Scholar says nothing to be scared about with Internet tighter control Cybersecurity Page 2
Thursday, September 14 2017 Year VI Nr. 1383 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Commodities
Summit
Mainland plastic demand to rise Page 9
www.macaubusiness.com
Brokerages
PATA CEO talks of relation between technology and tourism Page 6
Branding
Beijing asks markets’ heads to work during Party Congress Page 9
Neptune finalizes change of name process Page 7
Ready, set, vote Election
The Electoral Affairs Commission held its last meeting yesterday before election on Sunday. The head of the institution tried to clarify the latest controversy regarding the legal rally venues and debatable behaviour from some candidates. Page 3
Aristrocrat to defend vigorously Gaming machine-manufacturer with head office in the city said yesterday it will defend vigorously in the case it is facing together with Crown Resorts. The company rejected its games were designed to encourage gambling problems, as a plaintiff states in Australia.
Flying hub
Aviation AirAsia CEO talked yesterday in the city about its plans for the company in the MSAR. Among his more remarkable comments, he stated that he wants to increase the number of passengers flying here to 5 million per year in the next 5 years. Page 4
Real Madrid announces Hengqin centre
Gaming Page 2
HK Hang Seng Index September 13, 2017
27,894.08 -78.16 (-0.28%) Worst Performers
Galaxy Entertainment Group
+2.40%
China Mengniu Dairy Co Ltd
+1.23%
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China Unicom Hong Kong
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China Petroleum & Chemical
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Sun Hung Kai Properties Ltd
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China Merchants Port Hold-
+0.78%
Sino Land Co Ltd
Hengan International Group
+1.35%
Geely Automobile Holdings
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AAC Technologies Holdings
+1.29%
Want Want China Holdings
+0.57%
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WH Group Ltd
Industrial & Commercial
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China Construction Bank
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China Life Insurance Co Ltd
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China Overseas Land &
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26° 31° 27° 30° 27° 31° 27° 32° 27° 32° Today
Source: Bloomberg
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Theme centre Spanish football club Real Madrid unveiled in Madrid its plans for a centre in Hengqin that is being developed by Chinese group Lai Sun. The Real Madrid Interactive Football Experience Centre will be included in the second phase of the Novotown project. Page 5
2 Business Daily Thursday, September 14 2017
Macau Rights
Mind what you say online Scholar perceived that Chinese authorities would not act too stringent towards SARs users despite the recent introduction of Chinese latest cyber regulations Cecilia U with Bloomberg cecilia.u@macaubusinessdaily.com
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eChat users from the SARs need not to worry about custody despite SARs internet users might now find themselves to be more considerate in making comments online or on messaging platform, said Professor Hao Zhidong of the University of Macau (UMAC) to Business Daily. According to the regulations posted by the Cyberspace Administration of China last week, creators of online groups on WeChat would be responsible for contents and information within the group chat. In Macau, the majority uses WeChat for social connection. WeChat provides instant messaging services, and any users could also create group chats that can accommodate a maximum of 500 users. Although the new cyberspace regulation will come into effect in October, actions were already taken by the Chinese authority over inappropriate information circulated online. Liu Pengfei, the creator of a WeChat group that discusses contemporary news and social topics, was arrested last week in Beijing, according to a Chinese rights protection media outlet Civil Rights & Livelihood Watch. “Chinese users also found this a bug given that their speech is now more restricted,” said the Professor. “And so it is reasonable for Macau residents to worry about similar regulations happening to them.” However, Professor Hao perceived that warnings would be given out to problematic users instead, given that ‘one country, two systems’ is still ongoing. He further explained that nowadays WeChat can put control to restrict certain phrases or not allow users to
receive certain information. “They don’t really need to arrest people because it is not necessary,” noted the Professor. Meanwhile, the UMAC professor said the MSAR authorities “have no confidence in handling the rumours circulating online but they are also unable to stop the rumours” after the hit of Typhoon Hato. “So they find an excuse saying that the rumour is spread from the U.S.,” remarked Hao. “Do you have evidence proving that the rumour comes from the U.S.? The claim that the rumour comes from the U.S. is a rumour per se.” In Professor Hao’s opinion, the best way to clarify after rumours spread is to release an immediate official statement. Following the new regulations introduced by the Chinese cyber
security office, Weibo Corp., a similar platform to Twitter, has also been requiring users to provide their real identities in order to post information and to make comments since 2011. However, Weibo has further tightened the scrutiny last week announcing that all users, including users that were registered before 2011, are required to confirm their real identities before September 15, including users from Hong Kong, Macau and Taiwan.
Connecting…
Many WeChat users in Macau have decided to switch to alternative messaging applications after the announcement of more stringent regulations over WeChat users. But users had found difficulties to register or to connect on Telegram - a more encrypted and free messaging service supported by a Russian entrepreneur
- such condition is not found in other regions. Business Daily had attempted to register at Telegram but was only successful after using a VPN (Virtual Private Network). Other users also proclaimed that similar situations appeared and VPN is required even after users had registered and started using the application. Business Daily had made an enquiry to the city’s Office of the Secretary for Security but the Office replied that the matter should be referred to relevant regulatory departments if it is related to internet matters. The Office did not reply which regulatory department should be responsible. On the other hand, Business Daily could not reach Telegram given that no official contact details are given.
Court
Aristocrat takes the stand Gaming machine-manufacturer Aristocrat told Business Daily it ‘emphatically rejects’ the allegations which brought the company to court in Australia that its machines induce ‘problem gambling’ Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Leading gaming machine-manufacturer Aristocrat Leisure Limited began its ‘opening submission’ on a civil case brought against the company and Crown Resorts by a former client
on Tuesday in Australia, according to information provided by the company to Business Daily. The plaintiff, Shonica Guy, is moving an action in federal court against both companies on the basis that the design of a poker machine – Dolphin Treasure
– manufactured and provided by Aristocrat to the Melbourne-based casino is ‘misleading’ and ‘deceptive’ to players, according to Australian media reports. Crown’s casino under trial currently operates 38 Dolphin Treasure machines. In its written response
to Business Daily, Aristocrat said it ‘is defending the action vigorously.’ ‘Aristocrat emphatically rejects any suggestion that its games are designed to encourage problem gambling, or in any way fail to comply with all relevant regulations and laws,’ the company told us.
The machine maker – of which head office for Asia Pacific is located in Macau – added that it would not provide any further comment while the case was being heard in court. Crown Resorts was also said to have argued in its defense yesterday that the poker machines it operates on the floor of its casino were all tested and approved by state regulators, according to ABC News. Accordingly, the casino’s lawyers have rejected the plaintiff’s claim that the company has engaged in misleading and deceptive conduct through the use of “rigged” poker machines, with one of Crown’s legal advisors claiming further that the company is “doing nothing other than making authorized machines available.” Guy claims she started gambling when she was 17 years old and spent 14 years struggling with addiction. The trial is set down for three weeks.
Business Daily Thursday, September 14 2017 3
Macau Election
Committee: Electoral Law should be prioritised in events relating to election The Commission emphasised that the law is not opposing the right to stage rallies but to restrict campaigning in areas outside the arranged list Cecilia U cecilia.u@macaubusinessdaily.com
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taging rallies that aim for campaigning should follow the Electoral Law over other laws, said the head of the Electoral Affairs Commission (CAEL), Tong Hio Fong yesterday after the last meeting before the Election. Fong emphasised that Electoral Law is a special law that should be prioritised over other general laws. Arguments surfaced saying that the Electoral Law is contradicting the law of staging rallies in the wake of the recent verdict made by the Top Court of allowing the seventh candidate group to stage a rally in a public area. According to the Electoral Law, any campaign by candidates that is performed outside of the arranged venues would be considered as inappropriate promotion, and the candidate might face a charge of violating the law. Meanwhile, on Tuesday, Chan Wai Chi, the second candidate of the aforementioned candidate group allegedly ordered a member
to put up a promotional flag on a fence in the Fai Chi Kei district. He is facing a charge of violating the law. “We are not opposing the right to stage rallies,” said Fong. “But this [the verdict] doesn’t mean to allow them to put up fixed promotional items to the place in question.” When asked about CAEL’s action over the inconsistencies that appeared between the release posted by the Public Security Police (PSP) and the record made by Chan with the police, Fong dodged the question saying that it is very difficult to judge which party is claiming the truth. “So we need to check with the related document but supposingly the record made by the PSP should have been signed by the candidate,” said Fong; CAEL will investigate the case with the police after the press persisted enquiring. Chan told the press on Tuesday, after he submitted a complaint to the Electoral Information Centre, that he would take the responsibility for his group’s behaviour but stressed that he was not informed by anyone, including the police officer that the
‘member was following orders made by a candidate’. “If the candidate or anyone who suspect that the PSP had released something untrue we for sure would follow-up,” added Fong.
“Can’t handle smearing issues”
The CAEL head proclaimed that it is difficult to confirm whether opinions or information that smear some particular candidates is true or not. “If any candidate considers the information in question
has committed slander, they would have to approach the PSP for assistance,” suggested Fong. Nevertheless, Fong reported that they had received around eight to ten complaints of smearing. Meanwhile, CAEL reported that all promotional items and posts online should be taken down on the night of September 15 before the start of a calm period on September 16. “If we see any posts related to the campaign in the calm period, we will handle them
like we did before the campaign period,” said the CAEL head. “We will ask any related candidate to take down these posts and be penalised [if cases are found].” He also advised supporters to stop promotion during the calm period although residents are not mandated to obey the law. Fong further revealed that they had received over 50 complaints during the campaigning period, with 14 cases being successfully charged by the PSP up until last Tuesday night. advertisement
4 Business Daily Thursday, September 14 2017
Macau Opinion
Ashley Sutherland-Winch* Electoral Law vs FaceBook Nelson Moura’s recent article “Killing The Messenger” highlighted interesting insights on Legislative Assembly (AL) elections and campaigning regulations. Last week, the Electoral Committee announced that “Any candidate running in this year’s Legislative Assembly (AL) elections will have to remove any paid ads or paid content on social media platform Facebook.” The article also reported that FaceBook could be fined for allowing candidates to use paid ads on its platform. In December 2016, Macau’s electoral laws were revised and the new regulations included fines for propaganda found outside of the approved campaign locations. Although extensive, the revisions are very general. Also, the approved campaign propaganda areas are very limited. “Propaganda materials can be fixed in campaign groups’ headquarters or inside buildings or stores but they can’t be seen by people walking in the street,” the Committee declared. I certainly don’t want to be inundated with rampant campaign signage, but I do think candidates should be given access to all voters in Macau. To keep advertising inside is very strict. This brings me to FaceBook. FaceBook has an enormous amount of data available from its users, which it allows advertisers to utilize. Building an ad campaign on the platform includes the ability to target specific demographics of users along with interests and beliefs. This is a veritable gold mine for politicians who want to reach voters that agree with their views. Macau Electoral Law does, however, seem to give all candidates equal footing - or at least that is the goal. Strict campaign regulations level the playing field from a financial point of view. Some candidates in Macau used FaceBook and sponsored content and got caught. When the Electoral Committee received complaints, they investigated causing the recent demand to remove all paid advertising. The interesting thing, however, about this demand is that the Macau government may attempt to fine FaceBook and not the candidate that placed the ads. In my opinion, it seems odd to fine a company and not the offending candidate. Is it even realistic that FaceBook would even pay a fine of this nature? The platform has been under pressure over the past quarter to remove “fake news” and extremist content from their platform and they have been making strides. With the election days away, and with our city still healing from Typhoon Hato, this election could be very interesting. In the meantime, let’s see how FaceBook responds to the threat of impending fines from the Macau paid advertising and watch the election unfold.
*Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Tan Sri Anthony Francis “Tony” Fernandes, Air Asia Berhad Group Chief Executive Officer, during the presentation yesterday
Aviation
Flying high The CEO of Malaysian low-cost carrier Air Asia stated yesterday the company will look to add five to six routes to the MSAR every year, believing the company in the next five years could be able to carry almost 5 million passengers a year to the city Nelson Moura nelson.moura@macaubusinessdaily.com
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alaysian low-cost airline carrier Air Asia is planning to add “between 32 to 34 destinations” to its Macau airline connections in the near future, the company’s Group Chief Executive Officer, Tan Sri Anthony Francis “Tony” Fernandes, said yesterday at the Pacific Asia Travel Association (PATA) Travel Youth Summit. “Macau is my number one priority in North Asia. It’s a natural place for us and we hope to add five to six new routes per year and really grow tourism here,” Mr. Fernandes added. According to Air Asia CEO the airline already set up a Macau to Jakarta connection and will set up a connection with the Malaysian city of Kota Bharu in the next few weeks. “We also have lots of plans for connections with the Philippines, Malaysia and Thailand […] This will help bring a greater variety of travellers to Macau since the city depends a lot on mainland China. It’s good to have different market pools in the world,” he added.
five years,” he added. The head of Air Asia also considered that the current capacity of the Macau International airport was sufficient for the company’s plans for the next five years, but that if it was to expand - together with the opening of the Hong Kong-Zhuhai-Macau Bridge and new border connections - Macau could become a “large hub” for airlines and tourism.
“Macau is my number one priority in North Asia. It’s a natural place for us and we hope to add five to six new routes per year and really grow tourism here” Tan Sri Anthony Francis “Tony” Fernandes, Air Asia Berhad Group Chief Executive Officer
Betting on Macau
According to the Air Asia CEO, since the company started flying to Macau in 2004 it has carried 8 million people to the city, with the airline currently operating 64 weekly flights to the MSAR and carrying more than 800,000 people a year. “With the right marketing we can grow that number to 5 million a year in five years […] We’ve grown 36 per cent a year since 2001, and Air Asia went from two planes to 220 planes. We wouldn’t say it if we didn’t believe we could do it,” he added. Mr. Fernandes said currently Air Asia represented 11 per cent of the airline market in Macau, but 26 per cent if Mainland China is not included. “I believe we can grow that to 50 per cent of the market over the next
Seeking talents locally
“A great problem in tourism is that governments sometimes forget about the airports and suddenly they see such a large demand. The Philippines is a great example of that. You build all these casinos but you can’t bring anyone in to Manila,” he added. Mr. Fernandes also stated he held a meeting with Macau International Airport Co. Ltd. (CAM) to discuss the airline plans for Macau.
ASEAN meet Macau
In 2016 Air Asia carried around 56.6 million passengers, 12 per cent more than in the previous year, with Mr. Fernandes stating the company had a large focus in countries from Association of Southeast Asian Nations
Mr. Fernandes also stated Air Asia will set up an internship programme with the Institute for Tourism Studies (IFT) “We believe Air Asia’s next role is about working with universities and engaging with younger people,” he added. The Air Asia CEO held a talk yesterday at the IFT Grand Hall as part of the PATA Youth Symposium 2017.
(ASEAN), with the company looking to extend those connections with Macau. “Our playground is ASEAN where 700 million people live. We want to make ASEAN a smaller place and from there reach destinations in North Asia, including Macau,” he stated. With growth in ASEAN and North Asia being concentrated mainly in the larger cities, the businessman wanted Air Asia’s role to be providing connectivity between second-tier cities, between second-tier cities and third-tier cities, and between thirdtier cities. “We want ASEAN to be a single destination so that residents from Macau can go to Kuala Lumpur, or somewhere in Thailand, etc. At the same time we want to show ASEAN that North Asia has so much to offer,” he stated. According to Mr. Fernandes, 19 per cent of Air Asia’s revenue comes from mainland China, with the company flying to 21 destinations with “most not having previous connectivity with ASEAN”. The group is now planning to establish Air Asia Japan in a “few weeks”, Air Asia Vietnam in 2018 and Air Asia China in 2019, with Mr. Fernandes stating this would make the company the first foreign airline allowed to operate in mainland China.
Where nobody flew before
“No airline from Southeast Asia had flown to Macau before us […] We started flying to Macau before people started coming here. On the flight I took to Macau yesterday there were 12 nationalities and 30 per cent had never been to the city before,” Mr. Fernandes informed. The Air Asia CEO stated the company’s decisions of initiating travel routes to areas not considered by other airlines was one of the keys for the airlines success, together with low prices and a focus on marketing. According to Mr. Fernandes, 60 per cent of Air Asia’s routes had never been flown before, with the criteria to choose new destinations only being “common sense”. “Generally very few routes have never worked. As long as there’s a population we can make it work […] We’ve made it work in cities with 100,000 population, and Macau has much more than that,” he added.
Business Daily Thursday, September 14 2017 5
Macau Football
Real Madrid kicks-off Hengqin centre project Hong Kong conglomerate Lai Sun Group held a ceremony with Spanish football club Real Madrid to present their joint project to develop an indoor interactive football experience centre in Hengqin Nelson Moura nelson.moura@macaubusinessdaily.com
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epresentatives from Spanish football club Real Madrid Club de Fútbol and Chinese group Lai Sun Group announced on September 11 their joint project to launch a Real Madrid Interactive Football Experience Centre in Hengqin, the company revealed. The ceremony was held at Real Madrid’s Santiago Bernabéu Stadium with the presence of football club’s Director of of Institutional Relations, Emilio Butragueño, and the Head of Novotown Project of Lai Sun Group, John Tse. The indoor interactive football experience centre will occupy 12,000 square meters at the Phase II of Novotown, the groups’ integrated tourism and entertainment project in the heart of Hengqin. The centre will include multiple interactive football related experiences, such as augmented and virtual
reality attractions, together with a Real Madrid museum, food and beverage outlets and concept retail concessions. “We are extremely delighted to partner with Real Madrid, who with their expertise in football training, will be able to bring about highly participative and personalized sports entertainment experiences, supported by advance technology […] The interactive football centre is instrumental to develop the culture of sports entertainment, and establish a diversified range of industries to promote the region’s tourism economy,” Mr. Tse said in the event.
Kicking in the name of Real Madrid
In July two companies belonging to the Lai Sun Group - Lai Fung Holdings Limited and eSun Holdings Limited - jointly announced that Lai Fung reached a licence agreement through a wholly owned subsidiary with Real Madrid for developing the football centre. The agreement states Real
Madrid will license its intellectual property rights to Lai Fung or its subsidiary in return for payments - largely in the form of royalties for 10 years after the centre is launched - with an option to extend it for a further 10
years. Currently Lai Fung is negotiating with the Hengqin Government regarding the land concession as well as the progress of the Phase II development of Novotown. The Lai Sun Group is
composed of five Hong Kong listed companies, with businesses ranging across property development and investment, hospitality, media and entertainment in Hong Kong, mainland China and overseas.
A Novotown render dated November 2016
Right next door
Described as an integrated tourism and entertainment project, Novotown will occupy a total gross floor area of approximately 15.5 million square feet in the centre of Hengqin, with 80 per cent of the project owned by Lai Sun Group and 20 per cent by
the group’s investment holding eSun. The project’s Phase 1 was approved in 2015 and its completion is expected by 2018, with the project to include a Hyatt Regency Hotel, integrated experience centers such as Lionsgate Entertainment World and National
Geographic Ultimate Explorer, together with a Healthcare and Beauty Cultural Center, a multipurpose performance hall and a wedding ceremony venue. The group expects the project will attract 5 million visitors in the first year of operation. advertisement
6 Business Daily Thursday, September 14 2017
Macau AI
Hospitality will always need friendly faces PATA CEO points out dangers and opportunities of increasing use of technology in tourism Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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eing ready to re-skill and keeping a curious mind will be key to adapting to the changing environment in the tourism industry as technology, in particular artificial intelligence, plays a more dominant role, according to the CEO of the Pacific Asia Travel Association (PATA), Dr. Mario Hardy. The travel expert’s comments came at the PATA Travel Mart 2017, held in concert with the Macao Government Tourism Office (MGTO), at the Venetian and Parisian. The CEO points out how ‘chatbots’ are already being used to automatically respond to certain requests by customers in companies ranging from online travel agents (OTAs) to restaurants, lauding the ease with which they can be set up. “Machine learning is the important part,” points out the CEO, referring to the human element of AI, in which the computer mimics responses from humans to questions and circumstances, learning from the methods and responses and adding onto the formulated responses already input to it. This element, notes Hardy “takes time,” referring to PATA’s development of its “chatbot for the tourism industry”. The CEO revealed the name of the chatbot for the first time at yesterday’s event, “Thurstin”, after the founder of the organization Lorrin P. Thurstin. No release date has been set so far for the chatbot, which would draw upon the organization’s “67 years of history” as “it’s going to take us a long time to build it to the point where we can share with
Dr. Mario Hardy, CEO of the Pacific Asia Travel Association (L)
you”, ensuring that no user would think it’s “too dumb”, points out the tourism expert. While on one hand Hardy points out that he’s “fascinated by how machines can learn to become human,” he also recognizes the dangers of technology’s increased role in the sector, and while it’s a “fast growing industry,” with “1 in 11 jobs in the world” in tourism, it will in particular threaten tour operators and to a lesser extent hotels. “I’ve stayed in a hotel with no humans – it was efficient but it wasn’t pleasant,” notes the CEO. “You still need the human exchange with people. I like to see machines assisting
humans but not replacing us in all we do,” he opines. On a macro level this also applies, as with increasingly diverse technology, lifespans of businesses are also decaying. “Brands used to be able to last 50 years or 100 years,” states Hardy. “I used to say to the young startups that ‘in 15 years your brand will not exist anymore’. Now I tell them seven years and that time is getting shorter and shorter. Big brands we know today probably will not exist in 15 or 20 years,” he points out. One of the ways Hardy hopes to not only allow the youth to keep up with technological changes and business
trends, but also be able to re-skill themselves, is through increased cooperation between countries’ ministries of tourism and education. “I’ve been pushing for three years to get the tourism ministers to work more closely with the education ministers, to get young people to join our industry and to be interested, for the simple reason that we’re a fast growing industry […] our growth rate is double-digit,” points out the CEO. Given the growth, the industry will always have room for more employees, with Hardy pointing out: “these machines won’t replace everyone’s job, in the hospitality industry we need friendly faces.”
