Macau Business Daily September 28, 2015

MOP 6.00

Wynn on losing streak

Closing editor: Joanne Kuai

Almost US$400 million in market value wiped off Wynn Resorts’ fixed-income securities this year. On top of US$9.3 billion in value lost by stockholders. The company received 70 pct of its revenue from Macau in 2014.

Prospects for the Las Vegas-based company are looking grim, as it’s “more exposed to what’s going on in Macau than the others”, a Moody’s Investor Service analyst says

Year IV

Number 888 Monday September 28, 2015

Publisher: Paulo A. Azevedo

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Discounted Hotel Rates Bearing Fruit

Looking better. Of 21 casino-hotels, 14 have full advance bookings for five days or more for the Recycling strikers upcoming National Day Golden Week. Hoteliers believe an occupancy rate of 80 to 90 pct is on await “satisfactory” gov’t response the cards. With cheaper room rates the ‘new normal’, encouraging more visitors to stay overnight. Page 4 The 5-star hotel strategy has encouraged “other non-casino hotels to follow suit,” says Chan Chi Kit, Macau billionaire jailed President of Macau Hoteliers and Innkeepers Association Page

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in U.S. subpoenaed in foreign bribery probe

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Unemployed creeping up

China’s growth to stabilise around 7 pct in third quarter

Page 11

Unemployment is now 1.9 pct. Up 0.1 pct from June to August. A 5.4 pct decrease in employment in construction and 2.6 pct drop in wholesale and retail positions are cited. With fresh job-searching graduates an added factor

Crowdfunding to fuel Chinese investments for start-ups

Page 11

Page 3

Presidential Pow wow Mutual respect and understanding are key. President Xi Jinping of China and U.S. President Barack Obama have announced progress in subjects sensitive to both nations. Cybersecurity and a global warming strategy are high on the agenda

www.macaubusinessdaily.com

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When the chips are down Junket groups continue to suffer the loss of VIP business. Neptune Group Ltd. saw gaming revenue plunge 33 pct y-o-y as at fiscal year ended June 30. Registering a net loss attributable to owners of the company of HK$828 million. It has given notice that this is an unsustainable position. With talk of moving into other business areas in the future

Page 5

HSI - Movers September 25

Name

%Day

Belle International Ho

+5.47

Galaxy Entertainment

+3.89

Sands China Ltd

+3.28

Tingyi Cayman Islands

+2.96

China Resources Enter

+2.87

China Petroleum & Che

-0.62

Kunlun Energy Co Ltd

-0.72

Interview

Lenovo Group Ltd

-0.76

Professional Perspective

China Merchants Hold

-0.86

Power Assets Holding

-1.82

Local companies have proved themselves. Hence, more trust should be invested in them. Especially as the gov’t speaks of diversity and SMEs. Local 3D studio Zorg partners Miguel Falé and Sandra Vasques have strong views on the subject. Telling Macau Business that ‘lowest bid wins tender’ is false economy. Quality work, meeting short deadlines, and knowing the market are the strengths to play to, they say

Source: Bloomberg

I SSN 2226-8294

Pages 8&9 Due to the mandatory holiday on Monday September 28, 2015 - the Day following Chong Chao or Mid-Autumn Festival - Business Daily will not be published on Tuesday September 29, 2015. We will be back on Wednesday September 30, 2015 and wish all our readers a very enjoyable holiday.

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2 | Business Daily

September 28, 2015

Macau MGTO: Golden Week tourist numbers to decrease

Director of Macau Government Tourist Office (MGTO) Maria Helena de Senna Fernandes expects the city’s visitor arrivals to post a year-on-year drop for the National Day Golden Week. The MGTO head told reporters over the weekend that the local tourism industry believes many Mainland Chinese tourists will prefer middle to long-haul destinations than the Special Administrative Region for their week-long holiday. Meanwhile, she said yesterday that the government may initiate amending the current law combating unlicensed guesthouses shortly, claiming the authority will listen to different opinions.

Hoteliers believe 80-90 pct occupancy achievable for Golden Week Hotels here could see occupancy rate exceed 80 per cent for the October holiday period, as cheaper room rates achieve the desired effect, say hoteliers Stephanie Lai

sw.lai@macaubusinessdaily.com

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n occupancy rate of 80 to 90 per cent is achievable for the city’s hotels during the upcoming National Day Golden Week holiday that starts on October 1, says the Macau Hoteliers and Innkeepers Association, as hoteliers see advance reservations for hotels and guesthouses improve since September.

Typically, the second strongest period for attracting Chinese visitors next to the Chinese New Year holiday, the week-long National Day holiday visitors can fill local 3 to 5-star hotel rooms despite expectations that Chinese visitor arrivals for the period may post a slight drop or maintain similar levels to last year, Association president Mr. Chan Chi Kit told Business Daily.

“Hotel occupancy for the first half of this year has not been doing too well,” he remarked. “But since midSeptember, a period when school resumes and people return to their workplace, occupancy has actually recovered from the previous months to reach over 80 per cent.”

“We believe that the city’s 3 to 5-star hotels can see an occupancy rate of 80 to 90 per cent for October 1 to 6, when the average room rate offered for the period has gone down by an annual 10 per cent,” he added.

Mr Chan’s Association comprises around 60 members that are mostly non-casino hotels.

The city received over 1.04 million visitors during the October 1-7 period last year, of whom more than 840,000 were Mainland Chinese visitors, according to Macau Government Tourist Office (MGTO).

The occupancy rate for 3 to 5-star hotels here was 87.2 per cent for the week-long period.

Cheaper rates

For the city’s 21 casino-hotels (see table) 14 have full advance bookings for five days or more for the upcoming National Day Golden Week; four of these hotels have had a seven-day full bookings for the vacation.

Mr. Chan believes that the 5-star casino-hotels’ strategy of offering cheaper room rates has managed to stimulate more hotel bookings and longer stays by visitors.

“This strategy that the 5-star hotel operators have been doing has also led the other non-casino hotels to follow suit. The result is that the hotel room rates here, which people used to complain about as being too expensive, are now normalised.”

“From what we have seen from our members, room rates for the 3

Casino hotel booking National Day holiday 2015 GAMING OPERATOR

Galaxy Entertainment Group Ltd

SJM Holdings Ltd Wynn Macau Ltd MGM China Holdings Ltd

Sands China Ltd

Melco Crown Entertainment Ltd

HOTEL StarWorld Hotel; Broadway Hotel; Galaxy Hotel; Banyan Tree Macau* Hotel Okura Macau Ritz-Carlton, Macau; JW Marriott Hotel Macau Grand Lisboa Hotel Hotel Lisboa Macau Wynn Macau MGM Macau Sands Macao Venetian Macao; Holiday Inn Macao Cotai Central; Conrad; Sheraton Macao Hotel, Cotai Central; Four Seasons Hotel Macao Altira Macau Crown Towers; Hard Rock Hotel Grand Hyatt Macau

NO. OF ROOMS

DAYS OF FULL BOOKINGS (NATIONAL DAY GOLDEN WEEK: OCT 1 – 7)

About 2,573 5 488 About 1,265

6

431 About 1,000 About 1,000 582 289 About 9,116

2 0 7 5 5

7

0

216 About 600

7

791

6

5

Note: * Days without full bookings are with only presidential suites available for booking Source: Official online reservation websites of hotels; hotels' reservation hotline | (Statistics gathered as of Sept 25)

to 4-star [accommodation] offered for the National Day Golden Week is about 8 per cent to 15 per cent cheaper than last year,” Mr. Chan told us.

For the first eight months of this year, the average room rate for 3 to 5-star hotels here has been down 5.4 per cent year-on-year to MOP1,511.6, according to statistics from Macau

Hotel Association. A steeper fall in room rates are seen in 3 and 4-star hotels, with the former registering a 15.7 per cent drop to MOP1,052 and the latter down 11.9 per cent to MOP938.7.

The average room rate for 5-star hotels dropped 2.3 per cent to MOP1,848.7 for the January-August period.

All types of hotels saw a decline in occupancy rate for the period, according to Macau Hotel Association’s information. The occupancy rate for 3 to 5-star hotels was down 7.5 percentage points to 83.6 per cent for the first eight months this year, against the backdrop that Macau saw a 3.2 per cent decline in the number of visitor arrivals, numbering 20.44 million during the period.

Business Daily | 3

September 28, 2015

Macau MGTO mounting LEGO exhibition until December 28

Macau Government Tourist Office (MGTO) has co-operated with LEGO HK to hold a Macau x LEGO® Exhibition, showcased at the Ritz Building in Senado Square and Macau Science Centre from September 25 to December 28. The whole exhibition has been built by Andy Hung, the first LEGO Certified Professional (LDP) in the Greater China region, with over 120,000 LEGO bricks depicting iconic Macau landmarks such as Macau’s World Heritage sites.

MGTO hopes the exhibition will attract residents and tourists to experience the city from a new and different angle.

Unemployment hits 1.9 pct Unemployment edged up between June and August due to local construction and retail slowdowns, while 200 fresh graduates searched for their first job

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he city’s unemployment rate rose to 1.9 per cent from June to August, increasing 0.1 percentage points over May to July, due to fewer employment opportunities in the construction, wholesale & retail industries, according to the latest official data released by the Statistics and Census Service (DSEC) on Friday.

