Tokyo trouble: Okada v. Wynn
One Central towers prop up Shun Tak
Brazil and Macau – a winning team
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faces fresh cooling
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he government is considering a new round of measures to cool the property market. In June the average price of residential transactions was around 50 percent higher comparing to the same period last year. A working group to promote what’s described as the sustainable development of the real estate sector said yesterday “there is somewhat of an overheating of the property market”. The group has launched studies on four topics: mortgage loans, real estate taxes, sales of unfinished
flats and quickening the approval of construction projects. In the past when the government has wanted to make changes in public policy it has used working groups both to formulate ideas and test public reaction. It’s only a year since a special 20 percent stamp duty on the sale of unfinished flats was introduced to discourage people from selling on title before properties are even habitable. The levy is reduced to 10 percent if the transaction takes place two years after purchase.
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A close call for political reform
The government-backed political reform has made it out of the Legislative Assembly in time for implementation before next year’s elections. But a provision on indirectly elected seats was unexpectedly close to not getting the necessary two-thirds of the votes and was only saved by the unprecedented vote of Assembly president Lau Cheok Va.
Selling out means buying in
HSI - Movers
Analysts have welcomed the HK$5.85 billion (US$754 million) sale of a near seven percent stake in casino operator Galaxy Entertainment Group by private equity firm Permira Advisers LLP. They say the deal – known as a reverse inquiry where other investors approached Permira asking it to sell – shows faith in the Galaxy story and the wider Macau gaming market despite the recent revenue slowdown.
La Scala appeal could reach court
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The developer of residential project La Scala is not giving up on the plots. Chinese Estates Holdings Ltd has filed an objection asking Chief Executive Fernando Chui Sai On to review its decision and warned that, unless it gets a favourable reply by September 14, it will go to court. The government has received the appeal but isn’t commenting. Page 4
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Year I - Number 109 Thursday August 30, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00
business daily August 30, 2012
Okada sues Wynn for defamation Tokyo lawsuit latest round in eight-month battle
Steve Wynn and Kazuo Okada – making work for lawyers
niversal Entertainment Corp., controlled by Japanese billionaire Kazuo Okada, is suing the latter’s former business partner Steve Wynn and Wynn Resorts for defamation. The 11.2 billion yen (US$142 million) being sought in damages via a Tokyo court is equivalent to roughly one sixth of the money Mr Okada lost when his 20 percent stake in Wynn was forcibly redeemed by the company at a 30 percent (US$800 million) discount in February. Wynn had claimed that month Mr Okada was “unsuitable” as a business partner. It said he had breached his fiduciary duty by making improper payments to Philippine gambling regulators. Mr Okada – who made his fortune in pachinko, a Japanese arcade game – is developing a US$2 billion casino resort in the Philippines. He has denied his company has done anything improper to obtain
favours from that country’s regulators or government. The Wynn assertion of Mr Okada’s “unsuitability” echoes the language used by Nevada gaming regulators when they are assessing gaming licence applications. Tokyobased Universal Entertainment says the term defamed it and caused it damage. The defamation claim is the latest skirmish in an eight-month-long saga, during which Mr Okada and Mr Wynn have also sued each other in the United States.
Former allies Until this past winter, Mr Okada was the largest single shareholder in Steve Wynn’s US$11 billion casino business, which has casinos in Las Vegas and Macau. The Japanese entrepreneur helped bankroll Mr Wynn’s operations for more than a decade.
The two fell out publicly in January when Mr Okada filed a lawsuit in the U.S. against Wynn for blocking his access to financial documents relating to a 1.1 billion patacas (US$137 million) donation by Wynn to the University of Macau. An investigation commissioned by Wynn into Mr Okada conducted by former FBI Director Louis Freeh alleged Mr Okada had violated U.S. anti-corruption laws. Both self-made billionaires claim the other made improper payments to win favour in their respective Macau and Philippines markets. “We assume this is another attempt to distract from the real i s s u es , ” s a i d a Wy n n R e s o r t s spokeswoman in response to the Tokyo lawsuit, adding the Las Vegas-based company hadn’t seen the Tokyo court papers. Mr Okada has already been removed from the board of Wynn
Macau Ltd., a unit of the U.S. company. The parent Wynn Resorts needs shareholder approval to remove Mr Okada from that boardroom as well. In the meantime, District Judge Elizabeth Gonzalez in Clark County Las Vegas, has scheduled a hearing for October 2 on arguments whether Mr Okada’s request for documents – including ones regarding Wynn Resorts’ dealings with Macau officials going back as far as 2000 and the company’s use of US$120 million he invested in 2002 – is reasonable. Mr Okada will appear on September 18 in Las Vegas for a deposition by Wynn Resorts’ lawyers, according to a notice filed by the casino firm’s legal team. Wynn Resorts will have 10 days after they question Mr Okada to supplement their arguments against document disclosure, according to the filing. Bloomberg/Reuters
Adelson’s bet on Romney hints at big casino win Republican presidential nominee wants yuan to rise
heldon Adelson’s support for Republican Party U.S. presidential candidate Mitt Romney could have direct benefits for Mr Adelson’s Macau casino business Sands China, suggests a Bloomberg News report. The media outlet says Mr Romney wants to pressure China to raise the value of its currency the yuan, relative to the U.S. dollar. His opponent President Barack Obama also says the yuan should rise, but Mr Romney has reportedly been more aggressive. He has stated China should be called a currency manipulator for suppressing the yuan’s value, though he is likely – outwardly at least – to be more diplomatic if he wins power. Given that most bets in Macau casinos are denominated in Hong Kong dollars – a currency pegged to the U.S. dollar – then even a small appreciation of the yuan could strengthen Sands China’s top and bottom lines significantly, given the betting volumes in Macau. The parent Las Vegas Sands Corp., which develops, owns and operates four casino resorts in Macau, accounted
for US$2.95 billion of the company’s global US$5.34 billion in revenue in the first half of this year, according to its second-quarter earnings report.
Appreciate, accumulate “Even a small adjustment [in the yuan’s value] would have a multimillion-dollar impact,” says the Bloomberg report. “If the yuan appreciated only five percent this year, and just half of Macau gamblers changed their money from yuan, Sands China’s revenue for the first half of this year could rise by as much as US$73.8 million,” it adds. LVS officials were asked in a 2010 earnings call what would happen if China loosened restrictions on its currency, possibly causing it to rise. “It’ll have a big meaning in Macau, and, of course, we’re all in favour of that,” Mr Adelson said. China manages how the yuan trades against the U.S. dollar, allowing it to rise and fall within a limited band around a daily fixing set by the central bank. The currency has weakened 0.9 percent this year,
Sheldon Adelson – likes Romney’s calls for a stronger yuan
trimming its accumulated advance – since a dollar peg ended in July 2005 – to 30.2 percent. Mr Adelson is worth about US$20 billion according to the Bloomberg Billionaires Index. He and his wife have given about US$36 million to
Republican so-called super-PACs (political action committees) so far during this election cycle. The couple contributed US$10 million in June to Restore Our Future, which is dedicated to backing Mr Romney. Bloomberg
August 30, 2012 business daily | 3
U.S. investor buys Permira shares in Galaxy Market sees sale as vote of confidence in casino op and Macau generally Associate Editor
Looking up – Galaxy share sale positive for company and local casino industry
addell & Reed Financial Inc., a Kansas-based asset management company, bought two-thirds of the nearly seven percent stake in Macau casino operator Galaxy Entertainment Group Ltd sold by U.K. private equity firm Permira Advisers LLP on Tuesday. FinanceAsia reported Permira raised HK$5.85 billion (US$754 million) in the sale. Galaxy climbed as much as 5.5 percent yesterday to HK$23.10 – the highest since May 4 – before falling back slightly to close at HK$22.65, up 3.42 percent on the day. Galaxy confirmed in a filing to the Hong Kong Stock Exchange that two Permira vehicles had sold approximately 278.8 million shares
representing 6.65 percent of the casino firm’s stock “through private placement to a small selective group of investors on 28 August 2012.” GEG added: “Completion of the sale is expected to be on 31 August 2012. After the sale, the remaining shareholdings of the Permira funds would reduce to 5.95 percent of the issued shares of GEG.” FinanceAsia reported the price per share as HK$21. Permira originally bought the stock in 2007 at HK$7.80 per share, so its asset has grown nearly 170 percent.
