Year I Number 235 MOP 6.00 Friday March 8, 2013 Editor-in-chief Tiago Azevedo Deputy editor-in-chief Vitor Quintã
Court set to auction bust airline’s shares
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he administration is to auction of shares of now-defunct airline Viva Macau – Sociedade de Aviação Ltda. In a notice published yesterday, the Court of First Instance said it would auction the Viva Macau shares that belonged to major stakeholder Eagle Airways Holdings Ltd. According to previously released legal documents, as of September 2010 – the time Viva Macau was
declared bankrupt – the directors of Eagle Airways included Kevin Ho King Lun, the nephew of the former Macau chief executive Edmund Ho Hau Wah; Kevin McKenzie, business development director of Ignite Media Group; and Ngan In Leng, Viva Macau’s former chairman. The auction scheduled for April 10 will seek buyers for a stake with “a face value” of almost 25 million patacas (US$3.1 million). More on page 2
New high for zero tariff scheme
Q4 moving in date for one-bed govt flats
The value of bilateral trade that can enjoy zero tariffs under the Mainland and Macao Closer Economic Partnership Arrangement (CEPA) reached a record high last year, according to Gongbei border officials. Gongbei Customs released figures on March 6 show the value of tariff-free exports from Macau via Gongbei reached more than US$5.4 million (43.2 million patacas), state agency China News Service reported.
Successful applicants will be able to move to new governmentsubsidised one-bedroom flats in the fourth quarter says Tam Kuong Man, the Housing Bureau director. Applications to buy one of around 2,000 one-bedroom units are expected to open to eligible residents this month. But the government hasn’t yet specified what income ceiling will be applied to the would-be buyers.
Amax’s 2 audit chairmen in 7 months The chairman of the audit committee for Amax Holdings Ltd – an investor in Macau junket operations – has resigned “for personal reasons” fewer than six months after taking the job. A filing to Hong Kong Stock Exchange said Owen Chow Ho Wan – who is also a non-executive director – “has not indicated that he has disagreement with the board”. Page 4
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business daily March 8, 2013
macau Viva Macau was grounded in March 2010 and was declared bankrupt six months later
Futile sale of junk shares to proceed A government attempt to recover loans to the defunct airline Viva Macau is unlikely to bear fruit Vítor Quintã
he authorities are going ahead with an auction of shares in the bankrupt airline Viva Macau – Sociedade de Aviação Ltda, even though the auction is unlikely to bring in any money. In a notice published yesterday, the Court of First Instance announced that it would auction stock in Viva Macau belonging to Eagle Airways Holdings Ltd, the major shareholder in Viva Macau. The auction, scheduled for April 10, will be of a stake of 99.9 percent with a face value of almost 25 million patacas (US$3.1 million). The reserve price is 70 percent of that figure, or about 17.5 million patacas.
Eagle Airways was the guarantor of five loans together worth 212 million patacas granted to Viva Macau by the government’s Industrial and Commercial Development Fund. Viva Macau was behind in its repayments of the loans when it suspended its operations in March 2010. The airline was declared bankrupt in September that year. The Viva Macau shares were seemingly the only assets of Eagle Airways, a Hong Kong company, that the authorities were able to track down in Macau. However, several sources told Business Daily that the
business as usual
government was unlikely to recoup any of its loans. A report prepared by the courtappointed bankruptcy administrator in 2010 estimated the airline’s debts at roughly US$38 million, but did not identify any assets.
All for show This is partly because all of Viva Macau’s aircraft were leased. All were repossessed in March 2010 owing to “non-compliance with the provisions of the leasing contract”. L a wy er s r ep r es en t i n g V i v a Macau admitted in court that, even hypothetically, resumption of the airline’s operations was probably out of the question. This makes it unlikely that anybody will bid for the Eagle Airways stake in Viva Macau. “What is the real value of these shares nowadays? Nothing at all,” Legislative Assembly member José Pereira Coutinho told Business Daily. Mr Coutinho said the legal processes were “useless”, and that the Industrial and Commercial Development Fund was merely trying “to prove in the eyes of public that it is doing its utmost to get back the money”. The damage had already been done, he said.
Paulo A. Azevedo email@example.com
hen Macau people learned of the unusual choice of site for subsidised housing in Seak Pai Van, we could only imagine what was behind the decision. Socially, environmentally, politically and economically, it made absolutely no sense. Not long after, some voices began to whisper the possibility of business having being done Macau-style. Let it be clear: the epithet “Macau-style” is not complimentary. We did not wish to believe it. But it is true that mistakes have been made in the past when a few business tycoons decided to put their interests above the common good – something in which they were helped by irresponsible political figures that allowed such schemes. The picture is getting a bit clearer now, and we can only hope that our eyes are deceiving us. The subsidised housing in Seak Pai Van is beginning to look like just an excuse to allow the continuation of the destruction of Coloane’s green area. New, high-end housing is now planned for Coloane, and people in the government are already giving their approval as long as the buildings will not be more than 100 metres tall(!). It seems that Macau is now devoid of any shame at all.
Reserve price of the Eagle Airways stake in Viva Macau
He accused the board of the Industrial and Commercial Development Fund of “gross negligence”. Mr Coutinho said in an inquiry made public last month that when the last three loans had been granted the airline had already been behind in its repayments of previous credit. Yesterday he said the fund should have seized the assets of Eagle Airways immediately, instead of waiting for over two years.
Odder and odder If the first auction attracts no interest, then a second will be held, with the reserve price of the stake reduced to 50 percent of its face value. If the second auction attracts no interest, then a third will be held, with no reserve price set for the stake. The government can still take the stake as compensation for all or part of the debt. In that event the government would find itself in the odd position of being the major shareholder of a defunct private company that has an active lawsuit against the government. In its suit the airline alleges that in 2010 Secretary for Transport and Public Works Lau Si Io illegally ordered the city’s flagship carrier, Air Macau Co Ltd, to revoke Viva Macau’s sub-concession to run a low-cost airline. The Court of Second Instance threw out the suit last month, saying that Mr Lau had simply given Air Macau his opinion rather than an enforceable order. Viva Macau can still take its case to the Court of Final Appeal, but only if the bankruptcy administrator says so. Business Daily tried to get comment from the lawyer representing Viva Macau but he had not responded by the time we went to press. Viva Macau has also appealed to the Administrative Court against Air Macau’s decision to revoke its sub-concession.
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MACAU Huge price variation for milk powder The latest specific price survey on milk powder by the Consumer Council shows the same brand can cost over 30 percent more in different drugstores and supermarkets. The results show that the biggest price discrepancy, 31.5 percent, was recorded in the ‘Snow Brand Smart Baby 1/900g’ brand. For the survey, the council collected on February 28 prices of eight brands of milk powder, mainly infant formulas for new born babies, from 28 retail outlets including drugstores and supermarkets. In comparison with December, the price of most milk powder brands remained stable.
Exporters reap CEPA harvest Trade with mainland China will continue to increase as ties with the mainland get stronger, says the Macau Chamber of Commerce Tony Lai
“further diversifying the sectors where zero tariffs are applied”.
Small share The clothing industry still accounts for a big slice of Macau’s CEPA trade
rade in goods exported tariff-free across the border under the Mainland and Macau Closer Economic Partnership Arrangement (CEPA) was worth more than ever last year, according to officials at the Gongbei crossing. Gongbei Customs released on Wednesday data showing the value of tariff-free exports from Macau through Gongbei rose by 36 percent last year to over US$5.4 million (43.2 million patacas), the China News Service reported. This was the most since the CEPA came into effect in 2004. The CEPA saved Macau companies a total of 2.5 million yuan (3.1 million patacas) in tariffs on exports last year, 40 percent more than in 2011. The CEPA is meant to assist
companies here to forge links with the mainland for trade in goods and services, and for trade and investment facilitation. The China News Service reported that the value of tariff-free exports through Gongbei since the CEPA came into effect now amounts to US$17.2 million, having grown at an average annual rate of about 48 percent. The vice-president of the Macau Chamber of Commerce, Vong Kok Seng, expects tariff-free trade to expand further. “More Macau firms will be eligible for it, subject to further integration of trade between the two sides,” Mr Vong said. He said that since 2004 Macau and the mainland had signed several agreements supplementing the CEPA,
Mr Vong said the CEPA now covered industries here such as food processing, whereas before the main beneficiary had been the city’s declining clothing industry. The CEPA now provides for tarifffree trade in 1,271 sorts of goods, having provided for tariff-free trade in only 270 when it first came into effect. Gongbei Customs said Macau’s clothing and food processing industries had made about US$3.5 million worth of the goods exported tariff-free since 2004. US$11.8 million-worth of goods exported tariff-free since 2004 were metal and chemical products. However, exports covered by the CEPA that went out through Gongbei made up only 3 percent of the 1.4 billion patacas-worth of merchandise Macau exported to the mainland last year. “Even though it accounts for a small share, the growth is still encouraging, showing more
businessmen here know and understand more about the CEPA,” Mr Vong said. He said the proportion of exports covered by the CEPA that went out through Gongbei was small because of Macau’s reliance on re-exports – goods shipped in only to be shipped out, with no value added to them here. Data from the Statistics and Census Service show that re-exports made up 73.5 percent of all exports last year, or 1.48 billion patacas-worth. Only goods produced here by Macau companies can be exported to the mainland tariff-free under the CEPA.