During June and August, the total labour force in the territory reached 402,700. However, the number of employed decreased by 2,800 to 395,100 from the previous period. Meanwhile, the labour force participation rate and the underemployment rate remained stable at 73.3 per cent and 0.4 per cent during the three months, respectively.

Of the 7,500 unemployed, fresh graduates searching for their first job accounted for 17.7 per cent at 1,300. The number was up by 200 or 3.3 percentage points periodon-period.

Big bosses

In terms of industry, employment in the construction field decreased 5.4 per cent to 53,400, compared to 56,500 in the previous period.

In addition, employment in the wholesale and retail trade industries registered a period-on-period decrease of 2.6 per cent to 44,900 from 46,100.

The local gaming industry, meanwhile, saw employment drop 0.1 per cent. The number of

employed in the industry totalled 83,200 during the three months.

Nevertheless, the number working for the hotel and restaurant sectors registered increases of 1 per cent and 2.2 per cent to 29,400 and 26,000 from the previous period, respectively.

Labour force participation decreases

In terms of proportion, the city’s recreational, cultural, gaming and other services had the most labour force, at 23.7 per cent of the total.

Employment in hotels, restaurants and similar activities, meanwhile, occupied 14 per cent of the total employed labour force during the three months, followed

by the construction industry and wholesale & retail trade, of which the number of workers accounted for 13.5 per cent and 11.4 per cent of the total, respectively.

In addition, some 7.6 per cent and 7.4 per cent of the total employed manpower worked in the fields of public administration and social security, and real estate and business activities, respectively.

In comparison to June-August 2014, the labour force participation rate decreased 0.6 percentage points, while the unemployment rate and underemployment rate increased 0.2 and 0.1 percentage points respectively, according to DSEC. K.L.

4 | Business Daily

September 28, 2015

Macau

Recycling strikers await “satisfactory” gov’t response Starting their strike on Saturday, the local recyclers association said they would not end the action if the government does not propose concrete measures to help their environmental businesses survive Kam Leong

kamleong@macaubusinessdaily.com

Developer: Construction of Pearl Horizon completed end-2018

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he Macau Recyclers Association said its member firms would continue their indefinite strike until the government announces concrete measures to support the local recycling industry.

Claiming its member firms are all facing “unprecedented” difficulties due to surging rents, high manpower costs and low material return rate, the Association started to halt the recycling of waste in the territory on Saturday.

“The strike will only end when the government implements actual policies. We have been voicing our demands to different terms of the government. For this term, we have already talked to the Chief Executive, Secretary [for Transport and Public

Works] Rosario and the Environmental Protection Bureau,” the president of the Association, Chan Man Nin, told Business Daily via a phone interview yesterday.

On Saturday afternoon, the Environmental Protection Bureau said in a press release that it is very concerned about the strike, indicating it is to study supportive policies for the local recycling industry.

But the Association head told us yesterday that they are not satisfied with the Bureau’s response.

“The government has been telling us to wait all these years but they have never carried out anything concrete. Is it because we are a lowclass Association? We need land plots

for recycling but it keeps asking us to wait,” said Mr. Chan, claiming the Bureau’s latest response is similar to other replies they have received from the government.

“How can we end the strike if we cannot survive? When there are conditions for our businesses to survive, we will resume our work for sure,” the Association president said.

Awaiting a satisfactory reply from the government, Mr. Chan said the Association is considering submitting a petition to the central government’s Liaison Office in the city, or staging a slow-drive through the territory. “Anyway, the further action will be decided by votes within the Association,” he said.

he construction of the highend residence Pearl Horizon is slated for completion by the end of 2018, despite pending approval of the extension of land use deadline for the site possibly delaying the project, the manager of developer Polytex Corporation Ltd. Chan Sai Tin said last week.

Mr. Chan made the remarks during a meeting with property owners, who voiced concerns over the progress of the waterfront property project in Areia Preta on the Macau Peninsula.

The 25-year land use term of the Pearl Horizon project expires on December 26 this year.

Saying that the company had already applied for the extension of the land use period in February, Mr. Chan acknowledged that the project could be suspended if the government cannot issue an approval for the land use extension on time.

However, the Polytex manager was optimistic that Pearl Horizon can be completed by the end of 2018, given the company believes the government will approve the land use extension soon.

The developer was issued a construction permit for the project in August, 2014 after spending three years completing an environmental assessment report on the project.

Currently, more than 70 per cent of the foundation works of Pearl Horizon have seen completed, Mr. Chan told property owners.

Polytex’s parent firm in Hong Kong, Polytec Group, said in May that the company planned to re-launch the presale programme for Pearl Horizon next year. Off-plan sales of the project were previously put on hold since the new laws on property sales activities became effective on June 1, 2013.

S.L.

Corporate

McDonald’s Macau celebrates Mid-Autumn Festival with Special Olympics Macau children McDonald’s Macau visited their Occupation Training and Development Centre on the afternoon of 25 September to celebrate Mid-Autumn Festival with the intellectually disabled children of Special Olympics Macau. McDonald’s Macau volunteers made lanterns and played riddle games with the children.

At the end of the celebration, McDonald’s served hamburgers to all the children and volunteers for a happy Mid-Autumn Festival. McDonald’s Macau said it would continue to serve the local community through charitable activities, rendering support to those in need in order to fulfil its social responsibilities.

CTM launches Mschool app with Saint Paul School Local telecommunications operator CTM has signed a collaboration pledge with Saint Paul School for CTM’s new developed application service – the Mschool app. The application features various functions which allow instant sending and receiving of school notices and interactive communications between teachers and parents plus the updating of school

information. Saint Paul School is the first education institute in Macau to adopt the new CTM service. Both parties are confident it will mark a great leap of e-education development in Macau. CTM CEO Vandy Poon said it will go a long way to achieving the goal of e-education in Macau, which relies on the support of the government, education sector and telecom industry.

Business Daily | 5

September 28, 2015

Macau

Neptune Group posts loss of HK$828 mln It claimed that it may exit the local VIP gaming market if the current downturn in the industry shows no sign of rebounding in the future Kam Leong

kamleong@macaubusinessdaily.com

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unket operator Neptune Group Ltd. experienced loss from previous profit for its fiscal year ended June 30 this year, with a net loss attributable to owners of the company of HK$828 million (US$103 million) registered. Claiming the bad performance is due to ‘the spectacular slowdown’ in the local VIP gaming industry, it said it may consider quitting if no improvements are apparent in the coming years.

According to its filing with Hong Kong Stock Exchange on Friday night, Neptune saw its gaming revenue slashed by some 33 per cent year-on-year to HK$473.6 million, driven by the plunges in revenues generated by its three VIP rooms in the city, located in The Venetian Macao, Sands Macao and Grand Lisboa, down 38.2 per cent, 32.3 per cent and 25.2 per cent yearon-year, respectively.

In addition, the revenues generated by its previous VIP room in StarWorld Hotel, of which the business has already ceased, also dived by nearly 60 per cent for the year.

The shrinkage of the operator’s VIP gaming business led its EIBTADA loss to reach HK$997.8 million, a huge slide of 292.8 per cent year-on-year, or HK$1.52 billion, compared to an EBITDA of HK$517.6 million last year.

Quitting an option

Describing the VIP gaming slowdown in the Special Administrative Region as “an analogous condition happening” that it had never faced before in the last five years, the junket operator also mentioned its intention of exiting the local market if no upturn transpires.

‘The Group may not resolutely continue its presence in the Macau VIP

gaming industry anymore if this situation doesn’t correct itself in the coming years. Management now face pressing concerns, like scrambling to stem profit slides from weak turnover and trying to maintain a healthy cash flow to explore other business opportunities,’ it claimed.

‘Revenue generated by the VIP gaming business

has dropped to the lowest level recently recorded.

It has already formed a downward trajectory that requires strenuous external and internal efforts to look forward to a rebound, if possible,’ it said.

According to the filing, the company said it might consider entering the money lending business, as well as the securities investment

business in order to diversify its source of income and achieve better returns.

‘We are still both sceptical and prudent about the future developments of the Macau gaming industry on its path to recovery when more new casinos open up in 2016 and looser travel restrictions on Chinese nationals might boost optimism,’ it anticipated.

6 | Business Daily

September 28, 2015

Macau

Macau billionaire jailed in U.S. subpoenaed in foreign bribery probe Ng Lap Seng, 68, heads Macau-based Sun Kian Yip Group, and has made much of what U.S. prosecutors called his US$1.8 billion fortune on lavish developments in Macau

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billionaire Macau developer arrested for lying to U.S. customs officials about why he brought US$4.5 million in cash into the United States was subpoenaed in 2014 as part of a separate foreign bribery investigation, a source familiar with the matter said on Friday.

Ng Lap Seng (pictured), who was previously tied to a Clinton-era campaign finance probe, is being held without bail on charges filed in

The 2014 subpoena cited in the complaint came after Ng’s name first surfaced in a lawsuit filed in 2010 against Las Vegas Sands by the former CEO of Adelson’s Macau casinos, Steven Jacobs

Manhattan federal court that he lied to U.S. customs officials about the purpose of the cash he brought into the country over a two-year period.

In a criminal complaint made public on Monday, an FBI agent recounted serving a subpoena on Ng in July 2014 in connection with an "unrelated investigation," which a prosecutor in court later said involved a probe based outside of Manhattan.

