Macau Business Daily October 16, 2015

MOP 6.00

Stoic Sentiments

Closing editor: Joanne Kuai

The German Consul was adamant. The worldwide VW scandal will not impact German companies in the SARs. As the vehicles in question are not sold here. On the contrary, Nikolaus Graf Lambsdorff said the MGM Oktoberfest would boost German business and culture

Year IV

Number 900 Friday October 16, 2015

Publisher: Paulo A. Azevedo

Page 6

Galaxy Posts Buoyant Results

Galaxy reported income of HK$2.1b (US$271m) in Q3. Revenue plunged 29 pct y-o-y but sales rose 5 pct Foreign exchange from the June quarter to HK$12.3b in the 3-month period. The operator’s non-gaming revenue almost reserves MOP145 billion in September doubled to HK$742m in Q3 y-o-y. Including a quadrupling of rental revenue for its Promenade shopping Page 3 mall. Meanwhile, occupancy at Galaxy’s five hotels reached 99 pct, it said Page 7

Helping Hand

Page 4

Macau Gov’t has granted MOP80mworth of loans. To support the city’s young entrepreneurs and SMEs. This via 3 schemes during Q3. Down nearly 5.2 pct compared to MOP84.46m extended in Q2. DSE received 104 applications for the Young Entrepreneurs Aid Scheme in the quarter, of which 75 were approved

Watch retailer Stelux expects to slip into red

Page 5

Sheraton appeals Court of Second Instance decision

Page 7

Page 3

Flexibility the new normal The hot potato. Gaming table applications filed by Melco and Galaxy remain under evaluation. Credit Suisse speculates that Melco Crown may get 250 gaming tables, while Galaxy may be given 100 more. ‘In line with the government’s supportive stance for the industry, in our view,’ say the investment bank’s analysts

Page 6

HSI - Movers October 15

Public parking impasse Today AL starts its new legislative year. The universal smoking ban in casinos, 2016 fiscal budget, new Land Law amendments, and other important issues await resolution. But first out of the traps, legislators are set to discuss the fate of the monthly public parking rental system

Page 2

Retail

www.macaubusinessdaily.com

Luk Fook same store sales growth down 6 pct in Q2

Fashion Fallout A sharp sales slowdown in the SARs. And especially Mainland China. Leading Britain’s Burberry to miss growth forecasts and add to the growing chorus. That of an increasingly challenging environment for luxury goods sales. Burberry shares languish at an almost three-year low

Page 5

Name

%Day

Galaxy Entertainment

+11.28

Sands China Ltd

+10.25

China Merchants Holdi

+7.23

China Shenhua Energy

+4.93

Hong Kong Exchanges

+4.42

BOC Hong Kong Holdin

+0.39

Tingyi Cayman Islands

0.00

Want Want China Hold

-0.78

China Unicom Hong Ko

-2.77

Li & Fung Ltd

-4.29

Source: Bloomberg

I SSN 2226-8294

2015-10-16

2015-10-17

2015-10-18

22˚ 30˚

21˚ 29˚

21˚ 29˚

2 | Business Daily

October 16, 2015

Macau João Pereira Coutinho fails to secure seat in Portuguese Parliament Macau Legislative Assembly member João Pereira Coutinho has failed to secure a seat in the Portuguese Parliament.

The Macau legislator, who holds Portuguese nationality, was running in the electoral cycle selected by emigrants.

Taking into account the ‘outside Europe’ electoral cycle, Mr. Coutinho headed the second most voted list, just behind the Social-Democrats (PSD), which elected two candidates. However, if only the results of the Portuguese Consulates in the People’s Republic of China are considered, the legislator gathered more votes than any other.

Legislative Assembly decision due on public car parking rentals The Assembly starts the new legislative year having to decide whether the government should cancel the monthly parking rental system Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he Legislative Assembly is set to decide today on the motion that the government should cancel the monthly parking rental system for public car parks.

Some legislators maintain that the system should be scrapped as it has already led to the abuse of government resources.

Legislators Si Ka Lon and Song Pek Kei, who initiated the motion, believe that the monthly parking rental system for public parks no longer fits the reality of the city as the big discrepancy between the public rental rate and private one has led to some abuses of public resources.

“We’ve heard of cases complaining that there were people leasing public parking lots letting out these lots to others at a rate double the cheap monthly rental fees they had been paying to the government,” Mr Si told us. “These cases are common especially in the central district of Macau Peninsula.”

“In the beginning years following the handover [in 1999] the low monthly parking expenses charged were to encourage the use of public car

parks,” Mr. Si explained. “But now things are different; private parking lot rental expenses here have surged a lot and a supply of these lots is more and more strained, which only makes the cheap monthly parking rental system for public parking lots [unsuitably priced].”

Closing gap

There are 39 public car parks in Macau offering 14,382 parking spaces; 16 of these public car parks lease out over 4,500 parking lots on a monthly rental basis. According to Mr. Si, the proportion of parking lots leased out on a monthly rental basis occupies close to or even exceeds 50 per cent of the total parking lots at 13 of these public car parks.

In July, Secretary of Transport and Public Works Raimundo Rosario told the Legislative Assembly that the payment of parking fees via a monthly parking ticket will not be adopted anymore for new public car parks. There are 12 new public car parks being built, which can provide about 7,100 parking lots.

Director of Transport Bureau Lam Hin San said in September that the government was considering raising the monthly parking fees for eight of the city’s public car parking lots by 53 per cent to MOP2,300 (for fixed parking spots) in the fourth quarter, and 100 per cent for nonfixed parking spots to MOP1,600.

The intended rate is to approximate private market fees, Mr. Lam explained at the time.

“This is not only a parking cost issue; there is inequality in the queue for leasing these public car parking lots [via monthly payment],” legislator Kwan Tsui Hang told Business Daily, adding that she supported the cancellation of a monthly parking rental system.

Ms. Kwan is referring to the condition that the city’s public car parking lots do not have a regular drawing lots system for applicants waiting to lease the spaces via a monthly payment, which she deems a fairer way for the public to use government resources.

“Now the situation is that these public car parking lots have a rental demand which far outweighs the

available supply,” said Ms. Kwan.

“But some people have been able to lease these lots and occupy them for a long time, which hurts the equality of public access for using these public car parking lots.”

Assembly to deliberate upon fiscal 2016 budget As the Legislative Assembly resumes work for the new legislative year today, another main item on the agenda is to deliberate upon the budget for the operation of the Assembly for fiscal year 2016 - which stands at MOP183.9 million in total. Of all the estimated expenditure items of the Assembly, the biggest portion goes on spending supporting legislators and Assembly staff’s salaries, which stands at MOP11.09 million or 9.21 per cent more than last year.

Business Daily | 3

October 16, 2015

Macau

Gov’t grants MOP80 mln to SMEs, young entrepreneurs in Q3 Compared to the second quarter, the total amount of loans granted represents a drop of 5.2 per cent Kam Leong

kamleong@macaubusinessdaily.com

T

he Macau Government granted loans of some MOP80.09 million to support the city’s young entrepreneurs and small and medium-sized enterprises (SME) via three of its financial aid schemes during the third quarter of the year, down nearly 5.2 per cent compared to MOP84.46 million extended in the second quarter.

According to the latest statistics released by the Economic Service Bureau (DSE) yesterday, it received 104 applications for the Young Entrepreneurs Aid Scheme during the three months, which offers interest-free loans of up to MOP300,000 for local young people to start their own business.

Meanwhile, the government approved 75 of the applications, granting loans of MOP17.35 million, which is an increase of nearly 55 per cent from MOP11.23 million for the previous quarter.

Cumulatively, the scheme granted MOP39.53 million to 167 applicants during the first nine months of the year.

Loans were primarily granted to the retail industry, which received MOP19 million in the nine months,

accounting for 48.1 per cent of the total, followed by restaurants and hotels, which were approved loans of MOP5.9 million, or 14.9 per cent of the total. In addition, the Bureau lent some MOP4.05 million to realtors, accounting for 10.2 per cent of the total.

The financial aid scheme, targeting local youths, was launched in August 2013. It allows residents aged between 21 and 44 to apply for an interest-free loan for eight years, with repayments starting after 18 months.

In supporting local SMEs, the government allocated MOP45.36 million via the SME Aid Scheme in the third quarter of the year, down 26.4 per cent from MOP61.6 million in the second quarter.

The scheme lends up to MOP600,000 per applicant for different finance purposes such as for the purchase of equipment, renovation, advertising, etc, and enterprises have as many as 8 years to repay.

