Okada’s Manila scheme ‘close’ to partnership
Editor-in-chief Tiago Azevedo
Land premium up 3x on average for housing projects
Number 437 Tuesday December 17, 2013
Govt budget 1 approved despite criticism
April 19, 2013
he government has signalled it sees an increasingly high-rise future for the city. The premium for low-rise housing plots in cheaper areas such as Taipa village and Coloane village has increased by 5.2 times according to Business Daily calculations. In contrast the premium for land intended for buildings with more than seven floors – in prime locations such as Nam Van Lake and Penha Hill – has increased by 2.3 times. The hike could offset any government effort to curb the rise in housing prices, a business association has warned. A dispatch published in yesterday’s Official Gazette updates the two main factors in the calculation: the construction costs and an estimate of how much the site could appreciate in value.
Lowest young jobless numbers in region: ILO Page 7
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Subsidised housing bids on after 8-year freeze
China’s sluggish economy slows retail growth here
Residents will be able to apply to buy one of 1,900 public subsidised homes of all types starting tomorrow the Housing Bureau announced yesterday. It’s the first time since 2005 that such a scheme has been available. But a public housing adviser criticised the government for building too many one-bedroom units, saying too many families will try to squeeze into one for lack of a better option.
A ban on ‘zero-fare’ tours and a slowing mainland Chinese economy have had a “slight impact” on retail sales this year after the sector secured strong growth last year, says a business association. The latest annual retail and wholesale survey released by the Statistics and Census Service on Friday shows the revenue of the territory’s nearly 6,000 retail establishments hit 53.31 billion patacas (US$6.66 billion) last year.
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Deals that let a Hong Kong businessman make billions from a land grant – allegedly tainted by bribery – for the La Scala luxury housing project were “normal” and “commonplace”, one of the legal advisers involved told a Macau court. But he shed no light on why Joseph Lau’s development firm bought another company run by Steven Lo, for more than a thousand times what had originally been agreed. Page 5
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December 17, 2013
Macau CE to ‘ponder’ re-election after Beijing visit Chief Executive Fernando Chui Sai On said yesterday he would “ponder” his bid for re-election as the city’s leader after his meeting with senior Chinese leaders. Mr Chui was speaking at Macau International Airport on his way to Beijing. He added he would measure his policy goals – stated prior to his election in July 2009 as to diversify the local economy and build a ‘transparent’ administration – against actual delivery, when deciding whether to seek a second five-year term. Mr Chui said next year’s process for selection of the CE would be “just and fair”.
New subsidised homes rush begins tomorrow An adviser expects would-be buyers to apply for even the usually unwanted one-bedroom flats Stephanie Lai
he government will begin tomorrow taking applications from Macau residents to buy 1,900 flats in subsidised housing, the Housing Bureau announced yesterday. The government has taken no new applications to buy subsidised housing since 2005. But a government adviser has criticised the government for building too many one-bedroom flats, saying too many families will try to squeeze into them for want of better options. The government has increased by one-third the maximum permissible incomes of buyers of subsidised housing, so making more people eligible. Housing Bureau officials told a press conference that for three months the bureau would be taking applications to buy 1,900 flats in Ilha Verde, Fai Chi Kei, Taipa and Seac Pai Van. The flats include 854 one-bedroom flats with about 30 square metres of floor space, 888 two-bedroom flats and 158 three-bedroom flats. Two-bedroom flats tend to be the most popular. The one-bedroom flats will cost
from 599,800 patacas (US$75,106) to 887,300 patacas. The three-bedroom flats will cost from 1.06 million patacas to 1.27 million patacas. A member of Public Housing Affairs Committee, Leong Kuai Peng, said the government had built too many one-bedroom flats. “It is a mistake caused by wrong resource allocation planning,” Ms Leong told Business Daily.
The government has concentrated on housing households that have been on a waiting list since 2005. But even households on the waiting shun one-bedroom flats. The government will divide the new applicants for subsidised housing into three categories. Applicants seeking to house their immediate families will be first in line. Individuals seeking housing will be last in line. Applicants will then draw lots for the flats on offer.
KEY POINTS Maximum permissible incomes of buyers lifted Adviser bemoans excess of one-bedroom flats Nuclear families to have priority over individuals
Ms Leong thinks families will elbow individuals aside because they fear the government will be unable to supply as many flats as it has promised. “The government will have to ensure there is a continuous supply of two-bedroom and three-bedroom units, and make the supply figure transparent to the public,” she said. She said this was the only that way to prevent panic-buying of even the one-bedroom flats. The government has increased the maximum permissible income of
individuals seeking to buy subsidised housing to 29,700 patacas per month from 22,240 patacas. It has increased the maximum permissible combined income of households seeking to buy subsidised housing to 59,300 patacas per month from 44,479 patacas. It has left the minimum permissible income unchanged. The head of the Housing Bureau’s public housing department, Chan Wa Keong, said the increases took into account the rise in housing prices. “We consider mainly people’s housing expenses, other household expenses and savings,” Mr Chan said. “In terms of housing expenses, we take as a reference the average property transaction cost in the past four quarters, and the interest rate and loan-to-value ratio.” Ms Leong thinks the increases in maximum permissible income will be harmful. “Given the very limited supply of affordable housing units, there will be even more intense, unhealthy competition among applicants,” she said.
San Yau to build Taipa public housing The public housing to be built in Rua de Choi Long, behind the University of Macau campus on Taipa, will contain 288 two-bedroom flats, the government says. The government will pay Companhia de Fomento Predial Sam Yau Ltda 228 million patacas (US$28.55 million) to build the 21-storey development, according to yesterday’s Official Gazette. The Infrastructure Development Office says the project should be finished by the second half of 2016.The Housing Bureau says each flat will have a floor area of 47 or 48 square metres and cost between 875,400 patacas and 1.11 million patacas.
Housing Bureau chief retiring by end-December Housing Bureau director Tam Kuong Man will retire from the post by the end of December, the cabinet of Secretary for Transport and Public Works Lau Si Io told Business Daily. Mr Tam asked to step down because he has reached the retirement age and the secretary has already approved the request, the cabinet said. Mr Tam was appointed as bureau director in early 2010. The bureau’s current deputy-director Kuoc Vai Han will take over and oversee the construction and allocation of thousands of public flats in the next few years. The government has been concentrating on housing households that have been on a waiting list since 2005
December 17, 2013 April 19, 2013
Macau Premium increase smaller for high-rise towers in prime locations like Nam Van Lake (Photo: Manuel Cardoso)
Land premium up threefold for residential projects Developers to pay the government three times more for land leases Vítor Quintã
evelopers will have to pay three times more for land leases starting from today. The hike could offset any government effort to curb the rise in housing prices, a business association has warned. The average premium for land intended for residential buildings with more than seven floors increased by threefold, the Land, Public Works and Transport Bureau said yesterday. “The government hopes to better reflect the link between the actual value of the properties and land premium through this new adjustment.” The present method of calculating land premiums takes into account the location of the leased land, its use, the construction area and the construction costs.
A dispatch published in yesterday’s Official Gazette updates the two main factors in the calculation: the construction costs and an estimate of how much the site could appreciate in value. As a result the premium for land intended for low-rise residential buildings located in cheaper areas such as Taipa village and Coloane village has increased by 5.2 times, according to Business Daily calculations. In contrast the premium for land intended for buildings with more than seven floors in prime locations such as Nam Van Lake and Penha Hill has increased by 2.3 times. The premium for land intended for commercial or office buildings or for hotels has increased by as much as 5 times.
The premium for car parks is up by fourfold due to recent rise in the price of car parking spaces, the bureau said. The government promised to review the calculation method every six months. The changes will not apply to the projects whose construction plans have already been approved, the bureau said. “Any upward adjustment in land premiums will only increase development costs for developers,” Real Estate Association of Macau president Chong Siu Kin told Business Daily last week. He said developers would pass the increase in land premiums on to homebuyers, “as long as their profit targets are at stake”. He said that could mean another
rise in housing prices. “It is still too early to say whether there will be a rise,” he said. “But the price will definitely not fall, owing to market sentiment.” Mr Chong acknowledged that land premiums accounted for only a “small portion” of development costs, and that construction materials and labour accounted for the greatest portion. The deputy director of the Land, Public Works and Transport Bureau, Shin Chung Low Kam Hong, said last week that his bureau was revising the method of calculating land premiums. Mr Shin said at a public event that the bureau hoped to report to Secretary for Transport and Public Works Lau Si Io next month.