That subpoena, which the complaint said Ng did not respond to, stemmed from a probe in Nevada involving the Foreign Corrupt Practices Act (FCPA), which prohibits bribing foreign officials, said the source, who spoke on condition of anonymity to discuss the case.

The target of that investigation was unclear. But Ng's name has repeatedly surfaced in a private lawsuit against billionaire Sheldon Adelson's Las Vegas Sands Corp that the casino operator has said it believed prompted an FCPA investigation.

Kevin Tung, Ng's lawyer, said on Thursday he did not know what the subpoena said and was still gathering information. The U.S. Justice Department declined comment. Las Vegas Sands in a statement said it is cooperating with the investigation.

Businessman

Ng, 68, heads Macau-based Sun Kian Yip Group, and has made much of what U.S. prosecutors called his US$1.8 billion fortune on lavish developments in the former Portuguese colony.

His properties include the Fortuna casino and residential complex Windsor Arch, which overlooks Macau's race course and the Cotai Strip.

Ng also sits on the Chinese People's Political Consultative Conference, an adviser to the government.

He and his assistant Jeff Yin were arrested on Saturday for allegedly falsely claiming US$4.5 million in cash they brought into the United States from China between 2013 to 2015 was meant to buy art, antiques or real estate, or be used for gambling.

At a hearing on Saturday, U.S. prosecutor Daniel Richenthal said Yin told authorities after his arrest that the money was used to pay people "to engage in unlawful activities," according to a transcript.

Yin's lawyer, Sabrina Shroff, disputed that account, and Tung in an interview said the case was a "misunderstanding."

Alleged contact

Ng's name previously surfaced in U.S. investigations into how foreign money might have been funneled into the Democratic National Committee prior to the 1996 elections, when it was working to re-elect President Bill Clinton.

A 1998 U.S. Senate report said that Ng collaborated with Little Rock, Arkansas restaurateur Charlie Tries to funnel hundreds of thousands of dollars in foreign funds to the DNA. Tries later pleaded guilty. Ng, who prosecutors say stopped coming to the

United States for five years amid that probe, was never charged.

The 2014 subpoena cited in the complaint came after Ng's name first surfaced in a lawsuit filed in 2010 against Las Vegas Sands by the former CEO of Adelson's Macau casinos, Steven Jacobs.

Macau is the only legal casino hub in China, and Sands China Ltd, a publicly traded unit of Las Vegas Sands, is one of six licensed casino operators in the southern Chinese territory.

Las Vegas Sands has said it believes that FCPA investigations by the Justice Department and U.S. Securities and Exchange Commission were prompted by Jacobs' lawsuit.

Jacobs contended he was fired after resisting Adel son's demands that Las Vegas Sands rehire a lawyer, Leone Elves, who was also a Macau legislator and who allegedly told the company Chinese officials had offered to resolve some issues facing it for a US$300 million payment.

Ng allegedly was Elves' contact with the officials, acting as what a lawyer for Jacobs described in a court hearing in May as a "courier or messenger."

No evidence exists the payment was ever made, and the company denies wrongdoing. Testifying in May, Adel son said he did not know Ng and had never sent any messages to him or heard of his name until Jacobs' lawsuit.

Lawyers for Jacobs did not respond to requests for comment.

Reuters

Business Daily | 7

September 28, 2015

Macau

Wynn bondholders see US$400 million erased in Macau squeeze The company is more reliant than its peers on that market, and particularly the high-rolling VIPs whose business has dropped off the most

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dd bond investors to the long list of people losing money on Wynn Resorts Ltd. Almost US$400 million in market value has disappeared this year from the US$4.5 billion of fixed-income securities issued by the Las Vegasbased company. That’s on top of the US$9.3 billion in value lost by stockholders. Wynn Resorts shares are down 60 per cent this year, to a closing price Thursday of US$59.83.

Like other casino operators with business in Macau, Wynn has been suffering through a 15-month slump, caused by a crackdown on corruption on the mainland and a slower economy in China.

The company is more reliant than its peers on that market, and particularly the high-rolling VIPs whose business has dropped off the most. Chris Snow, an analyst at CreditSights Inc. in New York, said the bonds could go lower.

“The liquidity situation is very tight, and the market fundamentals are pretty negative,” Snow said. Those factors “will continue to put pressure on the bond price.”

The biggest hit for fixed-income investors has come in Wynn’s 5.5 per

cent bonds due in 2025. Issued in February at par, they have dropped 5.7 per cent this month alone, and are now trading at 86.75 cents on the dollar.

Betting in Macau fell 36 per cent in August to MOP18.6 billion (US$2.3 billion), following July’s 34 per cent drop, according to data from Macau’s Gaming Inspection and Coordination Bureau.

Wynn Resorts received 70 per cent of its revenue from Macau, the former Portuguese colony off of China’s coast, last year, according to Bloomberg data. That compares with 64 per cent for Las Vegas Sands Corp. and 34 per cent for MGM Resorts International Inc.

High rollers

Wynn also has more high-rollers, the gamblers whose activity has dropped the most in the past year.

Wynn received 67 per cent of revenue its last year from these customers, compared with 60 per cent for the market as a whole, according to Deutsche Bank data.

“Wynn is more exposed to what’s going on in Macau than the others,” said Keith Foley, an analyst at

Moody’s Investor Service in New York. “Macau makes up the majority of its revenue and earnings. Their focus tended to be on the VIP section, and that’s the segment that’s getting hurt the worst.”

One particular concern for investors is the new capacity coming online.

Wynn and other casino operators have more than US$14 billion in new properties scheduled to open in the next year that could prompt a price war in Macau, even as the new casinos add to the debt load on their balance sheets.

Wynn has two casinos under construction: the US$4.1 billion Wynn Palace, scheduled to open in Macau in the first half of next year, and the US$1.6 billion Wynn Everett, outside Boston, scheduled for late 2017.

Growing debt

Construction of the two properties will cause Wynn’s debt level to spike by the end of this year, with total borrowings amounting to 6.7 times the company’s earnings before interest, taxes, depreciation and amortization, according to Alex Bumazhny, a director for gaming,

lodging and leisure at Fitch Ratings Ltd. in New York. He expects that ratio to improve after Wynn Palace opens next year. If the project doesn’t produce the US$350 million in annual Ebitda he expects, or if it takes business from Wynn’s existing Macau resort, Fitch may have to reevaluate the credit rating, Bumazhny said. Fitch currently rates the company BB, two levels below investment grade.

To conserve cash, Wynn Resorts cut its quarterly dividend to 50 cents a share in April, from the US$1.50 it paid previously. It could cut the payout further to preserve its credit rating, according to Foley.

It would be “foolish to issue dividends on borrowed money,” company founder Steve Wynn said on a conference call at the time. A spokesman for Wynn didn’t respond to a request for comment.

The 7.4 per cent current yield of the 2025 bonds is closer to that of a BB- rating, below its current score, according to Bloomberg data.

"Downgrades wouldn’t be a surprise,” Snow said of the company’s credit rating.

Bloomberg

8 | Business Daily

September 28, 2015

Macau

“We hope the new casinos will put an end to this feeling of panic” Local companies have proven their quality and as such the government should award them with public tenders to promote economic diversity. This is the view of Miguel Falé and Sandra Vasques - the owners of 3D studio Zorg - in an interview with Business Daily João Santos Filipe

jsfilipe@macaubusinessdaily.com

Business Daily: Gross Domestic Product declined 26.4 per cent during the second quarter of this year. Do you feel the economic slowdown is having an effect on business here, and mainly on the construction sector?

Miguel Falé: The situation,

especially in the construction sector, is related to different phases. Now, the Light Rail Transit (LRT) is already being built and so the work it involves in our area is done. Notwithstanding that there are still some public works ongoing and tenders being launched by the government…

Sandra Vasques: Still, we feel open tenders from the government are fewer than in the past. In relation to the gaming sector, we used to have many projects for the renovation of VIP rooms but because this segment is really slowing down now the casinos are more focused on the mass market areas. The problem is that the mass market areas in casinos are fewer and the renovations in these spaces are also less frequent.

In this way, we’re feeling the slowdown of the gaming industry.

Bearing in mind that the projects Zorg works on are indirectly linked to the casino and hotel industry – which is booming in terms of new

properties being developed on Cotai – and the new reclaimations will create many public works, are your prospects for the future optimistic?

MF: The most important thing is

that these public works are given to Macau architects rather than American, Mainland or Hong Kong [companies]. These non-local architects already have their 3D studio partners; if they have all the public works, then we’ll not have access to this market. If the government’s talking so much about economic diversification they should protect the Macau companies in an effort to promote it. Local companies have proved themselves and their quality with previous works.

Do you expect new hotels to increase the number of project related to the renovation of gaming rooms?

MF: We hope so. We hope the

new casinos will put an end to this feeling of panic created by the decline in the number of VIP clients coming to Macau. It’s very clear that the casinos are not losing money at this moment but until the concessions are renewed this panic may always be present.

Once the licences are renewed, then everything will be great again and we can get back to business as usual. I hope that, as in the past, operators will request the

The government is talking so much about economic diversification they should protect the Macau companies in an effort to promote it

services of local people rather than the American companies.

Because people here have a better understanding of the local market.

It’s important to understand local aspects of the players and this is something that the local companies can do better.