Typhoon
Paying for repairs Residents wanting to apply for Macao Foundation subsidy for repairs in residences damaged by Typhoon Hato should make applications until September 30 As of yesterday the Macao Foundation has received more than 9,000 requests for its residence repairs subsidy with applications for the support having to be submitted
until September 30 in order to be accepted, the organisation informed yesterday. According to the foundation nine associations from the commercial, advertisement
architecture and developing sectors were invited to create technical and professional assessment teams, so as to speed up the approval process. The subsidy amounts can go up to MOP30,000 (US$3,728) with the Macao Foundation stating they will start being provided after September 30. The subsidy recipients should also collect the restoration works receipts and submit them to the foundation before December 30, with the documents including the client’s name,
work address, and the content of the restoration work, such as the quantity, material and purpose of the works. The Foundation also recommended residents hire the service of local companies and warned that any case of false declaration of public funds use could incur legal consequences. The Macao Foundation announced it would disburse MOP1.35 billion from the public coffers to support residents impacted by Typhoon Hato. N.M.
Business Daily Thursday, September 14 2017 7
Gaming Junket
Neptune approves name change
T
he board of local junket operator Nep tu n e G r o up Limited has approved a motion proposed on August 29 to change the English name of the company to Rich Goldman Holdings Limited, according to a filing of the company with the Hong Kong Stock Exchange (HKEX) yesterday. The company also noted
that it will make further announcements in relation to, among others, the effective date of the proposed change of the company name and the change of its stock short name under which the shares will be traded on the stock exchange as and when appropriate. Regarding the reasons for the proposed change, the group noted in a previous filing that the existing
name of the company, Neptune, ‘does not reflect the diversity of businesses conducted by the group.’ While ‘still engaged in its gaming business by receiving profit streams from junket operators, the group now focuses more on its money lending business and management and operation of hotel business,’ the company said. S.Z.
Public accounts
After PAGCOR, Pogo targeted to help increase public revenue In another move to raise funds for public coffers, the Philippine government is to cash in on electronic gaming business, after announcing it is privatizing part of PAGCOR next year Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Online gaming operations in the Philippines will have to renew their licenses this coming October with the state-run Philippine Amusement and Gaming Corporation (PAGCOR), the Inquirer reported yesterday. A total of 37 original licensees out of the 45 firms which were approved by PAGCOR last year to conduct electronic games via the Philippine Offshore Gaming Operators (Pogo) scheme, will be renewing
their permits next month a t a c o st o f P 2 0 0 , 0 0 0 (US$3,925/MOP31,590) per license. The announcement
follows recent statements by the state-run gaming corporation that it will begin privatising 17 exclusivelyrun casinos next year.
Akin to the decision of privatising, PAGCOR casino assets based on current needs to raise funds for public coffers, keeping electronic games operations licenses on short lease and renewal on an annual basis are seen as strategies to maintain steady financial inflow to public accounts. PAGCOR’s chair Andrea Domingo was referred to as saying that the Pogo business is currently worth some P5.5 billion in licensing fees and royalties, excluding value-added elements to the domestic economy such as the
rent companies pay for their offices and wages to thousands of Philippine workers. Total income from offshore gaming operations in the Philippines reached P488.49 million in the first quarter ended March 31, according to the latest financial results released by PAGCOR. Income for electronic gaming operations amounted to P394.67 million over the same period. Total income from all sorts of gaming operations, including casinos, amounted to P14.04 billion. advertisement
8 Business Daily Thursday, September 14 2017
Greater china Fuel
Beijing sets 2020 target for nationwide ethanol use to cut corn stocks A renewed effort to promote the nation’s fledging biofuels industry will be a further blow to major oil producers
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hina plans to roll out the use of ethanol in gasoline nationally by 2020, state media reported yesterday citing a government document, as Beijing intensifies its push to boost industrial demand for corn and clean up choking smog. It’s the first time the government has set a targeted timeline for pushing the biofuel, known as E10 and containing 10 per cent ethanol, across the world’s largest car market, although it has yet to announce a formal policy. Mandates requiring that a minimum amount of biofuel must be blended into fuel for the nation’s cars, similar to the United States and Brazil, are currently set at a provincial level. “This news has greatly boosted confidence inside the industry,” said Michael Mao, analyst with Sublime China Information, adding that without government support ethanol would likely be too expensive to survive in the market. Shares in biofuel producers rallied on the news, with Shandong Longlive Bio-Technology Co Ltd surging 10 per cent, on track for its biggest oneday gain since December 2015. Major producer COFCO Biochemical Anhui Co Ltd, a unit of state-owned grains trader COFCO, was up 6 per cent. A renewed effort to promote the nation’s fledging biofuels industry will be a further blow to major oil producers. On Saturday, the government said it has begun studying when to ban the production and sale of cars using traditional fuels.
of that effort. China has state corn reserves estimated at about 200 million tonnes - equivalent to a year of demand - following a now discontinued government stockpiling scheme to support farmers.
Ambitious target
To implement the E10 plan, China will need to expand its biofuels industry on a major scale. The Xinhua report said the gov-
Key Points Beijing sets first timeline for ethanol use in cars Push comes amid bid to whittle down massive corn stockpile China has no nationwide ethanol mandate like U.S., Brazil Shares in China-listed biofuel makers rally ernment aims to build an ethanol production base in the country’s
northeast, the main corn growing region, without giving further details. Based on estimates by CNPC that gasoline demand will reach 150 million tonnes in 2020, the plan will require about 15 million tonnes of ethanol using about 45 million tonnes of corn each year, according to Reuters calculations. China is the world’s third-largest ethanol producer, but with output of about 2.1 million tonnes a year, production is a long way behind global leaders Brazil and the United States. Still, the project has been in the works for a while as Beijing has struggled to whittle down mountains of ageing corn in state warehouses. Late last year, the government said it would aim to double ethanol output to 4 million tonnes by 2020 as part
In initial responses to the news, some in the domestic oil industry were skeptical about the target and the practicality of implementing the plan without hefty government subsidies. “2020 sounds an overambitious target, but 2025 may be more achievable,” said Mao Jiaxiang, vice president of state-oil major Sinopec’s Economic & Development Research Institute. “The key to watch is the cost of making ethanol and how sustainable the government subsidies can be.” China’s use of renewable-based fuel lags the rest of the world, with only 3 million tonnes consumption in 2016, or less than one per cent of total fuel use, an unnamed official from the National Energy Administration was quoted as saying in the Xinhua report. “Experts have proposed expanding production and consumption of ethanol to balance grain supply and demand and efficiently dispose of surplus grains,” the NEA official said. The government also aims to have large-scale domestic production of cellulosic biofuels, which are made from sources such as grasses, trees and crop waste, by 2025, it said. Reuters
Technology
Artificial intelligence
Government beefs up cyber defences
Mainland is called a hotbed of AI opportunities for investors
China said yesterday it will create a national data repository for information on cyber attacks and require telecom firms, internet companies and domain name providers to report threats to it. The Ministry of Industry and Information Technology (MIIT) said companies and telcos as well as government bodies must share information on incidents including Trojan malware, hardware vulnerabilities, and content linked to “malicious” IP addresses to the new platform. An MIIT policy note also said that the ministry, which is creating the platform, will be liable for disposing of threats under the new rules, which will take effect on Jan. 1. Companies and network providers that fail to follow the rules will be
subject to “warnings, fines and other administrative penalties”, it said, without giving any details. The law is the latest in a series of moves by Chinese authorities designed to guard core infrastructure and private enterprises against largescale cyber attacks. In June, China’s cyber watchdog formalised a nationwide cyber emergency response plan, which included the construction of a central response system and mandated punitive measures for government units that failed to safeguard the system. Earlier this year, the same ministry introduced rules requiring state telecommunications firms to take a more active role in removing VPNs and other tools used to subvert China’s so-called Great Firewall. Reuters
Hema Parmar
To see the future of artificial intelligence, look East, said venture capitalist Jim Breyer. “China right now represents about half of the most interesting AI investment opportunities in the world,” Breyer said at the CNBC Institutional Investor Delivering Alpha conference in New York. Breyer’s bullishness about China stems from the accelerated deployment of internet technologies in urban and rural areas as well as government initiatives enabling AI startups to flourish. Tech giants like Tencent Holdings Ltd., Baidu Inc., Alibaba Group Holding Ltd. and JD.com Inc. are quickly integrating self-learning technologies and snapping up AI talent at an “astonishing” rate, he added.
“When I think what are the great opportunities where we can generate tremendous value, it is in Chinese deep technology companies that are focused on the Chinese market,” said Breyer, founder of Breyer Capital. “It’s like an NFL quarterback draft, where the very best AI students, postdocs, and professors from around the world are commanding NFL quarterback-like salaries and compensation,” he said. Breyer Capital, which also does private equity, focuses on social media, AI, entertainment, media, digital health, data analytics and financial technology investments. Jim Breyer led Facebook Inc.’s first institutional venture capital round in April 2005. He is also an investor in media company Legendary Entertainment. Breyer founded his investment firm in 2006. Bloomberg
Business Daily Thursday, September 14 2017 9
Greater China Recycling
In Brief
Plastic demand to rise as foreign garbage ban to curb recycled supply The country imported 7.3 million tonnes of waste plastics last year, taking in over half the world’s leftover plastic Seng Li Peng
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hina’s already soaring plastic demand may rise even further as the government plans to ban waste-plastic imports by the end of this year, which will curb domestic plastic recycling. The expected increase in plastic demand highlights the consequences of China’s pollution fight and its efforts to modernise its industry. As part of this drive, the world’s top importer of rubbish said in July that it would stop importing garbage by the end of this year. To make up for the loss of recycled plastic, petrochemical producers and exporters to China from the Middle East, South Korea, Thailand and Singapore are expected to receive more orders for products including polyethylene, a thermoplastic found in almost everything from grocery bags to bubble wraps, pipes, medical devices and even bulletproof vests.