City’s forex reserves slip in November Last week the yuan hit record high against U.S. dollar – the indirect peg for the pataca Michael Grimes
he city’s foreign exchange reserves fell 1.9 percent month-on-month in November said the Monetary Authority of Macau on Friday. They amounted to 126.6 billion patacas (US$15.85 billion) as of November 30, compared to 129.1 billion patacas in October, stated the territory’s de facto central bank. When compared with a year earlier, the reserves dropped by 5.3 billion patacas, or 4.0 percent. Macau’s foreign exchange reserves at end-November represented 15 times the currency in circulation or 119.8 percent of the ‘M2’ pataca money supply at end-October 2013. M2 refers to all time-related deposits, savings deposits, and noninstitutional money-market funds, plus ‘M1’, which is physical coins
and currency, as well as readily liquid assets such as on demand bank deposits. The trade-weighted effective exchange rate index for the pataca – a gauge of the domestic currency’s exchange rates against the currencies of Macau’s major trading partners – increased 0.42 points month-tomonth but dropped 0.36 points yearon-year to 96.93 in November 2013. The pataca is pegged to the Hong Kong dollar, which in turn is directly pegged to the U.S. dollar. The advance of the mainland’s currency the yuan against the U.S. currency has led Macau to import some inflation, given that it buys many of its goods and services from the mainland, scholars told Business Daily last year. But the yuan crawled lower
yesterday as forex traders watched and waited ahead of a U.S. central bank meeting this week. It will in likelihood determine the U.S. dollar’s trend in the opening months of next year. The U.S. Federal Reserve meets today and tomorrow U.S. time to discuss tapering its US$85 billion in monthly bond buying which has served to support the U.S. dollar. Opinion is divided on whether the Fed will move this week or wait for January – or possibly March. On Monday, the yuan, also known as the renminbi, was a shade softer at 6.0719 per U.S. dollar compared with 6.0712 at the previous close. It hit a record high of 6.0703 per dollar last Tuesday, guided by a spate of strong fixings by the mainland’s central bank, the People’s Bank of China. With Reuters
MOP126.6 bln Macau’s foreign exchange reserves as of Nov 30
December 17, 2013
Mainland sluggishness curbs Macau retailing Retailing revenue jumped by one-third last year but has not grown so fast this year Tony Lai
mainland law meant to curb free package tours and the slowing of growth in the mainland economy have slightly constricted retail sales in Macau this year, a business association says. The Statistics and Census Service’s survey of retailing and wholesaling last year found the revenue of Macau’s nearly 6,000 retailing establishments was 53.31 billion patacas (US$6.66 billion), 34.5 percent more than in 2011. The figure does not include sales of motor vehicles. The Macau Association of Retailers and Tourism Services believes growth will be slower this year. “There has been slight impact on the sector caused by the new tourism law and slower economic growth,” the group’s president, Frederick Yip Wing Fat, told Business Daily. A new law in force in the mainland since October 1 is meant to curb free package tours run by operators that recoup their costs by making tourists shop in shops that pay commission. Mr Yip said the new law had “somewhat affected” retail sales at first, but that sales had begun recovering this month. The new law meant 10.6 percent fewer package tourists from the mainland visited Macau in October that a year earlier. Most of the city’s visitors are mainlanders. Mr Yip said sales of high-end products such as expensive clothes and jewellery had been “sluggish” this year. “The sales of products costing several hundred thousand patacas remain strong, but sales of products costing several million patacas have definitely lost some steam,” he said. “For instance, buyers may not
Sales of high-end products have been slow this year, Frederick Yip says
drink wine as expensive as they drank before because of slower economic growth and the central government’s austerity measures,” he said. President Xi Jinping called this year for less lavish spending. Analysts expect the mainland’s economic growth this year to be the slowest since 1999, when it was 7.6 percent. The mainland’s annual rate of growth was 7.7 percent in the first nine months of this year.
Labour headache The retailing survey found the revenue of small retailers grew much faster than that of big ones last year. The combined revenue of retailing businesses with fewer than five employees jumped by over one-half
to 4.4 billion patacas despite a decline of 1.5 percent to 4,955 in the number of such businesses. In contrast, the combined revenue
Revenue of the city’s retail establishments last year
of retailing businesses with at least 20 employees grew by less than 30 percent to over 40.67 billion patacas. Mr Yip said the operations of small retailers continued to be hampered by the labour shortage. “It is difficult for small and medium enterprises to recruit people, as labour flocks to the big retailing enterprises in the extremely low-unemployment environment,” he said. The combined workforce of establishments with fewer than five employees grew by 15.8 percent last year to 10,576. The combined workforce of all retailing establishments grew by 24.2 percent to 29,979. The operating expenses of the nearly 6,000 retailing establishments grew by over one-third to 7.15 billion patacas.
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December 17, 2013
Macau Deloitte to assess money-laundering risks Deloitte Touche Tohmatsu Ltd, one of the world’s big four accountancy firms, will receive almost 6 million patacas (US$750,000) to provide risk assessment services to the Financial Intelligence Office, yesterday’s Official Gazette shows. A risk assessment allows jurisdictions to identify and assess its money laundering and terrorist financing risks. Macau has frequently been criticised by international bodies for its weak money laundering controls, namely on the casino business. The United States Congressional-Executive Commission on China last month urged the government to improve its supervision of hard currency flows in the gaming industry.
Jewellery certification system on the works The Macao Goldsmith’s Guild will work on introducing a jewellery certification system recognised by the International Organisation for Standardisation in the city, guild president Lei Chi Fong said on Friday. A survey is now analysing the standards used in Macau’s jewellery shops, he told media on the sidelines of an award ceremony. A certification system would give shoppers more confidence when buying jewellery in Macau, Mr Fong said. The businessman, managing director of Seng Fung Jewellery Co Ltd, was awarded the Medial of Merit for industrial and commercial by the government.
La Scala witness sees no evil in deals struck La Scala trial prosecuting and the defence counsel are due to make their closing remarks on January 15 Tony Lai
he loan and stock deals that allowed a Hong Kong businessman to make billions from a land grant allegedly tainted by bribery were “normal” and “commonplace”, the lawyer that helped draw up the deals has testified in the Court of First Instance. But the lawyer shed no light on why Joseph Lau Luen Hung’s development company bought a company run by another Hong Kong businessman, Steven Lo Kit Sing, for well over onethousand times what the developer originally agreed to pay for it. Mr Lau and Mr Lo are on trial on charges of bribing Ao Man Long, a government secretary at the time, with HK$20 million (US$2.58 million) to ensure the success of their bid in 2005 for the land where La Scala, an upmarket housing project, was to have been built. The last witness in their trial testified on Friday. The trial began in June. The presiding judge, Mário Silvestre, said prosecuting and defence counsel would make their closing remarks on January 15. The court has yet to set a day for pronouncing its verdict. The last day of testimony focused on a loan contract and a stock option agreement between subsidiaries of Mr Lau’s Chinese Estates Holdings Ltd and Mr Lo’s Moon Ocean Ltd. The deals were drawn up before Moon Ocean successfully bid for the land for La Scala. Hong Kong lawyer Joseph Wong
Wing Sing, who helped draw up the deals, told the court it was “not uncommon” for a loan contract and a stock option agreement to go together. The loan contract was for a HK$250 million loan to Moon Ocean. The stock option agreement allowed a subsidiary of Chinese Estates to buy 70.01 percent of Moon Ocean at any time for 1 million patacas (US$125,000).
Normal risk “Perhaps the borrower wanted to give Chinese Estates a chance to join the project later,” Mr Wong said. The Commission Against Corruption had previously told the court that the stock option agreement proved that Mr Lau had been behind the bid for the land all along. Mr Wong had no answer when asked why Chinese Estates had dropped the stock option agreement, yet less than a month later had paid HK$1.6 billion for the same stake in Moon Ocean that the stock option agreement had covered. After the government granted more land for La Scala, in February 2011, Chinese Estates bought the other 30 percent of Moon Ocean for HK$1.6 billion. The chief of the Commission Against Corruption’s investigation division, Lei Tong Leong, said in July that this had made Mr Lo a profit of HK$1.82 billion on La Scala.
Mr Wong said the loan contract and stock option agreement had involved two pledges by Moon Ocean and a personal guarantee by Mr Lo. “It is commonplace to have a personal guarantee in addition to the pledges of all items in a project to secure a loan,” he said. He said the risk taken in lending to Moon Ocean, which had only just been established at the time, had been “normal” for Chinese Estates. Mr Wong said Chinese Estates could have got back at least HK$200 million if Moon Ocean’s bid for the land for La Scala had failed.
It is commonplace to have a personal guarantee in addition to the pledges of all items in a project to secure a loan Joseph Wong, Hong Kong lawyer
WiFi Go operator wins extension The government renewed the contract for free public wireless Internet service WiFi Go for another year, without launching a public tender. The contract with Centro de Informações Tecnologia de Macau (CITM) is worth 28.8 million patacas (US$3.6 million), according to yesterday’s Official Gazette. The government had spent about 37 million patacas in the service, which provides free Internet access in 132 public spots, by the end of 2012. Michael Choi is the chief executive of CITM and also chairman of Companhia de Telecomunicações de MTEL Ltda, the new licensed operator for fixedline telephone services.
Chinese investors rushing to Portugal More than three in four investors who obtained residency in Portugal thanks to a golden visa programme were from China, said Portugal’s Foreign Affairs minister Rui Machete. The country has already granted 388 golden visas, of which 295 went to mainland Chinese citizens, seven to Hong Kong residents and one to a Macau resident, said Mr Machete, quoted by the Portuguese news agency Lusa. The golden visa programme has attracted investment worth 242 million euros (2.7 billion patacas), he said. A year ago the Portuguese government began offering residency to foreign investors under this new scheme.