Do you consider the government adequately protects local companies?

MF: It depends upon the people deciding the public tenders.

Sometimes, the people deciding the results only look at the price of bids and always choose the lowest.

To be honest, often the lowest price in a bid is a lie told by companies that the government decides to believe. As a consequence, we see projects costing much more than the original budget and causing huge construction [overrun] problems. The delayed LRT depot [the construction should have been finished to receive the trains but the works are stalled in dialogue to terminate the contract with the contractor] is only one example.

There are many cases like this and usually they happen with nonlocal companies. Maybe it’s time to consider more than the price of the bids in public tenders.

As a Small and Medium Enterprise (SME) do you feel the support of the government in Macau?

MF: The support I expect from the government is to develop the public facilities and inject capital into the economy by renovating roads, viaducts, parks and other public and social equipment that is required. Concerning the rest, I don’t want the government to support us directly, unless they really need our work. It happened with the LRT because at that time they needed 3D images to explain the project to the population. This was great for us but it only makes sense to work together if they need our work.

Business Daily | 9

September 28, 2015

Macau In terms of conditions to start a company here, I really can’t complain because taxes are very close to zero. Probably some assistance could be provided for rentals and telecommunications because for SME’s the prices of these two factors are very high.

As a company involved in 3D modelling and rendering what are your main operating costs?

MF: Salaries and rental are the

main costs. Sometimes, we also need to buy new computers. The hardware needs to be changed every two years because it gets outdated. Concerning rental, the law is a problem because in Macau people always know that everything is temporary, and you know that after some time you will have to move out. That’s a challenge for companies that need stability. Companies need to have five-year plans to consider costs in the long term but rents force local SME’s to change their location too frequently.

SV: Rental is really a problem and the duration of the contract is also a problem because after a two-year contract the landlord may increase your rental by 50 per cent to renew the contract. There’s no protection against this.

Why did you decide to create Zorg in Macau and why does the company have a Portuguese domain?

MF: Zorg was created in Portugal

in 2007 by the two of us. We had been working with 3D images since 2000 and at that time I was working for a company named Sopa de Imagens. In that company, I was already working with architects based in and developing projects in Macau. The first project in the territory I was involved in was the garden of the Areia Preta urban park.

Finally, in 2007 there was a new market emerging in Portugal, the Angolan market with opportunities and we – Sandra and I - decided to create a new company for that market. We named the company Zorg and since then it has retained the same logotype and structure.

While working as Zorg, the first project for Macau involved the modelling in Low Poly [Technic to make 3D models with polygonal resolution] of all the buildings in the territory. This was a project for a local company.

When did the company move to Macau and why?

MF: After Lehman Brothers went bankrupt credit access became

Companies need to have five-year plans to consider their costs in the long term, but rents force local SME’s to change their location too frequently

more difficult and expensive. In 2008, with all the sorts of negative influences this brought to the housing market it caused a crisis in the property market, even before the financial crisis and the bailout. We felt that impact a lot because we worked directly with the promotion of the property market. During one year, we managed to be involved in one or two projects, but then we started to feel that people were willing to ask for our work but not to pay for it. Because of this we moved the company to Macau, around 2010, where we had the opportunity to work with the atelier of local architect Carlos Couto. Later, we started to diversify our clients, initially with Portuguese architects working here, then with design offices working for casinos. We also reactivated the relationship with the government and we were involved in the renders for the LRT and images studies for the north phase of that project.

Do you still have projects running in Portugal or is all focused in Macau now?

MF: Our projects are in Macau.

This is where we are based and focused. The only project we have outside Macau is in the United Kingdom. However, that happened because one of our former designers went to live there and recommended our services to a local company. She suggested our services because there was a project she was involved in that needed 3D images on a very tight deadline. As in Macau, the deadlines for our area asked by the local casinos are always so short, and way shorter than you would expect; she recommended our services since she knew we had experience in short deadlines. In the end, we finished that project on time and hope we have opened a new ‘front’ for more opportunities there.

In terms of your activities, how do you perceive the development of Zorg in the coming years?

SV: In terms of the company we

don’t have the capacity to expand at this moment because we don’t want to be known for not being able to meet deadlines or providing services without quality. We aren’t concerned with expansion until we feel we have the capacity to do it.

MF: In terms of the 3D images, we’re starting to focus on interactivity. We want to use the potential of games, as you see in first person shooters.

3D modelling and rendering Among other activities, Zorg is involved in 3D modelling and rendering of interior and exterior areas. Business Daily asked how its activities were explained to people unfamiliar with this area.

Miguel Falé responded: “We receive the information from architects and designers about projects they want to build. They deliver the technical drawing to us that most people cannot understand. Then we transform it into 3D images for all of us to be able to visualise it. We communicate the ideas of the architects and designers by creating an image about projects that

Local companies have proved themselves and their quality with previous works

haven’t been built. This is essential for the architects and designers to sell their projects because clients may not have the knowledge about architecture and this way they can understand what is in the mind of the architect.

“For instance, the LRT is a very complex project, the structure is huge and the construction works a nightmare for the city. People ask what is the use of the LRT. If it was not for the 3D images or the movies about the LRT, people would not understand that Macau will be better after the project is completed and that it’s worth going through the construction nightmare.”

Chinese companies around Macau, who are very hard to compete with. In terms of costs for our company, the rental costs in Macau are enough to pay the costs related to human resources in Mainland China. Their operating costs are much lower than ours. These companies have a larger market due to the language and network, which is not open to us.

How do you compete with the Mainland companies?

MF: On the one hand, we have the

However, instead of using it to shoot enemies, he will use it to show the areas being projected.

We believe that this is the future for our industry. For example, a Chinese investor wants to buy a property in London. Before he actually considers going there to see the house, he may decide to view it through the game. This can be used for projects being built already on sale before the works are completed.

What is the profile of the clients that more often require the services of Zorg?

MF: Architects and designer

companies and the government for public works comprise the main core of our clients. Sometimes, we’re also involved with other types of clients but not so often.

We work a lot with the Portuguesespeaking architects in Macau because communication is very important in this area.

Who are your main competitors?

MF: Our competitors are Mainland

advantage of being in Macau. On the other, we have clients that tried these cheaper companies and after trying them realise they ended up paying more than they had initially predicted. The problems originated in communication issues, deadlines that were not met and budgets that turned out to be pre-budgets. We’re very close to our clients to make sure they have the product they want. To the point that if needed we take our computers and we go for a week to our clients’ office to work directly with them. Chinese companies do not offer this service and this is an advantage for us; as for the rest, we cannot compete with their prices.

As an SME, how do you manage to promote your company?

MF: It’s difficult for us because we

cannot hire a person to take care of the commercial area. At the same time, it’s difficult for us to promote it ourselves because we have to work to make the 3D images. So, at this moment it’s not really a question, but in the future if we consider expanding then we may hire someone for this position.

10 | Business Daily

September 28, 2015

Greater China

US President Barack Obama (R) and First Lady Michelle Obama (2-L) greet President of China, Xi Jinping (2-R) and Madame Peng Liyuan (L) at the North Portico of the White House for a State Dinner in their honour

Mutual understanding reigns at Xi-Obama meeting U.S. and Chinese officials sought to cast their talks in a favourable light by showcasing at least one area of cooperation - the global fight against climate change Matt Spetalnick and Michael Martina

P

resident Barack Obama announced on Friday that he had reached a “common understanding” with Chinese President Xi Jinping on curbing economic cyber espionage, but threatened to impose U.S. sanctions on Chinese hackers who persist with cyber crimes.

The two leaders also unveiled a deal to build on a landmark emissions agreement struck last year, outlining new steps they will take to deliver on pledges they made then to slash their greenhouse gas emissions.

Speaking after White House talks during Xi’s first U.S. state visit, Obama quickly homed in on the thorniest dispute between the world’s two biggest economies - growing U.S. complaints about Chinese hacking of government and corporate databases, and the suspicion in Washington that Beijing is sometimes behind it.

“It has to stop,” Obama told reporters at a joint news conference in the White House Rose Garden, with Xi standing beside him.

Obama said he and Xi made “significant progress” on cyber security.

But he added warily: “The question now is, are words followed by actions?” and

made clear he is prepared to levy sanctions against cyber criminals.

The two leaders said they agreed that neither government would knowingly support cyber theft of corporate secrets or business information.

But the agreement stopped short of any promise to refrain from traditional governmentto-government cyber spying for intelligence purposes.

That could include the massive hack of the federal government’s personnel office this year that compromised the data of more than 20 million people. U.S. officials have traced that back to China but have not said whether they believe the government was responsible.

Xi reiterated China’s denial of any government role in the hacking of U.S. corporate secrets and said the best way to address the problem was through bilateral cooperation and not to “politicize this issue.”

“Confrontation and friction are not the right choice for both sides,” he said. China has routinely insisted that it too is a victim of cyber hacking.

Analysts said the agreement was significant.

James Lewis, senior fellow

at the Center for Strategic and International Studies, said the leaked plan for sanctions helped push the Chinese toward a betterthan-expected agreement, but noted that Beijing also got Washington to consider some Chinese concepts for norms of behaviour.

Pomp and tech

Obama hosted a lavish black-tie state dinner for Xi on Friday night, featuring Maine lobster and Colorado lamb for about 200 guests, with technology executives featured among them.

