Wednesday August 7, 2013
Editor-in-chief Tiago Azevedo
April 19, 2013
potential television blackout for most households has been averted, after the public antenna companies signed a deal to relay Macau Cable TV Ltd’s signal. Cable TV will receive 12 million patacas (US$1.5 million) and the antenna firms get to keep their operations. But both sides are crying foul over the uneasy truce. Macau Cable says the payment will not cover its costs but has grudgingly agreed not to claim compensation in a court case against the antenna firms. Those companies claim they are getting nothing in return for their ‘sacrifices’. They are also unhappy Macau Cable’s court case is still going ahead. The number of channels provided by the antenna firms to most Macau households will be reduced by two-thirds under the deal. More on page 3
Local partner sells stake in public bus JV Macau-based HN Group Ltd has transferred its 35-percent stake in Reolian Public Transport Co Ltd to a “third party” in mid-July, the public bus operator confirmed to Business Daily. France’s Veolia Transport RATP continues to own 65 percent of the shares in the bus company, Reolian general manager Cédric Rigaud said. Mr Rigaud told Business Daily in May that the firm had lost about 58 million patacas (US$7.3 million) in 2012. Reolian was losing more than four million patacas every month this year, he added. Reolian is still waiting for the authorities to unfreeze a 23.3 percent service subsidy increase approved in June 2012. Page 16
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Costs of renting Govt probes air MGM China’s or buying quality in casino first regular homes to rise VIP rooms half-yr dividend
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The cost of buying or renting property in Macau will continue to grow in the second half of 2013 but much slower than recently, estate agency Jones Lang LaSalle (Macau) Ltd said yesterday. Rents for cheaper flats will increase faster than for high-end homes as more outside workers are being hired. With retail sales growing more slowly so far this year, shop rent hikes are also losing steam. Page 4
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The Health Bureau has started checking the air quality in VIP casino rooms where smoking is allowed. The results of a second check on the massmarket smoking areas will be out soon, along with a mechanism to penalise failing venues, director Lei Chin Ion said. Despite criticism from Legislative Assembly members, the authorities say the smoking ban policy in its current form will not be reviewed before 2015. Page 5
Macau casino operator MGM China Holdings Ltd declared its first regular, half-year, dividend. It was set at 23 HK cents per share and is equal to US$113 million. MGM Resorts International, 51 percent owner of MGM China, will receive US$57 million, says a separate filing in the U.S. According to recent Hong Kong filings, Pansy Ho Chiu King has an effective 27 percent holding in MGM China. Page 16
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August 7, 2013
Casino cash flow tempers loan demand: Moody’s But balance sheet strength could trip operators if compete too aggressively on rebates and player credit, say other analysts Michael Grimes
t least US$26 billion (208 billion patacas) is to be spent on nine new Cotai casino projects between now and 2018, but strong cash flows generated by existing Macau casinos will help keep operators’ debt funding needs in check, says Moody’s Investors Service. A note from the ratings agency’s Hong Kong office adds that Macau’s gaming revenues will maintain “stable growth of around 15 percent” in the next six to 12 months. “Mass-market gaming will remain the growth engine, supported by the increasing numbers and affluence of visitors from mainland China, the major customers for casinos in Macau,” says the note from Kaven Tsang, vice president and senior analyst. The note adds: “Although
Keep it coming – strong cash flows for Macau operators
debt leverage will increase over the next two to three years as gaming operators raise debt to fund their multibillion integrated resort type casinos located in the Cotai area of Macau, continued gaming revenue growth will strengthen their EBITDA
[earnings before interest, taxation, depreciation and amortisation] and operating cash flow. This growth will in turn lower their debt funding needs for the planned expansions.” Matt Maddox, chief financial officer of Wynn
business as usual
José Carlos Matias Journalist
Macau’s electoral system is idiosyncratic. It is the outcome of a unique historical process that stems from the 1976 Organic Statute and the Basic Law, which came into effect on December 20, 1999. Since 1976 Macau’s legislature has comprised three different kinds of lawmakers: those directly elected, those indirectly elected to represent functional constituencies, and those appointed by the head of government. The number of legislators was gradually expanded over the years and the balance of power among the three kinds was adjusted, with an increase in the preponderance of directly and indirectly elected lawmakers. Last year’s electoral reforms, the outcome of what seemed like an engineered consensus, reinforce this trend, but were a lost opportunity to make the legislature truly more representative. The proportion of directly elected legislators will increase from 41.37 percent, or 12 out of 29, to 42.42 percent, or 14 out of 33. This falls short of what one might call a baby step. The number of indirectly elected seats will grow from 10 to 12, meaning that representatives of the functional constituencies will make up 36.4 percent of the assembly, an increase of almost 2 percentage points. At the end of the day, the new formula will strengthen the position of legislators that are chosen by interest groups and associations. Two indirectly elected seats will be added. One is for another representative of the professional sector and the other for a representative of the newly established social services and education constituency. The new seats are meant to make the representatives of the functional constituencies more representative. However, nothing about this small-circle corporatist electoral system will change substantially. Once again, there is only one list of candidates for each of the functional constituencies in September’s Legislative Assembly elections, no others having secured the required support of at least 20 percent of the associations that make up the constituencies. This is a far cry from what happens in Hong Kong, where most functional constituencies are contested. It may be argued that the Macau way has always been different from the Hong Kong way. But the bottom line is that indirectly elected legislators are, de facto, appointed by interest groups. And they do not seem interested in paving the way for contested elections and thereby connecting with society and becoming more representative. Is it because their interests are not necessarily the same as the public interest? It is their business as usual.
Resorts Ltd, said last week on that firm’s second quarter earnings call that it would use between “30 and 40 percent” of its free cash flow for the US$4 billion Wynn Palace scheme it is presently constructing on Cotai. He added the firm currently had US$1 billion in cash on hand and US$1.5 billion in an undrawn revolver loan. Such loans – unlike term loans – allow the borrower, on payment of a commitment fee to the lending institution, to draw down the principal, repay it (usually with interest) and re-draw it, depending on the borrower’s cash flow needs. One possible pitfall for cash rich Macau operators however is that they might be tempted to try and build their mass-market rolling chip programme
quickly via offering better rebates to players than their competitors, thus reducing operational margins. Ian Coughlan, president of Wynn Macau, hinted at this on the Wynn earnings call. “The mass market highlimit side is hypercompetitive … we’ve just been focusing on taking care of our customers, delivering high-quality service and try not to get into the heavy discounting promotional battle that’s in the marketplace,” he stated. Rob Goldstein, executive vice president and president of global gaming operations for Las Vegas Sands Corp, said on that firm’s second quarter call that the VIP segment was driven not by the availability of credit facilities but by player demand. “We’re happy to extend credit because our credit track record in Macau has been excellent,” said Mr Goldstein. “The fact is if the demand’s there we’ll extend the credit.” Some analysts point out privately to Business Daily however that many Macau operators now set either minimum monthly chip turnover targets for VIP gaming promoters, or award commission incentives for beating targets. That, say the analysts, creates a direct incentive for VIP gaming promoters and the casino to support aggressive issuance of credit, and raises the risk of increases in bad debt.
August 7,2013 2013 April 19,
Govt to pay MOP12 mln to forestall TV blackout Macau Cable TV abandons its quest for compensation from the antenna companies Tony Lai
he government proposes to pay Macau Cable TV Co Ltd about 12 million patacas (US$1.5 million) to avert a television blackout by allowing public antenna companies to relay Macau Cable TV transmissions. Macau Cable TV and the antenna companies said they were accepting the government proposal only to protect the public interest. They said the arrangement proposed by the government would be of no benefit to either of them. Macau Cable TV said it would give up asking for compensation from the antenna companies for infringing television copyrights. But it did not say whether it would also drop its claim for 500 million patacas in compensation from the government. Macau Cable TV signed contracts yesterday with 14 antenna companies allowing them to relay through their networks programming provided by Macau Cable TV. This arrangement is meant to comply with a court ruling made i n June. T he Court of Se con d Instance gave the government 90 days to stop the antenna companies from illegally relaying cable television transmissions.
KEY POINTS Cable TV, antenna companies reach agreement Parties say they will gain no benefits, mention ‘unfair’ terms Cable TV to be paid MOP980,000 monthly until April, 2014 Channels broadcast by antenna companies cut to one-third
This could have led to a television blackout, because 70 percent of households get their television programmes from antenna companies. The government will pay Macau Cable TV 3.8 million patacas up front and then 980,000 patacas a month until April 21 next year, when the company’s exclusive concession to sell cable television expires. Secretary for Transport and Public Works Lau Si Io said Macau Cable TV would have to provide a detailed breakdown of the extra costs it incurred because of the arrangement. Government money would be used to cover only those costs, Mr Lau said.