Macau tariff-free exports to mainland china in 2012
business daily March 8, 2013
macau Gaming stocks retreat after sales
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The Macau gambling sector came under pressure in Hong Kong trading yesterday after a term sheet obtained by Bloomberg News showed an unidentified investor is selling 25.36 million shares in MGM China Holdings Ltd that were marketed at between HK$16.99 and HK$17.2, up to a 3.8 percent discount from its Wednesday close. MGM China slid 3.4 percent to HK$17.06, while Galaxy Entertainment Group Ltd retreated 3.7 percent to HK$30.3. SJM Holdings Ltd., a casino operator founded by tycoon Stanley Ho Hung Sun, declined 3.5 percent to HK$18.24.
HOSPITALITY Less impressive Development of the meetings, incentives, conferences and exhibitions industry has not met the expectations that flowed after a period of rapid growth from 2009 to 2010. Data just published show a decline in the number of MICE events, and in the scale of meetings and conferences. Only the number of exhibitions increased, with attendance apparently skyrocketing. But the apparent surge in attendance may be somewhat misleading. The data on last year’s MICE events did not offer a breakdown of who took part, why they were there or where they came from. Who are the 1.5 million people that took part in last year’s 61 exhibitions? Survey data provided by event organisers on the number of “professional participants” and their origin, suggests the need for a more sober assessment.
Participants identified as “professionals” represented less than 5.4 percent of all attendees at exhibitions. That is slightly less than 80,000 participants of the total 1.5 million people. The typical exhibition attracted about 1,300 “core” participants and organisers, more than half of which are based in Macau. Other leading sources of participants came from the mainland, 22 percent, and Hong Kong, 15 percent. The remainder of the world accounted for about 10 percent. Excluding residents, there were slightly more than 37,500 professional attendees that visited exhibitions last year – an average of about 620 people at each event. J.I.D.
Average number of “professional” visitors at exhibitions in 2012
Amax audit committee boss resigns after six months Cites ‘personal reasons’ and not disagreement with board says HK filing Michael Grimes
Greek Mythology Casino, where Amax has junket business
he chairman of the audit committee for Amax Holdings Ltd – an investor in Macau junket operations – has resigned “for personal reasons” fewer than six months after taking the job. A filing to Hong Kong Stock Exchange said Owen Chow Ho Wan – who is also a non-executive director – “has not indicated that he has disagreement with the board”. The company has also had two changes of auditor in seven months according to filings. Mr Chow was appointed as head of the Amax audit committee on September 12 last year, at the same time as Ng Man Sun – a veteran junket operator from the days of Stanley Ho Hung Sun’s Macau gaming monopoly – was named as Amax chairman. Amax has junket operations at Greek Mythology Casino inside the New Century Hotel, Taipa. In June last year Mr Ng was hospitalised after
being attacked by masked men in a private dining room at the hotel. Mr Ng, also known as Ng Wai, was also the target of a drive-by shooting at the New Century in 1997. Also during the Portuguese administration Mr Ng was questioned for five and a half hours by a Macau judge on suspicion of Triad involvement before being released without further action. In late February this year, a ‘press conference’ featuring an unidentified male spokesman for “a junket room operator” based at Greek Mythology claimed the junket operator was owed money by the casino. He appealed to the local gaming regulator – the Gaming Inspection and Coordination Bureau (DICJ) – for help. The person said the debt was owed after the casino “took back” gaming tables from the junket operation. A spokesman for the casino’s management later said the removal of tables was a decision by SJM
Holdings Ltd. Greek Mythology operates under the gaming rights of SJM’s Macau unit Sociedade de Jogos de Macau SA. DICJ told Business Daily in an e-mailed statement: “The bureau is yet to receive any complaint mentioned in the new report. However, the bureau previously received a complaint from a person about the payment on chip commission in the VIP club of the Greek Mythology Casino.” The reply added that the bureau will carry out an investigation into the earlier complaint, “summoning related parties to provide detailed explanations about the complaint and offer due coordination.” The statement added: “The bureau will continue to supervise casinos and junket operators in accordance with the competence granted [it] in the existing gaming laws and regulations to ensure the normal operations of the casinos.” With Tony Lai
March 8, 2013 business daily | 5
Possible 4 pct VIP revenue expansion in March Anti-corruption talk out of China overplayed suggests analyst
VIP gambling – still rolling on
eutsche Bank expects to see Macau’s VIP gambling gross revenue grow by four percent year-on-year in March and by 2.5 percent for the first quarter. “On the positive side we
have the following bullish aspects pertaining to March results…an easy VIP hold comp [comparison] which on flat year over year volumes and LTM [last 12 months] average [baccarat] hold
would drive six percent revenue growth on the VIP side,” said Carlo Santarelli, an analyst for the bank. That’s a reference to the fact that house ‘hold’ on VIP baccarat - measured after
the process of rolling nonnegotiable chips has been completed – can affect the final VIP gross revenue tally. It was difficult in February for analysts to make a yearon-year comparison with the same month in 2012 because of seasonal variations. The Lunar New Year fell in February this year versus January last year, and 2012 was also a leap year, meaning February 2012 had 29 days instead of 28. Deutsche Bank’s upbeat assessment on the Macau market comes at a time of possibly a tougher environment for the VIP segment in the second quarter. An official Chinese index of manufacturing activity on the mainland fell in February – the second consecutive month – according to the National Bureau of Statistics. A separate gauge of Chinese industry from HSBC Holdings Plc and Markit Economics showed a reading of 50.4, the lowest in four months.
Okada ‘suitable’ for 17 casino jurisdictions since Wynn expulsion
In the past Purchasing Managers’ Indices reports out of China have been an indicator for Macau’s high roller business. Typically there has been a two-month lag between a downward trend in mainland manufacturing activity and that being reflected in the VIP gambling volumes. “Shorter term, we believe investors’ sentiment would be contingent on the trend of the VIP segment which is likely to remain slow in the near term,” said Kenneth Fong of J.P. Morgan in Hong Kong in a note to clients yesterday. He added: “The [Macau gaming] sector is now experiencing a similar situation as 2012 where we are seeing good profit growth (driven by mass segment) but subdued headline growth (dragged by VIP).” And in an upbeat commentary on the February numbers Mr Fong stated: “Despite the anti-corruption talk in China and tighter regulation on gifting in China, Macau VIP revenue held up. We believe this shows the strong true underlying demand of the VIP segment.” Deutsche Bank expects overall Macau gaming revenue growth of 13 percent year-on-year in March. M.G.