Between July and September, the government received 157 applications for

the aid scheme, approving 113 of them. For the first three quarters of the year, it extended MOP148.5 million to 380 SMEs under the scheme.

Meanwhile, official data indicates that MOP19.38 million was allocated to the SME Credit Guarantee Scheme during the three months, up 66.5 per cent quarter-on-quarter.

The scheme provides each beneficiary with a credit guarantee equal to 70% of the loan approved by the participating banks, up to MOP 3.5 million.

According to DSE, 25 enterprises in the city filed applications for the scheme during the third quarter, with 12 given the green light. In the first nine months of the year, the government approved 38 of 60 applications, involving MOP56.98 million.

In fact, local retailers are the biggest group of beneficiaries of both schemes.

They have received MOP50.22 million in loans, with granted credit guarantees totalling MOP12.43 million this year, accounting for 33.8 per cent and 21.8 per cent of the total, respectively.

Foreign exchange reserves MOP145 bln in September

A

preliminary estimate of the city’s foreign exchange reserves totalled MOP145.3 billion (US$18.21 billion) as at the end of last month, according to the foreign exchange services and nominal effective exchange rate index for the pataca released yesterday by the Monetary Authority of Macau (AMCM).

According to official data, the reserves represent an increase of 0.2 per cent from MOP145.1 billion the city posted for the previous month.

Meanwhile, on a year-on-year comparison, the reserves jumped 12.46 per cent from MOP129.2 billion.

As at the end of September, foreign exchange reserves represented 13

times the currency in circulation, or 108.6 per cent of Pataca M2 as at the end of August 2015.

‘M2’ refers to that part of the money supply that includes physical coins and currency, as well as readily liquid assets such as on-demand bank deposits and money held in cheque accounts plus all time-related deposits, savings deposits, and noninstitutional money market funds.

In addition, the trade-weighted effective exchange rate index for the pataca rose 0.07 points monthon-month and 6.90 points year-onyear to 105.79 in September 2015, suggesting the pataca had appreciated against the currencies of Macau’s major trading partners in general.

K.L.

4 | Business Daily

October 16, 2015

Macau

Forget Beijing: Mall owner Taubman likes second-tier cities Taubman is also managing a mall within Studio City that will open on October 27

and we thought there were more opportunities in tier two," Tremblay said in an interview in Hong Kong Tuesday.

Taubman looked at more than 100 cities across China, he said, before deciding on Zhengzhou, a city with a population of 9 million in the central province of Henan, and Xian with 8.5 million people and located in Shaanxi, a northwestern province.

Local partners

U

.S. mall-owner Taubman Centers Inc. is bypassing Beijing and Shanghai, instead building its first two Chinese shopping malls in the second-tier cities of Xian and Zhengzhou because the potential returns are higher,

Asia President Rene Tremblay said.

Taubman is investing in cities where land costs are less than half those of the most prosperous tier-one cities, which have had an explosion in mall growth in the past decade, Tremblay

said. There is more potential in smaller cities where a growing middle class is fuelling sales of affordable luxury and fashion brands, he said.

"We knew that for tier one, prices were higher, competition was more fierce

In China, Taubman has jointly invested with both local developers as well as a local retailer, Beijing Wangfujing Department Store (Group) Co., rather than go it alone as it does in the U.S., where it is one of the largest owners and operators of shopping malls. Xian is

to open in the first half of next year and Zhengzhou in the fall. Both will cost about US$385 million each, he said.

"When you are a foreigner, you have to team up with a local partner and local talent, they bring us things we didn’t have, and intimate knowledge of the consumer," Tremblay said.

Tremblay said that Taubman is also managing a mall within Macau Studio City, a project developed by Melco Crown Entertainment Ltd. that will open on Oct. 27 with tenants including Yves Saint Laurent and Prada.

Bloomfield Hills, Michigan-based Taubman Centers was founded in 1950 by the late A. Alfred Taubman, who pioneered the development of regional malls in the U.S. Bloomberg

Luk Fook same store sales growth down 6 pct in Q2

H

ong Kong-listed jewellery company Luk Fook Holdings (International) Ltd. saw its overall same store sales growth dip 6 per cent year-on-year for the second quarter of its fiscal year ended September 30, dragged down by the plunge in the sales of gem-set products in Hong Kong and Macau.

The company told Hong Kong Stock Exchange on Wednesday after trading hours that its overall same store sales growth of gold products had registered a year-on-year increase of 5 per cent, driven by the sales growth of gold products in Hong Kong and Macau jumping 7 per cent yearon-year. However, the sales growth of gold products on the Mainland registered a year-on-year drop of one per cent.

Meanwhile, the company’s same store sales growth of gem-set products plunged 26 per cent year-on-year during the three months, due to the fact that Hong Kong and Macau had plummeted 28 per cent year-on-year, although sales in Mainland China jumped 13 per cent year-on-year.

The jewellery retailer did not disclose details of its financial results for the second quarter in the filing. But it did explain that the sales growth of gold products was a result of the mini ‘gold rush’ in July and August 2015.

As at the end of last month, the company had a total of 148 selfoperated shops, with 48 shops in Hong Kong, 10 in Macau, and 85 in Mainland China. In addition, it owned 1,263 licensed shops in the Mainland and Korea.

K.L.

Business Daily | 5

October 16, 2015

Macau

Burberry H1 sales miss estimates as Asian revenue drops Luxury-goods maker Burberry Group Plc reported first-half revenue that trailed analysts’ estimates as sales declined in Asia

L

uxury-goods maker Burberry Group Plc indicated full-year profit will probably decline for the second straight year as a drop in Asian sales led first-half revenue to miss analysts’ estimates.

Adjusted pretax profit will be “broadly in line” with an average of analyst estimates of 445 million pounds (US$689 million) in the year through March, Londonbased Burberry said Thursday in a statement. Earnings on that basis reached 455.8 million pounds last year. Second-quarter retail sales climbed 1 per cent on a comparable basis, the slowest pace in three years.

The shares fell as much as 12 per cent.

Revenue was little changed at 1.11 billion pounds (US$1.7 billion) in the six months through September, London-based Burberry said Thursday in a statement. Analysts predicted 1.16 billion pounds, based on the average of estimates compiled

by Bloomberg. Second-quarter retail sales climbed 1 per cent on a comparable basis, the slowest pace

In the second quarter, demand from luxury consumers, particularly Chinese customers, was affected by a more challenging external environment Burberry

since the second quarter of fiscal 2013.

Tough environment

Luxury-goods makers are struggling on multiple fronts. Sales have cooled in China following a clampdown on extravagance. Demand has slumped in Hong Kong and Macau as wealthy Chinese shop in Japan and Europe instead. And the devaluation of the yuan and the Federal Reserve’s decision to hold off from raising interest rates have added to concerns about growth, with LVMH Moet Hennessy Louis Vuitton SE this week attributing slowing fashion and leather-goods sales to stock market volatility.

“While we do not question Burberry’s brand equity, strategy or execution, the trading environment is tough and only amplified by its geography mix,” said Ashley Wallace, an analyst at Bank of America Merrill Lynch. She lowered her recommendation on the stock to neutral from buy.

Weaker position

Burberry is in a weaker position than most. The maker of 45-pound scents and 1,995-pound shearling trenchcoats gets more than 30 per cent of revenue from Chinese consumers, yet only 2 per cent from Japan, where many are shopping. And the U.K.

Watch retailer Stelux expects to slip into red

H

ong Kong-listed watch and eyewear retailer Stelux Holdings International Ltd. said the company is expected to record a net loss for the six months ended September 30 this year, mainly hurt by the increase in borrowing costs of convertible bonds and less gross profit earned in Hong Kong, Macau and Southeast Asia.

The company is known for its City Chain watch retail operation in both Hong Kong and Macau.

The anticipated net loss is primarily attributable to a decrease in turnover and gross profit caused by weak retail sentiment, especially in Hong Kong, Macau and Southeast

Asia, Stelux explained in its latest filing.

An exchange loss of about HK$15 million (US$1.94 million) due to depreciation of currencies in Southeast Asia has also contributed to the expected net loss, the company said.

‘Despite the anticipated loss, the group is expected to report a positive operating profit; an improved gearing ratio (with a reduction in bank borrowings of approximately HK$130 million) and stable liquidity in the reporting period,’ Stelux said in the filing.