unfavourable to them. “We have nothing now. We sacrificed ourselves without any conditions,” Mr Yeung said. He said Macau Cable TV was still suing the antenna companies. Macau Cable TV “only said it would give up asking us for compensation if the court ruled against us”, he said. “This is still unfair to us,” Mr Yeung said, arguing that the
Legal status Agreement on the government’s proposal had been held up by Macau Cable TV demanding more money. Bureau of Telecommunications Regulation director Lawrence Tou Veng Keong said the company’s original demand had been “not too extreme”. But Mr Tou said the government had been unwilling to accept the demand because it had “to spend public money wisely”. Neither the government nor Macau Cable TV would reveal how much money the company had demanded. Macau Cable TV operations director Ricky Tam Mong Peng said the amount his company would receive “is much smaller than our actual costs”. Mr Tam added: “There are a lot of terms in this proposal that are unfair to Macau Cable TV.” The arrangement “indirectly gives antenna companies’ operations a legal status”, he said. He said this was why Macau Cable TV had given up trying to get the courts to make the antenna companies pay it compensation for copyright infringement. Mr Tam predicted that his company would get no new subscribers, as much of its programming would now be available more cheaply from the antenna companies. A spokesperson for the antenna companies, Yeung Ka Ke, said the arrangement was
Regulation: “What we hope is for you to tell us what the government will actually do instead of ‘we will continue to study’.” Mr Au, also a New Macau Association member, is worried Cable TV could still monopolise the market with no competition ready to start operating by the end of April. Fellow pan-democrat Ng Kuok Cheong asked whether the authorities’ reluctance to launch the market liberalisation was “a possible
Going halfway The owner of an antenna company, who asked not to be identified, told Business Daily that Macau Cable TV was still pursuing its court case against the antenna companies because the outcome might affect its request to arbitrators to find in favour of its claim for compensation from the government for failing to protect the rights it had under its concession contract. “So it went halfway – continuing to press on with the case against us but promising that it will not seek compensation,” our source said. Mr Tam told reporters that Macau Cable TV and the government had not discussed the arbitration case. He said he did not know whether the case would be abandoned. The arrangement allows antenna companies to relay only 15 digital channels and 25 analogue channels from Macau Cable TV’s portfolio. Mr Yeung said this meant subscribers to antenna companies would be able to watch only one-third of the channels they watched now. Taiwan channels acount for many of most being dropped. Mr Tou said: “We now basically keep the channels that residents are used to watching, but for other channels we still have some issues to tackle, like the copyright.”
Antenna companies will keep their most popular television channels, says Lawrence Tou
Legislators fear no opening for cable TV market S everal legislators are worried that Macau Cable TV Ltd will continue to monopolise the cable television market even after its exclusive concession expires next April. The concession became a hot topic at the Legislative Assembly yesterday after Cable TV and public antenna companies signed a deal to prevent a potential TV blackout. Legislator Au Kam San told Lawrence Tou Veng Keong, director of the Bureau of Telecommunications
arrangement proposed by the government was meant to reconcile the parties to the dispute.
exchange of favours” with Cable TV. The telecommunications regulator will “immediately start research on the television market,” said Mr Tou. He reiterated the government’s pledge to open up the market and said he had already started talks with Cable TV on a new contract after April 2014. It is “a common practice” also in other jurisdictions to include the incumbent concessionaire when opening up a market, said Mr Tou.
Ricky Tam Mong Peng, Cable TV’s operation director, said earlier the operator was optimistic about its future. Yeung Ka Ke, a spokesperson for the public antennas, did not comment on whether they would vie for a new licence. Mr Tou told the assembly the government would have to pay up to 300 million patacas (US$37.6 million) if it were to end Cable TV’s concession early. T.L.
August 7, 2013
Costs of renting or buying homes to rise
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But Jones Lang LaSalle expects shop rents growth to slow in second half
Gaming is not just about casinos. People play other games of chance, betting and – hopefully – winning money elsewhere. These other forms of gambling include betting on the horses or the dogs, betting on sports such as football or basketball, and, of course, buying an old-fashioned lottery ticket. Casino games generate the bulk of Macau’s gaming revenue. The proportion is growing, making the contributions of other forms of gambling to total gaming revenue ever more marginal. In the past five years the combined revenue generated by betting outside casinos and by lotteries never made up even 1 percent of total revenue. Moreover, the combined revenue from these forms of gambling decreased every year.
Revenue from betting outside casinos and from lotteries made up just over 0.95 percent of total gaming revenue in 2008. By last year this proportion had decreased to 0.35 percent, and in the first half of this year was just below one-third of a percentage point. However, the decrease in the proportion, and the small amount of the contribution that these forms of gambling make to total revenue masks differences in the fortunes of each. Revenue from betting on football and basketball has increased – revenue from basketball betting almost doubling. The amount of money bet on greyhound racing seems to have peaked last year, the figures for the first half of this year emphasising the downward trend since. The amount bet on horse racing was at its highest in 2008, but appears to have held up since better than dog racing revenue. Revenue from lotteries is verging on negligible. The amount bet on Chinese lotteries was about 500,000 patacas (US$62,581) a month, on average, and the amount bet on instant lotteries was just few hundred patacas a month.Should the momentum continue, data from the individual visa scheme may hint at a bumper year for mainland arrivals.
he cost of buying or renting property in Macau will grow steadily in the second half of 2013, estate agency Jones Lang LaSalle (Macau) Ltd said yesterday. Low interest rates here will continue. That, coupled with a strong inflow of capital and a limited housing supply will support high prices, the estate agency said in a media briefing reviewing market developments so far this year. In the first half of 2013 the average home price reached 84,126 patacas (US$10,530) per square metre, a 58.5 percent year-on-year rise, Financial Services Bureau data show. In contrast the number of home transactions increased just slightly, by 0.16 percent, to 7,092. Jeff Wong Chi Wai, head of residential property at Jones Lang LaSalle Macau, believes home pricing will “continue its upward trend” and grow by three to five percent in the second half of this year. The agency’s transaction records show home rents for high-end flats increasing by 9.6 percent year-on-year in the January-June period. The rise reached 10.3 percent for cheaper flats. “Home rentals have been active in the first half of this year as the city is still seeing more outside employees coming here to work,” said Mr Wong. Rents for cheaper flats will continue to grow faster than for high-end ones, “as it did in the past few years,” he added. “Most of the expatriate employees
coming in are entry-level staff or midlevel executives. They have a strong rental demand for smaller flats in the mass market,” the agent said.
Shop rent slows Jones Lang LaSalle projects shop rental costs growing more slowly, at five percent or under throughout 2013. In its earlier 2012 market review the agency had highlighted a surge in average retail rents, which doubled, and capital values of commercial property, which rose 142.6 percent
Home rentals have been active in the first half of this year as the city is still seeing more outside employees coming here to work Jeff Wong, head of residential property, Jones Lang LaSalle
Proportion H1 gaming revenue bet in casinos
Retail rents rose in the first half, mainly in the city’s tourist hot spots (Photo: Luís Almoster)
year-on-year in 2012. The surge then was mainly driven by an increase in supply as more buildings in tourist hot spots around Senado Square and St. Paul Ruins were converted to shops. In the first half this year, for prime locations such as the pedestrian streets surrounding Senado Square, the monthly shop rental amounted to HK$500 to HK$1,500 per square foot, says Jones Lang LaSalle. In the first half of this year sales of goods by the shops themselves grew by 16.6 percent, not nearly as fast as last year. As a result shop rent growth is likely also to slow; to 3.5 percent, the agency’s managing director Gregory Ku said. “Poorer economic data out of mainland China” has also contributed to a slower shop rental growth, said Alvin Mak Jones, the senior manager of Jones Lang LaSalle’s investment department. The agency’s records show the yield on capital investment for retail properties dropped to 2.3 percent in the first half of 2013 from 2.7 percent a year earlier. “It is not like before, where retail tenants were fighting to get a space in prime districts,” said Mr Ku. “Now the retail tenants are more careful when renewing or signing a rental deal.” “Also, shop rents have already reached quite a high level,” he told Business Daily. “We project a retail rental growth within five percent throughout the year.”
August 7, 2013
Macau Almost 1,000 taxi complaints in H1 In the first half of this year the Transport Bureau received 987 calls from passengers complaining about taxi services, TDM News reported. The most common complaint involved taxi drivers choosing their customers and overcharging for rides. Only 272 calls were deemed worthy of further investigation and more than 30 drivers were fined. The remaining cases are still being analysed. The law regulating taxi drivers would be ready in the last quarter of 2013, creating harsher penalties, the bureau said. The new law will also punish taxi licence owners over offences committed by drivers.
Lower budget for free Internet service The government had spent about 37 million patacas (US$4.6 million) in the WiFi Go service, which provides free Internet access in 132 public spots, by the end of 2012. This figure was far below the budget of 70 million patacas, the Bureau of Telecommunications Regulation said in a reply to an inquiry from Legislative Assembly member Chan Meng Kam, quoted by the Portuguese-language newspaper Ponto Final. The bureau did not reveal, however, if it will open a new public tender once Centro de Informações Tecnologia de Macau’s three-year concession expires in September.
Smoking in casinos was banned, except in designated areas, on January 1
Govt sniffs the air that VIP gamblers breathe The Health Bureau chief says air quality standards are more lax in Las Vegas and Singapore Tony Lai
China Star boosts developer’s profit Eternity Investment Ltd, a Hong Konglisted property developer, announced late on Monday it expects to post “a significant increase” in the profit for the first half of 2013 from a year earlier. Part of that profit growth is coming from dividend issued by China Star Entertainment Ltd, the owner of Macau’s Lan Kwai Fong casino-hotel. Eternity is seeking to sell up to 4.1 billion shares in China Star, a stake of more than 56.1 percent. Most of the shares would come from the conversion of bonds and rights shares.