Key Points China plans to ban all imports of garbage by the end of 2017 China has been the world’s top importer of waste plastic Large waste volumes are recycled into other plastic products Import ban to spur domestic demand for petrochemical products
“From next year, demand for polyethylene would get even better as the impact of the ban would be felt,” said a source from a Chinese firm that produces and markets petroleum and petrochemical products. China imported 7.3 million tonnes
of waste plastics last year, taking in over half the world’s leftover plastic. Of the 7.3 million tonnes, polyethylene made up about 2.53 million tonnes in 2016, and this is expected to fall to between 1.7 million and 1.8 million tonnes this year, data from IHS Markit Chemical showed. IHS Markit expects China’s polyethylene demand to grow by 6.6 per cent from 2017 to 2018, outpacing Asia’s overall growth of 5.5 per cent. “The ban of scrap/waste plastics is definitely positive for polyethylene producers as there will be a shift of consumption from recycled polyethylene to prime virgins polyethylene,” said J.P. Nah, director of polyolefins at IHS Markit Chemical. Nah said Asia’s 2017 total polyethylene demand would be around 41.5 million tonnes, with China accounting for some two-thirds of total demand.
China’s position as a key Asian producer of disposable medical devices will add to the country’s demand for polyethylene, said Nikhil Vallabhan, a senior consultant at Frost & Sullivan for Asia Pacific. Polyethylene makes up only about 9 per cent of the total plastics used in medical devices because of its higher cost over competing plastic polyvinyl chloride. However, polyethylene demand for the devices is expected to increase in absolute terms, said Vallabhan. “With countries and regions such as India and Southeast Asia being labelled as destinations for medical tourism, we could expect the demand for high quality medical devices to grow at a robust pace in the region,” he said. “The usage of (polyethylene) in containers, syringe plungers and tubes will continue to grow.” Reuters
Markets
Brokerage bosses warned: no holidays during Xi’s big meeting The congress is expected to replace about half of China’s top leadership and shape President Xi Jinping’s influence into the next decade As China’s most important political event in years draws nearer, regulators have put the nation’s top financiers on notice: no surprises from markets. The China Securities Regulatory Commission has ordered local brokerages to mitigate risks and ensure stable markets before and during the Communist Party’s twice-a-decade leadership congress, which starts on Oct. 18, according to people familiar
with the matter. The CSRC has also banned brokerage bosses from taking holidays or leaving the country from Oct. 11 until the congress ends, the people said. The regulator didn’t immediately reply to a faxed request for comment. While China routinely takes steps to reduce market swings during key political gatherings, the travel ban on brokerage chiefs illustrates how seriously regulators are taking next
month’s meeting. The congress is expected to replace about half of China’s top leadership and shape President Xi Jinping’s influence into the next decade. Chinese markets have already rallied this year amid expectations of government support. The Shanghai Composite Index touched a 20-month high on Tuesday, while the yuan has strengthened more than 6 per cent against the dollar this year. The gains have coincided with a drop in volatility on domestic equity and debt markets. The CSRC told brokerages and futures companies to check for risks in their liquidity, operations and financial health, said the people, who asked not to be named as the information is private. The regulator also ordered firms to assess their information system security and credit risks and report their findings before October, the people said. Brokerage bosses were told to avoid travel of any kind from Oct. 11 until the congress ends, including business trips. Luckily for them, China’s national day holidays are coming up in the first week of October. Local markets will be shut for an entire week, providing plenty of time to recharge for the congress. Bloomberg News
Communication
First “commercial” quantum network set up China has set up its first “commercial” quantum network in its northern province of Shandong, state media said, the country’s latest step in advancing a technology expected to enable “hack proof” communications. China touts that it is at the forefront of developing quantum technology. In August it said it sent its first “unbreakable” quantum code from an experimental satellite to the Earth. The Pentagon has called the launch of that satellite a year earlier a “notable advance”. Now the country’s “first commercial quantum private communication network” has been setup for exclusive use by more than 200 government and official users in Shandong’s provincial capital Jinan, the official Xinhua news agency said late on Tuesday. It did not elaborate on how the system would be commercially operated. “Hundreds of pieces of equipment connected by hundreds of kilometres of fibre optics were installed within five months,” Xinhua said. The network provides secure telephone and data communication services and is expected to be connected to a Beijing-Shanghai quantum network, the news agency said. Currency
S.Korea in talks on extending currency swap deal -BOK official South Korea is in talks with China on extending an existing bilateral currency swap deal, a Bank of Korea official, as policymakers between the two nations try to navigate a yearlong diplomatic stand-off between Beijing and Seoul. “In regards to the currency swap (with China), working level officials are in talks with China to discuss extending of the deal,” Lee Kang-one, head of BOK’s financial cooperation team, said in a briefing in Seoul yesterday. The comments come as Asia’s fourth largest economy has been hobbled by a row with Beijing over Seoul’s deployment of a U.S. anti-missile defence system in South Korea. Upset over Seoul’s decision to deploy the Terminal High Altitude Area Defence (THAAD) system, Beijing has been boycotting made-in-Korea products and tour groups to its smaller neighbour, widening the nation’s services account deficit to US$15.7 billion in the first half - the worst on record. New product
Apple’s Asian suppliers sink as pricey new iPhone underwhelms Shares of Apple Inc.’s suppliers across Greater China greeted the company’s latest product line-up, including its most-expensive ever iPhone, with losses. While there were a few exceptions, the lack of any major surprises in Tim Cook’s much-anticipated unveiling weighed on stocks from Taiwan’s Pegatron Corp., an iPhone assembler, to South Korean screen-maker LG Display Co. Hong Kong-listed Cowell e Holdings Inc. -- a maker of iPhone cameras that derives about 81 per cent of its revenue from Apple, according to data compiled by Bloomberg -- tumbled as much as 6.6 per cent, while Taiwan’s Catcher Technology Co. slid the most since November. Catcher makes metal cases used in laptops and smartphones, and the new iPhones have glass cases, said Allan Lin at Concord Securities Co. Quanta Computer Inc., assembler of the Apple Watch, got a boost though, along with Hong Kong’s AAC Technologies Holdings Inc., which Jefferies Group noted should benefit from an upgrade to iPhone sound functions and the removal of the home button.
10 Business Daily Thursday, September 14 2017
Greater China
Currency
Mainland’s campaign to control yuan shifts to limiting strength The newfound buoyancy in the Mainland stock market is also being partly attributed to the revived appeal of the yuan.
F
or a managed currency, the direction of China’s yuan is proving hard to predict. Despite a constant drumbeat from policy makers that it would be kept “stable” in 2017, the year of the all-important Communist Party Congress, the currency has made a stunning about turn. After two years of beating back the bears, Beijing is now being confronted with the opposite problem as the dollar’s slide fuels appreciation pressure. While they initially embraced the yuan’s reversal of fortunes, officials gave the first clear signal the surge had gone far enough on Monday, when they eased curbs on shorting the currency imposed shortly after the 2015 devaluation. Now, amid a newfound thirst for yuan at home and an uncertain outlook for the greenback, the People’s Bank of China may have to pull out the big guns -- direct intervention and a loosening of capital controls -- as it deconstructs the rampart it has built over the past two years to protect against yuan losses. “My hunch is that the PBOC has been taken slightly off guard by the dollar’s about turn,” said George Magnus, an associate at Oxford University’s China Centre and former adviser at UBS Group AG. “The error that the PBOC may have made was to let the yuan rise by 7 per cent against the dollar in the first place -- perhaps they could have curtailed it, or even used it as an opportunity to take a major step toward floating the currency.” Whether it was a mistake or not is debatable, but it wouldn’t be the first time that China -- a country used to wielding control -- has struggled bending the market to its will. The August 2015 devaluation
triggered a sustained selloff in the yuan that prompted the central bank to drain foreign-currency reserves and ramp up controls on outbound capital. While the curbs helped stabilize the currency, the dollar’s slump this year has done some of the heavy lifting -- perhaps too much. Buying momentum in the yuan, Asia’s best performer over the past three months, rose to the highest in 12 years last week.
Exporter hit
Monday’s policy move has punctured the yuan’s exuberance, and there are other signs the PBOC is wanting to arrest the yuan’s advance. At least three of its daily fixings -- a rate used to restrict and guide the currency’s onshore moves -- came in weaker than the market expected over the past two weeks. The central bank, which typically doesn’t comment on its activities in the currency market, didn’t immediately respond to faxed questions. The potential impact on exports will make the authorities less tolerant of strength, says MK Tang, senior China economist at Goldman Sachs Group Inc. This week, the yuan touched a 2017 high against the currencies of China’s major trading partners, and if appreciation pressures continue to build the PBOC may directly intervene, Tang said. But Beijing may face pushback from the exporters themselves, with companies which built up dollar stockpiles during the yuan’s weakening period now looking to convert, according to United Overseas Bank Ltd. The newfound buoyancy in the mainland stock market is also being partly attributed to the revived appeal of the yuan. There’s also the dollar factor. Down almost 10 per cent versus major
currencies this year, the greenback’s outlook is a black box, with any revival dependent on the tone set by the Federal Reserve -- which meets next week -- and President Donald Trump’s ability to make good on promises of tax reform and infrastructure spending. Chi Lo, Greater China senior economist at BNP Paribas Asset Management, is also in the intervention camp.
