Oil futures contract in Mainland progressing Markets Page 10
Wednesday, July 12 2017 Year VI Nr. 1337 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming
Nagacorp sees VIP rolling up 71 pct y-o-y in H1 Page 7
LUXURY AUTOMOBILES
Lamborghini to open 10,000 sq ft showroom in Areia Preta Page 2
www.macaubusinessdaily.com
COURTS
Mt. Gox
Lawyer withdraws as attorney for Okada in Wynn lawsuit Page 7
Massive Bitcoin theft trial kicks off in Tokyo Page 12
Concession Conversation Commencing Gaming
Four possible outcomes, say analysts. With one most likely for gaming concession tender. No current operators to lose out, expect experts, and little likelihood of new blood. But time is of the essence for the concessions that expire in 2020. And what about the junkets? Page 6
Support programmes for filmmakers being cranked out by the gov’t are available. While private sector support is growing, says White Picture Productions’ Creative Director Oliver Fa. But a lack of fusion between filmmakers in the MSAR and difficulty in finding venues to project are limiting options.
Interview Page 4
HK Hang Seng Index July 11, 2017
More ways to pay
E-commerce Luso Bank and Macau Pass have inked a cooperation agreement to link bank accounts with the cashless payment system. New app MacauPay already boasts 300,000 downloads since its June launch. While over 1,200 shops and stores support the method. Page 5
Autos move up a gear
Car sales After two months of neg ative results, the auto industry in China has rebounded. With results pushed by tax incentives. The industry is facing a slower year, following a very strong 2016. Page 8
25,877.64 +377.58 (+1.48%) Worst Performers
Geely Automobile Holdings
+7.54%
Tencent Holdings Ltd
+2.50%
Link REIT
-0.90%
Hengan International Group
-0.25%
China Construction Bank
+4.04%
AIA Group Ltd
+2.40%
Kunlun Energy Co Ltd
-0.85%
CK Infrastructure Holdings
-0.15%
AAC Technologies Holdings
+3.27%
Bank of China Ltd
+1.95%
Hang Lung Properties Ltd
-0.71%
Sun Hung Kai Properties Ltd
+0.00%
Industrial & Commercial
+3.08%
Bank of Communications
+1.64%
Cathay Pacific Airways Ltd
-0.63%
Sino Land Co Ltd
+0.00%
+2.71%
China Shenhua Energy Co
+1.54%
Belle International Holdings
-0.33%
CLP Holdings Ltd
+0.06%
China Life Insurance Co Ltd
27° 31° 27° 31° 27° 31° 27° 31° 27° 31° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Ambitions sent reeling
2 Business Daily Wednesday, July 12 2017
Macau Luxury vehicles
Lamborghini to splash out MOP10 mln on Macau showroom
I
talian carmaker Lamborghini is set to open a new, full-ser vice showroom in the city, as reported by the South China Morning Post. The renowned Italian company is said to be investing MOP10 million in a 10,000 square foot showroom located on Rua dos Pescadores in the Areia Preta district, scheduled to open in October of this year. The area in northern Macau sup ports several car retailers and repair service stations, with operations from other renowned international brands such as BMW (and Mini Cooper), Honda, Maserati, Suzuki and more. No signage for Lamborghini is visi ble on the street housing the future showroom.
In addition to sales, the new local Lamborghini outlet will offer servic es, spare parts, and systems. According to Albert Wong, director of Kingsbridge Cars, which has been appointed by Lamborghini to act as its new exclusive dealership in the city, “There were over 100 Lamborghinis in Macau in 2015,” while in 2011 there were only about five models running here, SCMP quoted Wong as saying. Lamborghini previously opened a location in Nova City in Taipa in 2011 in a partnership with Kam Bo Motors Ltd, which has since closed. According to the media outlet, the company announced the new show room will welcome the new SUV Urus model when it is launched in 2018. S.Z.
Mobile Technology
Zhuhai entering fifth dimension The Zhuhai city government has an nounced plans to develop a fifth-gen eration (5G) wireless systems, or mo bile networks, within the framework of its Smart City Action Plan 20162020, according to information pub lished by City Info Zhuhai yesterday. The city’s government expects to apply the technology by 2020. The authorities further claim to have attracted and supported 100
upstream and downstream firms via the Smart Industrial Promotion Centre, generating some RMB5 bil lion (US$735.28/MOP5.91 billion) in localised output value. Investment in digitisation and IT de velopment capabilities and broadband networks are included in the action plan’s targets for 2018, with goals rang ing from the enhancement of man agement of data-driven government
and public service to fostering newg eneration information technology, according to official information. Also set for 2020, the Zhuhai action plan proposes reaching 60 per cent real time vehicular traffic speed data collection, 90 per cent city govern ment review and online approval procedure handling, as well as an 80 per cent residential electronic health coverage rate. S.Z.
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Lawsuit
Stanley Ho sued in Hong Kong over ‘gift’ A lawsuit of HK$3 million has been filed against local casino tycoon Stan ley Ho Hung-sun in Hong Kong, South China Morning Post has reported. Ho is being sued by Tommy Wan Tai-min, a former delegate to the Chinese People’s Consultative Con ference, China’s top advisory body. According to the court filing cited by the publication, Wan is seeking repayment of HK$3 million from Ho ‘in respect of a gift painting request’ made either by Ho or a representative of the gaming mogul. In addition, Wan requests the payment of interest of the money
owned, legal costs, and other ways of compensation the court judges appropriate. The case was filed last Friday in the High Court in Hong Kong. No further details about the paint ing and the dispute are immediately available, the publication added. Stanley Ho stepped down as Chair man of Shun Tak Holdings in late June of this year. He still holds his position as Chair man and Executive Director of SJM Holdings, one of the six gaming oper ators in Macau, according to a recent company filing. S.Z.
Housing
Fixing your home The Housing Bureau awarded MOP14.27 million in subsidies un der the Building Maintenance Fund Scheme in the first half of 2017, the government announced yesterday. The Fund approved 161 applica tions during the period, of which 98 consisted of provisions for common parts maintenance and inspection of buildings as well as the removal of illegal extensions, while 63 applica tions consisted of requests by owners of housing, commercial and industrial buildings to hold meetings. Of the total amount granted, MOP6.39 million was paid in 19 grants under the subsidy scheme for build ing maintenance. The Building Maintenance Fund was established in 2007 and has jointly set up seven financial support schemes, the most recent of which is the “Provisional Subsidy Scheme for P-Class and M-Class Buildings,”
added in May this year. As at 30 June 2017, a total of 3,348 applications have been approved under the scheme, totaling MOP340 million. S.Z.
Business Daily Wednesday, July 12 2017 3
Macau
4 Business Daily Wednesday, July 12 2017
Macau
Filmmaking
The struggle to make commercial films With the company’s debut full feature film playing last year in Hong Kong to much positive feedback, Oliver Fa, Creative Director of White Picture Productions, shares his views on the city’s filmmaking industry and his experience as a filmmaker Cecilia U cecilia.u@macaubusinessdaily.com
H
aving just registered as a company last year, White Picture Productions did not waste time releasing their first feature length film in Hong Kong the same year and generating positive reviews. The film - Against the Wind – cen tres around a marathon, a rare topic for films in the Chinese filmmaking industry, according to Oliver Fa, the production house’s Creative Director (CD), who cites a number of Hong Kong media outlets. “This film suits the current trend of pursuing dreams,” said Fa, while pointing out that not many com mercial films are created in Macau. Many filmmaking companies or groups mostly focus on artistic topics, he opines. “But there is still a market for com mercial films. I mean, not everyone is [famous Hong Kong Director] Wong Kar-wai, and there are people who also like watching commercial films, for instance [Hong Kong Director] Wong Jing’s films,” commented the CD. He explained that, to him, com mercial films are films that suit the taste of the majority of audiences as opposed to making a film that mainly
advertises sponsors’ products and services. Since the gambling boom in the MSAR many filmmakers have read ily received support from gaming operators, Fa says, although he also points out his experience with some gaming operators refusing to sponsor the production house’s film. “Galaxy Entertainment rejected sponsoring our film and asked us not to include their corporate logo in the film despite them being the main organiser of the marathon race,” said Fa. “The Sports Bureau approved us to film the race but Galaxy refused to have their logo in the film and the same for Sands [China].”
Limited fusion
Fa opined that the filmmaking indus try in Macau lacks fusion between filmmakers and that “everyone is doing their own work”. Although Against the Wind received good reviews from Hong Kong, he said the newly established cinema Cinematheque‧Passion did not ap prove their request to screen it. “I also got to know some people who asked them [the operator of Cin ematheque‧Passion] whether they could rent out the place for playing their short films, but for the moment it is not available,” said Fa. Managed by CUT Ltd.,
Cinematheque‧Passion was opened in March this year, with the cinema mainly playing non-mainstream movies and local productions. “So many would choose to go to Cinema Algeria, but the price is not low,” said Fa, emphasising that the film business can only make money by gaining sponsors and not merely from box office sales.
Support from the government
According to Fa, the government rolls out several support schemes to assist in the development of the filmmaking industry in the city. The ‘Support Programme for the Production of Feature Films’ (SPPFF) is one of the schemes which supports the making of a 90-minutes film, of fering MOP1.5 million for production. “The programme allows you to start, which means they also allow you to receive the amount and seek other sponsors in order to gather enough for production costs,” said Fa. In addition, Macao Cultural Centre has introduced Local Film Power (LFP) for short filmmaking, offering subsidies of MOP270,000. The CD said they had submitted a proposal for the LFP but observed that competition was fierce, given the abundance of talent. “If you don’t have some people that know you it’s rather difficult to win,” said Fa, according to whom filmmakers also approach the Ma cao Foundation for funding, with Fa indicating that this was the more preferable option. “You need to apply to [Macao Foundation] by providing the topic of your film and what you are trying to promote [among others],” said Fa.
Oliver Fa, Creative Director of White Picture Productions
With the various support made available by the government, the Creative Director complained that many filmmaking groups received money but very few of them actually released their works. “From the programme [SPPFF], only Sisterhood [directed by Tracy Choi] was able to be released while the others are not yet ready,” said Fa. “I think the government should mon itor those who have received support, maybe even setting a deadline”. Despite the support provided by the government, Fa is also concerned about the number of people who can benefit from such support. “I think the government should put more money into helping those who have just entered the industry,” he remarked. “If they have funding the first time they won’t have it the second and third time”.