AERL turnover up 15 pct in July Unaudited rolling chip turnover in VIP rooms reached US$1.5 billion (12.0 billion patacas) last month, 15 percent more than a year earlier, junket operator Asia Entertainment & Resources Ltd said on Monday. The company attributed the increase to June’s buyout of a VIP gaming room at Le Royal Arc Casino and improved turnover at its four other rooms. The win rate was 3 percent. Rolling chip turnover for 2013 was US$10.04 billion up to the end of July, down 12 percent compared to the same time last year.
he Health Bureau has begun checking the quality of the air in VIP gaming rooms, where smoking is allowed, the Legislative Assembly heard yesterday. Answering questions from members, the bureau’s director, Lei Chin Ion, said the results of a second round of tests of the air quality in smoking areas for mass-market players would be ready soon. The bureau said in April that the first round of tests had detected problems with the air quality in 28 of Macau’s 46 gaming establishments. “But how about the VIP rooms, where employees have described the air quality as the worst?” member Kwan Tsui Hang asked. Mr Lei replied that his bureau had begun testing the air in VIP smoking areas, but did not say how many tests it had done or when it had done them. Speaking generally, he said: “The bureau carried out 144 inspections of air quality from January to July, collecting over 2,600 samples.” He added: “We have done regular and surprise inspections to
ensure the accuracy and validity of the samples.” Mr Lei said the Health Bureau would soon reveal how it would punish gaming establishments that failed air quality tests a second time, or that failed to submit their monthly reports on air quality on time. Several members expressed doubt about the efficacy of banning smoking only in parts of casinos. Mr Lei said the quality of air in casinos had improved since January 1, when smoking was banned except in designated smoking areas, which must take up no more than 50 percent of a casino’s floor space.
Clearing the air He said the government had “faced many challenges” in enforcing the ban. “There are not many examples in other places that Macau can take as a reference,” he said. Mr Lei expressed confidence that the air quality requirements here “are stricter than the ones in Las Vegas and Singapore.”
Macau Foundation locks down on subsidies C
riticism from the public spending watchdog seems to have had an impact on the Macau Foundation, which reduced the amount of subsidies it granted last year while rejecting more applications. According to its annual report, the foundation approved subsidies worth 854.6 million patacas (US$107 million) in 2012, down by one third. In addition, the body led by Wu Zhiliang turned down 16 percent
of the 924 subsidy applications it received last year. In 2011 the city’s biggest sponsor of not-for-profit entities had rejected just 12.3 percent of all 1,058 requests. The foundation grabbed the spotlight in June after the Commission of Audit released a report slamming the institution’s lax supervision, causing cases of over-subsidising and of associations getting more than one subsidy. In response Mr Wu pledged to
He said some casinos had submitted their monthly reports on air quality late because there was “a limited number of laboratories” here that they could use. Ms Kwan was unconvinced. She demanded that the Health Bureau release more data and come up with measures to improve the quality of the air. “The public is in the dark,” she said. Mr Lei said the government would consider publishing the results of monthly tests of air quality online. But he said gaming establishments already made the data public. Angela Leong On Kei, a member who is also an executive director of gaming company SJM Holdings Ltd, again demanded a complete ban on smoking in casinos. Mr Lei said; “We will review the tobacco law by 2015, as the law requires.” He said the Health Bureau had recommended an increase in the tobacco tax, but did not say how big an increase it had recommended.
improve the accountability on how the subsidies are spent. Institutions that had not spent all of the money in the activity they had requested it for would have to return the remaining amount, he said. The amount of subsidies that were returned to the foundation grew almost five-fold, from 10.9 million patacas to 53.2 million patacas. With less money flowing out, the institution saw its expenses fall by 12.4 percent to 1.41 billion patacas. The bulk of the foundation’s money comes from a levy of 1.6 percent on the gross gaming revenue generated by gaming companies. With casino revenue rising by 13.5 percent last year, the institution’s revenue also grew by 16.2 percent to 4.09 billion patacas. V.Q.
August 7, 2013 April 19, 2013
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Financial Monitor Hitting the road As most drivers can tell you, Macau’s roads are becoming more crowded by the day. The figures for motor vehicles keep rising steadily, with no sign that any big reversal of this trend is about to happen, even though journey times and the cost of running and parking a vehicle are increasing. Since the beginning of 2010 the number of light vehicles, heavy vehicles and motorcycles has increased by more than 30,000 altogether. In June, 52.6 percent of vehicles were motorcycles, but the proportion has been slowly decreasing. In January 2010 it was 54.1 percent. The number of light vehicles increased by 21 percent in the three and a half years represented in the chart, growing at a faster rate than the number of vehicles generally, which increased by 16.4 percent. The number of heavy vehicles increased by just under 7 percent, but their size makes up for the slower growth – as any driver can tell you.
Ponte 16 moves to black in first half Business improves at Inner Harbour casino resort, says investor Vítor Quintã
acau casino resort Ponte 16 saw its trading position improve in the first half of 2013 after posting a nominal loss a year earlier, co-operator Success Universe Group Ltd announced. Ponte 16 has had an “improved performance” in the first half and is expected to post a profit, Success said in a filing to the Hong Kong Stock
Exchange late on Monday. That would represent a step up from the year-ago period, when Success wrote down a loss of HK$300,000 (US$39,000) from the resort. Success is a 49 percent investor in Ponte 16. The other half of the venture is controlled by Sociedade de Jogos de Macau SA via its 51
Ponte 16 is still waiting for the government to approve its third phase development
percent holding. Success reported a loss groupwide of HK$28.3 million in the same period of 2012. It has other businesses including a travel agency in Canada and a cruise ship. In May Success completed a buyout of Maruhan Corp’s interest in Ponte 16. Maruhan was a five percent partner on Success’s side of the Ponte 16 venture. The Japanese company with a focus on operating pachinko game parlours – said in February it wanted an amicable end to the relationship. Success paid HK$219.1 million for Maruhan’s investment. One of the factors currently limiting Success’s development is that it has not yet been able to expand the Ponte 16 site by building a third phase. In April 2012 it secured bank loans worth more than 2.4 billion patacas for that purpose. The original permission for the extension was granted by now-jailed former government secretary Ao Man Long. The administration is currently reviewing that approval, although there is no suggestion of improper conduct on the part of Ponte 16’s investors or managers. Ponte 16 opened in 2008. As at 31 December 2012, the casino had 109 gaming tables, 82 of which were mass gaming tables, nine were high-limit mass-market tables and 18 were VIP tables according to a filing in April. Jade Travel Ltd, a travel agency incorporated in Canada that is controlled by Success, is expected to post a loss for the first half of this year, as it “was affected by the unfavourable global economy,” the latest filing says.
Hotels for Belle Grande ‘not finalised’ In the period represented in the chart, the number of vehicles on the roads increased, on average, by 740 per month – by 410 light vehicles, 10 heavy vehicles and 320 motorcycles. But the rate of increase slowed in the second half of the period. This was due mainly to slower growth in the number of light vehicles. The average number of light vehicles that first took to the road each month was about one-quarter lower in the second half of the period than in the first half. This may suggest that the number of light vehicles is approaching saturation point. J.I.D. The content of this column is the work of Business Daily’s journalists.
220,951 Motor vehicles in Macau in June
Melco Crown says announcement will be made to stock exchange when deals completed Michael Grimes
acau casino developer and operator Melco Crown Entertainment Ltd said in an e-mailed statement to Business Daily that details on the hotel partners for Belle Grande Manila Bay “are not yet final”. A Philippine investor in Belle Grande claimed in a newspaper interview published on Monday that hotel brands from Melco Crown’s City of Dreams resort in Macau could be among the “two to three hotel brands” that will be operated at the 900-room property. MCE’s hotel inventory in Macau consists of the 791-room Grand
Hyatt Macau, the 300-room Crown Towers, the 300-room Hard Rock Hotel and the 216-room own-brand Altira Macau Hotel. But MCE told us in the statement – also filed with the Philippine Stock Exchange yesterday by MCE’s local unit Melco Crown (Philippines) Resorts Corp – that it couldn’t confirm what hotels Belle Grande would have. “…we confirm that while there are plans to bring in several hotel brands for the project, such plans are not yet final. Hence, appropriate disclosures will be made to the exchange as soon as all hotel branding, licensing and
related arrangements that will be operating in the project are finalised and all definitive agreements with the respective counterparties are signed,” stated MCE. MCE has committed to raising US$650 million (5.19 billion patacas) for the fit out and operation of the Manila resort. It was built as a shell by a local investor. MCE described Belle Grande in an October filing in Hong Kong as a US$1 billion scheme. In April, Melco Crown (Philippines) sold shares in the project to other local investors via an initial public offering in Manila that raised US$377 million gross.
August 7,2013 2013 April 19,
August 7, 2013 April 19, 2013
Greater China Biostime shares halted on price fixing probe Infant milk producer Biostime International Holdings Ltd, which imports most of its products from overseas, said yesterday its shares were suspended pending an announcement related to an investigation by Beijing’s top economic planning agency. The company, which has a market value of US$3.4 billion, had said previously that a unit based in China’s southern city of Guangzhou was being investigated by the National Development and Reform Commission (NDRC) over suspected price-fixing. Biostime, in a statement to the Hong Kong stock exchange in late July, said it planned to lower prices of infant formula products by 5 percent to 10 percent and that the investigation into its unit was ongoing. The latest news comes amid a crackdown on business practices in China where several international milk powder producers have cut prices after the NDRC said it was investigating possible price-fixing and anti-competitive behaviour. Shares of Biostime, which listed in 2010, had fallen 3.6 percent to HK$41.8 prior to the trading halt.
