Foreigners succeed in Mainland markets Stock connection Page 8
Wednesday, July 26 2017 Year VI Nr. 1347 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Telecom
Hutchison’s mobile revenue in SARs sees 10 pct drop y-o-y in H1 Page 6
E-commerce
DSE and Alibaba open 4th SME training course in September Page 2
www.macaubusiness.com
Results
Industry
Pagcor sees 24.84 pct uptick in income for H1 Page 7
Mainland to challenge European cruise shipbuilders Page 9
Bye bye brick and mortar Labour
The number of non-resident workers in the construction sector in June fell by 25.5 pct y-o-y, and 2.6 pct m-o-m, according to DSAL data. In addition, fewer of the construction workers’ applications to labour in the city were approved, with only 2,182 authorised during the month. In total 178,694 non-resident workers were registered during the month, a 2.1 pct drop y-o-y. Page 2
Construction on the RMB1.7 bln Sino-Portuguese Trade Centre in Hengqin has been kicked off, one of the 33 projects promoted by the gov’t to be developed in the area. Impetus is coming from local businessman Ma Chi Ngai, with support from IPIM, albeit not monetary, the institute says. Supporting projects and helping MSAR-based companies develop faster and better in the Hengqin area is the purpose.
Regional integration Page 4
HK Hang Seng Index July 25, 2017
Come on, contribute, please
Pensions The gov’t could begin “large-scale lobbying” to attract more local companies to its Non-Mandatory Central Provident Fund Scheme, says local expert, given that the “future impact is not very encouraging”. Recent meetings between the Social Security Fund and the gaming sector come after last year’s results show a 4.8 pct decrease in its contribution to the FSS, while the majority of funding, at MOP13.5 bln, was still being provided by the gov’t. Page 3
Watch the match
TV rights Chinese football followers are joining the global ranks of fans stuck to its TV sets regularly to witness the evolution of the major European leagues. But behind an increasing offer there is an intense fight to acquire the broadcasting rights. Page 8 26,852.05 +5.22 (+0.02%)
Worst Performers
HSBC Holdings PLC
+2.27%
Cheung Kong Property
+0.48%
China Mengniu Dairy Co Ltd
-2.96%
China Unicom Hong Kong
-1.37%
China Shenhua Energy Co
+1.47%
China Construction Bank
+0.31%
China Merchants Port Hold-
-2.43%
China Resources Land Ltd
-1.24%
AAC Technologies Holdings
+1.43%
Galaxy Entertainment Group
+0.21%
Hang Lung Properties Ltd
-2.43%
China Life Insurance Co Ltd
-1.18%
Hang Seng Bank Ltd
+0.73%
Industrial & Commercial
+0.19%
Want Want China Holdings
-1.50%
Geely Automobile Holdings
-1.18%
Hong Kong & China Gas Co
+0.68%
Bank of Communications
+0.17%
China Resources Power
-1.45%
China Petroleum & Chemical
-1.17%
26° 32° 26° 33° 27° 31° 27° 32° 27° 31° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
More Bay momentum
2 Business Daily Wednesday, July 26 2017
Macau Employment
Fewer non-resident construction workers in June The city also cut the approvals of non-resident construction workers during the month Cecilia U cecilia.u@macaubusinessdaily.com
T
he city saw a decline in the number of non-resident construction workers in the month of June, from 34,221 in May to 33,322 in June, posting a drop of 2.6 per cent monthon-month and 25.5 per cent year-on-year, the latest data released by the Labour Affairs Bureau (DSAL) revealed. DSAL indicated that, of the total non-resident construction workers, there were 1,041 workers directly hired by gaming operators. The city’s authority had authorised fewer non-resident construction workers’ applications to work in the city, with only 2,182 workers authorised in June of this year, compared to 6,153 in May and 7,309 in June of last year. The city had a total of 178,694 non-resident workers as at the end of June,
posting a slight decrease of 83 workers month-onmonth and a drop of 2.1 per cent when compared to the 182,459 workers registered a year ago. Among other industries, the hotels, restaurants and similar activities sector had the largest number of non-resident workers, amounting to 49,905 workers, down 200 workers vis-a-vis the 49,705 registered in May, but a 5.2 per cent increase when compared to the same month of last year. The number of non-residents working in hotels and
restaurants accounted for 28 per cent of the total number of hired non-resident workers in the city. The second most populous sector was that of domestic work, taking up 14.6 per cent of the total, amounting to 26,087 workers in the month of June. The number of non-resident workers engaged in domestic work increased both month-on-month and yearon-year, up 1.2 per cent and 9.6 per cent, respectively. There were a total of 20,342 non-resident workers involved in wholesale and
retail trade in June, a 5.1 per cent increase year-on-year, while those in real estate and business activities amounted to 19,411, up 6.8 per cent year-on-year.
Fewer Chinese workers working in June
According to the DSAL data, there were a total of 113,590 non-resident workers from mainland China working in Macau as at end-June, the amount dropping both month-on-month and yearon-year, down 472 workers and 3.9 per cent, respectively. Among the total number of
Chinese workers in Macau, 30,719 were construction workers and 36,925 were engaged in hotels, restaurants and similar activities. Workers from the Philippines were the second largest group in the local employment scene, amounting to 27,498 and followed by workers from Vietnam, totalling 14,833. The two aforementioned places of origin experienced year-on-year increases, with the amount of workers from the Philippines rising 9.6 per cent and those from Vietnam up by 224 workers.
Interpellation
DSI to roll out update address cross-departments system Cecilia U cecilia.u@macaubusinessdaily.com
The Identification Bureau (IB) will launch a new system that will allow the Bureau to share updated addresses of residents which approve for their data to be shared with other public departments. In response to legislator Ella Lei Cheng I’s interpellation, the Public Administration and Civil Service Bureau (SAFP) stated that the MSAR government has already rolled out policies to improve the efficiency of over 40 public services, including measures for the transfer of business registrations or criminal records through paper or electronic documents or online data. The SAFP claimed that the government will extend to some 90 public
services during the 2018 to 2019 period. With the government determined to introduce e-government, the SAFP reported that the local authorities had completed an update to the cross-border licensing procedures covering 18 areas such as retail, food & beverage and travel agencies last year. Currently, license application procedures of 27 other areas - covering hotels, gaming venues, medical and others - will be the focus of optimisation this year. Moreover, the government introduced e-registration in different areas such as the notary service registration and marriage registration at self-service machines. According to the SAFP, as of June 26, there were a total of 68 multi-functional
machines at 44 locations, providing 24 services of nine public departments. In order to improve the internal efficiency between
government departments, the government built a public service management platform which is being utilised for the centralised
recruitment system. More public services might be included on the platform according to future necessities, stated the SAFP.
E-commerce
Yacht scheme
DSE and Alibaba to open 4th training course for SMEs in September
Free yacht travel scheme on trial at Guangzhou
The Macao Economic Services (DSE) and Hong Kong-based Alibaba Entrepreneurs Fund are introducing the fourth training course for local SMEs (small and medium sized enterprises) and young entrepreneurs on the e-commerce platform and developments, to be held September 16, 17, 23 and 24. The course allows trainees to obtain information from local specialists about Macau’s e-commerce laws, intellectual property, and cross- border freight logistics. Registration for the course, co-ordinated by the Centre of Technological
Productivity and Transfer of Macau (CPTTM), is open until August 22. 30 trainees will be selected from those who apply for the course with the submission of an e-commerce related development proposal.
A Macau yacht had its first trial run under the free yacht travel scheme on Monday starting at Nansha, Guangzhou, according to a release by the The Marine and Water Bureau (DSAMA). The test covered the latest approach of the joint clearance system, the declaration while crossing borders and the docking procedures under the scheme. Both related parties from the Guangdong and Macau government will work further to improve the scheme - such as the cross border system after the
evaluation of the trial on Monday, the release noted. Last month, the Chinese Ministry of Transport - together with the Chinese Ministry of Public Security, the General Administration of Customs and the General Administration of Quality Supervision, Inspection and Quarantine - jointly approved the implementation of the yacht travel scheme to the Nansha Area of Guangzhou, Hengqin Area of Zhuhai and Qianhai and Shekou Area of Shenzhen of the China (Guangdong) Pilot Free-Trade Zone. C.U.
Business Daily Wednesday, July 26 2017 3
Macau Pension funds
Improving the sales pitch With the Social Security Fund 2016 annual report revealing an increase in the fund’s expenses and a decrease in the gaming sector’s contributions, a local public administration expert believes a larger effort should be made by the MSAR government to motivate local companies to join the new Non-Mandatory Central Provident Fund System in 2018 Nelson Moura nelson.moura@macaubusinessdaily.com
T
he government should initiate “large scale lobbying” to attract more local companies to adhere to its voluntary Non-Mandatory Central Provident Fund System, according to Kin Sun Chan, an Assistant Professor at the Department of Government and Public Administration at the University of Macau (UM). “I don’t think the government can encourage a lot of companies to join the new Social Security Fund (FSS) provident fund. A lot of companies are just having a look at what this plan is, but so far its future impact is not very encouraging,” Mr. Kin added. More education or
advertisement campaigns to increase public knowledge of the new plan should be created to make it “more popular” and encourage more companies to join it, Mr. Kin told Business Daily. The new scheme will start being implemented in January of 2018 and foresees a 10 per cent minimum requirement contribution, with 5 per cent from the employee’s basic salary and 5 per cent from the employer. Th e n o n -c o m p u l s o r y provident fund is a subset of the FSS, aimed at strengthening the protection of senior Macau residents. Recently the Vice-President of the FSS, Chan Pou Wan, had a meeting with representatives from the six gaming operators in the MSAR, in order to incentivise the sector - which recurs mainly to private pension
plans for its employees - to adhere to the new system. According to the recently published FSS 2016 annual report, the level of contribution by the gaming sector to the fund decreased by 4.8 per cent yearly in 2016 to MOP3.6 billion, with the majority of the total MOP20.5 billion in revenues of the fund still being represented by the annual MOP13.5 billion provided by the MSAR government. Despite the decrease in the gaming sector’s contribution, the FSS revenues still managed a 4.3 per cent year-onyear increase in 2016, mainly due to a 2,680 per cent yearly increase in investment and currency profits, which reached MOP1.1 billion. For Mr. Kin, the decrease in contributions by the gaming sector in 2016 was due to the 26 consecutive months of
declining gaming revenues, and despite the current sector stabilisation, the amount provided by the Macau government might have to increase in the future. In order to include more companies, Kin believes Macau should take some lessons from Hong Kong, which introduced the Mandatory Provident Fund Scheme (MPF) in 2000 that allowed older employees to keep their previous plan. “Maybe in later stages the new plan should also be made compulsory,” he told Business Daily.