New regulatory approvals include California, Arkansas and Ontario, Canada, plus five other renewals says Japanese entrepreneur Michael Grimes
Thumbs up – 17 North American jurisdictions newly approved Kazuo Okada since February 2012
azuo Okada has hit back at claims by Wynn Resorts Ltd that his stake in the casino operator was cancelled because he was “unsuitable” and that his presence as shareholder and director posed a threat to the firm’s Nevada gaming licence. In a press release issued on Wednesday, United States time, Mr
Okada said that since Wynn’s finding of “unsuitability” announced in a U.S. regulatory filing in February last year, his wholly-owned subsidiary Aruze Gaming America has received new gaming licences in 17 North American jurisdictions where it had not previously been licensed. The latest approval was California on February 27. Aruze is a supplier of slot machines and other casino gaming equipment to major casino markets, including Macau and Singapore. “Each of these new licences and renewals has been based on a determination that I am ‘suitable’,” said the Japanese entrepreneur in the press statement. “Wynn Resorts, at [chairman] Steve Wynn’s direction, has tried to characterise me as ‘unsuitable’ with baseless accusations, but the truth is now beginning to come out,” he added. No comment was available from Wynn Resorts at the time Business Daily went to press. In a February 2012 filing Wynn Resorts published a report into Mr Okada by former Federal Bureau of Investigation director Louis Freeh. It stated in reference to Mr
Okada’s entertainment of Philippine gaming regulators at Wynn Macau: “…despite being advised by fellow Wynn Resorts Board members and Wynn Resorts counsel that payments and gifts to foreign government officials are strictly prohibited, Mr Okada has insisted that there is nothing wrong with this practice in Asian countries.” The Freeh Report didn’t dispute that Aruze USA had been found suitable by the Nevada Gaming Commission to be a major shareholder of Wynn Resorts, and that Mr Okada had also been found to be suitable by the Commission. The report argued however that new information had arisen to question those suitability findings. Wynn Resorts’ lawyers this week asked a Nevada state court judge for permission to amend a Wynn lawsuit, removing claims that Mr Okada and related companies stole Wynn trade secrets in pursuit of a Philippines casino project. “I am confident that the remaining allegations made by Wynn Resorts will similarly be proven false, just like the trade secret allegations that Wynn Resorts now seeks to abandon,” said Mr Okada.
The Special Olympics Asia Pacific Golf Masters Business Daily invites you to celebrate the abilities of Special Olympians here in Macau. The Special Olympics Asia Pacific Golf Masters are from April 22 to 27, 2013. Teams from Australia, China, Chinese Taipei, Hong Kong, India, Macau, Malaysia, South Korea and the United Kingdom are already confirmed. It’s in partnership with the Charity Association of Macau Business Readers, a community organisation set up to organise non-profitable and charitable events. This year’s tournament promises to be even more popular than the inaugural event last year. If you want to get involved as a volunteer – or simply make a modest outlay by sponsoring a golf club set for the athletes – please contact the organisers at firstname.lastname@example.org. More info at www.macau-event.com Four million athletes compete in 53,000 Special Olympics events in 170 countries every year. The Special Olympics – not to be confused with the Paralympics – were founded in 1963 with support from the Kennedy family in the United States.
business daily March 8, 2013
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Most one-bedroom flats in public housing are in Seac Pai Van on Coloane
Energising trends A growing economy, bigger population and more vehicles on the road have one thing in common: greater energy consumption. The import and consumption of all types of energy has increased in Macau, but electricity and petrol are the two that have the greatest impact on consumers and businesses. Consumption of electricity and petrol correlates strongly to the size of the economy, the size of the population and, in the case of petrol, the number of vehicles on the road. To simplify this analysis, the amount of petrol and electricity consumed each quarter between 2008 and last year has been converted into two indices based on the first quarter of 2008.
Subsidised one-bedroom flats may be hot sellers Desperation to get a foot on the property ladder and rising rents are expected to boost sales of one-bedroom flats in subsidised housing Stephanie Lai
Both plots show seasonal patterns. Peaks are reached each summer when demand for airconditioning and refrigeration is at its highest. The seasonality in electricity consumption is more pronounced than for petrol but the latter seems to be increasing faster at the end of the period shown. Converting the data into a four-quarter moving average removes the seasonal patterns and reveals steadily rising consumption for both. Electricity consumption is increasing slower than GDP. Conservation efforts and better efficiency in distribution aside, this trend suggests a weaker correlation than usually assumed between energy consumption and the growth of the economy. Petrol consumption is rising at a rate above any increase in the number of vehicles on the road, suggesting vehicles are becoming bigger, heavier and operating for longer. J.I.D. The content of this column is the work of Business Daily’s journalists.
Increase in petrol consumption since 2008
bout 2,000 one-bedroom flats in subsidised public housing will go on sale this month, and legislators and associations say such homes will prove more popular than in the past. The one-bedroom flats, called T1s, make up some of the 19,000 new homes in public housing that the government had aimed to complete by last year for households that had been on the waiting list since before 2005. The Housing Bureau says only 586 one-bedroom flat have been sold so far. Housing Bureau director Tam Kuong Man told reporters on Wednesday that the soonest applicants for subsidised housing would be able move into the new onebedroom flats would be the fourth quarter of this year. Legislative Assembly member Ho Ion Sang believes this batch of homes will appeal more to people such as newlyweds or young singles that had previously shunned public housing. “People will purchase the T1s owing to the almost panicky demand, and for a sense of security,” said Mr Ho. “And rents are getting so high that they account for over half of
incomes,” he said. “This time the government will provide a concrete timeframe for when people can move into the T1 units. This promise may also help drive demand.” The vice-director of the Macao New Chinese Youth Association, Chan Wai Pan, also thinks the onebedroom flats will sell well, as young people desire the sense of stability that comes with a subsidised home. “Even if the United States raises interest rates a couple of years on and this affects property prices, I don’t think their value will fall by a great deal,” Mr Chan said. “Plus, we still have a very strong gaming sector that helps drive the home market,” he said.
How much? “If the T1 is a unit covering 40 square metres that costs only around 400,000 to 500,000 patacas [US$62,586], it is still worth buying it as the repayments may be even cheaper than renting,” Mr Chan said. In 2011 a one-bedroom flat covering 40 square metres in Rua de Tranquilidade in Areia Preta cost around 500,000 patacas. More expensive one-bedroom
flats, costing between 544,000 patacas and 873,600 patacas, can be found in Edifício do Lago on Taipa. The price of the 2,000 onebedroom flats due to go on sale this month has yet to be announced. More subsidised housing is in the pipeline, but the government has yet to announce the maximum income of eligible households. Mr Tam of the Housing Bureau said that the maximum income of eligible one-person households should be not less than 17,800 patacas, in view of inflation. Chief Executive Fernando Chui Sai On told the Legislative Assembly last August that the government intended to set the maximum at 19,355 patacas for one-person households and at 38,710 patacas for two-person households. A member of Public Housing Affairs Committee, Leong Kuai Peng, said: “I think the cap suggested by the chief executive is appropriate.” She said affluent residents could afford private housing, but that people earning 15,000 patacas to 17,000 patacas needed to be catered to. “This group is composed of clerks or employees working in small companies, who could be drawn to the T1s,” Ms Leong said.
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Stable economic target leads to weaker pataca Pataca may depreciate 1-2 percent against yuan this year, says an economist Tony Lai
Mr Kwok said: “Mainland China has set up a GDP [gross domestic product] growth target of 7.5 percent for this year, which can basically be materialised… and other indicators also show a relatively stable outlook [in the mainland].” The University of Macau economics professor told Business Daily: “So there is room for further depreciation of the pataca against the yuan, of about 1 to 2 percent this year, which is expected by everyone.” Chinese premier Wen Jiabao said in his final address to the National People’s Congress on Tuesday that Beijing would keep the mainland’s economic growth target for this year at 7.5 percent with a lower inflation target of 3.5 percent. There were also signs of influx of hot money in the mainland. Mainland official data shows that banks there bought a record 683.7 billion yuan in foreign currency in January, though People’s Bank of
The evolution of the yuan and the US dollar will greatly influence the pataca
ith an unchanged economic growth target in mainland China, the city’s currency will further weaken this year but the overall outlook for the pataca is “relatively stable,” said economist
Henry Lei Chun Kwok. At the end of January it took 128.7 patacas to buy 100 yuan, up by 1.5 percent year-on-year, the latest data from the Monetary Authority of Macau show.
Robust economy, loan growth boost Weng Hang profit
anco Weng Hang, SA underwent a one-tenth growth in profits last year due to the strong Macau economy and loan demand here, parent company Wing Hang Bank Ltd said. The Hong Kong-based bank said in a filing to the Hong Kong Stock Exchange yesterday that its Banco Weng Hang recorded a net profit of 271.6 million patacas (US$33.95 million) in 2012, up by 10 percent. The filing said this performance reflected the “strong growth” of the city’s gross domestic product, which also expanded by 10 percent in the first three quarters of last year. The statement mentioned a few times there was a “robust loan
demand” in the city, boosting the bank’s performance. Banco Weng Hang’s lending operations grew by 19 percent last year, “primarily supported by an increase in the residential mortgage business”. The net interest income in the 12 branches here grew by 13.2 percent to HK$360 million last year, despite “a challenging [low] interest rate environment”, the statement added. Banco Weng Hang outshined its parent group, which suffered a drop of 15.9 percent in profit before taxation to HK$2.1 billion due to “the impact of a capital gain on the disposal of properties in the previous year”. T.L.