Comac may delay maiden flight for first large jet Commercial Aircraft Corp of China will delay the maiden test flight of the country’s first large passenger plane to 2015 from an earlier plan for next year, four company officials familiar with the plan said. Comac, as the company is also known, delayed the flight of C919 because of certain procedures that aren’t linked to technical matters, the people said, declining to be identified as the information isn’t public. The Shanghai-based planemaker may notify suppliers about the decision as early as this month. China is building the 168-seat plane as it tries to break Airbus SAS and Boeing Co’s stranglehold in the global market for aircraft of this size. Last year, Comac asked its project designers to work 12-hour days, and also Saturdays, to meet the deadline for the maiden flight of the jet. Comac said last year it had 380 commitments for the C919, with most clients being Chinese airlines and lessors. Honeywell International Inc and CFM International, a venture between General Electric Co and Safran SA, are among its suppliers. GE’s aircraft leasing arm has signed on to take 20 of the C919 planes. Other customers include China’s big three airlines and the leasing units of state-controlled lenders.
Investors plough money into HK Sparking warnings of another investment bubble Emma Bi and Sheridan Prasso
llan Shek, the owner of a Hong Kong shop selling gold and jade jewellery, says he’s made millions on the side by riding wild swings in the stock market and by buying into the city’s property boom. No more. Last month, he bought five Hong Kong taxis and the licences to operate them. Seven or eight of his friends have bought taxis too, he says. “If I have the ability, I will buy another 15 taxis this year,” says the 60-year-old Mr Shek, speaking with rapid-fire enthusiasm over the latest way to make money in a city where the benchmark Hang Seng Index has fallen almost 7 percent from the year’s high and record property prices have started to decline because of government curbs. The price of a licence combined with a taxi reached a record HK$7.66 million (US$987,600) on June 6, the highest since Taxixchange.com Ltd, which brokers deals, started tracking the data in 2000. Prices have surged more than 80 percent since taking off in September 2009, as cheap financing and expectations of continued gains draw investors. Ten taxis sold on Monday for HK$7.1 million each. The run-up is sparking warnings of yet another investment bubble in a city that’s no stranger to them, said Billy Mak, associate professor of finance at Hong Kong Baptist University. The prices for the cars – most are shiny, red Toyota Crown
Comfort models imported from Japan – and their licences have increased at a faster rate than the income the taxis generate. “The bubble is already there,” said Mr Mak. “Investors feel that there aren’t many good investment tools in the market, as there are restrictions
on the property market, and the stock market is not performing that well.”
Shifting investment Investors typically turn over their purchases to taxi-management companies, which rent them to
Beijing orders Abbott recall on milk scare Two batches suspected of having been contaminated, regulator says
Cnooc parent plans dollar-bond sale China National Offshore Oil Corp, the parent of the nation’s biggest offshore energy explorer, is considering raising as much as US$3 billion in a sale of U.S. dollar-denominated bonds, two people with knowledge of the matter said. The state-backed company hasn’t made a final decision on the size of the offering, said the people, who asked not to be identified as the deliberations are private. Cnooc Ltd, its listed unit, in May raised US$4 billion in the biggest dollar-bond sale from Asia outside of Japan in more than nine years. Chinese dollar-bond sales are showing signs of a revival after yields fell from a peak in June. Firms from China Petroleum and Chemical Corp to China Huaneng Group Corp sold a record US$22.8 billion of dollar-denominated notes in the second quarter, before interest-rate jitters froze the market, data compiled by Bloomberg show. Yields on Chinese dollar bonds declined to 6.26 percent, as of yesterday, from as high as 6.59 percent in June, according to JPMorgan Chase & Co indexes.
hina has ordered U.S. pharmaceutical company Abbott Laboratories to recall some products in the country over a botulism scare centred on New Zealand dairy giant Fonterra Cooperative Group Ltd, authorities said yesterday. Two batches of Abbott’s baby formula “risked having been contaminated by clostridium botulinum”, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) said in a statement. Clostridium botulinum is a bacteria that can cause botulism, an infection that can lead to paralysis and death. “The AQSIQ has required Abbott … to recall the relevant products to protect the health of Chinese consumers,” said the statement. The formula, intended for children aged between one and three, was produced by Fonterra on May 2 for a Shanghai subsidiary of Abbott, it added. Fonterra revealed at the weekend that a whey product used to make baby milk and soft drinks had been contaminated with the bacteria.
The company has blamed the contamination on a dirty pipe at a North Island processing plant. Abbott said in a statement that none of its products sold in China used Fonterra’s contaminated whey product, but that the two batches of formula involved were packaged on a Fonterra production line that had residues of the tainted raw material. “Although the two batches… do not expose any heath risks, we have decided to recall the products and destroy them as a precaution for the maximum benefit of customers,” it said. The batches comprised a total of 7,181 boxes of baby milk tins, but only 112 boxes had been sold and the remainder had already been sealed, it added. The scare has seen restrictions put on Fonterra products imported into China while Dumex and Karicare, both subsidiaries of French food giant Danone, issued recalls in China, Hong Kong, Malaysia, Singapore, Thailand and New Zealand. Aside from Dumex, the other two companies affected in China, Hangzhou Wahaha and Coca-Cola’s Chinese subsidiary, who used the
whey in soft drinks, both said their products were safe but they would recall them as a precaution. Fonterra is the world’s largest dairy cooperative and New Zealand’s biggest company, accounting for 89 percent of the country’s milk production in 2011. Baby formula safety is a sensitive issue in China, where consumers’ distrust mounted after milk tainted with the chemical melamine left six children dead and sickened more than 300,000 in 2008. It prompted the collapse of Fonterra’s partner Sanlu Group. AFP
August 7,2013 2013 April 19,
K’s red taxis
HK$7.66 million Record price paid for a taxi and its licence
drivers to generate income. About half the licences are bought by investors, according to Sintat Motors Management Ltd, another broker. While prices of the taxis and licences have almost doubled since 2009, daily rental costs of HK$680 to HK$800 have increased by around
12 percent in the same period, said Ling Chi-yung, general manager of Sintat Motors. Many of the investors are shifting out of the property market, according to Cheung King-sum, Sintat’s executive director. About 10 percent are retirees looking for stable income, he said, while 10 percent of owners are drivers. “Today the return rate of a taxi is higher than that of property,” said Kenny Wong, 42, an investor who owns four vehicles after purchasing his latest last year. “I won’t sell it even if it increases to HK$8 million because there is no better investment for now. After selling it, what can I do except put my money into the bank?” Mr Wong said his interest rates are slightly below 2 percent on loans – about HK$13,000 a month for each taxi, leaving him with HK$5,000 a month profit. Taxis generate about HK$18,000 a month after management, maintenance and insurance is deducted, Mr Cheung said. Putting HK$7.66 million, the record cost of a taxi in June, in a bank would pay just HK$1,277 per month in interest, at a rate of 0.20 percent for a one-year time deposit at HSBC Holdings Plc, with no chance of capital appreciation. The same amount would have purchased a 600-square-foot apartment on Hong Kong Island, according to data compiled by Midland Holdings Ltd. Hong Kong’s taxi prices are fanned by a limited supply held constant since 1994, the last time the Transport Department issued licences. With more than 15,250 red, or “urban,” taxis on Hong Kong’s streets, the department will only “consider issuing new taxi licenses as and when necessary to ensure there is adequate taxi service to meet public demand,” according to Michael Kwan, a spokesman.
Chinese broker buys Natixis commodities unit
hina’s benchmark moneymarket rate dropped to a twoweek low after policy makers lowered the cost of funds for banks at an auction of reverse-repurchase agreements yesterday. The People’s Bank of China conducted 12 billion yuan (US$2 billion) of seven-day reverse repos at a yield of 4 percent, according to a statement on its website. That compares with 4.4 percent on July 30, when the contracts were used in open-market operations for the first time since January. The central bank issued 14-day agreements on August 1 at a yield of 4.5 percent. “By lowering its reverse-repo rate today, the central bank is aiming to guide interbank repo rates lower,” said Pin Ru Tan, an interest-rate strategist at HSBC Securities Asia Ltd in Hong Kong. “The dovish policy tilt is obvious, so money-market rates should still have room to decline.” The People’s Bank of China will appropriately fine-tune policies and strike a balance between stable economic growth, structural adjustment, reform and risk prevention, according to a statement published on August 4 after a meeting of heads of central bank branches.
Tencent lets WeChat users buy online Users in the mainland now able to buy goods and games
WeChat has more than 300 million users
encent Holdings Ltd, China’s biggest Internet company, yesterday began allowing its WeChat users to make online payments, less than a week after Alibaba Group Holding Ltd blocked the messaging app. Users in mainland China – which excludes Hong Kong, Macau and Taiwan – can buy goods and games from some WeChat accounts, said Jerry Huang, an
investor relations director for Tencent in Shenzhen. Accounts abroad will be limited to buying animation stickers, he said. WeChat has more than 300 million users with more than 70 million registered outside of mainland China. Tencent is counting on the chat application as it challenges virtual mall operator Alibaba for dominance over Internet retail in China, which McKinsey
Money rate slides as PBOC lowers yield
ne of China’s top securities brokers has bought parts of the commodities trading unit of French bank Natixis SA in the latest move by Chinese institutions to expand into natural resources markets. Western banks that trade raw materials face increased regulatory and political pressure, with some market leaders such as JPMorgan Chase & Co considering selling, spinning off or clinching strategic partnerships for their commodities desks. A Natixis spokeswoman said China’s Shenzhen-listed GF Securities Co Ltd had bought Natixis’ London-based commodities brokerage unit. She added the deal did not include some client-based commodities trading activities at Natixis, which will continue. A statement posted on the Shenzhen stock exchange website said GF Securities’ wholly-owned subsidiary, GF Futures (Hong Kong) Co Ltd, acquired UK’s Natixis Commodity Markets Ltd for US$36.1 million. Chinese companies have long been expanding into commodities trading amid booming demand for resources at home. Chinese oil firms have amassed powerful trading desks in Europe and the United States. But while China’s massive demand for resources, fuelled by its rapid industrialisation, has underpinned worldwide markets for everything from oil to iron ore, Chinese banks have been relatively slow to embrace commodities trading.