Multimedia prevailing
The CD sees high demand for mak ing videos for company promotions and also documenting events such as wedding banquets. Fa, together with two other co-founders, set up the company to meet the significant demand of multimedia advertising and promo tion, he points out, revealing that to participate in public tenders offered by the government the group had to set up their own company. According to Fa, the competition to fight for jobs from the government is high, saying that the government favoured those who offer the lowest price for their services. “I feel like the government thinks that video making companies are all more or less the same, but as far as I am concerned different companies have different characteristics,” he remarked. When asked about future plans for White Picture Production, Fa said they will continue to make feature-length and short films, in dicating that the short films would al low for more exposure, which would attract sponsors for feature-length productions. Fa said he hopes “to promote our films to Hong Kong or to the Main land”, while noting that it would be more difficult to expand their market to Mainland China given that they would then have to seek a partner in order to get a movie playing permit. He also disclosed that they had re ceived an invitation to make a sequel for Against the Wind from Hong Kong. “But we don’t want to stick to the old stuff at the moment,” said Fa. “We don’t want to fix our films to certain [genres].”
Business Daily Wednesday, July 12 2017 5
Macau E-commerce
Macau Pass mobile payment extended to Luso Bank Cecilia U cecilia.u@macaubusinessdaily.com
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uso Bank and local electronic payment provider Macau Pass inked a co-opera tion agreement on new mobile payments yes terday at the headquarters of Luso Bank enabling users to link their Luso Bank accounts to Macau Pass accounts. Facilitated via a recently launched app by Macau Pass called MacauPay, the app al lows users to generate QR codes in order to make pay ments, and was introduced
DSF rolls out Macau Pass payment
The Financial Services Bureau (DSF) has introduced an alternative payment method for
in early June; users can also purchase travel insurance via the new application. The mobile application payment method has already established links with Tai Fung Bank and China Guang fa Bank. According to Ronald Pun, Deputy General Manager of Macau Pass, downloads of the app have already reached some 300,000 since its June launch. “In the month of June only [the mobile application] had 10,000 downloads,” said Pun. The Deputy GM also re vealed that one third of
Macau Pass users choose to top up their cards through bank transfers, with the re mainder preferring cash. When asked about the consumption rate after the establishment of the new payment method, Pun in dicated that the rate is still increasing, noting that “this, of course, cannot be com pared to the number of cards [Macau Pass] sold”. Pun said the new pay ment method is still in its promotional stage, and that the payment follows Macao Monetary Authority (AMCM) regulations on verifying user
taxpayers to use Macau Pass for taxes with values under MOP1,000. The new payment can only be used in four locations, namely: The DSF Building
on Avenida da Praia Grande, Edifício Long Cheng, the Integrated Services Centre (Taxation) in the Northern District and Taipa Service Centre.
identification, meaning that users are required to scan their identity card and send it to the service provider. “We keep promoting to the public in order to inform them more about the new payment method,” said Pun. According to him, as of now over 1,200 shops and stores
are supporting the payment method. Meanwhile, Zhang Zhihua, the CEO of Macau Pass, re vealed during his speech yes terday that there are 50,000 regular users of MacauPay. The new mobile application accepts a maximum deposit of MOP20,000 (US$2,485).
Money lending
PJ snare 15 suspects in money lending ring Judiciary Police (PJ) have detained 15 people suspect ed of conducting a money lending ring linked to a criminal group previous ly operating in the MSAR,
according to local broad caster TDM. The majority of the suspects were caught in the act in two apartments in Taipa where they con ducted the operations, with
records found evidencing loans totalling MOP8.2 mil lion. The suspects alleged ly procured clients in the nearby vicinities of casi nos, asking if they needed
loans and, if the loans went through, were offered 10 per cent of the loan value as payment, according to PJ spokesperson Tam Weng Keong. advertisement
6 Business Daily Wednesday, July 12 2017
Macau
Concessions
Implications of renewal One of four potential renewal outcomes is the most likely, say analysts and experts, with doubts that any of the current casino licence holders will lose out, or that the soonest expiration in 2020 will be pushed back to 2022 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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ith the month of July off to a ‘strong start’, according to analysts at Telsey Advisory Group, and Bernstein estimating that July 1 to 9 saw gross gaming revenue of MOP6.8 billion (US$850 million), the announce ments made by Secretary Lionel Leong Vai Tac on Monday about a potential review of gaming legislation in advance of the upcoming conces sion expirations in 2020 and 2022 are a good sign that local authorities are beginning to tackle the complicated issue, say experts. “That which the government is doing is correct and this is the path that should be followed. First, a re vision of the gaming law is necessary and then afterwards the government will have to decide what it wants to do and how it wants to do so,” said Sergio de Almeida Correia, a law yer and gaming expert at Rui Afonso lawyer’s office. Analysts at Bernstein suggest that four possible scenarios exist, noting that ‘under the original gaming law, there is no renewal process per se’. The four possibilities suggested by Bernstein analysts are: *effective renewal with no new economic costs *effective renewal with additional economic costs *additional concessions granted to new parties *loss of concession by one or more existing concessionaires
Most likely
Despite the four options, the analysts point out that ‘we see effective re newal of all six operators with some added economic costs as the most likely outcome’. This viewpoint is shared by Ricardo Siu Chi Sen, an Associate Professor of Business Eco nomics at the Faculty of Business Administration in the University of Macau. “In my personal view - even [though] the government is review ing the concessions - the number staying the same would be the best for Macau,” opines the professor,
noting that “Macau’s market is now pretty packed already with the six operators”. “If the government tries to think about one more new licence […] I think a technical problem would be how to find the land and the area to fit in another new operator,” said Professor Siu. The ‘added economic costs’ this ‘effective renewal’ would encompass could be divided between ‘higher taxes, gaming concession fees (up front or payable over time), low ROI (return on investment) capital investment requirements, or some combination of these,’ say the ana lysts at Bernstein, adding, ‘We view the likelihood of no renewal to be very unlikely.’
public tender and permit investors to make their calculations and to prepare their projects in advance”. If this were the case, he notes, then the concessionaires whose licence come up in 2022 would not be at a particular advantage compared to the others. Professor Siu also opines that the 2020 concession renewals will not be delayed to 2022, and that when the tenders happen “excepting if there were an accident to happen such as an individual operator doing some thing very unfavourable to the public interest,” all six operators would be eligible to join the tenders and, given their “very good job for the modern development, especially the devel opment supporting the mass market development in Macau,” that all six will be renewed.
VIP
Although admitting to not knowing the government’s stance on the is sue, Correia opines that “the current
operational model of the junkets should be reviewed, and if possible they should be done away with,” given that the junkets “at least in the current model, are dispensable, and I think they have created some problems in Macau, so I think that’s avoidable”. Correia suggests a limit on the total number of junkets in the event that the market cannot function without them, a likelihood Professior Siu says “may not be high”, given how they are “important to Macau’s casino business”. Bernstein analysts point out that ‘The VIP market has shown con siderable strength over the past half year’ but that ‘the mass market will be the key driver of sustainable growth in 2017 and through the rest of the decade’. “To clarify the related regulations or the supervision of the business ac tivities of the junket operators would be more realistic and practical,” the Professor claims.
Giving it time
While given that the public tender is mandatory under current legis lation “those who are already here could have a benefit at the time of the creation of the tender dossier, of the tender programme, by the fact of already being here, and already knowing the land and already being correspondents with the government of Macau,” said Correia, noting that “from the start the tenders should be open, transparent and those who satisfy the requirements and offer the best conditions, the best returns – in this case for the Macau Government – should be those who obtain the licence to operate.” As part of this tender process, opines Correia, two things could, and should, if possible, be done. “The sub-concession regime should be eliminated given that the govern ment should be the direct interlocutor with the concessionaires,” points out the lawyer. In addition “things need to be done on time,” he notes, opining that it’s “preferable if there wasn’t an extension of the current concessions” for those coming up in 2020 – SJM and MGM China. “The mechanism should be pre pared in time, the alterations should be made in time, the Legislative As sembly should approve a new gam ing law in sufficient time, and the government should also define that which it intends in advance - in order to create the best conditions for the
Secretary of Economy and Finance Lionel Leong Vai Tac said on Monday that the government would study whether a review of the legislation was necessary, especially in light of regional competition
Business Daily Wednesday, July 12 2017 7
Gaming Court
Lawyer withdraws as attorney for Japanese mogul Okada in Wynn lawsuit Krakoff cited Universal’s accusations that Okada, 74, misused some US$20 million of corporate funds while he was Universal’s chairman
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lawyer repre senting Japanese casi n o t y c o o n Kazuo Okada in a legal battle with Wynn Resorts Ltd on Monday withdrew his representation of Okada, the latest fallout from a conflict between Oka da and Japan’s Universal En tertainment Corp over the use of corporate funds. David Krakoff, a lawyer at Buckley Sandler who has been representing Okada, Universal and its subsidi ary, asked permission from a Nevada judge at a hearing to drop Okada as a client, while continuing to represent Uni versal. Clark County District Judge Elizabeth Gonzalez granted the request. Krakoff cited Universal’s
accusations that Okada, 74, misused some US$20 million corporate funds while he was Universal’s chairman. Krakoff told the court he would fly to Japan to meet with Universal officials and try to resolve representation. “I cannot tell you what their position might be, but I will say this to the court: we do not bring this motion to delay or disrupt these litiga tions,” Krakoff told the court. “I think we have a solution that will address any poten tial questions or issues.” Universal declined to com ment on the details of an on going lawsuit. Krakoff declined to elabo rate for Reuters beyond what he said in court. Reuters was unable to
determine if Krakoff would remain as lawyer for the Uni versal subsidiary, Aruze USA, Inc. Universal did not respond to questions about its rep resentation in the lawsuit. Robert Ziems, president of Aruze USA, did not reply to an email seeking comment. Okada could not be reached for comment. The legal battle between Okada and Wynn Resorts Chief Executive Steve Wynn stems from a prior business relationship between them that soured when Wynn Re sorts dismissed Okada from its board in 2012, claim ing in a lawsuit that Okada had breached his duties as director by spending over US$100,000 to wine and dine and provide gifts to Philip pine gaming officials. Apart from the lawsuits, Okada and his companies have been under investi gation by the Federal Bu reau of Investigation over a
US$40 million payment to a Manila-based consultant in 2010. The FBI’s probe is focused on whether the pay ment was aimed at helping Universal gain tax and own ership concessions for the casino from the Philippine government, according to people with knowledge of the matter. Universal and Okada have
denied any wrongdoing and filed a defamation lawsuit against Reuters in 2012 for its reporting on the payments. The Tokyo District Court ruled in 2015 that Universal’s case was without merit. Last year the Tokyo High Court upheld that ruling, dismissing Universal’s appeal. Universal has appealed to the Supreme Court of Japan. Reuters
VIP
Feeling good Nagacorp reaps strong results from its operations in Cambodia, following an increase in Chinese visitation to the country Sheyla Zandonai sheyla.zandonai@macaubusiness.com
VIP rolling for gaming operator Na gacorp Ltd. in the first six months of the year was up 71 per cent, hitting US$7.8 billion (MOP62.76 billion), according to a company filing with the Hong Kong Stock Exchange. Mass market table game buy-ins were up 23 per cent to US$375.2 mil lion, while mass market for electron ic gaming machines (EGM) bill-ins increased 15 per cent to US$853.1 million. During the interim period, gross gaming revenue rose 40 per cent year-on-year to US$386.8 million, of which US$285 million came from gaming tables (mass and VIP) and US$101.79 million from electronic gaming machines. Profits attributable to the owners of the company registered 20 per cent year-on-year growth, amounting to US$150.63 million. Non-gaming revenue of the group increased 30 per cent year-on-year during the six-month period, to US$14.8 million, primarily attributa ble to higher occupancy and average
room rates. Casino operations from the com pany comprise all gaming activities from NagaWorld, located in the cap ital city of Cambodia, Phnom Penh. As at the date of the announcement, the group employed nearly 6,400 people stationed in Cambodia, China, Macau, and Singapore.