Supporting the city
The amount of general expenses incurred by the FSS increased by almost 14 per cent year-on-year in 2016 to MOP3.9 billion, an increase that was justified by the department as being based on
numerous factors. In July of 2016 the amount of pensions and social security subsidies was increased by the government, leading to a 15.4 per cent year-on-year increase, to MOP3.4 billion, in that year, with pensions for elderly and disabled residents representing 86.8 per cent of this amount. “Benefits should be adjusted to inflation, so [the increase in pensions and subsidies] is understandable,” Mr. Kin told Business Daily. The salaries and number of public employees was also increased in 2016 - with public servants in the 100 index (index ranges in value from 30 to 1,100) seeing their salary increased from MOP7,900 to MOP8,100 - a factor that also contributed to the higher level of expenses in that year, according to the report. advertisement
4 Business Daily Wednesday, July 26 2017
Macau Opinion
José I. Duarte* Free rides? The administration carries out many public consultation processes concerning the most varied subjects. Some end up without much ado about the results. Others obtain greater visibility in the media. The report on the results of the consultation on the ‘management and operation’ of the light rail system falls into the second category. One of the most significant questions turned out to be the application of fines to the persons who refuse to cede the priority seats to those entitled to them. The subject itself may seem minor, and the arguments not too strong. But the conclusions advanced in the report are not without consequences, and their analysis may be instructive. Apparently, a majority of people who contemplated the subject thought that it was inappropriate to apply fines to people who might refuse to surrender the priority places to those for whom they are meant. The argument used may be broken into two parts. First, people indicated that it might be difficult to identify the persons who need to use them. Second, they added, in such circumstances, it was likely that other ‘social problems’ might arise. None of the arguments seem strong in abstract or practical terms, but their consequences are noteworthy. Granted, some people may look younger than they are; pregnancies may not be evident, especially in their early stages, and so on. The weight of the argument is, however, doubtful. Elder people, pregnant women, people with physical difficulties, or persons accompanied by small children are usually easily recognizable. It takes some flight of reasoning to conclude that because there may be some cases where their ‘condition’ might be difficult to establish, then that asocial behavior should not be penalized. Furthermore, the vague ‘social problems’ are not identified and assessed; they do not provide any substantial support to the conclusion reached. Without logical support, the acceptance of the suggestion is made, presumably, because of either convenience or popularity – or both. The government acquiesced, adding another argument: that it did not raise operational problems. Now think about the possible implications. Hardly any of the ‘finable’ offenses mentioned in the consultation raise operational problems. Why not abolish them all then? For example, trains can operate whether or not some (or all) users bought their tickets. The report conclusions make the argument for not fining them unbeatable. And free trips would be popular, as any consultation on the subject would undoubtedly prove. *economist and permanent contributor to this newspaper.
Regional integration
Keep building up the Bay Development by a Macau businessman of a centre for business and trade exchange between Portuguese-speaking countries and China in Hengqin is on the way, targeting completion in 2019 Sheyla Zandonai sheyla.zandonai@macaubusiness.com
A
multi-functional complex in Hengqin, aiming to attract businesses from Portuguese-speaking countries and China, is being put forward by a Macau businessman, Frederick Ma Chi Ngai, the Macao Trade and Investment Promotion Institute (IPIM) told Business Daily. Construction of the RMB1.7 billion (US$251.84 million/ MOP2.02 billion) Sino-Portuguese Trade Centre, which includes office space, bilingual secretarial and legal services, as well as retail space and a hotel, kicked off last week in the Macau-Guangdong Co-operation Industrial Park, according to official information from the Zhuhai government. The centre is part of the first batch of 33 projects promoted by the Macau SAR government to be developed in the area, according to the Zhuhai government. Speaking to Business Daily, a spokesperson for Ma, the project’s developer – who was unreachable due to a business trip – said that its completion is expected in 2019. Ma is Vice Chairman of All-China Youth Federation and Chairman of Macau SAR Science and Technology Development Fund. Ma’s company developing the project is San Pak Ka Investment Company Limited, registered both in Macau and in Hengqin, according to his spokesperson.
According to official information from the neighbouring city on the Mainland, IPIM’s President Jackson Chang was referred to as saying that the institute will provide support to projects and help Macau-based companies develop faster and better in the Hengqin area. Ma’s spokesperson explained to Business Daily that IPIM has also provided support to the project by assisting San Pak Ka to “connect with the Hengqin government.” More concretely, the spokesperson explained, “IPIM assisted in the negotiations for the land price,” adding that the constructor in charge of the project is a public mainland Chinese company.
Sino-Luso trades
Although some of the activities to be promoted at the Sino-Portuguese Trade Centre – such as the exhibition of products from Portuguese-speaking countries – may overlap with initiatives developed by the Forum for Economic and Trade Co-operation Between China and Portuguese-Speaking Countries (Forum Macao), IPIM says the activities are different in nature. “The Sino-Portuguese Trade Centre [in Hengqin] is a private initiative, while the Forum is linked to the government,” a spokesperson from IPIM told Business Daily. The communications person for the Forum Macao explained on the phone that the centre being developed in Hengqin “has no connection with the Forum.”
Moreover, Ma’s spokesperson said, “IPIM is not providing any kind of funding for the project, but only assisting in promoting the initiative amongst local Macau companies which may be interested [in the project].” About IPIM’s support for the trade centre initiative in Hengqin, the communications representative for the Forum said it shows that “there are various Macau government agencies committed to promoting the agenda of Portuguese-speaking countries, which suggests the platform is working.”
SMEs’ approach
Speaking to Business Daily, Jorge Neto Valente Junior, Vice-President of the Macao Youth Entrepreneur Association said that since the project in Hengqin “has not yet taken shape, it is difficult to opine.” However, the young entrepreneur added that “it is always good to have initiatives supporting small and medium-sized enterprises (SMEs), and [the Sino-Portuguese Trade Centre] is correct in supporting the use of Macau as a platform for the Portuguese-speaking countries, which is also in tandem with the One Belt, One Road [initiative].” Valente Jr. commented that one of the problems at this point is finding the “right products and services” to support SMEs to enter mainland China via Macau, as well as using the city as the exiting point of Chinese products for Portuguese-speaking countries. “It is good to have another option for SMEs. At least in Hengqin it might be easier to find a workforce. We have to wait and see, but I’ll be waiting with some enthusiasm. It will depend on the policies and the ways they are implemented, but the ingredients are there for this to work,” he concluded.
Employment
Over 4,000 visitors for this year’s Youth Career Expo The Labour Affairs Bureau (DSAL) revealed that the two-day Youth Career Expo 2017 held last weekend attracted a total of 4,066 visitors. According to the data provided earlier during the expo press conference, the number of visitors of last year’s expo was 4,240. In response to Business Daily enquiries, the Bureau said a number of firms conducted interviews with job seekers at the Expo, and the DSAL claimed it would stay in contact with participatory firms and follow-up on the recruitment conditions. This year’s edition attracted 70 local companies and institutions, providing a total of some 4,700 employment placements, covering roughly 30
different types of work placement. ‘Given that the related event just ended, the current stage will focus on
organising and reviewing the event, in order to optimise and improve next year’s edition,’ stated the Bureau.
Business Daily Wednesday, July 26 2017 5
Macau Lusophone
Fruitful trip The MSAR’s delegation trip to Chinese and Portuguese-speaking countries’ businessmen meeting in Cape Verde resulted in local companies being involved in half of the 10 business agreements signed during the event
C
ompanies from Macau are involved in half of the 10 agreements signed during a meeting between Chinese and Portuguese-speaking countries businesspeople that took place in the African country of Cape Verde in June, according to the Macao Trade and Investment Promotion Institute (IPIM) Executive Director, Gloria Ung. IPIM took a delegation of “66 businessmen to the Meeting for Economic and Trade Cooperation between China and Portuguese Speaking Countries” held in Cape Verde’s capital, Cidade da Praia, last month. The signed protocols revolved around the areas of construction and construction materials, health care, information exchange, and coffee distribution, with a focus on companies from mainland China, Angola, Cape Verde, Portugal and Macau, the IPIM representative stated. The Macau delegation was also joined by more than 60
businesspeople from mainland China, with around 30 coming from delegations from the Chinese provinces of Liaoning, Fujian and Hunan. The Chinese delegation was organised by the China Council for the Promotion of International Trade (CCPIT) In total around 130 businessmen and companies from mainland China and the MSAR were in Cape Verde, where they visited tourism and leisure infra-structures, Ms. Ung said, without providing an estimate on the amount of investment agreed upon.
Follow-up work
After travelling to Cape Verde, the Mainland and Macau delegations travelled to Lisbon, in Portugal, for the Business Forum for business opportunities between Portugal, mainland China and the MSAR, which attracted more than 200 visitors and resulted in the signing of two projects between Macau and Portuguese businessmen in the information and health
Praia, the capital city of Cape Verde
sectors, Ms. Ung added. The Macau delegation also took part in the Forum & International Business Fair China-PLPE (FIN 2017) held in the Portuguese city of Porto between June 21 and June 23. The IPIM Executive Director also accompanied the delegation from the Chinese province of Fujian in its trip to São Tomé and Príncipe, the first contact with the African Lusophone country after its reinstated diplomatic relations with mainland China. The São Tomé and Príncipe authorities are very interested in Chinese investment through Macau mediation, especially in the tourism, hotel and fishing sectors, Ms.
Ung said. The Fujian representatives signed a cooperation agreement in the fishing sector and are currently evaluating the possibility of an investment, with a Macau businessman also considering the possibility of investing in a themed hotel or in the country’s fishing sector, she added. The African country reinstated diplomatic relations with mainland China on December 26 of last year after severing its ties to Taiwan, and joined the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao) in March. Ms. Ung also said that the increased interest in products
and services from Lusophone countries led to the creation of a special area at the Macao International Trade & Investment Fair (MIF) to be held in October. This space, named PLPEX by the organisation, will work “side by side” and be held at the same time as the 21st MIF. The IPIM Executive Director clarified that this decision of individualising and placing PLPEX at MIF’s side is part of Beijing’s strategy to reinforce Macau as a platform for cooperation between the Mainland and Lusophone countries. The next meeting between Lusophone, Macau, and Chinese businessmen will take place in Portugal in 2018. Lusa advertisement
6 Business Daily Wednesday, July 26 2017
Macau
Flights
Starting strong The first direct connection between mainland China and Portugal will start today with those first four inaugural flights traveling to Lisbon selling out completely.
T
he first four direct flights between mainland China and Portugal are “practically sold out” the Chinese airline company Beijing Capital Airlines stated, with the direct connection set to be inaugurated today.
In regard to the reverse direction between Portugal and China the occupancy rate is “around 75 per cent” according to the marketing department of Beijing Capital Airlines, a subsidiary of the Hainan Airlines Group (HNA). The flights will take place three
times a week - on Wednesday, Friday and Sunday - between the eastern Chinese city of Hangzhou and the Portuguese capital, Lisbon, with a stop in Beijing. The flight between Beijing and Lisbon will take around 13 hours, with the reverse route to take 12 hours. The current fastest connection between the capitals of the two countries takes 14 hours with a stop in Frankfurt, Germany. The Chinese airline also started a flight between Macau and the Chinese capital, to coincide with the connection to Lisbon, in order to serve around 15,000 Portuguese nationals currently residing in the MSAR. In the last three years the number
of Chinese tourists travelling to Portugal went up three-fold to reach 183,000, a number set to increase “exponentially” with the opening of the direct connection, the Portuguese Secretary of State for Tourism, Ana Mendes Godinho, stated in April of this year. Currently China is the largest source of tourists worldwide and, according to official statistics, around 135.1 million Chinese nationals travelled outside the Mainland in 2016, a 12.5 per cent year-on-year increase from the previous year. HNA is also a shareholder in Portuguese airline company TAP, through the consortium Atlantic Gateway and Brazilian company, Azul. Lusa
Telecom
Hutchison mobile revenue in SARs sees 10 pct y-o-y drop in H1 Fixed line and mobile telecom operator Hutchison Telecommunications Hong Kong Holdings saw a 10 per cent drop in revenue from its MSAR and HKSAR mobile customers, according to a company filing with the
Hong Kong Stock Exchange yesterday. In total, the group – which operates only mobile services in the MSAR – saw total revenue from the SARs’ mobile segments amounting to HK$3.12 billion, split primarily between
its local service revenue and hardware revenue, which amounted to HK$1.61 billion and HK$1.17 billion, respectively during the six-month period. ‘More than 90 per cent of the decline in mobile
revenue was the result of lower hardware revenue following weaker demand for new smartphones. Hardware revenue decreased by 22 per cent,’ year-on-year, notes the filing. The 1 per cent drop in net customer service revenue, which totalled HK$1.94 billion, ‘was mainly the result of a 9 per cent decline in roaming revenue’ yearon-year, however ‘slowed down in the first half of 2017 from a drop of 19 per cent in the same period in 2016 against 2015, with the signs of recovery after introduction of various new roaming products and promotions’. The group also saw a loss in its standalone handset sales margin, which fell 15 per cent year-on-year, reaching HK$17 million. For the mobile segment for the SARs, the earnings before interest, taxation, depreciation and
amortization (EBITDA) fell 3 per cent year-on-year, hitting HK$647 million, while its capital expenditure (CAPEX) rose 1 per cent year-on-year, to HK$197 million excluding licensing. The drop in EBITDA was ‘mainly reflecting a decrease in roaming service margin and lower standalone handset sales margin, partially offset by improved local net customer service margin’. In total the group was serving ‘approximately 3.3 million customers in the SARs, of which postpaid customers amounted to 1.48 million, while prepaid customers increased 12 per cent year-on-year, to 1.78 million. ‘The group is deploying the latest technologies and enhancing existing network architecture as the industry moves towards 5G and IoT (internet of things),’ points out the filing.