& Co estimates will triple to US$395 billion from 2011 to 2015. Alibaba, which is heading toward what may be the biggest initial share sale since Facebook Inc, has been buying stakes in mobile apps as users spend more time and money on smartphones and tablets. “Online games and e-commerce are both very important as it is a new source of growth,” said Ricky Lai, an
analyst at Guotai Junan International Holdings Ltd in Hong Kong. “This will help Tencent compete against Alibaba.” Tencent rose 1.24 percent to HK$375.60 in Hong Kong trading, reversing from an earlier decline. The stock has gained 51 percent this year, compared with a 3.4 percent drop for the benchmark Hang Seng Index. Closely held Alibaba, China’s largest e-commerce company, hasn’t kept up with WeChat, billionaire chairman Jack Ma acknowledged in March, even as his Internet juggernaut started developing its mobile business three years ago. Still, Tencent’s profit will probably be slower than the average of the previous five years, according to the average of analysts’ forecasts and data compiled by Bloomberg. WeChat offered its latest version on Apple Inc’s app store on Monday, Mr Huang said. The Android version isn’t available yet, he said. Alibaba on August 1 said it blocked sellers’ access to WeChat, citing security reasons. Shoppers have instead been offered to log on to the Taobao Marketplace using their Weibo accounts. Some sellers on Alibaba tried to steer transactions away from its Taobao Marketplace and Tmall.com platforms, and disturbed customers through promotions on WeChat, Alibaba said in a statement. Alibaba agreed to buy a stake in Sina’s Weibo unit in April. About 76.5 percent of the 49.8 million daily active users of Sina Corp’s Weibo accessed the service through mobile devices in March, according to an earnings call in May. Bloomberg News
August 7, 2013 April 19, 2013
Greater China/ Asia
Asian bargain hunters drawn to Tokyo Investment in luxury residential market finding its way to Japan on the back of weaker yen Kathleen Chu and Katsuyo Kuwako
Average price of a 3-bedroom apartment in Tokyo and surrounding prefectures
costs less than 50 million yen can offer a return of about 6 percent to 7 percent, while the mortgage rate is at about 2.5 percent to 3 percent, Mr Ho said. CTBC Financial Holding Co, one of five Taiwanese lenders with branches in Japan, said the number of mortgage loans and the value of mortgage lending in the nation tripled in the first half from the same period last year. The bank is offering a floating mortgage rate of 2 percent to 3 percent, which is tied to the onemonth Tokyo interbank offered rate, or Tibor, said Keiken Matsumoto, a Tokyo-based mortgage loan officer at the bank.
hen Julia Chang, a 48-yearold Taiwanese who divides her time between Taiwan and Tokyo, decided to diversify her family’s overseas investments, she settled on real estate in the Japanese capital where prices have slumped for two decades. Ms Chang, a former flight attendant, is looking to buy her third apartment in Tokyo, which is increasingly attracting foreign buyers after Prime Minister Shinzo Abe took office in December with a pledge to end the deflation that’s depressed real estate. “Tokyo properties make a good investment because they are relatively cheap,” said Ms Chang in an interview at her 170 million yen (US$1.7 million) three-bedroom apartment in central Tokyo. “It’s a bargain.” Asian investors like Ms Chang are being lured by returns as high as 8 percent on rental income and signs the property market is recovering. The government’s resolve to keep the yen weak has also made real estate in Japan more affordable compared with Hong Kong, Singapore and Taiwan, where governments have been struggling to contain surging residential prices. “Japan is cheap considering how much property prices have gained in Singapore and Hong Kong,” said Akihiko Mizuno, international director and head of capital markets at Jones Lang LaSalle Inc. “They expect to receive stable rental income and also have an expectation that prices will rise.”
addresses in Chelsea, Kensington and north of Hyde Park fetching about 4,000 pounds, CBRE Group Inc said in a June report. Property prices in major Japanese cities are still less than half their peak at the height of the bubble economy in the 1980s. The average price of a three-bedroom apartment in Tokyo and surrounding prefectures rose 7.9 percent in June from a year earlier to 48.3 million yen, according to the Real Estate Economic Institute Co. A unit of about 1,000 square feet (93 square metres) in Taipei, Taiwan’s capital, costs about NT$19.5 million (US$648,250) in June, according to Taipei-based Sinyi Realty Co. The average price of a new 1,000-square-foot condominium in Singapore is between S$1 million (US$784,000) and S$1.2 million, according to Savills Plc. A 1,076-square-foot apartment on Hong Kong Island cost an average HK$19.1 million (US$2.5 million) at the end of May, according to the Ratings and Valuation Department.
‘Restless capital’ Investment in the luxury residential market that has driven major Asian cities is now finding its way to Tokyo, said Sanjay Verma, chief executive for the Asia-Pacific region at broker Cushman & Wakefield Inc.
Relative value Home prices in Tokyo are around 120,000 yen (US$1,225) to 150,000 yen per square foot, according to Jones Lang LaSalle. That compares with about 280,000 yen to 400,000 yen in Hong Kong and 200,000 yen to 250,000 yen in Singapore, it said. In New York, the average price per square foot for a Manhattan condo is US$1,381 or about 137,000 yen, according to appraiser Miller Samuel Inc and brokerage Douglas Elliman Real Estate. Homes in the best parts of central London sell for about 2,000 pounds (US$3,100) a foot, with
Japan is cheap considering how much property prices have gained in Singapore and Hong Kong Akihiko Mizuno, Jones Lang LaSalle
“The capital is very restless,” Mr Verma said in an interview in Tokyo. “If there is idle money sitting there, it will find a way to get invested.” Sinyi, Taiwan’s biggest listed real estate broker, started selling properties in Japan to buyers from Greater China – which comprises Hong Kong, Taiwan, China and Macau – in 2010 and has tripled the number of properties sold in two years, said Kenny Ho, Tokyo-based managing director at the realtor. Sinyi handled 11.3 billion yen of properties in Japan in the first six months of the year, exceeding the 8.6 billion yen for the whole of 2012, Mr Ho said. The yen’s weakening against the dollar this year has made apartments in Tokyo about 15 percent cheaper than last year, driving up demand, he said.
Drawing winners “It used to be that all we needed to do is to talk about prices,” he said. “Now in some cases, our clients have to enrol into a draw and compete with Japanese buyers to acquire new properties.” Bidding on new apartments is prohibited in Japan, so buyers are entered into a public draw, a practice adopted during the bubble era when homebuyers had to line up for days before a property was put up for sale, according to Mitsubishi Estate Co, the nation’s biggest developer by market value. Ms Chang’s US$1.7 million apartment, located in Kojimachi in Tokyo’s Chiyoda-ku, has a view of the Imperial Palace. An apartment that has the same proximity and location with Chang’s unit offers about 5.1 percent of return, according to an estimate by Sinyi. Ms Chang said she wanted to diversify the family’s wealth by looking at investment opportunities overseas. “When making an investment, you want to buy when prices are low and with relatively low risks,” she said. “That way, it has more room for prices to go up. Besides, Tokyo is one of the biggest cities in the world after all. Owning properties here makes me happy.” A one-bedroom apartment that
Noticing the overseas interest, Jones Lang LaSalle has held half a dozen seminars in Singapore since November, advertising Japanese properties. The broker has so far sold more than 100 Tokyo homes, with prices from 40 million yen to as much as 200 million yen, for Japanese homebuilders, including Mitsubishi Estate, Mr Mizuno said. The broker has also started marketing apartments in Japan to Hong Kong investors following the success in Singapore, he added. The company may triple its staff in charge of international sales in Japan to match the rising demand, he said. Japan’s housing starts rose for a 10th month in June, the longest streak since the period ended December 1996, the Ministry of Land, Infrastructure, Transport and Tourism said July 31. Prime Minister Abe’s pledge to end 15 years of deflation through monetary easing by the Bank of Japan have helped bolster consumer confidence, fuelling expectations that property prices will start rising. Masayuki Taniguchi, a 51-year-old real estate broker, spotted the trend early. Three years ago, he set up a homepage in Chinese to sell properties in Tokyo to investors from Taiwan, Hong Kong and China. He didn’t get any response until late last year and has gotten about 200 inquiries since Mr Abe took office in December. “At first, I was just stunned,” said Taniguchi, the president of Mikuraya Co, a Tokyo-based hotel and home-share operator. “I knew there was demand. I just couldn’t believe how rapidly the situation changed. With Abenomics, people expect the yen to decline, which makes the properties here cheaper to invest for overseas investors.” Bloomberg News
KEY POINTS Home prices in Tokyo start at US$1,225 per square foot – JLL Flats in Tokyo about 15 pct cheaper than last year Mortgage loans and value tripled in the first half
August 7,2013 2013 April 19,
NZ moves to contain Fonterra fallout Dairy contamination highlights vulnerability to food safety issues
ew Zealand seized control of Fonterra Cooperative Group Ltd’s response to a milk contamination scare yesterday after criticising the dairy giant’s handling of a crisis which has triggered global recalls and tainted the nation’s “clean, green” image. Economic Development Minister Stephen Joyce said officials had been sent to Fonterra premises in New Zealand and Australia to ensure the company provided accurate information about a potentially fatal bug found in products used to make baby formula. Mr Joyce acknowledged it was unusual for the government to take such a hands-on approach with a private company but said global consumers needed to regain confidence in New Zealand’s dairy industry, which accounts for a quarter of the country’s exports. He said data that Fonterra initially provided about the presence of a bacteria that can cause botulism had proved incorrect, leading to contradictory advice and confusion in a saga that has forced product recalls from China to Saudi Arabia. “It’s certainly pretty frustrating, that’s probably the most generous term I could use,” Mr Joyce told Radio New Zealand. “I’d have expected this information to have been available fairly quickly.” He said about 90 percent of the contaminated product had been found and Ministry of Primary Industry (MPI) officials hoped to use Fonterra’s product tracking records to locate the rest by today afternoon. He said Fonterra had not raised any objection to government officials effectively sidelining the company from the crisis management response. “Frankly, Fonterra has welcomed it because it will speed up the MPI checking,” he said. “It’s important that MPI, as the regulator, has to have the confidence,
Infant formula containing the tainted ingredient has been taken off shelves
because the rest of the world’s regulators are relying on MPI.”