China vice-governor Yi Gang said Wednesday the yuan would remain “basically stable” this year. Mr Lei thinks the latest round of monetary easing in the United States, might also create some uncertainty over how the pataca will fair out this year. There were expectations in the market that this policy, which keeps the interest rates low, would end earlier than 2015, he said. The city’s is currently indirectly pegged with the US dollar through the Hong Kong dollar. The pataca traded high against the yuan at the beginning of last year, but it began to depreciate in September when the United States Federal Reserve laid out a third round of money printing to boost its economy. An earlier-than-expected recovery in the United States might help the pataca to grow stronger, he added. But the academic believes the value of the pataca would remain “relatively stable” on the overall this year. “The pataca’s performance this year depends on the general prospects across the globe as Macau’s economy scale is very small, similar to the situation of the Hong Kong dollar,” he said. “There is nothing much the authorities can do,” Mr Lei said. “But there are fewer investors who are interested in pataca comparing with Hong Kong dollar,” he added. “So the currency market here has fewer speculative elements.” “The fluctuations in pataca this year will be limited,” the scholar concluded.
business daily March 8, 2013
Beijing to expand foreign yuan investment choices Measures broaden potential outside investor base for yuan securities
hina will loosen restrictions on foreign investment of offshore yuan back into onshore capital markets by permitting investors to buy individual stocks and bonds, rather than restricting them to index funds, regulators said late on Wednesday. Changes to the Renminbi Qualified Foreign Institutional Investor (RQFII) will offer foreign institutions a broader range of investment options, according to rules posted on the website of the China Securities Regulatory Commission (CSRC). The changes may increase foreign investment in small-cap stocks and spark the launch of a wider variety of investment products and attract a broader base of foreign investors. “The RQFII expansion is a longterm positive for the yuan,” Tommy Ong, a Hong Kong-based senior vice president of treasury and markets at DBS Bank (Hong Kong) Ltd., said by phone yesterday. “Not only will that boost investor demand for the currency, it’ll also provide a tool for the Chinese government to test the impact of foreign capital on capital markets.” The new rules expand the types of institutions allowed to participate in the RQFII program to include
The changes may attract a broader base of foreign investors for yuan products
Hong Kong subsidiaries of mainland commercial banks and mainland insurance companies. Financial institutions primarily based in Hong Kong also gained
new access. Previously, the program was limited to Hong Kong subsidiaries of mainland-based brokerages and fund companies.
These companies sold a limited range of bond funds and equity-based exchange-traded funds (ETFs), mostly to individual investors in Hong Kong.
Manipulation blamed for iron ore price surge Mega miners accused of holding back cargoes to boost prices Ruby Lian and Fayen Wong
hina’s top economic planning agency lashed out at the world’s top three iron ore miners, accusing them and some traders of manipulating the market to drive an 80 percent rally in ore prices in just six months. The claims come against the backdrop of surging raw material costs that have pushed top steelmakers deeper into the red in China, the world’s largest iron ore importer, accounting for 60 percent of global demand. “The three major miners and some traders have delayed shipments and held back stocks to control supplies in order to send a fake market signal that there was a supply shortage,” the National Development & Reform Commission (NDRC) said on its website. The NDRC did not name any miners. The world’s top iron ore exporters are Australia’s Rio Tinto, BHP Billiton and Brazil’s Vale. Some miners were buying back iron ore cargoes from the spot market as a way to lift prices of the
key steelmaking raw material, the agency added. BHP bought 100,000 tonnes of the raw material in January in a rare move that market participants saw as a strategy by producers to stem a decline in prices. “You can always accuse someone of manipulation, but it’s very hard to justify it,” said an analyst with an Asian brokerage who declined to be named because of the sensitivity of the issue. “It’s a free market, there’s no regulation.” Benchmark iron ore prices slumped to a three-year low of around US$87 a tonne in early September as Chinese demand shrivelled. But prices have since rallied at a break-neck pace, gaining over 25 percent in December alone and hitting a 15-month high of US$152.50 a tonne in January.
BHP rebutal While part of the spike was due to restocking by Chinese steel
China is the world’s largest iron ore importer, with 60 percent of global demand
mills ahead of Australia’s cyclone season, the rally was exacerbated by miners’ price manipulation and an unreasonable pricing mechanism, the NDRC said in a strongly-worded statement. The planner also said miners had taken advantage of a “nontransparent tender process to push up prices”. BHP Billiton, the world’s thirdlargest iron ore miner, said yesterday it was committed to a transparent iron ore market. BHP said it had produced iron ore at full capacity between July
and December 2012 and sold all of that material. Major iron ore miners sell a small portion of iron ore cargoes via tenders, whose results influence world iron ore indices. “High tender prices are taken into the Platts’ iron ore index assessment, which means an index with a small volume of spot deals ends up being used as a price reference for long-term contract settlement,” the NDRC said. Chinese steel mills have been forced to ditch a decades-old practice of annual iron ore pricing
March 8, 2013 business daily | 9
GREATER CHINA The changes will allow RQFIIaccredited institutions to offer a wider range of onshore products, including individual stocks, mutual funds, interbank bonds, index futures, warrants, and any other products approved by CSRC. The looser rules could enable foreigners to increase investment in smaller companies listed in Shanghai and Shenzhen, rather than the largecap shares that make up the bulk of equity ETFs currently on sale from RQFII participants. The freedom to buy individual shares includes subscriptions to new share and convertible bond issues. China introduced the RQFII scheme with an initial quota of 20 billion yuan (US$3.22 billion) in late 2011, with each firm allowed to put no more than 20 percent in the onshore stock market and the remainder invested in fixed income. The quota was raised by 50 billion yuan last April, with the entire increase to be invested in the stock market through ETFs. State media reported last month that CSRC will relax the 80 percent fixed-income requirement, though that change was not specified in the latest rules. Guo Shuqing, the head of CSRC, said in late 2012 that the RQFII quota would be raised by a further 200 billion yuan, although he gave no specifics on how the quota would be allocated or what products could be purchased. The new rules do not apply to the Qualified Foreign Institutional Investor (QFII) program, the program that allows foreigners to convert foreign currency into yuan for investment in China’s capital markets.
Exxon turns to auction for HK power stake Infrastructure funds, Japan trading houses likely bidders for early April round Denny Thomas
xxon Mobil Corp has launched an auction to sell up to US$2 billion worth of shares in a Hong Kong power venture after a year-long effort to offload its holding to its partner yielded no result, sources familiar with the matter said. The world’s biggest oil company by market value has hired Barclays Plc as an advisor for the sale of nearly half of its 60 percent stake in Castle Peak Power Co Ltd as part of its plan to divest non-core assets. Talks to sell the entire stake to CLP Holdings and state-owned China Southern Power Grid had stalled due to disagreements over valuations, the sources said. CLP owns 40 percent of Castle Peak. The auction may attract interest from infrastructure funds, Japanese trading houses and sovereign wealth funds, they added without specifying names. The process is in its early stages
and potential suitors are assessing whether to bid for the stake. Firstround bids are due in early April. China’s cash-rich state power groups have also been scooping up assets worldwide, with dominant power distributor State Grid Corp establishing a presence in the Philippines, Spain, Brazil and Portugal.
Still interested CLP, controlled by Hong Kong’s wealthy Kadoorie family, remains attracted to the stake because Castle Peak offers guaranteed returns, one source familiar with CLP’s strategy said. But “the ball is in Exxon’s court now,” the source added. Castle Peak operates three coal-fired power stations and has a generation capacity of 6,908 megawatts. CLP and Power Assets Holdings Ltd, Hong Kong’s other power supplier that is controlled by tycoon
Li Ka-Shing, garner an annual return of 9.99 percent on net fixed assets until 2018 under a programme known as Scheme of Control. The sources, who declined to be identified as the sale process is confidential, said the 60 percent stake was valued at around US$3 billion last March. Around half of that plus a premium would bring the deal value closer to US$2 billion, they said. Exxon Mobil said in an emailed statement that it does not comment on rumours or speculation and that it routinely assesses its global portfolio of businesses. A CLP spokeswoman and a Hong Kong-based spokesman for Barclays declined to comment. CLP posted a 10.5 percent drop in its earnings last year because of weak performances at its operations in Australia and India. Hong Kong accounts for the bulk of CLP’s earnings. Reuters
Soho China to accelerate acquisitions despite curbs Tax on sale profits unlikely to help bring down prices, says developer
S since 2009 in favour of spot pricing based on indices. The China Iron & Steel Association, an industry body representing large Chinese steelmakers, has lobbied the government to investigate possible price manipulation by miners and traders, a senior official said at the industry conference last month. Profits at China’s large steel mills slumped 98 percent in 2012, as slower economic growth hit steel demand in the world’s largest consumer, the China Iron & Steel Association has said. Reuters
oho China Ltd., the biggest developer in Beijing’s central business district, is unaffected by the nation’s property curbs and plans to accelerate acquisitions this year, billionaire founder Zhang Xin said. The company still has a “big target” for land and project purchases this year and will focus on the major cities of Beijing and Shanghai, Ms Zhang said in a Bloomberg Television interview yesterday in Hong Kong. Ms Zhang last year steered the company, which traditionally sold most of its projects, toward what it called a build-and-hold model, away from a build-and-sell model, to take advantage of more stable and predictable rental income rather than sales proceeds.