Regarding the corresponding period in 2014, Stelux earned a net profit of over HK$105 million.

accounts for about 40 per cent of European retail sales when many shoppers with dollars in their wallets are taking advantage of a weaker euro, according to MainFirst Bank AG. “In the second quarter, demand from luxury consumers, particularly Chinese customers, was affected by a more challenging external environment,” Burberry said in the statement, which was published before European markets opened.

The company said it expects fullyear adjusted pretax profit will be “broadly in line” with an average of analyst forecasts of 445 million pounds.

The shares fell 0.8 per cent to 1,419 pence in London on Wednesday.

Burberry said demand in the U.S. was uneven and Asia Pacific sales had a mid-single digit decline, with Hong Kong decelerating further in the second quarter.

Bloomberg

6 | Business Daily

October 16, 2015

Macau Parisian Macao to open in H2, 2016 The US$2.7 billion Parisian Macao integrated resort is to open in the second half of 2016, project developer Sands China has announced. The company held the topping-out ceremony of the Eiffel Tower replica yesterday. Parisian Macao is the fourth property of the developer’s parent Las Vegas Sands at Cotai Strip Resorts Macao. Parisian Macao will provide over 3,000 hotel rooms and suites plus retail, entertainment, dining and meeting facilities, Sands China said in its interim report.

Leong: DICJ considering table applications from Melco Crown, Galaxy

S

ecretary for Economy and Finance Lionel Leong Vai Tac said on Wednesday that the Gaming Inspection and Co-ordination Bureau (DICJ) was still evaluating the gaming table applications filed by gaming operators Melco

Crown Entertainment and Galaxy Entertainment Group.

The Secretary told reporters that Melco Crown had only filed last week for its table application for its new Cotai project Studio City, which is slated to open on October

27. In addition, he said that the gaming regulator had also received an application from Galaxy for extra gaming tables, the Chinese language newspaper Macao Daily has reported.

Investment bank Credit Suisse said in a note on Monday that both

of the gaming operators may get more tables than expected, indicating Melco Crown may get a total of 250 gaming tables while Galaxy may be given 100 more tables. ‘[Melco Crown] may have secured approval of 210 new-to-market tables for its opening on 27 October and another 40 new tables by year-end.

There is an opportunity that Galaxy group may also get an additional 50 new tables in the coming weeks (around the Studio City opening) and even a further 50 new tables by end-2015 or early 2016 in order to align the interest for new properties,’ the bank’s analysts Kenneth Fong and Isis Wong wrote.

Secretary Leong declined to say, however, whether these expectations are valid, only claiming that DICJ has not yet confirmed the number of tables for the operators.

If the government does grant some 350 gaming tables to the two operators in the coming weeks, added to the 150 given to Galaxy Phase II earlier this year, the total number of new table approvals in 2015 would total 500 to date. ‘[This implies an] 8 per cent count growth from end-2014, which would have exceeded the annual 3 per cent cap on table growth…The potential flexibility of table cap implementation is in line with the government’s supportive stance for the industry, in our view,’ Credit Suisse remarked.

Consul: Volkswagen scandal won’t impact German business in Macau Nikolaus Graf Lambsdorff believes MGM Oktoberfest will help promote German business in the territory

T

he German Consul in Hong Kong, Nikolaus Graf Lambsdorff, said yesterday that he is not worried that the Volkswagen emissions scandal will have an impact on the image of

Germany companies in Macau and Hong Kong. The Consul spoke to journalists during the kick-off ceremony of the MGM Oktoberfest yesterday.

“I’m not worried at all, neither in Hong Kong nor

here in Macau. Made in Germany stands for quality.

That has not changed and will not change”, he said.

The Volkswagen emissions scandal involved the installation of software on 11

Decline of Tourist Price Index to stimulate more visitation The Director of the Macau Government Tourist Office, Maria Helena de Senna Fernandes, said yesterday that she expects the decline of the Tourist Price Index (TPI), recorded during the third quarter of the year, to stimulate the number of visitors to the territory. She talked to the press at the kick-off ceremony of MGM Oktoberfest.

Yesterday, South China Morning newspaper reported that Beijing was considering relaxing the number of Mainland cities allowed to visit Hong Kong on an individual basis. Regarding this, Maria Helena de Senna Fernandes explained that Macau did not apply for such relaxation measures but if it was approved for Hong Kong then Macau may end up benefiting from it.

million diesel cars worldwide that were able to cheat official emission tests. The general manager of Volkswagen Macau, Jay Chu, recently told Business Daily that the territory was not affected by the scandal as the brand is not selling diesel passenger units in the territory.

Festive season

The German Consul also said that he believes that the Festival, which is now being hosted by MGM for the seventh consecutive year, helps German Business become more popular in the territory.

“This is the real thing, very authentic; you have German food, beer coming directly from Munich. The

K.L.

band comes directly from the Oktoberfest. For us it is great to see how popular this tradition is. Of course, it helps to make Germany and German business more popular and better known in Macau”, he explained.

Regarding MGM Oktoberfest, the Chief Executive Officer and Executive Director of MGM, Grant Bowie, said that in spite of the popularity of the event, he is not considering moving it to the new property in Cotai – scheduled to open in the fourth quarter of next year.

“It’s always better to have more demand than not enough people. There is a very special vibe and environment here [MGM Macau Peninsula property]. MGM is about the two properties. The Macau [Peninsula] property is very important for us, and unless we can make two Oktoberfest festivals, we will probably keep it here”, he said.

MGM Oktoberfest attracted 20,000 persons last year and sold out all the available tables. This year, the seventh edition of the Festival will run until 25 October.

J.S.F.

Business Daily | 7

October 16, 2015

Macau

Galaxy posts sequential profit increase on new casinos The gaming operator aims to save HK$800 million by controlling costs, while adding new amenities to its expanded casinos

G

alaxy Entertainment Group Ltd. reported third-quarter profit that increased 13 per cent from the previous quarter after the May opening of new casinos added to customer traffic.

Income was HK$2.1 billion (US$271 million) in the quarter, 36 per cent less than a year earlier, as measured by adjusted earnings before interest, taxes, depreciation and amortization, the Hong Kong-based company said Thursday. That compared with the HK$2.05 billion median estimate of four analysts surveyed by Bloomberg.

China’s anti-graft campaign and a slowing economy have discouraged high-rolling VIP gamblers from playing. While gross gaming revenue fell for 16 straight months in the world’s biggest gambling hub, the pace of declines has been slowing since February.

“The new premium mass area at Galaxy Macau has been performing well,” Credit Suisse analysts led

by Kenneth Fong wrote in an October 12 note. “Longer term, as VIP gradually stabilizes and traffic flows increase to Cotai, Galaxy sees room for outperformance on low expectations.”

Galaxy shares rose as much as 12.8 per cent to HK$29.5 in Hong Kong, the highest intraday since August 20. The stock traded at 11.85 per cent higher as of 3:46 p.m., while the city’s Hang Seng Index rose 2.1 per cent.

Premium mass is the industry term for high-stakes bettors who play with cash, while high rollers brought in by the so- called junket operators bet with credit provided by the middlemen.

The company, which is adding new amenities to its expanded casinos, aims to save HK$800 million by controlling costs, Galaxy said without disclosing details.

Galaxy’s revenue plunged 29 per cent year on year, while rising 5 per cent from the previous quarter to HK$12.3 billion in the three-month period.

New attractions

Galaxy Entertainment, controlled by billionaire Lui Che Woo, opened the phase two expansion of Galaxy Macau and the revamped Broadway Macau in May. The US$3.1 billion projects marked the first in Macau in three years.

The Galaxy Macau casino’s adjusted EBITDA was down 30 per cent year on year and rose 19 per cent from the

second quarter. Revenue from VIPs fell 38 per cent from a year earlier and 4 per cent from the previous quarter.

Mass revenue fell 2 per cent from a year earlier and rose 21 percent sequentially.

Broadway Macau recorded revenue of HK$189 million for its first full quarter of operation.

“Spending behavior in Macau remains cautious, but we are very confident in the longer term outlook and prospects for Macau” and the company as it’s encouraged by performance during China’s weeklong holiday this month and potential stimulus from the government, it said in the statement.

Stock analysts are turning bullish on casino operators, a sign that the worst is over for investors as share prices rebound from the lowest in three years.

The stocks are also bouncing back after investors speculated Beijing would introduce policies to support Macau’s economy. Strongerthan-expected gaming revenue in the first 11 days of this month, including China’s weeklong National Day holidays, has boosted share prices of the gambling operators this week.