Image damaged Fonterra is the world’s largest dairy cooperative and New Zealand’s biggest company, accounting for 89 percent of the country’s milk production – 15.4 billion litres – in 2011 and recording turnover of US$15.7 billion last year. Chief executive Theo Spierings travelled to China to make a public apology on Monday and Prime Minister John Key said government ministers would visit Beijing in coming weeks to stress that New Zealand’s food safety regulations were second to none. Underlining the importance of China to New Zealand’s economy, the prime minister said he would also
make the trip himself if necessary. Mr Key has said the first signs of a problem emerged in May 2012, but Fonterra said it was only alerted to the possible contamination in March this year and that tests were then required to identify the cause and strain of the bacteria. Finance Minister Bill English acknowledged New Zealand’s “100 percent pure” image had taken a hit but said it was too early to put a dollar figure on the damage. ‘’No-one can really put a number on any long-term reputational effect,” he said. “What we know is that if it’s managed well over the next week or so that will have quite a lot less impact than if it’s managed badly.’’ The scare has seen restrictions put on Fonterra products imported into China while Dumex and Karicare, both subsidiaries of French food giant
Danone, issued recalls in China, Hong Kong, Malaysia, Singapore, Thailand and New Zealand. AFP
It’s certainly pretty frustrating, that’s probably the most generous term I could use Stephen Joyce, New Zealand Economic Development Minister
Australia cuts rates to record low Push to boost economy as resource boom ends
ustralia’s central bank damped expectations of further interest rate cuts after reducing its benchmark to a record low, sending the local dollar higher. Governor Glenn Stevens cut the overnight cash-rate target by a quarter percentage point to 2.5 percent and said the Reserve Bank of Australia’s board “has previously noted that the inflation outlook could provide some scope to ease policy further”. That contrasted with last month’s view the outlook for prices “may provide some scope for further easing”. “The RBA sounded pretty neutral,” said Alvin Pontoh, Singapore-based strategist at TD Securites. “There’s no hint here that they are in any position to follow this cut with another cut next month, so I take it as a signal they’re happy to keep rates on hold for the near term.” Prime Minister Kevin Rudd, who called an election for September 7, may benefit politically from the
reduction in a nation where about 90 percent of mortgagees have variable-rate loans. The easing reflects contained inflation and falling commodity prices, and follows a fourmonth slide in the Aussie. The local currency rose, trading at 89.72 U.S. cents in Sydney, from 89.22 cents before the decision.
KEY POINTS RBA cuts cash rate to historic low of 2.5 pct Says subpar growth, low inflation argued for an easing Market already priced for move to 2.25 pct by Christmas
“The Australian dollar has depreciated by around 15 percent since early April, although it remains at a high level,” Mr Stevens said. “It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.” Treasurer Chris Bowen last week lowered the government’s growth forecast and predicted the jobless rate will rise to an 11-year high by July. Yesterday’s cut is the second this year and extends an easing cycle that began in November 2011, when the benchmark was lowered from 4.75 percent. “The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values, and further effects can be expected over time,” Mr Stevens said yesterday. Markets have already baked in another move to 2.25 percent by Christmas and there is no hint of a tightening priced in for at least the next year.
The exchange rate may ‘depreciate further,’ says Glenn Stevens
That outlook is reflected in government bond yields, with the cost of borrowing out for one year hitting an all-time low of 2.24 percent this week. Even two- and three-year yields are under the cash rate. Bloomberg News/Reuters
August 7, 2013 April 19, 2013
Asia Thai spending delay adds to growth risks Thailand’s economic growth may slow further this year as the government’s attempt to push through an amnesty bill for political protesters risks delaying its US$64 billion infrastructure spending plan. Prime Minister Yingluck Shinawatra’s ruling Pheu Thai party said it will resume debate today on a law to exonerate protesters involved in demonstrations stretching from a coup in 2006 that ousted her brother, Thaksin Shinawatra. Prioritising that legislation may mean lawmakers won’t have time to vote on a plan to spend 2 trillion baht (US$64 billion) to modernise railways, roads and ports, an investment that the government says may boost annual gross domestic product growth by 1 percentage point and create 500,000 jobs. The infrastructure bill hasn’t been scheduled during the three-month parliament session that began last week. “The delay will hurt growth,” said Euben Paracuelles, an economist at Nomura Holdings Inc in Singapore. “It will also create a negative feedback loop. This could be interpreted by investors as a sign that politics is rearing its ugly head again,” he said, adding that a delay in infrastructure spending may slow growth by about 0.3-0.5 percentage point. The Bank of Thailand last month cut its expansion forecast for this year to 4.2 percent from 5.1 percent and its export growth estimate to 4 percent from 7.5 percent, citing cooling global and local demand. Gross domestic product increased 5.3 percent in the first quarter from a year earlier. The SET Index slid about 10 percent in the past 3 months, the worst performer in Asia, on concern export growth may slow and the government’s amnesty push may spark political protests. The baht dropped in July for a fourth straight month, its longest losing streak since 2008.
India rupee sags to record low The Indian rupee fell to a record low yesterday, on what traders said was U.S. dollar demand from importers, raising prospects for the central bank to take fresh steps to bolster a currency that has lost 12.6 percent since the start of May. The partially convertible rupee fell to 61.5125 to the dollar, smashing through a previous low of 61.21 hit on July 8, as investors worry that the government will struggle to implement measures to reduce a record-high current account gap. Yesterday’s 1 percent drop was the steepest among Asian currencies tracked by Reuters. Several market watchers said further weakness is likely, as the Reserve Bank of India’s earlier measures to defend the currency, built around squeezing rupee liquidity in the money market, have failed to stem the tide. “I expect direct interventions and further measures which will only work to slow the trend, because reversal requires fundamental reforms that are unlikely to happen,” Dariusz Kowalczyk, senior economist and strategist Credit Agricole In Hong Kong, told Reuters. “I expect further depreciation in the rupee in the short run,” he added. The Reserve Bank of India unveiled dramatic measures on July 15 to prop up the rupee by raising short-term interest rates and draining market liquidity, but to little avail, with cash conditions failing to tighten significantly. Prime Minister Manmohan Singh’s weak coalition government, facing the prospect of gridlock in the monsoon parliament session that kicked off on Monday, has yet to announce substantial measures to attract rapid capital inflows, further denting the rupee’s prospects. As a result, analysts say the central bank is likely to have to step in again with stronger measures to drain cash.
IMF urges Japan to stick to sales tax hike Move ‘critical’ for maintaining investor confidence, official says Leika Kihara
he International Monetary Fund said it was essential that Japan go ahead with a scheduled two-stage doubling of its sales tax from next year amid signs the government is reconsidering the plan out of concern it could derail a nascent economic recovery. The IMF also called for the Bank of Japan to be ready to expand its asset-buying scheme or shift the mix of assets being purchased if inflation does not pick up as envisaged, or if government bond markets became volatile again. With Japan’s huge public debt leaving the country little room to offer additional fiscal stimulus, monetary policy should be the first line of defence against risks to growth such as weakening exports to China, the IMF said in a detailed report on its annual consultations with policymakers released late on Monday. Japan is due to raise its sales tax in April to 8 percent from 5 percent, and to 10 percent in October 2015. The IMF said the hike was an “essential first step” to fix Japan’s fiscal problems, and should not be delayed. “The absence of credible
fiscal and structural reforms could weigh on confidence and undermine the success of the started reforms. This would not only be detrimental to Japan, but also for the rest of the world,” the IMF said. “As Japan’s debt would remain unsustainable, a global tail risk of a spike in yields and volatile capital flows would remain on the table.”