“By keeping its general policies mysterious and only sending signals when necessary, the PBOC has made their measures to affect or jawbone the exchange rate more effective” Hao Hong, chief strategist, Bocom International Holdings Co. “The recent strength may have caught the PBOC off guard,” he said. They may buy dollars “to keep the currency from overshooting” and to preserve economic stability. While strategists expect the yuan to fall about 2.6 per cent to 6.7 by year-end, the forwards market is less bearish, putting the currency at 6.58, according to data compiled by Bloomberg. Persistent appreciation
pressure could see the PBOC relax capital controls “gradually throughout the rest of this year,” says Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. Policy makers may ease curbs around individual and company foreign-exchange purchases, potentially scrapping the complicated application form that mainland residents need to complete when they buy dollars, Shen said. The government may also encourage more Chinese firms to invest in the manufacturing industry overseas, he said. Sue Trinh, head of Asia foreign-exchange strategy at RBC Capital Markets, sees the PBOC potentially taking a less visible route, intervening via the forwards market to make their activities less obvious during a high-stakes period politically. The congress, due to start Oct. 18, will see a once-in-five-years reshuffle in China’s leadership, and Trump may make his first visit to the world’s second-largest economy in November. Whatever route it takes, the central bank probably won’t telegraph its intentions, says Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong. Speculators tend to pile into trades seen as being endorsed by the PBOC given its grip over yuan trading. The perception that the currency had become a risk-free, one-way bet may have contributed to its strong run-up over the past few months. “By keeping its general policies mysterious and only sending signals when necessary, the PBOC has made their measures to affect or jawbone the exchange rate more effective,” Hong said. “China will continue to remain mysterious, and this is probably desired.” Bloomberg News
Business Daily Thursday, September 14 2017 11
Asia Fuel
Bangladesh set to sign 15-year LNG import deal with Qatar A country of more than 160 million people, Bangladesh could import as much as 17.5 million tonnes of LNG a year by 2025 Ruma Paul
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angladesh will sign a 15-year deal with Qatar’s RasGas Co to import liquefied natural gas (LNG) starting in 2018 as the South Asian country turns to the supercooled fuel to fill a domestic supply gap for power generation, two officials told Reuters. The deal will be signed on Sept. 25 in Qatar, said Mohammad Quamruzzaman, managing director of the Rupantarita Prakritik Gas Co, a unit of state-owned oil firm Petrobangla.
Key Points Bangladesh to take 1.8 mln T a year first 5 years Volumes to rise to 2.5 mln T a year for following 10 years Plans to buy more on the spot market because of low prices Under the deal, RasGas will supply 1.8 million tonnes a year of LNG for the first five years and 2.5 million tonnes a year for the next 10 after that, the Petrobangla officials said. The deal is Bangladesh’s first LNG import agreement and will help to cover the country’s domestic natural
gas shortfall. The contract with the world’s biggest LNG exporter underscores the rise of South Asia as a new market for the fuel. The deal is for less gas than the 4 million tonnes a year Bangladesh agreed to take in a 2011 memorandum of understanding with state-owned RasGas, since it instead plans to take more spot cargoes amid a supply glut that has lowered prices. In June, Rupantarita Prakritik Gas posted a notice on its website looking to shortlist suppliers of LNG spot cargoes starting in 2018. “We have got a huge response ... about 40 companies showed their interest to supply LNG,”
Quamruzzaman said. Bangladesh’s first floating storage and regasification unit (FSRU), supplied by Excelerate Energy of the United States, is to be commissioned by April 2018. Its second, supplied by the country’s own Summit LNG of the Summit Group, is due for commissioning by next October. Bangladesh is also looking to add two additional floating LNG terminals next year. Bangladesh, a country of more than 160 million people, could import as much as 17.5 million tonnes of LNG a year by 2025, Nasrul Hamid, Bangladesh’s state minister for energy and power, told Reuters last month.
The country’s own gas reserves are depleting at the same time it is seeking to almost double its power capacity to 24,000 megawatts by 2021. Bangladesh is planning to tap the currently cheap and plentiful global LNG supplies and invest heavily in importing the fuel. South Asia is emerging as a hotspot for LNG, with Pakistan and Bangladesh set to join India as major consumers and help ease the oversupply that has dogged the market for years. Asian spot LNG prices have fallen 70 per cent from an early 2014 peak to US$6.40 per million British thermal units. Reuters
IPO
SBI Life to launch India’s first billion-dollar IPO in 7 years Strong stock markets have fuelled a surge in equity deals in Asia’s third-largest economy, with IPO proceeds so far this year crossing US$3 billion Devidutta Tripathy and S. Anuradha
SBI Life Insurance Co will launch next week what will be India’s first billion-dollar initial public offering since 2010, paving the way for a record-setting year for IPOs in the country. SBI Life, a unit of top Indian lender State Bank of India (SBI), will open the share sale to the public on Sept. 20 and close it on Sept. 22, according to a filing. The shares, that will begin trading Oct. 3 will be sold in a price range of 685-700 rupees apiece, raising as much as 84 billion rupees (US$1.3 billion) for SBI Life’s main shareholders - SBI and BNP Paribas Cardif - which are paring their stakes. Strong stock markets have fuelled a surge in equity deals in Asia’s third-largest economy, with IPO proceeds so far this year crossing US$3 billion. While last year’s US$4 billion fund-raising from IPOs is set to be surpassed, some expect proceeds to even top the record US$8.5 billion raked in seven years ago. High inflows including from retail investors into equity markets are driving sectors that historically never
listed in India to explore IPOs, said Arun Kejriwal, founder of Kejriwal Research & Investment Services. “This augurs well for the capital markets. However a note of caution: valuations are steep,” Kejriwal added. SBI Life’s IPO, the third insurer to list in the country, will be the biggest since state-run Coal India’s 155 billion rupee (US$2.4 billion) IPO in 2010.
Key Points SBI Life to launch IPO next week to raise as much as US$1.3 bln India’s biggest IPO since Coal India’s 2010 listing More insurer IPOs in the offing, may drive fund raise to record ICICI Lombard General Insurance Co’s IPO to raise up to US$890 million opens on Friday, while HDFC Standard Life Insurance is expected to hit the markets in coming weeks with what is likely to be another billion-dollar offering. That will be followed by two other big insurer listings - state-run
reinsurer General Insurance Corp of India (GIC Re) and non-life insurer New India Assurance Co, estimated to raise a total of more than US$3 billion. While the insurers are betting on lower penetration and rising income levels bolstering demand for their products, the government’s plan to pare its stake in five state-run general insurers through IPOs is also going to drive offerings. In the SBI Life IPO, SBI is selling up to an 8 per cent stake, while BNP Paribas Cardif is selling up to 4 per cent. The two currently own 70 per cent and 26 per cent, respectively.
The IPO price range values the insurer at about US$11 billion, versus the US$7 billion valuation at which SBI sold a nearly 4 per cent stake to KKR and Temasek in December. The listing comes at a time when Indian banks, including the SBI, need billions of dollars to make higher provisions for record soured assets and meet stricter global banking regulations known as Basel III by March 2019. Basel III, designed to avoid a repetition of the 2008 financial crisis, include tighter capital requirements. Reuters
12 Business Daily Thursday, September 14 2017
Asia
Apparel
Nike sneakers made a billionaire of this ex-convict South Korean The company reported revenue growth of more than 20 per cent every year during Park Park Yen-cha’s imprisonment Yoojung Lee and Sterling Wong
I
t’s hardly unheard of for billionaire businessmen to be sentenced to prison and return to the top echelons of corporate Korea. Over the past decade, they’ve included the chairmen of Samsung Group, SK Group and Hyundai Motor Group. Now there’s another such titan joining the billionaire ranks: Park Yen-cha, who built an empire of more than 70,000 employees making shoes for Nike Inc. His Taekwang Industrial Co., which has been making Nikes since the late 1980s, took advantage of the trend to move manufacturing offshore and now makes all of its Nikes -- 60 million or 12 per cent of all Nikes sold last year -- in Vietnam, Indonesia and China. He’s now moving his company toward a conglomerate model, into businesses including power generation and fertilizer production, and possibly taking a stake in a port operator. Park has a net worth of US$1.3 billion, according to the Bloomberg Billionaires Index, based primarily on Taekwang’s valuation. Park and his children own 98.4 per cent of Taekwang, according to a company report. Park also holds stakes directly and through Taekwang and his family members in plastic pipes manufacturer Jeongsan Aikang Co. and in Taekwang affiliate Huchems Fine Chemical Corp., where he’s chairman. It wasn’t success with Nike that put Park in the spotlight. A decade ago, he was at the centre of a multi-million-dollar corruption scandal that involved dozens of politicians, including former President Roh Moo-hyun, who killed himself in 2009 after being questioned over allegations that his family members took millions in bribes from Park. In 2011, Park, whose name is alternatively spelled Yeon-cha, was sentenced to 30 months in jail for tax evasion and bribery involving other officials.
Fellow billionaires
Fellow billionaires Chung Mong-koo of Hyundai Motor, Chey Tae-won of SK, and Lee Kun-hee of Samsung were all sentenced to prison on
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charges such as bribery, tax evasion or embezzlement, although Chung’s and Lee’s sentences were suspended. All three were pardoned by previous presidents. In the latest such conviction last month, Lee’s son, Jay Y. Lee, the vice chairman of Samsung Electronics Co., was jailed on charges including bribery. He is appealing.
“Taekwang has shown a commitment to progress through their approach to modernization, a culture of safety and lean-based management for health, safety, environment and human resource management” Claire Wahl, vice president for sourcing for Nike in Asia The 71-year-old Park was born to a poor farming family and completed only elementary school. In a society where family background and personal connections based on school networks matter for achieving success, Park worked to cultivate relations with those in power.
Professional managers
While Park was away, Taekwang hired professional managers to run the company, but Park still made important business decisions, imparting them to Taekwang executives during visits to the jail. The company reported revenue growth of more than 20 per cent every year during Park’s imprisonment. After his release in 2014, Park returned to the helm of Taekwang. Of his four children, only a son in his early 30s, who’s considered an heir apparent, currently has a management role at the company. Revenue, which grew 14.5 per cent last year to 1.82 trillion won (US$1.6 billion),
nearly doubled since 2011. A Taekwang spokesman declined to comment on Park’s net worth. Founded in 1971, Taekwang was among hundreds of footwear companies that turned Busan, South Korea’s second-largest city, into the world’s sneaker capital during the 1970s and ’80s. Global sports retailers such as Nike, Adidas AG and Reebok International Ltd. flocked to South Korean shoe factories, attracted mainly by low-cost, abundant labour and the factories’ high production.
Quick adopter
“Taekwang was not a big name in the industry at the beginning,” said Michael Ku, a former vice president at Taekwang, who worked at the company from 1984 to 1997. “But it was quick to adopt a computer-aided manufacturing environment, shifting from labour-centred strategies to a technology-centred approach.” For example, shoe moulds produced manually couldn’t provide enough design details, so computer-assisted technology helped apply 3D curves and geometry, Ku said. Taekwang’s strong ties with Nike were key to its survival when the tide turned against the South Korean shoe-making industry in the late 1980s. Foreign brands were moving to countries with cheaper wages, forcing once-profitable footwear companies to close. Taekwang established subsidiary Taekwang Vina, which in 1995 became one of five Nike contractors in Vietnam. In the late-1990s, Taekwang came under scrutiny for allegations of unsafe labour conditions in Vietnam. An Ernst & Young audit found workers at the company’s factory near Ho Chi Minh City being exposed to dangerous levels of toxic solvents. The resulting protests and consumer boycotts led Nike to announce the elimination of such substances at its subcontractors.