Chinese cut of the market
The company has attributed its ‘ro bust business volume growth’ to continued confidence in the polit ical climate of Cambodia leading to increasing visitation, especially from China. The majority of the revenue gen erated by NagaWorld comes from external customers as Cambodian casinos are foreign-only venues. Nagacorp noted that China became the leading source of visitation to the country, up 36 per cent over the period to 441,070. Chinese visitors currently repre sent 19 per cent of the foreign tourist market in Cambodia – followed by Vietnam (15 per cent) and Laos (8 per cent), according to Ministry of Tourism data.
Projects and acquisitions
During the period, the company in vested US$108 million in the acqui sition of property, plant, and equip ment, including fit-out operations in its Cambodian TSCLK Complex – also known as Naga2 – which the company expects to be operational in the fourth quarter of 2017. The group also earned US$60 mil lion due to assigning part of its li censing rights to Chinese investors for investing in and operating 570
EGM for a period of 10 years in Naga2. As at the date of the announcement, NagaWorld had 239 gaming tables and 1,660 EGM in operation, in addition to the 570 EGM assigned to Chinese investors. In what regards Nagacorp’s
current investment in gaming and resort development in Vladivostok, Russia, it announced an office has been established there with key personnel appointed to monitor progress of the project, scheduled to open in 2019. advertisement
8 Business Daily Wednesday, July 12 2017
Greater china Auto industry
Vehicle sales rebound in June amid price cuts Overall vehicle demand in China would likely grow just 1-4 per cent this year Fang Cheng and Norihiko Shirouzu
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hina’s vehicle sales re bounded in June, the country’s top industry association said, shaking off weakness seen in the previous two months as carmakers grappled with a rollback in tax in centives that drove strong growth last year. Total vehicle sales hit 2.17 million in June, up 4.5 per cent from a year earlier, while sales for the first half of the year rose 3.8 per cent to 13.4 million vehicles, the China Associ ation of Automobile Manufacturers (CAAM) said yesterday.
Automotive Foresight. In January, CAAM predicted sales would rise 5 per cent this year, slow ing from 13.7 per cent in 2016, citing the rollback of a tax incentive for small-engine cars and economic pressures. It stuck with that forecast yesterday. June’s rise, however, marks an improvement from April and May, when vehicle sales fell 2.2 per cent and 0.1 per cent, respectively, regis tering two straight months of declines
for the first time since 2015. Peter Fleet, Ford Motor Co’s Asia-Pacific chief, told Reuters av erage vehicle transaction prices in China had fallen about 4 per cent in the first half of this year against 2016. “We continue to see negative industry pricing in China,” he said. Ford is among the foreign brands strong in the small sedan segment that have seen China sales slow this year, others being General Motors Co and Volkswagen AG. Buyers in China have shied away since the purchase tax on vehicles with engines of 1.6 litres or below rose to 7.5 per cent, from 5 per cent,
at the start of the year. However, there is one bright spot: sales of new-energy vehi cles (NEVs) - all-electric battery vehicles and plug-in electric hy brids - that saw a 33 per cent bump in June to 59,000 units, the latest CAAM data shows. In the first half of this year, sales volume of such NEVs totalled 195,000 vehicles, up 14.4 per cent. China is the world’s largest market for green energy vehicles, with the government aggressively promot ing the segment, including spending billions in subsidies, in a bid to fight intense urban air pollution. Reuters
Key Points China June vehicle sales rebound from declines in April, May Rebound attributed in part to rampant discounting China new-energy vehicle sales +33 per cent y/y in June CAAM reiterates forecast for slower sales growth this year The rise in sales, which industry insiders said was helped by hefty dis counting, lends a sheen to the world’s largest auto market, but growth over all is struggling to keep pace with 2016 when the market grew at its fastest pace in three years. Overall vehicle demand in China would likely grow just 1-4 per cent this year, mainly because consumers made purchases last year to benefit from lower tax rates, said Yale Zhang, head of Shanghai-based consultancy
Markets
Blue-chips end at 18-month high, small-caps extend losses The tech-heavy start-up board index ChiNext lost 1.1 percent following a 1.8 percent slump on Monday China stocks diverged yesterday, with the blue-chip index hitting a fresh 18-month high as investors chased companies with solid funda mentals, while small-caps extended a fall on expectations more equity issuance would soften valuations.
The blue-chip CSI300 index rose 0.5 percent to 3,670.81 points, while the Shanghai Composite Index lost 0.3 percent to 3,203.04 points. An index tracking 50 blue-chips in Shanghai, dubbed China’s “nifty 50” index, rose 0.8 percent to a 20-month
high as investors continued to chase blue-chips with solid fundamen tals. This follows MSCI’s decision to include China’s 222 big-caps in its key index. At the smaller end of town, how ever, the tech-heavy start-up board index ChiNext lost 1.1 percent fol lowing a 1.8 percent slump on Mon day, with 12 small-cap stocks tum bling the 10 percent trading limit. Small-caps have weakened after the securities regulator approved
more initial public offerings over the weekend. China’s central bank resumed open market operations to inject RMB40 billion (US$5.88 billion) into money market yesterday, after abstaining from open market operations during the previous 12 sessions.
‘Banking and consumer stocks led the advance’ The tight liquidity conditions will last for a relatively long time, as the central bank’s current moves to maintain stability in the market were only meant to prevent financial risks amid Beijing’s concerted campaign to deleverage, Bohai securities analyst Song Yiwei wrote in a report. Banking and consumer stocks led the advance, while material firms took a breather after recent strong gains amid an industry recovery and a weaker dollar. Investors are likely to be wary of stocks trading at high levels with a rotation into big-caps extending into other sectors, including cyclical shares, which could mean rising risks amid tight liquidity in the market, Song wrote. Reuters
Business Daily Wednesday, July 12 2017 9
Greater China Watchdog
Anti-graft official likely to head insurance regulator In recent months, officials have sharpened their focus on risky business practices in the banking and insurance sectors Benjamin Kang Lim and Shu Zhang
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hina is likely to name a senior Communist Par ty graft-buster to oversee the insur ance sector, people familiar with the matter said, a signal that the country’s on-going crackdown on irregular busi ness practices in the finan cial industry may be set to escalate. Yang Xiaochao, secre tary general of the Central Commission for Discipline Inspection (CCDI), is the leading candidate to head the China Insurance Regulatory Commission (CIRC), three sources with knowledge of the matter told Reuters. The top CIRC job has been vacant since April, when for mer chairman Xiang Junbo was put under investigation for suspected “serious disci plinary violations,” a phrase that usually refers to graft. Yang, 58, is an associate of Wang Qishan, the current head of the Communist Party’s CCDI, the country’s main anti-graft body. Wang is also a member of the Po litburo Standing Committee, the country’s top leadership body. Yang, a native of the east ern city of Nanjing, headed the Beijing financial affairs bureau from 2008 to 2013, and was the city’s top audi tor when Wang was mayor of Beijing. Yang was named
the city’s vice mayor in 2013. Two of the sources de scribed Yang as the “front runner” to head the insur ance regulator. The CCDI did not respond to a faxed request for comment. Neither the CIRC nor the State Council Information Office, which doubles as the spokesman’s office for the cabinet and the party, replied to faxed requests for comment. Yang’s appointment is not yet guaranteed. Senior lead ership appointments in China can be subject to last-minute change.
‘The top Central Commission for Discipline Inspection job has been vacant since April’ It was not immediately clear when an announce ment would be made. None of the sources was willing to be identified given the sensitivity of the matter.