Tax debate The IMF said expectations of inflation are rising, a sign the government’s efforts are working so far. But the test will be whether markets will eventually expect inflation to reach the government’s 2 percent target, Jerry Schiff, the IMF’s mission chief to Japan, said in an interview. “Two percent inflation expectations would signal that the Bank of Japan’s efforts are now fully credible,” he said. “So we’re not there. But we have moved in that direction.” The BOJ should stand ready to boost asset purchases, or shift the composition of purchases to buy more risky assets than government bonds,
if risks to Japan’s recovery heightened and prevented inflation from picking up, the IMF said in the report. Japan’s public debt is the largest among major industrialised nations at more than twice the size of its 500 trillion yen economy, and the sales tax hike is considered a test of the government’s commitment to reform. Sources have said Prime Minister Shinzo Abe has ordered a study of alternatives to the planned increases to avoid derailing an economic recovery he has tried to foster through a policy mix that has been dubbed “Abenomics”. The IMF’s Mr Schiff said the hike in the sales tax should move ahead as planned in order to convince investors Japan was serious about tackling its fiscal issues. “Everybody knows that Japan has a very large debt burden … and they need to make a down payment on a medium-term plan to bring debt-toGDP down,” he said. Mr Schiff said the consumption tax could slightly hurt growth next year as consumers scale back purchases, but the effect would be less than the government’s projections for a hit to GDP of 0.6 percentage points. Reuters
Sony rebuffs entertainment spin-off proposal Loeb urged splitting film and television from electronics business
apan’s Sony Corp yesterday rejected a proposal from activist shareholder Daniel Loeb to spin off part of its entertainment business, arguing it could still squeeze synergies from its marriage of content and hardware while promising greater disclosure. Sony’s decision could end a three-month effort by Mr Loeb’s Third Point LLC hedge fund to convince the company to sell as much as a fifth of its moneymaking entertainment arm – movies, TV and music – to free up cash to revive the electronics business. “Sony’s board of directors has unanimously concluded that continuing to own 100 percent of our entertainment business is the best path forward and is integral to Sony’s strategy,” Sony chief executive Kazuo Hirai said in a letter to Mr Loeb, which was released by the company. The overture by the Californian billionaire had been seen as a test of Japan Inc’s openness to foreign investment and influence under “Abenomics”, as Prime Minister Shinzo Abe’s government pushes for corporate competitiveness and growth while a recent share rally lured many foreign investors back
to Japan. Mr Loeb, who owns around 7 percent of Sony through shares and cash-settled swaps, has called the entertainment division poorly managed. He also wanted to make it more transparent and accountable. Third Point said yesterday it would continue talking with Sony and explore further options. “Third Point looks forward to an ongoing dialogue with management and intends to explore further options to create value for Sony shareholders,” the fund said in a statement. Sony’s shares fell 4.59 percent yesterday after the announcement but market players said the drama may not be over.
Despite yesterday’s share price drop, Sony’s shares have more than doubled so far this year, buoyed by Third Point’s suggestions as well as Abe’s potent mix of monetary and fiscal stimulus, which has fuelled a rise of about 35 percent in Tokyo’s benchmark Nikkei average. “I think the chances that Third Point will sell its shares are slim,” said Makoto Kikuchi, chief executive of Myojo Asset Management, adding the hedge fund may yet appeal directly to Sony shareholders, which include a large number of foreign investors. Sony’s promise to improve transparency in its entertainment business includes plans to disclose in its earnings releases from next quarter revenue figures for certain categories in its pictures and music segments. Sony said the board rejected the proposal in a unanimous vote, arguing that its decadesold vision of wringing synergies from integrating its content and electronics divisions was intact and gaining importance. Many analysts and investors over the years have questioned the potential of that strategy. Reuters
August 7,2013 2013 April 19,
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SUGAR #11 (WORLD) Oct13
COTTON NO.2 FUTR Dec13
World Stock Markets - Indices NAME
WTI CRUDE FUTURE Sep13
Currency Exchange Rates
0.8995 1.537 0.9277 1.3266 98.37 7.9888 7.7562 6.1214 61.6925 31.42 1.2685 29.959 43.53 10279 88.489 1.23075 0.86319 8.1204 10.5997 130.5 1.03
1.0447 0.1499 0.3557 -0.0301 0.1525 0.01 0.009 0.0539 -1.3251 -0.2864 0 -0.1302 -0.1378 -0.2919 -0.8984 0.377 0.161 0.2795 0.0274 0.1686 0
-13.3263 -4.9827 -1.3259 0.5762 -12.4733 -0.0701 -0.0722 1.7839 -10.8563 -2.6735 -3.713 -3.0909 -5.8006 -4.7281 0.947 -1.8907 -5.5341 1.1958 -0.6538 -12.9732 -0.0097
1.0625 1.6381 0.9839 1.3711 103.74 8.0111 7.7664 6.3729 61.8063 31.62 1.286 30.228 44.181 10333 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032
0.8848 1.4814 0.9022 1.2256 77.13 7.9818 7.7498 6.1203 51.3863 28.56 1.2152 28.913 40.54 9448 79.408 1.20066 0.78128 7.799 9.7946 95.94 1.0289
Macau Related Stocks PRICE
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AMAX HOLDINGS LT
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Shanghai Shenzhen Composite index is listing the biggest companies by market capitalisation. All data supplied by Bloomberg unless otherwise indicated.
Hang Seng Index NAME AIA GROUP LTD
BANK OF CHINA-H
BANK OF COMMUN-H
BANK EAST ASIA
BELLE INTERNATIO BOC HONG KONG HO
NAME CHINA UNICOM HON CITIC PACIFIC CLP HLDGS LTD
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TINGYI HLDG CO
WANT WANT CHINA
HENDERSON LAND D
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HANG LUNG PROPER
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CHINA LIFE INS-H
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HONG KG CHINA GS
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HSBC HLDGS PLC
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PING AN INSURA-H
INDEX 21923.7 HIGH
52W (H) 23944.74 (L) 19076.78906
August 7, 2013 April 19, 2013
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August 7,2013 2013 April 19,
Protectionist shadows wires over solar power Business
Leading reports from Asia’s best business newspapers
Yomiuri Shimbun Japan’s government is expected to soon begin work in earnest on the fiscal 2014 budget, although with no decision yet on whether to implement a consumption tax hike in April, it remains unclear how big the budget will ultimately be. The uncertainty over tax revenue puts government ministries and agencies in the difficult position of having to follow a budgetary request ceiling without fully comprehending the real situation. A complex process of coordination within the government is likely until budget-related legislation is passed in late December.
Thanh Nien Daily Vietnamese health authorities have ordered the recall of a New Zealand-made infant formula after the global warning that it might contain bacteria that can cause the deadly botulism. The Food Safety Department ordered Abbott Vietnam to stop distributing Similac GainPlus Eye-Q for children between one and three years old from 10 lots that were imported between June 17 and July 3, and remove them from shop shelves.
Wall Street Journal Malaysia’s exports continued to weaken on Monday, another worrying sign for an economy facing increased investor scrutiny. The trade data showed exports falling for a fifth straight month, down 6.9 percent on-year, as tepid demand from the U.S., China and Japan hurt shipments of palm oil and electronics. Meanwhile, domestic demand has supported imports, narrowing the country’s trade surplus to multi-year lows and raising concerns that Malaysia could fall soon into a currentaccount deficit for the first time since the late 1990s
Straits Times In a bid to help small and medium enterprises, the Workforce Development Agency and Human Capital Singapore this week launched the 360 productivity framework. The framework has been designed for enterprises to understand and utilise productivity tools, in order to up their ante amidst a tight labour market. The framework consists of three components – an annual productivity event, a series of four productivity masterclasses and eight productivity practice sessions. Some 700 SMEs stand to benefit from the scheme, according to a statement released on Monday.
Professor of Capital Formation and Growth at Harvard University
s July ended, a settlement was reached in the world’s largest anti-dumping dispute, with China agreeing to a minimum price for the solar panels that it exports to the European Union. The solution is much less severe than what had been the imminent alternative: EU tariffs on Chinese solar panels were set to rise to 47.6 percent, as a result of the European Commission’s “finding” that China – whose market share now stands at 80 percent in Europe – had been “dumping”. Nonetheless, the settlement is a bad outcome for consumers – and for the environment. The China-EU dispute parallels a similar one between China and the United States. Last fall, the U.S. introduced tariffs of 24 percent to 36 percent against Chinese solar-panel imports, after the Commerce Department determined that China had been “dumping” – which is generally defined as selling at a price below cost – into the American market. China, citing its own finding of U.S. dumping of polysilicon – a key input in the production of solar panels – into its market, has already retaliated by imposing import tariffs that could exceed 50 percent. The solar-panel disputes may sound narrow and esoteric, but they go to the heart of the long-running debate over globalisation. Anti-globalisation activists’ most powerful argument is that even if free trade is good for economic progress overall, it might undermine important public goods such as environmental protection. Under the well-known “race to the bottom” hypothesis, countries that are open to international trade are thought to adopt weaker environmental regulations than less open countries do. But trade can also have beneficial environmental effects. Specialisation in each country allows people to obtain more of what they want, which, especially at higher income levels, includes cleaner air and water. When trade brings down costs, it can benefit environmental goods just as much as it benefits other goods.
Air benefits So, is trade globalisation, on balance, better or worse for the environment? Some empirical studies of cross-country data find net beneficial effects on indicators of environmental degradation like local sulphurdioxide air pollution. Provided that countries have effective governance institutions at the national level,
trade and growth give them the means to clean their air. But the evidence also suggests that trade and growth can exacerbate other forms of environmental degradation, particularly carbon-dioxide emissions, because CO2 is a global externality that cannot be addressed at the national level, owing to the free-rider problem. The solar-power industry is a perfect example of how trade can benefit air quality. Sceptics of solar power have long argued that its share in electricity generation cannot rise above a few percentage points without massive subsidies, because it is too costly compared to the alternatives. Proponents, for their part, counter that temporary moderate subsidies would expand the industry, with economies of scale and learning-by-doing then bringing down costs sharply. But proponents have focused too much on government subsidies and too little on the contribution of international trade, which in recent years has had a
Westerners should thank Chinese panel producers for their contribution to keeping solar power viable
highly positive effect on the development of solar power, as the bonanza of Chinese panels held down costs. The current embrace of protectionism threatens to reverse this progress. With the loss of cheap solar panels from China, and with subsidies that helped to drive the European industry now reduced for fiscal reasons, the share of solar power in Europe will fall far short of environmentalists’ goals. But “findings” of “dumping” into foreign markets surely warrant some response, no? Actually, no.
