seen. Xinhua
Two of China’s largest state banks are considering setting up new companies for the purpose of handling debt-to-equity swaps, officials at the two lenders said, in the latest steps taken to mitigate the heavy debt burden that has put a strain on corporate earnings. Earlier this year, Chinese policymakers introduced the debt-to-equity swap programme to convert some bank debt into equity, as a way to reduce China’s corporate debt overhang, a result of firms finding it tougher to repay their loans in leaner times. “Our goal is to do as many of those projects as we can,” said Zhang Minghe, head of the debt-for-equity work team at China Construction Bank Corp (CCB), the country’s second biggest lender, during the bank’s post-earnings call late on Friday. Bank of Communications Co (BoCom) also said it was exploring the possibility of setting-up a new entity focusing on debt-for-equity swaps in a separate post-earnings call late on Friday. Corporate China sits on US$18 trillion in debt, equivalent to about 169 per cent of gross domestic product (GDP), which some economists fear could destabilise the world’s second largest economy. Reuters