Asia News Update

China: Government prepares release of SOE consolidation guidelines

Source: Wall Street Journal, 11 March 2015

Burgeoning Automotive Industry Lends Momentum to the Engineering Plastics Market in Southeast Asia


China’s government is planning to consolidate state-owned enterprises (SOEs), reiterating that they should rely less on the state and should aim to list on public markets in the long-term. The development comes as economic slowdown continues to take hold with industrial production for January and February 2015 down to its slowest pace since 2008 driven by overcapacity and a continued fall in housing prices. However, some economists contend that any consolidation of SOEs could lead to increased state influence as mergers could see the already massive SOEs become even more inflated behemoths.

China’s 100,000+ SOEs await the government’s release of broad guidelines for restructuring, which could happen by the end of May 2015. Merged SOEs in important sectors like energy, resources and telecommunications could be reorganized as asset-investment firms, with a mandate to run like commercial operations rather than entities of the state. They are already under great pressure to transfer 30% of profits to the government by 2020, up from the current maximum level of 15%. Officials suggest that the most profitable SOES could go public by 2025.

Automotive

Philippines: Government to offer tax breaks in bid to become Southeast Asian automotive production hub

Source: Bloomberg Business, 11 Match 2015

The Philippine government is to provide tax breaks to up to three automakers as it looks to establish itself as a regional automotive production hub. President Benigno Aquino will announce the implementation of the accompanying Comprehensive Automotive Resurgence Strategy program (CARS) in 2015, according to Trade Secretary Gregory Domingo. In order to receive the incentives, auto companies will be required to meet minimum production levels. Although specific levels were not disclosed, a November report by the Manila Bulletin stated that the government deems annual output of 40,000 vehicles fully built domestically as sufficient to qualify for benefits.

The government hopes that through the CARS program, the auto industry could save up to USD 17 billion in import costs by 2022. Although government sources concede that the country will be unable to compete with Thailand directly, it does hope to find a niche for the region and become a mass producer of a model not produced in Thailand. Japan Chamber of Commerce and Industry Chairman Akio Mimura confirmed in February that the country’s automakers are especially interested in the Philippines’ CARS program.


 

Thailand: All Mercedes-Benz hybrid models now produced at Thonburi plant

Source: Bangkok Post, 14 March 2015

Mercedes-Benz confirms that all of its hybrid models are now being produced at its production facility in Thailand, the first of its kind in APAC. According to Michael Grewe, president and chief executive of Mercedes-Benz (Thailand), demand locally for hybrid vehicles was increasing, with 4,000 Bluetec Hybrid models sold in the country since its 2013 launch. Thonburi Automotive Assembly Plant Co in Samut Prakan province started making diesel hybrid models in 2013 followed by the E-Class and S-Class in 2014. The company has now confirmed that it will produce the C300 Bluetec Hybrid, a C-Class model, at the plant.

Grewe contends that the hybrid sector remains attractive for investment thanks to the favourable excise tax structure, which means that hybrid vehicles are charged 10% tax compared with 17% for eco-cars and 20 to 40% for other passenger cars. A new tax regime set to be implemented in 2015 will ensure that the sector will continue to be entitled to a 10% rate, while the rate for eco-cars and other passenger cars will fall to 12-14% and to 25-30%, respectively. The new structure will use CO2 emissions, E85 gasohol compatibility and fuel efficiency as the basis for calculating tax, as opposed to engine size, which is used currently.


 

Australia: Government reinstates AUD 500 million funding to auto makers

Source: Channel News Asia, 10 March 2015

In Australia, the government has reinstated AUD 500 million in funding, meaning operations can continue ahead of closure at the end of 2017, when Toyota, Ford and Holden are to cease production due to high costs and small domestic market. The Industry Ministry has originally announced cuts in taxpayer subsidies to the sector in the 2014 federal budget, but now concede that pulling funding would damage component manufacturers. Industry Minister Ian Macfarlane commented "It's a reflection that we want the car industry to continue until the day Holden close their doors.”

Macfarlane continued, “And what Holden was saying to us and what Toyota was saying to us and to a lesser extent Ford, was that they couldn't be sure their components suppliers were going to be in business in 2017. So this gives not only certainty to the components suppliers but it gives the car industry manufacturers the opportunity to pass some of this money through to the components suppliers to ensure they're continuing until the end of 2017. The reality is, though, that we need to make sure the industry continues right up to the end of 2017."