In compliance
A spokeswoman for Nike said that all Taekwang factories are in compliance with Nike’s code of conduct, which meets or exceeds international standards, and are subject to regular audit. A Taekwang spokesman declined to comment on its labour practices.
“Taekwang has shown a commitment to progress through their approach to modernization, a culture of safety and lean-based management for health, safety, environment and human resource management,” Claire Wahl, a Singapore-based vice president for sourcing for Nike in Asia, said in a statement. “We continue to build our relationship with Taekwang as they evolve.” Today, Taekwang’s two factories in Vietnam produce almost 71 per cent of its output. The company is currently building a third factory in the southern city of Can Tho in order to boost its ability to supply Nike by as much as 15 per cent. Yet with Nike’s growth rate expected to slow to the low- to mid-single digits, according to Cindy Wang, an analyst at Taipei-based CL Securities Taiwan Co., Taekwang is turning to other projects for the long term. In July, the company received a license to build a US$2.3 billion, 1,200-megawatt thermal power plant in northern Vietnam. To be completed in 2022, it would allow Taekwang to sell electricity to the Vietnamese government for 25 years.
“Overall, in the long run, Nike will always be around, right?” Cindy Wang, analyst at CL Securities Taiwan Co
Taekwang also started work last year on a US$60 million fertilizer plant in Vietnam. A Taekwang spokesman said the company was also in talks to purchase a stake in Gemadept Corp., Vietnam’s biggest private port operator. Taekwang currently relies on Indonesia and China for almost 17 per cent and 13 per cent of its shoe production, respectively, and has plans to ultimately increase production in Indonesia. “Overall, in the long run, Nike will always be around, right?” said Wang. “Nike’s growth will slow, but given its scale, the number of orders for shoes will still be massive.” Bloomberg
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; 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 Thursday, September 14 2017 13
Asia M&A
Toshiba to focus on chip talks with Bain, but doesn’t rule out other suitors The Bain group’s latest offer is worth 2.4 trillion yen (US$22 billion) Makiko Yamazaki
T
oshiba Corp said yesterday it has agreed to focus on selling its prized chips unit to a group led by Bain Capital and South Korean chipmaker SK Hynix, although it is not ruling out a deal with other bidders. The announcement came after sources told Reuters on Tuesday that Toshiba was now favouring the Bain group after failing to bridge disagreements with rival suitor Western Digital Corp . Yesterday marks the third time the embattled Japanese conglomerate has failed to meet a target date to sell the US$18 billion business - the world’s second-biggest producer of NAND memory chips. Without an agreement soon, it will be difficult for Toshiba to gain by the end of the financial year in March, regulatory approval and hence the funds it needs to cover billions in liabilities at it U.S. nuclear unit. Toshiba said in a statement it had signed a memorandum of understanding with Bain to accelerate discussions, and hoped to reach agreement in late September. But it added that the memorandum was not legally binding and did not prevent it from negotiating with other parties. A representative for Bain was not immediately available for comment, while SK Hynix declined to comment. Western Digital, which jointly invests in Toshiba’s key NAND memory plant but which has been at loggerheads with the Japanese firm for much of the auction - said it was disappointed as well as surprised at the development given its legal position. “We remain confident in our ability to protect our JV interests and consent rights,” the California-based firm said in a statement. Sources have said that discussions with Western Digital faltered as Toshiba, fearing its partner was
angling to eventually take over the chip business, sought to limit the U.S. firm’s future stake in the unit.
Current offer
The Bain group’s latest offer is worth 2.4 trillion yen (US$22 billion), including a 200 billion yen investment in infrastructure, they said, declining to be identified as the talks were private. The group had been chosen preferred bidder in June. But those talks lapsed as Japan government investors who had been part of that consortium told Toshiba they were reluctant to close a deal in the face of legal challenges posed by Western Digital. The current offer by Bain and Hynix is designed to get around the legal risks by inviting the state-backed investors - the Innovation Network Corp of Japan and the Development Bank of Japan - to invest in the business only after any arbitration with Western Digital is settled. But it remains uncertain whether Toshiba will be able to complete the transaction by the end-March as Western Digital is likely to seek a court injunction on the sale. A
California court has ordered Toshiba to give the U.S. firm two weeks’ notice before a deal is closed. SK Hynix’s participation could also prolong antitrust reviews, industry watchers said. The South Korean chipmaker plans to limit its role to financing, but it’s unclear if it hopes to gain a stake in the future.
Key Points Toshiba says to step up talks with Bain, SK Hynix group Aims for deal by late September Western Digital says disappointed, confident of legal position If Toshiba does fail to secure sufficient financing by end-March, it is likely to report negative net worth, or liabilities exceeding assets, for a second year running - a scenario that could result in a delisting from the Tokyo Stock Exchange. Shares of Toshiba ended flat, while SK Hynix shares rose 1.3 per cent. Reuters
In Brief Treasury bonds
S. Korea say won’t sell 50-year bonds this year due to soft demand South Korea decided not to issue 50-year treasury bonds this year, a finance ministry official told Reuters yesterday. “Having conducted research, demand turned out to be weaker than we had expected earlier,” a finance ministry official said, declining to be identified. Earlier this month, the government said it may issue the bonds if there was enough demand. They would have been the nation’s longest-ever maturity. The issue could proceed next year if there is enough demand and economic conditions are favourable, the official said. Infrastructure
Philippines approves US$7.6 bln for subway, other infrastructure projects An interagency panel chaired by Philippines President Rodrigo Duterte has approved four major infrastructure projects worth PHP386.3 billion (US$7.59 billion), including bridges, roads and the country’s first subway. The Philippines, one of the world’s fastest growing economies, is overhauling its ageing infrastructure to boost its competitiveness, create jobs and attract foreign firms hesitant about power costs, logistics headaches and supply chains challenges. The latest bundle brings the total number of approved projects to 35 worth PHP1.2 trillion (US$23.6 billion) since Duterte took office in July 2016. The biggest plan approved on Tuesday was the PHP355.6 billion Metro Manila Subway Project, the first of its kind in the Philippines, and seen as an urgently needed solution to the sprawling capital’s notorious gridlock. It will be funded by overseas aid from Japan and construction is expected to start early next year. Shares
Crytocurrency
India cenbank looking into cryptocurrencies, “not comfortable” with bitcoin The Reserve Bank of India (RBI) has a group looking into cryptocurrencies as legal tender, a senior official said yesterday, but emphasised the central bank’s discomfort with bitcoin which has recently come under intense global regulatory scrutiny. “Fiat will be when the Reserve Bank, for example, starts issuing digital currency which you can
carry in cyberspace, you don’t have physical currency in your pocket,” Sudarshan Sen, an RBI executive director, said at a FinTech conference in Mumbai. “As regards non-fiat cryptocurrencies, I think, we are not comfortable with them,” Sen added. The central bank had not previously disclosed its plans on
cryptocurrencies and Sen did not provide any details on where discussions on the issue stand. It was unclear whether the group at the RBI plan to issue a recommendation on cryptocurrencies to the government, or if the review is at an early or advanced stage. Bitcoin is a digital currency that enables individuals to transfer value to each other and pay for goods and services by-passing banks and the mainstream financial system. Bitcoin slid 6.6 per cent on Friday, after reports that China was about to shut down local crypto-currency exchanges. On Tuesday, Britain’s Financial Conduct Authority (FCA) warned that initial coin offerings (ICOs), the practice of creating and selling digital currencies to finance start-up projects, are “very high risk” and speculative. Jamie Dimon, chief executive of JPMorgan Chase & Co, also came out strongly against bitcoin this week dubbing it a “fraud”, and adding that it will blow up. The virtual currency, not backed by any government, has more than quadrupled in value since December to more than US$4,100. Reuters
A CEO’s share purchase sent this Singapore stock to 10-year high Singapore’s Venture Corp. received a boost from its Chief Executive Officer Wong Ngit Liong yesterday -- the stock soared as his S$6.1 million purchase of 400,000 shares announced Tuesday inspired the market to follow suit. Shares of the electronics service provider rose as much as 10 per cent yesterday to its highest level since October 2007. This is the second time Wong has purchased shares in recent months. He bought 166,300 shares for S$2.08 million in July, ahead of Venture’s second-quarter results which recorded a 61 per cent increase in net income. “The buying sends a good positive signal, and the market is speculating that maybe third-quarter results could even be better than the second-quarter results, which means that the street consensus is too low,” Jarick Seet, head of small and midcap research at RHB Research Institute Singapore Pte. said by phone. Yesterday’s rally has pushed Venture’s advance this year to almost 70 per cent and all seven analysts surveyed by Bloomberg rate the stock a buy.
14 Business Daily Thursday, September 14 2017
International In Brief Cancellation
Ailing Air Berlin cancels more flights as pilots call in sick again Air Berlin was forced to cancel flights for a second day yesterday after pilots again called in sick in unusually high numbers, potentially complicating efforts to rescue the insolvent carrier. Air Berlin, Germany’s second-biggest airline, is set to be carved up, most likely among several buyers, with binding offers due this Friday. The airline filed for bankruptcy protection last month after its biggest shareholder, Etihad Airways, withdrew funding following years of losses. However, those losses are mounting as more plans are grounded. Air Berlin said it had cancelled 32 flights yesterday after around 150 pilots called in sick. On Tuesday, Air Berlin had scrapped about 100 flights. Some short-haul flights at Lufthansa’s budget airline Eurowings are also affected because it leases 33 planes with crews from Air Berlin. Air Berlin has already said the cancellations threatened its existence and could force it to shut down, jeopardising negotiations with potential investors and costing it several million euros a day. Tobacco
Philip Morris pledges US$1 billion to group fighting smoking Philip Morris International Inc. said it will spend about US$1 billion setting up a foundation to reduce the prevalence of smoking as the maker of Marlboro cigarettes aims to convert smokers into consumers of devices that don’t burn tobacco. Derek Yach, a former World Health Organization official who worked on a global tobacco treaty, will lead the group, according to a statement yesterday. The cigarette maker said it plans to spend about $80 million annually over 12 years on the project, starting in 2018. More than 3 million smokers have switched to Philip Morris’s IQOS, which heats rather than burns tobacco. The Marlboro maker has applied to the U.S. Food and Drug Administration for approval to market the device as a product that may reduce the risk of smoking-related diseases. The FDA said in July it’s considering regulations that would reduce the nicotine in cigarettes below addictive levels, which led to a slump in tobacco stocks. Pollution
EU carmakers offer conditional 20 pct CO2 cut by 2030 European carmakers offered a further 20 per cent cut to average carbon dioxide emissions in the next round of EU goals currently being drawn up, but said full compliance should wait until 2030 and remain conditional on consumer uptake of electrified cars. The industry needs a “clear and foreseeable time frame” for emissions goals beyond 2021, when a new limit of 95 grammes of CO2 per kilometre is due to enter force, said Daimler boss Dieter Zetsche, who currently chairs Brussels-based ACEA, the main European carmakers’ association. The further 20 per cent cut proposed by ACEA would reduce average CO2 emissions goal to 76 grammes per kilometre. Full implementation of the next round of goals should be conditional on consumer acceptance of the dozens of electric cars and rechargeable hybrids currently in development, Zetsche also told reporters at the Frankfurt auto show. “This conditionality principle links Europe’s long-term climate objectives to the reality of the market,” he said.