Seated with Obama and Xi at the head table were Apple CEO Tim Cook, Satya Nadella of Microsoft, Facebook’s Mark Zuckerberg and Salesforce.com’s Marc Benioff.

In their dinner toasts, both leaders focused on the theme of friendship. But Obama also referenced the tensions. “There will be times when there are differences between our two countries.

It’s inevitable,” Obama said, also gently urging China to accept diverse views and “uphold the rights” of all people.

Earlier in the day, the two men struck a serious, business-like tone when they

Confrontation and friction are not the right choice for both sides Xi Jinping, President of China

appeared before reporters, showing little sign of close personal rapport as Obama laid out concerns with Beijing’s economic policies, territorial disputes with its neighbours and its human rights record.

As the two leaders spoke, dozens of pro- and anti-Xi protesters gathered near the White House grounds, waving flags, beating drums and shouting slogans.

U.S. and Chinese officials sought to cast their talks

in a favourable light by showcasing at least one area of cooperation - the global fight against climate change.

As part of their agreement, Xi announced that China, the world’s biggest emitter of greenhouse gases, will launch a national carbon capand-trade system in 2017 to help contain the country’s emissions.

For Obama, the deal with China strengthens his hand ahead of a global summit on climate change in Paris in December.

But disagreements on other issues loomed.

Obama told Xi after a 21-gun salute at a morning welcoming ceremony that the United States would continue to speak out over its differences with China, but he reiterated that the United States welcomes the rise of a China that is “stable, prosperous and peaceful.”

Xi, who faces rising nationalism at home as well as pressure to get China’s economic house in order, called for “mutual respect.”

In their talks, Obama also pressed Xi to follow through on economic reforms and not discriminate against U.S. companies operating in China.

Reuters

Business Daily | 11

September 28, 2015

Greater China

Steady economic growth ‘around’ 7 pct for Q3

Central banker asks for continuing financial reforms

Despite a run of downbeat data showing the economy may have lost further momentum

C

hina’s economic growth will be largely stable in the third quarter as the impact from a stock market plunge will be limited, the National Bureau of Statistics said.

Bureau spokesman Sheng Laiyun also defended the accuracy of Chinese data - amid widespread scepticism - saying that the 7 percent growth pace reported for the first half was “generally in line with” changes in the country’s power consumption, rail freight and bank lending in that period.

Chinese officials have been trying to reassure global markets that Beijing is able to manage the world’s second-largest economy, after a shock devaluation of the yuan and a stock market plunge fanned fears of a sharp growth slowdown.

Sheng said China’s economic growth in the third quarter will not derivate much from the 7 percent annual pace Beijing reported for the second quarter.

“Judging from indicators in July and August, we feel that the economic trend is still stable, there may be some deviation, up or down, but it won’t be big,” he told a briefing.

China’s economic growth remains within a “reasonable range” and the government will be able to achieve its annual growth target of “around” 7 percent this year, despite some downward pressures, Sheng said.

Slowdown fears

A run of downbeat data, including factory output and investment,

Factory output showed worse than expected performance

showed the economy may have lost further momentum in the third quarter, raising the possibility that full-year growth rate may fall below 7 percent.

Sheng said his “personal view” was that full-year growth between 6.5 percent and 7.5 percent would be considered as “around” 7 percent.

The bureau is due to publish thirdquarter GDP data on October 19.

Sheng also said that China’s survey-based unemployment rate in August stood at around 5.1 percent.

Global investors and policymakers are on edge over China after the U.S. central bank a week ago held off from raising interest rates, saying it was unsure if international problems, and China’s slowdown in particular, will hurt the U.S. recovery.

An interest rate hike in the United States will have only limited impact on China, Sheng said.

He said China’s economic slowdown was partly due to weaker global demand and expectations of the U.S. rate rise have contributed to the global financial market volatility.

“The United States should not exaggerate the impact of China’s growth slowdown on the global economy,” Sheng said.

Reuters

Equity crowdfunding supporting start-ups to be promoted Dominique Patton and Kathy Chen

C

With most Chinese banks unwilling to fund start-ups, crowdfunding has already seen rapid growth, helped by new platforms set up by e-commerce giants such as JD.com.

Crowdfunding is also being used by large companies as funds from traditional channels dry up. Dalian Wanda Group, China’s largest commercial property developer, said in June that it raised 5 billion yuan (US$784 million) from investors online and that it would continue to raise money from the public.

But reports have highlighted some of the risks of the unregulated market. A Beijing court earlier this month ordered a restaurant in the capital to pay a fine of 15,000 yuan for deceiving public investors about its intended use for 700,000 yuan raised online, according to a local media report.

The cabinet document give no details about how to address risks but promised that the government

Survey-based unemployment rate about 5.1 pct China’s survey-based unemployment rate stood at around 5.1 percent in August, the National Bureau of Statistics said on Friday. China is confident it can meet this year’s economic growth target, and the economy is operating within reasonable range, said Sheng Laiyun, the bureau’s spokesman. Sheng added that the United States should not exaggerate the impact of China’s economic slowdown. The country’s urban unemployment rate was steady around 5 percent in the first half of this year, Premier Li Keqiang said in July.

Investment treaty talks with U.S. speed up China and the United States agreed to speed up work on an investment treaty after China promised to open up more sectors of its economy to foreign investors, a person familiar with the negotiations said on Friday, adding a deal was not imminent. “Still, there’s a long way to go,” the source said. Chinese President Xi Jinping and U.S. President Barack Obama said after a meeting on Friday that the two countries had agreed to step up work on a bilateral investment treaty.

Central bank says graft busters must not be soft-hearted

A State Council document posted on the government’s website called for expanding equity crowdfunding projects to help small companies raise funds

hina will promote greater use of equity crowdfunding for start-ups to encourage entrepreneurship in the world’s second-largest economy, a cabinet document said on Saturday.

China’s leaders have repeatedly said they want to promote more entrepreneurial activity in the statedominated economy to stimulate employment, a top priority as the economy slows.

While they have pledged strong support for online business, however, they have until now generally refrained from showing enthusiastic support for crowdfunding.

A State Council document posted on the government’s website called for expanding equity crowdfunding projects to help small companies raise funds as a “useful complement” to traditional equity financing while underlining the need to protect investors’ rights and minimise financial risks.

China should continue with financial reform now, a senior Chinese central banker said on Friday, warning that costs will increase if reforms are delayed. Sheng Songcheng, director of the Survey and Statistics Department at the People’s Bank of China, said that recent volatility in Chinese stock and currency markets was not due to the opening of China’s capital account but that the slow pace of reform was to blame for leaving domestic markets vulnerable to global volatility.

Sheng added that China was still attractive to long-term foreign capital.

would grant easier market access to start-ups by cutting red tape.

It also called for the development of third-party credit rating services and a standardised system for collecting, evaluating and sharing credit information.

China’s securities regulator said last month that it would soon begin inspecting online equity financing platforms to address risks from illegal activities in online equity financing platforms.

Under draft rules drawn up by the Securities Association last year, equity crowdfunding projects must have no more than 200 investors.

Investors must have at least 3 million yuan in financial assets or 500,000 yuan in annual average income for the previous three years.

China could account for half of the developing world’s crowdfunding by 2025, or US$50 billion, according to a World Bank forecast.

Reuters

Inspectors at China’s central People’s Bank of China must not rest on their laurels in their fight against corruption and must strengthen their resolve to root out problems, the ruling Communist Party’s anti-graft watchdog said on Saturday.

Wang Huaqing, who heads the internal graft-fighting team at the central bank, was quoted by the Central Commission for Discipline Inspection as saying that his staff must be “loyal, clean and willing to take on responsibility.” “To beat iron you need to have a strong body,” Wang said.

COFCO says Nidera biofuel losses won’t impact firm’s future Chinese grain trader and food processor COFCO, the majority shareholder in Nidera, has said it still has confidence in the Dutch grain and oilseeds merchant after an ethanol trader racked up significant losses through fraudulent activities. COFCO bought a majority stake in Nidera last year and is in talks to increase its holding in the company, sources have told Reuters. “Nidera has dealt with the issue, which has not affected the company’s daily operation. As a shareholder, we are confident in Nidera’s development and looking forward to more in-depth cooperation in the future,” COFCO said.

12 | Business Daily

September 28, 2015

Asia

Economists see S. Korean inflation target cut by around 0.5% Central bank will update estimates on October 15, along with fresh figures for the likely level of economic growth Jiyeun Lee

Bank of Korea headquarters

H

aving missed its inflation target for almost three years, the Bank of Korea will accept reality and lower its goal by about half a percentage point as an aging population and slowing economic growth reduce price pressures, a Bloomberg survey shows.

Governor Lee Ju Yeol and his policy board have the task of setting a new goal to take effect in 2016 that’s more achievable than the current 2.5

percent to 3.5 percent band without being so low as to damp inflation expectations.

The median from 10 economists polled this week is for a midpoint of 2.5 percent, with the lowest estimated range starting at 1 percent and the highest ending at 4 percent.

“Countries across the world are missing their inflation targets given this prolonged period of low growth and the drop in commodity prices,”

said Kwon Young Sun, a Hong Kongbased economist for Nomura Holdings Inc. who projects a new goal of 1.5 percent to 3.5 percent. “With Korea’s potential growth falling, the new target should be more in line with other developed countries.”