Govt budget approved despite criticism T he Legislative Assembly approved yesterday the government’s budget for next year but members across the political spectrum expressed concerned over public spending inflation and project overruns. Directly elected legislator Kwan Tsui Hang questioned the need to hire a further 4,840 civil servants next year, which would take the workforce to nearly 34,500. Fellow legislator José Pereira Coutinho compared the creation of new government bodies to “the growth of wild mushrooms”. Secretary for Economy and Finance Francis Tam Pak Yuen revealed they had reduced the payroll forecasts of all departments “by onethird” before sending the budget to the assembly. He pledged the budget for 2015 would have higher requirements for the public bodies on the expenses, thanks to the revision of the budget framework bill. The government’s overall spending – excluding autonomous bodies – is projected to reach 80 billion patacas (US$10 billion) next year. The city’s surplus is expected to hit 76 billion patacas next year with
revenue of 153.62 billion patacas. The budget drew rare criticism from indirectly elected legislator and businessman Victor Cheung Lup Kwan, particularly on infrastructure project overruns. There is still no ceiling for the Light Rapid Transit railway budget, he stressed. “There is nothing wrong with
businessmen [contractors] aiming for more profits but you should keep closer watch on the expenses,” the legislator told Mr Tam. The secretary said they would be more transparent and “appropriately” report to the assembly any change to the budget of large-scale infrastructure projects. T.L.
December 17, 2013 April 19, 2013
Okada’s Manila scheme ‘close’ to partnership Private Philippine firm wants to take 24 pct stake in Eagle 1 Holdings: reports Michael Grimes
Kazuo Okada – close to new local partners on Manila Bay?
involved in the deal for the rights to a 44-hectare (109-acre) plot where the resort will be built. In November Century Properties Group Inc – led by the family of Philippines businessman Jose Antonio – said in a filing to the Philippine Stock Exchange it was taking a 36 percent holding in Eagle 1, and would also have the exclusive right to develop five hectares of the resort for a “residential and commercial development”. The First Paramount and Century Properties deals combined would take the Manila Bay scheme closer to the 60 percent local land ownership required under Philippine law.
privately held Philippines company is reportedly one of a number of local firms close to signing a new partnership deal for Japanese gaming entrepreneur Kazuo Okada’s US$2 billion (16 billion patacas) Manila Bay casino resort.
First Paramount Holdings 888 Inc was quoted in the Philippines media saying it hoped to finalise its involvement “this week”. Reports said the entity would take a 24 percent stake in Eagle 1 Landholdings Inc – a company
An inquiry by the Philippines’ Department of Justice and the country’s National Bureau of Investigation earlier this year suggested Mr Okada’s Universal Entertainment Corp used three local firms: Eagle I Landholdings
Inc; Eagle II Holdco Inc; and Tiger Resort Inc; to avoid the Philippines’ 40-percent limit on foreign ownership of businesses. Mr Okada has strongly denied any wrongdoing. Business Daily attempted to contact someone from First Paramount Holdings 888 for confirmation of the partnership, but was unable to do so before press time. Eagle 1 is an affiliate of Mr Okada’s Osaka-listed Universal Entertainment. How Eagle 1 and other entities came to hold the land and win a provisional casino licence has become the subject of criminal investigations on both sides of the Pacific Ocean. Mr Okada – a former director of Wynn Macau Ltd – and his companies are under investigation in the United States for potential violations of antibribery laws in relation to the Manila Bay scheme, according to a court filing made earlier this year by U.S. federal prosecutors. The legal wrangle has been an unwelcome headache for an already large and complex development. Mr Okada’s representatives had previously held talks on collaboration with Manila-listed Robinsons Land Corp. Reuters reported those talks revolved around the possibility of Robinsons – controlled by the influential Filipino-Chinese Gokongwei family – investing in Eagle I and using Mr Okada’s Tiger Resorts, Leisure and Entertainment Inc for the casino operations. Those talks ended in May without a deal. Mr Okada has one of four casino licences issued by the local regulator the Philippine Amusement and Gaming Corporation for a new Las Vegas-style zone with world classcasinos known as Entertainment City.
Corporate Electric car on trial for airport operator Administration of Airports Ltd – operations manager at Macau International Airport – has a fully electric car (pictured) on trial. The reportedly zero emissions vehicle will be used for general transport within the airport and in the city. Starting from January 2014, its consumption and efficiency will be measured for a year. If considered “satisfactory”, the operator’s company cars will be replaced in phases with electric vehicles. ADA didn’t specify the criteria for success. The model on trial is a Renault Laguna. The Macau agent of the French carmaker is Xin Kang Heng Holding Ltd. The latter is 40 percent indirectly owned by CITIC Pacific Ltd, a unit of CITIC Group, formerly known as the China International Trust and Investment Corporation, a state-owned investment company from the mainland. Inside the airport, Shenzhen-listed Shenzhen AOTO Electronics Co. Ltd has installed a new giant LED advertising display. The firm has previously claimed the first ever glass-free 3D LED display.
Predictive software from Macau IT firm comma Ltd – a Macau- and Hong Kong-based information technology company – has launched a new unit called comma LABS. It will develop hardware and new software to work with comma’s existing software. The latter is designed to assist small- and medium-sized enterprises in managing business equipment. The new products will help to make the basic platform fully automated and predictive. One tool warns customers if a piece of equipment is at risk of failing. The firm describes its basic platform, comma CMMS, as “a cloud-based computerised maintenance management system that targets SMEs involved in any type of equipment maintenance”. “Our first LAB projects, the comma CMMS API [application programming interface] and the sensorNET network are designed to alert users directly in case of about-to-fail equipment,” says Rui Alves, chief executive of comma Ltd. “This allows users to take action before costly problems happen while all the CMMS records are automatically prepared”, he adds.
December 17, 2013 April 19, 2013
Macau Amax revises loss per share Macau junket room investor Amax International Holdings Ltd said in a clarification to the Hong Kong Stock Exchange that its loss per share for the six months to September 30 was 6.96 Hong Kong cents rather than the 6.75 HK cents stated in an earlier filing. It said the rest of the interim unaudited results were unchanged. The unaudited loss attributable to owners of the company was approximately HK$15.77 million (US$2 million). Amax recently said in another filing that its attempt to operate a casino in the Turkish Republic of Northern Cyprus is back on the negotiating table.
Employers tap into fountain of youth Macau is resilient amid global economic weakness, the ILO says Vítor Quintã
acau has the lowest youth unemployment rate in the Asia-Pacific region, a United Nations agency says, as labourstarved employers take on whatever workers they can find – even workers with no experience. Statistics and Census Service data show that about 1,100 people in Macau aged between 16 and 24, or 3 percent of the age group, were unemployed in the second quarter of this year. The city’s youth unemployment rate is the lowest in the Asia-Pacific region, the International Labour Organisation (ILO) says in its latest report on labour markets in the region, published last week. Macau’s general unemployment rate is at its lowest ever, and even high school leavers have no problem finding jobs. “Macau is an employees’ market,” said a managing partner in employment agency MSS Recruitment Ltd and hello-jobs.com, Loh Seow Yuen. Ms Loh told Business Daily last month that part-time and full-time job openings were abundant. “Employees always have their pick of the cherries,” she said. Official data show that about half of the 27,400 residents and 10,900 migrant workers in Macau aged between 16 and 24 were employed
Even high school leavers have no problem finding jobs
at the end of June. The ILO says Macau is one of the few places in the Asia-Pacific region where youth unemployment is low. The ILO report says the youth unemployment rate is about 10 percent in eight of the region’s 14 economies. It says finding decent jobs is “a prominent challenge” for the region’s youth because education, the aspirations of young people and
the requirements of employers are ill matched. The mismatch is “especially relevant” in mainland China, owing to “rapid economic transformation and shifting job expectations of recent graduates”, the report says.
Getting tighter The Monetary Authority of Macau says that, technically, the city has
had full employment since January. Macau’s general unemployment rate is 1.9 percent which, ILO data indicate, is the second-lowest in the Asia-Pacific region after Thailand’s. Macau’s labour market keeps getting tighter. Employment increased by 5.8 percent in the first three quarters of this year. The only in places in the AsiaPacific region where employment increased faster were Malaysia and Sri Lanka. The ILO says employment trends vary from place to place in the region, reflecting differences in economic development and labour market forces. The ILO report says that in developed economies such as Macau’s and Singapore’s progress is “notable”, but that global economic weakness is “testing” many labour markets in the region. “While some economies have been resilient, others are showing fragility,” the report says. It says that in Indonesia, which has the third-largest labour force in the Asia-Pacific region, employment in manufacturing and construction underwent “an alarming contraction” of 1 million jobs. In Thailand employment in general decreased by a “startling” 1.2 per cent, the shrinkage being greatest in agriculture and construction, the report says.