Slew of arrests
President Xi Jinping has un dertaken a sweeping cam paign against graft since as suming power in 2012. In recent months, officials
have sharpened their focus on risky business practices in the banking and insurance sectors, announcing a slew of arrests, sanctions and new regulations. “Corruption in the financial sector should be resolutely investigated and punished,” Chinese Premier Li Keqiang said in a speech dated March 21 that was published in April, hours after Xiang’s detention was announced. Those caught in the an ti-graft net include Yang Jiacai, who was removed from his position as assis tant chairman of the coun try’s banking regulator, and Wang Yincheng, former vice chairman and president of state-controlled People’s In surance Co (Group) of China,
whose case was referred for prosecution, according to the CCDI. Last month, Wu Xiaohui, the chairman of Anbang Insurance Group Co, which has made a series of head line-grabbing acquisitions, including the 2015 purchase of New York’s Waldorf As toria hotel, was detained by authorities. China’s next insurance reg ulator will face the thorny task of clamping down on risk in a sector that has seen its assets nearly double to RMB15.1 trillion (US$2.22 trillion) in the three years ended in 2016. If it doesn’t tread carefully it could dest abilise the industry. In recent months, CIRC has issued new regulations
and sanctioned a handful of insurers for issuing shortterm, high-yield products after they used the pro ceeds to finance long-term investments, including tak ing sizable stakes in listed companies. Sales of so-called univer sal life insurance products dropped 59 per cent yearon-year during the first five months of 2017, the CIRC re ported in June. Others who have been under consideration for the top CIRC post include Zhou Mubing, chairman of Agri cultural Bank of China Ltd and a former vice chairman of the China Banking Regu latory Commission, financial industry sources said earlier this year. Reuters
Sovereign fund
CIC profit rises, seeks more U.S. direct investment Headquartered in Beijing, it was founded in 2007 to help China earn a higher return on its foreign exchange reserves Matthew Miller
China’s sovereign wealth fund Chi na Investment Corp (CIC) posted a 1.88 per cent rise in 2016 net profit, boosted by stronger returns from its overseas portfolio. Profit rose to US$75.3 billion from US$73.9 billion a year earlier, its an nual report showed yesterday. Total investment income was US$83 bil lion in 2016, compared with US$76.7 billion in 2015. Its accumulated an nualised investment return rose to 4.76 per cent last year. The increase was bolstered by port folio adjustment and high returns on stock markets in Europe and the United States, Li Wenping, managing director of CIC’s financial depart ment, told a news conference. The fund is seeking to increase di rect investment in the United States with its newly-established New York office, spokeswoman Liu Fangyu told Reuters. That includes direct investments in infrastructure and property. Presently, 42 per cent of CIC’s total overseas portfolio is in the United States, but mostly in public markets, she said. “We established the U.S. office with the mandates to explore the opportunities and…establish close
relationships with local partners, with the local government agencies and the local regulatory agencies,” she added. CIC, headquartered in Beijing, was founded in 2007 to help China earn a higher return on its foreign exchange reserves. The fund re ported a 6.22 per cent return on its overseas investments in 2016, compared with a negative 2.96 per cent in 2015. “Eight years following the global
financial crisis, major economies’ rounds of easing policies and devel oped countries’ sluggish economic recovery led to intensifying com petition among global funds, adding pressure on investment returns,” CIC Vice Chairman and President Tu Guangshao said in the report. “Potential risks are the rising un certainties of global politics and poli cies,” he said, referring to the outlook for 2017. CIC invests overseas through two subsidiaries, CIC International Co and direct investment vehicle CIC Capital Corp. CIC Capital, launched in 2015, signed 16 deals worth US$5 billion last year.
Last month, CIC signed the buyout of European warehouse firm Logicor Ltd from Blackstone Group LP for 12.25 billion euros (US$13.95 billion), Europe’s biggest private equity real estate deal. Earlier this month, CIC joined a consortium led by TIAA Private In vestments and Antarctica Capital LLC to buy InterPark LLC, the largest owner-operator of parking infra structure in the United States from Alinda Capital Partners LLC.
Key Points Investment income reaches US$83 bln vs US$76.7 bln in 2015 Global politics constitute main risk for 2017 - CIC president CIC to increase direct investment in the U.S. - spokeswoman
CIC started with initial funding of US$200 billion. By the end of 2016, its assets had surpassed US$813.5 billion. Profit and loss from fair value changes recorded an increase of US$23.5 billion over last year, pri marily due to the reversal in fair value of financial assets, Li said. Through its Central Huijin Invest ment Ltd subsidiary, CIC is a share holder in 18 Chinese state-owned financial institutions, including the country’s largest banks such as China Development Bank Corp, Industrial and Commercial Bank of China Ltd, China Construction Bank Corp and Agricultural Bank of China Ltd, ac cording to its annual report. Reuters
10 Business Daily Wednesday, July 12 2017
Greater China Futures
Beijing sets sights on oil benchmark after years of delays Oil futures trading volume is small during Asian hours despite the region’s role as the world’s top consumer Chen Aizhu and Florence Tan
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hina has opened more than 6,000 trading accounts for its long-awaited crude futures contract - with three-quarters coming from individual traders - as it pushes ahead with plans to compete with global pricing benchmarks. China’s oil majors and about 150 brokerages have also registered, but the strong interest by ‘mom-andpop’ investors looks set to mark out China’s crude futures from western counterparts, which are dominated by institutional investors.
‘Executives at international banks and traders who have reviewed the contract rules and specifications warn of concerns including Beijing’s clampdown on capital outflows’ Shanghai International Energy Ex change (INE), which will run China’s contract, says it is finalising technical issues. The contract has faced years of delays and there is still no set date, but INE and also trading participants now say a launch this year is almost certain. “The INE is striving to launch the crude oil futures within this year,” a spokeswoman said, adding that the exchange has conducted four trials to ensure it is technically ready. Shanghai’s crude futures are
aimed at giving China more clout in pricing crude in Asia and a share of the trillions of dollars in oil fu tures trade. The INE hopes to attract foreign investors, and locally registered enti ties of JPMorgan and UBS are among those registered, although interna tional players have raised concerns, including denomination in yuan, that may dampen early take-up. Most oil trades are priced off two crude derivatives, U.S. West Texas Intermediate (WTI) and London’s Brent, traded on the Intercontinental Exchange and the New York Mer cantile Exchange (NYMEX) owned by CME Group. Earlier attempts to establish an Asian derivative crude contract by Singapore and Tokyo foundered. The only liquid crude futures in the region is the Oman contract on the Dubai Mercantile Exchange.
Retail interest
Successful crude derivatives would be the jewel in the crown in China’s push to ramp up futures trading on products from dates to steel to open up markets and offer new avenues for investors. While Chinese banks are barred from futures trading, the new market is expected to attract interest from deep-pocketed private equity firms and funds, while state-owned oil majors, like PetroChina and Sinopec will provide liquidity. PetroChina is set to register two accounts and Sinopec is setting up a trading outfit in Shanghai dedicated to the contract, said senior company sources. Independent refiners like Shandong Chambroad Group have also joined, while retail interest is strong. Individuals already account for 80 per cent of turnover on China’s US$8 trillion equity markets, and day trad ers have whipsawed commodities from eggs to iron ore in China over the past year. Jin Changyi, a 40-year-old for mer hotel owner from eastern China,
who began dabbling in Brent crude oil futures last year, has opened a RMB500,000 (US$75,000) account with a Shanghai-based brokerage and plans to act as a mini-broker for friends. “The way it’s designed it won’t fluctuate wildly. Compared to trading Brent, the risks are more managea ble,” he told Reuters.
International concerns
International interest at first may be more muted. Executives at international banks and traders who have reviewed the contract rules and specifications warn of concerns including Beijing’s clamp-down on capital outflows, unusually small price limits and Chi na’s heavy handed intervention in commodity markets last year. “Everybody is staring at everybody else,” said an official with a western investment bank who declined to be named due to company policy. Reflecting a regulatory aim to stave off price volatility, the Shanghai contract has a 4 per cent daily price fluctuation limit, half the limit for Chinese coking coal. China’s crude futures also do not have a mechanism to reset limits
after a big price move, which means Shanghai trading could freeze while prices still move elsewhere. For WTI, for example, a US$10 a barrel move activates circuit breakers to pause trade briefly until a new limit of an other US$10 is set. Industry players also worry about delays in issuing rules over storage and grades for deliveries. The INE has yet to finalize details of warehouse tanks, including loca tions, rules over fuel blending and price differentials between grades, all key for helping industry partic ipants decide on whether or not to take deliveries. The INE spokeswoman said it is working on approved crude oil delivery points, which are located in the peninsulas of Liaodong and Shandong, Yangtze River Delta and Pearl River Delta. Local traders hope the contract will take off. “The contract will initially track Brent and WTI markets,” said a deriv atives trading manager with a Chinese state oil company, who declined to be named because he is not authorised to speak to media. “It won’t be an immediate success, but we’re hopeful.” Reuters
Market value
LeEco crisis to cost listed unit US$2.5 bln The revaluation illustrates the impact on investors of China’s lengthy trading suspensions Struggling Chinese conglomerate LeEco could see the market value of its listed unit fall around US$2.5 bil lion should its shares resume trading, showed estimates from three mutual fund investors, as the unit extended a trading suspension. In separate revaluation statements, Harvest Fund Management Co Ltd, China Post & Capital Fund Manage ment Co Ltd and E Fund Management Co Ltd said they expect shares of Leshi Internet Information & Technology Corp Beijing to fall nearly 30 percent once investors get the chance to react to latest developments. Leshi could not be reached for comment. LeEco founder Jia Yueting resigned as chairman of Leshi on Thursday, hours after making a public plea for patience. He had previously said LeE co had grown too quickly from video streaming into consumer electronics and electric vehicles, leading to a cash
crunch that has seen a court freeze some assets. Jia also resigned as Leshi’s chief ex ecutive during the trading suspension,
LeEco founder Jia Yueting
which Leshi requested from April 17 due to possible restructuring. On Friday, the firm said it would extend the suspension for as long as another three months. The revaluation illustrates the im pact on investors of China’s lengthy trading suspensions - a major concern
of foreign investors. “One thing portfolio managers hate is suspension of trade,” Antho ny Cragg, senior portfolio manager at Wells Fargo Asset Management and China veteran, told Reuters on Wednesday. “You can tolerate losing money, but you cannot tolerate not being able to trade. Suspending a stock is a big no-no.” Harvest Fund and China Post, both with heavy exposure to Leshi, in sep arate statements on Friday said they would adjust their valuation of Leshi shares to RMB22.37, 27 percent lower than their last pre-halt closing price of RMB30.68. E Fund on Friday said it would re value Leshi shares at RMB22.05, or 28 percent lower. Other major investors included Dacheng Fund Management Co Ltd, Penghua Fund Management Co Ltd and Guangfa Fund Management Co, as per Leshi’s first-quarter earnings report released at the end of April. In August, Harvest Fund, China Post and Caitong Fund Management Co Ltd bought 81.8 billion privately placed Leshi shares for 45.01 yuan apiece. As of the last market price, their investments had fallen by 32 percent. Reuters
Business Daily Wednesday, July 12 2017 11
Asia Survey
Australian business conditions strongest since 2008 The run of upbeat surveys holds out hope for a bounce in economic activity after bad weather kept growth at just 0.3 per cent in the first quarter
A
measure o f Australian busi ness conditions climbed to its highest since ear ly 2008 in June as sales and profits picked up across a range of industries, another sign the economy had re gained its feet after stumbling early in the year. National Australia Bank surveyed more than 400 firms to compile its index of business conditions which rose 4 points to +15 in June, and far above the long-run average of +5. The survey’s measure of business confidence added 1 point to +9, again beating the long-run average. “Most industries are per forming well in the survey, which reflects positively on the broader economic en vironment,” said NAB chief economist, Alan Oster. “The lift in conditions was largely driven by stronger trading conditions and prof itability, suggesting a much needed lift in demand, while employment conditions
were steady.” The run of upbeat surveys holds out hope for a bounce in economic activity after bad weather kept growth to just 0.3 per cent in the first quarter.