Alcoholic beverages
Rémy Cointreau sales up 10 pct on back of stronger sales in SARs, China and Singapore Global premium spirits seller Rémy Cointreau, maker of the famed Rémy Martin and Louis XIII cognacs, has seen a 9.9 per cent uptick in sales in its first fiscal quarter, ended June 30, according to a company release. ‘Geographically, Asia Pacific posted an excellent performance in the first quarter, with brisk business in Greater China and Singapore, as well as improvement in Japan,’ notes the release. In particular, the group’s ‘House of Rémy Martin’, encompassing the
two renowned cognac brands, underwent ‘organic growth’ of 18.7 per cent year-on-year, which the group notes as ‘generated by the continuation of highly favourable trends in Continental China and an improved environment in Macau, Hong Kong and Japan. The House of Rémy Martin division of the company saw a reported growth of 20.5 per cent in sales, reaching 156.6 million euros, of the total 240.2 million euros in sales by the group during the three-month period. The group’s
brands themselves saw a 12.3 per cent growth in sales during the period, despite a 1.9 per cent drop in its Liqueurs & Spirits category, for which sales hit 58.6 million euros. Partner brands of the group saw sales drop 18.5 per cent during the period, reaching 25 million euros. ‘Strengthened by this positive start to the year, Rémy Cointrea confirms its guidance of growth in current operating profit over the financial year 2017/2018, assuming constant exchange rates and consolidation scope.
Business Daily Wednesday, July 26 2017 7
Gaming GGR
Strong VIP last week surprises analysts
‘
S
urprising ly strong’ gross gaming revenue last week, point out analysts at J.P.Morgan, placing estimates at MOP17.25 billion for the first 23 days of the year. Estimates are that last week’s run-rate hit MOP805 million per day. ‘Our checks with major junkets indicate that VIP volumens have indeed accelerated sharply into last week as summer holiday starts, to near recent golden week levels (which in fact was better than what the junkets had expected,’ note the analysts). VIP is outperforming mass, and ‘by a big margin’, with the analysts estimating that month-to-date VIP is about
50 per cent stronger year-onyear, as compared to low-40 per cent in June. This ‘while mass is growing in the midteens’ year-on-year, ‘similar to 14 per cent to 15 per cent in June’. The VIP segment, ‘for now, continues to see broad recovery across big and smaller junkets, a trend admittedly well above what we had envisioned,’ note the analysts. Estimations for whole-July could reach a 30 per cent year-on-year uptick (or between 29 and 31 per cent growth year-on-year), ‘to about MOP23 billion, printing another record growth during this upcycle’. ‘We expect August to be strong too at about mid-20 per cent growth, before the
tough comp kicks in from September, when growth could slow to about 10per cent to 15 per cent,’ point out the analysts.
Estimates for gross gaming revenues for whole-2017 are for a 15 per cent year-on-year uptick, slowing in following years, with a 6 per cent
predicted growth in full-2018 and a 3 per cent rise yearon-year in 2019, driving up to 5 per cent in full-2020, according to the forecasts.
Results
Pagcor sees 25 pct uptick in income for H1 Gaming operator and regulator, the Philippines Amusement and Gaming Corporate (Pagcor), has seen a 24.84 per cent uptick in income for the first six months of the year, according to information released by the authority. In total, the authority raked in PHP3.05 billion (MOP485.49 million/ US$60.37 million) during the period. Net income derived from gaming saw a 13.46 per cent increase yearon-year during the period, reaching
PHP15.00 billion (MOP2.38 billion), while revenue from gaming operations reached PHP28.27 billion, an 8.39 per cent year-on-year rise. Pagcor’s operating activities generated PHP11.33 billion in income from casino customers during the six-month period, which was overshadowed by the income from junket operations, non-casino customers and other income, at PHP18.23 billion. The 50 per cent government share of the period amounted to PHP13.33 billion.
Income from Poker operations totalled PHP32.36 million, while winnings from slot machines, electronic bingo and electronic gaming operations reached PHP6.11 billion, PHP4.4 billion and PHP848.92 million, respectively. Income from offshore gaming operations totalled PHP1.08 billion, while that from licensed casinos amounted to PHP9.46 billion, according to the statements from the operator and oversight bureau.
Offshore gaming
Imperial Pacific claims to ‘resolve’ shareholding concentration The top 19 shareholders of Cui li Jie’s firm now hold some 82.66 per cent of the entire capital of the company, ten percentage points less than in 2014 Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Participation of major shareholding in the entire capital of Imperial Pacific International Holdings has dropped some 12.09 per cent since 2014, according to calculations based on the information provided by the company in a voluntary announcement with the Hong Kong Stock Exchange yesterday. The company claims the change in its shareholding structure, which it has pursued since 2014, has been
pursued to ‘resolve’ shareholding concentration, further noting that ‘the diversified shareholding structure of the company has continuously existed for a period of time.’ Inventive Start Limited’s shareholding participation in the entire capital of the company has decreased to 62.91 per cent (equivalent to some 90 billion shares) as at May 4, 2017, from 64.68 per cent in November 30, 2017, and from 75 per cent as at July 15, 2014. Inventive Start is wholly
and beneficially owned by Cui Li Jie, Executive Director of Imperial Pacific. As at the date of the announcement, public shareholders accounted for 36.84 per cent of the total (or nearly 52.67 billion shares), while Directors’ shareholdings by
Ms. Xia Yuki Yu amounted to 0.25 per cent of the entirety of shares. The 18 largest shareholders of the company – not including Inventive Star – currently hold 19.75 per cent of the issued share capital of Imperial Pacific.
Together with the controlling shareholder, the top 19 shareholders of the company hold approximately 82.66 per cent of the entire capital, down from 92.61 per cent as at July 15, 2014. The remaining 17.09 per cent of the entire issued shares of the company are held by more than 300 separate shareholders. In early July, Imperial Pacific opened the permanent facilities of its Saipan casino in the Marianas islands in the Pacific Ocean. The company expects to complete the construction of 15 villas, currently ongoing, by January 2018 as well as the construction of 374 hotel rooms by August 2018, according to a report from the Marianas Variety.
gamers,” Mr. Graboyes told the publication. GameCo is known for having created what they describe as the world’s first Video Game Gambling Machines (VGM) to be approved by U.S. gaming regulators, with the machines being introduced in casinos in Atlantic City in November of 2016. The machines produced by GameCo are arcade-style cabinets where players bet on single-player skill based games, with the company stating they allow the ‘same return to players as traditional slot machines’.
According to the GameCo CEO, although the MSAR and the American gaming markets differ considerably in the proportion of slot machines, both markets have the same type of new generation of gamers. “Both markets, as well as other international markets, are definitely focused on diversification and the ability to generate incremental revenue from new customers […] The entire casino industry is now keenly focusing on innovation with new products with an eye towards expanding the player base and attracting
a younger audience,” he added. Regarding the timeline of the planned entry into the local market, responses are pending from the company. Skill-based electronic gaming is currently not included in the legislation regulating gaming, with the Gaming Inspection and Coordination Bureau (DICJ) not having provided indications that it will discuss the issue. According to Mr. Graboyes, GameCo is looking to also expand into “Latin America, the UK, and the Netherlands, as well as specialty markets such as cruise ships”.
Technology
Breaking through The company responsible for the first regulated skill-based slot machines is looking to find a way into MSAR casinos Nelson Moura nelson.moura@macaubusinessdaily.com
American electronic gaming company GameCo is looking to enter the Macau market, according to statements made by the company’s CEO, Blaine Graboyes, to
website Esports Insider. “In Macau, we’re definitely looking to create some new games specifically for the Chinese gambler, while also bringing some of our best performing games from North America that will appeal to Asian
8 Business Daily Wednesday, July 26 2017
Greater china TV
Suning leads Mainland’s US$2 bln soccer rights frenzy The sums paid for local and overseas rights by Chinese firms have ballooned by as much as ten-fold over the last few years Pei Li and Adam Jourdan
I
n the high-stakes race to control soccer TV rights in China, with a potential market of hundreds of millions of fans, an electronics retailer is betting up to US$2 billion that could give it a near monopoly on broadcasting the sport at home. Suning Commerce Group, a retail conglomerate with annual revenue of around US$22 billion, owns Italian soccer club Inter Milan, and is fast securing the rights to air matches from Europe’s top leagues in China. It already owns rights to Spain’s La Liga and the Chinese Super League, has bought future seasons of topflight German and English soccer, and is looking to secure Italy’s Serie A and Asian soccer, three people familiar with its plans said. Suning’s rise to prominence is all part of China’s power-grab in world soccer, with Chinese clubs paying top dollar for star players and Chinese tycoons buying clubs across Europe. Backed by Beijing, China’s domestic sporting market - from soccer to basketball and beyond - could be worth RMB5 trillion (US$740 billion) by 2025. Key to a share of that profit is the right to show matches from major leagues, and Suning’s PPTV video streaming website is sweeping most rivals out of the way. Competition from Sina Sports and technology giant Tencent, though, means it’s costly to stay out in front. “Historically in China, there was good interest from fans but not a lot of competition between media rights buyers,” said Jamie Reigle, Hong Kong-based Asia Pacific managing director for Manchester United, the world’s wealthiest soccer club. “Now you have the digital platforms
that have come in and want to build an audience. That’s what has changed the dynamic.” PPTV paid 250 million euros (US$291.4 million) in 2015 for a 5-year La Liga deal, and this year agreed to pay US$700 million for three years of English Premier League (EPL) rights from 2019, and US$250 million for five years of Germany’s Bundesliga, a company source said. The Italian league hopes to generate around 80 million euros per season from selling the China rights, suggesting a price tag of 240 million euros for a typical 3-year deal. The sums paid for local and overseas rights by Chinese firms have ballooned by as much as ten-fold over the last few years. PPTV also took over the remainder of a 2-year rights deal to show Chinese Super League matches from sports media firm LeSports, which defaulted on payments due to debt problems at its parent company. It’s now also in talks to buy an up to 56 per cent stake in China Sports Media (CSM) from majority shareholder China Media Capital (CMC), said a CSM official, who asked not to be named. CSM is the primary rights holder for Chinese and Asian soccer. CMC President Clark Xu confirmed the firm was in talks with Suning, and other parties, to sell some of its CSM stake. The chief executive of CSM, which is valued at around 5 billion yuan, acknowledged the ongoing talks. Suning and PPTV declined to comment for this article.