December 17, 2013 April 19, 2013
JPMorgan sees Basel III debt rising Regulators seek to boost lenders’ balance sheets after financial crisis Rachel Evans
PMorgan Chase & Co forecasts China’s top banks will sell as much as US$10 billion of Basel III debt offshore in 2014, adding to US$51 billion issued worldwide to meet tighter standards since the global financial crisis. The country’s four biggest lenders may each offer overseas investors US$2.5 billion of the securities that meet new rules to bolster balance sheets, according to Mark Follett, Hong Kong-based head of high-grade debt capital markets for Asia ex-Japan at JPMorgan. Industrial & Commercial Bank of China Ltd and China Citic Bank International Ltd raised US$800 million this quarter with Asia’s first two Basel III dollar notes. China’s banks are seeking to expand their cushion against losses after bad loans increased to the highest since 2008. The government has bailed out the banking industry twice, spending US$79 billion since 2003 recapitalising the four biggest lenders, after injections in the late 1990s to stave off bankruptcy. While ICBC paid 80 basis points more for its Basel III bond in October than on similar debt in 2010, costs should fall as investor familiarity grows, Mr Follett said. “The banking market in China is central to economic growth, prosperity and social stability,” he said. “We don’t expect a circumstance where a Chinese bank that’s issued external debt would be put in a
position where the regulator says they have to write off this debt because that could cause panic and contagion.” JPMorgan is this year’s secondlargest arranger of dollar bonds from China.
Boosting buffers Global watchdogs led by the Basel Committee on Banking Supervision are seeking to boost lenders’ balance sheets after the financial crisis exposed inadequate buffers against losses. The latest guidelines require a clause allowing regulators to write off capital, such as subordinated debt, if the issuer is in danger of becoming “non-viable”. Lack of a definition for that label is the main challenge for investors in Basel III instruments, according to a survey by Fitch Ratings in October. As understanding of the new securities and regulations grows, bonds from high-quality banks should eventually price no more than 25 basis points to 50 basis points more than their previously issued Tier 2 Basel II notes, according to JPMorgan’s Follett. Chinese banks and other issuers will increasingly turn to the international bond market to raise funds after yuan borrowing costs surged amid the government’s attempts to rein in shadow banking, according to Viktor Hjort, a Hong Kong-based managing director in Morgan Stanley’s research team.
Chinese banks seeking to expand cushion against losses
The average rate on dollar notes from Chinese borrowers dropped 22 basis points this quarter to 5.96 percent, JPMorgan indexes show. In the same period, the average yield top-rated companies from the world’s second-largest economy
AIG nears sale of ILFC to AerCap for cash, stock
Beijing to crack down on price fixing NDRC seeking to strengthen regulation to keep price levels stable
hina’s pricing regulator said it will crack down on price manipulation in agricultural products to help protect lowincome citizens, widening its probe on antitrust violations that has targeted some wellknown global firms. The National Development and Reform Commission (NDRC) said in a statement published on its website it will look into pork, fertilizer, cotton, vegetable oil and sugar – all commodities with a disproportionate impact on low-income people in China. The agency would strengthen price subsidy mechanisms to mitigate the impact of rising product prices on poor people, it added. China is trying to restructure the economy so that growth is driven by consumption and antitrust agencies have said they will target industries where practices could lead
to “unreasonably” high consumer prices. The NDRC has been stepping up its anti-monopoly enforcement over the past several months. The NDRC handed down record fines in August to six milk powder companies, including Mead Johnson Nutrition Co and Danone SA, and has also punished domestic jewellers for antitrust violations. The government in August fined six dairy producers including Mead Johnson, the country’s largest seller of baby formula, a combined
pay for 10-year yuan debt leapt 58 basis points to 6.24 percent. The yield on China’s benchmark 10-year government bond is 4.54 percent, bringing the spread to 170 basis points after it hit a two-year high of 183 on Nov. 29.
669 million yuan (US$109 million) for price fixing, a record penalty for violating anti-monopoly laws. The companies tried to fix minimum resale prices of their products, limiting competition in the industry, authorities said at the time. The regulator has said it would focus on six sectors – aerospace, chemicals, automobiles, telecommunications, pharmaceuticals and home appliances. Last week, state media quoted NDRC official Xu Kunlin saying the agency has “substantial evidence” against chipmaker Qualcomm Inc in an antitrust probe. Mr Xu was also quoted as saying the agency would add at least 170 people to its pricefixing enforcement teams as it redoubles efforts to tame anti-competitive behaviour in major industries, including the automotive sector. Reuters
merican International Group Inc is nearing a deal to sell its plane-leasing unit to AerCap Holdings NV for cash and stock, according to two people briefed on the talks. AIG would get US$3 billion and about 96 million shares in AerCap, a stake valued at about US$2.4 billion at the end of last week, said the people, asking not to be named because the talks are private. The sale of International Lease Finance Corp, the second-largest aircraft lessor with a portfolio of almost 1,000 planes, is to be announced soon, one person said. AIG turned to AerCap after investors led by Hong Kong-based P3 Investments Ltd failed to deliver the US$4.2 billion that they agreed to pay for an 80 percent stake in ILFC. The New York-based insurer has been seeking to narrow its focus as government watchdogs increase their scrutiny of the largest financial firms.
ILFC is “not a good fit with an insurancecompany balance sheet, particularly with all the new regulations,” AIG chairman Steve Miller said “A very capital-intensive business like that really doesn’t belong in an insurance portfolio, even though we love the company and we love the earnings.” ILFC’s net income was US$410.3 million in 2012. The business posted a loss of US$599.2 million in the first nine months of 2013 on impairments of aircraft. By divesting ILFC, AIG is focusing on its main businesses of selling life insurance and propertycasualty coverage and ridding itself of more than US$20 billion in debt. Chief executive Robert Benmosche has said the firm needs to safeguard its credit rating as it seeks to return capital to shareholders. The insurer announced a plan in August to buy back US$1 billion of stock and declared its first dividend since 2008. Bloomberg News
December 17, 2013 April 19, 2013
to US$10 bln
Manufacturing index drops on output Economy likely to show weaker momentum in the final quarter
KEY POINTS Four lenders to offer US$2.5 bln of the securities Banks sell Basel III debt offshore to meet standards Bad loans increased to the highest since 2008 Authorities seek to cool credit growth
“Financial conditions are arguably much tighter onshore than they are offshore,” Morgan Stanley’s Mr Hjort said. “The banks in China are being re-regulated and, as a result, their ability to grow their balance sheets has been constrained.”
China’s four largest banks – ICBC, China Construction Bank Corp, Agricultural Bank of China Ltd and Bank of China Ltd – plus Bank of Communications Co have the equivalent of 118 billion yuan of Basel II-compliant junior debt coming due or callable within the next two years, according to Christine Kuo, senior credit officer at Moody’s Investors Service. While domestic sales will likely dominate issuance, larger lenders could sell US$5 billion to US$10 billion offshore, she said at a briefing in Hong Kong this month. “All the big banks are interested in issuing across the border,” she said. “These are very big banks so they can afford to do the bigger size.” Bloomberg News
China Airlines, Tiger Air to set up Taiwan carrier Tigerair Taiwan will have a paid-up capital of US$67.5 mln
hina Airlines Ltd and Tiger Airways Holdings Ltd will set up a budget airline in Taiwan amid rising travel demand in Northeast Asia. China Airlines will own 90 percent of the venture, with Tiger holding the remainder, the companies said in separate statements yesterday. The new carrier, to be named Tigerair Taiwan, will have capital of NT$2 billion (US$67.5 million), Singaporebased Tiger said. Tiger joins AirAsia Bhd and Qantas Airways Ltd’s Jetstar unit in setting up low-cost carriers over the past year, as Asian discount airlines’ traffic has tripled since 2008, according to data compiled by Bloomberg. Taiwan expects two budget carriers including Tigerair and an airline of Transasia Airways Corp to start operations next year, Taipei Times reported yesterday, citing the island’s Civil Aeronautics Administration. “The new JV will allow us to extend our presence into the new, untapped markets of Taiwan, Japan, and Korea,” Koay Peng Yen, Tiger Airways’ chief executive, said in the statement. “There is vast potential for
growth in these markets and also areas of synergy to be explored between the two airlines.” Sun Hung-Hsiang, chairman of China Airlines, said: “China Airlines’ knowledge of the Taiwan market coupled with Tigerair’s expertise in the no-frills sector should stimulate demand in the civil aviation market here.” Thailand’s Nok Airlines PCL and Singapore Airlines Ltd’s Scoot budget carrier also plan to set up a Bangkokbased low-cost airline, Scoot said in an e-mailed statement yesterday. The initial investment will be 2 billion baht (US$62 million) or S$80 million, the companies said, with Nok holding a 51 percent share and Scoot holding 49 percent. Demand for discount flying has been rising in Asia. Currently 12 foreign budget airlines, including Malaysia-based AirAsia and Japan’s Peach Aviation, offer services to and from Taiwan. Singapore Air is also Tiger Airways’ largest shareholder with a 33 percent stake, according to data compiled by Bloomberg. Bloomberg News/AFP
Growth in activity in the factory sector slowed to a 3-month low
Chinese manufacturing index unexpectedly fell to a threemonth low as output gains eased and employment weakened, suggesting the world’s second-largest economy is vulnerable to a slowdown. The preliminary reading of 50.5 for a Purchasing Managers’ Index released yesterday by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.8 in November and the 50.9 median estimate in a Bloomberg News survey of 11 analysts. A number above 50 indicates expansion. Chinese stocks extended losses as the manufacturing report underscored the Communist Party’s warning last week that the economy faces “downward pressure”. Weaker manufacturing may test the President Xi Jinping’s resolve to push through policy changes such as reducing local-government debt and industrial overcapacity. “The reading confirms our view that Chinese GDP growth is already decelerating,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. He forecasts 7.2 percent gross domestic product expansion in 2014, compared with 7.7 percent this year. Yesterday’s China report, known as the Flash PMI, is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers. The final reading will be released on January 2. The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own survey of purchasing managers on January 1. The gauge’s November
reading was 51.4, the same as October, which was an 18-month high.