Overhang lifted Concerns that Permira, which in September sold 270 million shares in
the casino operator, could sell more of Galaxy had been an “overhang” on the stock, said Gary Pinge, an analyst at Macquarie Securities Ltd. The fact Permira has decided to hold on to nearly six percent of GEG after nearly tripling its initial investment appears to be a vote of confidence in Galaxy and its management. “The removal of that overhang is a positive,” said Mr Pinge. “The papers are quoting it was a reverse inquiry, which is basically investors calling Permira asking if they want to sell, which gives you an indication of the level of demand.” Permira has taken advantage of a recent 30 percent rise in the Galaxy share price to trim its holdings further as Macau’s gaming industry
One Central sales salvage Shun Tak A slowdown in the conglomerate’s overall profit was masked by a boom in sales of One Central flats Vítor Quintã
ith Macau residential property One Central almost sold out, conglomerate Shun Tak Holdings Ltd has seen its profits grow more than fourfold in the first half of this year. The company led by Pansy Ho Chiu King told the Hong Kong stock exchange its profits had topped HK$1 billion (US$129 million), up from just HK$222 million a year earlier. But Shun Tak admitted that its takings would have been just HK$97 million if it wasn’t for a revaluation surplus of HK$907 million from its 51-percent stake in One Central. During the first half three duplex units and two triplex units at One Central were sold “with satisfactory prices,” the company said, along with eight serviced apartments of The Residences and Apartments at Mandarin Oriental.
By June, 99 pct of One Central’s seven residential towers had been sold, Shun Tak says
At the end of June, 99 percent of the seven residential towers had been sold and only two service penthouses, which are scheduled for launch at a later stage, remain.
“With the lack of first-hand property launches in Macau over recent months, the market has accumulated considerable demand for new quality homes,”
enters a more steady but slowergrowing phase. Another possible factor influencing the timing of the sale said an industry source was a windfall from currency price fluctuations. When Permira bought its Galaxy stake in 2007 Business Daily understands it paid for it in euros. Since then the eurozone debt crisis has seen the Hong Kong dollar appreciate against the euro.
Major player The U.S. main buyer on Tuesday – Waddell & Reid, a mutual fund – already has significant investment exposure to the Macau gambling market. It is the biggest single shareholder in Wynn Resorts Ltd, the parent of Wynn Macau Ltd, with a 16.4 percent stake, according to Bloomberg data. It also holds a 4.6 percent stake in Sands China Ltd, the Macau unit of Las Vegas Sands Corp. Waddell & Reid’s purchase is a reversal of its recent dealings in the Macau market. In June the investor announced plans to sell shares in Sands China and Wynn Macau in order to raise US$250 million. Because Waddell & Reed the main buyer in Tuesday’s deal wasn’t holding any other Galaxy stock, its purchase will not trigger the five percent ownership reporting threshold of the Hong Kong Stock Exchange. Permira’s original US$842 million equity exposure to GEG and its parent, Hong Kong-listed building materials business K. Wah, was purchased in November 2007. It lost 94 percent of its value within a year of the deal, thanks to the global financial crisis in the autumn of 2008. But by June 2011 Permira’s Galaxy investment had more than doubled from its original value to reach US$1.7 billion. In September that year Permira sold 270 million shares in Galaxy for HK$4.8 billion. That meant it still retained 12.8 per cent of Galaxy’s issued capital. Permira described GEG at the time as “a very successful investment” with “attractive longterm growth potential for Macau and the company”. With Bloomberg
Shun Tak wrote. “Under this environment, Nova Park and special featured units at One Central Residences have attracted significant interest,” the group added. Pre-sales for Nova Park, the fourth phase of Taipa residential development Nova City, were launched in March and Shun Tak has already sold 333 apartments. The three residential towers should be ready by the fourth quarter of 2014, the company said. Shun Tak is also planning to start the construction of the fifth phase of Nova City. It will include eight residential towers, in the last quarter of this year. The conglomerate’s ferry operations rebounded from last year’s loss to post a profit of HK$2 million during the first half of 2012. Passenger volume rose by 26 percent and Shun Tak also benefited from a fare hike approved by the government in July 2011 but also from “signs of slowdown in hiking fuel costs”. Meanwhile over 3,000 niches of the 40,000 niches available at the company’s columbarium, Taipa Hills Memorial Garden, have already been sold. In January legislator Ho Ian Sang accused of Shun Tak of breaching the plot’s concession contract by selling burial niches to families from outside Macau.
business daily August 30, 2012
macau Region promotes tourism to Indian travellers Macau Government Tourist Office, Hong Kong Tourism Board and Tourism Administration of Guangdong Province have launched joint promotion activities in three Indian cities. The aim is to promote tourism in the Pearl River Delta, including travel itineraries with multi stops, among their local media and trade. The event is aimed at developing new visitor sources and attracting Indian quality visitors to Macau in order to diversify the tourist market. The number of India visitors to Macau increased from nearly 10,000 in 2003 to 170,000 in 2011.
Chinese Estates fights to keep La Scala land The developer of La Scala formally objects to the annulment of the grant of land for the housing project
he developer of La Scala has asked the Chief Executive Fernando Chui Sai On to review the government’s repossession of the land for the upmarket housing project, and warned that unless it gets its way it will take its case to court. The developer, Chinese Estates Holdings Ltd, told the Hong Kong Stock Exchange yesterday that subsidiary Moon Ocean had formally objected to the government’s revocation of the 2006 land grant. A government spokesperson confirmed the government had received the objection, that it would consider it in the light of the Court of Final Appeal’s judgement in the last trial of former secretary for transport and public works Ao Man Long, and decide on it in due course. The government revoked the land grant after the Court of Final Appeal found this year that Chinese Estates boss Joseph Lau Luen Hung and BMA Investment Group Ltd chairman Steven Lo Kit Sing had given Mr Ao a bribe of HK$20 million (US$2.6
The cancellation of the La Scala land grant could end up in the courts (Photo: Manuel Cardoso)
million) to get the land. Mr Lau and Mr Lo are due to go on trial on September 17, facing charges of bribery and money laundering arising from the La Scala land grant. Both men have denied any wrongdoing.
Chinese Estates said it would take its case to court if it did not receive a favourable reply to its objection before September 14, the deadline for appealing to the Court of Second Instance against the government’s decision. Ao’s successor as secretary for
transport and public works, Lau Si Io, said this month that he expected Chinese Estates to appeal. Mr Lau also said he would review the grant for extra land for La Scala finalised last year.
Emperor Watch sales stall amid retailing boom The watch and jewellery chain’s rising costs of sales squeeze its net profit margin
mperor Watch & Jewellery L t d ’ s n e t p r o f i t m a r gi n narrowed to 6.9 percent in the first half of this year from 9.7 percent at the same time last year. Emperor Watch told the Hong Kong Stock Exchange that its first-half sales in Macau amounted to HK$181 million (US$23.34 million), about 1 percent less than a year before. The takings of Macau’s retailing industry jumped by more than 50 percent in the first half. Emperor Watch’s five shops here accounted for just 5.7 percent of its first-half sales revenue. The company has 21 shops in Hong Kong, which made almost 84 percent of its sales. Its 60 outlets in the mainland made 10.3 percent of its sales. Emperor Watch’s total first-half
revenue rose by 20.3 percent to HK$3.16 billion. But higher costs of sales ate up much of this revenue growth and squeezed its profit margin. Earnings before interest, depreciation, tax and amortisation were the equivalent of 13.4 percent of revenue, just over 3 percentage points less than a year before. Net profit was the equivalent of 17 percent of revenue, also just over 3 percentage points less than a year before. Emperor Watch estimates that its basic earnings per share in the first half were 3.3 Hong Kong cents, compared with 4.2 Hong Kong cents a year before. The company paid a final dividend of 1.6 Hong Kong cents a share for 2011.