Buyer beware
At a time when Beijing has been openly critical of “irrational” overseas investments, the stakes are high for buyers paying above the odds. A state television programme last
week on firms making risky overseas acquisitions named Suning’s Inter Milan buy as an example. Its deals do stand out. PPTV’s US$700 million deal for future EPL China rights was far above rival offers. Current rights holder Super Sports bid US$400 million, a person at the firm said, reckoning anything above US$500 million would mean a loss. Super Sports declined comment. And there’s no guarantee that winning exclusive rights means immediate profits. “Even if companies snatch exclusive content rights, in order to maintain influence and brand those companies will still have to repackage to TV stations at low prices or even for free,” Beijing Baofeng, the Chinese owner of Italian sports media rights group MP & Silva, said in a statement to Reuters. And in China, getting fans to watch more matches, and getting them to pay, are quite different. Challenges include rampant piracy and the late-day airing of many overseas games. Also, the introduction of strict rules on player transfers in China’s domestic league is hindering star signings - a key allure for paying fans. Ding Li, 21, a recent graduate in Beijing, said he only pays for occasional high-profile games and “when I really can’t find free or pirated” streams. Last year, he paid about
RMB10 (US$1.48) to watch Manchester United vs Arsenal on Super Sports. “I’ve no plans to buy a subscription. I like flexibility and most games can be found on pirate stream websites,” Ding, who supports England’s Arsenal and Germany’s Borussia Dortmund, told Reuters. It’s a commonly shared attitude. Wuhan DDMC Culture Co Ltd, which acquired Super Sports this month in a US$500 million deal, said in a filing that 80 per cent of Super Sports’ user base paid for oneoff games or single club “die-hard” membership - not full subscriptions. That means it can be a slow process to recoup the large price tags, even if Super Sports’ revenues are roughly doubling each year. A single match costs around RMB10, while a “die-hard” fan membership - giving access to one club’s games for the season - is RMB98. Full membership for an EPL season is RMB298 (US$44) - near what it costs for just a single month in Britain. Richard Young, Managing Director of NFL China, which promotes American football in the country, said real profits would come if platforms could dominate major sports, helping them bring in the fans and push up prices. “The dust hasn’t settled yet, but if there is consolidation it changes things massively,” he said. “If someone really does corner the market, then you’ll see that.” Reuters
Markets
Newest stock connect sees foreigners beating index Overseas investors have purchased a net RMB104 billion worth of stocks listed in the technology hub of Shenzhen as of Monday Jeanny Yu and Cindy Wang
Foreign investors have proved to be good stock pickers so far when it comes to their newest entry channel for Chinese stocks, but things may get rougher the rest of this year. In the seven months since China started a trading link between Hong Kong and Shenzhen, the top purchases of overseas investors have been Hangzhou Hikvision Digital Technology Co., Gree Electric Appliances Inc. and Midea Group Co. Each of the three has risen more than 50 per cent this year, as the Shenzhen Composite Index retreated 6 per cent -- one of the world’s worst performances in a year of record highs for many equity gauges. With such big surges, analysts are warning about excessive valuations on the three. Other hurdles loom for investors in the final months of the year, including a potential economic slowdown and a once-in-five-years senior leadership gathering of the Communist Party. “The buying was a little bit irrational
-- they are good stocks, but investors may have priced in too much earnings upside,” said Zhang Gang, a Central China Securities Holdings strategist based in Shanghai. Overseas investors have purchased a net RMB104 billion (US$15.4 billion) worth of stocks listed in the technology hub of Shenzhen as of Monday, since the trading link enabled them to buy the city’s stocks in December. “Those stocks were little favoured by local individual stocks before the Shenzhen connect, but they have become stock-market darlings after foreign investors came in,” said Chen Li, Hong Kong-based strategist at Credit Suisse Group AG. Hangzhou Hikvision makes video-surveillance products and is seeking to tap the growth of AI in China. Its net profit reported last Friday missed analysts’ consensus for the third consecutive quarter, according to data compiled by Bloomberg. Its shares trade at 34 times earnings, the highest since June 2015. Billy Feng at UBS Group
AG downgraded the stock to a sell this month, his second cut in less than four months. Current valuation suggests at least 35 per cent earnings growth in the coming three years, a challenging outlook given slower China growth and rising competition, Feng said. Midea, one of the world’s largest consumer appliance makers and famous for its purchase of German robot maker Kuka, trades around the highest levels in at least three years for its price-to-earnings ratio. Gree, which makes air-conditioners, also has a PE ratio near a seven-year high and trades around its most expensive ever against the Shenzhen Composite Index. Hangzhou Hikvision rose 0.2 per cent yesterday. Midea was unchanged, while Gree retreated 0.7 per cent. Challenging valuations aren’t a problem for everybody. “These companies managed to establish their domestic champion positions and they will continue to strengthen their competitive advantage, leveraging their size,” said Francois Perrin, portfolio manager at East Capital Asia Ltd. in Hong Kong. “For long-term investors, they offer a safe access to the second-largest equity market in the world.” But others say it’s time to hold off. Bruce Yu, a fund manager at
Franklin Templeton Sinoam Securities Investment Management Inc. in Taiwan who holds Shenzhen-listed shares, said investors should only consider buying the three companies if their Price/Earnings to Growth ratio ratios go below 1. The PEG ratio compares a stock’s PE multiple with its projected profit growth rate. Gree’s current PEG is under 1, Midea is 9.84 and Hikvision is 1.2, according to data compiled by Bloomberg. “They are stocks with stable profitability and growth prospects,” Yu said. “But I would only consider buying until valuations fall back to reasonable levels.” Bloomberg News
Business Daily Wednesday, July 26 2017 9
Greater China Made in China 2025
In Brief
National shipbuilders tap rising cruise demand European yards currently have 68 cruise ships on order up to 2025 Brenda Goh
European shipbuilders’ dominance in the US$117 billion passenger ship industry may come under threat as Chinese rivals move into the sector to tap booming local demand for cruise holidays. China’s government has earmarked cruise shipbuilding as a major objective in its “Made in China 2025” programme to upgrade its domestic manufacturing and support jobs at its shipyards, as domestic demand for cruise trips increases 30 per cent a year. This push into the higher-value cruise vessel sector is rattling European yards, leaders in an industry that requires sophisticated supply chains to make and fit out complex luxury liners. Some European shipbuilders fear China could come to dominate the cruise ship market, much as it has done in cargo ships over recent decades. “This is a state objective that threatens to cause tremendous distortion in competition,” said Reinhard Luken, chief executive of the German Shipbuilding and Ocean Industries Association (VSM), which represents German maritime firms such as shipbuilders Meyer Werft and Meyer Turku. “There are almost endless resources available if China has set a goal.” Still, learning how to build cruise ships will not be easy for the Chinese, given the complex web of suppliers needed to furnish items from luxury carpets to soundproofing, industry experts say. Japan’s Mitsubishi Heavy Industries quit building European cruise liners in October after its losses on two
vessels for cruise operator Carnival Corp topped US$2 billion. “It’s a hotel on the sea, (and) requires at least a few hundred suppliers,” said Lin Li, general manager at Lloyds’ Register’s Greater China marine and offshore business development department. China’s shift into the cruise sector also comes as global demand for cargo ships has collapsed, shuttering scores of Chinese yards.
European expertise
At the Shanghai Waigaoqiao Shipbuilding yard at the mouth of the Yangtze River, China State Shipbuilding Corp (CSSC) has brought in European advisers, including Italian shipbuilder Fincantieri, to help it learn how to compete in building cruise ships. It has also attracted foreign suppliers such as Finland’s Wartsila to set up local joint ventures. “Fincantieri has brought a few hundred workers here, and CSSC has sent technical staff to England for training,” said Alan Mong, a CSSC employee, during a recent media tour of the yard. CSSC’s order for two cruise ships, which will be able to carry up to 5,000 passengers, is part of a US$1.5 billion deal signed in February with Carnival and Fincantieri. That deal, three years in the making, also includes an option for four more ships. Fincantieri was encouraged to help China by Carnival, its biggest customer, which is itself pushing to develop China cruise lines, said two industry executives familiar with the local market. They asked not to be named as they didn’t want to jeopardise business relationships. They said Carnival was told by the Chinese government it could only grow in China’s cruise market projected to be the world’s second largest after the United States by 2030 - by helping the domestic industry
develop. CSSC did not respond to Reuters’ request for comment. China’s Ministry of Commerce declined to comment, saying it was a company matter. Carnival said it encouraged Fincantieri to participate in the shipbuilding project, but noted its own plans to launch China’s first domestic cruise line with CSSC and China Investment Corp were negotiated independently. Fincantieri said it got into the Chinese market “based nothing more than on an analysis regarding the business opportunities from the great potential of the market.”
Discounts
Other Chinese yards are following suit, offering discounts of up to 30 per cent, and earlier delivery, to win orders from Western cruise lines. In March, China Merchants Industry Holdings agreed a deal to build up to 10 vessels for Miami-based SunStone Ships, and Xiamen Shipbuilding Industry Co won a 194 million euro (US$222 million) order from Finland’s Viking Line in April for a 2,800-passenger cruise ferry. “We were surprised at the number of interested yards,” said Viking Line’s CEO Jan Hanses, saying he received interest from six Chinese yards, including Guangzhou International Shipyard, Yantai CIMC Raffles and AVIC Weihai Shipyard. “Competition is always good... If the European yards are left without competition they will stagnate.” European yards currently have 68 cruise ships on order up to 2025, according to data from industry publication Seatrade Cruise, comfortably ahead of other regions. But Nathalie Durand-Prinborgne, a representative for labour union Force Ouvrière’s section at shipbuilder STX France, said there are fears that French shipyards could eventually abandon the cruise market to the Chinese, as they did with LNG tankers. Because of technology transfer concerns, she said the union opposes Fincantieri’s proposed takeover of STX France, which employs 2,600 people at the western port of Saint-Nazaire. “In allying itself with the Chinese, Fincantieri not only shot itself in the foot, but also fired into ours,” she added. And Raoul Jack, principal consultant at PFJ Maritime, an adviser to Chinese yards entering the cruise market, says it may be futile to try and stop the shift. “Every yard is looking at the markets that are the most buoyant,” he said. Reuters
Energy
Beijng plans 100 panda-shaped solar plants on new Silk Road Utilisation of one panda solar power plant will save the equivalent of a total 1.06 million tonnes of coal according to the company In a country where you can find everything from chopsticks to slippers designed to look like pandas, one Chinese energy company is going a step further by building 100 solar farms shaped like the bears along the route of the ambitious Belt and Road initiative. Panda Green Energy Group has already connected one such 50-megawatt (MW) plant to the grid in the northern province of Shanxi, the first step in a public relations stunt that emphasises the cuddly side of the world’s No.2 economy. Built with darker crystalline silicon and lighter-coloured thin film solar cells, the plant resembles a cartoon giant panda from the air.