Galaxy’s mass market share climbed to 18.1 per cent in the third quarter from 16.5 per cent in the previous three-month period, while VIP market share jumped to 26.1 per cent from 23.5 per cent, according to Deutsche Bank AG. The October 27 opening of Melco Crown Entertainment Ltd.’s new Studio City casino resort, which features Asia’s tallest Ferris wheel and a Batman ride, could further boost customer traffic.

“We believe that the unique offerings will be sufficient to create the story and ‘wow factor’ to attract visitation, benefiting the mass segment,” Fong from Credit Suisse wrote.

Rivals Wynn Macau Ltd. and Sands China Ltd. are also scheduled to open new projects in 2016.

Bloomberg

Sheraton appeals Court of Second Instance decision

H

otel company Sheraton has decided to appeal a decision by the Collective Court of the Court of Second Instance, which allowed the registration of the trademark of tobacco firm Excellent Way to stand, Business Daily has learned.

The legal dispute now passes to the Court of Final Appeal, with whom the appeal was lodged in November last year.

The dispute erupted in April 2011, when the Macau-based company filed a request with the Macau Economic Services (DSE) to register a trademark comprising the first letter of the name of the company inside a crown of leaves with the name of the company written under the logotype.

The similarities with the American company logo caused DSE to deny the request before it was taken to the courts.

8 | Business Daily

October 16, 2015

Macau opinion

Judicial means

Pedro Cortés

Lawyer* cortes@macau.ctm.net

S

o we had the opening of the Judicial Year, with pomp and circumstance, speeches and compliments, robes and smiles.

It’s the same story every year and, sometimes, instead of working together, the actors prefer to point at each other and criticise the language used (forgetting that without one of them they would not be where they are now) - the lack of conditions, the lack of judges et al.

Let’s get straight to the point: Macau’s judicial actors need a stage to act upon.

The provisional almost definitive Judicial Base Court (it’s been more than a decade that this has happened) does not confer dignity upon those who work there every day, such as judges, public prosecutors, lawyers, court officials, clerks, or those that go there to provide testimony.

In addition, it seems that Macau needs more experienced judges but authorities fear going to Portugal to hire more competent and experienced judges, like those that have already been here for some years, with outstanding results. It is a fear that, for instance, does not exist in Hong Kong where recently an article from the South China Morning Post posited that people feel more confident with foreign judges as they are seen to be, among other qualities, more independent.

It seems that all of this is not as important as getting pandas to Seac Pai Van Panda Pavilion.

We all will wait. But here is a suggestion: why not create a judicial courtyard, where we could have all services in one place?

The reasons behind this lazy decision are known. But some say that it is because the fees paid for the use of the office spaces in the commercial and office buildings are very important for the landlords and thus there is no will to change the status quo.

But we need to change it before it is too late. Considering the downturn of the Macau economy’s dynamo – gaming – it is very likely we can expect more crime, more court disputes, and more proceedings (i.e.) Macau will demand more from its justice institutions.

All of this has been said, not only by the President of the Lawyer’s Association but by the President of the Court of Final Appeal.

Notwithstanding the consecutive appeals, projects seem to be tucked inside a drawer or in the lower part of a pile of files.

Macau justice is thus postponed. Macau residents and local and international companies will face even more snags in having their disputes settled.

Is this what is supposed to happen? *Part-time Lecturer at the Chinese University of Hong Kong

The Macau bulls are back as analyst ratings surge at record pace Stock analysts are turning bullish on Macau casinos at a record pace, betting that the worst is over for investors as share prices rebound from the cheapest levels in three years

S

ands China Ltd., Galaxy Entertainment Group Ltd. and three of their smaller Hong Kong-listed peers attracted at least eight rating upgrades this month as analysts pointed to a recovery in receipts from small-time gamblers, a bottom in industry earnings and better-than-estimated revenue during the Golden Week holiday. There’s also growing speculation that China will take steps to boost Macau’s economy, an “upside option” that Credit Suisse Group AG says is undervalued by the market.

A turnaround can’t come soon enough for shareholders who watched US$110 billion of market value disappear amid the gambling hub’s worst-ever downturn. If the analysts are right, Macau casino stocks have another 18 per cent upside after rallying 25 per cent so far this month.

“There’s been a sudden reassessment of the sector," said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “Shares are probably headed for a short-term rebound, so it’s a good environment for analysts to slap on buy ratings.”

While there’s no historical precedent for such a surge in analyst optimism toward Macau casino shares, periods of improved sentiment in the Hong Kong stock market have been good times to invest. One-month returns following the five biggest share-price target upgrades in Hang Seng Index companies have averaged 1.4 per cent since Bloomberg began compiling the data in 2004, versus a 0.6 per cent gain for all months during the period.

The BI Macau China Gaming Market Competitive Peer Group Index climbed 4.6 per cent as of 2:12 p.m. in Hong Kong, heading for the highest close since August 28.

Galaxy reported its third- quarter profit today, showing an increase of 13 per cent from the previous three months. Its shares jumped 8.2 per cent, while Sands China rose 5.9 per cent.

The average consensus rating on the five casino stocks -- including Wynn Macau Ltd., SJM Holdings Ltd. and MGM China Holdings Ltd. -- has climbed to 3.77 on a scale where 5 signals unanimous buy ratings. That’s up from 3.2 just five months ago, the biggest increase since MGM China became the last to list shares in 2011.

While the city’s gaming revenue has fallen for 16 straight months through September amid a Chinese anti-graft campaign that scared away high-rollers, receipts from massmarket gamblers recovered about 2 per cent in the third quarter versus the previous three-month period, according to Credit Suisse. That’s bullish for the industry because smalltime punters are the “key pillar” of profitability, JPMorgan Chase & Co. analyst DS Kim wrote in an Oct. 6 report. Earnings before interest, taxes, depreciation and amortization probably bottomed out in the third quarter, Kim said.

Golden Week

Sales during the Golden Week holidays -- one of the busiest times of the year for Chinese tourism -have added to the bullish sentiment.

Macau’s estimated average daily

revenue was MOP827 million (US$104 million) during the first 11 days of October, higher than Credit Suisse’s forecast of MOP750 million to MOP800 million patacas, analysts led by Kenneth Fong wrote in a note Monday.

China will introduce more policies this year to support the city’s economy, said Li Gang, director of the Chinese government’s local liaison office.

State support isn’t enough to counter the impact of China’s slowing economy and the risk that a weaker yuan deters Chinese tourists, according to Shengyong Goh, an analyst at BNP Paribas SA who has the equivalent of a sell rating on most of the industry. China will probably say on Monday that economic growth slowed to 6.8 per cent in the third quarter, down from 7 per cent in the previous period, according to the median economist estimate in a Bloomberg survey.

Low valuations

While JPMorgan’s Kim acknowledges that headwinds facing Macau haven’t disappeared, he says valuations are cheap enough to make the stocks attractive. The BI Macau China Gaming index has a projected enterprise value of 11 times EBITDA, down from an average multiple of 12 since 2011.

“We are turning bullish on Macau gaming, finally," Kim wrote in an October 6 report. “We do believe these stocks have reached an inflection point and that it is time to start building positions for the quarters ahead.”

Bloomberg

10 | Business Daily

October 16, 2015

Greater China

Guangzhou Auto delays own brand factories amid weak auto market The spokeswoman said GAC maintained its annual sales targets of 160,000 vehicles in 2015 and 500,000 vehicles in 2017 Jake Spring and Meng Meng

C

hina's Guangzhou Automobile Group Co will delay increasing production capacity for its own brand cars to possibly as late as 2020, a spokeswoman said on Wednesday, as the world's largest auto market stagnates amid slowing economic growth.

General Manager Wu Song at Guangzhou Auto's own-brand subsidiary GAC Motor had told Reuters in April that it was planning to build two factories with an annual capacity of 200,000 vehicles each by 2016 and 2018.

A GAC Motor spokeswoman, however, said the company was now expected to instead expand annual capacity by 400,000 units by 2020 as part of a 34 billion yuan (US$5.4 billion) investment announced by Wu in Beijing on Tuesday and which also

includes further R&D for the automaker's Trumpchi line.

The spokeswoman said the delay was aimed at matching capacity with sales volumes.

She declined to be named according to company policy.

GAC Motor joins other automakers including Volkswagen AG and

Finance Ministry plans London yuan bond sales The central bank’s offering, which is being arranged by Industrial & Commercial Bank of China Ltd. and HSBC Holdings Plc, is due to take place by early November

C

hina plans to issue yuan-denominated sovereign bonds in London for the first time as it seeks a greater role for its currency in global trade and finance, according to people familiar with the matter.