Eurozone
Juncker wants EU finance minister, no separate euro budget or parliament The idea of a euro zone finance minister has been promoted by French President Emmanuel Macron
T
he European Union should have a Minister of Economy and Finance but no separate euro zone budget or parliament, the head of the European Commission said yesterday. Jean-Claude Juncker said such a minister should be also the chairman of all euro zone finance ministers and be accountable to the European Parliament. He or she would be in charge of economic and financial issues not only for the euro zone, but for all European Union countries, Juncker said in a state of the union speech to the European Parliament. Creating a finance minister for the EU rather than for the euro zone, as proposed by France, is an attempt to prevent divisions among the 27 countries that will remain in the EU once Britain leaves in 2019, EU officials said. The idea of a euro zone finance minister has been promoted by French President Emmanuel Macron. Germany Chancellor Angela Merkel also said when she met Macron last
month that she could imagine creating a combined European finance and economy minister. “We need a European Minister of Economy and Finance: a European minister that promotes and supports structural reforms in our member states. The new minister should coordinate all EU financial instruments that can be deployed when a member state is in a recession or hit by a fundamental crisis,” Juncker said. He said that instead of creating a new post, the job should be given to a vice-president of the European Commission -- a suggestion that is bound to meet with vehement resistance from euro zone governments, especially Berlin.
The future
His comments are part of the debate on the future shape of the 19-country single currency area, which Juncker said should expand to take in all the other European Union members that are not yet part of it and do not have a formal opt-out option.
“Member States that want to join the euro must be able to do so. This is why I am proposing to create a Euro-accession instrument, offering technical and even financial assistance,” Juncker said, without giving details. He said that by the time Britain leaves the EU in March 2019, euro zone membership and participation in the EU’s banking union - which entails a single EU supervisor, resolution authority and deposit guarantee scheme - should be the norm for all EU members. Addressing French and German ideas of creating a separate budget for the euro zone, on top of the existing long-term EU budget, and a separate euro zone parliament, alongside the existing EU parliament, Juncker rejected both ideas. “We do not need a budget for the euro area but a strong euro area budget line within the EU budget. I am also not fond of the idea of having a separate euro area parliament. The parliament of the euro area is the European Parliament,” he said. He said the euro zone bailout fund -- the European Stability Mechanism (ESM) -- should be transformed into a European Monetary Fund and become an EU institution, rather than an intergovernmental one as the ESM is now. The future European finance minister would be in change of the new European Monetary Fund (EMF) as well, he said. He did not give more details of the new tasks the EMF could take on, saying only the Commission would make a proposal on that, as well as the prerogatives of a European finance minister, on Dec. 7. Reuters
Transportation
EasyJet muscles in on long-haul passengers with new connecting service In January, Ryanair said it hoped to start offering connections to long-haul flights from Norwegian and Aer Lingus from May, but later said that would more likely be from September Alistair Smout and Victoria Bryan
British budget airline easyJet launched a new booking platform yesterday to allow customers to more easily connect onto long-haul flights with other airlines, moving ahead of its rivals in a potentially lucrative market. Both easyJet and Ryanair have for some time been looking at so-called feeder flights to attract more customers, and have often said traditional carriers should use low cost rivals to bring passengers to their hubs. The move is an attempt to muscle into the market for connections at international hub airports currently dominated by the big global airline alliances - Oneworld, SkyTeam and Star Alliance. EasyJet passengers will be able to buy other airlines’ flights on easyJet. com and will also initially be able to connect onto long-haul flights provided by Norwegian Air Shuttle and WestJet at London Gatwick using the airport’s Gatwick Connect scheme. Peter Duffy, chief commercial officer at easyJet, said 70 million passengers currently begin journeys at easyJet airports, and make a stop before travelling across continents,
and that easyJet wanted a slice of that market. “This will open up lots of new competition for long-haul travel and will drive prices down,” Duffy told reporters. In January, Ryanair said it hoped to start offering connections to longhaul flights from Norwegian and Aer Lingus from May, but later said that would more likely be from September. It said technical issues were causing delays.
Key Points Budget airline partners with Norwegian, WestJet CCO sees easyJet taking slice of 70 million person market Move puts easyJet ahead of Ryanair, pressure on BA too The move also increases pressure on British Airways at Gatwick, RBC analyst Damian Brewer said, where it lacks the short-haul feed for its intercontinental routes. Shares in Norwegian were up 2.9 per cent, while easyJet’s rose 1 per cent.
Norwegian, one of the low-cost carriers shaking up the transatlantic market, said it hoped the deal would boost its long-haul ticket sales. “For us this is a great opportunity to increase passenger traffic on our long-haul routes from Gatwick. It is an additional sales channel for us,” a spokesman said. The Gatwick Connect scheme allows passengers to pick up their bags and drop them off at a transfer desk before going through security for their next flight. Passengers will have a minimum 2-1/2 hour connection time. EasyJet said it did not expect any additional costs as a result of the new service. Aviation consultant John Strickland said the deal would make customers’ lives easier, but as easyJet already operated very full planes, it was more a case of topping up business where available. “Importantly for easyJet it won’t pick up the tab for any missed connections or baggage disruptions,” he added. EasyJet also said it was in talks with carriers in the Middle East and Asia about joining the scheme, which would expand into other airports in Europe. Reuters
Business Daily Thursday, September 14 2017 15
Opinion
This lowball Singapore takeover takes some explaining Andy Mukherjee a Bloomberg Gadfly columnist
I
f he were alive today, the rubber and pineapple king of 1930s Singapore would surely be asking whether the custodians of his empire just sold another chunk of it too cheaply. That’s the unavoidable conclusion from the drama surrounding the takeover of United Engineers Ltd., where a general offer is flirting with failure after the emergence of a rival buyer willing to pay more than the price accepted by OverseaChinese Banking Corp. U n i t e d E n g i n e e rs, a p r o p e r t y a n d construction engineering company, dates its origins to 1865 and was bought from its British owners by Lee Kong Chian, the plantations wizard who founded OCBC. It wouldn’t be the first time that the Singapore bank has faced accusations of offloading pieces of Lee’s legacy for less than their value. In 2012, OCBC and a subsidiary sold its stake in Fraser & Neave Ltd., setting off an intense battle for the beverage m a k e r b et w e e n Thai l a n d’ s ri ch est man, Charoen Sirivadhanabhakdi, and Indonesian billionaire Mochtar Riady. The US$11 billion saga ended with victory for Charoen. (His purchase also spurred Heineken NV into an expensive buyout of Asia Pacific Breweries Ltd., its joint venture with F&N and the maker of Tiger beer.) OCBC shortly thereafter tried to shop its shareholding in United Engineers to Charoen. When that didn’t lead to a deal, the bank and its affiliates reached out to Riady, but a transaction remained elusive. Two months ago, it was third time lucky. An investor consortium led by Chinese builder Yanlord Land Group Ltd. agreed to buy 33.4 per cent of United Engineers from OCBC and its insurance unit at S$2.60 (US$1.93) apiece, a discount to the previous 12 months’ average price of about S$2.65. That it was a lowball bid became evident during the public offer triggered by the change of control. On Monday, Yanlord and co-acquirer Perennial Real Estate Holdings Ltd. had to stretch the deadline by a week, a second extension of the tender. According to Bloomberg reporter Abhishek Vishnoi, odds have risen that the cash deal may lapse. That’s because Yanlord and associates must cross the 50 per cent threshold for their offer to become unconditional. As of Monday, they had managed to gather only 34.79 per cent. Should they fail to get the remaining 15.2 per cent, the public offer would be scrapped. The fly in Yanlord’s ointment is Oxley Holdings Ltd., a Singaporean builder that s p ec i a l i z es i n n i ch e, u p sca l e projects. Oxley and its policeman-turnedtycoon chairman, Ching Chiat Kwong, have managed to acquire 14.86 per cent of United Engineers by buying at prices above S$2.60. Clearly, they think there’s more value in United Engineers than is reflected by the offer on the table. Should that assessment turn out to be true, OCBC management can expect a repeat of its 2013 annual general meeting where shareholders grilled it for selling F&N and Asia Pacific Breweries shares at S$8.88 and S$45 apiece, when eventually Charoen and Heineken paid S$9.55 and S$53. Back then, the bids were unsolicited and at a premium to market prices. “What’s the excuse this time?” Singapore’s rubber baron might have asked. Bloomberg Gadfly
Welcome to the great OPEC never-ending fire sale David Fickling a Bloomberg Gadfly
L
ike a retailer whose mid-season sale shades into an end-of-season clearance, and then into pre- and post-Christmas discount drives, OPEC’s production cuts are becoming less an exception than the norm. The latest reductions were pushed through by the Organization of Petroleum Exporting Countries and several other producers last November. They’ll now be extended by at least three months from their planned end next March and possibly into the second half of 2018, people familiar with the matter told Javier Blas, Wael Mahdi and Grant Smith of Bloomberg News. It’s not hard to see why. A sharp recovery over the past three months has done little more than bring crude prices back to where they were when the cuts were first agreed upon. Curtailing output is meant to lift prices, not leave them standing still - but maybe another crack at starving the market will succeed. The risk of extending them, though, is the same that retailers face in a permanent sale. Consumers get used to the new shape of the market, leaving those on the sell side with an enduring disadvantage. We can see that happening in the way non-OPEC producers have stepped up output in recent years. It’s easy to forget, but the journey from US$100 a barrel to around half that level started when Saudi Arabia boosted output in 2014 to snuff out the U.S. shale industry. Far from repeating its 1986 success in drowning high-cost rivals, Saudi Arabia has found itself struggling to stay afloat. Current prices are well below the break-even levels at which Riyadh can balance its budget. Meanwhile, the western hemisphere has boomed. OPEC forecasts output from Brazil will rise by 450,000 barrels a day between 2016 and 2018, and by another 380,000 barrels a day from Canada. The biggest winner, however, has been the U.S., which will add some 1.5 million barrels a day over the period, with 860,000 coming from Texas’s Permian Basin alone. In other words, the oil cartel hasn’t really squeezed the market by cutting output -- it’s just handed share to arch-rivals. The long-term picture is not much less
“