Chemicals

South Korea: Fair Trade Commission conditionally approves Hanwha acquisition of Samsung General Chemicals

Source: Chemicals Technology, 9 March 2015

South Korea's Fair Trade Commission (KFTC) has conditionally approved Hanwha's proposed acquisition of Samsung General Chemicals. KFTC did suggest that merged company could control the ethylene vinyl acetate (EVA) market in South Korea, potentially leading to higher prices. However, the commission found that low-density polyethylene, linear low-density polyethylene and high-density polyethylene markets would not be impacted significantly by the deal. The monopolistic nature of the EVA market would be enhanced through the transaction with the number of competitors will decrease from four to three.

Under the conditions set by the KFTC, the company is required to make sure that the domestic EVA price is increased slower over the next three years should export prices increases. Specifically the growth rate of export price must be lower than the production growth over the preceding six months. Hanwha is also required to lower domestic prices at a faster rate than any decrease in export price over the preceding six months. These conditions must be implemented over the next three years, with updates on progress submitted to the KFTC every six months.

 

India: Evonik enters agreement to acquire Monarch Catalyst

Source: Evonik Industries, 11 March 2015

Evonik Industries has signed an agreement with Monarch Catalyst in India to acquire 100% of the company’s shares. The transaction is expected to close during the first half year of 2015 after the required approvals have been received. The parties have agreed to keep the purchase price confidential. Evonik produces specialty catalysts, custom catalysts and catalysts components for the Life Sciences & Fine Chemicals, Industrial & Petrochemical and Polyolefines market segments.

Avendus Capital is providing financial advisory services to Monarch Catalyst on the transaction. This bolt-on acquisition in India with annual sales in the low EUR double-digit million range in activated base metal catalysts and precious metal catalysts. Monarch’s global oils & fats hydrogenation catalysts business has about 300 employees. In 2014, Evonik generated revenues of EUR 12.9 billion with an operating profit of around EUR 1.9 billion.


 

Indonesia: Chandra Asri Petrochemical to set up naphtha refinery in Banten

Source: Chemicals Technology, 10 March 2015

Chandra Asri Petrochemical (CAP), a subsidiary of Barito Pacific is to build a USD 740 million naphtha refinery at its Cilegon complex, Banten, Indonesia, as it looks to reduce reliance on naptha imports. CAP will now conduct a one year preliminary study for the project. The refinery is slated to produce 100,000 barrels of condensate daily, the equivalent of producing 2.5 million tonnes (Mt) of naphtha annually. CAP corporate relations vice-president Suhat Miyarso commented, "We are going to build a mini-refinery for naphtha production in 2018, with preliminary studies starting this year."

CAP will use 1.3 million t of naphtha as feedstock for the production of olefins, as it looks to reduce imports from the Middle East and Singapore, which are currently around 1.7 million t. The company will fund the study with USD 250 million from 2014 allocated capex funds. The capex funds will also be used to expand a naphtha cracker at Cilegon to ethylene output capacity of 860,000 kt in a project worth USD 380 million. CAP will also build a synthetic rubber plant through its partnership with Michelin.

Construction & Property Development

Malaysia: Property sector risks manageable for banks and developers - Moody's

Source: Moody's, 3 March 2015

Moody's Investors Service says that despite economic headwinds, both Malaysian banks and property developers are resilient to possible shifts in sentiment and falling property prices. Stephen Schwartz, a Moody's Senior Vice President commented, "After several years of rapid gains in residential property prices, macroeconomic conditions in Malaysia are turning less positive for the property market. Nevertheless, we anticipate a soft landing for property prices, supported by robust, albeit decelerating GDP growth, and stable housing demand from middle-income households. In such a scenario, Malaysian developers and banks should be resilient to downward property price pressures."

Malaysia (A3 positive) has seen a rapid rise in residential property prices, of more than 40% in real terms since early 2009, against a backdrop of increased urbanization, rising living standards and a long period of low interest rates. Such a price increase has generally outpaced that of Malaysia's neighbors. But commodity price weakness and China's ongoing economic slowdown are creating economic headwinds. Moody's nevertheless expects Malaysia's GDP growth to decelerate to a still-solid 4.5%-5.0% in 2015, from 5.8% in 2014. However, previously implemented cooling measures, a forthcoming new goods and services tax, and tighter lending conditions, will all add to downward pressure on housing prices.