“Most industries are performing well in the survey, which reflects positively on the broader economic environment” Alan Oster, NAB chief economist The Reserve Bank of Aus tralia (RBA) argued that growth would revive when it held interest rates steady at 1.5 per cent following a policy meeting last week. The survey’s measure of
sales jumped 6 points to a very strong +21 in June, while business profits rose 5 points to +15. Its measure of em ployment held steady at +7, again above average. NAB said that outcome was consistent with annual job creation of around 240,000,
or around 20,000 per month, and was enough to nudge the unemployment rate lower from the current level of 5.5 per cent. Forward orders also add ed a point to +4, suggesting the improvement in demand could have legs.
There was little sign of inflationary pressure in the survey, with labour costs subdued. Retail prices turned higher after a drop in May, though were still growing at a modest 0.5 per cent for the second quarter as a whole. Reuters
Prices poll
Indian inflation to cool in June to record-low The food and beverage price index, which accounts for nearly half the consumer price index basket, is forecast to contract 1.05 per cent in May Vivek Mishra
India’s consumer inflation is expected to have slowed to a record-low in June, pressured by a sharp drop in food and oil prices, a Reuters poll showed, a result that could intensify calls for an interest rate cut. Consumer price inflation is pre dicted to cool to 1.70 per cent in June, easing further from May’s 2.18 per cent, according to the poll of more than 30 economists taken over the past week. If realised, it would be the lowest level since the series began in 2012 and below the Reserve Bank of In dia’s (RBI) medium-term target of 4.0 per cent for an eighth successive month. Core inflation, however, has remained stubbornly above 4 per cent since at least 2015. Forecasts for the headline figure ranged from 1.20 per cent to 2.70 per cent. The data will be released on July 12 at 1200 GMT. “Inflation is expected to take a downturn on account of deflationary pressures witnessed in vegetables
and pulses amid slowdown in fuel prices,” said Himanshu Varshney, research analyst at AK Capital. Food and beverage price index, which accounts for nearly half the consumer price index basket, is fore cast to contract 1.05 per cent in May, a significant turn from a peak in July last year when it rose 8.35 per cent. The India Meteorological Depart ment (IMD) said last week that the nation’s cumulative rainfall between June 1 and July 2 was 6 per cent above the long-run average. Monsoon showers, which deliver about 70 per cent of India’s annual rainfall, help drive higher food and grain production, keeping inflation in check. The RBI kept its benchmark interest rate unchanged in June while sof tening its hawkish stance following a drop in retail inflation, as predicted in a Reuters poll. The central bank also lowered its headline inflation forecasts to a range of 2.0-3.5 per cent for the first half of fiscal year 2017/18 and 3.5-4.5 per cent in the second half, down
from 4.5 per cent and 5.0 per cent, respectively. “It would be foolhardy to totally rule out a rate cut given that infla tion is likely to be close to or below the lower bound of the RBI’s target range,” said Shilan Shah, economist at Capital Economics. Looking ahead, the RBI is watching out for the inflationary impact of the goods and services tax (GST), which came into force on July 1, though food products were exempt from taxes under the new system. Wholesale price inflation is ex pected to have slowed last month to 1.60 per cent from 2.17 per cent
in May, which would be the lowest since May last year. Separately, industrial output is expected to have risen 1.9 per cent in May after growing 3.1 per cent in April due to weaker performances in manufacturing, mining and power generation. The Nikkei India Manufacturing Purchasing Managers’ Index, com piled by IHS Markit eased to a fourmonth low of 50.9 in June on weak demand. A poor factory output number on last Wednesday could further bol ster the case for an RBI rate cut next month to boost Asia’s third-larg est economy, which grew 6.1 per cent in the January-March quarter, its weakest pace in more than two years. Reuters
12 Business Daily Wednesday, July 12 2017
Asia Trial
Chief of bitcoin exchange Mt. Gox denies embezzlement The collapse of Mt. Gox represents a major setback for bitcoin and badly damages the image of virtual currencies Thomas Wilson
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he 32-year-old chief executive of defunct Mt. Gox pleaded not guilty yesterday to charges relating to the loss of hundreds of millions of dollars worth of bitcoins and cash from what was once the world’s biggest bitcoin exchange. French national Mark Karpeles filed the plea in response to charges of em bezzlement and data manip ulation at the Tokyo District Court, according to a pool report for foreign journalists. Mt. Gox once handled 80 per cent of the world’s bit coin trades but filed for bank ruptcy in 2014 after losing some 850,000 bitcoins - then worth around half a billion U.S. dollars - and US$28 mil lion in cash from its Japanese bank accounts. In its bankruptcy filing, To kyo-based Mt. Gox blamed hackers for the lost bitcoins, pointing to a software secu rity flaw. Mt. Gox subsequently said it had found 200,000 of the missing bitcoins. Karpeles was indicted for transferring 341 million yen
(US$3 million) from a Mt. Gox account holding customer funds to an account in his name during September to December 2013. He also al legedly boosted the balance of an account in his name in Mt. Gox’s trading system. Karpeles’ defence had told a pre-trial consultation that the remittance was within the scope of the firm’s rev enue and not the embezzle ment of customer funds, the Nikkei business daily report ed yesterday.
Key Points French national Mark Karpeles, 32, pleads not guilty Indicted for embezzlement, data manipulation Charges relate to 2014 collapse of Mt. Gox Mt. Gox was once world’s biggest bitcoin exchange
The defence said the in creased balance was part of the administrative process of exchanging cash and bitcoins and therefore not illegal, the Nikkei reported.
Karpeles told the court he was an information technol ogy engineer. “I swear to God that I am innocent,” he said in Japa nese to the three-judge panel hearing his case, according to the pool report.
Licensed exchanges
The collapse of Mt. Gox rep resented a major setback for bitcoin and badly damaged the image of virtual curren cies, particularly among riskaverse Japanese investors and corporations. But the bankruptcy al so prompted Japan’s gov ernment to decide how to treat bitcoin, and preceded a push by local regulators to licence virtual currency
exchanges. Japan this year became the first country to regulate ex changes at the national level, part of a government effort to exploit financial technology as a means of stimulating the economy. Interest in bitcoin among Japan’s legions of individ ual investors - encouraged by Tokyo’s recognition of the virtual currency as legal tender - has spiked in recent months. Still, institutional inves tors remain wary, say those running virtual currency ex changes in Tokyo. Japanese firms are also unenthusiastic: Only 4 per cent of large and mid-sized firms plan to use bitcoin in the near to medium
term, showed a Reuters poll last month. The value of bitcoin is high ly volatile. It hit a record high of US$2,980 last month. Like other virtual curren cies, such as Ethereum and Ripple, bitcoin has no central authority and relies instead on thousands of comput ers across the world that validate transactions and add new units to the sys tem - technology known as blockchain. Bitcoin can be traded on exchanges in the same man ner as stocks and bonds. It has also become a mode of payment for some retailers, and a way to transfer funds without the need for a third party. Reuters
Monetary policy
S.Korea to keep rates at record low The central bank is under pressure to normalise policy South Korea’s central bank is considered certain to keep its benchmark rate at a record low of 1.25 per cent on Thurs day, as weak private con sumption argued against any imminent shift to a hawkish policy stance as seen in some major economies. All 20 economists polled by Reuters forecast the Bank of Korea (BOK) would stand pat at this week’s meeting, keeping rates where they have been since June 2016 as policymakers sought to entrench and strengthen the economic recovery. Investors will focus on the expected revision of South Korea’s official growth fore casts, which Governor Lee Ju-yeol said may be upgrad ed from the current 2.6 per cent to reflect improving exports. “Balancing the domes tic demand and exports is the biggest task this year. While exports is improving on better global demand and trade, domestic demand has been a drag,” Kim Ji-na, a fixed-income analyst at IBK
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Securities said. “I see a hike in the base rate in the first half of 2018,” Kim said. Indeed, with annual infla tion tracking at 1.9 per cent, below the central bank’s 2 per cent target, the BOK can afford to sit tight for now. Asia’s fourth-largest econ omy has revved up this year
thanks to improving glob al demand as the nation’s manufacturers enjoyed strong sales for everything including smartphones, TVs, memory chips and cars. Ex ports grew at a double digit pace for the sixth month in a row in June. Even so, factory output barely rose in May after an unexpected decline in April on sluggish domestic demand for consumer goods, holding back the overall economy.
The BOK is also under pressure to normalise policy especially as central banks in Europe and Canada have started to shift to a notably hawkish stance, narrowing South Korea’s yield gap with advanced countries and po tentially leading to capital outflows. The Federal Reserve has already raised rates twice this year and is expected to tighten again before yearend, while the European
Central Bank is preparing markets for tapering its massive stimulus possibly as early as 2018. A total of six board mem bers at the bank’s Monetary Policy Board will vote on Thursday, as senior deputy governor Jang Byung-wha finished his term on June 24.