New orders Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement yesterday that the December figure is still higher than the average reading in the third quarter, “implying that the recovering trend of the manufacturing sector starting from July still holds up.” Measures of new orders and export orders strengthened, while input prices increased at a slower rate, according to yesterday’s report. Wang Tao, chief China economist at UBS AG in Hong Kong, said the figures shouldn’t be “over-interpreted,” in part because of the earlier dates, as she maintained her forecasts for 7.6 percent GDP growth this quarter and in 2014. Weakness in yesterday’s manufacturing data adds to concerns that November’s official export numbers may have been inflated, said Tim Condon, head of Asia research at ING Groep NV in Singapore, who previously worked for the World Bank. Outbound shipments rose 12.7 percent last month from a year earlier, according to customs data last week. Top party and government officials held the annual Central Economic Work Conference last week to map out policies for next year. A report issued after the meeting said policymakers will try to stabilise expansion, restructure the economy and promote reforms. Bloomberg News
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December 17, 2013 April 19, 2013
Greater China Li’s Power Assets to list electricity unit on Jan 29 Power Assets Holdings Ltd, controlled by Asia’s richest man, Li Ka Shing, said its Hong Kong electricity arm will have a market value of at least HK$48 billion (US$6.2 billion) should a spinoff of the unit proceed. Power Assets plans to spinoff Hongkong Electric Co and sell as much as a 70 percent stake in the unit, with the stock expected to begin trading in Hong Kong on January 29, it said in a statement yesterday. The unit will have a market value of HK$48 billion to HK$63.4 billion and the spinoff won’t go ahead if the minimum market value of HK$48 billion isn’t achieved, it said. The proposed spinoff comes as Mr Li sells assets in the former British colony, where growth is slowing. Power Assets will use proceeds from the spinoff of the unit to help fund acquisitions in the global power sector, it said. Power Assets expects an estimated gain of HK$53 billion from the spinoff, the company said in the statement, without giving a price the shares will be sold at. Goldman Sachs Group Inc. and HSBC Holdings Plc are joint sponsors for the listing, Power Assets said in the statement.
Baidu forced to make additional disclosures
U.S., HK regulators focus on Chinese stocks Investors’ appetite not damped by concerns over legal structure Renault, Dongfeng in factory tie-up Renault SA, France’s second-largest automaker, will build sport utility vehicles at its joint venture factory with Dongfeng Motor Group Co as it targets to sell locally made vehicles in China by 2016. The two companies will work closely with Nissan Motor Co, which also produces cars with Dongfeng, as part of a “golden triangle” to gain synergies in costs and technology, according to Carlos Ghosn, chief executive of both Renault and Nissan. Renault and Dongfeng signed the 7.76 billion yuan (US$1.28 billion) partnership agreement yesterday in Wuhan. By the time the first China-made Renault is available for sale in the first half of 2016, the French automaker would have lagged further behind Volkswagen AG, General Motors Co and Toyota Motor Corp. All of them have more than a decade’s head start over the French automaker in producing in the world’s largest auto market. “If you look at the market, who needs Renault in China, to be blunt,” said Philippe Houchois, a London-based auto analyst with UBS AG, who recommends holding the stock. “At the same time, I can understand, strategically it’s very hard for anyone to ignore a third of the global market.”
Tianjin to restrict car ownership China’s northern city of Tianjin will restrict issuance of new car licences, the latest city to clamp down on car ownership in a bid to ease traffic congestion and combat air pollution. The city government will issue new plates via auction and lottery from Monday, it said in a notice posted on its website on Sunday. It will also introduce a quota system similar to Beijing’s traffic restriction scheme, which allows cars access to the city on certain days depending on the last digit of their plates, the official Xinhua news agency quoted Miao Hongwei, head of the city’s traffic management bureau, as saying. The capital Beijing, infamous for its choking smog, announced last month it will slash the city’s new car sales quota by almost 40 percent next year. Other major cities such as Shanghai and Guangzhou have also implemented measures to restrict car ownership. The Chinese government has announced many plans to fight pollution over the years but the country’s manufacturing base and heavy dependency on coal for energy continues to dog efforts to clean up the smog that has enveloped many cities. (Reporting by Shanghai Newsroom; Editing by Kazunori Takada and Jacqueline Wong)
.S. and Hong Kong stock market regulators are demanding that Chinese companies provide investors more warnings about the risks of a legal structure commonly used to list those shares overseas. The scrutiny follows some little noticed legal developments in the mainland over the past 18 months that show the contracts behind the foreign listings may not hold up in court. It also casts a spotlight on the risks inherent in some of the world’s most sought-after investments just as Alibaba Group Holding Ltd prepares for what could be the biggest foreign listing of a Chinese Internet company. The U.S. Securities and Exchange Commission has pressed Beijingbased Baidu Inc, China’s No. 1 search engine, to make additional disclosures about its corporate structure, citing the potential for foreign owners to lose control. Separately, the Hong Kong Stock Exchange added a requirement last month for companies that seek to list using the structure to obtain a legal opinion stating that their contracts don’t break rules or laws, and won’t be invalidated. At issue are “variable interest entities,” or VIEs, which are used to circumvent the Chinese government’s restriction on foreign ownership of key
industries. The VIEs give overseas investors both the economic gains and losses of the business through contracts rather than direct ownership. About half the Chinese firms listed in the U.S. use the structure, and Internet and financial companies are among those that have virtually no other way to comply with Chinese law.
Increased scrutiny Investors such as Gary Black, global co-chief investment officer for Calamos Investments, said they have grown more cautious about such stocks. “We continue to invest in VIEs selectively where there is a high return opportunity, where we’ve done our homework, and where we feel confident about management,” said Mr Black. “Our level of scrutiny has increased. For example, we recently sent three members of our global investment team to China, where they met with several managements with VIEs we were considering.” Even investors with a clear sense of the risks are in a bind, said Arthur Kroeber, Beijing-based managing director of GaveKal Dragonomics, who advises mutual funds and hedge fund managers on investing in China. “On the one hand the structure is obviously risky, but on the other hand the best-performing stocks in
the world this year have been the Chinese Internet stocks, all of which are VIEs,” Mr Kroeber said. “So if you invest in them you take on more risk than you’d like, but if you don’t invest in them your returns will fall well short of your benchmark. Plus, investors are looking for ways to play the ‘rising Chinese consumer,’ and Internet stocks are really the only way to do it.” The CSI Overseas China Internet Index has gained 76 percent this year, compared with a 24 percent return in the Standard & Poor’s 500 index. That performance is helping fuel a wave of offerings from Chinese companies to attract foreign investors, many of whom may not realise they are buying something other than a direct stake in the operation. Among the most anticipated is Alibaba, which is considering a listing in New York and Hong Kong and says it doesn’t anticipate any problem meeting exchange requirements. Alibaba hasn’t chosen a venue or a timetable for a foreign listing, said John Spelich, vice president of international corporate affairs. “We are comfortable that our VIE structures are and will be compliant with all relevant requirements for a listing in the U.S., H.K. or elsewhere,” he said. Bloomberg News
Taiwan boosts free trade zone
aiwan’s cabinet said it expects the second phase of its new free-trade zone to generate T$21 billion (US$709 million) in private investment and create 13,000 jobs next year, as the exportdriven economy steps up efforts to compete globally. The zone, which focuses largely on investment, educational and financial services, will help Taiwan counter the threat of being marginalised in the wake of trade deals being negotiated by major economies and regional
Asian neighbours. In a statement, Taiwan’s cabinet pointed to the Trans-Pacific Partnership (TPP) to further liberalise the economies of the AsiaPacific region, and the Regional Comprehensive Economic Partnership (RCEP), between ASEAN and its free trade partners, as risk to the island’s future competitiveness. Taiwan kicked off the first phase of the zone earlier this year. Now it is entering the second phase, which is subject to approval from
the Taiwanese legislature, which the cabinet said it hopes to secure next year, the statement said. The zone is expected to generate T$30 billion and T$40 billion in revenues for banks and securities houses, respectively, over the next five years, it added. Taiwan also plans to liberalise numerous aspects of its educational market, including regulations on the salaries of educators and foreign recruitment of students. Reuters
December 17, 2013 April 19, 2013
Singapore to stick to tight labour policy City-state has tightened rules for overseas manpower in the past four years Sharon Chen and Jasmine Ng
ingapore will continue to tighten the influx of overseas labourers after a riot involving about 400 foreign workers, said Acting Manpower Minister Tan Chuan Jin. While foreign labour has contributed to the growth of the economy, there has been a cost, including a strain on infrastructure, Mr Tan, 44, said in an interview. Police have charged 33 people in relation to the riot, the first in Singapore in more than four decades. “ We ar e contin u ing to tighten our manpower policies because we do want to move to a leaner approach,” Mr Tan said. Asked whether poor living conditions led to the riot and if the government would step up measures to ensure foreign workers’ well-being and safety after the incident, he said “it’s premature to conclude that actually it’s because of all these other deep-seated reasons and therefore the riot happened”. Singapore has tightened rules for overseas manpower for the past four years, including caps on the number that can be hired in some industries and raising levies. The population has
jumped by more than 1.1 million since mid-2004 to around 5.4 million, leading to congestion and competition for housing, jobs and education. Discontent over the number of foreign workers, who make up about a third of the workforce, led to the worst election result for the ruling party since independence. The riot that broke out on the night of Dec. 8 in the city’s Little India district after a bus ran over and killed an Indian national, has reignited the debate about Singapore’s dependence on foreign labourers.