Watches and jewellery are a big hit with tourists
August 30, 2012 business daily | 5
Photo: Manuel Cardoso
Govt eyes new ways to curb home prices Government working group says the housing market is overheating, a sign of further measures to curb prices Vítor Quintã
he government has opened the door to new measures to cool the housing market, only a year after imposing the special stamp duty on the sale of unfinished flats. A government working group on the housing market, led by Secretary for Transport and Public Works Lau Si Io, said yesterday that the market was “somewhat overheating”. The average price per square metre of residential space rose to 58,976 patacas (US$7,380) in June
from 53,083 patacas in May. The price in June was about 50 percent higher than a year before. Just before the special stamp duty was imposed the average price per square metre was 39,174 patacas. The special stamp duty of 20 percent applies to homes bought and sold within a year of purchase. The levy is reduced to 10 percent if the sale takes place two years after purchase. In a statement yesterday, the working group has looked at the
special stamp duty and concluded that “it has yielded positive results” and should be retained. The president of the Macau General Association of Real Estate, Chong Sio Kin, said in February that the special stamp duty was harmful and should be dropped. The stamp duty is not due to be officially reviewed until the middle of next year. But the working group said it did not exclude the possibility of the
government taking further measures to cool the market. With this in view, the working group is studying four aspects of the housing market: mortgages, taxation, sales of unfinished homes and the time it takes the government to approve projects. The working group said it had examined in detail complaints by residents about foreign capital causing fluctuations in the real estate market. It said it was looking into ways of dealing with this.
Macau vineyard buyer tries to make peace Macau businessman Louis Ng issued a letter to appease new neighbours in Burgundy Xi Chen
ouis Ng Chi Sing, the chief operating officer of SJM Holdings Ltd, Macau’s largest gambling operator by market share, pledged his passion for wine in an August 28 letter over his purchase of a Burgundy vineyard that led to local backlash in France. The letter stated that a long-term lease with prominent Burgundy winemaker Eric Rousseau has been in place for the latter to oversee and manage Chateau de GevreyChambertin’s wine production. Mr Ng also stressed that he has already commissioned a wellrespected French architect Christian Laporte, who was the lead architect for the restoration of the winemaking monastery Saint-Vivant de Vergy, to renovate the chateau to “become one of the most beautiful buildings” in the region again. “It is our goal to bring this enchanted property to its full former glory, thus fulfilling its destiny as a part of this region’s rich cultural heritage for people not only from
Europe, but from all over the world to enjoy,” he said. “In time, I hope my new Burgundy neighbours will also come to appreciate my sincere passion for great wines, as will be reflected in the positive improvements I hope to bring,” he said. Mr Ng acquired the chateau, a 2.3-hectare vineyard in the Burgundy region in May for 8 million euros (79.9 million patacas), when the local buyers were only able to offer 5 million euros. The property itself was estimated to be worth around 3 million euros. This was the first Burgundy chateau to be bought by Chinese nationals, who had already bought 20 chateaux in Bordeaux, another region of France, the Telegraph reported. The same report revealed that this was not the first Chinese involvement in the traditional Burgundy region. In February, Chinese businessman Shi Yi had already entered into a partnership with a local grower to buy two hectares of Vosne-Romanee vines.
Louis Ng was the first Chinese national to buy into the traditional Burgundy wine-making region
business daily August 30, 2012
macau Macau mobile subs reach 1.48 mln Macau ended July with 1.48 million mobile subscribers, up from 1.47 million in June, according to figures from regulator DSRT. The number of 2G subscribers has been falling in line with the transition to 3G and comprised 7,934 2G postpaid subscribers and 223 2G prepaid users at end-July. The number of 3G postpaid subscribers totalled 548,403 and the 3G prepaid base stood at 924,769. The number of Internet subscribers grew to 141,472 from 140,807 in June, and includes 796 dial-up users and 140,534 broadband customers.
Political reform takes final step The Legislative Assembly gave a nod to the political reform bills despite concerns over the two extra indirectly elected seats Tony Lai
he Legislative Assembly finally gave the green light to the revision of the two electoral laws, though some disagreed with the distribution of the two new seats for indirectly-elected legislators. Most legislators approved the addition of two directly elected and two indirectly elected seats in the final reading of the bills yesterday. The exceptions were José Pereira Coutinho and the New Macau Association trio of legislators. “These bills do not follow the democratic principles to promote the
local political development,” said Mr Coutinho. “It’s a step backwards.” Secretary for Administration and Justice Florinda da Rosa Silva Chan stressed: “The bills have acquired the biggest consensus from the society and … conform to the development of Macau.” However, more dissenting voices were heard expressing “reservations” on how the two indirectly elected seats are distributed. Legislator Melinda Chan Mei Yi said: “Among all the people I have
contacted with, they all agree to add a seat to the social and education sector.” The new law adds one seat to the professional sector, while the original social, culture, education and sport sector will be divided into the social and education sector, with one seat, and the culture and sport sector with two seats. There is a “double standard,” legislator Au Kam San pointed out, as the social and education sector had a greater presence than the culture and sport sector in the number of committee
members to elect the chief executive. This decision was made, the secretary said, because there are more cultural and sports associations eligible for voting (324) than social and educational associations (166). This explanation, however, could not persuade the assembly as this suggested provision had the support of only 19 out of the 27 legislators present – short of the two-thirds majority required. Legislative Assembly President Lau Cheok Va even stepped in to vote, making sure the bill got the necessary two-thirds of the votes. Ms Chan admitted there is “room for improvement in the indirect election”. The government will in the future set up a task force to try to refine such mechanisms, as well as the chief executive election. The law increasing the committee to elect the chief executive from 300 to 400 members passed with fewer difficulties – only the pan-democrat trio and Mr Coutinho voted against. The political reform will come into effect after being approved by Chief Executive Fernando Chui Sai On and published in the Official Gazette.
Legislator rejects public contract censure Accepting renovation works from the government is a “political obligation”, which is difficult to reject, and his company, Empresa de Construção Civil Man Kan, Ltda, does not benefit from these projects, said legislator Fong Chi Keong. He spoke to reporters yesterday after the administration directly awarded a project worth over 43 million patacas (US$5.4 million) to his company. Mr Fong said the government trusted his company’s experience in government projects, but he could not recall the number of such projects the company had since the handover.
Weather Beijing 33/21o C Changchun 29/17o C
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Guangzhou 34/25o C
MACAU (13-18 August) Day
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August 30, 2012 business daily | 7
Morning Star H1 profit tumbles by 86 pct After ditching its travel business to focus on property, Morning Star makes money on travel and loses it on property Tiago Azevedo
orning Star Resources Ltd’s profit fell by 85.7 percent in the first half of this year from a year earlier. Morning Star told the Hong Kong Stock Exchange yesterday its first-half profit attributable to shareholders had fallen to HK$700,000 (US$90.249) from HK$4.9 million. Its revenue rose to HK$300.4 million from HK$287.1 million. The company’s profit was dragged down by an operating loss of HK$400,000, which contrasted with its operating profit HK$5.7 million a year earlier. Morning Star is in the property development and travel businesses. Its travel business includes Morning Star Travel Service (Macau) Ltd which has 14 travel agencies here and in Hong Kong. First-half sales revenue from the travel and tourism business grew by 10.4 percent to HK$298.5 million and profit increased by 16.6 percent to HK$1.4 million. But the expenses of the travel and tourism business grew faster. Its operating costs increased by 22.1 percent. Depreciation costs increased by 178.5 percent and rent by 14.9 percent. The company’s property business made a first-half loss of HK$2.9 million, having made a profit of HK$1.4 million a year earlier. The property business’s revenue dropped to HK$1.8 million from HK$16.7 million.