“Balancing the domestic demand and exports is the biggest task this year” Kim Ji-na, a fixed-income analyst at IBK Securities
Bank of Korea headquarters
“Governor Lee has recently sounded less dovish because of better growth prospects and the BOK’s coordination with other central banks,” said Kathleen Oh, an econo mist with Standard Chartered Bank of Korea in Seoul. “He is confident that there will be no adverse reactions to the change in monetary policy and that the period of low interest rates will end.” Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, July 12 2017 13
Asia Legislation
First test of India’s new bankruptcy law offers cautionary tale The World Bank estimated it took 4.3 years on average in India to resolve insolvency under the old laws Devidutta Tripathy and Euan Rocha
In January, Innoventive Industries, a speciality steelmaker based in western India, was forced into the bankruptcy court by its lenders, testing for the first time new insolvency rules that aim to resolve India’s US$150 billion bad debt overhang. The company, which makes steel tubes and auto parts for customers including Ford, Volkswagen and Tata Motors, posted its third straight annual loss in 2016, prompting ICICI, one of its lead lenders, to trigger bankruptcy proceedings early this year. Nearly six months on the proceed ings against Innoventive, seen as a test case for the first national bankruptcy law, are raising questions about the efficiency of the new regime that reg ulators are now compelling lenders to use to recover debts. The new Insolvency and Bankruptcy Code aims to move cases of company failure into a single forum, replacing an archaic system of overlapping reg ulations under which banks, company promoters and other creditors could all initiate competing proceedings in different courts, tribunals and regions. That system left India’s Debt Recov ery Tribunals vastly overstretched, with court buildings strewn with ever-rising pillars of dusty files, gumming up the flow of credit in
the economy and discouraging new investment. The World Bank estimated it took 4.3 years on average in India to resolve insolvency under the old laws, more than twice as long as in China. And average recoveries were just 25.7 cents on the dollar, one of the worst among similar sized economies. The new regime aims to signifi cantly boost recoveries and put a firm timeline around case resolu tion in the hope that this will help clean-up bank balance sheets and spur lending. India’s central bank, the Reserve Bank of India has already told banks to push 12 of the largest defaulters into insolvency, but experts worry the framework is largely untested and hampered by a shortage of ex perienced bankruptcy professionals. “I completely understand why they want resolution for large defaulters quickly because the balance sheets have to be cleaned up,” said Ashish Chhawchharia, a partner at accounting and consulting firm Grant Thornton. “You cannot really push too hard, however, because if things go wrong people will start losing faith in the new code.”
Flood of cases
Defaulters identified by the RBI are already being taken to the National advertisement
Company Law Tribunal (NCLT), the forum now empowered to rule on these cases. Only a few dozen cases have been taken on by the NCLT so far, but a deluge could be in the offing. “We estimate at least 20,000 to 25,000 bankruptcy cases will come to the NCLT, if not more,” said Nikhil Shah, a managing director at restruc turing experts Alvarez & Marsal. “And at that point it would get crushed un der the workload.” The new law mandates a 180-day deadline to resolve cases, but the In noventive case, in which creditors are seeking to recover about US$200 million, has already faced multiple delays. Innoventive initially sought to block the matter under a six-decade old state law, and launched appeals in the High Court and an appellate tribunal, while creditors were divided on the terms of an interim financing deal, according to two sources close to the case. The company could appeal all the way to the Supreme Court, forcing lenders to seek an extension and jeop ardising the resolution deadline, the sources said. Chandu Chavan, the main backer of Innoventive, could not be reached for comments despite repeated attempts. With loan syndicates in India typ ically comprising a dozen or more state-run and private banks, forging agreement between creditors is not easy. For Innoventive, it was harder to get the 21 lenders in the room to agree on an interim financing package for the firm to operate during the insolvency process than to find a party willing to actually provide the funds, one of the sources said. Bankers often lack authority to take decisions on write-downs and have to revert to their boards for approval, causing further delays, the source added.
Value erosion
Under the new system lenders are mandated to initiate liquidation pro ceedings if a case cannot be resolved within the 180-day deadline, with a 90-day extension granted only in exceptional circumstances. Such an outcome could result not only in job losses at companies that were still going concerns, but also steep losses for banks that have to sell assets piecemeal. “We’ve already been in touch with all possible suitors,” said one senior banker, describing the situation lend ers often found themselves in when they tried to offload assets from liq uidated firms. “It’s not like you have a lot people waiting for these assets.” Despite these concerns, M.S. Sahoo, chairman of the Insolvency and Bank ruptcy Board of India, the government body set up to supervise the new code, said he was confident buyers would emerge under the new system. “Nothing develops in a vacuum.” said Sahoo. “Only when some thing is available will the market develop.” The NCLT would not be hit with a tsunami of cases, he added, as only large defaults will be handed to it. Those involved in cases are also concerned by the lack of experienced insolvency resolution professionals a domain in its infancy in India and dominated by mom-and-pop firms. Dinkar Venkatasubramanian, a partner at EY, says a lack of profes sional indemnity insurance for in solvency professionals was a major deterrent for big accounting firms to take up the task. “The risk is significant,” he said. “There exists litigation and reputa tional risk and the indemnity for IPs in the code is very generic.” Reuters
In Brief Supreme Court
India suspends ban on trade in cattle for slaughter India’s Supreme Court suspended on Tuesday a government order that had banned the trade of cattle for slaughter, giving relief to the multi-billion dollar beef and leather industries that employ millions of poor workers. In the latest blow to the meat and leather sec tors, mostly run by Muslims, Prime Minister Narendra Modi’s government in May decreed that animal mar kets could only trade cattle for agricultural purposes, such as ploughing and dairy production. Supreme Court Chief Justice Jagdish Singh Khehar said the livelihoods of people cannot be subject ed to uncertainties, televi sion networks said. Investment
Temasek’s portfolio rises to record Singapore state investor Temasek Holdings report ed a nearly 14 per cent jump in its portfolio value to a record S$275 billion (US$199 billion) last year, bolstered by gains in shares of Chinese banks and of its mainstay Singapore com panies. The gains in the portfolio for the year to March 31, 2017 compared with a 9 per cent decline in its assets a year ago. Temasek’s one-year total shareholder return was 13.4 per cent in the latest year, versus a negative 9 per cent for the prior year. It bene fited from last year’s rally in its key holdings such as China Construction Bank, DBS Group Holdings and Standard Chartered. Finance ministry
S.Korea says exports robust Weak private consump tion and tepid employment growth are holding back South Korea’s economy even as exports steadily gain, the finance ministry said yesterday. May retail sales declined 0.9 per cent from April while the consumer price index gained 1.9 per cent year-on-year in June, cooling from 2 per cent in July and pointing to a slow er-than-expected recovery in domestic demand. The nation’s service sector out put also declined 0.3 per cent in May on-month after a 0.1 per cent rise in April. Financing
Japanese government bonds selloff steadies Japanese government bond prices found a firm footing yesterday, with the selloff seen in recent weeks stabilising following strong investor support in a closely-watched auction of five-year JGBs. The market has been also underpinned by the Bank of Japan’s ag gressive bond purchase op erations on Friday, which has also assured market players of its firm commit ment to keep yields around the current levels. The auction of 2.2 trillion yen (US$19.2 billion) five-year JGBs produced the highest accepted yield of minus 0.033 per cent.
14 Business Daily Wednesday, July 12 2017
International In Brief Environment
Carney draws bank support for climate risk campaign Eleven major banks including Barclays, Citigroup and UBS said they’ll seek ways to address the financial risks of global warming, after Bank of England Governor Mark Carney urged investors to act on the threat. The group start ed a pilot project to implement the recommendations of a task force set up by Carney to increase financial reporting standards on issues related to the envi ronment, according to a state ment from the United Nations Environment Finance Initiative yesterday. The group also in cludes Australia & New Zealand Banking, Banco Bradesco, National Australia Bank, Royal Bank of Canada, Banco Santander, Standard Chartered and TD Bank Financial Group, according to the statement. Monetary policy
Fed’s Williams still sees rate hike A top U.S. central banker yes terday said he still expected one more rise in interest rates from the Federal Reserve this year and for it to start unwinding its massive balance sheet in the next few months. Answering audience questions at an eco nomics event in Sydney, San Francisco Federal Reserve Bank President John Williams said he believed a recent softening in U.S. inflation was transitory and that inflation would pick up to around 2 per cent over the com ing year. Williams emphasised that if inflation did not accelerate as expected, that would argue for a much slower pace of rate rises than currently projected. M&A
Pearson to sell stake of Penguin Random House to Bertelsmann British publisher Pearson said yesterday it had agreed to sell almost half of its stake in Penguin Random House (PRH) to joint venture part ner Bertelsmann of Germany. The 22-per cent stake in PRH is being offloaded for US$1.0 billion, a Pearson statement said. Bertelsmann will then own 75 per cent and Pearson will be left with 25 per cent. Pearson had earlier this year signalled its intention to lower its holding in PRH. The transaction values PRH at US$3.55 billion. The joint venture -- billed as the world’s leading mass publisher -- was created in 2013 by combining Pearson’s Penguin imprint with Bertelsmann’s Random House. eCommerce
eBay ‘millionaire’ sellers in Germany and UK rises sharply “Millionaire” online business es selling on ecommerce site eBay have jumped 50 per cent in key international markets Britain and Germany in the last four years, despite currency swings that have slowed growth outside the United States. Fresh data published yesterday by eBay shows the number of million euro businesses selling on eBay grew to 1,095 from 731 in Germany last year since 2013 while million pound-plus businesses rose to 663 from 443 in Britain over the same time period. EBay’s two big European markets were collectively responsible for 30 per cent of eBay’s total net revenue of near ly US$9 billion last year.
IEA
Electricity investment overtakes oil, gas for first time ever in 2016 Although renewables investments was 3 per cent lower than five years ago, capacity additions were 50 per cent higher Bate Felix
I
nvestments in electricity sur passed those in oil and gas for the first time ever in 2016 on a spending splurge on renewable energy and power grids as the fall in crude prices led to deep cuts, the International Energy Agency (IEA) said yesterday. Total energy investment fell for the second straight year by 12 per cent to US$1.7 trillion compared with 2015, the IEA said. Oil and gas investments plunged 26 per cent to US$650 bil lion, down by over a quarter in 2016, and electricity generation slipped 5 per cent. “This decline (in energy invest ment) is attributed to two reasons,” IEA chief economist Laszlo Varro told journalists. “The reaction of the oil and gas industry to the prolonged period of low oil prices which was a period of harsh investment cuts; and techno logical progress which is reducing investment costs in both renewable power and in oil and gas,” he said. Oil and gas investment is expected to rebound modestly by 3 per cent in 2017, driven by a 53 per cent upswing in U.S. shale, and spending in Russia and the Middle East, the IEA said in a report. “The rapid ramp up of U.S. shale activities has triggered an increase of U.S. shale costs of 16 per cent in
2017 after having almost halved from 2014-16,” the report said. The global electricity sector, how ever, was the largest recipient of en ergy investment in 2016 for the first time ever, overtaking oil, gas and coal combined, the report said. “Robust investments in renewable energy and increased spending in electricity networks, made electricity the biggest area of capital invest ments,” Varro said.