“The plant required an investment of RMB350 million (US$52 million), and it would require investment of US$3 billion for 100 such plants,” Panda Green Energy’s Chief Executive Li Yuan told Reuters. Li did not say where the longerterm investment would come from. The Hong Kong-based firm is currently in talks with Canada, Australia, Germany and Italy to launch more panda-shaped power stations. The Belt and Road initiative is a plan to emulate the ancient Silk Road by opening new trade corridors across the globe using roads, power lines, ports and energy pipelines. A 100-MW panda power plant
would be expected to generate 3.2 billion kilowatt-hours (kWh) of energy over 25 years, according to the company, capable of supplying power to over 10,000 households annually. Panda Green Energy is currently constructing its second panda power plant in Shanxi, which accounts for a quarter of China’s coal reserves. Utilisation of one panda solar power plant will save the equivalent of a total 1.06 million tonnes of coal and cut emissions of greenhouse gases by 2.74 million tonnes in 25 years, the company said. The firm has been investing in and running solar power plants in China’s major solar hubs such as Xinjiang and Qinghai province, as well as some solar projects in Britain. Shanxi aims to install 12 gigawatts of solar capacity by 2020 versus 1.13 GW installed in 2015. Reuters
GDP
Second-half growth seen at around 6.7 pct China’s economy is likely to grow at an annual rate of around 6.7 per cent in the second half of 2017, slowing slightly from the first half of the year, the State Information Centre (SIC) said yesterday. The State Information Centre is an official think tank affiliated with the National Development and Reform Commission, the country’s top economic planning agency. It forecast full-year growth in the world’s second largest economy of around 6.8 per cent, it was reported as saying by the the stateowned China Securities Journal. Sinopec exec
Crude oil imports to exceed 400 mln tonnes Imports will exceed 400 million tonnes this year, said an executive at a Chinese state oil giant yesterday, as continuing low oil prices and declining domestic output sparked increased overseas purchases. China’s crude imports are also expected to grow by double digits in 2018, Zhang Haichao, vice president of Sinopec Group, told Reuters on the side-lines of an industry conference in Beijing yesterday. Zhang’s estimates mean Chinese demand for imported crude would grow by around 400,000 barrels per day this year, which would likely make China the world’s largest crude oil importer on an annual basis for the first time ever. Silk Road
Sri Lanka’s cabinet “clears port deal” Cabinet cleared a revised agreement for its Chinesebuilt southern port of Hambantota yesterday, a spokesman said, after terms of the first pact sparked widespread public anger in the island nation. The port, close to the world’s busiest shipping lanes, has been mired in controversy ever since state-run China Merchants Port Holdings, which built it for US$1.5 billion, signed an agreement taking an 80 per cent stake. Chinese control of Hambantota, which is part of its modern-day “Silk Route” across Asia and beyond raised fears that it could also be used for Chinese naval vessels. Investment
Wealth fund backs TPG lender China Investment Corp., the sovereign wealth fund that controls US$814 billion in assets, is betting on U.S. real estate by investing in a commercial real estate lender formed by the money management firm TPG. In conjunction with last week’s initial public offering of TPG RE Finance Trust Inc., CIC disclosed in a U.S. regulatory filing that it holds about a 15.5 per cent stake in the lender through affiliate Flourish Investment Corp. CIC, which ranks as one of the world’s largest state-owned investment firms, is boosting its holdings in alternative assets such as private equity and real estate.
10 Business Daily Wednesday, July 26 2017
Greater China
M&A
After deal spree, HNA moves to clear ownership concerns HNA has come under pressure to provide greater clarity about who owns the conglomerate Matthew Miller and Rachel Armstrong
C
hinese conglomerate HNA Group has pushed back against media reports that it faces mounting pressure from bankers and regulators, even as it announced a shareholding shake-up in a bid to quash concerns over its ownership. The privately-owned group, which has entered into US$50 billion of deals over the last two years, buying stakes in logistics firms, hotels and even Deutsche Bank, said on Monday it has set up a new charitable foundation to act as its single biggest stakeholder. “I think we are operating our company legally, we have nothing to hide, and we are fine,” CEO Adam Tan told Reuters in a wide-ranging interview. Tan said that HNA maintains a strong working relationship with its main Wall Street banks, which include JPMorgan, UBS and Morgan Stanley, and reports that some were scaling back credit to the group were not true. He said Morgan Stanley had given HNA an unsecured US$300 million loan just three weeks ago. Morgan Stanley declined to comment. The only bank that has stopped working with HNA is Bank of America Merrill Lynch, Tan said, adding the bank had not dealt closely with HNA to begin with. Tan characterized as routine a loan check by banks ordered last month by the China Banking Regulatory Commission (CBRC), adding this was not a major hindrance to the group’s business, given it had already been
subject to regular CBRC scrutiny. “I’ve been reviewed by them (the CBRC) for more than 10 years,” he said, adding it was just one of many regulators the company dealt with. Beijing is putting more pressure on opaque corporate structures, excess debt and deals it sees as overly aggressive as it tries to control capital outflows and keep its economy on an even keel. The banking regulator last month ordered a group of lenders to assess their exposure to offshore acquisitions by a handful of Chinese companies that have been on an overseas buying spree. HNA, a leading shareholder in more than a dozen listed companies, has grown rapidly by buying overseas firms, more than quadrupling its assets to RMB1.2 trillion (US$177.5 billion) in 2014-16. Tan said revenues trebled in the first half of this year, and profits rose by 40 per cent. He declined to elaborate.
New foundation
Tan confirmed details of a shareholding reorganization at HNA, which was reported earlier by Reuters. HNA has come under pressure to provide greater clarity about who owns the conglomerate, following recent media reports and accusations by exiled billionaire Guo Wengui. In June, HNA filed a defamation suit at New York State Supreme Court against Guo, who claimed that “officials in China’s Communist Party and their relatives are undisclosed shareholders” in the group. Under the reshuffle, a newly
created, New York-based, not-forprofit organisation, Hainan Cihang Charity Foundation Inc, has become HNA’s single largest shareholder with a 29.5 per cent stake. Hainan Province Cihang Charity Foundation, a Haikou-based charity established by HNA in 2010 and capitalized by shares in 2013, continues to indirectly hold a 22.75 per cent stake - meaning the combined foundation collectively accounts for more than 52 per cent of the group’s issued stock.
Key Points With reshuffle, charities to own over 52 pct of group CEO Tan denies reports of pressure from banks, regulator Says recently got US$300 mln unsecured loan from Morgan Stanley Says not heard from ECB on Deutsche Bank stake assessment Closing SkyBridge buy may still take a few weeks
A dozen senior executives hold the remainder of the group, with co-founders Chen Feng and Wang Jian having stakes of just below 15 per cent each, Vice Chairman Chen Wenli a 3.95 per cent stake, and three senior executives, including CEO Tan, each holding a 2.95 per cent share. As recently as a year ago, according to a 2016 filing, HNA said Bharat Bhise, CEO of Bravia Capital, and Guan Jun, a Beijing businessman, owned 17.4 per
cent and 12.35 per cent respectively. That shareholding had been transferred to the foundation, Tan said. “Disclosing HNA Group’s ownership structure, even though we are a private company, provides more transparency, and we intend to update this information on an annual basis,” a spokesman said. HNA described the foundation as furthering its philanthropic mission and maximising “efforts in corporate social responsibility”. HNA will exercise control and voting rights for the charities, Tan said, even as executives eventually move to transfer their shareholdings to the foundations.
Deutsche, SkyBridge
Tan said he had not had contact with the European Central Bank, which is considering a possible assessment of Deutsche Bank’s two largest shareholders, including the Qatari royal family. HNA holds a stake of just under 10 per cent in Deutsche. “I think the German government clearly said it welcomes all ... kinds of investment,” he said. “Our investment is legal and is totally controlled by the regulatory process.” Tan said HNA continues to move forward with deals, even as its acquisition spree slows. He pointed to the recent announcement it would buy a 60 per cent equity stake in Rio de Janeiro international airport for US$19 million. Tan also said he was unaware of a timeline to close HNA Capital’s proposed buyout of SkyBridge Capital, the hedge fund platform founded by new White House communications director Anthony Scaramucci. The regulatory process may take more than a few weeks, he added. Reuters
Business Daily Wednesday, July 26 2017 11
Asia GDP
South Korea sees 2017 growth at fastest in three years The government sees exports surging 10.2 per cent this year Cynthia Kim
S
outh Korea raised its growth outlook for this year yesterday and vowed to maintain an expansionary fiscal policy that would support job creation. The government projected economic expansion of 3 per cent in 2017, the fastest since growth of 3.3 per cent seen in 2014. The finance ministry’s latest outlook revised growth up from an earlier estimate of 2.6 per cent, and put it above the Bank of Korea’s forecast 2.8 per cent. It sees improving global demand for South Korean goods supporting growth in the second half of 2017, along with increased fiscal spending from the 11 trillion won (US$9.85 billion) supplementary budget approved on July 22. The ministry said the extra budget would lift growth by 0.2 per centage point this year, although Nomura said the supplementary budget’s 0.2 per cent boost to GDP growth was already included
in its estimate of 2.7 per cent for 2017. The government sees exports surging 10.2 per cent this year, although private consumption is expected to grow at a slower 2.3 per cent because of waning job growth and record household debt. “South Korea’s potential growth rate is around 3 per cent. As we noted earlier, posting 3 per cent expansion looks achievable assuming the economy continues to undertake reforms for consumption-led growth,” deputy finance minister Lee Chan-woo told an embargoed briefing. “Going forward, our budget, tax and other policies will be reformed to better focus on creating jobs,” Lee said. Job creation has led President Moon Jae-in’s policies since he took office in May, as he seeks to generate growth more from household spending and less from exports. He plans to revise regulations to reduce the dominance of South Korea’s giant “chaebol” conglomerates,
People walk at a shopping area in Myeong-dong in downtown Seoul, South Korea, 25 July 2017. The South Korean government announced that it raised its growth forecast of the Gross Domestic Product (GDP) in 2017 by 0.4 per cent to 3 per cent. Lusa
and subsidize smaller businesses to promote balanced growth. South Korea’s exports have soared this year thanks to a revival in global demand, but domestic consumption has lagged because of tepid wage growth. The government will increase unemployment benefits and subsidies for maternity leave, as well as spending more on medical care for elderly people. Deputy finance minister Lee said the government would work to ensure the pace of spending growth
“stays higher than” the nation’s nominal growth rate - which ignores inflation currently estimated between 4.5 per cent and 5 per cent. Government spending rose at an average rate of 4.8 per cent in annualized terms over the past five years, the ministry said. Turning to current economic conditions, the ministry said the rate of export growth could slow in the second half of this year because of weakening oil prices. Rapid household debt growth was also a threat to growth, it added, as rising
bond yields added to consumers’ repayment burden at a time of record household debt. The government plans to tighten borrowing rules to make sure banks assess loan applications more strictly and will encourage borrowers to refinance their debts as a fixed-rate loan. Separately, the ministry also said it will coordinate with the Bank of Korea to make sure the central bank’s key lending facility for small and medium-sized businesses supports job growth more effectively. Reuters
Monetary minutes
Bank of Japan board members contest disclosure of exit strategy impact Some economists worry about the potential for losses on the government bonds that the central bank holds on its balance sheet Stanley White
Bank of Japan (BOJ) policymakers contested how much information to disclose about a possible exit from quantitative easing, with several worrying about the risks of doing so given the BOJ is still far off its 2 per cent inflation goal, minutes of the central bank’s June 15-16 meeting showed yesterday. Some members said the BOJ needed to clearly explain how it would manage policy and how an exit would impact the central bank’s finances, the minutes showed. However, several members said consumer prices are still far from the central bank’s 2 per cent inflation target, and disclosing this information too soon could cause market turbulence. These members also said it is important for the BOJ to continue with its internal analysis on an exit from quantitative easing. The minutes highlight the difficult path the BOJ must navigate as worries about the sustainability of its current
policy framework start to grow. “Some members said it was important to thoroughly explain the BOJ’s thinking on how it will manage policy and the impact on the central bank’s finances to gain understanding,” the minutes showed. “Several members said providing uncertain information before meeting the inflation target could cause market confusion, so it is important to continue internal analysis on this subject.” The BOJ kept monetary policy on hold at the meeting and upgraded its assessment of private consumption for the first time in six months. At a subsequent meeting on July 1920, the BOJ pushed back the timing of meeting its 2 per cent price target for the sixth time since it began its quantitative easing programme in 2013. It now expects inflation will not reach that level until sometime in the fiscal year ending in March 2020, but private-sector economists doubt this is likely. The BOJ has a short-term interest
rate target of minus 0.1 per cent and buys debt to keep the 10-year government bond yield around zero per cent. The central bank also has a loose guideline to keep buying government bonds so its holdings increase at an annual pace of 80 trillion yen (US$714 billion), which many markets watchers say is unsustainable. Some economists worry about the potential for losses on the government bonds that the BOJ holds on its balance sheet when the central bank exits from quantitative easing.