Morning Star’s travel business made a first-half profit of HK$1.4 million (Photo: Manuel Cardoso)
Morning Star is disposing of its travel business so it can invest in the property market. The company told the stock exchange on July 24 it had agreed to sell its travel business, which includes Morning Star (Macau), Star Travel, Morning Star (HK) and Morning Star Traveller, for HK$138 million. It also said Beijing Morning Star would be would-up within
Electricity output doubles even without natural gas CEM forced to burn costlier fuel oil with natural gas supplies suspended Vítor Quintã
ompanhia de Electricidade de Macau – CEM, SA doubled the amount of electricity it generated in the second quarter, official data show, even though imports of natural gas remained suspended. Statistics and Census Service data released yesterday show producer and distributor CEM generated 215 million kWh in the second quarter, having generated 110 million kWh in the first. The utility increased its output by burning fuel oil, which is more expensive than natural gas. It used 36.2 million litres of fuel oil in the second quarter, more than twice what it used in the first. In the first half, the average import price of fuel oil rose by 19.2 percent to 6.46 patacas (US$0.81) a litre. CEM increased the price for its electricity paid by most consumers by 3.1 percent in April, from 1.28 patacas a kilowatt-hour to 1.32 patacas a kilowatt-hour. It warned that it might increase
its tariff again in the second half. The city is now much more dependent than before on imported electricity, which made up 81.9 percent of power consumed in the second quarter. CEM cannot burn natural gas to generate electricity because blasting on Hengqin Island for road construction means the supply of natural gas has been suspended. The blasting should have ended last December but the gas supply has yet to resume. The energy regulator, Arnaldo Ernesto dos Santos, said last month that he expected the supply to resume “as soon as possible”. Electricity consumption has been growing for 11 years. In the first quarter it was 12.2 percent more than a year before at 1.1 million kWh. The growth of the gaming industry explained most of the increased consumption. It used 439 million kWh in the first quarter, 18.5 percent more than a year before.
12 months of the sale of its other travel subsidiaries “in view of the continuous loss-making”. Morning Star will then concentrate on developing and
managing property. At the close of trading yesterday, shares in Morning Star Resources shares had dropped by 0.56 percent to HK$0.18 each.
business daily August 30, 2012
Platform for Portuguese, a springboard to Spanish Macau could benefit from Brazil’s rise and create an opportunity to help Beijing interact more deeply with the Spanish-speaking world Xi Chen
razil’s rise as an economic powerhouse is creating an opportunity for Macau to assert itself on a world stage, an expert in international studies says. Macau University of Science and Technology vice-rector Zhang Shuguang says the city should take advantage of its relationship with Beijing and benefit from the ’Brazilian decade’, a period of political stability and economic vibrancy with two important international events looming: the FIFA football World Cup in 2014 and the Summer Olympics in 2016. Mr Zhang’s comments came from a research roundtable for young academics on the city’s role in China’s external relations held at the university that ended on Tuesday. About 30 academics attended the meeting, half of which were leading scholars from the mainland. The research project was held for the first time this year, and is currently a pilot programme which the university hopes can become a regular event.
Beijing has leveraged on Macau’s unique heritage and legal structure to build stronger relationships with the eight Portuguese-speaking countries, including emerging powerhouses Brazil and Angola. Angola is already the mainland’s biggest supplier of oil, while Brazil is a major supplier of mineral resources and agricultural products. But Mr Zhang would also like to see the city take advantage of the Macau characteristics to reach Spanish-speaking countries.
Broader vision He said the Spanish-speaking countries were areas that other countries had not focused on. Graduates who are proficient in Chinese, English as well as in Portuguese or Spanish would be in high demand from international organisations. “Macau is also very special in its cultural heritage. It was one of the very first places in Asia to have the interaction between the West and the East,” Mr Zhang said.
The university has just started offering exchange programmes for students who are enrolled in the Portuguese and Spanish language degrees, with the option to study in Portugal, Brazil, Spain or Mexico. Mr Zhang said the university’s language degrees focused more on the human and social side of a language, with students also required to have knowledge in at least one professional field. He said the city needed to foster a culture to help higher education flourish and to promote it vigorously. The university’s roundtable was designed to promote dialogue between Beijing and the rest of the world. “By bringing in scholars and business leaders, Macau can be
a platform to promote dialogues between mainland China and the world,” Mr Zhang said. “The territory can also play an important role in the transnational context, where many rules are being formulated.”
Asia Insurance profit increases in 2011 A
sia Insurance Co Ltd is a Hong Kong company thatcarries out general insurance activities in Macau. It has just published its 2011 results for its local branch. It made slightly more than 127 million patacas (US$ 15.9 million) in gross revenue last year, an 8 percent increase compared with 2010. According to that indicator, it was ranked fourth in Macau’s general insurance market, with a 2.9-percent share of the total insurance market, which translates into a loss of 0.2 percentage point in market share since 2010. That market share in the general insurance segment was equivalent to 9.3 percent. Workplace insurance and fire insurance provided most of the income, with 32 percent and 27.7 percent of the gross premiums, respectively. From this income the company generated an operating profit of almost 19.5 million patacas, which corresponds to 15.3 percent of gross income. After accounting for extraordinary profits and losses and tax provision, the branch generated a net profit of 18 million patacas, an increase of 26 percent relative to the previous year. The net equity, meaning – for a branch – the total of the operating funds and reserves, amounted to 74.8 million patacas.
Net profit MOP18,086,435 Net equity MOP74,836,324
August 30, 2012 business daily | 9
Beijing to lend Egypt US$200 million President Mohamed Mursi wraps up visit to China Malek, head of a business delegation accompanying Mr Mursi. Egypt wants to sign eight agreements with China, offering investment projects in agriculture, tourism and infrastructure, the report said.
Egypt’s President Mohamed Morsi is in China on a three-day visit that included a meeting with his Chinese counterpart Hu Jintao
hina promised a US$200 million loan to Egypt and the two sides signed deals in agriculture, the environment and telecommunications as Egyptian President Mohamed Mursi sought to boost ties in a trip to Beijing. China Development Bank pledged the credit to the National Bank of Egypt, according to a deal that was signed after Mr Mursi met with his counterpart, President Hu Jintao, in Beijing last Tuesday. The agreement came on the first leg of Mr Mursi’s two-nation trip that will also include Iran, a stop that has raised concern in the U.S. and Israel about Egypt’s foreign policy.
Mr Mursi has signalled a foreign policy that may shift away from the U.S. ties built by Hosni Mubarak, his predecessor who was ousted in a mass uprising last year. “Since taking office, Mr President has chosen China as one of his first countries to visit and this fully shows that your country attaches great importance to the desire to develop relations with China,” Mr Hu said when the two leaders met in Beijing, according to a pool report. Egypt hopes to boost Chinese investment to US$3 billion from the current US$500 million, the state-run Al-Ahram newspaper reported yesterday, citing Hassan
No details were available about the China Development Bank loan. Other agreements signed by the two sides focused on issues including agriculture, the environment and tourism. China also agreed to provide Egypt with police cars, according to the agreements. A commentary published last Monday by China’s state-run Xinhua news agency said the two sides have maintained “steady and robust cooperation despite Egypt’s social turmoil.” Trade rose to US$8.8 billion last year, the report said. It said that China has extended its “helping hand” to push economic recovery in Egypt. It said the two sides want to work together on a range of international issues including the conflict in Syria, where China has vetoed UN resolutions aimed at speeding up Syrian President Bashar al-Assad’s departure. “Egypt could be a bridge for China to strengthen cooperation with the whole Arab world and the African continent within the UN and other international organisations,” the Xinhua commentary said. Bloomberg
PBOC asks for 28-day reverse repo demand
day reverse repo contract to the mix. The central bank has also pledged to use money market operations as its key tool to guide interest rates as part of a gradual liberalisation and reform of the way borrowing costs are set in the world’s second-largest economy. The PBOC routinely surveys traders one day before regular open market operations on Tuesday and Thursday.
China Life Insurance Co., the nation’s biggest insurer, rose by the most in more than a month in Hong Kong trading after reporting an expansion in new business value. The stock climbed 2 percent, the most since July 19, to HK$20.70 at the close of trading, extending this year’s rally to 7.8 percent. New business value, which measures profitability of new policies sold, rose 2.5 percent to 12.5 billion yuan (US$1.97 billion) in the first half, the company said in a statement to the Shanghai stock exchange on Tuesday. The expansion was “driven primarily by the better-than- expected margin uplift,” Barclays analysts, led by Mark Kellock, wrote in a report yesterday. “This suggests significant underlying product mix improvements.” With a profit decline “already in the price, the positive new business value growth and margin expansion, strong growth in book value and embedded value, and a much stronger solvency position are likely to be positively received by the market,” Mr Kellock said in the report. China Life said that profit in the six months to June 30 fell 26 percent, as it flagged August 6, joining smaller insurance companies, including China Pacific Insurance (Group) Co., in suffering from an almost 20 percent slump in the benchmark Shanghai Composite Index in the year ended June 30 as the nation’s economic growth cooled. Net premiums earned fell 5.2 percent as sales over bank counters dropped under tighter regulatory rules and the insurer boosted more profitable, longer-duration contracts.