231 Billion USD investment in energy efficiency in 2016
Electricity investment worldwide was US$718 billion, lifted by high er spending in power grids which offset the fall in power generation investments. “Investment in new renewa bles-based power capacity, at US$297 billion, remained the largest area of electricity spending, despite falling back by 3 per cent,” the report said. Although renewables investments was 3 per cent lower than five years ago, capacity additions were 50 per cent higher and expected output from this capacity about 35 per cent higher, thanks to the fall in unit costs and
technology improvements in solar PV and wind generation, the IEA said. Investments in coal-fired electric ity plants fell sharply. Sanctioning of new coal power plants fell to the low est level in nearly 15 years, reflecting concerns about local air pollution, and emergence of overcapacity and competition from renewables, no tably in China. Coal investments, however, grew in India. “Coal investment is coming to an end. At the very least, it is coming to a pause,” Varro said. The IEA report said energy efficien cy investments continued to expand in 2016, reaching US$231 billion, with most of it going to the building sector globally. Electric vehicles sales rose 38 per cent in 2016 to 750,000 vehicles at US$6 billion, and represented 10 per cent of all transport efficiency spending. Some $6 billion was spent globally on electronic vehicle charg ing stations, the IEA said. Spending on electricity networks and storage continued the steady rise of the past five years, reaching an all-time high of US$277 billion in 2016, with 30 per cent of the expan sion driven by China’s spending in its distribution system, the report said. China led the world in energy in vestments with 21 per cent of global total share, the report said, driven by low-carbon electricity supply and networks projects. Although oil and gas investments fell in the United States in 2016, its total energy investments rose 16 per cent on the back of spending in re newables projects, the IEA report said. Reuters
Commodities
LME launches bid for slice of US$5 trillion London gold market The LME’s new contracts aim to capitalise on increasing regulatory scrutiny that is raising costs for banks trading gold over the counter More than two tonnes of gold were traded through the London Metal Exchange’s new LMEprecious spot contract on its first day as the ex change launched its bid to take a slice of the world’s biggest over-thecounter (OTC) gold market. The LMEprecious suite of gold and silver contracts was developed with a group of backers including banks Goldman Sachs and Morgan Stanley, which then set up EOS Pre cious Metals to promote trade in the contracts and benefit from a 50:50 revenue-sharing deal with the LME.
Key Points Two tonnes of gold traded on first day of LMEprecious contract Regulatory push could shift OTC business onto exchange -GFMS The LME launched its contracts at 0000 GMT on Monday, though volumes did not pick up until the start of the European trading day at 0700 GMT. By close of business on Monday, 75,500 ounces (2.3 tonnes) of gold had traded on the LMEprecious spot contract , exchange data showed. That is worth some US$91.3 million
at current spot prices. “Typical interbank trade between one party and another would be 5,000-10,000 ounces in a single trade,” said Ross Norman, chief exec utive of bullion trader Sharps Pixley. “It will be nice to see what the trend is -- if (it picks up), you’d begin to think, here we go.” Market makers were quoting prices on spreads between contracts out to June 2022. A source at one of the EOS partners said: “At this early stage players are finding their feet. It may be a while until people start trading in size.” As well as Goldman and Morgan
Stanley, the EOS partnership in cludes banks ICBC, Standard, Societe Generale and Natixis, proprietary trader OSTC and the World Gold Council, an industry market devel opment body. All the banks except Natixis are general clearing members of LMEPre cious, along with brokers Marex Fi nancial and BOCI Global Commod ities (UK). OSTC, XTX Markets and Morgan Stanley’s commodities unit are non-clearing members, while Natixis is an individual clearing member. London’s gold trade is dominated by over-the-counter (OTC) business conducted bilaterally among net works of brokers, banks and trad ers. The LME’s new contracts aim to capitalise on increasing regulatory scrutiny that is raising costs for banks trading gold over the counter. U.S. exchanges CME Group and ICE have also launched London gold contracts this year, hoping to lure business from the traditional OTC market, which is estimated to be worth US$5 trillion a year. Reuters
Business Daily Wednesday, July 12 2017 15
Opinion Winds shift from tail to head for emergingmarket debt Lisa Abramowicz a Bloomberg Gadfly
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merging-market debt funds had a phenomenal first half of 2017, with record inflows and solid returns. But the ebullience is running out of steam and that sentiment will most likely deteriorate even further in the weeks to come. In the past week, investors withdrew US$826.8 million from the biggest emergingmarket debt exchange-traded fund, the largest withdrawals in the US$11.5 billion fund’s history. Hard-currency debt of developing nations and their companies have lost more than 1 per cent since June 26, when benchmark borrowing costs in Europe and the U.S. surged. The losses are relatively minor, especially considering that this debt had gained 5.6 per cent in the first part of the year. And the iShares J.P. Morgan USD Emerging Markets Bond ETF increased its assets by more than 50 per cent in the first half of the year, so the outflows are an understandable breather in an otherwise breathless race into this fund. Still, the latest weakness is an important shift in sentiment. It signals that many investors will quickly exit their emerging-market debt investments as soon as developed debt markets wobble, even if the global economy remains benign. The dip in emerging-market debt values seems to be driven largely by macroeconomic developments. Recent declines correlate tightly with selloffs in U.S. and European bonds, which stemmed from central bankers’ statements suggesting that they’re prepared to reduce stimulus in coming months. The European Central Bank will most likely talk more about reducing its bond purchases in the near future, while the Federal Reserve is apparently on track to raise overnight rates for a third time this year. It’s natural for central bankers to tighten monetary policies in response to increasing growth and inflation. And this isn’t necessarily bad for emerging markets. Theoretically, a better economic outlook would be great for less-developed nations and would help them repay their debts more easily. But there’s scepticism about whether the global economy is truly accelerating. If it’s just stumbling along, it’s easy to see how even slightly higher rates in developed markets will encourage investors to redirect cash away from more speculative economies and companies and back toward, say, the U.S., Germany and France. Meanwhile, the fundamental health of emerging markets has deteriorated on average, with the debt of lower-rated countries such as Turkey, Ecuador and Sri Lanka accounting for a greater proportion of benchmark indexes. As Bloomberg Intelligence’s Damian Sassower and Alexander Graf noted in a recent research note, leverage is on the rise among highgrade, nonfinancial corporate and quasisovereign issuers in emerging markets. And investors are getting compensated less for the increasing debt relative to income of these issuers. Emerging markets as a category is anything but monolithic, of course. Different nations have starkly different outlooks, with some reducing their leverage ratios and materially improving their prospects. But many investors have funnelled into these disparate countries through the same vehicle -- broad index funds that respond more to macro trends than individual fundamentals. It’s telling that these bond buyers respond negatively to even a relatively tame rise in developed-market yields. Unless central bankers back off their tightening plans entirely, the recent declines point to more weakness for the second half of the year. Bloomberg Gadfly
‘The fundamental health of emerging markets has deteriorated on average’
Tesla wades into Australia’s battle over energy future
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here is a lot more riding on Tesla Inc’s deal to install the world’s largest gridscale electric battery in Australia than whether Elon Musk can meet his bold commitment to finish within the 100-day deadline. Under an agreement made public on July 7, Tesla must deliver the 100 megawatt (MW) battery within 100 days of the contract being signed, or the government of South Australia state won’t have to pay the electric car, clean energy and space exploration company. On the surface, this is a deal aimed at providing back-up electricity to South Australia, a state that has been plagued by blackouts since it closed coalfired power plants and moved to being powered mainly by renewables such as wind, and to a grid connection to neighbouring Victoria state. Certainly, if successful, the 100 MW of Tesla lithium-ion batteries will be able to provide power to some 30,000 homes in South Australia, which is home to about 1.7 million people and ranks fifth by population of Australia’s six states. But the significance of the deal goes way beyond the mere provision of emergency power, and it is likely to become a political football in Australia’s wider energy debate. Broadly speaking, Australia’s energy debate is becoming polarised into two factions, one in favour of using the nation’s abundant coal as the main fuel, and the other committed to switching to mainly renewable sources of power as part of efforts to limit global climate change. While there are moderate voices in both camps urging a gradual and planned switch from the current situation where about 80 per cent of the nation’s power comes from ageing, polluting coal-fired plants, the more radical voices tend to grab the media headlines. Barnaby Joyce, the deputy prime minister and leader of the National Party, poured scorn on the Tesla battery plan, saying it wouldn’t make much difference. “You know, a grain of sugar is an advantage to a teaspoon, but it doesn’t make a hell of a lot of difference,” Joyce, whose party is the junior partner in the ruling Liberal-led federal government, said in a television interview on Sunday. The problem for the federal government, and indeed the state governments as well, is that electricity prices, and public anger, are soaring. Consumers in the main population states of New South Wales and Victoria face increases of as much as 20 per cent this year in electricity bills, caused by rising generation costs amid the closure of several old coal-fired power plants. The question is what will replace these polluting plants as they reach the end of their useful lifespans.