Singapore: Government to invest a further SGD 450 million over next three years to boost construction productivity

Source: Channel News Asia, 10 March 2015

The Singaporean Government’s National Development Ministry confirms it will commit a further SGD 450 million to 2018, through its Construction Productivity and Capability Fund, as it looks to boost productivity in the construction sector. This sum is in addition to the previously announced SGD 335 million also allocated to construction over the last five years. The government hopes to promote the application of productive construction methods in Singapore such as prefabricated bathroom units, which are already commonly used in Europe. These methods can reduce manpower needs by half or even more.

From June 2015, 70% of the funding will be channeled to help help firms with technology uptake over the next three years, while the remainder will go towards workforce development, benefitting some 7,000 companies. The government announced that site productivity has been seeing annual improvement of 1.4% annually since 2010, and the government aims to increase productivity by an average of 2-3% annually till 2020, according to Singapore's next Construction Productivity Roadmap. The roadmap includes the promotion of the Productivity Innovation Projects scheme, with its funding limit to be increased from SGD 5 million to SGD 10 million.



Philippines: Manila construction boom continues led by Megaworld and Ayala Land

Source: Bloomberg, 16 March 2014

A building boom continues in Philippine capital Manila with developers Megaworld Corp. and Ayala Land Inc contributing to record levels of apartment developments to 2017, broker CBRE reports. The potential oversupply of apartments could lead affect returns for investors adversely in the future. According to CBRE, around 55,000 residential units could be completed in 2015, bring a slowdown to lease rate growth. Property companies expenditure is predicted grow 18% y/y to USD USD 6.8 billion in 2015, Savills Plc reports. In recent times, developers in the country have invested heavily, as the country experiences an economic boom on a level not seen since the 1950s.

According to Macquarie analyst RJ Aguirre in Manila, the local market may require more time to absorb the expected record supply of new units. He commented, “Some developers may have to slow down in starting new projects because there is a risk of overbuilding. If developers don’t slow down and sales won’t move, we will see a build-up in inventory and receivables that will hurt earnings.” KMC MAG Group contends that as a result of the boom in, rental yields will be 3 to 4% in 2015, down from an avergae of 5% since 2011.

Consumer & Retail


South Korea: Department store sales in February recover strongly m/m

Source: Reuters, 10 March 2015

According to estimates from the South Korean government, sales at the country’s major department stores made a strong m/m recovery in February, mainly due to the timing of the 2015 Lunar New Year holiday. The Finance Ministry confirmed that combined sales at Hyundai Department Store, Lotte Shopping and Shinsegae Co stores increased 7.1% y/y, representing the fastest growth for the sector August 2014 when there was a 10.5% increase. The growth follows an11% fall in January 2015, the biggest m/m contraction on record.

Consumer statistics for the period including the Lunar New Year holiday are often distorted as spending is often much higher, akin to Christmas in the West, and 2015 saw the holiday fall in February, compared to January in 2014. South Korean discount store sales jumped 30.5% y/y in February, and 18.3% m/m. For the local automobile sector, sales fell 3.8% y/y, following a 3.9% m/m gain in January. Sales of gasoline by volume were up 12.5% y/y, marking a third consecutive month of growth and up m/m from 5.3%.



Japan: Family Mart and Uny enter merger talks

Source: Bloomberg, 10 March 2015

FamilyMart Co. and Uny Group Holdings Co. have commenced negotiations regarding a possible merger with the aim of agreeing basic terms by August 2015. Any deal would form Japan’s second-largest convenience store chain in terms of sales. The companies confirmed that Uny would probably be absorbed by Family Mart under a possible deal, which could be closed by September 2016. Japan’s supermarket and convenience store sector is currently facing sales due to a shrinking and aging population in the country, which has seen rivals 7-Eleven and Lawson add stores to keep prices down by raising volume.

The merger would see the two company’s convenience stores and Uny’s supermarkets combined, in what FamilyMart President Isamu Nakayama calls a “new model for those businesses.” FamilyMart currently owns 11,271 convenience stores while Aichi (Uny) has 6,328 stores in the Circle K and Sunkus chains, in addition to Apita and Piago branded supermarkets. The as-yet-unnamed chain would target expansion in Japan as well as in emerging markets, especially those in Asia.