PBOC seen reluctant to use blunter tools such as reserve rate cuts
so. The last cut was in May. Instead they have relied on regularly injecting and draining cash through reverse repos since May, but traders said the short tenor of the repos, first limited to 7 days, had the effect of draining base money. The central bank began to increase its use of 14-day reverse repos in recent weeks, and now appears poised to add the longer 28-
Agricultural Bank of China Ltd, the nation’s third-largest lender by market value, posted a 14 percent increase in second-quarter profit as lending and fee-based services income rose and provisions for bad loans dropped. Net income rose to 37 billion yuan (US$5.8 billion) from 32.6 billion yuan a year earlier, based on figures published by the Beijing-based lender yesterday. That compared with the 38.1 billion-yuan average estimate of 15 analysts surveyed by Bloomberg. Agricultural Bank’s profit growth, the strongest among China’s four largest state-controlled lenders for three straight years, may bolster capital and ease concern the company will need to raise funds as the world’s second-largest economy slows. Bank of China Ltd, the thirdlargest by assets, last week posted 5.3 percent profit growth, the slowest in three years. “This is still a young bank, listed for only two years, and it has made a lot of progress” catching up with its peers, Tang Hui, a Beijingbased analyst at Founder Securities Co., said before the announcement. The bank’s “natural advantage of having a low-cost deposit base can also help it fare better amid interest-rate deregulation,” than lenders outside rural areas. Set up by Mao Zedong in 1951 to finance rural cooperatives, Agricultural Bank was the first commercial lender established in China during Communist rule. The bank had 350 million customers and 23,465 domestic outlets at the end of June, more than any competitor. More than half of its locations are in less developed areas, contributing about 39 percent of first-half operating income. Agricultural Bank’s core capital adequacy ratio rose to 9.65 percent as of June 30, from 9.5 percent at the beginning of the year.
China Life rises on new business value growth
Govt wary of rebound in inflation, asset prices – dealer hina’s central bank surveyed primary dealers on potential demand for 28-day reverse bond repurchase agreements for the first time ever yesterday, traders said, as Chinese regulators seek to maintain market liquidity without re-inflating asset bubbles. This is the first time the People’s Bank of China (PBOC) has suggested it might use such a long-term instrument. “The PBOC’s intention to use longer-term reverse repos to manage money market supply once again signals its reluctance to take further easing steps, such as reducing RRR,” said a dealer at a major Chinese state-owned bank in Shanghai. “The government appears to be wary of a rebound of inflation as well as property prices. On the market side, more and more investors now accept the idea that reverse repos could be an effective quantitative tool to adjust short-term money liquidity,” she said. Traders have been expecting the PBOC to inject long-term liquidity through a third cut this year to banks’ reserve requirement ratio, but Chinese regulators have refrained from doing
AgriBank Profit Gains 14pct
business daily August 30, 2012
asia Tokyo Gas buys LNG from Malaysia Japan’s top city gas supplier Tokyo Gas said it has signed a basic agreement to buy 900,000 tonnes per year of liquefied natural gas (LNG) from Malaysia for 10 years from April 2015. The agreement was signed with Malaysia LNG Sdn Bhd, which is led by Malaysia’s state oil firm Petronas, the company said in a statement. The deal comes as a follow-up to an existing contract, due to expire at the end of March 2015, under which Tokyo Gas buys LNG from the Malaysia Dua LNG project.
Renesas shares jump on KKR reports Chipmaker share price surged by a record 35 percent Takako Taniguchi and Naoko Fujimura
enesas Electronics Corp. surged by a record 35 percent as a person with knowledge of the matter said KKR & Co. is in talks to spend about 100 billion yen (US$1.3 billion) buying shares of the unprofitable Japanese chipmaker. Renesas closed at 308 in Tokyo trading, the stock’s highest since July 10. New York-based KKR will take a controlling stake by the end of the year, the Nikkei newspaper reported earlier, without saying where it got the information. Renesas, whose customers include Apple Inc. and Nintendo Co., is trying to end losses exacerbated by falling demand for its system LSI chips, used for functions ranging from processing images for TV screens to crunching data. The Kawasaki, Japan-based company’s major shareholders agreed in July to provide Renesas with loans to help cover costs including worker buyouts and reorganization of its factories. “Considering the record of the current management, it may lead to positive changes if KKR shakes up the management,” Takeo Miyamoto, an analyst at Deutsche Bank AG, said
yesterday. “Investors who thought Renesas would go bankrupt and sold the shares bought them again after today’s [yesterday’s] report.”
Biggest shareholders The U.S. private equity firm presented the offer to Renesas stakeholders including its biggest shareholders NEC Corp., Hitachi Ltd and Mitsubishi Electric Corp. and main banks, the person said, asking to remain anonymous as the negotiations are private. NEC gained 6.5 percent, while Hitachi rose 1.1 percent in Tokyo. Mitsubishi Electric fell 0.2 percent. The Nikkei newspaper reported the planned investment earlier
5,000 jobs Renesas plans to cut to help end losses
yesterday. Renesas isn’t the source of the report, the Kawasaki, Japanbased company said in a statement to the Tokyo Stock Exchange. Steve Okun, a Hong Kong-based spokesman for KKR, declined to comment. A formal agreement will be made next month between the main creditor banks of Renesas and its shareholders, the Nikkei said. NEC and Mitsubishi Electric declined to comment, and Hitachi didn’t immediately return a phone call seeking comment. Japan’s chipmakers have struggled as South Korea’s Samsung Electronics Co. extended its dominance. Boise, Idaho-based Micron Technology Inc. agreed in July to buy Tokyo-based Elpida Memory Inc., after Elpida filed for bankruptcy protection.
Job cuts Renesas plans to cut 5,000 jobs and may close or sell as many as nine of its 18 domestic factories to help end losses, after falling demand for TVs and a drop in prices for computer
chips eroded earnings. The chipmaker’s three main shareholders, NEC, Hitachi and Mitsubishi Electric, will provide 49.5 billion yen in loans to Renesas in October, they said on July 31. Banks including Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Trust Holdings Inc. have a basic agreement with Renesas to continue offering
Thai Bev boosts F&N stake to near maximum level Latest move in a six-week tussle with Heineken Saeed Azhar and Eveline Danubrata
hai Beverage Pcl has raised its stake in Fraser and Neave Ltd to just below the level that would trigger a mandatory offer for the whole company, upping its challenge to Heineken NV’s bid for Asia Pacific Breweries Ltd (APB). ThaiBev, controlled by Thai billionaire Charoen Sirivadhanabhakdi, said late on Tuesday it had bought another 2.6 percent stake in F&N for S$316 million (US$252 million) to bring its interest to 29 percent. If it hit 30 percent, Thai Bev would be obliged to bid for all of the Singapore conglomerate. The stake increase is the latest move in a six-week battle pitting ThaiBev against Heineken. The Dutch brewer, the world’s thirdlargest, was jolted into action when Mr Charoen became the largest shareholder in F&N, with which Heineken has a joint venture controlling Tiger beer maker APB. “If Thai Beverage crosses the 30 percent mark and makes a general
offer then they can block Heineken’s bid for APB. But whether or not they have the intention or the money to buy F&N, that’s anybody’s guess,” said Ng Kian Teck, lead analyst at SIAS Research. A full takeover would stretch ThaiBev’s finances. Moody’s Investors Service said earlier this month ThaiBev’s Baa2 rating remained under review for downgrade after it acquired a 22 percent stake in F&N from Singapore’s OCBC group. Heineken is seeking to convince F&N shareholders to accept its S$7.94 billion (US$6.3 billion) offer to buy the Singapore beveragesto-property group out of the joint venture and to take F&N’s 7.3 percent direct stake and APB shares held by others. Those shareholders also include Japan’s Kirin Holdings, which owns just under 15 percent of F&N. The F&N board has proposed a S$4 billion payout to shareholders
through a capital reduction, if they approve the sale of APB to Heineken. Analysts say that the payout could sway minority shareholders in favour of the deal. A shareholder meeting is expected in October to vote on the APB sale, a source familiar with the plans told Reuters, adding a firm date has not been set yet. One analyst said ThaiBev may
be looking at F&N even without its brewery business. “They see F&N as strategic to their growth ambitions, not just purely on the brewery side but also the soft drinks, which have a strong ASEAN presence, dairies and property,” said Goh Han Peng, an analyst at DMG & Partners Securities in Singapore. “So brewery is valuable. But even if they lose this, they are going to get a good price for it and the remaining businesses inside F&N also have franchise value that appeals to ThaiBev.”