alarming. Since the mid-1980s glut, oil supply and demand has grown at a remarkably consistent rate only a little bit slower than global gross domestic product. Dislocations have largely correlated with periods of economic weakness -- as in 1998 and the early and late 2000s -- or when oil prices have risen rapidly, choking off demand, as in the mid-2000s. Over the past year or so, we’ve seen something different. The global economy is growing at a relatively robust 3 per cent to 3.5 per cent, yet crude prices are treading water and output growth is only just cracking 2 per cent again after flatlining for almost two years. The optimistic explanation is that we’re seeing a repeat of 1999’s weak patch, the one notable occasion in recent years when oil prices and output both fell in the absence of a weakening global economy. China’s voracious fuel demand turned that slide into a bonanza for the oil industry in less than a decade. A more worrying possibility is that the peak in oil demand is closer than we think. BP Plc doesn’t expect this until 2042 but Royal Dutch Shell Plc thinks the top could come by 2030; Goldman Sachs Group Inc. and Boston Consulting Group both see the chance of a peak in 2024 or 2025 as electric vehicles supplant conventional ones and natural gas replaces crude as a petrochemicals feedstock. Look at the world’s fastest-growing economies and a worrying picture emerges: China is by far the most oil-intensive. Countries like India, Indonesia and Mexico, which are likely to dominate global growth over the coming decade in the same way that China did since 2000, use far less. As Gadfly’s Liam Denning has argued, Saudi Arabia’s determination to sell a stake in the national oil company and loosen its economy’s dependence on the commodity support the case for demand weakness. Should that be the case, expect more output cuts. That suggests another parallel between the oil market and your local shops: When a retailer’s stock-clearance drives fail to juice the market, they have a nasty habit of turning into closingdown sales. Bloomberg Gadfly
A sharp recovery over the past three months has done little more than bring crude prices back to where they were when the cuts were first agreed upon
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16 Business Daily Thursday, September 14 2017
Closing Banking
HSBC’s incoming chairman set to face CEO succession questions
Group and British insurer Prudential, is the first outsider to become HSBC’s chairman in the lender’s 152-year history. Like the chairmanship, HSBC has only ever promoted Mark Tucker, the incoming chairman of HSBC, will likely internal candidates to become its chief executive. face questions over who will take over as CEO when he Some investors are nervous about the idea of an external meets investors in Europe’s biggest bank ahead of taking replacement for Gulliver amid worries that having outsiders up his post at the lender in October. in both chairman and chief executive roles would be a big Tucker takes over from Douglas Flint on Oct. 1 and one of departure for the lender and possibly too disruptive. his first priorities when he meets shareholders from next week will be deciding on whether to appoint an outsider to Tucker became a non-executive director of HSBC and chairman of the board’s nomination committee at the start succeed Stuart Gulliver or look within the bank instead. of September. Gulliver, who has been HSBC’s boss since 2011 and joined That committee handles executive succession planning and the bank 37 years ago, is due to step down next year. board appointments. Reuters Tucker, who previously led Asian insurance giant AIA
Fuel
Oil climbs as IEA sees fastest demand growth in two years Efforts to drain a global glut by the Organization of Petroleum Exporting Countries and partners including Russia are stifled by rising shale output Grant Smith
O
il rose as the International Energy Agency forecast the strongest demand growth in two years, while OPEC was said to discuss prolonging output cuts further into 2018. Futures gained 1 per cent in New York after rising 1.6 per cent the previous two sessions. The IEA boosted its forecast on stronger-than-expected consumption in Europe and the U.S., and said that inventories of refined products are subsiding to their five-year average. A six-month extension to supply curbs from the end of March is one of the options being considered by OPEC and its allies, according to a person familiar with the matter. Oil in New York has averaged about US$49 a barrel this year as efforts to drain a global glut by the Organization of Petroleum Exporting Countries and partners including Russia are stifled by rising shale output. U.S. crude inventories expanded by 6.18 million barrels last week, according to industry data, as oil processors gradually restarted following Harvey.
“The main message is that global oil demand is very strong in 2017,” said Bjarne Schieldrop, an analyst at SEB AB in Oslo. West Texas Intermediate for October delivery was at US$48.69 a barrel on the New York Mercantile Exchange, up 46 cents, at 11:54 a.m. in London. Total volume traded was about 8 per cent below the 100-day average. Prices climbed 16 cents to US$48.23 on Tuesday. Brent for November settlement added 42 cents to US$54.69 on the London-based ICE Futures Europe
exchange. Prices added 43 cents, or 0.8 per cent, to US$54.27 on Tuesday. The global benchmark crude traded at a premium of US$5.50 to November WTI. OPEC members are discussing prolonging the cuts ahead of a ministerial meeting scheduled for late November in Vienna, with a three-month extension seen as the minimum, the people said. The duration will depend on multiple variables, including the level of compliance, the pace of the output recovery in Libya and Nigeria, U.S.
shale supply and the strength of global demand. “The longer they can keep the cuts in place, the greater the chance that they will make reasonable inroads into the current inventory overhang,” said Ric Spooner, an analyst at CMC Markets in Sydney. “It’s hard to say whether they’ll go through with it at this moment. It would seem logical to continue.”
Oil-market news:
OPEC boosted its estimates for the amount of crude it will need to supply next year by 400,000 barrels a day to 32.8 million a day on increased demand projections for Europe and China. U.S. output will average 9.84 million barrels a day next year, the Energy Information Administration said in its monthly Short-Term Energy Outlook on Tuesday. That’s down from an August estimate of 9.91 million barrels. OPEC and allied oil producers will keep reviewing options for their agreement to cut output, and a final decision on extending the deal beyond March could be postponed until the first quarter of 2018, Kuwait’s oil minster said. Bloomberg
Racing
financing
Labour
Formula One’s CEO says goal is to extend race in Singapore
Indonesia tightens rules to curb money laundering, terror funding
Ex-Citi CEO says 30 pct of bank jobs at risk from technology
Formula One sees Singapore as an anchor venue and wants to extend the world’s most popular motorcar-racing series there beyond this year. Negotiations are on with organizers in the city to “continue to bring this great sport to Asia and Singapore,” Formula One Chief Executive Officer Chase Carey said in an interview with Bloomberg Television’s David Ingles. “We’re actively engaged in that discussion and it is our goal to reach an agreement that works for the both of us.” Singapore’s Ministry of Trade and Industry said in an email it’s in talks with Formula One to renew the contract. Discussions have continued for at least months on the fate of the series in Singapore after the races this weekend, the last under the current five-year contract. While the night race -- and its off-track entertainment lineup of stars like singer Ariana Grande and the Chainsmokers -- has helped boost revenue for Singapore, economic uncertainty as well as competition from Asian neighbours for the tourism dollar have led the city-state to project slower growth in visitor arrivals this year. “There’s great potential to continue to grow this event here and grow this event as really an anchor for Asia and really the whole world,” Carey said in Singapore. “And I think both of us recognize the great potential to continue to grow on what we’ve built here to date.” Carey, appointed when Liberty Media Corp. completed its acquisition of Formula One in January, declined to provide more specific details. This year’s Singapore Grand Prix takes place Sept. 15-17. Bloomberg
Indonesia has issued new regulations aimed at curbing money laundering and terror-related financing across a broader range of financial service providers, including money changers, credit card issuers and electronic money providers. The move is part of efforts by Indonesia to bring rules up to international standards and join the Financial Action Task Force (FATF), an inter-governmental body fighting money laundering. Indonesia was taken off an FATF blacklist two years ago. The new regulations, issued by Bank Indonesia (BI), cover transactions handled by non-bank financial institutions and were made public on its website yesterday. BI said the new rules balanced a need to contain the risks of money laundering and terrorism-related financial crimes and promoting economic growth. Eny V. Panggabean, BI’s executive director of payment system regulation, said the rules also addressed “developments in the industry, digital economy and innovations in payments that include a more complex money changer business”. The new BI regulations cover credit card issuers, electronic money providers, remittance and money transfer companies as well as fintech startups. Service providers now have to have an up-to-date list on alleged militants, radical organisations and individuals linked to the proliferation of weapons of mass destruction in order to cross check with customers. They must also assess customer risks depending on the country origin of an incoming transfer or the destination of outgoing transfers, and must not engage with so-called shell banks, which don’t have a physical presence in a country where they are incorporated. A financial service provider that fails to follow the rules could have its licence revoked and directors, commissioners or shareholders banned from the financial services business for five years. Reuters
Vikram Pandit, who ran Citigroup Inc. during the financial crisis, said developments in technology could see some 30 per cent of banking jobs disappearing in the next five years. Artificial intelligence and robotics reduce the need for staff in roles such as back-office functions, Pandit, 60, said yesterday in an interview with Bloomberg Television’s Haslinda Amin in Singapore. He’s now chief executive officer of Orogen Group, an investment firm that he co-founded last year. “Everything that happens with artificial intelligence, robotics and natural language -- all of that is going to make processes easier,” said Pandit, who was Citigroup’s chief executive officer from 2007 to 2012. “It’s going to change the back office.” Wall Street’s biggest firms are using technologies including machine learning and cloud computing to automate their operations, forcing many employees to adapt or find new positions. Bank of America Corp.’s Chief Operating Officer Tom Montag said in June the firm will keep cutting costs by finding more ways technology can replace people. While Pandit’s forecast for job losses is in step with one made by Citigroup last year, his timeline is more aggressive. In a March 2016 report, the lender estimated a 30 per cent reduction between 2015 and 2025, mainly due to automation in retail banking. That would see full-time jobs drop by 770,000 in the U.S. and by about 1 million in Europe, Citigroup said. JPMorgan Chase & Co. CEO Jamie Dimon cautioned in June against overreacting to the impact of technology on jobs. While the bank is using technology to reduce costs, that helps create other opportunities, Dimon said in an interview published on LinkedIn. He predicted that employee numbers at his firm will continue to rise -- as it hires more technology workers. Bloomberg