 

Hong Kong: Retailers revenue growth set to hit four-year low in FY2015

Source: Reuters, 13 March 2015

According to Thomson Reuters, Hong Kong sales seen at retailers' in January 2015 feel to their lowest levels since 2003 and revenue growth in 2015 is expected to fall its slowest for at least four years, due to a fall in visitors from the mainland, who have been put off visiting the city due to increasing hostility. The data shows that 15 HK-listed retailers each worth more than USD 100 million including Emperor Watch & Jewellery, are expected to report 7.5% growth combined revenue in FY2015, which would represent the slowest growth for four years.

James Roy of China Market Research Group commented, "Hong Kong for a long time has been the shopping destination of choice for mainland Chinese, but there is a strong backlash and a perception of real negative sentiment toward the mainlanders, turning a lot of mainland Chinese off." In 2014, Hong Kong received more than 40 million visitors from mainland China, but the growth pace slowed from January 2015. The Chinese government’s corruption crackdown has also led to less spending, while Chinese overseas consumers are looking increasingly to retailers in Japan due to the weak yen.

Energy, Resources & Environment

China: Carbon emissions fall for first time in ten years in 2014

Source: Bloomberg, 13 March 2015

According to Bloomberg, China’s CO2 emissions fell y/y in 2014, for the first time since 2001, helping to stall global production of climate-warming gases, which remained unchanged over the past year. 2014 therefore marked the first time in 40 years that a fall or a halt to emissions growth wasn’t due/related to an economic downturn, the IEA announced. The IEA contends that lower emissions in China were driven by investment incentives in renewable energy and efficiency measures, as well as the decoupling of economic growth from emissions. New IEA chief economist Fatih Birol said the results are encouraging.

Birol commented, “This gives me even more hope that humankind will be able to work together to combat climate change, the most important threat facing us today.” Results from China suggest that efforts to curb pollution in the country are bearing fruit. The country led renewables investments in 2014 with USD 89.5 billion, which accounts for one-third of total global investment, BNEF reported.

 

Japan: Re-adoption of coal-fired energy accelerates with plans for another plant

Source: Wall Street Journal, 12 March 2015

Japan continues with its replacement of nuclear energy capacity with coal-fired energy with another announcement for a new coal-fired station, bringing new coal-fired plants announced in 2015 to seven. Utilities in Japan continue to go against the grain seen globally by investing in coal, as they look to take advantage of the commodity’s relative cheapness. By 2020, Japan’s power sector will be liberalized with utilities becoming rivals for the first time, who are increasingly turning to coal as restrictions on the commodity are relaxed and there are no new national emissions targets expected.

Kansai Electric Power and Marubeni announced plans for a new 1.3 GW coal-fired power station in northern Japan. Should all seven coal-fired projects announced in 2015 be completed, Japan’s coal-power generation would increase by up to 7.26 GW by 2025. Construction of the latest plant could start in 2019 and is slated for operation in around 2025. Company relatives shares have yet to be decided. Kansai will supply customers in Tokyo with the new plant where a major increase in power demand is expected.


India: 25% of installed power capacity to be solar by 2022 - Deutsche Bank

Source: Clean Technica, 09 March 2015

According to new forecasts by Deutsche Bank, 25% of India’s installed power capacity could come from solar by 2022. The forecast follows a formal commitment from the Indian government to aim for 100GW of solar power capacity additions by 2022 as 100 GW. Thje country currently only has 3 GW of installed capacity, accounting for 10% of total renewable capacity and 1% of total installed power capacity. In total, the government wants to add 400 GW of new installed capacity by 2022 across all sectors. To meet the solar target, India need to add 12 GW of capacity annually.

Deutsche Bank contends that the falling costs of generating solar energy increases the likelihood of India meeting this ambitious target. In the six years since their launch, solar PV power feed-in tariffs in India have fallen to a third of their original value and large-scale capacity will be auctioned to private developers. SOEs will also develop large solar power parks. Around 25 states have been earmarked as possible locations for the ultra-mega solar power projects of 500 MW to 4 GW capacity. The projects auctions are expected to start soon

Financial Services

Indonesia: Regulator set to ease rules on pension, insurance fund investments

Source: Reuters, 13 March 2015

Reuters reports that Indonesia's financial services authority will look strengthen the country’s capital market by making it easier for pension and insurance funds to make investments in riskier products. The country remains heavily dependent on offshore funding to meet growth targets and undertake infrastructure projects. As a result, foreign investors hold almost 40% of USD 98 billion in outstanding government bonds. Indonesia wants to boost the local non-sovereign market with many companies looking to expand. In addition, the imminent economic community amount ASEAN member is set to boost capital flows and raise competition for funding between nations.