Thai Beverage Pcl increased its holding in Fraser & Neave to 29 percent
August 30, 2012 business daily | 11
asia AirAsia profit jumps in Q2 AirAsia Bhd. Said second-quarter profit soared after booking an accounting gain from the spinoff of its Thai venture. Net income in the three months ended June 30 increased to 1.19 billion ringgit (US$382 million) from 104.3 million ringgit a year earlier, the Malaysia-based carrier said in a filing on Tuesday. Net operating profit fell 3 percent to 130.9 million ringgit. The airline booked a fair value gain of 1.04 billion ringgit during the quarter for its remaining 45 percent stake in Thai AirAsia after the Thai airline’s parent went public in May.
Philippine growth seen slowing As remittances boost falters to a 15-month low
The Japanese chipmaker may close or sell as many as nine of its 18 domestic factories
about 50 billion yen in lines of credit to the chipmaker, two people with knowledge of the matter said in May. Renesas plans to increase its focus on making microcontrollers, used in cars and TVs. The business has an operating profit margin of at least 10 percent, Renesas said in June. The company had a 27 percent share of the global microcontroller
market last year, making it the world’s largest manufacturer of the products. It plans to raise the share to 35 percent in five years by targeting emerging markets, and an alliance with Taiwan Semiconductor Manufacturing Co. will help cut costs and widen profit margins, Renesas said in June. Bloomberg
hilippine growth probably eased from the fastest pace since 2010 as the faltering global recovery damps demand for Filipino workers and exports. Gross domestic product probably increased 5.5 percent in the three months through June from a year earlier, slowing from a 6.4 percent pace in the first quarter, according to the median estimate of 17 economists in a Bloomberg News survey. That would contrast with Thailand, Malaysia and Indonesia, which reported faster expansion in the second quarter. The data is due today. Money sent home is equivalent to about 10 percent of the US$225 billion economy and helped the Philippines achieve the fastest growth in Southeast Asia in the first quarter. That support is sputtering as the protracted European crisis brought remittance growth to a 15-month low, crimping sales at companies including Megaworld Corp. and putting pressure on President Benigno Aquino to boost manufacturing and investments.
“The Philippines doesn’t have a rich domestic market and it has been very dependent on external income,” said Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets Ltd. “This reliance on remittances is hurting the economy. Worker remittances will soften because Europe is suffering and to a certain extent, Asia is slowing.” Remittances increased 4.2 percent to $1.81 billion in June, and the central bank forecasts an increase of 5 percent this year compared to 7.2 percent in 2011. A study by the monetary authority last month showed the funds dilute the effectiveness of the policy rate even as they bolster consumption and growth. “Remittance growth is unlikely to return to the double- digit growth rates seen from 2002-2008,” according to a report by analysts at DBS Group Holdings Ltd. last week. “Working domestically may become more attractive to locals as employment opportunities grow. We suspect that remittances will slowly diminish in importance in the coming years.” Bloomberg
South Korean imports slump Adds to signs of weakness in Asian economies Cynthia Kim
The surplus number
outh Korea’s decline in imports drove the nation’s current-account surplus to a record in July, adding to signs of weakness in Asian economies. The excess was US$6.1 billion, compared with a revised surplus of US$5.9 billion in June, the Bank of Korea said in Seoul yesterday. The current account is the broadest measure of trade, tracking goods, services and investment income. “This is a recession-type surplus,” said Sun Yoo, a Seoul-based economist at Woori Investment & Securities. “The surplus number is mostly driven by reduced imports, which is a clear sign of slowing domestic growth.” Policy makers across Asia may need to consider more stimulus measures as Europe’s debt crisis hits exports and confidence, driving Japan on Tuesday to cut its assessment of the world and Japanese economies. South Korea’s central bank may cut interest rates again
next month, after a surprise reduction in July, a Bloomberg News survey of economists indicates. Asia’s fourth-biggest economy grew 2.4 percent in the second quarter from a year earlier, the slowest pace in almost three years, according to a preliminary estimate. Imports fell 5.4 percent in July from a year earlier, as exports also tumbled.
is mostly driven by reduced imports, which is a clear sign of slowing domestic growth Sun Yoo, Woori Investment & Securities
Posco’s profits Posco, Asia’s third-biggest steelmaker by output, is among South Korean companies facing weakness in demand. The business environment in the second half “will be worse than expected early this year because of weak demand from construction and shipbuilders,” chief financial officer Park Ki Hong told investors in Seoul last month. “Still, our profitability in the second half will be better than the first half, driven by falling raw material prices.” South Korea’s three-year bonds
are yielding less than the central bank’s benchmark interest rate for the longest period on record as investors bet policy makers will lower borrowing costs further to support the economy. The 3.25 percent debt due June 2015 yields 2.81 percent and the Bank of Korea’s seven-day repurchase rate is 3 percent. The yield has been below the benchmark rate since July 6, the longest period for a three-year note in data compiled by Bloomberg going back to August
2000. Data in the coming week is forecast to show exports fell for a second month in August and inflation held at a 12-year low, according to Bloomberg surveys. The current-account surplus may exceed US$20 billion this year, an amount projected by the central bank in July, Bank of Korea statistics director Yang Jae Ryong told reporters in Seoul yesterday. The surplus may narrow in August due to the summer vacation, he said. Bloomberg
business daily August 30, 2012
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MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) gaLaXy eNTerTaINMeNT
MeLCo CroWN eNTerTaINMeNT
MgM CHINa HoLDINgS 30.7
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BOC HONG KONG HO CENTURY LEGEND
NAME ARISTOCRAT LEISU
World Stock MarketS - Indices COUNTRY
1.0362 1.5818 0.9558 1.2565 78.53 7.989 7.7563 6.3518 55.665 31.34 1.2534 29.936 42.325 9581 81.374 1.201 0.79434 7.9766 10.0375 98.67 1.03
-0.0964 0.2027 0.2092 0.1834 0.1528 -0.0063 -0.0026 0.0205 0.018 -0.1276 -0.0399 0.0935 -0.1748 -0.334 0.2507 0.0117 0.0151 -0.3335 -0.1823 -0.0203 0
1.4987 1.7693 -1.8519 -3.0553 -2.0629 0.1327 0.1431 -0.8942 -4.6708 0.6701 3.4466 1.1458 3.5794 -5.3439 -3.6154 1.3147 4.916 1.9758 3.1333 1.0033 0.0097
1.0857 1.6335 0.9972 1.4469 84.18 8.0413 7.8077 6.406 57.3275 32 1.3199 30.716 44.35 9662 88.637 1.24736 0.88845 9.2273 11.6153 111.6 1.0311
0.9388 1.5235 0.7712 1.2043 75.35 7.9823 7.7526 6.2769 45.785 29.87 1.2021 28.911 41.57 8507 72.057 1.1002 0.77553 7.7018 9.6245 94.12 1.0288
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The media Cold War Anne-Marie Slaughter
Professor of Politics and International Affairs at Princeton University and former director of policy planning in the U.S. State Department
all foreign journalists. Several weeks ago, the government of Tajikistan blocked YouTube and reportedly shut down communications networks in a remote region where government forces were battling an opposition group. The Chinese government barred all foreign journalists from Tibet when it cracked down hard on protesters before the 2008 Olympics. These more traditional tactics can now be supplemented with new tools for misinformation. For close followers of the Syrian conflict, tracking key reporters and opposition representatives on Twitter can be a surreal experience.