The sale would be the first offshore issuance of the notes outside of Hong Kong and is expected to take place after the People’s Bank of China

sells one-year bills in the U.K. capital, said the people, who asked not to be named as the proposal has yet to be announced.

“It’s time for China to broaden the sovereign bond market beyond Hong Kong,” said Ngan Kim Man, deputy head of treasury at China Everbright Bank Co.’s Hong Kong branch.

Asia’s biggest economy

is allowing global funds increased access to its domestic capital markets and broadening the range of yuan-denominated investments available offshore as it pushes for the currency to win reserve status at the International Monetary Fund in a November review.

The proposed debt sales in London come at a time when yields in the onshore market

General Motors that have already started to trim local production in a weak market.

Analysts say overcapacity is worse among domestic

are declining, with the coupon on 10-year bonds having fallen below 3 percent at an auction for the first time since 2008.

Yuan hub

Issuing notes in London will help cement the city’s place as the dominant yuan trading hub for Europe as Paris and Frankfurt compete for a share of the market. Outside of China, only Hong Kong and Singapore are bigger clearing centers than the U.K. for yuan transactions, according to the Society for Worldwide Interbank Financial Telecommunications.

The PBOC will sell as much as 5 billion yuan (US$788 million) of oneyear bills in London within

It’s quite a natural move and can bolster yuan usage in Europe. It’s part of the yuan internationalization strategy Ngan Kim Man, deputy head of treasury, China Everbright Bank

London Stock Exchange headquarters

automakers than their foreign rivals.

Overall auto sales in China grew a meagre 0.3 percent year-on-year from January to September in an economy that is growing at its slowest pace in around 25 years.

The spokeswoman said GAC maintained its annual sales targets of 160,000 vehicles in 2015 and 500,000 vehicles in 2017, adding that a planned expansion of its existing factory in Guangzhou to 350,000 vehicles by next year is still on track.

GAC Motor's parent Guangzhou Auto Group is China's sixth largest automaker. In addition to its own brand, the company makes cars through joint ventures for Toyota Motor Corp , Honda Motor Co among others.

Reuters

a month, which would be the central bank’s first issuance outside of the domestic market, people familiar with the matter said last week.

China Development Bank and China Construction Bank Corp. are among issuers that have already sold yuandenominated debt in the city.

“It does take time to cultivate a new investor base,” said Ngan of China Everbright.

“We should see more highgrade issuers tap the London yuan market so investors in Europe will become more familiar with Chinese names.”

Xi visit

China’s planned sale of sovereign bonds was earlier reported by the Financial Times and comes before President Xi Jinping pays his first state visit to the U.K. during the October 19-23 period. The Ministry of Finance, which auctioned 10-year bonds with a 2.99 percent coupon in Shanghai on Wednesday, didn’t respond to a faxed request seeking comment on the proposed London sale.

In August, the yuan became the fourth most-used currency for global payments with a 2.79 percent share, surpassing the Japanese yen. The U.K. became the first foreign sovereign issuer of yuan bonds last year and in September said it supported China’s bid to have the currency included in the IMF’s Special Drawing Rights, which currently comprise dollars, euros, yen and British pounds.

Bloomberg News

Business Daily | 11

October 16, 2015

Greater China

Beijing plans gas price cuts of up to 30% in fuel push Chinese natural gas prices remain high even as global prices plunge

C

hina may cut natural gas prices for business and industrial users by as much as 30 percent as the world’s second-largest economy seeks to encourage use of cleaner fuels, according to people with knowledge of the situation.

China’s National Development and

Reform Commission, the country’s economic planner, asked provincial governments to reduce city-gate natural gas prices between 20 and 30 percent, said the three people who asked not to be identified as the proposals aren’t public yet. The cuts may come as soon as Nov. 1.

As the Chinese economy grows at the slowest pace in 25 years the country is curtailing demand for commodities amid a global glut that has cut prices for oil, liquefied natural gas and other fuels. In August, PetroChina Co., the country’s biggest natural gas producer, was said to be

offering large industrial users flexible prices and a promise of year-round supply as it sought to boost sales amid slowing demand.

“The price cut is overdue and should have happened months ago,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. “Lower gas prices will bring relief to gas-burning factories hurting from China’s slowing economy and help promote the country’s carbon emission deduction campaign in the longer term.”

The commission didn’t respond to questions sent by fax.

Chinese natural gas prices have remained high even as global prices have plunged, with demand growth for the fuel heading toward the lowest level since at least 1995, according to Shi. Brent oil, to which liquefied natural gas prices for delivery to Asia are often linked, has fallen about 14 percent this year.

The Xinjiang region, which has city-gate price of about 1.9 yuan (30 cents) per cubic meter, may see a price cut of around 0.50 yuan or 26 percent, two of the people said.

Coastal provinces such as Guangdong, which has a city-gate price of 2.90 yuan per cubic meter, may see reductions of about 0.70 yuan, or 24 percent decline, according to the two people. City-gate prices refer to the wholesale price from production to point of sale.

China will limit coal consumption to about 4.2 billion metric tons by 2020, reducing the fuel’s share of its energy generation to less than 62 percent. Natural gas, which counts for around 6 percent now, will rise to more than 10 percent of total energy consumption by 2020.

Bloomberg News

12 | Business Daily

October 16, 2015

Asia

India battles big pharma over cough syrup abuse Regulators want to make it easier for law enforcement agencies to track cough syrup abuse in the country and bottles smuggled to neighbouring Bangladesh Aditya Kalra and Paritosh Bansal

I

ndian regulators are privately pressuring major drug firms to better police how they sell popular codeine-based cough syrups to tackle smuggling and addiction, a move that is reducing supplies of a medicine doctors say is an effective treatment.

India’s Cipla stopped making the product last year owing to regulatory demands, and U.S.-based Abbott Laboratories and Pfizer have had to reduce batch sizes by up to half, cutting how much medicine their factories can produce.

But they are pushing back against other demands, a Reuters review of correspondence between companies and regulators showed, including selling one batch to only one buyer and printing labels that specify where the drug would be sold.

Regulators want to make it easier for law enforcement agencies to track cough syrup abuse in the country and bottles smuggled to neighbouring Bangladesh, where it was banned in the 1980s but is still sought by addicts.

Retailers worried about liability from potential abuse by people addicted to the opiate codeine are in some cases refusing to stock the cough syrup, said J.S. Shinde, president of pharmaceutical lobby group All India Organization of Chemists and Druggists.

Sales of the drug in India fell 4 percent to 121 million bottles in the year through August, and 15 percent in the year before, according

to IMS Health, a healthcare statistics provider.

For drug regulators, the challenge is to strike a balance.

“Any non-therapeutic usage is a concern, but you have to weigh the risks versus benefits,” said an official at the federal drugs controller in New Delhi.

Rising costs

According to an industry executive, the likes of Pfizer and Abbott, who control most of the US$103 million market for the drug, face a “significant” increase in costs as plants run well below capacity because of changes demanded of them.

And the regulatory regime could get tougher.

According to minutes of a July meeting of state and federal drug regulators,

KEY POINTS

there was a recommendation to ban the sale of the syrup altogether because of “rampant misuse and its illegal exports to neighbouring countries.”

“A large number of regulators were in favour of strict control,” said Akun Sabharwal, drugs controller for southern Telangana state, who attended the meeting.

The federal drugs official, who spoke on condition of anonymity, said an outright ban would not be easy to impose, given the medicine’s importance. Abbott estimates roughly 60 million people suffer from regular dry cough in India.

Pfizer’s India unit said in a statement the company takes all steps to maintain the highest standards of regulatory compliance, including supply-chain audits.

Abbott India said they believed existing Indian drug laws were adequate to control the abuse and the company had taken steps to support enforcement agencies.

Ruined lives Abuse, smuggling of codeine cough syrups worries India India pressuring pharma firms to check supplies Pfizer, Abbott privately resisting some demands Tussle threatens availability of medicine in India

Last year, the International Narcotics Control Board (INCB) billed the abuse of medicines containing narcotics and their smuggling from India among the “greatest drug-related challenges” facing South Asia.

About 83,000 bottles of codeinebased cough syrups were seized in India in the six months through March. In meetings with companies, Indian regulators called the “menace of abuse” a “growing concern”.

Abuse is particularly common in Bangladesh. At a treatment centre in the capital Dhaka, tales abound of ruined careers and family struggles.