Soho China Wednesday said 2012 underlying profit rose 1.4 times as more properties were delivered during the year. The company is focusing on prime office buildings in Shanghai and Beijing because they are the only Chinese cities with “enough demand” for such properties, Ms Zhang said. Office rental growth in China will decelerate this year because of the overall economic slowdown, according to property broker Cushman & Wakefield Inc. Average rents for Beijing’s grade-A offices increased by 0.4 percent in the fourth quarter last year, signaling they are approaching a mid-term peak, according to property broker Knight Frank LLP.
China’s cabinet on March 1 told cities with “excessively fast” price gains to raise down-payment requirements and interest rates on second-home mortgages, and ordered individuals selling properties to “strictly” pay a 20 percent tax on the sale profit when the original purchase price is available, a levy that is being easily avoided. The tax on sale profits is unlikely to help bring down prices because it would deter potential sellers from putting their properties on the market, Ms Zhang said. The government should implement measures to make it costly to hold empty properties so that more people will sell their investment properties, she said. Bloomberg News
business daily March 8, 2013
Pandas in Vegas as firms chase Chinese cash abroad Asian companies investing in the US to cater to Chinese consumers abroad Emily Kaiser and Farah Master
alaysian casino operator Genting Bhd envisions red and gold pagodas and a panda exhibit on the 87-acre plot of Las Vegas land it bought this week, a new gambling playground for rich Chinese moving their money overseas. A 90-minute flight away, in San Francisco, China’s biggest property developer has formed a joint venture to develop two high-rise condominium towers that are likely to draw wealthy Chinese buyers. It is China Vanke Co Ltd’s first foray into the U.S. market, and probably not its last. Combined, the two deals are worth about US$1 billion, which could rise to at least US$3 billion as Genting builds out its resort, which is due to open in 2016. That’s just a fraction of the US$102 billion in outbound investment from Asia-Pacific companies in 2012, according to Thomson Reuters data. But it signals a strategic shift. Instead of hunting for natural resources, the driving force behind many of Asia’s biggest foreign acquisitions over the past year, these companies are investing in the United States to cater to Chinese consumers abroad. Beijing bars individuals from
moving more than about US$50,000 a year out of the country. Yet vast sums leak out illegally. Estimates vary widely on just how much, but research group Global Financial Integrity said it could have been as much as US$472 billion in 2011 alone. But until the Genting and Vanke deals, there was little evidence that large Asian companies were chasing the cash to the United States. “You have Chinese money sitting in U.S. houses and Chinese money sitting in U.S. banks. If you’re smart, you start setting up places for Chinese people to stay and things for them to buy,” said Derek Scissors, an economist at the Heritage Foundation think-tank in Washington, who tracks Chinese foreign investment.
Risk to rivals Mr Scissors said the Genting and Vanke deals represent another step in the progression of Chinese investment in the United States since the global financial crisis. Individual Chinese investors started pouring money into United States property in late-2009. The Genting and Vanke transactions are early signs that Asian companies see ways to tap Chinese demand beyond
‘Resorts World Las Vegas,’ Genting’s first resort project for Las Vegas
China, something few United States firms seem to have recognized. The property that Genting bought had been abandoned since 2008, and the deal is the biggest new investment on the Las Vegas Strip since then. The firm is not guaranteed success in Vegas, a market with thinner margins and tougher competition than in its power base in Singapore where it operates one of only two casinos. Ratings agency Fitch warned that
Genting’s arrival was a “risk” for United States operators because its project will add 3,500 hotel rooms in a city where occupancy was flat last year and the average daily rate up a tepid 2.8 percent. “We believe the property will target high-end Asian customers, which has been the principal catalyst for gaming revenue growth on the Strip since 2010,” Fitch said. Reuters
Japan forex head runs for ADB chief Country seeks to keep hold of Asian Development Bank leadership Kyoko Hasegawa
ADB head Haruhiko Kuroda was nominated as governor of Japan’s central bank
apan nominated a senior finance ministry official yesterday for the top job at the Asian Development Bank (ADB), as Tokyo looks to keep hold of a role it has held for almost 50 years. Tokyo said it had named
Takehiko Nakao, vice finance minister for international affairs, as its pick to head the Manila-based ADB with its current chief expected to take over as head of the Bank of Japan. ADB head Haruhiko
Kuroda was nominated last week as governor of Japan’s central bank, and the Oxford University graduate said he would step down from the antipoverty lender later this month. Finance minister Taro Aso yesterday described Mr
Nakao, 57, as the “most qualified candidate for fulfilling the important responsibilities of the ADB President,” citing his “broad and in-depth knowledge of the Asian region”. The foreign-exchange policy bureaucrat has “fostered close relationships with leading figures” across Asia, the Group of 20 leading economies and organisations including the International Monetary Fund, Mr Aso said. Mr Nakao has been a public face in Tokyo’s battle to fend off accusations from abroad, particularly in Europe, that it had engineered a decline in the yen in recent months to help the country’s hard-hit exporters. Critics warned that Japan’s monetary policy could set off a global currency devaluation war. Since its founding in 1966, every ADB president has been Japanese with the position seen in a similar
light to the historical hiring of an American for the World Bank’s top job and a European at the International Monetary Fund. However emerging nations have become increasingly vocal critics over United States and European control of such institutions even as their own economic power and global influence soars. Japan and the United States are the ADB’s two largest contributors and hold about one-quarter of its voting power, but the hiring of Mr Nakao is not a shoo-in with regional giants China and India also holding some sway over the process. It was unclear if other member countries would nominate a contender to challenge Mr Nakao, but Tokyo’s finance chief said Japan was lobbying for Mr Nakao’s hiring with the ADB’s 66 other member nations and regions. AFP
March 8, 2013 business daily | 11
Pimco plans Asia’s first inflation-protected fund Central bank stimulus efforts expected to drive up prices for goods and services
Bill Gross runs Pimco’s US$288.2 billion Total Return Fund
acific Investment Management Co., which runs the world’s biggest bond fund, is planning Asia’s first fund to protect against inflation in the region. The investment will aim to return 2 percentage points to 3 percentage points more than the average consumer price gains in Singapore and Hong Kong, said Michael Thompson, head of Pimco’s wealth-management group for the region excluding Japan. The company is also preparing an Asian local currency sovereign bond fund and plans to introduce both products in the second quarter, he said. Assets in funds linked to costs in the economy ballooned to US$180.8 billion worldwide as of the end of last year, though there are no Asian inflation-protected products, according to Morningstar Inc. in Chicago. Bill Gross, who runs Pimco’s US$288.2 billion Total Return Fund, has said unprecedented central bank stimulus efforts will drive up prices for goods and services. “Inflation is higher here than the so-called developed world, and it’s likely to be higher going forward,” Mr Thompson said yesterday in an interview at Pimco’s Singapore office. “The challenge for investors is that there isn’t a large pool of easily traded inflation-linked bonds. We’ve done a lot of work over the past few months on looking at how you can
use a mix of assets to create a realreturn portfolio.” The vehicle won’t be limited to Asian investments. Holdings may include inflation-linked bonds in Brazil or Mexico, gold and property including shares of real estate investment trusts, Mr Thompson said. Consumer price gains averaged 4.5 percent in Singapore and 3.8 percent in Hong Kong over the past year. Inflation in developing Asia will be 4.2 percent in 2013, the Asian Development Bank said in a December report. Economic growth will be 6.6 percent, the report said. In the United States, the world’s biggest economy, consumer prices averaged 2 percent over the past 12 months. Gross domestic product will expand 1.8 percent in 2013, based on a Bloomberg News survey of economists. The Federal Reserve is buying US$85 billion of bonds a month to put downward pressure on borrowing costs. “Position for eventual inflation,” Mr Gross wrote in his February investment outlook on the company’s website. Investors should buy Treasury Inflation Protected Securities, he wrote. Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz SE.