n information war has erupted around the world. The battle lines are drawn between those governments that regard the free flow of information, and the ability to access it, as a matter of fundamental human rights, and those that regard official control of information as a fundamental sovereign prerogative. The contest is being waged institutionally in organisations like the International Telecommunications Union (ITU) and daily in countries like Syria. The sociologist Philip N. Howard recently used the term “new cold war” to describe “battles between broadcast media outlets and social-media upstarts, which have very different approaches to news production, ownership, and censorship.” Because broadcasting requires significant funding, it is more centralised – and thus much more susceptible to state control. Social media, by contrast, transforms anyone with a mobile phone into a potential roving monitor of government deeds or misdeeds, and are hard to shut down without shutting down the entire Internet. Surveying struggles between broadcast and social media in Russia, Syria, and Saudi Arabia, Howard concludes that, notwithstanding their different media cultures, all three governments strongly back statecontrolled broadcasting. These intra-media struggles are interesting and important. The way that information circulates does reflect, as Howard argues, a conception of how a society/polity should be organised.
owns information in the first place. In January 2010, U.S. Secretary of State Hillary Clinton proclaimed that the United States “stand[s] for a single Internet where all of humanity has equal access to information and ideas.” She linked that stance not only to the U.S. Constitution’s First Amendment, which protects freedom of expression and freedom of the press, but also to
Citizens’ access to information is an essential tool to hold governments accountable. Government efforts to manipulate or block information should be presumed to be an abuse of power – one intended to mask many other
But an even deeper difference concerns the fundamental issue of who
the Universal Declaration of Human Rights, which holds that all people have the right “to seek, receive, and impart information and ideas through any media and regardless of frontiers.” Many governments’ determination to “erect electronic barriers” to block their citizens’ efforts to access the full resources of the Internet, she said, means that “a new information curtain is descending across our world.” This larger struggle is playing out in many places, including the ITU, which will convene 190 countries in Dubai in December to update an international telecommunications treaty first adopted in 1988. Although many of the treaty’s details are highly technical, involving the routing of telecommunications, various governments have submitted proposals to amend the treaty that include provisions aimed at facilitating government censorship of the Internet. Russian President Vladimir Putin has been open about his desire to use the ITU “to establish international control” over the Internet, thereby superseding current arrangements, which leave Internet governance in the hands of private groups like the Internet Corporation for Assigned Names and Numbers and the Internet Engineering Task Force. The U.S. would never sign a treaty that fundamentally changed Internet governance arrangements, but the point is that many governments will try to use the treaty process to increase their ability to control the information that their citizens can access. On the ground, governments are often still primarily focused on blocking information about what they are doing. One of the Syrian government’s first moves after it began shooting protesters, for example, was to expel
Two weeks ago, Ausama Monajed, a Syrian strategic communications consultant who sends out a steady stream of information and links to opposition activities in Syria, suddenly started sending out pro-government propaganda. The Saudi-owned satellite news channel Al Arabiya has also reported the hacking of its Twitter feed by the “Electronic Syrian Army,” a shadowy group most likely comprised of free-lance operatives with the direct or indirect support of the Syrian government. It is one thing to read about sophisticated cyber-war capabilities; it is quite another to see the online identities of familiar people or Web sites suddenly hijacked. In the many manifestations of the ongoing and growing information war(s), the pro-freedom-of-information forces need a new weapon. A government’s banning of journalists or blocking of news and social-media Web sites that were previously allowed should itself be regarded as an early warning sign of a crisis meriting international scrutiny. The presumption should be that governments with nothing to hide have nothing to lose by allowing their citizens and internationally recognised media to report on their actions. To give this presumption teeth, it should be included in international trade and investment agreements. Imagine if the International Monetary Fund, the World Bank, and regional development banks suspended financing as soon as a government pulled down an information curtain. Suppose foreign investors wrote contracts providing that the expulsion and banning of foreign journalists or widespread blocking of access to international news sources and social media constituted a sign of political risk sufficient to suspend investor obligations under the contract. Americans say that sunlight is the best disinfectant. Citizens’ access to information is an essential tool to hold governments accountable. Government efforts to manipulate or block information should be presumed to be an abuse of power – one intended to mask many other abuses. © Project Syndicate
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August 30, 2012 business daily | 15
wires Leading reports from Asia’s best business newspapers
Jakarta Globe The Indonesian government has allocated US$20 billion for infrastructure development next year to boost national economic growth. Regarding the transportation sector, the government said they hope to extend the length of current national roads by 4,278 kilometres. The government plans to build over 500 kilometres of new roads, 380 kilometres of railways, as well as some 15 additional airports. It will also build international ports in Kuala Tanjung, Sumatra for Western Indonesia, and in Bitung, Sulawesi for Eastern Indonesia.
Asahi Shimbun NEC Corp. is planning to cultivate chemical-free strawberries in India in an attempt to create jobs for the poor and spread the NEC brand. The information technology giant is cooperating with GRA, a non-profit organisation that has been growing hydroponic strawberries. In September, a team will start test growing at the College of Agriculture, Pune, in western India. NEC will construct 100-square-meter greenhouses in two villages and plans to employ about 50 homemakers from poor families in each village to help run the operation.
Business Times Singapore’s Sembcorp Marine Ltd, the world’s second-largest oilrig builder, has secured a contract worth US$674 million to carry out work for two floating production storage and offloading vessels. A subsidiary will build a total of eight modules and module integration works for the two vessels from Tupi BV, a consortium owned by Petrobras Netherlands BV. The two vessels will be deployed in the Tupi field offshore Brazil and will have a production capacity of 150,000 barrels of oil per day.
Bangkok Post The National Broadcasting and Telecommunications Commission ordered secondranked mobile operator Total Access Communication Plc (DTAC) to pay tens of millions of baht in fines for its repeated defaults to comply with telecommunications law. The move came in the wake of DTAC’s fifth network collapse since late last year. The latest failure occurred at 11am Tuesday morning before normal service resumed in the afternoon. Some 130 million mobile users of all operators were affected by the service disruption.
Libor’s trillion-dollar question Mark Whitehouse Paula Dwyer Bloomberg View editors
he global investigation into the manipulation of Libor has so far done a good job of exposing how bankers corrupted one of the world’s most important financial indicators. Now authorities need to take a giant step further: make banks release the data needed to determine how much damage was done and who should bear the most responsibility. For those still not familiar with the London interbank offered rate, it’s an array of benchmarks designed to provide an objective assessment of banks’ borrowing costs – information that is used to set the payments on hundreds of trillions of dollars in loans, securities and derivatives worldwide. The rates are calculated by asking banks, every workday morning in London, how much they would pay to borrow money in 10 currencies and at 15 time periods, from overnight to a year. Investigators are focusing on two kinds of manipulation. In one, bankers submitted false data to push Libor in a direction that would benefit their own traders. In the other, bankers intentionally lowered the reported rates, which are published daily, to make their institutions’ financial positions look better than they really were. In June, for example, Barclays Plc paid about US$450 million in fines after confessing that, during the 2008 financial crisis, it lowered its quotes below its true borrowing rates to keep them in line with those of other banks, which Barclays thought were fudging even more.
Measuring shortfall How long the lying went on, and how systematic it was, matters a lot. If, for example, underreporting caused Libor to be artificially depressed by 0.1 percentage point for only a few months, payments on more than US$300 trillion in mortgages, corporate bonds and derivatives tied to the benchmark might have fallen short by about US$75 billion or so. If the problem lasted a few years, the shortfall could be close to US$1 trillion. Such manipulation would represent a big gift to payers of Libor, such as financially stretched U.S. homeowners whose interest costs on floating-rate mortgages would have been lower. But for bond investors, municipalities, hedge funds and others on the receiving end of Libor, it would mean major losses. Many are already trying to recoup suspected underpayments through litigation. How much Libor was off, then, could be a trillion-dollar question. So far, researchers have managed only partial estimates. A 2008 Wall Street
Journal analysis suggested that three-month and six-month U.S. dollar Libor – two of the most widely used rates – were understated by an average of about a quarter percentage point in the first four months of 2008. A separate study by economists at the New York Federal Reserve used 2007 to 2009 data on interbank loans made through the Fed’s wiretransfer system. It found a smaller average discrepancy, but estimated that dollar Libor rates could have been understated by more than 0.2 percentage point in the two weeks after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008. It’s worth noting that the pressures on banks to understate their borrowing rates didn’t end with the darkest days of the financial crisis. Concerns about their creditworthiness flared up with the European debt crisis in 2010 and 2011. In June, Moody’s Investors Service downgraded a number of banks that report Libor rates on the grounds that their trading activities could threaten their solvency. Big financial institutions typically borrow US$10 or more for every dollar in equity provided by shareholders, so managing the market’s perceptions of their borrowing costs is crucial to their profitability – and at times to their survival.