More investors will be attracted if the country can increase liquidity in the domestic market since pension and insurance funds often keep their assets for a comparatively long period. According to capital market supervisor Nurhaida, “Our market is not liquid enough because there are not enough products and not enough investors. Pension or insurance funds could only invest in bonds with a certain rating, but many with lower ratings are actually quite safe. We will try to ease the investment [rules]."



India: Sumitomo Mitsui Trust Bank acquires stake in Reliance Capital

Source: Reliance Capital, 12 March 2015

Sumitomo Mitsui Trust Bank had agreed to acquire strategic stake in Reliance Capital, subject to regulatory and shareholders approvals, which have since been received. Sumitomo Mitsui Trust Bank has acquired an initial 2.77% strategic stake in Reliance Capital amounting to USD 58.4 million through preferential allotment, with a lock-in period of one year. Sumitomo Mitsui Trust Group is the fourth largest bank in Japan (in terms of market capitalization and corporate loans) and Japan’s largest financial institution managing assets of USD 682 billion with assetsunder custody of USD 1.8 trillion as of September 30, 2014.

“We welcome Sumitomo Mitsui Trust as our strategic partner in Reliance Capital. We are confident of accelerating our growth and tap new opportunities with the help of SMTB’s long standing experience and support” said Mr. Sam Ghosh, CEO, Reliance Capital. As part of the agreement, Reliance Capital intends to establish a new Bank in India, with support of Sumitomo Mitsui Trust Bank as strategic partner, as and when RBI’s policies permit formation of the same. Both companies will also collaborate in providing solutions for their clients, including inter alia in the area of M&A opportunities in India and Japan, and will assist each other in distribution of their respective financial products through their networks.


 

Japan: Shizuoka Bank sees no benefit in rival mergers

Source: Reuters, 12 March 2015

In Japan, Shizuoka Bank confirms it sees no benefit in merging with rival regional lenders as it looks to safeguard its long-term future, with President Kasunori Nakanishi stating that the company will concentrate in boosting its online presence instead. He commented, "Banks' core business is deposit-taking and lending and it is not so profitable now. Bank consolidation means just combining unprofitable businesses. I don't see any meaning in it." There has been much speculation in Japan regarding M&A activity among the country’s 100+ regional banks following regulator advocating of consolidation in the sector.

Japan’s regional lenders make up around half of the country's USD 3.5 trillion in outstanding bank loans, and profits fell 2% in Q2-Q3/2014, according to government data. Regulator, the Financial Services Agency has held secret meetings with regional bank heads, senior officials, and encouraged consolidation unless the lenders can demonstrate a viable growth. November saw two pairs of banks, including Bank of Yokohama announced mergers, boosting hopes that more could follow. However, Nakanishi’s skepticism may have dashed hopes of a future merger involving Shizuoka Bank.

Logistics & Transportation

Sri Lanka: APL Logistics to establish regional consolidation hub for South Asia

Source: APL Logistics, 13 March 2015

APL Logistics plans to establish a regional consolidation hub for South Asia in Sri Lanka by H2/2015. The announcement came after the signing of an agreement with the Board of Investment of Sri Lanka on APL Logistics’ investment within the Katunayake Export Processing Zone (EPZ). With that, APL Logistics’ wholly-owned subsidiary, APL Logistics Lanka, has been granted a lease on the land and premises located in the EPZ where it will operate its container freight stations, warehouses and other logistics-related businesses.

APL Logistics said that the next immediate phase of the plan will be focused on the reconstruction of the existing facility on the site into a new state-of-the-art facility. It will offer 100,000 square feet of bonded warehousing space, compliant with international standards for security and safety and with built-in environmentally-friendly features. “Sri Lanka has been rapidly growing in importance as a regional sourcing base for global retail customers. The country’s infrastructure development to improve the capacity and efficiency of its existing ports has been progressing at a tremendous pace.” said Beat Simon, APL Logistics President.