Keeping it viable For starters, even those who are generally sympathetic to trade and markets often have the impression that anti-dumping laws target “predatory pricing,” a practice in which a large producer sells below cost in order to drive its competitors into bankruptcy, at which point it can raise the price and reap monopoly profits. But that is not even the way anti-dumping laws are usually written, let alone applied. Simply put, anti-dumping measures, such as the U.S. and EU tariffs against Chinese solar panels, are a means of reducing, not fostering, competition. So, if predatory pricing is not the producers’ motive for selling below cost in these cases, what is? The solar-panel industry worldwide – in China, Europe, and the U.S. – is experiencing a glut of productive capacity. As a result, global supply and demand are balanced at a market price that is below the long-term average cost per unit, which includes a share of the cost already incurred in building the factories. But that
market price is not below the short-term cost of keeping the factories running once they are built. In other words, producers sell at prices that are “below cost,” because, having already built the factories, they would lose even more money if they charged above the competitive market price or shut down production altogether. When the U.S. or EU finds that China is “dumping” solar panels, or when China finds that the U.S. is “dumping” polysilicon, they are using average cost rather than marginal cost. By this criterion, dumping occurs every time a store has a clearance sale. Some have compared the negotiated agreements to limit China’s solar-panel exports to past “voluntary export restraints” (VERs) or “orderly marketing arrangements” in the steel and consumerelectronic industries, especially those that Japan agreed to apply to its exports to the U.S. in the 1980’s. But a more revealing precedent is Japan’s VERs on exports of autos during this period. American automakers had found it increasingly difficult to compete against smaller, more fuel-efficient Japanese imports. When free trade was eventually restored, American wallets and air quality benefited (and the U.S. auto industry was forced to become more efficient). Free trade in automobiles was good for the environment 30 years ago. The same is true of trade in solar equipment today. Westerners should thank Chinese panel producers for their contribution to keeping solar power viable, not penalise them through protectionist anti-dumping measures. © Project Syndicate
August 7, 2013
Closing Standard Chartered hurt by Korea
German orders gain most since October
Asia-focused bank Standard Chartered Plc took a US$1 billion hit on the value of its troubled South Korean business, dragging earnings down 16 percent and warning of a slow turnaround in its most difficult market. The bank said pre-tax profit fell almost 16 percent to US$3.3 billion in the six months to the end of June, compared to US$3.9 billion for the same period a year ago, the bank said yesterday. It posted a US$861 million pre-tax loss in Korea for the first half, after a two-thirds jump in loan losses and provisions for souring debt. Excluding the write-off, profit edged up 4 percent.
German factory orders increased by the most in eight months and U.K. industrial production beat forecasts in June, adding to evidence of a nascent recovery in Europe. German orders, adjusted for seasonal swings and inflation, increased 3.8 percent from a month earlier, the Economy Ministry in Berlin said yesterday. U.K. industrial production beat the 0.7 percent increase forecast in a Bloomberg News survey. Factory output jumped 1.9 percent, also exceeding economists’ predictions. Italy’s recession eased in the period. The nation’s economy contracted 0.2 percent from the first quarter.
Macau partner leaves Reolian
SJM, Angela Leong still in Cotai talks
Public bus operator’s accumulated losses prompted HN Group to transfer 35-percent stake
Casino concessionaire SJM Holdings Ltd and one of its executive directors Angela Leong On Kei are still in talks about new entertainment facilities on Cotai said SJM’s chief executive last night. Ambrose So Shu Fai told Business Daily: “We are discussing the form of cooperation still, but the intention is there. There are various forms that we are exploring.” SJM only received its Cotai land concession from the government in May this year, but is hoping to open a facility by 2018 at the latest – two years before its current concession expires. Its Cotai plot is only 70,500 square metres (759,000 sq. feet), while local legislator Ms Leong – fourth consort of SJM’s founder Stanley Ho Hung Sun – has a plot next door of 180,000 sq. ms. Asked whether SJM would have a problem if convicted gangster Wan Kuok Koi became a shareholder in a junket operation in a casino licensed by SJM, Mr So stated: “I think the Macau government has made it very clear that it will treat every junket application in a fair and equitable way. So if anybody gets a licence I don’t see any problem for any of the concessionaires to allow a junket operator which is approved by the Macau government to operate.” Mr So was speaking on the sidelines of an SJM Scholarship Award ceremony.
acau-based HN Group Ltd has transferred its 35-percent stake in Reolian Public Transport Co Ltd to a “third party” in mid-July, the public bus operator confirmed to Business Daily. France’s Veolia Transport RATP continues to own 65 percent of the shares in the bus company, Reolian general manager Cédric Rigaud said. Stephen Chok, a former representative of HN Group in Reolian’s board, said the company had already decided by October last year to transfer its shares. HN Group was once controlled by former president of the Legislative Assembly Susana Chou Kei Jan. HN Group is mainly focused on wholesale and retail trade, “earning just a small [profit] margin,” said Mr Chok. “The group managers had concluded that it [the company] was no longer able to support Reolian, as the bus operator has been recording losses and no one
could see when the situation would end,” Mr Chok told us. Mr Rigaud told Business Daily in May that the company had lost about 58 million patacas (US$7.3 million) in 2012. Reolian was losing more than 4 million patacas every month this year, he added. “The government was not willing to grant a service charge hike to Reolian, which made the situation more difficult,” he continued. Reolian is still waiting for the authorities to unfreeze a 23.3 percent subsidy increase approved in June 2012. Mr Chok said he was not “at a proper position” to reveal how much money HN Group was pumping into Reolian or which company now owns the shares.
No impact Mr Rigaud confirmed that HN Group stopped injecting money into Reolian last December. “HN Group has been gradually
stepping out of its engagement in Reolian,” said Mr Chok “The shares’ transfer procedure was also started at that time and was only completed around mid-July,” he added. Besides from an investor, HN Group also helped Reolian in its contacts with government departments such as the Labour Affairs Bureau and the Transport Bureau, Mr Rigaud and Mr Chok said. The share transfer was a “commercial decision” by HN Group, which “will not affect at all” Reolian’s day-to-day operation and management, Mr Rigaud remarked. He also said HN Group’s exit would not leave the bus operator in a more fragile position in its relationship with the government or increase the odds of losing its licence. “The shares transfer is not a political matter,” said Mr Rigaud. Reolian has sued the government in an attempt to be awarded the subsidy increase approved in June 2012.
MGM China pre-tax profit up 13 pct in first half Declares first regular, half-year dividend equal to US$113 million, adds a U.S. filing Michael Grimes
re-tax profit at MGM China Holdings Ltd rose 13 percent year-on-year to HK$2.5 billion (US$322.31 million) in the first half of 2013, the Macau casino operator said in a Hong Kong filing yesterday. The firm also declared its first regular, half-year, dividend. It was set at 23 HK cents per share and amounts in U.S. dollar terms to US$113 million. It will be paid on or about September 2 to shareholders of record as of August 26. MGM Resorts International, 51 percent owner of MGM China, will receive US$57 million, according to a separate filing in the United States. “Based on our continuous strong operating performance, the board
is pleased to declare our first semiannual regular dividend,” said MGM China chief executive Grant Bowie in the Hong Kong announcement. MGM Resorts introduced the formal dividend policy in February. Jim Murren, chairman of MGM Resorts, said the policy could be sustained even with ongoing investment in the underconstruction, US$2.6 billion, MGM Cotai property. That’s due to be completed in April 2016 according to a press release by main contractor China State Construction. Profit attributable to owners of MGM China was HK$2.5 billion in the first half, a drop of nearly four percent compared to HK$2.6 billion a year ago. The firm said the
difference was a deferred tax expense of HK$424.9 million. During the period net revenue increased 12 percent year-on-year to what the firm said was an “historical high” of HK$12.3 billion, driven by record volume in both VIP and main floor table games segments. Adjusted earnings before interest, taxation, depreciation and amortisation – and before deduction of MGM Resorts’ branding fee – rose 10 percent to HK$3.2 billion. The firm added that its margin was down 50 basis points to 26.3 percent, compared to 26.8 percent a year ago. That was mainly due it said to a lower win rate for VIP operations in the first half of this year of 2.8 percent, compared to 3.2 percent in the first half 2012.
Rajan to head up India central bank India named Raghuram Rajan, a prominent former International Monetary Fund chief economist who in 2005 predicted the global financial crisis, to lead its central bank as the country struggles to defend a rupee that hit a record low yesterday. Mr Rajan, 50, will take over from Duvvuri Subbarao, whose turbulent five-year tenure ends on September 4, amid a darkening outlook for Asia’s third-largest economy. “He has the intellectual pedigree and policy experience but my worry is people will think a smart guy coming in will fix all of India’s problems,” said Bhanu Baweja, head of emerging markets strategy at UBS AG in London. “The problem in India is political consensus and execution. By itself the appointment doesn’t change my view on the market, I am underweight the rupee and Indian equities,” Mr Baweja said. In a March interview with Reuters, Rajan said he believed inflation of around 5 percent in a developing economy is “reasonable”, putting him on the same page as Mr Subbarao, who has set 5 percent as medium-term goal and 3 percent as a long-term target. Mr Rajan also favours formation of a monetary policy committee, as opposed to the current autocratic powers enjoyed by the governor, a set-up that would bring the RBI more in line with the practice at major central banks elsewhere.