‘Relatively happy’ A survey conducted in 2011 by the government among work- permit holders showed 90 percent were “relatively happy” to be in Singapore, 80 percent wanted to stay and about 70 percent were happy to recommend their friends and family to come to Singapore, Mr Tan said. “It was a fairly large sample size and that has pretty much been echoed by the feedback we’ve been getting,” Mr Tan said. “In the aftermath of the riot, again we’ve pushed out to find out the sentiments and
We are continuing to tighten our manpower policies because we do want to move to a leaner approach Tan Chuan Jin, Singapore’s Acting Manpower Minister
it’s quite consistent.” Singapore authorities prosecuted five Chinese nationals and deported 29 others over their involvement in an illegal strike in November last year, an unusual public display of labour discord. The striking workers, all from China, were unhappy with their salary increments and raised concerns about living conditions, according to their employer SMRT Corp. The manpower ministry has had about 3,700 dispute cases over issues including salary and work conditions
brought to them this year, Mr Tan said. There are around 1.1 million lowerskilled foreign workers in Singapore, according to the ministry. A proposal to boost the population to 6.9 million by 2030 prompted thousands to protest in February. In September, the city widened measures to contain foreign- worker inflows to include professional jobs, responding to complaints that companies were hiring overseas talent at the expense of locals. In February, the government said that companies must
pay higher levies for lowerskilled foreign employees over the next two years and cut the proportion of overseas workers in some industries. The government is keen to boost the productivity of local companies, Tan said. “We’re beginning to see it take effect, the pain is being felt by companies,” he said. “You do not know when exactly, at which point it will bite and you don’t want to overdo it, but a series of measures have been unfolding over the last few years.”
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Global banks see India rate rise
ndian consumer-price inflation that shocked economists by topping 11 percent prompted Deutsche Bank AG and Nomura Holdings Inc to predict the central bank will step up efforts to contain the rise in the cost of living. Reserve Bank of India Governor Raghuram Rajan will boost the repurchase rate tomorrow for the third time since mid-September, raising it by 25 basis points to 8 percent, Germany’s biggest bank forecasts. The lender dropped an earlier call for no change after a December 12 government report showed CPI gains quickened in November to 11.24 percent, the most since the series started in January 2012. The rupee completed its worst week in more than a month and bond yields surged after Mr Rajan told reporters that he is “very uncomfortable” with the level of inflation. The cost to fix three-month borrowing costs using interest-rate
swaps rose 11 basis points from the lowest since July to 8.31 percent on Friday, the biggest jump in a month. A similar rate in China is at 4.85 percent. “The rupee is a big sell,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong, said. “Rajan now has to hike rates next week, hurting the growth outlook, or if he doesn’t he will lose credibility. Both of the outcomes would be rupeenegative.” The RBI will lift the repo rate, which was raised by 25 basis points in both September and October, to 8 percent, according to 11 of 19 economists in a Bloomberg survey. The remaining eight, which include analysts from Barclays Plc and Royal Bank of Scotland Group Plc, expect no change. Nomura and DBS Group Holdings Ltd brought forward calls for a 25 basis point rise to this week after the CPI report. Bloomberg News
The rupee fell about 1.1 percent last week
December 17, 2013
Asia AWE rejects Senex’s US$674 mln bid AWE Ltd, an explorer with shale fields in Australia and an oil project in Indonesia, rejected a A$752 million (US$674 million) initial takeover proposal from Senex Energy Ltd, saying it undervalued its shares. Senex offered the equivalent of A$1.44 a share, 22 percent more than AWE’s closing price of A$1.185 on December 12, Sydney-based AWE said yesterday. Senex withdrew its offer, according to a separate statement. AWE would consider further potential offers “on their merit,” managing director Bruce Clement said yesterday.
Japan Inc signals caution Quarterly Tankan survey shows waning optimism
NZ boosts subsidies to film makers Director James Cameron will shoot the next three sequels to Avatar, the highest grossing movie of all time, in New Zealand after the South Pacific nation increased subsidies to film makers. New Zealand has signed a deal for the movies, which are expected to inject at least NZ$500 million (US$413 million) into the economy, Prime Minister John Key said. It comes after the government agreed to raise the rebate offered to the makers of big-budget films to 20 percent of production expenditures from 15 percent, with an additional 5 percent available if certain conditions are met.
Japan largest broker expects faster trading SBI Securities Co, Japan’s largest online broker, upgraded its technology in anticipation of faster trading speeds in the world’s second-biggest equity market. SBI purchased a high-speed data feed this month from MarketPrizm, said Yoshitaka Kitao, president and chief executive of parent company SBI Holdings Inc. This will let SBI customers get pricing information and execute trades faster on both the Tokyo Stock Exchange and the venue run by sister company SBI Japannext.
Christie’s makes first foray into India Christie’s International Plc will hold its inaugural auction in India with the offering of US$8 million of modern and contemporary South Asian art in Mumbai. The sale of 83 paintings set for Thursday will be led by modern master Tyeb Mehta’s (1925-2009) work “Mahishasura,” which is estimated to sell for 75 million rupees (US$1.2 million) to 95 million rupees. Works by Syed Haider Raza, who holds the record for the most expensive Indian artist, are also included. “India is a few years behind but we see similar enormous possibilities,” said Hugo Weihe, Christie’s international director of Asian art.
Tankan shows limits on spending as companies cautious
S.Korea in rush to pass next year’s budget About US$133 billion of planned spending could be frozen until budget bill is passed
s if brinkmanship is what is required for taking decisions, South Korean lawmakers find themselves again in a last-minute rush to pass the government’s 2014 spending bill to avert stunting an economic recovery that is finally gathering steam. Locked in a months-long battle over issues like reformation of the country’s intelligence agency, the ruling Saenuri Party and the main opposition Democratic Party struck a deal in early December to ensure that a budget will be ratified by the year-end. Backs-to-the-wall budget ratification at the year-end has become something of an annual ritual for South Korea’s parliament, which didn’t pass the 2013 budget until the early hours of January 1. The protracted strife between the two key parties kept the 2014 spending bill, submitted to parliament in October, languishing without substantive review. This prompted a warning from the government that entering the new year without a budget could create a “black hole” that could undermine the ongoing recovery for Asia’s fourthlargest economy. South Korea’s economy has picked up momentum in recent months, with sequential gross domestic product growth at a seasonally adjusted 1.1
percent during the third quarter. In the absence of a ratified budget, the government is constitutionally empowered to fund essential functions and ongoing projects via a so-called provisional budget based on expenditure levels from the previous year. If there is no budget passed by January 2, the first working day of 2014, the government will likely operate this way. While this will avoid a government shutdown, roughly 140 trillion Korean won (US$132.99 billion) of the 357.7 trillion won worth of planned spending will be frozen until the budget bill is passed. Various social welfare spending, including cash subsidies for elderly, will be halted and temporary or parttime government employees will be out of work. “Such an event could damage
sentiment,” HI Investment economist Park Sang-hyun said. “The U.S. tapering issue is looming and exports have yet to stage a clear rebound; if government spending also weakens, that can only be a negative development on several fronts.” However, odds of such a scenario materialising appears small. Lawmakers will be keen to avoid the damaging fallout from such a disruption ahead of key June provincial elections, analysts and policymakers say. “Having to resort to a provisional budget would be a burden for even the opposition party,” a finance ministry official said. “There is enough time to get the budget passed before the yearend, and I think things will work out in the end.” Reuters
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December 17, 2013
arge Japanese businesses pared their projections for capital spending this fiscal year, signalling challenges for Abenomics as a sales-tax looms in April next year. Big companies plan to boost spending by 4.6 percent in the year ending March 2014, a quarterly Bank of Japan report showed yesterday. That compared with a 5.1 percent projection three months earlier. The slide contrasted with an increase in sentiment to the highest since 2007. Prime Minister Shinzo Abe is trying to convince businesses to raise wages and investment as part of efforts to catapult the nation out of a 15-year deflationary malaise. While the yen’s slide to a five year-low against the dollar last week highlighted the boost to exporters from Abenomics, companies aren’t convinced the nation’s recovery will be sustained. “We still don’t find any evidence that corporates are really starting to get confident about the sustainability of the recovery and actually ramping up domestic investment,” Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong, said. “And that remains a worry in an environment where consumption is going to weaken next year.” The Tankan index for sentiment among large manufacturers was at 16 in December, up from 12 in September. Chief Cabinet Secretary Yoshihide Suga said yesterday the survey greatly exceeded expectations and