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Clyde Russell a Reuters columnist
(HELE) coal plants would be less polluting than Australia’s current fleet, but even these are still far more carbon-intensive than natural-gas plants, not to mention renewables. The Minerals Council of Australia released a report on July 3 in which it claimed a “clean coal” HELE plant would provide cheaper electricity than renewables. While the costings in the report are open to challenge, what was potentially misleading was the claim that HELE plants are “clean coal”. They are about 14 per cent more efficient than older technology coal plants, but aren’t clean insofar as they don’t capture and store carbon emissions. This sort of claim certainly undermines the mining sector’s credibility and helps boost the cause of the environmentalists. Sitting somewhere in the middle of the debate is Australia’s petroleum industry, which has the dual aim of protecting its $200 billion of investments in liquefied natural gas (LNG) export plants and promoting the use of the cleaner-burning fuel domestically. The industry wants both federal and state governments to facilitate more onshore gas exploration and production, arguing that this will boost supply and lower costs. The environmental lobby, ignoring peer-reviewed science that fracking is largely safe if well regulated, wants an end to all unconventional and conventional natural gas exploration and production. At the very least, the environmentalists want restrictions on LNG exports in order to make natural gas cheaper and more available to the domestic market. Again, there is possibly misleading information and claims on both sides, with the industry stating that Australia’s wholesale natural gas price is competitive in Asia (it is), but ignoring that retail prices have surged. For its part the environmental lobby, with the support of farming groups, is running a scare campaign on natural gas, using the typical bogeyman of greedy corporations sucking up and exporting resources, but ignoring that only one of the seven LNG plants actually buys gas that could be supplied domestically instead. Into this situation comes Tesla and its battery farm for South Australia. If the project does work, and more importantly is viewed by politicians and the public as a costeffective success, then Barnaby Joyce may find that his one grain of sugar rapidly becomes many more. However, if the batteries don’t prove effective in smoothing out South Australia’s intermittent wind-powered electricity, then the move toward more renewables will take a blow, perhaps even big enough to allow the promoters of new coal
Australia’s energy debate is becoming polarised into two factions, one in favour of using the nation’s abundant coal as the main fuel, and the other committed to switching to mainly renewable sources
Misleading claims
The mining lobby, and elements within the ruling coalition, want to build new generation coal-fired plants, claiming these will be cheaper and less polluting. The so-called high-efficiency, low emissions
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16 Business Daily Wednesday, July 12 2017
Closing Internet
Google, Facebook join online protest of net neutrality rollback
How many online activists does it take to save Silicon Valley’s favourite Obama-era regulation? Organizers of an online protest aimed at derailing a Republican plan to roll back net neutrality rules are hoping the magic number is 70,000. That’s the number of sites and organizations -including Amazon.com, Google, Facebook and even President Donald Trump’s favoured medium, Twitter -- that have pledged to participate. Today, the big commercial sites will join scores of online activists and businesses in telling users
about the change planned in Washington -- and ask the visitors to contact Congress and the Federal Communications Commission, where Republican Chairman Ajit Pai, a Trump appointee, commands a majority and is moving toward gutting the rule against interfering with web traffic. The protest comes as Democratic lawmakers bring renewed focus on the issue. Democratic senators Ron Wyden, of Oregon, and Brian Schatz, of Hawaii, on Monday asked the FCC to ensure its computer system is prepared to withstand the expected surge of comments. Both senators support the embattled rule. Bloomberg News
Taobao
In China, shoppers buy bad loans online with their groceries China’s embrace of e-retailing is helping it tackle another byproduct of the country’s rapid economic evolution: the rise of bad debt
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mong the sneakers, dia pers and pet food for sale on Taobao, China’s biggest e-commerce platform, is a listing that may take up a little more space in the online shopping basket. For US4.15 million (US$610,000), cus tomers on the site owned by e-retailing giant Alibaba Group Holding Ltd. can bid for the debt of a steelmaker from Zhejiang, a coastal province in eastern China. The company has failed to pay back a RMB9.95 million loan, including interest, so a distressed asset manager is auctioning it off to the highest online bidder. It’s not the only bad debt for sale on Taobao, which translates roughly as digging for treasure. Used by millions of Chinese to buy everything from clothes to food and electronics, the platform, known for its bargains, typically markets more than RMB1 billion of soured assets a day, according to Bloomberg calculations. Recent listings include a portfolio of 118 non-performing loans from some companies in Yunnan province, a villa seized by a bank in the southern canal city of Shaoxing, and a property in cen tral Beijing that’s also in default. “Financial technology and e-com merce in China has reached a high level of sophistication,” said Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “Online platforms are levelling the playing field in the distressed debt market as it means everybody gets access to the same information.”
Loan boom China’s embrace of e-retailing is help ing it tackle another byproduct of the country’s rapid economic evolution: the rise of bad debt. Slowing growth and an uptick in cor porate defaults has fuelled the mar ket, with NPLs at commercial banks more than doubling over the past two years to RMB1.6 trillion as of the end of March. As Beijing pushes lenders to find market-oriented ways of dealing with soured loans, interest in distressed debt has climbed, spurring banks and asset managers to look beyond tradi tional venues like auction houses and exchanges to dispose of the assets. China Cinda Asset Management Co. -- one of the country’s biggest distressed asset managers, and the firm marketing the steel company’s debt -- said last month that it’s collaborating with Alib aba to set up a special section on Taobao to auction its wares. Though Alibaba
Global test
declined to provide data on actual sales, the advertising of such loans shows how interest in the market for China’s distressed debt is developing. Following Taobao’s lead, more than 50 other websites marketing their services to banks and other sellers of bad loans emerged in China in the first half of last year, according to a March report from PricewaterhouseCoopers LLP. More than 20 financial institutions are listed as partners on Taobao’s auction platform for soured assets, including Shenzhen-based Ping An Bank Co., Bei jing’s China Minsheng Banking Corp. and China Citic Bank Corp. But bad-loan investing isn’t like trad ing equities or even ordinary debt, which raises questions over the opening up of the market to rank-and-file investors. New investors Interaction with the seller is important in an NPL transaction and the deals can take months to complete, says Andrew Brown, a partner for macro and strat egy in Hong Kong at ShoreVest Capital Partners Ltd., which invests in Chinese bad loans. “The online auction sites open the marketplace up to potential buyers that
Auto industry
may not be as diligent in the required analysis that we deem appropriate to price a portfolio,” he said. “If you are developing a platform for NPL portfolios, the question is does it allow for appropri ate time and access to do the research? It’s not like buying and selling stocks.” On Taobao, distressed assets are typically advertised several weeks or months before the auction date. The listing for the Zhejiang steelmaker’s debt says interested investors can call a local branch of Cinda for information on the offer, and includes details and photos of the collateral: a 240 square-meter apartment in the city of Hangzhou. Both Alibaba and Cinda declined to comment for this story. Industrial Bank Co., a lender based in Fujian province, signed an asset disposal cooperation agreement with Alibaba in May. The bank sold RMB232 million of NPLs on Taobao between May 20 and the end of June, according to Fang Zhiyong, general manager of the special asset management department. More transparency E-commerce platforms provide access to more investors and the lender has garnered interest for assets marketed on Taobao that failed to yield inquiries offline. But while they can bring a level of transparency to bad loan trading, sites like Taobao also attract individual investors who don’t typically have the skills needed to do full due diligence on an NPL deal, Fang said. Nonetheless, Taobao will be a “key” channel for the bank in disposing bad debt. For Song Lingling, a partner at Bei jing-based distressed debt fund DCL Investments, disposing of NPLs on web platforms can be less complicated than via auction houses, which usually charge commissions. Her firm has used Taobao to buy and sell soured assets. “Conducting NPL auctions online has increasingly become a trend,” she said. “More investors are using Taobao as a platform because of the simplicity, transparency and confidentiality of the bidders’ identity.” Bloomberg News
Gadgets
Clearing firms simulate Lehman-like U.S. House panel to unveil default during Brexit chaos self-driving car legislation soon
LVMH enlists Louis Vuitton in smartwatch fight against Apple
The first coordinated global test showed clearinghouses, the firewalls protecting the financial system from calam ity, are strong enough to survive a major bank going bust. Regulators wanted to know what would’ve happened if there’d been a Lehman Brothers Holdings Inc.-style collapse during a market shock like that of the Brexit vote last year. So they asked three major clearinghouses -- LCH, CME Clearing and Eurex Clearing -- to run a simulation. The test involved each clearinghouse pretending it had to auction a portfolio of debt and equity derivatives backed by billions of dollars of collateral, or initial margin, in cash and bonds. The auctions were simulated as if taking place at the end of June 2016, during the fallout from Britain’s surprise Leave vote. Several hundred traders took part in the April drill, with more than 50 banks or trading firms involved in three auctions held by Eurex. The U.S. Commodity Futures Trading Commission said each clearinghouse successfully completed its hedging and auctions. “It is important that default drills be as realistic as pos sible, and large member firms usually clear at multiple central counterparties in more than one jurisdiction,” said CFTC spokeswoman Erica Elliott Richardson. “This is why the drills are held in the U.S. and Europe at the same time.” Bloomberg News
Louis Vuitton plans to sell a smartwatch for travellers starting at US$2,450 as parent company LVMH enlists the 163-year-old French suitcase and fashion brand to broaden its fight against the Apple Watch. The Tambour Horizon offers flight information and city guides for seven destinations, the company said in a statement. It’s modelled after the mechanical Tambour line and is the first Android Wear smartwatch that functions in China. Within two years, Apple has become the world’s second-bestselling watch brand, outranked only by Rolex, disrupting sales of low-end watchmakers and convincing several luxury timepiece brands they need to offer an alternative or risk falling behind. LVMH is the high-end watchmaker that has the biggest lead in the smartwatch segment, due to the success of its TAG Heuer connected timepieces. Recently Richemont dived into the market, offering a US$890 Montblanc smartwatch. “We’ll see more luxury brands break up the smartwatch duopoly between Apple and Samsung,” said John Guy, an analyst at MainFirst Bank AG. “It not only provides consumers with a luxury option, where the aesthetic is more in harmony with technology, but is also provides a springboard for younger consumers to move into traditional Swiss watches at a later stage.” Bloomberg News
U.S. House Republicans expect to introduce bills later this week that would bar states from setting their own rules for self-driving cars and take other steps to remove obstacles to putting such vehicles on the road, a spokeswoman said. The legislative action comes as major automakers are joining forces with auto suppliers and other groups to prod Congress into action. Last month, a U.S. House of Representatives Energy and Commerce subcommittee held a hearing on a Republican draft package of 14 bills that would allow U.S. regulators to exempt up to 100,000 vehicles a year per manufacturer from federal motor vehicle safety rules that prevent the sale of self-driving vehicles without human controls. Blair Ellis, a spokeswoman for the committee, said it was likely that legislation would be introduced this week and a formal hearing on the bills would occur next week. Republican U.S. Representative Robert Latta said last month he hoped to win committee approval of a bipartisan legislative package by the end of July. The draft measures would bar states from setting self-driving rules and prevent the National High way Traffic Safety Administration from pre-ap proving self-driving car technologies. Reuters