Is not about disabilities, It’s about celebrating abilities
April 22nd-27th 2013
business daily March 8, 2013
MARKETS Hang SENG INDEX PRICE
CHINA UNICOM HON
POWER ASSETS HOL
SANDS CHINA LTD
BANK OF CHINA-H
CLP HLDGS LTD
BANK OF COMMUN-H
BANK EAST ASIA
COSCO PAC LTD
NAME AIA GROUP LTD
HANG LUNG PROPER
TINGYI HLDG CO
HANG SENG BK
WANT WANT CHINA
HENDERSON LAND D
CHINA MOBILE CHINA OVERSEAS CHINA PETROLEU-H CHINA RES ENTERP
HONG KG CHINA GS
HONG KONG EXCHNG
HSBC HLDGS PLC
IND & COMM BK-H
LI & FUNG LTD
CHINA RES LAND
NEW WORLD DEV
CHINA RES POWER
PING AN INSURA-H
CHINA LIFE INS-H
CHINA CONST BA-H
SINO LAND CO
BOC HONG KONG HO
SUN HUNG KAI PRO
CATHAY PAC AIR CHINA COAL ENE-H
INDEX 22771.44 HIGH
52W (H) 23944.74 22530
(L) 18056.4 5-March
Hang SENG CHINA ENTErPRISE INDEX PRICE
CHINA RAIL CN-H
CHINA RAIL GR-H
BYD CO LTD-H
CHINA CITIC BK-H
CHINA COAL ENE-H
CHINA COM CONS-H
IND & COMM BK-H
CHINA CONST BA-H
CHINA COSCO HO-H
PICC PROPERTY &
PING AN INSURA-H
CHINA MERCH BK-H
AIR CHINA LTD-H
BANK OF CHINA-H BANK OF COMMUN-H
CHINA LIFE INS-H
CHINA NATL BDG-H
NAME YANZHOU COAL-H
INDEX 11311.45 HIGH
52W (H) 12354.22 11100
(L) 8987.76 5-March
Shanghai Shenzhen CSI 300 NAME
SANY HEAVY INDUS
CSR CORP LTD -A
DAQIN RAILWAY -A
SHANG PHARM -A
DATANG INTL PO-A
EVERBRIG SEC -A
GD POWER DEVEL-A
AIR CHINA LTD-A
NAME CHONGQING WATE-A
BANK OF BEIJIN-A
BANK OF CHINA-A
BANK OF COMMUN-A
BANK OF NINGBO-A
BAOSHAN IRON & S
CHINA CITIC BK-A
CHINA CNR CORP-A
CHINA COAL ENE-A
HONG YUAN SEC-A
BYD CO LTD -A
CHINA CONST BA-A
SHANXI LU'AN -A
CHINA COSCO HO-A
CHINA CSSC HOL-A
HUAXIA BANK CO
CHINA EAST AIR-A
IND & COMM BK-A
YANGQUAN COAL -A
CHINA INTL MAR-A
INNER MONG BAO-A
CHINA LIFE INS-A
INNER MONG YIL-A
CHINA MERCH BK-A
NINGBO PORT CO-A
PING AN BANK-A
CHINA STATE -A
PING AN INSURA-A
POLY REAL ESTA-A
CHINA VANKE CO-A
PRICE DAY %
PRICE DAY %
52W (H) 2791.303 (L) 2102.135
FTSE TAIWAN 50 INDEX NAME ACER INC
PRICE DAY %
TAIWAN MOBILE CO
TPK HOLDING CO L
ASIA CEMENT CORP
AU OPTRONICS COR
HUA NAN FINANCIA
CHANG HWA BANK
CHENG SHIN RUBBE
CHIMEI INNOLUX C CHINA DEVELOPMEN CHINA STEEL CORP CHINATRUST FINAN CHUNGHWA TELECOM
HON HAI PRECISIO
HOTAI MOTOR CO
YULON MOTOR CO
MEGA FINANCIAL H
NAN YA PLASTICS
DELTA ELECT INC
FAR EASTERN NEW
SYNNEX TECH INTL
FAR EASTONE TELE
TAIWAN GLASS IND
FORMOSA CHEM & F FORMOSA PETROCHE
INDEX 5549.29 HIGH
52W (H) 5639.93 5490
(L) 4719.96 5-March
March 8, 2013 business daily | 13
MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange)
AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP
1.026 1.4986 0.9472 1.3018 93.99 7.9889 7.7563 6.2201 54.5475 29.73 1.2475 29.639 40.74 9697 96.441 1.23301 0.86865 8.0962 10.3997 122.36 1.03
-0.1168 -0.6892 -0.2639 -0.0921 -0.6064 -0.0038 -0.0013 -0.0338 0.3162 0 -0.1363 -0.0472 -0.0368 -0.0412 -0.5008 -0.1695 -0.5986 0.2038 0.0923 -0.523 0
-1.137 -7.3566 -3.3573 -1.304 -8.3945 -0.0713 -0.0735 0.1688 0.8204 2.8591 -2.0922 -2.0446 0.6505 0.99 -7.3765 -2.0705 -6.1279 1.4982 1.2568 -7.1837 -0.0097
1.067 1.6381 0.9972 1.3711 94.77 8.0039 7.7713 6.3964 57.3275 32 1.2971 30.203 43.975 9904 97.728 1.25692 0.88151 8.4957 10.9254 127.71 1.0314
0.9582 1.4967 0.9002 1.2043 77.13 7.9824 7.7498 6.2105 49.795 29.63 1.2152 28.913 40.54 9095 74.482 1.19995 0.77553 7.7018 9.6245 94.12 1.029
AMAX HOLDINGS LT
BOC HONG KONG HO
CHOW TAI FOOK JE
MACAU RELATED STOCKS NAME
CHEUK NANG HLDGS CHINA OVERSEAS
World Stock MarketS - Indices COUNTRY
DOW JONES INDUS. AVG
NASDAQ COMPOSITE INDEX
FTSE 100 INDEX
DAY % YTD %
HANG SENG BK
HSBC HLDGS PLC
HANG SENG INDEX
CSI 300 INDEX
TAIWAN TAIEX INDEX
HUTCHISON TELE H
LUK FOOK HLDGS I
MELCO INTL DEVEL
MGM CHINA HOLDIN
NEW WORLD DEV
SANDS CHINA LTD
SHUN HO RESOURCE
S&P/ASX 200 INDEX
FTSE Bursa Malaysia KLCI
SHUN TAK HOLDING
NZX ALL INDEX
SJM HOLDINGS LTD
PHILIPPINES ALL SHARE IX
WYNN MACAU LTD
JAKARTA COMPOSITE INDEX
CURRENCY EXCHANGE RATES
HSBC Dragon 300 Index Singapor
STOCK EXCH OF THAI INDEX
HO CHI MINH STOCK INDEX
BOC HONG KONG HO
Laos Composite Index
INTL GAME TECH
JONES LANG LASAL
LAS VEGAS SANDS
Shanghai Shenzhen Composite index is listing the biggest companies by market capitalisation. All data supplied by Bloomberg unless otherwise indicated.
MGM CHINA HOLDIN
MGM RESORTS INTE
SJM HOLDINGS LTD
WYNN RESORTS LTD
business daily March 8, 2013
Europe’s proposals on bankers’ pay miss the point Clive Crook
Bloomberg View columnist
nger in Europe over executive pay is finding its way into legislation. The European Parliament, backed by almost all of the European Union’s finance ministers, plans to cap bankers’ bonuses, and 68 percent of Swiss voters endorsed a referendum initiative to ban “golden parachutes” and put other curbs on bosses’ pay. Agitated voters, grandstanding politicians and intelligent policy rarely go together, and this is a case in point. Let’s agree that people are right to be disgusted. In the last decade top bankers led the world into the deepest economic slump since the 1930s, and their firms had to be rescued by taxpayers, yet the culprits aren’t exactly suffering. In most cases they still have their jobs and by ordinary standards they’re still outrageously well-paid. Bonuses – whose purpose, one is always told, is to reward excellent performance – have fallen but are still being handed out. Meanwhile, lower down the capitalist food chain, workers are being laid off or told to take pay cuts. It’s tough out there, say chief executives calling in from Davos, and we all have to make sacrifices. Absolutely, say Europe’s ministers of finance; that’s why we have to cut essential public services and raise your taxes.