the government will pursue economic policies with confidence. The quarterly Tankan survey showed sentiment brightened not just for big firms but also for smaller companies, which had been slower to reap the benefits of a recovering economy. Small manufacturers’ sentiment hit a six-year high and the small nonmanufacturers’ index turned positive, which means optimists outnumbered pessimists, for the first time since 1992. Though with a caution note, the tankan reinforces the BOJ’s view that the economy is recovering moderately and likely allowing it to hold off on expanding stimulus in coming months, analysts said. “The economy is moving in line with the BOJ’s forecasts, which means the central bank will keep monetary policy steady at least next week and in January,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. It was the fourth straight quarter of improvement and the highest level since December 2007, as companies benefited from robust domestic demand and a weak yen that gives their goods a competitive advantage overseas. Service-sector mood also improved as consumers rushed to beat a sales tax hike next April. The big nonmanufacturers’ index was up 6 points to plus 20, better than a median forecast of plus 16 and the highest level since December 2007. “Figures in the services sector were
KEY POINTS Big manufacturers’ sentiment index +16 Service-sector mood also up on demand Big firms plan 4.6 pct increase in FY2013/14 BOJ seen standing pat on policy for time being especially bright, and the positive mood is a sign that optimism is finally spreading into domestic demandsensitive sectors from exporters,” said Hideo Kumano, chief economist at Daiichi Life Research Institute in Tokyo. Japan’s economy outpaced its G7 counterparts in the first half of this year as Abe’s stimulus policies boosted business and household sentiment. Growth slowed in July-September on soft exports, but analysts expect it to accelerate again in the run-up to the sales tax hike. Public works spending is also likely to offset the continued weakness in exports, thanks to a fiscal stimulus package aimed at softening the blow of higher sales tax. Reuters/Bloomberg News
IAG set to become Woori sale to spur mergers Australia’s No. 1 insurer as Seoul builds global bank Firm to buy Wesfarmers More than one-third of the country’s insurance business for US$1.66 bln brokers unprofitable
nsurance Australia Group Ltd (IAG) is set to become Australia’s biggest insurer by market share after it agreed to buy the insurance underwriting businesses of Wesfarmers Ltd for A$1.85 billion (US$1.66 billion). The deal allows IAG, previously Australia’s second-biggest insurer, to cement its No. 1 position and surpass QBE Insurance Group Ltd, which flagged a yearly loss last week due to its struggling North American businesses. “IAG appears to have taken an attractive step because it cements its position in the Australian market both in totality and importantly within the commercial insurance business,” said Toby Langley, an analyst of insurance and wealth management at Nomura Holdings Ltd. IAG is acquiring Wesfarmers’ commercial underwriting businesses under the Lumley and WFI brands, and a personal lines business through Coles Insurance with a 10-year distribution agreement with Coles, IAG and Wesfarmers said in statements yesterday. “This is a unique opportunity which is expected to deliver significant long-term value for IAG
shareholders and unlock further growth potential for our businesses in Australia and New Zealand,” IAG managing director and chief executive Mike Wilkins said in the statement. The deal will deliver modest earnings-per-share growth in the first full year, and at least five percent in the second year, excluding integration costs, IAG said. “It looks like it has a sound industrial logic to bring these two businesses together. They appear to be quite complementary,” Mr Langley said, noting that IAG was previously dominated by personal insurance and the deal would help to balance out its commercial side. David Spotswood, an insurance analyst at Shaw Stockbroking Ltd, said IAG had done a good deal without paying too much. “They’ve paid about 1.15 times [Wesfarmers insurance] revenue, and currently IAG is trading at 1.25 times its revenue, they paid less than IAG is currently trading on,” Mr Spotswood said. “It [the deal] leads to increased concentration in the industry, so that’s positive for the companies operating in there. It provides a growth path for IAG,” he added. Reuters
The sale of Woori Investment & Securities Co in the biggest takeover of a South Korean broker may spark consolidation among local securities firms, furthering the government’s goal of creating a national champion. Final bids were due yesterday for Seoul-based Woori Finance Holdings Co’s US$722 million stake in its brokerage unit, which is the nation’s largest securities firm by assets. On Sunday, the Financial Services Commission said it would encourage further consolidation by allowing brokerages to enter into new businesses if they make acquisitions. The changes signal South Korea’s intent to reshape the securities industry and set up an investment bank big enough to compete globally, highlighted in a 2011 pledge
by the financial regulator to create “the Goldman Sachs of Korea”. The FSC in October also began licensing some firms to offer prime brokerage services, margin financing and bridge loans to corporate clients as it seeks to make local securities firms more sophisticated. “Size does matter for the South Korean brokerage industry,” said Jang Beom-sik, business administration professor at Soongsil University in Seoul. “We simply have too many too small brokerages that can’t compete in the global market. The Woori Investment acquisition will be a trigger for much-needed industry consolidation.” Woori Finance’s distressed-asset trading unit and leasing company are being sold separately as
the government makes its fourth attempt to recoup taxpayers’ money following a bailout more than a decade ago. Competition has made more than onethird of the country’s brokers unprofitable, and regulatory changes that will bar brokers from tapping the call-money market are set to put more pressure on smaller firms’ earnings. Any consolidation in the industry will take time, Financial Services Commission Chairman Shin Je-yoon said. “Creating the Goldman Sa ch s of Ko rea i s th e eventual goal, though I also know we need to proceed step by step,” he said. “The sale of Woori Investment will be the starting point for industry reforms.” Bloomberg News
December 17, 2013 April 19, 2013
Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 69.7
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AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP
0.8949 1.6322 0.8888 1.3746 102.92 7.986 7.7535 6.0722 62.015 32.032 1.2559 29.668 44.155 12134 92.1 1.22169 0.84219 8.3478 10.978 141.47 1.03
-0.1673 0.135 0.0788 0.0291 0.2818 0.0025 0.0039 -0.0082 0.1774 0.0874 -0.0557 -0.1213 -0.0226 -0.2308 0.4473 0.0278 0.1377 0.1114 -0.2368 0.2827 0
-13.7695 0.9026 2.9928 4.2153 -16.3428 -0.0351 -0.0374 2.6086 -11.3198 -4.533 -2.747 -2.1404 -7.134 -19.2929 -3.0109 -1.1631 -3.1786 -1.5609 -4.0772 -19.7215 -0.0097
1.0599 1.6466 0.9839 1.3832 103.92 8.0111 7.7664 6.2492 68.845 32.48 1.2862 30.228 44.82 12140 105.433 1.265 0.88151 8.4957 11.0434 142.83 1.032
0.8848 1.4814 0.884 1.2746 83.61 7.9818 7.7499 6.0681 52.89 28.56 1.2168 28.913 40.54 9603 86.41 1.2064 0.80817 7.8281 10.195 109.93 1.0289
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December 17, 2013 April 19, 2013
Leading reports from Asia’s best business newspapers
Taipei Times Taiwan’s President Ma Ying Jeou approved the Executive Yuan’s preliminary proposal for the free economic pilot zones and expressed hope that the plan could be finalised by the end of this month. Mr Ma also instructed the Executive Yuan to establish a promotion task force and submit the draft of the special regulations for free economic pilot zones to the legislature for review this month. Based on the council’s plan, companies will be exempt from taxes on net profits from their operations in the free economic pilot zones for a threeyear period if they continue to invest in the zones.
The Star Small and medium-sized enterprises in the country will have three new entities overseeing their development. Top of the list is the establishment of the National SME Business Advisory Panel to provide relevant input and formulate entrepreneurship strategies to create world-class SMEs. “The advisory panel to the Government comprises successful entrepreneurs, business leaders and subject matter experts both local and international,” SME Corp chief executive Datuk Hafsah Hashim said. Another entity, the Malaysian Global Innovation and Creativity Centre will ensure that entrepreneurship development is comprehensive.
Inquirer Business The Philippines top 30 corporations have signed up to help the government rebuild cities, municipalities and villages from the ruins of typhoon Haiyan. Beyond pledges of cash, the companies want to build homes and create livelihood for close to 800,000 families displaced by the powerful storm that levelled most of the Visayas on November 8, Panfilo Lacson said. “There are no strings attached here,” the former senator said. Mr Lacson declined to name the corporations which had already agreed to help, saying he was still looking for sponsors of other ravaged areas.
The Age Wesfarmers has agreed to sell its Australian and New Zealand insurance underwriting operations to Insurance Australia Group (IAG) for A$1.85 billion, representing a A$700 million profit over book value. The underwriting operations include commercial lines of business, including the Lumley and WFI brands, and a fast-growing personal lines business which is sold through the Coles Insurance affinity partnership. Wesfarmers said that when the deal was complete, it expected to make a pre-tax profit of approximately A$700 million to A$750 million, which would be booked in the financial results for the second half of fiscal 2014.