Complete picture To give a more complete picture of the misbehaviour, and to establish what share of the compensation burden each Libor-reporting bank should bear, researchers need access to better data on actual borrowing costs. If they could get records of observable transactions, they could produce an independent estimate of how much the
Shedding light on the extent of Libor manipulation is essential to restoring the market’s integrity
banks’ Libor quotes were off on any given day. Such an authoritative benchmark would have many benefits: plaintiffs, for example, could use it to reach settlements with banks, avoiding legal wrangling that could weigh on the financial sector for years. Good data, though, are hard to find. The Fed hasn’t made information from its wire-transfer system public.
The Libor panel banks, for their part, closely guard information on the interest rates they pay on actual short-term loans. This is an odd habit, given that they are supposedly publishing their borrowing rates in great detail every day for the purpose of calculating Libor. If they’re not lying, there should be no news in the transactions. It’s up to the authorities investigating Libor to break the information blockade. In the U.S., for example, the Office of Financial Research, set up by the Dodd-Frank financial reform act, has the subpoena power needed to get the data and the brainpower required to crunch the numbers. Ideally, it would also make the data public, so independent academics and journalists could check its work. Shedding light on the extent of Libor manipulation is essential to restoring the market’s integrity. The point of justice, after all, isn’t only to punish the guilty. It’s also to establish the truth, so we can draw the right conclusions, fix what needs fixing and move on. Bloomberg View
business daily August 30, 2012
CLOSING Date set over Samsung ‘phone ban’
Lufthansa staff to go on strike
A U.S. judge set a December 6 court date to hear Apple Inc.’s request for a permanent injunction against Samsung Electronics Co.’s smartphones, which could delay the potential impact of Apple’s legal victory. Apple on Monday identified eight devices it will seek preliminary injunctions against, and said it would file for a permanent sales ban. The judge had originally suggested that Apple’s request would be heard next month. A jury on Friday ordered Samsung to pay Apple more than US$1 billion after ruling it had infringed several of the iPhone maker’s patents.
Cabin staff at German airline Lufthansa are to go on strike, possibly as early as today, after wage talks broke down this week. “We’ll strike tomorrow at the earliest,” said the head of the UFO labour union, Nicoley Baubliesy esterday. Lossmaking Lufthansa has said it will cut 3,500 jobs. The union is seeking a pay increase of 5 percent for cabin staff for 15 months starting from January this year, after three years of no increases. Lufthansa’s latest offer was for a pay increase of about 3.5 percent.
Irish growth forecast slashed The European Commission has cut its growth forecasts for Ireland next year by half a percentage point, a draft document seen by Reuters showed yesterday, raising fresh doubts as to whether the economy can grow fast enough to service large debts. Ireland, which returned to long-term bond markets ahead of schedule last month, has avoided joining most of the eurozone in recession but desperately needs growth to accelerate if it to eat into a debt pile set to peak close to 120 percent next year. The commission, part of Dublin’s “troika” of lenders overseeing an 85 billion euro (US$106.81 billion) bailout, said it expected gross domestic product to grow by 1.4 percent in 2013 and not the 1.9 percent predicted in May. It also lowered its forecast for this year slightly, to 0.4 percent from 0.5 percent, as Ireland’s open, export-driven economy braced itself for a tougher year than 2011 when it grew by a higher-thanexpected 1.4 percent. “The outlook for external demand has deteriorated somewhat since the finalisation of the last review, particularly for next year,” the commission said in its latest review of Ireland’s bailout programme, circulated among some Irish lawmakers ahead of its discussion at EU level. Dublin has pencilled in GDP growth of 2.2 percent for next year and could face another 12 months of downward revisions after it was forced to lower its forecast for 2012 three times in as many updates, the last coming in April.
G7 urges higher oil output Group ready to push for release of reserves Barclays to face possible SFO probe
Oil prices have surged as sanctions on Iran led to a loss of about 1 million barrels per day
inance ministers of the Group of Seven most industrialised nations urged oil-producing countries to raise output to ensure the market is well supplied, while warning that the West was ready to tap strategic oil reserves to offset rising prices that could hamper global growth. “We stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied,” the G7 said in a statement. “The current rise in oil prices reflects geopolitical concerns and certain supply disruptions. We encourage oil-producing countries to increase their output to meet demand.” Oil prices have surged as Western sanctions on Iran led to a loss of about 1 million barrels per day in crude exports from the OPEC member. Prices rose on Tuesday as Hurricane Isaac approached the oil rich U.S. Gulf coast. The administration of President Barack Obama said it was still open to possible release of oil from the Strategic Petroleum Reserve. “That option has been on the table for some time, and remains on the table, but we have no announcements to make today,” White House spokesman Jay Carney
told reporters traveling to Iowa with President Obama. Washington considered tapping emergency reserves in March but held off after oil prices declined. Reuters reported earlier this month that the White House was dusting off those plans and that some energy experts viewed Isaac as a potential trigger for such a move. The head of the IEA, which represents 28 oil consuming countries, voiced her strongest opposition yet to a release of emergency oil supplies. “Higher prices alone are not the trigger for an IEA collective stock release and at this moment we see that the crude oil market is adequately supplied,” Maria van der Hoeven said at an industry conference in Norway. Losses of crude exports due to this year’s sanctions on Iran “didn’t come out of the blue,” she said, adding that the United States would need to decide for itself whether Hurricane Isaac required a domestic stock release. Oil production in the U.S. Gulf of Mexico was down more than 90 percent on Tuesday as Hurricane Isaac headed toward Louisiana as a Category 1 storm. The hurricane bore down on New Orleans early yesterday
after making landfall. Energy analysts do not anticipate extensive damage to oil and gas infrastructure if the storm stays in line with current projections. Still, any supply disruptions could heighten pressure for emergency oil supplies to be released. “We remain vigilant of the risks to the global economy. In this context and mindful of the substantial risks posed by elevated oil prices, we are monitoring the situation in oil markets closely,” the G7 said. Finance ministers also noted that Saudi Arabia had committed at a G20 meeting of world leaders in Mexico earlier this year to use its spare oil production capacity to ensure adequate supply. The comments from the finance ministers are a strong signal that a release may be imminent, said Jan Stuart, head of energy research at Credit Suisse in New York. “A significant group of industrialised countries now appears to be ready to make reserves available – they know that when you make statements at this level, you also need to be ready to follow through,” Mr Stuart said. Reuters/AFP
U.K. fraud prosecutors may open a criminal probe as soon as this week into payments Barclays Plc made in 2008 to Qatar’s sovereign wealth fund as the bank sought to raise money, according to two people familiar with the case. The Serious Fraud Office, which prosecutes bribery and white collar crime, may inform the Londonbased bank about its decision on a probe this week, the sources told Bloomberg, who declined to be identified because the discussions are private. Prosecutors are working with the U.K. Financial Services Authority, Britain’s finance regulator, which is conducting a civil investigation into whether the bank adequately disclosed fees it agreed to pay the Qatar Investment Authority. The investigation would be another legal pitfall for Britain’s second-biggest lender by assets after it paid U.S. and U.K. authorities a record 290 million pounds (US$459 million) in June for manipulating the London interbank offered rate, or Libor, and related interest benchmarks. The case led to the resignations of three top Barclays executives, including chief executive Robert Diamond. SFO spokesman David Jones, Barclays spokesman John McGuinness and a spokesman for the QIA declined to comment. Barclays raised 7 billion pounds of capital from investors including the Abu Dhabi and Qatar sovereign wealth funds after the financial crisis began in 2007. The move allowed the bank to avoid a government bailout, unlike Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc. “The FSA is investigating the sufficiency of disclosure in relation to fees payable under certain commercial agreements and whether these may have related to Barclays capital raisings in June and November 2008,” the lender said in a statement on July 27.