The target is a long way from what the central bank actually expects to happen, with its latest forecast for consumer prices to rise 0.9 percent this year and 1.8 percent in 2016. It will update these estimates on October 15, along with fresh figures for the likely level of economic growth.

The BOK, which hasn’t specified when it will announce the new goal, said in a report to parliament this month that it would prepare an “optimal” target, taking into account changes in the structure of the Korean economy and the experiences of other countries.

In neighbouring Japan, the price gauge is stuck around zero, versus a goal of 2 percent. On the other side of the world, the Bank of England is looking at the same thing: a 2 percent target and zero inflation.

The BOK needs to be “realistic” when it sets its new goal and should

lower the mid-point of the band to 2 percent or 2.5 percent, board member Moon Woo Sik said in a July interview.

Korean consumer price gains have remained below 1 percent this year despite four cuts since August 2014 that took the benchmark interest rate to a record low of 1.5 percent in June.

All 10 economists surveyed expect the BOK to retain its current gauge.

It had used a so-called core inflation measure from 2000 to 2006 that excluded oil and agricultural prices.

“The new target could be lowered and widened to 1.5 percent to 3.5 percent to reflect the new reality of a lower but more volatile inflation path,” said Wai Ho Leong, a Singaporebased economist for Barclays Plc. Having a target that is more reflective of inflation conditions also would prevent the BOK from being “unduly pressured” into unnecessary easing, said Leong.

He expects a further rate cut to 1.25 percent in the fourth quarter.

The median projection of economists is for the BOK to stay on hold in fourth quarter.

Bloomberg News

Vietnam’s FDI inflow hits record high so far in 2015 Over the next five years, Vietnam aims to lift its growth rate to an annual average of 6.5-7.0 percent by capitalising on multilateral trade deals Ho Binh Minh

V

ietnam received an estimated record US$9.65 billion in actual foreign direct investment (FDI) so far this year, with strong inflows going to the manufacturing sector, a key driver for the country’s economic growth.

FDI inflows rose 8.4 percent from a year ago, a Planning and Investment Ministry report said on Friday, the highest level since late 1987 when a law was implemented to allow FDI to enter the Southeast Asian country.

FDI is an important source of foreign exchange for Viet-

nam, helping to boost its capital account and offset a trade deficit that had widened to an estimated US$3.9 billion so far in 2015.

New FDI pledges in the January-September period rose 44.5 percent from a year ago to US$11.03 billion, the ministry’s report said, citing major projects such as the US$2.4 billion Duyen Hai 2

thermal power plant.

Vietnam has embarked on liberal reforms to strengthen capital markets and position itself as a low-cost manufacturing alternative to China, especially for cell phones, televisions, footwear and garments.

New FDI commitments in manufacturing account for 70 percent of the total US$84.8 billion attracted by Vietnam between 2011 and August 2015, the Asian Development

Bank said on Tuesday.

It raised Vietnam’s GDP growth forecast this year to 6.5 percent from 6.1 percent earlier, citing rising private consumption, export-oriented manufacturing and FDI. Foreign firms expanding in Vietnam include Samsung, LG, Microsoft and Intel.

An additional US$3 billion placed by Samsung Display, a subsidiary of the world’s top smartphone maker Samsung Electronics Co Ltd, has helped boost the FDI inflow, the report said.

Samsung Display plans to put another US$3 billion into Vietnam by 2020.

Vietnam has projected drawing US$23 billion in FDI pledges in 2015, up nearly 40 percent from last year, while actual inflows are expected to be on par with 2014 at US$12.5 billion, the report said, citing Planning and Investment Minister Bui Quang Vinh.

Over the next five years, Vietnam aims to lift its growth rate to an annual average of 6.5-7.0 percent by capitalising on multilateral trade deals, modernising agriculture and boosting investments, its communist party has said.

Reuters

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Michael Armstrong, Stephanie Lai, Óscar Guijarro, Kam Leong, Joanne Kuai GROUP SENIOR ANALYST José I. Duarte Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia 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.

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Business Daily | 13

September 28, 2015

Asia Indonesian economy expanding Indonesian central bank has estimated the country’s GDP growth to accelerate faster at 4.9 percent at the third quarter and 5 percent at the final quarter as the government budget spending rises, a bank official said here on Friday. The estimate is compared with 4.71 and 4.61 percent growth at the first and second quarters, respectively, the lowest in six years. For the whole of the year, the lender projected the economic expansion at the range of 4.7 to 5.1 percent, said Juda Agung, executive director for monetary and economic policy of the bank.

Singapore’s manufacturing output declines Manufacturing output declined 7.0 percent year-on-year in August, said the Economic Development Board (EDB) on Friday. According to data released

by EDB, output, excluding biomedical manufacturing, fell by 8.1 percent on a year-on-year basis. On a seasonally adjusted month-on-month basis, manufacturing output decreased 3.7 percent. Excluding biomedical manufacturing, output fell 2.5 percent month-on-month. Electronics cluster output fell 10.9 percent year-onyear in August. Cumulatively, output of the electronics cluster declined 3. 6 percent from January to August this year, compared to the same period last year.

Bank users in Indonesia

Indonesia prays for Islamic banking boom Nevertheless, Islamic banks have proven popular in recent years, with the sector expanding on average more than 40 percent a year between 2008 and 2012

Japan Post chief seeks to avoid NTT debacle

Sam Reeves

I

ndonesian teacher Nina Ramadhaniah hopes for “blessings from Allah” by opening a sharia bank account -- the sort of pious customer the world’s most-populous Muslim-majority country is praying for as it launches an Islamic finance drive.

Indonesia, Southeast Asia’s biggest economy, has a Muslim population of around 225 million but this huge number of faithful has not translated into success for sharia banks, institutions required to do business in line with Islamic principles.

Now regulators have launched a plan aimed at growing the sector, which currently accounts for less than five percent of banking assets, compared to a quarter in neighbouring, more developed Muslim-majority Malaysia and around half in Saudi Arabia.

Authorities believe it is a good moment, with many Indonesians getting wealthier after years of strong economic growth and an increasing trend towards piety across broad sections of society.

Many of those without bank accounts, estimated at about 40 percent of the population, are soon expected to open one.

“The situation is an opportunity for the Islamic banking business to get bigger,” said Nasirwan Ilyas, a senior official from the Islamic banking division of the Financial Services Authority (OJK).

The OJK is spearheading the drive, and unveiled a five-year roadmap earlier this year that included plans to educate the public about sharia lenders and the establishment of an Islamic finance committee to better manage the sector.

on loans or customer deposits, and a ban on investing in “non-Islamic” businesses, such as those involving pork or alcohol.

For teacher Ramadhaniah, who has an account with Indonesia’s biggest Islamic lender, Bank Syariah Mandiri, the ban on interest is a key attraction.

“Charging interest is haram (against Islam), ill-gotten gains that will not bring me any blessings from Allah,” the 44-year-old told AFP. “I don’t want to live in sin.”

Sharia accounts often work on a “profit-and-loss sharing” model, meaning customers get a windfall when the bank does well but can lose out when it does badly.

There are obvious disadvantages.

Sharia lenders generally offer lower returns on investments and their modest size often means they provide fewer services than larger, conventional peers -- many shops are not equipped to accept their debit cards.

Nevertheless, Islamic banks have proven popular in recent years, with the sector expanding on average more than 40 percent a year between 2008 and 2012, according to the OJK. The growth came after laws were changed to make it easier to establish an Islamic bank, and there are now a plethora of standalone sharia lenders, Islamic banking units attached to conventional banks, and smaller Islamic financial institutions in the countryside.

Growth in the sector has lost steam due to a broader slowdown in the economy, which is expanding at sixyear lows -- giving authorities another reason to launch their drive.

‘Interest is haram’

Islamic mega-bank

Key features of sharia banking include the prohibition of interest

Central to the overhaul is a plan to set up a National Islamic Finance

Committee this year, to oversee the sector by bringing together representatives from different government agencies and act as a contact point for potential foreign investors.

Currently responsibility for the sector is spread around different bodies, such as the OJK, the central bank and the finance ministry, according to the OJK’s Ilyas.

It is modelled after similar bodies in other countries, such as the International Islamic Financial Centre in Malaysia, where the sector is already far more developed as the government started supporting it some years ago.

In addition to the OJK roadmap, the government has announced plans to merge the Islamic banking subsidiaries of four state-owned banks to create an Islamic megabank, which should be able to provide better services than the current Islamic lenders.

While observers have broadly welcomed the plans, they concede that many difficulties remain.

Khalid Howladar, Moody’s global head of Islamic finance, said it would be “quite a challenge” to grow the sector to a substantial level.

“The market is growing faster than conventional but from a very low base,” he said, adding Islamic banks in Indonesia did not offer “substantive competition” to their non-sharia peers.

But for Ramadhaniah and a growing army of devout Indonesians with new-found spending power, Islamic banks remain the only choice.

“I really don’t care that I’m not earning anything or getting lower returns on my investments,” she said.

“I can live in peace.”

AFP

Japan Post Holdings will take measures to boost the price of its shares and those of its two units after their planned initial public offerings in November to avoid a repeat of what happened after NTT’s IPO three decades ago, its president said. Earlier this month, state-owned Japan Post Holdings, Japan Post Bank and Japan Post Insurance won approval from the Tokyo Stock Exchange for listings on November 4. The unprecedented triple IPOs seek to raise a combined US$11.5 billion, crucial offerings which the government hopes will win over retail investors.