Others worry that bond market liquidity could dry up and yields could become very volatile unless the BOJ changes its current framework. It is uncertain if the members who pushed for disclosure on the BOJ’s exit strategy will remain on the policy board. Board members Takehiro Sato and Takahide Kiuchi, who dissented to most of BOJ Governor Haruhiko Kuroda’s monetary-easing steps, have departed after their terms expired this month and will be replaced. Reuters
Bank of Japan headquarters
12 Business Daily Wednesday, July 26 2017
Asia Election
Malaysia’s Najib asks investors to move past 1MDB scandal A government investigation cleared Najib of any offence Emily Chow
M
alaysianPrime Minister Najib Razak yesterday urged investors to move on from a multi-billion-dollar graft scandal at state fund 1MDB that has weighed on southeast Asia’s third-largest economy, saying the country is now “stronger than ever”. The call comes a day after the International Monetary Fund upgraded its 2017 growth forecast for Malaysia to 4.8 per cent from 4.5 per cent, following better-than-expected first quarter annual growth of 5.6 per cent, the quickest in two years. Najib has resisted demands to step down over the last two years for his involvement in the scandal at 1Malaysia Development Berhad (1MDB), following reports that more than US$700 million was deposited in his personal bank account. Najib has denied any
The Tun Razak Exchange building, the next financial hub for Kuala Lumpur is seen under construction against the skyline of the city. Lusa
wrongdoing. The fund is the subject of money laundering investigations in at least six other countries. In civil lawsuits, the U.S. Justice Department alleged that about US$4.5 billion was misappropriated from 1MDB. “At 1MDB it is now clear
there were lapses in governance,” Najib told fund managers, industrialists and investors in a speech at the Invest Malaysia conference in the capital, Kuala Lumpur. “However, rather than bury our heads in the sand, we ordered investigations into
the company at a scale unprecedented in our nation’s history.” A government investigation cleared Najib of any offence. A rationalisation drive Najib kicked off at 1MDB, to sell its assets or move them to other state entities, is progressing well, he added. But the prime minister’s popularity also took a beating over allegations by his critics of mismanaging the economy, and the 2015 adoption of a new good and services tax that drove up living costs. In the last two years, as the Malaysian economy and markets were rattled by a slowdown in China, slumping oil prices and the burgeoning 1MDB financial scam, foreign investors exited Malaysian equities, bonds and currency. But this year’s gradual recovery, on the back of growth in exports of energy and other commodities, helped strengthen the ringgit, which had lost around 4.3 per cent of its value against the dollar last year, making it the third worst performing emerging Asian currency. However the ringgit has recouped all of that, and a bit more in 2017, as the rallying greenback lost steam.
“All of this can point to only one conclusion – our economy continues to prosper, and we are stronger than ever as a result of the reforms and the programmes the government has put in place,” Najib, 64, said in his speech.
Slams opponents
The prime minister may call elections in the next few months, government sources have said, earlier than scheduled in mid-2018, to exploit better economic conditions and disarray in the opposition alliance. He blasted Malaysia’s main opposition alliance, Pakatan Harapan, as a party “in chaos” and accused it of sabotaging the economy. “There has been a concerted campaign to send such misinformation overseas to damage Malaysia’s economy for their own selfish political objectives,” said Najib. Najib’s comments reveal his “desperation” to hold on to power, said opposition leader Wan Azizah Wan Ismail. “Najib Razak’s shameful tirade against the Pakatan Harapan leadership reveals his desperation to go to any level to discredit the federal opposition,” she said in a statement. Reuters
Politics
Thai authorities freeze ousted PM Yingluck’s bank accounts Yingluck’s legal team had petitioned for an injunction against a US$1 billion fine
T
hai authorities have frozen seven bank accounts belonging to ex-premier Yingluck Shinawatra over a US$1 billion fine she faces for her administration’s controversial rice subsidy scheme, her lawyer said yesterday. The move is seen as unprecedented because it financially sanctions an elected leader for a government policy and it is the latest in a barrage of legal battles she has had to fight since she was booted from office. Thailand’s first female prime minister, whose government was toppled in a 2014 coup, is already facing up to a decade in jail for allegedly failing to stop graft in the subsidy programme that targeted her party’s rural farming base. She was also retroactively impeached soon after the coup, a move that banned her from politics for five years. Yingluck’s legal team had petitioned for an injunction against the US$1 billion fine -- which dwarfs the roughly US$18 million she has in publicly declared assets. But the Finance Ministry said Monday it was moving ahead with the order and planned to seize at least 12 accounts belonging to the embattled politician as an initial measure. Yingluck’s lawyer confirmed yesterday that at least seven accounts had now been locked.
Business Daily is a product of De Ficção – Multimedia Projects
“Bangkok Bank notified us that seven of her bank accounts have been frozen and cannot carry out any transactions,” Noppadon Laowthong told AFP. Yingluck, whose supporters have accused the junta of launching a political witch-hunt against her since seizing power, turned to Twitter to insist on her innocence.
‘The Shinawatra ex-leaders are beloved in Thailand’s poor northeast but loathed by Bangkok’s traditional elite, who keep knocking down their governments with coups and court rulings’ “I am ready to prove my innocence and that I have not done anything wrong in my closing statement on 1 August,” she wrote in reference to the final stage of her
criminal negligence trial over the rice scheme. Analysts say the junta and its establishment allies are bent on crushing the political machine led by Yingluck and her billionaire brother Thaksin Shinawatra, who was also ousted in a 2006 coup. The siblings are beloved in Thailand’s poor northeast but loathed by Bangkok’s traditional elite, who keep knocking down their governments with coups and court rulings. U n d e r Yi n g l u c k’ s f l a g s h i p rice-pledging scheme the government bought paddy at nearly twice the market rate.
It cemented her popularity among many farmers but led to huge stockpiles of unsold rice and cost Thailand its spot as the world’s leading rice exporter. Critics blasted the scheme as the latest graft-riddled populist hand-out by the Shinawatra camp, which has won every national election since 2001. The junta claims the policy cost Thailand around US$8 billion in lost revenue. The subsidy scheme helped galvanise elite-backed protests in Bangkok that paved the way for the 2014 coup. AFP
Former Thai Prime Minister Yingluck Shinawatra (C) sheds tears as she greets supporters after arriving for her trial on the last round on criminal charges stemming from her government’s rice price subsidy scheme. Lusa
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 Wednesday, July 26 2017 13
Asia Competition
Samsung takes aim at TSMC with plans to triple chip foundry market share A top executive said Samsung was confident of producing chips using the latest manufacturing technology called EUV lithography ahead of rivals Joyce Lee and Se Young Lee
Samsung Electronics plans to triple the market share of its contract chip manufacturing business within the next five years by aggressively adding clients, a senior company executive said, as it targets new growth drivers for the chips business. The estimated 5.3 trillion won (US$4.76 billion) business at Samsung was split off as a separate arm within its semiconductor division in May, in a clear statement that the technology giant was preparing to focus on the business and narrow the big market share gap with leader TSMC. E.S. Jung, executive vice president and head of the new Samsung foundry division, told Reuters on Monday at the South Korean company’s Giheung chip campus the firm wants a 25 per cent market share within five years and will seek to attract smaller customers in addition to big-name clients to fuel the growth. “We want to become a strong No.
2 player in the market,” Jung said. Samsung is on track for record profits and is widely expected to pass Intel Corp as the world’s top chipmaker by sales in 2017 on the back of a memory market boom. But the firm lags well behind Taiwan’s TSMC in contract manufacturing: TSMC held a market share of 50.6 per cent last year compared with Samsung’s 7.9 per cent, according to research firm IHS. It also trailed U.S.based Global Foundries, which had a 9.6 per cent share, and Taiwan-based UMC’s 8.1 per cent. The memory industry is notoriously cyclical and unlikely to repeat the massive revenue gains seen this year. And as new applications such as cloud computing, autonomous driving and virtual reality emerge, analysts say Samsung needs to strengthen the rest of its chip portfolio to secure future growth. Jung declined to comment on revenue or investment targets, but said foundry and memory
businesses will share the 6 trillion won next-generation chip production line that will be built in Hwaseong, South Korea. Samsung doesn’t reveal its chip contract manufacturing revenue, but analysts estimated it at 5.3 trillion won last year, with Daishin Securities forecasting it will see an increase of 10 per cent or more this year. While TSMC splurges around US$10 billion of capital expenditure annually, Jung said Samsung will be able to keep production capacity flexible depending on market demand by relying on memory chip lines. Though Samsung already counts major firms such as Qualcomm Inc, Nvidia Corp and NXP Semiconductors as clients, it has a long way to go to catch up to TSMC. Analysts estimate Samsung lost Apple to TSMC in 2015 and the Taiwan firm has had 100 per cent of Apple’s mobile processor business in 2016 and 2017. “You need a technology that can wow your clients. Without such advanced technology, it’ll be difficult to win back customers from your rivals,” Jung said, without specifying any clients’ names. He said Samsung was confident of producing chips using the latest manufacturing technology called EUV (extreme ultraviolet) lithography ahead of rivals. EUV is a next-generation technology that potentially lowers the cost and complexity of chip manufacturing. Samsung and TSMC are neck-andneck in introducing EUV. Samsung says it will start manufacturing chips with circuitry widths of 7 nano metres by using EUV tech in the second half of 2018. TSMC also said earlier this month that its chip manufacturing process using EUV technology will be the “most advanced technology in foundry industry” in 2018 in terms of density, performance and power. Reuters
Agriculture
Indonesia probes rice trade as food company denies breaching rules Rice prices are politically sensitive in Indonesia because of their impact on the poor Bernadette Christina Munthe
A unit of Indonesian food manufacturer Tiga Pilar Sejahtera Food yesterday denied allegations of rice hoarding, incorrect labelling and unfair business practices, after a police probe caused the company’s shares to tumble last week. Tiga Pilar shares had lost more than 40 per cent and hit an 18-month low of 905 rupiah (US$0.068) on Friday, after police announced an investigation of its unit PT Indo Beras Unggul (IBU). Prices had partially recovered to 1,340 rupiah at 0500 GMT yesterday. Police raided IBU’s warehouse near Jakarta on Thursday, confiscating more than 1,000 tonnes of rice and alleging the company had bought lower quality subsidised grain that was then labelled as premium rice when sold. “We did not use subsidised rice as our raw material,” IBU spokesman Jo Tjong Seng told a news conference, adding that the firm believed an analysis by a police-led food task force had shown it had not wrongly labelled rice. “We are looking into this (and) later will present their violations and
evidence so that the public understands,” National Police chief Tito Karnavian said on Tuesday, noting that police were working with other authorities to maintain food price stability. “Our focus is now on distribution channels,” he said, referring to the raid on the IBU warehouse near Jakarta. “If there was fraud, then there’s unfair competition, (so) controls and intervention are needed,” he said, referring to broad allegations of hoarding and incorrect labelling by rice traders in the country. Government analysis has shown that Indonesia’s millions of rice farmers are making around 60 trillion rupiah (US$4.50 billion) in annual profit from the grain, while its 400,000 traders’ profits were 130 trillion rupiah, Karnavian said. The police chief said there should be a situation where farmers could
survive and traders make profit “but not too much”, and with consumer prices remaining stable. Rice prices are politically sensitive in Indonesia because of their impact on the poor and due to their weighting in the country’s inflation rate. The government has blamed food hoarding and speculators for high prices, though the UN food agency has also said that Indonesia’s self-sufficiency policy has driven up food prices. Indonesia’s Trade ministry sets a reference price for staples including rice every four months, but there are currently no formal sanctions for traders selling goods above these prices. Trade Ministry Secretary General Karyanto Suprih said on Friday he was waiting for the results of the police investigation, but could freeze the company’s trading permit. Reuters
In Brief Politics
India’s Kovind to be sworn in as president Ram Nath Kovind was sworn in as India’s president yesterday, becoming just the second leader from the oppressed Dalit community to be elected head of state. A former lawyer and state governor, Kovind won the largely ceremonial position last week with more than 65 per cent of the vote by members of India’s parliament and state assemblies. Kovind, accompanied by his wife, paid respects early yesterday at a memorial dedicated to India’s independence hero Mahatma Gandhi in the capital New Delhi. Kovind has said he will use his position to improve the lot of Dalits, a marginalised 200-million strong community. World Bank
Indonesia needs US$500 bln to plug infrastructure gap World Bank Group President Jim Yong Kim said yesterday that Indonesia needs to nearly its double public spending on infrastructure and bring in more private investment to fill an infrastructure gap of US$500 billion in the next five years. Kim said Indonesia’s population was growing faster than those in China, India, Vietnam and Thailand, which was putting even more strain on its creaky infrastructure. “We estimate that Indonesia will have to invest US$500 billion over the next five years to fill this infrastructure gap. To start, that means increasing central and sub-national infrastructure spending from 2.4 per cent of GDP today to 4.7 per cent,” Kim said. Strategic review
Singapore Airlines shifts routes to budget arm Scoot Singapore Airlines Ltd’s budget arm Scoot yesterday said it would take over two routes from sister carrier SilkAir as the parent company conducts a wide-ranging strategic review designed to cut its cost base. Singapore Airlines (SIA) has said the review, announced in May after a surprise fourth-quarter loss, could result in job losses and changes in its network and fleet as it battles intense competition that has slashed ticket prices. SilkAir, SIA’s premium narrowbody arm, said it would transfer to Scoot its services from Singapore to Kuching, Malaysia and from the citystate to Palembang, Indonesia from October and November, respectively. Brexit
Japan’s Mizuho chooses Frankfurt for EU hub Japan’s Mizuho Financial Group said it would set up a subsidiary in Frankfurt, the latest Japanese bank to choose the German city as its new base in the European Union as Britain prepares to leave the bloc, termed Brexit. The decision was made as the bank assessed the likely impact of Brexit, and Mizuho’s new subsidiary will “lead securities operations in the EU countries,” the bank said in a statement dated Monday. Financial institutions have already announced plans to open new subsidiaries in the EU to ensure they can continue serving customers there after March 2019.