A 40-year-old former banker at the Bangladesh Rehabilitation and Assistance Center for Addicts said his addiction was so bad he felt he loved cough syrup more than his four-year-old son.

“I felt I must recover from this menace,” he said, requesting anonymity because of the shame associated with addiction.

The regulatory crackdown in recent years appears to have curtailed smuggling. About 750,000 bottles were seized in Bangladesh in 2014, 24 percent lower than 2013, the INCB said.

Still, a fifth of Bangladesh’s estimated 4 million drug users are addicted to such syrups, said Sayedur Rahman, a professor at the Bangabandhu Sheikh Mujib Medical University.

Inside Bangladesh, the cost of a bottle has more than tripled, indicating scarcity. Still, drug officials say the problem is underreported and more should be done.

Increasing pressure

The latest crackdown on companies dates back to at least February 2014, the review shows.

Indian narcotics officials told companies to take several measures, including reducing batch sizes and printing where it would be sold on the label.

They also asked them to sell drugs from one batch to one stockist only, a measure the executive said was impractical.

That summer, regulators temporarily held back Cipla’s allocation of codeine, manufactured solely in government factories, after the company failed to inform the government about steps it had taken to comply with the directive.

Cipla said it never received the request for information.

A Cipla spokeswoman said the company stopped making the drug last year after “considering the business environment ... and the fact that this product was regulated by multiple agencies.”

At another meeting in October, government officials again pressured pharmaceutical companies to comply with their demands.

In August this year, regulators sent a letter asking for updates on further steps they had taken, an industry executive 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.

Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 editor editor@macaubusinessdaily.com newsroom newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com

Business Daily | 13

October 16, 2015

Asia

Mitsui Sumitomo to buy 40 bln yen-worth of foreign assets this year The insurance firm plans to cut holdings of domestic stocks Ayai Tomisawa

J

apan’s Mitsui Sumitomo Insurance Co bought over 20 billion yen ($167.11 million) in overseas assets in the first half and will stick to its investment plan for the rest of the year despite recent market turmoil, a senior executive said on Wednesday.

The core company of MS&AD Insurance Group Holdings plans to invest a

total of about 40 billion yen in foreign assets such as bonds and stocks this financial year through March, Hiroaki Hara, manager of investment planning at Mitsui Sumitomo, told Reuters in an interview.

While Japanese government bonds account for the largest part of Mitsui Sumitomo’s assets, foreign currency-denominated stocks

and bonds in developed markets such as the United States make up the bulk of its riskier assets.

The market was roiled this summer after China unexpectedly devalued the yuan on August 11, and fears of a China-led global slowdown have grown following a series of grim factory activity surveys and

generally soft economic indicators.

But Hara said that the main market scenario hasn’t changed, and the company will stick to its original plan for now.

“Expectations for the U.S. Federal Reserve’s move to raise rates would make the yen hard to strengthen and hopes that the Bank Of Japan

New Zealand central bank head highlights China concerns On a lighter note, Wheeler said the United States was the main bright spot in the global economy

N

ew Zealand's central bank chief on Wednesday painted a cautious picture of the global economy and said the "greatest concern at this point" was the growth outlook for China.

RBNZ Governor Graeme Wheeler (picture) highlighted challenges in China's construction and manufacturing sector, "particularly as much of the investment has been financed through extensive borrowing, much of it in the rapidly expanding shadow banking sector."

In a wide-ranging speech titled "Some reflections on the world of central banking", Wheeler also said

global markets have been unsettled by other factors, not least China's decision to allow the yuan, also known as the renminbi (RMB), to depreciate by 3.5 percent over two days in August.

"Although the Chinese authorities have indicated they want a stable RMB, private capital outflows continue to be large," Wheeler said.

"Any substantial depreciation in the RMB would have serious implications for the world economy: it would risk triggering exchange rate adjustment among competitor economies - particularly in Asia, and would spread deflationary forces across the globe."

On a lighter note, Wheeler said the United States was the main bright spot in the global economy, but even then, he noted there was uncertainty over when and how quickly the Federal

will further ease monetary policy will help avoid stocks from falling,” Hara said.

He sees the dollar trading between 115 to 125 yen during the Oct-March period.

It was at 119.68 yen on Wednesday.

Stocks should be supported by strong corporate profits, Japan Inc.’s on-going efforts to boost shareholder returns through dividends and share buyback plans as well as the new Trans-Pacific Partnership (TPP) trade pact, he said.

Hara also said that worries that a China-led slowdown could cap global demand have not affected the company’s investment plan.

“We don’t have direct investment in China, so there will be no change in our plan,” Hara said.

Mitsui Sumitomo Insurance plans to cut holdings of domestic stocks as it is in the second year of a four-year plan to reduce such exposure by a total of 300 billion yen. Hara said that the company is on track to achieve that target.

Many Japanese insurers have been slowly unwinding their cross-holdings of shares, recognizing the risk they pose to their financial health.

Hara expects the 10-year Japanese government bond yield to trade between 0.30.5 percent during the second half, while he expects the U.S. benchmark 10-year notes to stay around 2 percent.

Mitsui Sumitomo Insurance is one of Japan’s largest property and casualty insurers and had 7.5 trillion yen in assets as of the end of March 2015.

Reuters

Reserve will hike interest rates and the possible impact this might have on global growth and asset prices.

Echoing themes from a speech

by Australia's central bank deputy governor Philip Lowe on Tuesday, Wheeler also spoke about the limits of monetary policy in stimulating long-run economic growth.

On the domestic front, Wheeler said recent economic indicators have been more encouraging but reiterated that further easing in the official cash rate seemed likely.

The RBNZ lowered the cash rate to 2.75 percent at its previous meeting in September, the third cut in as many policy reviews. Some analysts suspect it may pause at the Oct. 29 meeting.

"We remain conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation," Wheeler said.

"It is important also to consider whether borrowing costs are constraining investment, and the need to have sufficient capacity to cut interest rates if the global economy slows significantly."

Reuters

14 | Business Daily

October 16, 2015

International Russian yields lowest in almost a year Russian government bonds rose for a second day, pushing yields on longer-maturity notes to the lowest since November on speculation a stabilizing ruble will allow the central bank to resume interest-rate reductions. The Bank of Russia kept rates on hold for the first time this year last month as policy makers sought to avoid spurring inflation by weakening the ruble. This month, the Russian currency is the best-performer in emerging markets after oil rebounded.

California Public Employees’ Retirement System, the largest U.S. pension fund, said Wednesday the stable ruble means it may keep buying Russian bonds after building a US$250 million position in local-currency notes, senior portfolio manager Mike Rosborough said in an interview with Bloomberg Wednesday.

Volvo cars to introduce first all-electric vehicle by 2019 Volvo Car Group is developing its first all- electric car and broadening its range of plug-in hybrid vehicles, betting that their time has come in the wake of Volkswagen AG’s diesel scandal.

The first step will be the introduction of plug-in hybrid versions of the larger 90-series and 60-series cars, the Gothenburg-based manufacturer said in a statement on Thursday. Volvo has a plug-in hybrid version of the new XC90 SUV on the market and will offer the same option for the S90 sedan that is set to be introduced next year. The carmaker said it will offer the fully electric vehicle by 2019.

Megabrew deal may fall flat with Australian regulators Australian regulators are likely to raise concerns over the planned US$100 billion-plus takeover of SABMiller by rival Anheuser-Busch InBev, wary of the impact on competition from a combination of the country’s No.1 and No.3 brewers. After a long courtship, SABMiller agreed on Tuesday to a deal that would brew almost a third of the world’s beer and rank in the top five mergers in corporate history.

A SABMiller/AB InBev beer behemoth will control around 46 percent of Australasia’s 2 billion litre beer market, according to figures from Euromonitor, a smaller percentage than some other markets such as the United States, Peru and Argentina.

Saudi Arabia targets Russia in battle for European oil market From global majors such as Shell and Total to more modest Polish energy firms, oil refiners in Europe are cutting their longstanding use of Russian crude in favour of Saudi grades as the world’s top exporters fight for market share.

Russia has for years been muscling in on Asian markets where Saudi Arabia was once the unchallenged dominant supplier. But now Riyadh is retaliating in Moscow’s backyard of Europe with aggressive price discounting. This has nothing to do with Western sanctions imposed on Russia over Ukraine, which apply to energy industry equipment but not to oil or gas itself. Instead it is a commercial battle for customers as both exporters ramp up their output despite weak world oil prices.