 

Australia: Asciano in AUD 300 million logistics JV with Australian Container Freight Services - Sources

Source: The Australian, 13 March 2015

According to sources close to the matter, Asciano has agreed a joint venture reportedly with Australian Container Freight Services on its logistics business, in a deal that creates an entity with AUD 300 million. The news follows an announcement in February by Asciano boss John Mullen that he aimed to strengthen the logistics division. Australian Container Freight Services is run and owned by the Tzaneros family in Sydney.

The JV will be focused on Patrick’s logistics unit, which transports goods to and from the ports, and will have no effect on talks regarding the sale of port terminals. DataRoom reported that divestment negotiations with China Merchants Group have been broken off after no acceptable bid for the assets was made. It remains unclear if advisers JPMorgan and Goldman Sachs are in talks with other possible buyers, though Maersk may be interested. Asciano is expected to reveal further details of the JV next week.



Malaysia: Swire Oilfield Services opens new yard in Kemaman

Source: Swire Oilfield, 10 March 2015

Swire Oilfield Services has increased its footprint in Malaysia with the opening of its new Kemaman base in partnership with Altus Oil & Gas Malaysia Sdn Bhd. The new base at Kawasan Perindustrian Teluk Kalong comprises three acres of open yard space, an acre of covered warehouse and a further four acres of bonded warehouse currently under construction. The facility has increased local employment opportunities and offers a range of services to customers including refurbishment, maintenance, inspection and logistics. Swire Oilfield Services has seen significant growth in Malaysia in recent years, and in December celebrated the milestone of 1,000 cargo carrying units in the region.

The company mobilized its first units in Kemaman in 2012, and has significantly grown its fleet to meet customer demand in the area. Swire Oilfield Services has invested USD 19 million USD in its South East Asian operations and has identified the market as central to its five-year growth strategy – Vision2020. Investments made last year were aimed at expanding the company’s cargo carrying unit rental fleet and developing bases in Malaysia, Thailand and Vietnam. This will be followed by a further USD 8 million USD capital spend on regional rental fleet in 2015 and an extension to the company’s Singapore yard.

Manufacturing & Industrial

China: Industrial output, investment and retail sales miss targets for January and February 2015

Source: Bloomberg, 11 March 2015

According to official data and Bloomberg, China’s industrial output, investment and retail sales growth failed to meet analysts’ estimates for both January and February, indicating that perhaps more stimulus maybe required. According to Bloomberg’s GDP tracker, production levels indicate that economic growth slowed to 6.28% in the period, representing the slowest pace since early 2009. Premier Li set China’s growth target at around 7% for 2015, the slowest for more than 15 years, as the country battles with debt, pollution and corruption. The central bank is looking to soften the blow of slowdown with two interest rate cuts and one reduction to banks’ reserve requirements since November.

Liu Li-Gang, chief economist for greater China at Australia & New Zealand Banking Group commented, “The mix of the real activity indicators suggests the effects of monetary policy easing effort so far has remained limited. Further easing effort or even targeted ‘fiscal stimulus’ is needed in order to arrest the downside risk.” For January and February, factory production increased at 6.8% y/y according to the National Bureau of Statistics down from the Bloomberg survey median projection for 7.7%, while retail sales grew 10.7% and fixed-asset investment grew 13.9%. Hang Seng and Shanghai Composite slipped upon news of the data.



Indonesia: Manpower Ministry to include productivity as criterion in new system for wage rises

Source: Bloomberg, 12 March 2015

Indonesia’s Manpower Ministry confirms plans to include productivity as a criterion for new rules to set annual minimum wage gains, as the country looks to improve work skillsets and avoid worker disputes. The new system is under discussion by with unions and the main employers’ association. Manpower Minister Hanif Dhakiri commented, “Certainly we need a system that means labor costs are predictable and also a formula that will be fair for labor. The formula is still secret. But essentially there are proposals to use productivity, that’s the main and important point.”

According to a 2014 World Bank report, labor productivity per worker in Indonesia remains five times lower than Malaysia, and on average is be lower than that of Thailand, the Philippines and China. Dhakiri confirmed that government would look to raise this through competency-based training. Wages in Indonesia have seen sharp increases in the past few years due to increased industrial action, which has eaten into the country’s competitive advantage compared to China and SEA rival nations. “The only way to accommodate wage increases without jeopardizing competitiveness is to increase labor productivity. Boosting economic growth through increasing labor productivity will be crucial,” The World Bank report concluded.