14 Business Daily Wednesday, July 26 2017
International In Brief Moscovici
Greece on right reform path, but needs to keep “pedalling” Europe’s economics commissioner, Pierre Moscovici, said yesterday he was confident Greece was “turning a page” from economic crisis and would successfully conclude a bailout programme which expires in Aug. 2018. But Moscovici, who was visiting Athens, said the crisis-hit country was at a crucial juncture and urged Greece to keep up economic reforms. He also said he was confident Greece could return to bond markets at “logical yields”. “Returning to the markets is an important first step,” Moscovici told reporters. Portugal
Sixty per cent of IMF loan repaid The Portuguese Treasury and Debt Management Agency (IGCP) repaid the International Monetary Fund (IMF) another 1.75 billion euros in July, which means Portugal has now paid back 60 per cent of what the Fund lent it. These repayments are capital amortisations that were originally supposed to be paid in June 2019 and March 2020, the IGCP said, stressing that with these repayments, Portugal has paid back 60 per cent of the initial IMF loan. The repayment had already been announced by the finance minister who said that until the end of August, Portugal expected to make early repayments of 2-6 billion euros to the IMF.
Currency
Goldman says global growth trumps strong euro for Europe stocks The euro is this year’s top performer among G-10 currencies after the Swedish krona Aleksandra Gjorgievska
T
he thesis that a stronger euro is bad for European equities isn’t as clear-cut as many in the investment community believe. That’s the message from Goldman Sachs Group Inc., which says that a solid global economic backdrop can outweigh the threat that gains in the shared currency pose for earnings in the euro zone. While investors are starting to worry about the extent to which the euro will weigh on the region’s exporters, Goldman’s Christian Mueller-Glissmann says the currency’s advance doesn’t completely change the case for European equities. “It’s possible that the strong euro weighs on the export side, but as long as global growth is solid, that’s the more important factor,” Mueller-Glissmann, a London-based
managing director of portfolio strategy and asset allocation, said in an interview. “And that’s why the market can shrug off the stronger euro. This whole idea about a higher euro being bad for exporters has quite a few things you can poke at.” After years of weakness that boosted the region’s exporters amid unprecedented monetary stimulus, the euro is this year’s top performer among G-10 currencies after the Swedish krona, lifted by better economic data and expectations the European Central Bank will begin to roll back support this autumn. The euro area’s equities and currency have been moving mostly in opposite directions this month, a relationship that harms the outlook for exporters, just as earnings revisions for the region have turned negative. Members of the Stoxx Europe 600 Index get about half their revenue from outside the region, according to estimates by JPMorgan Chase & Co. Automakers, among the biggest winners in the stock market between Mario Draghi’s 2012 pledge to preserve the euro and the end of last year, have been singled out as particularly vulnerable.
Republicans at Congress push for staff cuts
Business mood
German Ifo business morale hits record German business confidence unexpectedly rose in July, a survey showed yesterday, hitting a third record high in as many months as Europe’s largest economy shrugged off a strong euro and morale lifted across industry. The Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, rose to 116.0 from 115.2 in June. The rise will make welcome reading for Chancellor Angela Merkel, who is seeking a fourth term in office at a national election on Sept. 24. With the economy in rude health, her conservatives are promising full employment by 2025.
“If you are a long-run investor, you can still have a good case for Europe to continue to catch up with the U.S. a bit through the end of the year” Christian Mueller-Glissmann, Goldman Sachs’ managing director of portfolio strategy and asset allocation
The strategist acknowledged the euro has been weighing on investor sentiment. It’s part of the reason his team last week moved to a neutral rating on European stocks over a three-month horizon. They remain overweight the region over a period of 12 months. “The strong euro reflects this synchronized global recovery and the idea that the U.S. is not the only strong economy in town, which benefits Europe more than other places because it’s an export-oriented market,” Mueller-Glissmann said. “If you are a long-run investor, you can still have a good case for Europe to continue to catch up with the U.S. a bit through the end of the year.” Bloomberg News
U.S. budget
Conservative Republicans in the U.S. House of Representatives are seeking to add an amendment this week to spending legislation that would slash the number of staff at the nonpartisan Congressional Budget Office. The budget research office, known as the CBO, has drawn recent Republican criticism, including from the White House, after it concluded that Republican proposals to replace Obamacare would lead to 23 million more Americans being uninsured if they became law. The amendment expected to take up this week would cut the CBO’s staff of 235 by 89 employees, saving about US$15 million.
There are exceptions, Mueller-Glissmann said: many European car manufacturers have both their costs and revenue abroad and are proactively hedging for the currency impact, limiting some of their losses. While the euro’s strength will hit those European companies whose costs are local, it may not necessarily hurt large caps that are domiciled in the region but produce elsewhere, he said.
Quality focus
UK watchdog to require banks to publish data on service The new requirements would apply to lenders with more than 70.000 personal or 15,000 business accounts “per brand” Huw Jones
Banks in Britain will have to publish data every quarter from next year to show the quality of service they provide to customers to try to boost competition, the Financial Conduct Authority (FCA) proposed yesterday. Performance based on set criteria should be measured every three months from April 2018, and published on a bank’s website within six weeks of the end of the quarter, the FCA said. First publication is expected in mid-August 2018, with issues such as the pace of setting up new accounts and how banks respond to reports of lost or stolen cards being evaluated. The government wants to increase competition in banking, a sector long dominated by the “Big Four” lenders, HSBC, Lloyds, Barclays and Royal Bank of Scotland, but is now seeing many new entrants or “challengers”. Regulators have also made it easier to switch banks, but number of customers making the change is still low, and total market share of challengers remains modest. A review by the Competition and Markets Authority in 2016 ordered
more changes and on Tuesday the FCA outlined how it would apply one of them, known as objective service metrics. Banks already provide data on services, but rarely in a consistent way, the FCA said.
“These proposals represent a step forward, making it easier for consumers to judge whether their bank is offering good service” Christopher Woolard, the Financial Conduct Authority executive director for strategy and competition
“Customers tell us they think ‘all banks are the same’ and so they are discouraged from looking for current accounts offering better
performance,” said Christopher Woolard, the FCA’s executive director for strategy and competition. “These proposals represent a step forward, making it easier for consumers to judge whether their bank is offering good service and for firms to see if they are competing effectively against other providers.” Under the proposals put out to public consultation, banks that offer personal and business current accounts would have to say how long it takes to open an account, and how long it takes to replace a lost, stolen or stopped debit card. They would also have to show how long it takes to give someone access to the account under a power of attorney, and the number and type of major operational or security incidents - a growing concern as the number of cyber attacks multiply. The data would also be available for online services that compare different banks. The new requirements would apply to lenders with more than 70.000 personal or 15,000 business accounts “per brand”. The data would not include details on fraud or individual staff members. Smaller banks and credit unions would be free to apply the new rules, if they want to, and the FCA will monitor customers’ attitudes and behaviour to assess the impact of the changes. Reuters
Business Daily Wednesday, July 26 2017 15
Opinion
China’s internet giants may find a calling in Unicom Nisha Gopalan a Bloomberg Gadfly columnist
I
f there’s a lesson that China’s private firms should take away from the crackdown on Dalian Wanda Group Co. and its freewheeling cohorts, it’s that there’s no better time to get into bed with state-owned enterprises. That’s even the case if the partner up for grabs is China Unicom Hong Kong Ltd., the weakest of the country’s big three telecom operators. Baidu Inc. and JD.com Inc. are among a handful of firms, along with Tencent Holdings Ltd., considering investing as much as US$12 billion in China United Network Communications Ltd., the Shanghailisted arm of China Unicom, Reuters reported Friday. China United Network Communications hasn’t signed a pact with any potential investors yet, it said in a statement to the Shanghai Stock Exchange on Sunday, but it is one of six state-run enterprises slated for mixed-ownership reform. Outside of being internet companies, these potential Unicom investors have one thing in common: They’re all nonstate owned, and they increasingly billion US$ dominate China’s Chinese tech firms shifting economic proposed investment landscape. in China Unicom At this point, it’s worth remembering that private conglomerates such as Wanda, HNA Group Co., Anbang Insurance Group Co. and Fosun International Ltd. were also, until recently, viewed as largely untouchable because of their apparent political connections. Now, having made risky overseas bets, they’re in Beijing’s bad books and have lost their easy access to bank financing. While China’s internet firms haven’t indulged in the same degree of debt-fuelled spending -- the US$40 billion that HNA used for domestic and overseas asset purchases since the start of 2016 is roughly what’s been spent by Baidu, Tencent and Alibaba Group Holding Ltd. over that period combined -- no privately held organization in China is too big to fail. It wasn’t so long ago that Wanda Chairman Wang Jianlin was China’s richest man, after all. The benefits of investing in China Unicom include strengthening ties with a company responsible for rolling out the nextgeneration technology essential to keeping consumers hooked into internet companies’ online sites. Yet it will be quite hard to sell to shareholders, and not just because Unicom has posted two years of declining earnings. State reform in China tends to progress at a glacial pace. Take Sinopec Marketing Co., the gas station-to-convenience store arm of China Petroleum & Chemical Corp., or Sinopec. In late 2014, Sinopec offloaded a US$17.5 billion interest in the unit to a group of investors, Fosun and Tencent among them. A promised IPO has faced numerous delays, leaving parties with little hope of an exit any time soon. Even so, against the backdrop of President Xi Jinping’s deleveraging campaign, it’s hard to underestimate the advantages that ties with China’s SOEs may bring. A publicsector entity in your corner could turn out to be the internet companies’ ultimate asset.