U.S. stock index futures climb as Fed bets wane U.S. stock-index futures climbed after signs of weakness in the global economy improved the odds of the Federal Reserve maintaining record low interest rates for longer

I

nvestors are also watching corporate earnings, with Goldman Sachs Group Inc. and Citigroup Inc. among 13 companies in the Standard & Poor’s 500 Index due to report today. Netflix Inc. fell 3.1 per cent in premarket trading after its quarterly U.S. subscriber growth missed estimates. It slumped as much as 15 per cent in extended trading, before paring a drop.

S&P 500 E-mini contracts expiring in December rose 0.7 per cent to 1,998.5 at 10:30 a.m. in London, after a two-day drop for the underlying gauge. The benchmark measure rallied last week by the most since December, following its worst quarterly rout since 2011. Dow Jones Industrial Average contracts rose 106 points, or 0.6 per cent, to 16,928 today.

“Today seems to be about positive momentum, following a couple of down days, on the absence of negative news and a few positive snippets - China reform hopes and the Fed

speculation,” said Frances Hudson, a global thematic strategist at Standard Life Investments in Edinburgh. Her firm manages $393.1 billion. “The timing of the U.S. Fed on rates probably influences sentiment rather than fundamentals.”

A worse-than-forecast U.S. retail sales report yesterday added to weakening China data, sending the probability of an October rate increase to 4 percent, from 10 percent last week. April is now the first month for which traders are pricing in at least even odds of a liftoff. Asian stocks rallied after China’s plan to reorganize its telecom industry raised speculation of accelerated reforms of state-owned companies.

Fed remarks

Investors will get more signs on the trajectory of U.S. interest rates today from reports on initial jobless claims and manufacturing in the New York area, and comments from regional Fed chiefs including St. Louis’s James

Luxury London home prices to rise 21.5 pct in next five years Analysts say the stamp duty reform of December 2014 was a defining moment for the top end of the prime London market

L

uxury-home values in London’s central neighborhoods will climb 21.5 per cent over five years as global economic growth and the increasing fortunes of wealthy buyers boosts demand.

There will be a dip in values of 2 per cent this year in the capital’s

best locations, where average prices start at about 5 million pounds (US$7.75 million), because of higher taxes, according to a report

by London broker Savills Plc. In other prime areas, which are less affected by new stamp duty charges, prices are expected to rise

Bullard, New York’s William C. Dudley and Cleveland’s Loretta Mester.

Philip Morris International Inc. and Mattel Inc. are also releasing financial reports today. Disappointing results from JPMorgan Chase & Co. and Wal-Mart Stores Inc.’s prediction for an earnings decline next year sent shares lower yesterday.

Analysts forecast earnings for S&P 500 members dropped 7.2 per cent in the third quarter.

“A decline in profits is not so problematic for markets as long as it is expected,” said Hudson. “The trend has been for OK earnings but disappointing revenues. It’s too early to say which way things will go.”

Manitowoc Co. tumbled 12 per cent after its quarterly preliminary sales missed projections and the maker of construction equipment cut its annual forecast for revenue from cranes. Garmin Ltd. slid 11 per cent after lowering its full-year profit and sales targets.

Bloomberg

by 2 per cent this year and by 18.2 per cent through 2020.

Sales of luxury homes have slowed since Chancellor of the Exchequer George Osborne increased the sales tax in December.

The levy escalates to 12 per cent on every pound a buyer spends above 1.5 million pounds, with the purchaser of a 5 million- pound home paying 513,750 pounds in duty, almost 164,000 pounds more than before.

“The stamp duty reform of December 2014 was a defining moment for the top end of the prime London market, particularly as it was looking fairly fully priced having grown significantly to outperform the rest of the market over a 10-year period,” Lucian Cook, head of U.K. residential research for Savills, said in the report.

The tax changes took the market by surprise and leave little room for price increases while the market adjusts to the new regulatory environment, according to Cook.

Bloomberg

Business Daily | 15

October 16, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

The hidden debt burden of emerging markets Carmen Reinhart

Professor of the International Financial System at the Kennedy School of Government, Harvard University

CHINA DAILY Wang Jianlin, 61, chairman of property giant Wanda Group, took back the number one position from Jack Ma of Alibaba Group Holdings Ltd after 52 percent rise in fortune to US$34.4 billion, according to the Hurun Rich List 2015 released in Shanghai on Thursday. The rise of Wang can mainly be attributed to a 10-fold increase in his newly listed cinema chain. On the international front, Wang has moved away from making acquisitions of properties to concentrate on sports marketing, highlighted by a 20 percent stake in Spanish soccer giant Atlético de Madrid, the purchase of the World Triathlon Corporation for $650 million and a billion-dollar acquisition of a Swiss-based sports marketing company.

TAIPEI TIMES Solar power companies suggested that the government should relax restrictions related to the use of idle agricultural land to facilitate the development of the nation’s solar industry.

Taiwanese solar cell makers and solar wafer supplies rely on exports to generate profit, leaving them vulnerable to global trade disputes and political tussles, Neo Solar Power Corp CEO Sam Hong said. In an effort to the reduce the impact of negative factors overseas, domestic firms have turned to their home market to explore more stable growth and are urging the government to relax a number of regulations to help promote green energy in the nation.

BANGKOK POST It could take at least five years for the Thai economy to get through the current vicious cycle, says former central bank chairman Virabongsa Ramangkura. He said pessimism had scaled back hopes of a full rebound next year, with the Thai economy expected to make a U-shaped upturn. “If it’s a cycle, a slowdown period will take five years and a growth period will last five years,” said Mr Virabongsa, also a former finance minister.

THE STAR A new study conducted by the Asian Institute of Finance (AIF) has found that the Gen Y in Malaysia are experiencing significant financial stress early in their life with many living beyond their means and trapped in emotional spending. The research highlights that the majority of respondents are relying on high cost borrowing with 38 per cent reporting taking out personal loans and 47 per cent engaged in expensive credit card borrowings, while, only 28 per cent felt confident in their financial literacy.

The study was done to better understand Malaysia’s Gen Y financial intelligence and their attitude towards finance.

A

s central bankers and finance ministers from around the globe gather for the International Monetary Fund’s annual meetings in Peru, the emerging world is rife with symptoms of increasing economic vulnerability. Gone are the days when IMF meetings were monopolized by the problems of the advanced economies struggling to recover from the 2008 financial crisis.

Now, the discussion has shifted back toward emerging economies, which face the risk of financial crises of their own.

While no two financial crises are identical, all tend to share some tell-tale symptoms: a significant slowdown in economic growth and exports, the unwinding of asset-price booms, growing current-account and fiscal deficits, rising leverage, and a reduction or outright reversal in capital inflows. To varying degrees, emerging economies are now exhibiting all of them.

The turning point came in 2013, when the expectation of rising interest rates in the United States and falling global commodity prices brought an end to a multi-year capitalinflow bonanza that had been supporting emerging economies’ growth. China’s recent slowdown, by fuelling turbulence in global capital markets and weakening commodity prices further, has exacerbated the downturn throughout the emerging world.

These challenges, while difficult to address, are at

least discernible. But emerging economies may also be experiencing another common symptom of an impending crisis, one that is much tougher to detect and measure: hidden debts.

Sometimes connected with graft, hidden debts do not usually appear on balance sheets or in standard databases.

Their features morph from one crisis to the next, as do the players involved in their creation. As a result, they often go undetected, until it is too late.

Indeed, it was not until after the eruption of the 1994-1995 peso crisis that the world learned that Mexico’s private banks had taken on a significant amount of currency risk through off-balance-sheet borrowing (derivatives). Likewise, before the 1997 Asian financial crisis, the IMF and financial markets were unaware that Thailand’s central-bank reserves had been nearly depleted (the US$33 billion total that was reported did not account for commitments in forward contracts, which left net reserves of only about US$1 billion). And, until Greece’s crisis in 2010, the country’s fiscal deficits and debt burden were thought to be much smaller than they were, thanks to the use of financial derivatives and creative accounting by the Greek government.

So the great question today is where emergingeconomy debts are hiding.

And, unfortunately, there are severe obstacles to exposing

them – beginning with the opaqueness of China’s financial transactions with other emerging economies over the past decade.

During its domestic infrastructure boom, China financed major projects – often connected to mining, energy, and infrastructure – in other emerging economies.

Given that the lending was denominated primarily in US dollars, it is subject to currency risk, adding another dimension of vulnerability to emergingeconomy balance sheets.