Mild miracle Considering the complacency, lack of contrition and in many cases sheer nerve of those responsible for the calamity of the past five years, the miracle is that the popular backlash against capitalism has been so mild. But being morally in the right isn’t enough. If policy is to serve voters’ interests, rather than merely gratify their anger, it has to be carefully designed. These initiatives aren’t. The first question is whether it’s wise for the government to have any kind of say on how firms pay their executives. Straight away there’s a crucial distinction – between banks and financial enterprises that enjoy an implicit public subsidy (through the prospect of a bailout if they get into trouble) and ordinary public companies that don’t. Regulatory reform has
pared back the subsidy for banks but hasn’t eliminated it. If taxpayers are exposed to losses, regulators are not just entitled to monitor and curb the risks that banks are taking – they’re obliged to. This obligation includes regulating pay structures, since those can influence the amount of risk a bank takes on. So doesn’t capping bonuses, as the European Parliament demands, serve that purpose? Not really. It’s bewildering, first of all, that Europe’s parliament is insisting on bonus caps in return for consenting to new international rules on bank capital. Requiring more capital is the best and simplest way to reduce the banking subsidy and hence the incentive to take undue risks. The new rules don’t go nearly far enough in this respect. Rather than calling for them to be strengthened, the parliament wants a concession on bankers’ pay. Go figure. The parliament wants to limit banking bonuses to 100 percent of salary, or 200 percent if shareholders approve. There’ll be loopholes, of course, but for the sake of argument let’s assume they aren’t exploited and the policy works as intended. Banks will simply fold average variable pay into basic salary. Most likely, such limits won’t do anything to cut bankers’ pay overall, the very issue that upsets the public. Reducing risk is a
legitimate purpose of the policy. But too-timid capital rules mean that banks will still be run on the basis that employees and shareholders get all the upside of dangerous investments, while taxpayers are on the hook for part of the downside. The underlying problem isn’t addressed. One remedy, if capital rules can’t be suitably strengthened, is not a cap on bonuses, but rules that lock them up and grab them back if things go wrong. Bankers should be made to retain a stake in their firm’s losses. Big bonuses relative to basic salary -- so long
Banks will still be run on the basis that employees and shareholders get all the upside of dangerous investments, while taxpayers are on the hook for part of the downside
as they can be clawed back – would serve that purpose well. Yet the EU appears to be ruling out this strategy.
Swiss solution The Swiss vote is directed not at banks specifically, but at public companies in general. Where subsidies aren’t involved, the starting position is very different. Unless you think the market for executives is fundamentally broken – which I don’t – pay is a matter for directors and shareholders, not the government. Concerns about inequality are best addressed through adjusting taxes and public spending rather than by micro- managing executive pay. Yet you can’t help but notice that shareholders aren’t always good at holding to account the managers running their companies. Well, you might say, that’s the shareholders’ problem -but if public policy can help to align managers’ interests with shareholders’, that does serve the wider purpose of making capitalism work more like it’s supposed to. Just like the EU’s plan for bankers’ bonuses, the proposed Swiss ban on “golden hellos” and “golden parachutes” is unlikely to make much difference, because the value of those benefits can always be packaged in other ways -- perhaps, if the executives concerned
have a sense of humor, as performance bonuses. I like another part of the plan, though: the idea that shareholders should be able to hold a binding, not merely advisory, vote on executive pay. Advisory votes are common these days: The Dodd-Frank financial-reform law prescribes them for most big U.S. public companies, for instance, and the U.K. has had them since 2002. Trouble is, directors aren’t always good at taking advice from their employers. Executives at Citigroup, for instance, stand to collect US$579 million from profitsharing plans that include a scheme shareholders voted against last year, according to regulatory filings examined by Bloomberg. Shareholders are owners. They ought to be able to tell their top executives what they’ll be paid, not just advise them on the subject in the confident expectation of being ignored. Yet don’t expect this to cut executive pay much, if at all: Shareholders know the best managers are worth every penny of what they get. It follows that mandatory say-onpay won’t do anything to curb inequality, either. There are better policies for that. Sadly, here’s what the Swiss and EU initiatives have in common: Good politics they may be, but neither is fit for purpose, and they’ll divert support from ideas that are. Bloomberg View
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March 8, 2013 business daily | 15
wires Leading reports from Asia’s best business newspapers
Inquirer Business The Philippine economy is expected to grow by just 6.2 percent this year as the sustainability of expanding domestic output remains uncertain, according to the Philippine Institute for Development Studies. PIDS added that the rebounding expenditures in public construction and the strong consumption expenses would remain the major factors for growth, also thanks to a boost from election-related spending. “Global economic conditions remain fragile. The only bright spot will be the faster economic growth in China” but its benefits to the Philippines will be constrained by territorial disputes, it added.
The Star Malaysian low-cost carrier AirAsia is said to have received the nod from India’s Foreign Investment Promotion Board to take up a 49 percent stake in a joint venture to set up AirAsia India. The new airline, to be based in Chennai and managed by AirAsia, would involve Tata Sons Ltd taking a 30 percent stake and Arun Bhatia’s investment firm Telestra Tradeplace Pvt Ltd taking the remaining stake. AirAsia would initially invest US$15mil. India’s economic affairs secretary Arvind Mayaram said the investment proposal had been cleared.
Bangkok Post Thailand’s pay TV market continues to heat up as GMM Z embarks on a 1-billion-baht (US$33.6 million) spending spree to add entertainment and sports programmes. The satelliteTVarmofGMMGrammy, in collaboration with Warner Bros Entertainment, yesterday launched a Warner TV channel to strengthen its line-up. “We expect the number of Z Pay TV subscribers to reach 600,000 this year,” said chief operating officer Rafah Damrongchaitham. The company reportedly sold 1.5 million set-top boxes last year and is aiming for 1.5 million more this year including highdefinition boxes.
The Economic Times Indian tax authorities are considering slapping criminal charges on Cadbury India for allegedly furnishing false documents and pretending to make chocolates in a nonexistent factory to avoid paying excise duty. “The option of launching criminal proceedings is open to the department. We will wait for the final order before taking a decision,” said an excise department official. The chocolate maker faces charges for evading excise duty by falsely claiming a tax holiday on a manufacturing unit that was set up in Himachal Pradesh, after the tax break eligibility period had ended.
Getting cities right Mahmoud Mohieldin Zoubida Allaoua
Managing Director at the World Bank Group
Director of the World Bank’s Urban and Disaster Risk Management Department
he developing world is experiencing rapid urbanisation, with the number of city dwellers set to reach four billion in 2030 – double its 2000 level. But unplanned and uncoordinated urban development is risky, threatening to replace migrants’ hopes for a better life with unsanitary living conditions, joblessness, and high exposure to natural disasters. In many respects, urbanisation is rational. After all, cities are the hubs of prosperity, where more than 80 percent of global economic activity is concentrated. And their density facilitates the delivery of public services, including education, health care, and basic services. Indeed, it costs US$0.70-0.80 per cubic meter to provide piped water in urban areas, compared to US$2 in sparsely populated areas. But the high concentration of assets and people, especially in coastal areas, is an economic liability, with around US$3 trillion in assets at risk from natural hazards. Vulnerability will increase further over the next two decades, as cities triple their built-up land, to 600,000 square kilometres, often without basic infrastructure or policies to prevent construction and settlement on disaster-prone and vulnerable sites. To get urbanisation right, policy makers must take urgent action to build sustainable cities. Through effective land-use management, they can provide reliable and affordable access to basic services, education, housing, transport, and health care to growing urban populations, while minimising the carbon footprint. This entails, first and foremost, abandoning the perception of a trade-off between “building more cities” to accommodate rapid urban growth and “building cities right” to enhance social and environmental outcomes. In fact, evidence shows that building cities right generates near-term benefits, while reducing the longer-term costs associated with sprawl, congestion, pollution, and climate change. The alternative – building cities around a lowdensity, individual-vehicle transportation model – will leave urban planners struggling to increase density and develop public-transport systems later, a challenge that the United States is currently facing.