Malaysia: January industrial output falls 7% y/y in January 2015

Source: The Star (Malaysia), 12 March 2015

Malaysia’s Statistics Department announced that Industrial Production Index (IPI) for January 2015 rose 7.0% y/y meeting analysts’ predictions, while mainly driven by y/y growth in output from manufacturing, mining, and electricity sectors of 6.5%, 8.3% and 6.3%, respectively. However January’s IPI did fall m/m by 1.0% because of a decline in the indices. The Statistics Department confirmed that the sub-sectors which led to the IPI increase in January 2015 were electrical and electronics products (10.3%); petroleum, chemical, rubber and plastic products (5.3%); and non-metallic mineral products, basic metal and fabricated metal products (11.6%).

The Statistics Department also confirmed that manufacturing output fell1.2% m/m in January 2015, while mining strong y/y growth of 8.3% was due to a higher reading on the crude oil index of 16.7%. In terms of natural gas, however, the results were less optimistic with the natural gas index falling by 0.6%. On a m/m basis, the mining sector declined by 0.4%. Electricity output grew 6.3% y/y in January 2015, and by 2.3% m/m.

Pharmaceuticals & Healthcare


Singapore: GSK to set up new Asia HQ

Source: GlaxoSmithKline, 10 March 2015

GlaxoSmithKline (GSK) is strengthening its presence in Singapore by establishing a new global headquarters for Asia, further expanding its commitment to patients and consumers in the region, the company announced. GSK has signed an agreement with Boustead Development Partnership JV entity to develop and lease a new building which will be the company’s new global headquarters for Asia. Located at the ‘one-north’ development in the Rochester Park area of Singapore, GSK will move all employees currently based in Gateway West to the new headquarters during the second half of 2017 once the site is fully fitted.

Sir Andrew Witty, CEO, GSK, said: “GSK and Singapore’s histories are entwined. Since building our first site at Quality Road in 1972, we have continued to significantly expand our footprint, capability and talent base. In our experience and my own personal experience, Singapore excels in fostering talent, supporting business growth and offers an excellent base to access Asia. This is why we are making a significant decision to further increase our presence in Singapore as we continue to modernise and advance GSK.”



India: Three PE funds in negotiations for 80% stake in Medall Healthcare

Source: Economic Times, 13 March 2015

According to sources close to the matter, three global private equity funds, namely, Apax Partners, Advent International and Barings Asia are holding separate talks with private equity firm Peepul Capital regarding the possible purschase of its 80% stake in the Indian healthcare chain Medall Healthcare. Any resulting deal would allow Peepul to exit the company with a more than three and a half returns, as the company is now worth USD 200 million. Chain founder and MD Raju Venkataraman also plans to divest part of a stake to expand the brand in southern India.

ET first reported Peepul Capital's proposed exit from Medall at the end of January 2014. "The company will raise fresh capital to expand its presence across South India," said one person involved in the deal. Peepul Capital and Raju Venkataraman were unavailable for comment. The three possible bidding private equity funds were also unavailable for official comment. Medall Healthcare, which used to be called Precision Diagnostics, provides pathology, microbiology, radiology imaging and other services at 60 centres across Chennai, Bengaluru, Trichy, Tirunelveli, Pudukottai and Rajapalayam, and employs 100 clinical pathologists.



China: Number of drugs awaiting approval jump by one-third y/y in 2014

Source: Channel NewsAsia, 13 March 2015

According to the official Center for Drug Evaluation, by the end of 2014, there were over 18,500 drugs awaiting approval in China, an increase of one-third y/y. This reflects concerns among industry players that is becoming even more difficult to gain necessary approvals for new drugs to enter the Chinese market. Executives at drug companies contend that China has made the approval process even stricter, and companies may have to wait around six to eight years before gaining approval. The official report says that China's drug trial center saw 8,868 drug applications in 2014, up y/y from 7,610, with the Center for Drug Evaluation saying that although review volume had increased, it did not meet application growth.

Recently, the Chinese healthcare industry has been en vogue with investors and dealmakers. Thomson Reuters data showed that China healthcare mergers and acquisitions more than doubled to a record USD 18.5 billion in 2014 after years of steady growth. The deals totaled USD 6.9 billion in January 2015 alone, which is an acceleration that points to another blockbuster year.