But the extent of that lending is largely unknown, because much of it came from development banks in China that are not included in the data collected by the Bank for International Settlements (the primary global source for such information).

And, because the loans were rarely issued as securities in international capital markets, it is not included in, say, World Bank databases, either.

Even where data exist, the figures must be interpreted with care. For example, data collected on a project-by-project basis by the Global Economic Governance Initiative and the Inter-American Dialog could provide some insight into Chinese lending to several Latin American economies. For example, it seems that, from 2009 to 2014, total Chinese lending to Venezuela amounted to 18% of the country’s annual GDP, and Ecuador received Chinese loans exceeding 10%

of its GDP. Chinese lending to Brazil was closer to 1% of GDP, while lending to Mexico was comparatively trivial.

Some of these debts are not reflected in the standard data sources But actual disbursements may have fallen short of the original plans, meaning that these countries’ debts to China are lower than estimated.

Alternatively – and more likely – the data may not include some projects, lenders, or borrowers, meaning that the debts could be much higher.

Moreover, other forms of borrowing – such as trade finance, which is skewed toward shorter maturities – are not included in these figures.

Currency-swap agreements, which have been important for Brazil and Argentina, must also be added to the list. (This highlights the importance of tracking net, rather than gross, reserves.)

In short, though emerging economies’ debts seem largely moderate by historic standards, it seems likely that they are being underestimated, perhaps by a large margin. If so, the magnitude of the ongoing reversal in capital flows that emerging economies are experiencing may be larger than is generally believed – potentially large enough to trigger a crisis. In this context, keeping track of opaque and evolving financial linkages is more important than ever.

Project Syndicate

16 | Business Daily

October 16, 2015

Closing Germany says orders VW to recall cars at start of 2016

Thailand scraps unpopular Internet ‘Great Firewall’ plan

German Transport Minister Alexander Dobrindt said on Thursday that the country’s automotive watchdog had ordered Volkswagen to start a mandatory recall of 2.4 million affected cars at the start of 2016. “The recall will begin at the start of 2016. The KBA will monitor the start of the recall action and its progress,” Dobrindt told reporters in Berlin on Thursday. Volkswagen admitted last month it had installed software in diesel vehicles to deceive U.S. regulators about the true level of their toxic emissions. The carmaker is under pressure to identify those responsible for the wrongdoing and fix up to 11 million affected diesel vehicles worldwide.

Thailand’s military government has scrapped a plan to create a single Internet gateway, a deputy prime minister said on Thursday, putting paid to a system aimed at allowing authorities to monitor content.

The plan to consolidate Thailand’s 10 Internet gateways into one central government-controlled point had been one of the government’s least popular ideas since it came to power following a bloodless coup last year. Deputy Prime Minister Somkid Jatusripitak, a former finance minister, said the plan had been halted. “We will not talk about this any more. If we say we won’t do it, we won’t do it,” Somkid said during an economic forum in Bangkok.

Oil heads for longest losing streak since July as supplies surge Oil fell for a fourth day, set for the longest run of declines since July as rising U.S. crude stockpiles bolstered speculation a global surplus will persist

F

utures dropped as much as 1.7 per cent in New York.

Inventories expanded by 9.3 million barrels in the week ended Oct. 9, the industryfunded American Petroleum Institute was said to have reported. Stockpiles in the world’s biggest consumer, 100 million barrels above the five-year seasonal average level, are forecast to have increased for a third week, a Bloomberg survey showed before government data Thursday.

Oil has retreated on signs the market remains oversupplied after advancing last week above US$50

a barrel for the first time since July. The Organization of Petroleum Exporting Countries, responsible for about 40 percent of the world’s supply, continues to pump above its target while other producers Mexico and Russia said they won’t cut output.

“Supplies from low-cost players like Saudi Arabia, Iraq, Russia are all surprising on the upside and nonOPEC production outside of the U.S. -- Norway, Brazil -- too has been on the upside,” Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., said in an interview on

Bloomberg Television. “The market is substantially more oversupplied than we initially thought.”

U.S. supplies

West Texas Intermediate for November delivery slid as much as 81 cents to US$45.83 a barrel on the New York Mercantile Exchange, and was at US$45.97 at 11:14 a.m. London time. The contract dropped 2 cents to US$46.64 on Wednesday, the lowest close since Oct. 5. The volume of all futures traded was 10 per cent above the 100-day average. Prices have decreased 14 per cent this year.

Brent for November settlement, which expires Thursday, was 38 cents, or 0.8 percent, lower at US$48.77 a barrel on the London-based ICE Futures Europe exchange. The moreactive December contract was down 35 cents at US$49.34.

The front-month European benchmark crude was at a premium of US$2.90 to WTI. Crude inventories at Cushing, Oklahoma, the delivery point for WTI futures and the largest U.S. oilstorage hub, climbed by 1.4 million barrels last week, the API in Washington reported Wednesday, according to Twitter postings and a person familiar with the figures.

Mexican output

Crude stockpiles nationwide probably gained by 2.58 million barrels, based on the median estimate in the Bloomberg survey of 10 analysts before the U.S. Energy Information Administration data. Refiners are projected to have reduced run rates by 0.6 percentage points to 86.9 per cent of capacity.

That would be the lowest rate since February, data from the Energy Department’s statistical arm showed.

Singapore’s new private homes China charges second former head of regional lender with graft sales down 33.5 pct in Sep

A

former head of a local lender in China’s northern region of Inner Mongolia will be prosecuted for suspected corruption, the state prosecutor said on Thursday, following in the footsteps of another former head of the same bank.

Yao Yongping, who was board chairman of the Bank of Inner Mongolia, is suspected of bribery, embezzlement and being unable to account for the source of a large number of his assets, the prosecutor said. It did not elaborate.

The prosecutor said last month that Yang Chenglin, another former board chairman of the same bank, would be prosecuted on the same charges. It was not possible to reach Yao for comment.

Bank of Inner Mongolia, based in regional capital Hohhot, was set up in 1999 and was renamed in 2009 from Hohhot City Commercial Bank. The bank now has 106 branches, including three in Shanghai and Beijing, according to its website.

S

ingapore’s new private homes sales declined 33.5 percent in September compared with the previous month, mainly because developers continued to scale back new launches, according to data released by Urban Redevelopment Authority (URA) on Thursday.

Excluding executive condominiums (ECs), developers sold 341 units in September, a 33.5 percent decrease from the 513 units sold the previous month. Including ECs, 629 units were sold last month, falling 35.8 percent from 979 units sold in August.

The decreasing sales came as developers launched just 391 units last month, down from the 598 units launched the previous month. Including ECs, a total of 916 units were launched, compared with the 1,305 units launched in August.

Private homes refer to those developed by private developers. About 80 percent of the resident households in Singapore live in public housing units built and sold by the government. Private homes are typically more expensive than public housing units.

Mexico plans to attend an OPEC technical meeting on Oct. 21 to exchange information, according to Energy Minister Pedro Joaquin Coldwell. It’s “not in a position to cut production,” he said Wednesday. Output in Norway will probably rise this year, according to the Norwegian Petroleum Directorate, which had previously predicted a decline in production.

Russia reiterated its aim to maintain supplies and market share. Output reductions are “purely a short-term measure, and in the future it will result in a greater mis-balance of the oil market,” Energy Minister Alexander Novak said in an interview with CNBC. Novak told reporters in Astana, Kazakhstan, that Russia wouldn’t rule out discussing production cuts at a meeting with OPEC next week.

“The sustainability of any rally has to come on the back of significant production cuts,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone.

“It’s easier to reduce output than to try and stimulate demand.”

Bloomberg

UnitedHealth profit surpasses expectations as enrolments up

U

nitedHealth Group Inc reported a better-thanexpected profit in the third quarter, helped by higher revenue from its Optum pharmacy management business and new enrollments.

Revenue from the company’s Optum business, which also offers healthcare data and analytics and technology services, rose to US$19.3 billion from US$12 billion a year earlier.

Enrollments in its health insurance plans increased by 290,000 in the third quarter, the company said.

The company said medical care ratio rose by 90 basis points to 80.6 percent. The percentage of premiums paid out for medical services increased due to higher medical spending in some of its Medicare plans.

Net profit attributable to UnitedHealth shareholders was little changed at US$1.60 billion, or US$1.65 per share, in the third quarter ended September 30.

Analysts had expected US$1.64 per share, according to Thomson Reuters I/B/E/S. Revenue rose to US$41.49 billion, well above average analyst estimate of US$40.17 billion.