Policy options A new World Bank report provides a practical agenda for building sustainable cities. The framework – which emerged from a three-year effort to develop a foundation of credible facts and analysis
from countries with diverse urban experiences, such as Uganda, China, India, and South Korea – can help policy makers to understand the obstacles to urbanisation and to identify politically, technically, and fiscally feasible policy options. This framework reflects three main aspects of urban development: planning, connecting, and financing. A major finding is that, regardless of the level or speed of urbanisation, planning for land-use management should be the top priority. By clearly defining property rights and implementing effective land-use systems that are coordinated with infrastructure, particularly transport, policymakers can help cities to attract private investment, connect people with jobs, reduce environmental and social risks, and decrease vulnerability to natural hazards. With urban growth in developing countries likely to occur largely in secondary cities, the opportunity is still open (but closing fast) to shape urban design to ensure that, for example, residents do not spend half of each day commuting to and from work. While no single model for managing rapid urbanisation exists, positive examples offer some guidance. For example, Seoul’s population more than tripled from 1960 to 2000. South Korean policy makers, anticipating the challenges, strengthened institutions for valuing and pricing land, trained a cadre of appraisers to ensure transparency in the valuation process, and publicly disseminated land-value information. At the same time, the government supported construction of high-rise residential buildings capable of housing the growing urban population and developed multiple transport modes, including highways, rail networks, and subway lines, which have helped to connect people with employment
opportunities within and among cities. Likewise, leaders in Singapore and Japan treated public transport as a crucial aspect of land-use plans. As a result, they boast some of the world’s lowest energy consumption as a share of GDP. In order to encourage citizens to use public transport, policy makers in Tokyo reduced subsidies for private cars, so that driving one became five times costlier than using public transport. Complementary investment in high-speed inter-city transport has reduced travel times between Japan’s two largest agglomerations, Tokyo and Osaka, which are 314 miles apart, to less than two and a half hours, thus integrating labour and housing markets and enhancing productivity.
Sustainable financing Of course, financing rapid urban development requires significant capital outlays to build efficient systems for transport, water provision, solid waste management, and sewage removal and treatment. But, as these investments bolster economic growth, increased tax revenues would imply more sustainable financing, as would local governments’ ability to leverage
land markets and approach local-currency debt markets. In Mumbai, the auction of 13 hectares of land in the new financial centre, the BandraKurla Complex, generated US$1.2 billion. This amounts to more than ten times the Mumbai Metropolitan Region Development Authority’s total expenditure in 2005, and six times the total value of municipal bonds issued by all local governments and utilities in India in more than a decade. Similarly, in Istanbul, the auction of an old bus station and government building in 2007 generated US$1.5 billion – more than the city’s total expenditures and infrastructure investments in 2005. And Colombia’s finance ministry has developed Findeter, a bond bank that finances regional urban infrastructure projects by providing resources to financial intermediaries that allocate them to subnational authorities. By building sustainable cities, policy makers can support social and economic development, while minimising environmental damage. Managing urbanisation as it occurs, rather than struggling to fix cities later, is an opportunity that developing-country leaders should not miss. © Project Syndicate
business daily March 8, 2013
CLOSING Global food prices stable in February
Trash contract extended until October
Global food prices remained stable in February from the previous month and wheat harvests are set to increase by 4.3 percentage points this year, the United Nations’ food agency in Rome said yesterday. The food price index compiled by the Food and Agriculture Organisation (FAO) remained at 210 points – the same level as in January and five points lower than in February 2012. Cereal and sugar prices fell but meat stayed the same and dairy prices rose, mainly due to a recent spell of hot weather in Australia. Wheat production was forecast to rise to 690 million tonnes this year, which would be the second largest global crop on record.
Macau Waste Systems Co Ltd (CSR) will continue to manage the city’s solid waste until the end of October, while the government decides on the winner of a new 10-year contract that was open for tender in December, the Environmental Protection Bureau announced yesterday. CSR’s contract was due to end this month but the bureau says it needs more time to evaluate the five proposals in a “thorough, prudent and cautious manner”. The proposals are very complex and include documents in several languages that must be translated, the authorities stressed.
MGM Resorts pulls out of Ho Tram Strip management deal Harbinger Capital still fully committed, Pinnacle Entertainment looks forward to resort opening Michael Grimes
GM Resorts International “didn’t want to wait” for the Ho Tram Strip casino resort project in Vietnam to get its investment certificate from the Vietnam government a spokesman for the developer told Business Daily yesterday. “It’s possible to have a hotel without the investment certificate, but not gaming,” the person confirmed. But I can’t speak for MGM as to the reasons.” “They [MGM] didn’t want to wait. You’ll have to ask MGM what the reasons were.” The developer Asian Coast Development (Canada) Ltd’s subsidiary – Ho Tram Project Company Ltd – had previously made a deal with a unit of MGM Resorts for the latter to provide pre-opening
German factory orders unexpectedly fall As the euro area, Germany’s largest export market, battles through recession
G services and to manage the first of ACDL’s five resorts at the Ho Tram Strip. The first phase with 541 fivestar rooms and suites was to have been known as MGM Grand Ho Tram Beach. MGM Resorts was not itself a capital investor. “MGM will no longer be able to manage the first resort,” ACDL had said in an e-mailed statement yesterday. Business Daily was unable to contact MGM Resorts for comment before press time. Union Gaming Research said in a note in November that ACDL had at that time been in default of its phase one completion deadlines as outlined in the original investment certificate granted by the government. The ACDL spokesman told us by telephone yesterday that the
Philip Falcone of Harbinger Capital (left) and Lloyd Nathan of ACDL at Ho Tram in November
developer expected to receive the necessary investment certificate soon but no date had been confirmed by the authorities. The person added in response to whether Pinnacle Entertainment (another investor in Ho Tram Strip scheduled to take part in a later phase) might be able to take over the branding and management of the first phase in the absence of MGM: “That’s one of a number of options being looked at”. The person declined to state what were the other options.
Continued support Business Daily was unable to contact Pinnacle Entertainment by press time, but in the ACDL e-mail its chief executive Anthony Sanfilippo, confirmed the U.S. firm welcomed the scheme. “ACDL has built a truly remarkable property just two hours from Ho Chi Minh City and we look forward both to its opening and to the implementation of ACDL’s vision for Vietnam’s tourism industry.” ACDL added that its principal shareholders reaffirmed their longterm commitment to the project. Philip Falcone, founder and principal of Harbinger Capital stated in the e-mailed document: “Harbinger Capital was among the founding investors in ACDL, and remains as committed as ever to the Ho Tram Strip. We believe the Ho Tram Strip is set to become the premier integrated resort destination in the region.” Lloyd Nathan, ACDL’s chief executive, said in the e-mail: “We thank MGM for its assistance in the hiring and training of our 2,000-strong team of Vietnamese hospitality professionals. We are delighted that we have completed the construction of the first phase of our first resort.” The Vietnam government’s draft gaming decree of August 2012 set a minimum investment threshold of US$4 billion (32 billion patacas) per resort, and upheld a ban on gambling
erman factory orders unexpectedly fell in January as the sovereign debt crisis curbed demand in the euro area. Orders, adjusted for seasonal swings and inflation, decreased 1.9 from December, when they rose a revised 1.1 percent, the Economy Ministry in Berlin said yesterday. Economists forecast a 0.6 percent gain, according to the median of 41 estimates in a Bloomberg News survey. In the year, workdayadjusted orders dropped 2.5 percent. The Bundesbank expects the German economy to rebound in the current quarter after contracting 0.6 percent in the final three months of 2012. Confidence among entrepreneurs and investors jumped in February and retail sales rose the most in more than six years in January. At the same time, the euro area, Germany’s largest export market, is in a recession and the European Central Bank predicts only a gradual recovery later this year. “There is still uncertainty with regards to the sovereign debt crisis in Europe,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “But especially in Germany there’s an optimistic vibe and I’m sure this will help the economy return to growth.” Factory orders from the euro area slumped 4.1 percent in January, driving a 3 percent decline in export demand, yesterday’s report shows. Domestic sales dropped 0.6 percent. Orders for intermediate, investment and consumer goods all fell. December orders were revised up from an initially reported 0.8 percent increase. The number of bulk orders in January was significantly below average, the ministry said. Still, “the drop in orders at the beginning of this year signals that the manufacturing industry hasn’t overcome its weak phase yet,” it said. Germany exports about 40 percent of its products to the euro area. The 17-nation euro economy will shrink 0.3 percent this year, according to the European Central Bank’s December forecasts. Bloomberg News