North Korea’s purge message to China: Pay up Nisid Hajari
Bloomberg View editorial board member
hinese President Xi Jinping must have felt pretty pleased with himself earlier this year, after he dispatched rival and former Politburo member Bo Xilai in a dramatic, humiliating show trial. When it comes to staging purges, though, North Korea’s brash young leader Kim Jong-un has him beat. Kim didn’t just arrest his uncle, Jang Song-thaek, the second-most powerful man in the country. The boy-dictator appears to have had Jang brought out of seclusion in order to arrest him again at a televised leadership meeting, then tried and executed on the grounds of being “an antiparty, counter-revolutionary factional element and despicable political careerist and trickster,” according to the judgment of a secret military tribunal. No doubt. Jang’s fall may have sent an equally loud message to Xi in Beijing. Until recently, Jang had been the North Korean official most closely linked to China – a mature diplomatic go-between, and the man responsible for forging deals with Chinese mining and other companies looking to exploit North Korea’s natural resources and cheap labour. By eliminating his uncle, young Kim seemed to be warning Xi and the Beijing leadership not to presume to work through anyone but him. The fate of North Korea’s special economic zones and
other Chinese-style economic innovations now hangs in doubt. Optimists might hope that the purge will finally convince China of its ally’s unreliability. In fact, though Beijing’s tolerance for Kim’s provocations has been tested, it has never snapped. China still values regime stability over all else: The last thing Beijing wants to see is a reunified Korean Peninsula, governed from Seoul, and allied to the U.S. Jang’s downfall doesn’t change that calculus.
By eliminating his uncle, young Kim seemed to be warning Xi and the Beijing leadership not to presume to work through anyone but him
The purge could well end up pushing China and its errant vassal closer together. After Jang’s execution, Japan’s hawkish Defence Minister Itsunori Onodera warned, “North Korea might become a more radical place in the future.” Today the Japanese government is expected to approve a more assertive defence policy, one that is justified by the North’s nuclear and ballistic missile programmes but that clearly has China in mind as well. The U.S., too, has cited the North Korean threat to justify stationing ballistic missile defence systems on Guam next year. And last week Japan and South Korea – whose relations have soured recently over questions about Japan’s attitude toward its war record – went ahead with
a previously scheduled, joint naval exercise in the East China Sea. Xi and others in China may also not be as perturbed by Jang’s ouster as some commentators seem to think. The late No. 2’s influence had been declining for almost a year; in May 2013, Kim dispatched a Jang rival as a special envoy to Beijing. It’s also not clear that the purge will necessarily derail some of the economic reforms Jang had championed. On December 6, the day after his public humiliation, the North signed a contract to develop yet another special economic zone along the Chinese border. Jang’s purge, though, is hardly reassuring to China. Among other things, the Politburo charged Jang with “throwing the state financial management system into confusion and committing such acts of treachery as selling off precious resources of the country at cheap prices” – in other words, cutting deals that were too generous to the Chinese. No doubt the youngest Kim had many reasons for ousting his uncle – not least, to send a message to an older generation of North Korean officials not to dare challenge the Dear Leader’s authority. To Xi and China, the message seems to be slightly different: it’s time to pay up. Bloomberg View
December 17, 2013 April 19, 2013
Closing Eurozone recovery ends year on a high
GSK to boost control of Indian drugs unit
Euro-area factory output grew at a faster pace than economists forecast in December, led by Germany, as the currency bloc continued its gradual recovery from a record-long recession. An index based on a survey of purchasing managers in the manufacturing industry increased to 52.7, a 31-month high, from 51.6 in November, Londonbased Markit Economics said in a statement yesterday. The gauge has been above 50, indicating expansion, for six months. “The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track,” Chris Williamson, chief economist at Markit, said.
GlaxoSmithKline Plc offered to spend US$1 billion to raise its stake in its Indian prescription pharmaceuticals unit to tap growing demand for medicines in the second-most populous country. GlaxoSmithKline Pharmaceuticals Ltd surged to the highest in more than two decades. Glaxo will pay 3,100 rupees apiece to buy as many as 20.6 million shares of the Mumbaibased business to raise its stake to 75 percent from 50.7 percent, Glaxo said yesterday in a statement. The increased holding would expand Glaxo’s role in India’s market for drugs that PricewaterhouseCoopers estimates at about US$12 billion.
Singapore home sales climb 13 pct
Gold – not so precious anymore
Gold funds see 31 pct slump as world loses faith Bullion losing its shine as global economy spreads its wings
nvestors are dumping gold-backed exchange-traded products at the fastest pace since the securities were created a decade ago, mirroring the steepest price drop in 32 years. Holdings in the 14 biggest ETPs plunged 31 percent to 1,813.7 metric tons since the start of January, the first annual decrease since the funds started trading in 2003, data compiled by Bloomberg show. The removals erased US$69.5 billion in the value of the assets as prices fell by the most since 1981. A further 311 tons will be withdrawn next year, according to the median of 11 analyst estimates compiled by Bloomberg. ETP investments reached a record US$148 billion last year, helping sustain the bull market that drove a more than six fold increase in prices since 2001 by offering a way to own bullion without needing to store it. The slump shows some investors losing faith in gold as a preserver of wealth after inflation failed to accelerate and the Federal Reserve signalled it may curb stimulus. John Paulson, the biggest investor in the largest ETP, said last month he doesn’t plan to buy more. “All the bullish factors we had pushing gold higher in the last 12 years are now going into reverse,” said Robin Bhar, a London-based analyst at Societe Generale SA who’s
ranked by Bloomberg as the mostaccurate precious-metals forecaster over the past eight quarters. “There will be more ETF selling in 2014 as the price goes lower.”
Bear market Gold for immediate delivery fell into a bear market, defined as a drop of 20 percent or more, in April and traded at US$1,234.60 an ounce in Singapore yesterday, down 36 percent from the September 2011 record of US$1,921.15. Only corn and silver fell more this year among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which slipped 3.6 percent. Goldman Sachs Group Inc. called bullion a “slam-dunk” sell in October and said it was among the bank’s most bearish commodity forecasts for next year. Bullion may average US$1,216 in 2014, the least since 2009, according to the median of 14 analyst forecasts compiled by Bloomberg. Hedge funds and other large speculators were the least-bullish since June 2007 in the week to December 3, Commodity Futures Trading Commission data show. ETP sales of more than 800 tons since the start of January, including by billionaire George Soros, exceeded total purchases in the previous three years. Paulson & Co cut its holdings
in the SPDR Gold Trust, the biggest ETP, by half in the second quarter, while Mr Soros and Third Point LLC’s Daniel Loeb sold their entire stakes. Investors see less need for “disaster insurance,” U.S. Fed chairman Ben Bernanke told U.S. lawmakers on July 18. Traditionally, investors turn to gold in times of turmoil as an alternative store of wealth to equities and the dollar and as an inflation hedge. Until 2003, most held gold bars, coins or jewellery in vaults or bought futures and options. The introduction of gold-backed ETPs, which trade like equities, gave access to the metal without the need for arranging storage or dealing in derivatives. One futures contract traded on the Comex bourse in New York, equal to 100 ounces, costs US$123,460 while a share in the SPDR Gold Trust, representing 0.1 ounce, is valued at US$119.38. In Asia, where many buy jewellery as a form of investment, the cost to consumers is higher. At a store of SK Jewellery Pte Ltd in central Singapore, a gram of 99.9 percent purity, cost S$62.50 (US$50) on December 11. That’s equivalent to about US$1,555 an ounce, 24 percent more than the London spot price that day. Bloomberg News
Singapore’s home sales rose 13 percent in November from a year ago, as developers marketed new projects, ending four months of declines that followed loan measures to curb property prices. Home sales rose to 1,228 units last month compared with 1,087 in November 2012, according to data from the Urban Redevelopment Authority released yesterday. From the previous month, sales increased 15 percent, the data showed. “There have been a few major project launches in November and aggressive marketing by developers,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. He said the increase in sales last month was due to the fact that 94 percent of the homes marketed were sold, based on yesterday’s data. Home sales rebounded in November after declining in the previous four months compared with year-ago figures after the government imposed new rules in June governing how financial institutions grant property loans to individuals. Among the developers that began sales of their projects was Ophir-Rochor Residential Pte, which sold 600 of 660 units marketed at its Duo Residences, in the central area, according to the URA. Singland Homes (Alexandra) Pte sold 171 of 200 units at its Alex Residences project, the data showed yesterday. Record home prices amid low interest rates raised concerns of a housing bubble and prompted the city-state to introduce new taxes and higher minimum down-payments since 2009 to curb speculation in Asia’s second-most expensive housing market.
South Korea readies for ‘provocations’ from Pyongyang North Korean leader Kim Jong-un’s execution of his uncle and de facto deputy raises the risk of “reckless provocations” from the north, South Korean President Park Geun-hye (pictured) said. The purge of Jang Song-thaek, the highestprofile ousting since Kim took power two years ago, has prompted the South to heighten its combat preparedness along the border with North Korea, where thousands of troops face off across a no-man’s land. “Recent developments render future directions of North Korea’s political situation unclear,” Ms Park told her aides yesterday, according to a statement on the website of her office. South Korea is in “a situation where unexpected events like reckless provocations can’t be ruled out,” she said. North Korea’s military is currently conducting annual winter drills and showing no unusual activities, South Korean Defence Ministry spokesman Kim Min-seok said at a briefing yesterday. Mr Jang was executed immediately after a military court convicted him of plotting a coup against his nephew, the North’s official Korean Central News Agency said on Friday. “It really reminded me of a video that we saw of Saddam Hussein doing the same thing, having people plucked out of an audience, and people sitting there sweating and nobody daring to move or do anything,” U.S. Secretary of State John Kerry said on ABC’s This Week. “To have a nuclear weapon, potentially, in the hands of somebody like Kim Jong-un just becomes even more unacceptable.”