12
Bloomberg View
China sets the stage for domestic merger boom
C
hina’s central planner, the National Development and Reform Commission, has set the stage for what could become the biggest theme in China over the next six to 12 months: a surge in domestic mergers and acquisitions that benefits the economy and stock market. That can be concluded from the NDRC’s confirmation last week that the government is curbing “irrational” outbound acquisitions in some sectors, likely due to growing concern of systemic risks related to overseas deals, as well as pressure those investments have placed on the yuan. In fact, the government’s scrutiny of overseas deals has been evident since late last year based on the 46 per cent drop in nonfinancial outbound investment in the first half of 2017 to US$48.2 billion from a year earlier. The most likely next step is for consolidation led by China’s state-owned enterprises (SOE) as part of President Xi Jinping’s reform agenda. That can benefit the Chinese government in several ways. First, by using stronger SOEs to consolidate financially vulnerable ones, some credit risk will be diversified away from the banking system. Controlling corporate credit risk was a key policy priority highlighted at this month’s National Financial Work Conference. Second, consolidating capacity within the large SOEs could help the government’s supply-side reform agenda through state-enforced supply cuts. Finally, some mergers will strategically place large SOEs in a position to benefit from projects related to Xi’s “Belt and Road” trade and infrastructure initiative, like the combination in late 2014 of the country’s two main train producers and last year’s merger between its two biggest shipping groups. That’s not to say there won’t be offshore consolidation, but that is likely to involve combining SOEs’ offshore assets, as suggested by the state-owned Assets Supervision and Administration Commission. Huang Danhua, vicechairwoman of the SASAC, said the commission “will also strengthen the supervision of stateowned capital this year by shifting the focus from previously governing SOEs themselves to better managing their assets, to cut resource waste and improve work efficiency.” The local press has recently picked up on this theme. Caixin just reported that China may reduce the number of central SOEs to no more than 80
“
David Millhouse a Bloomberg Prophets columnist
after planned restructurings or mergers, down from 101 at present. The article said SOEs will be divided into three groups of about 20 investment companies, about 50 industrial companies and two to three operations companies. The key sectors of focus will likely be coal, power, heavy equipment manufacturing and steel, as flagged by the SASAC briefing on reform on June 2. On specific mergers, Reuters reported that China is considering a merger between China Minmetals and China National Gold Group. Shenhua Group is reportedly in merger talks with China Guodian, part of a broader effort to consolidate the power sector. If approved, the combined group would have US$262 billion of assets. ChemChina and SinoChem is another combination that local media outlets say may be in the works. The latest speculation follows two recently announced deals. Earlier this month, China Cosco Shipping announced a US$6.3 billion offer to buy Orient Overseas International. In March, the listed arms of China National Nuclear and China Nuclear Engineering & Construction said their unlisted parent companies would merge, creating an US$80 billion group. A new round of mergers and acquisitions has the potential to be a very positive driver for the economy and the stock market, given the large proportion of listed SOEs. The success of this strategy, however, rests on whether consolidation will produce a more efficient state sector. What China needs to avoid is just having strong SOEs merge with weaker ones. That would, as the International Monetary Fund recently put it, just undermine “the profitability of the well-to-do company and depriving the rest of the economy of resources that could be better spent elsewhere.” For this strategy to work, SOE consolidation must be combined with supply-side reform, financial reform, management reform, share-ownership reform, legal reform, and the further opening up of strategic areas of the economy to foreign competition. If properly implemented however, the economic and investment implications could be significant. Bloomberg
A new round of mergers and acquisitions has the potential to be a very positive driver for the economy and the stock market, given the large proportion of listed SOEs
”
16 Business Daily Wednesday, July 26 2017
Closing Boeing
Airlines will need 637,000 new pilots over next 20 years
Division. It put North America’s requirement at 117,000 new pilots and Europe’s at 106,000 for the period from 2017 to 2036. Airlines will need 637,000 new pilots over The report also projects a need for 648,000 the next 20 years to keep pace with the growth of global air traffic, Boeing reported new aircraft maintenance technicians, a 4.6 per cent dip from last year’s estimate due yesterday in an annual report on the mainly to a reduction in maintenance hours subject. Its latest estimate of the pilot requirements required by the Boeing 737 MAX. As for flight crews, it said 839,000 flight is up 3.6 per cent from last year’s report. attendants will need to be recruited through Airlines in the Asia-Pacific region alone 2036, including 308,000 in the Asia-Pacific will need 253,000 new pilots, a third of region, 173,000 in Europe, 154,000 in North the total, according to the report, which America and 96,000 in the Middle East. AFP was prepared by Boeing’s Global Services
Investors
Activist hedge funds pull hard on the M&A lever Fuelling the frenzy has been a surge in overall M&A volumes during the past several years, underpinned by cheap financing and lofty valuations Michael Flaherty
O
f all the demands that activist hedge funds make, one has emerged as a clear favourite over the past year: asking the management of a company they target to put up the “for sale” sign. Heady valuations have made the windfall from a sale too hard to resist for dissident shareholders, turning what used to be a fall-back option in past campaigns into preferred strategy, and prompting a slew of takeovers in the process. The uptick in activist-driven deals has helped boost returns of the dissident investors. However, campaigns to spur company sales could put activists at odds with some large and powerful investors and undermine their recent efforts to project the image of long-term value creators rather than quick-buck artists. U.S. activist campaigns that called for companies to explore some type of sale process totalled 91 so far this year, more than double the number a year ago, Thomson Reuters data show. The data excludes companies worth US$300 million or less. For activists, the demands are
increasingly turning into deals. The number of activist investments that ended with a company sale jumped from seven in 2010 to 25 four years later and 36 last year, according to research and data provider Activist Insight. “Most small to mid-cap companies eventually get bought. That’s the way the world works. There’s nothing wrong with that. It’s actually quite healthy,” said Daniel Plants, the founder and chief investment officer of Voce Capital Management LLC, a US$100 million activist hedge fund. Voce’s campaigns have contributed to the sale of several U.S. companies, including the acquisition of medical helicopter operator Air Methods Corp by private equity firm American Securities LLC for US$2.5 billion, which closed in April. More than 500 M&A-related campaign demands were made by activists globally during the 2016 and 2017 proxy seasons, representing around 75 per cent of the total number of demands, according to JPMorgan. Driving the trend are struggling mutual fund managers who support the deal campaigns to lock-in a positive return, and the decreasing number of targets where a quick fix can yield
results, according to Goldman Sachs Group Inc. “The number of companies where a quick divestiture or capital allocation change will work is dwindling,” said Avinash Mehrotra, Goldman’s cohead of its shareholder advisory group, which advises companies on defending against activist investors. Healthy windfall The most high-profile example this year of activism prompting a sale was the nearly US$300 million profit Jana Partners made on its three-month investment in Whole Foods Market Inc. Jana disclosed last week that it sold its entire 8.2 per cent Whole Foods stake, worth US$1 billion at the time and around 40 per cent more than what it paid, after the organic grocer agreed to Amazon.com Inc’s US$13.7 billion acquisition offer.
Some activists also pile into companies already on the block, adding further pressure to seal the deal, a tactic applied in the sale of contract research firm Parexel International Corp. Fuelling the frenzy has been a surge in overall M&A volumes during the past several years, underpinned by cheap financing and lofty valuations. Thanks in part to M&A, the performance of the HFRI ED Activist Index in the last 12 months is up 16.46 per cent, the fourth best performer among all hedge fund strategies and a major turnaround from losses suffered last year. “Activists are pushing for strategic review because in a lot of situations, selling the company today at current valuation multiples offers a better risk-adjusted return than waiting for the current strategy to play out,” said Waheed Hassan, who helps
Powerful index funds such as BlackRock Inc. and the Vanguard Group are pressuring managements and other investors to choose long-term strategies
management teams defend against dissident shareholders as head of activist defence at advisory firm Alliance Advisors. The M&A push is not without risks. Powerful index funds such as BlackRock Inc. and the Vanguard Group, which control a growing share of the stock market, are pressuring managements and other investors to choose long-term strategies over a tempting premium from a suitor. M&A plays can backfire when a company refuses to heed activists’ calls for a sale, or a buyer fails to show up. Starboard Value LP, for example, suffered a 28 per cent loss on its investment in Depomed Inc after the U.S. drugmaker explored a sale without success, according to research firm 13D Monitor. Another concern is that the pace of U.S. deals slowed down in the first quarter. A slowdown in M&A would make activists revert to other strategies, such as seeking more operational fixes or share buybacks - though these demands usually yield smaller investment returns. Voce’s Plants said activist hedge funds should avoid an investment strategy based solely on calling for company sales. “It seems like a lot of funds are doing that now and I think it’s very risky,” he said. “You need a plan B and C and a long-term plan to own the business.” Reuters
M&A
Supervision
Ecommerce
Michael Kors buys Jimmy Choo for £900m
PBOC says will strictly regulate Alibaba, Paytm are said financial market trading in talks to invest in Bigbasket
U.S. fashion brand Michael Kors yesterday agreed to buy British shoemaker to the stars Jimmy Choo for almost £900 million (US$1.2 billion). Jimmy Choo -- whose celebrity fans include Beyonce, Lady Gaga, Nicole Kidman and Kate Middleton -- is the “ideal partner” for the U.S. handbag and clothing maker, it said in a statement. “The boards of directors of Michael Kors Holdings Limited and Jimmy Choo plc are pleased to announce that they have reached agreement on the terms of a recommended cash acquisition,” it added. The cash deal was pitched at 230 pence per share and values Jimmy Choo -- which floated on the London Stock Exchange in 2014 -- at about £896 million. “Michael Kors believes it is the ideal partner for Jimmy Choo and is well positioned to support Jimmy Choo’s continued growth,” it noted. Michael Kors has secured the backing of Luxembourg-based investment firm and majority shareholder JAB Luxury, which holds 67.66 per cent of Jimmy Choo. The London-listed group will retain its current management team including chief executive Pierre Denis. AFP
China’s central bank said yesterday that it would strictly regulate financial trading and strengthen the regulation of internet finance as policymakers looks to control risks in what regulators have called “chaotic” financial markets. China will step up coordinated supervision over its systemically important financial institutions and financial infrastructure, the People’s Bank of China said in a statement on its website. The statement followed an internal meeting at the central bank led by Governor Zhou Xiaochuan. Chinese President Xi Jinping said last week that the central bank will take on a bigger role in supervising the financial sector, though few details on the functioning of a new financial stability committee are known. However, the central bank yesterday reiterated that it will maintain appropriate credit growth and keep liquidity basically stable, while lowering financing costs to the “real economy”. The bank also said that it would steadily push ahead its plan to further internationalise China’s currency, while keeping the yuan exchange rate “basically stable at a reasonable level”. Reuters
Chinese e-commerce giant Alibaba Group Holding Ltd. and its Indian associate Paytm E-commerce Pvt are in talks to invest about US$200 million for a stake of roughly 20 per cent in India’s leading online grocer, Bigbasket, according to a person with direct knowledge of the negotiations. Alibaba and Paytm are in a 60-day exclusive pact with Bigbasket and are conducting due diligence, said the person, who did not want to be quoted as the negotiations are private. The two could invest as a team or separately, the person said. Several others are also said to be interested and in various stages of conversation with Bigbasket, including global retail titan Amazon.com Inc, said a different person familiar with the matter. Morgan Stanley is advising Supermarket Grocery Supplies Pvt, which owns the Bigbasket brand, on the fundraising, that person said. Bigbasket’s existing investors include the Dubai-headquartered Abraaj Group and Sands Capital. The talks were reported earlier by local media, including the Economic Times. As time-starved urban Indians ditch the grocery stores and the crowded supermarkets in favour of buying daily staples and produce online, the country’s online grocery segment is heating up. Bloomberg News