Myanmar firm creates jet fuel joint venture Myanmar’s state-owned Myanmar Petroleum Products Enterprise (MPPE) has agreed to a joint venture with Puma Energy Group Pte Ltd to distribute jet fuel, the state-owned Myanmar Alinn daily reported on Saturday. Last year, MPPE chose Puma Energy from a short list of four firms as its partner to distribute jet fuel amid a rise in demand from new airports and a boom in tourist arrivals. Under the agreement, the two firms will set up National Energy Puma Aviation Services Co Ltd and MPPE will receive US$20 million from Puma Energy as a signature bonus.

India orders investigation into Volkswagen cars India Friday ordered a probe into Volkswagen cars, days after the German automaker was caught manipulating emission results in some of its diesel cars in the United States. Indian Heavy Industries Secretary Rajan Katoch said that automotive testing agency, Automotive Research Association of India (ARAI), have been asked to conduct the investigation. “We have requested ARAI to check up with Volkswagen and find out if this issue is applicable over here.

They are inquiring into the matter,” Katoch told the media in the national capital.

14 | Business Daily

September 28, 2015

International Google faces renewed U.S. antitrust scrutiny The U.S. Federal Trade Commission has opened a preliminary investigation into whether Google uses its Android operating system to dominate competitors as more consumers go mobile, two sources familiar with the matter said on Friday. The Android mobile platform is a key element in Google’s strategy to maintain revenue from online advertising as people switch from Web browser searches to smartphone apps.

The FTC had previously investigated Google for allegedly breaking antitrust law in a separate case but that probe ended in a settlement.

African Development Bank head pushes for energy access Africa should push to achieve universal access to electricity within a decade while accelerating its transformation to a continent exporting finished goods, rather than raw materials, the new head of the African Development Bank said.

Akinwumi Adesina, who took over as president of the 50-year-old institution earlier this month, has set an ambitious series of goals to guide it through Africa’s increasingly complex financial environment. He said Africa could achieve full access to power by 2025, sooner than the goal of 2030 set by the United States and other major donor countries.

Puerto Rico financing arm debt restructuring approaches A restructuring of Puerto Rico’s Government Development Bank (GDB) is expected to be speedily negotiated as key deadlines loom, and could include a debt exchange structure involving the island’s infrastructure financing arm, sources familiar with the situation said. Melba Acosta, head of the GDB, said that the bank would be the next entity from the commonwealth to engage in restructuring negotiations, following utility PREPA, which came to a deal with bondholders in September after about a year of talks. Puerto Rico officials earlier in September proposed restructuring $18 billion of debt.

EU could toughen car emission tests after VW scandal The EU could introduce tougher car emissions tests in the wake of the Volkswagen rigging scandal, senior European officials said. The German carmaker named company veteran Matthias Mueller as its new chief executive on Friday in an attempt to get to grips with a crisis that its chairman described as “a moral and political disaster”. The appointment came as Swiss authorities said they were suspending sales of Volkswagen diesel vehicles that could contain devices capable of cheating emissions tests, including Audi, Seat, Skoda and Volkswagen brand vehicles built between 2009 and 2014.

Global regulators reach agreement on bail-in bonds plan The rule will apply to nearly all the 30 big banks that the FSB has deemed to be “globally systemic” William Schomberg

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lobal regulators have reached a draft agreement on a rule on stopping banks from being “too big to fail” by requiring them to hold enough equity capital and bonds to avoid taxpayers being called on in a crisis.

The proposed standard is known as total loss absorbency capacity or TLAC and Bank of England governor Mark Carney -- who chairs the global regulatory Financial Services Board (FSB) -- has described it as the last major reform after the 2007-09 financial crisis forced governments to shore up lenders.

The rule will apply to nearly all the 30 big banks that the FSB has deemed to be “globally systemic” such as Goldman Sachs, Deutsche Bank and HSBC. “At today’s meeting FSB members discussed the TLAC impact assessments, and agreed the draft final principles and the updated term sheet,” the FSB said in a statement.

The FSB did not publish details of the agreement, but a source familiar with the deal said it mirrored proposals made at a G20 meeting in Ankara earlier this month.

That would see the two-stage introduction of a buffer of debt from 2019 that can be “bailed in” to raise equity equivalent to 16 percent of a bank’s risk-weighted assets, the source said, rising to 20 percent from 2022.

Bank of England governor Mark Carney

The FSB said members supported consistent implementation of the robust minimum standard, adding that the TLAC standard and its timelines would be finalised by the time of the G20 Summit in November.

Separately, the FSB also approved the first version of a similar rule for major insurers, the Higher Loss Absorbency standard, which requires them to hold an extra buffer on top of the basic capital requirements.

Reuters

Colombia needs international money to fund peace deal Conservative estimates predict a 1 percent boost in growth per year as a result of an eventual accord Mica Rosenberg

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olombia will need “significant” investment from the international community to pay for the historic peace deal promised within six months between Marxist guerrillas and the government, the country’s finance minister said.

This week Colombian President Juan Manuel Santos and the Revolutionary Armed Forces of Colombia, or FARC, pledged to end a war that has killed 220,000 and displaced millions over half a century.

“Peace is closer to us now than it has ever been in five decades,” said Finance Minister Mauricio Cardenas.

“But there will be costs.” He said the government would be coming

The proposed standard is known as total loss absorbency capacity or TLAC

up with an estimate of how much reconstruction could cost also within six months.

The Colombian government and the rebels have been negotiating for nearly three years but this week in Havana, Cuba, the two sides agreed to create tribunals to try former combatants, resolving one of the most significant hurdles to peace.

The justice accord would apply not just to the FARC but also to government troops and right-wing paramilitary groups.

While he did not know how much Colombia would seek from other countries, Cardenas said it would be a “significant figure.”

He expects international support for the deal because it will have benefits outside Colombia, including a potential reduction in drug trafficking.

Some FARC units have formed an alliance with drug cartels, exchanging protection for money, though there are other drivers of the narcotics trade.

Colombia has already been spending a significant amount of its budget, or about 1 percentage point of GDP, on victim reparations, said Cardenas.

Conservative estimates predict a 1 percent boost in growth per year as a result of an eventual accord but Cardenas said that could reach 1.5 percent nationwide. In certain regions hardest hit by violence, some studies show growth of up to 4 percent, the minister said. He added, though, that the effects will not be immediate and it could take three or four years for the economy to expand, driven by agriculture, mining and tourism.

There are opportunities for largescale agricultural production, as in neighbouring Brazil, in Colombia’s eastern plateaus near the border with Venezuela, which have been largely inaccessible and underdeveloped.

“That is one of the main impacts of solving the conflict in Colombia, those areas could actually become productive,” Cardenas said, adding that rating agencies may look positively on the country’s outlook going forward because of the deal.

Reuters

Business Daily | 15

September 28, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Abe’s plan for “An undertaking of great advantage” James Saft

Reuters columnist

CHINA DAILY The largest coal mining group in Northeast China is cutting 100,000 jobs within the next three months to reduce its losses - one of the biggest mass layoffs in recent years.

Heilongjiang Longmay Mining Holding Group, which has a 240,000 workforce, said a special centre would be created to help those losing their jobs to either relocate or start their own businesses.

Chaiman of the group Wang Zhikui said the job losses were a way of helping the company “stop bleeding”. It also plans to sell its non-coal related businesses to help pay off its debts, said Wang.

THE KOREA HERALD President Park Geun-hye announced that South Korea will donate US$200 million in aid to poor countries as part of Seoul’s efforts to boost contributions to sustainable development. South Korea plans to launch the “Better Life for Girls” initiative next year to help provide quality education to girls and strengthen health services for them in 15 countries, including Nepal, Senegal and Bolivia over the next five years. The initiative aims to tackle gender inequality in education and help girls in developing countries unlock their full potential.

THE STRAITS TIMES In its toughest anti-haze measure yet, Singapore has begun legal action against five companies it believes are among the culprits behind Indonesia’s polluting fires. It has also slammed statements from Indonesian officials over the crisis that forced the Republic to close schools.

Naming the firms for the first time yesterday, Minister for the Environment and Water Resources Vivian Balakrishnan stressed that the haze was a man-made problem that should not be tolerated. “Ultimately, errant companies must know that there is a price to be paid for damaging our health, environment and economy,” he said.

BANGKOK POST Suvarnabhumi airport’s passenger throughput looks set to break a record of more than 52 million this year, exceeding its design capacity by 15%. Speaking on the occasion marking the airport’s ninth anniversary, which falls today, Suvarnabhumi airport general manager Sirote Duangratan said the airport had handled more than 400 million passengers since its opening. Between Oct 1, 2014 and Sept 15 this year, the airport processed 50.5 million passengers, up by 12.9% over the previous period.

International passenger traffic surged 16% to 42.4 million while the domestic volume declined 0.77% to 8.13 million.

J

apan’s Shinzo Abe has concocted what must be the perfect economic plan for our times: just a positive intention backed by no timeline and few details.

The prime minister on Thursday unveiled a plan to increase the size of Japan’s economy by 22 percent to 600 trillion yen (US$5 trillion). Perhaps wisely, Abe did not say by when, especially given that Japan’s economy is not far off its size of 20 years ago, much less that it is only about 6 percent bigger than it was when he took office three years ago.

As for how this growth would be achieved, we are almost none the wiser. Abe presented a pastiche of laudable goals: increasing the birth rate and making Japan a better place for those with children or caring for elderly relations, but he was extremely parsimonious with details.

It was the government policy equivalent of the stock prospectus during the South Sea Bubble which advertised for subscribers to “A company for carrying on an undertaking of great advantage, but nobody to know what it is.” Except this time, rather than not knowing what “it” is, we have no idea when we will get “it” and none about how, exactly, “it” will come to pass.

It may well be that Abe’s goals are no more than waiting around for the official government projections to come through, meaning that we’d hit 600

trillion yen in 2020, mostly courtesy of inflation rather than growth.

To be fair to Abe, this plan, if we can grant it that title, is at least seeking to address the great weakness that is very likely behind the comparative failure of his and his predecessors’ economic plans: Japan’s demographic contraction.

Unlike yen, the Bank of Japan cannot print babies, and as Japan, at least for now, seems to view large-scale immigration as unacceptable, an attempt to raise the birth rate is at least a shot in the right direction. Abe said his plan is to raise the birth rate from 1.4 to 1.8 children per woman, stabilizing population at 100 million in 50 years, down from 127 million today.

Sweating the (wasting) assets None of this should do much to distract from Japan’s current malaise. The economy shrank in the three months to June and is expected to grow by about 1 percent this year and perhaps 1.5 percent next. That’s if Japan manages to avoid fallout from the continuing issues in China.

Abe is right, however, to try to move the focus away from cyclical issues and towards structural, longer-term ones.

Conventional and unconventional monetary and fiscal policy have not worked to create sustainable growth in Japan, and arguably were doomed from the start by a peaking and now shrinking population.

Abe is right… to try to move the focus away from cyclical issues and towards structural, longer-term ones

In that context, Abe’s plan, threadbare on details as it is, makes a certain amount of sense. His emphasis was on creating social conditions which will encourage people to have children and hopefully allow those faced with aging parents to remain in the workforce.

“The flag I want to fly is that nobody quits work for care,” Abe said. “I want to create a society where work and care go together.”

That’s not been the Japanese experience, with its emphasis on bruisingly long hours, not to mention the tremendously long commutes many face.

To increase productivity in the absence of population growth will require an increase in labour force participation by women, 70 percent of whom stop work for an extended period, often more than a decade, on the birth of their first child.

These are fine ideas - making work more family friendly - but given that there is no detail, and that Japan has a poor track record of reforming workplace culture, it is probably best for investors, at least, to assume that little will change.

View Abe’s plan as an attempt at an old-fashioned business strategy: sweating the assets.

Given that the assets, people, are diminishing in number, then if you want growth, or something like it, you are going to have to get more from what remains.

That’s a strategy, not a plan.

Reuters

16 | Business Daily

September 28, 2015

Closing China to set up fund to help developing countries

Emergency response for Inner Mongolia drought

China will set up a US$2 billion fund for an initiative involving 600 projects in African and Asian countries, Zhang Jun, director-general at the Ministry of Foreign Affairs’s Department of International Economic Affairs, said in New York. The fund will focus on areas such as education, health care and infrastructure in less-developed regions, China President Xi Jinping (pictured) said earlier in a speech at the United Nations in New York. China will seek to increase the fund to US$12 billion by 2030, and will write off interest-free loans owed by the least developed regions, he said. “China will not impose political conditions on countries in getting access to the fund,” Zhang said at a briefing.

The government yesterday initiated a level-IV emergency response, and despatched teams to cope with the serious drought in north China’s Inner Mongolia Autonomous Region. The autonomous region has seen average precipitation of 104.9 mm since the beginning of July, a 54-year record low for the period. A total of 3.6 million people have been affected by the drought, with more than 1 million people deemed at high risk, according to local authorities. Large swathes of crop land have been affected and direct economic losses have been estimated at 6.5 billion yuan (about US$1.02 billion). Local authorities allocated 30 million yuan for drought relief and are digging wells and cloud seeding to reduce the region’s losses.

Rents tumble on HK shopping strip Retail rents were down 12 percent in Causeway Bay and 3 percent in Central at the end of June Alfred Liu

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os m et ics re tailer Colourmix will move to Hong Kong’s Russell Street, once the world’s most expensive shopping strip, and pay about 40 percent less than the former tenant.

“Landlords have to face the reality, no matter how reluctant they are,” Lawrence Wong, a director at property agent Sheraton Valuers Ltd., said in a telephone interview Saturday. “It’s still better than leaving their property empty.”

Russell Street has lost its claim as the most expensive shopping street on the planet to New York’s Fifth Avenue, according to broker Cushman & Wakefield Inc. in November.

A July research report by Jones Lang LaSalle Inc. predicted prices for space in prime locations will drop 15 percent to 20 percent in Hong Kong this year.

Retail rents were down

12 percent in Causeway Bay and 3 percent in Central at the end of June, Oriental Daily reported earlier this month, citing data from CBRE Group Inc. The

broker said in a report that the decline came after rents for shops at prime locations in Hong Kong’s four shopping districts, including Tsim Sha Tsui

and Mong Kok, increased by 213 percent from 2003 to 2014.

Hong Kong’s retail property market has slumped with China facing its slowest growth in a quarter-century.

The world’s second-largest economy will announce a growth objective of 6.5 percent to 7 percent for 2016, according to eight of 15 economists in a Bloomberg News survey conducted September 1722. All of those surveyed said they expect next year’s target will fall short of the about 7 percent set by Premier Li Keqiang for 2015 growth.

The Hong Kong government is closely monitoring developments

in the city’s property market and will make policy changes if necessary, Financial Secretary John Tsang told reporters yesterday.

Hong Kong’s property prices are being affected by an increase in supply and volatile external factors such as a high probability that the U.S. may raise interest rates, Tsang said.

Colourmix, run by Veeko International Holdings Ltd., will rent a 1,000 squarefoot space in Causeway Bay for almost HK$1 million (US$129,000) per month, 43 percent lower than what luxury Swiss watch brand Jaeger-LeCoultre is currently paying, said Wong, whose company handled the transaction.

In Central, Hong Kong’s business district, Adidas Hong Kong Ltd. will pay 23 percent less for the space being vacated by Coach Hong Kong Ltd., according to Land Registry data.

The sports brand’s rent is HK$4.34 million a month, down from HK$5.6 million paid by Coach, the designer handbag maker.

Hong Kong’s residential market is also experiencing weaker sentiment. “Housing market outlook will likely become more cautious amid increased volatility in the global and Hong Kong’s financial markets,” the Hong Kong Monetary Authority said in a report released Friday. “The risk of downward adjustment has picked up steadily.”

Bloomberg News

Nepal imposes vehicle curbs due to fuel shortage fears

Tianjin warehouse owner to compensate for losses caused

China approves plan to boost growth of Northern region

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C

A

epal yesterday imposed nationwide restrictions on vehicle use due to growing fears of a fuel shortage after protesters seeking changes to a new constitution blocked a major border trade route.

Drivers are allowed on the road only on alternate days, depending on whether their licence plates end in odd or even numbers, as a result of the blockade on the India-Nepal border since Thursday night.

“The government has decided to limit the number of vehicles moving across the country due to the fuel shortage,” home ministry spokesman Laxmi Prasad Dhakal told AFP. “We are facing a huge problem because of the blockade in the south and are trying to use the fuel we have effectively,” he said.

The blocked checkpoint in the town of Birgunj, 90 kilometres south of the capital, serves as the key hub for oil and food imports into landlocked Nepal.

The movement of cargo through other border checkpoints has also declined, officials have said.

hina has approved a plan to attract foreign investment and boost economic growth in cities and provinces linked to the coastal regions of the northern Bohai Sea, according to a statement the State Council posted on the central government’s website yesterday.

The State Council, the country’s cabinet, called on the governments of the cities of Beijing and Tianjin and the provinces of Hebei, Shanxi, Inner Mongolia, Liaoning and Shandong to increase the efficiency of economic growth and coordinate their efforts, according to the approval notice dated September 15.

The governments will aim to open sectors to investment more aggressively, speed up major infrastructure construction, strengthen environmental protection and promote industry cooperation, the official Xinhua News Agency reported Sunday. Northern cities and regions will also eliminate regional policy barriers for businesses and share public service resources, Xinhua reported.

China has stressed the need to restructure its state enterprises.

uthorities in north China’s port city of Tianjin said the wheels have been set in motion to secure compensation from the owner of a warehouse for those affected by two fatal blasts at the site on August 12.

More than 120 injured people, including five who are still in a critical or serious condition, remain in hospital, while 673 others have been treated and discharged, said Zhang Yong, head of the Binhai New Area in Tianjin.

One-hundred-and-sixty-five people died in the explosions, while another eight have never been found. The dead include 110 fire-fighters and policemen who were killed during the response operation. The blasts damaged 11,000 houses and affected 414 companies.

The compensation process for the affected residents has begun.

Zhang said Binhai New Area will launch an improvement campaign focusing on safety at companies that deal with dangerous chemicals and goods. The warehouse is owned by Rui Hai Int. Logistics Co. Ltd., which was founded in 2011.

AFP

Reuters

Xinhua