 

Private Equity


Australia/New Zealand: GE to divest financial services to Värde, KKR, Deutsche Banks investor group

Source: Bloomberg, 15 March 2015

General Electric Co. announces it will divest its Australia and New Zealand financial services unit to an investor group mad up on Värde Partners and KKR & Co., and Deutsche Bank AG. The group confirmed on 15 March that it would acquire the business, which provides credit cards and personal loans, for AUD 8.2 billion (USD 6.3 billion). According to people close to the matter, the business has gross assets worth around AUD 7 billion. Data from Bloomberg shows that divestment adds to the USD 7.7 billion of assets sold by GE in 2014, as CEO Jeffery Immelt looks to cut links to the credit business that left the company at risk in the 2008 financial crisis.

Evan Lucas, a market strategist at Melbourne-based IG Ltd commented, “GE’s financial services business here is formidable and a lot of people were interested in it. It is quite capital intensive and KKR will try to drive efficiency to derive value. They’d also be hoping the lower interest rate environment will boost credit demand.” Other bidders for the unit included Apollo Global Management LLC, TPG Capital and Macquarie Group Ltd, according to people close to the matter. GE did confirm that the company will continue to providing credit to customers in sectors including oil and gas, , energy, heath care and aviation.



China: Financial services sector set for most active year since 2010ECM deals set for strongest year since 2010

Source: Reuters, 13 March 2015

Thomson Reuters reports that 2015 has already seen USD 6 billion of private equity deals involving Chinese banks, brokerages and insurers, which include a USD 3.9 billion private placement by Haitong Securities and the USD 1.6 billion Shanghai IPO by Orient Securities. USD 30 billion could be raised through such deals over the coming months in 2015, bringing highs not seen in the financial service sector since 2010.

Banks and insurers in the country are looking to raise funds to boost balance sheets as well as adhere to new capital adequacy regulations, while brokerages, on the other hand hope to enter new capital markets and expand profitable margin financing in addition to other lending businesses. Francois Perrin, head of Greater China equities at BNP Paribas Investment Partners Asia commented, "Considering the cut in monetary policy, considering the earnings outlook for the banks, it will be an interesting window of opportunity for them to issue shares," Perrin added that the growth of the insurance sector in China and higher return on equity means that insurers are better positioned in 2015 compared to banks.



Japan: Baring Private Equity Asia looking for further growth

Source: Wall Street Journal, 12 March 2015

Baring Private Equity Asia is looking to continue investments in Japan, despite a shrinking, aging workforce and domestic consumer base Tokyo MD for the company Tadashi Maruoka contends that further investment in a certain industry is an effective means of achieving growth by expanding overseas. One example was Baring’s investment in Primo Japan, a bridal jewelry store operator, in 2011. The company y had been failing but since the investment, the company has seen operations in Taiwan strengthened and also opened two new stores in Hong Kong. Primo has since been sold to another private equity firm, Longreach.

Baring now announces plans to make fresh investments in Japan amounting to 15% of the USD 4 billion the firm has recently raised in the country. The firm’s last five investments in Japan resulted in a return of over 25% on average. Baring’s latest investment is drug manufacturer Bushu Pharmaceuticals Ltd., acquired in December 2014 for USD 670 million. Baring aims to implement some outsourcing activities to cut fixed costs. Bushu’s sales are expected to grow y/y to JPY 25 billion in FY 2014-15 from JPY 16 billion, following the company’s acquisition of a production facility from Eisai Co. in 2014.

Technology, Media & Telecommunications

India: Increased use of digital technologies could add USD 101 billion to economy by 2020 – Accenture

Source: Accenture, 10 March 2015

The increased use of digital technologies could boost productivity for the world’s top 10 economies and add USD 1.36 trillion to their total economic output in 2020, according to a new study by Accenture. For India, the increased use could add USD 101 billion by 2020. The study is based on the Accenture Digital Density Index, a tool that helps companies make better strategic investments based on granular measures of digital performance. The Accenture Digital Density Index measures the extent to which digital technologies penetrate a country’s businesses and economy.

A country’s “digital density” is determined by a scorecard comprising over 50 indicators, such as the volume of transactions conducted online, the use of cloud or other technologies to streamline processes, the pervasiveness of technology skills in a company, or an economy’s acceptance of new digitally driven business models. "As companies become more digitally enabled, so digital density should rank alongside access to natural resources, a good transportation system, and skilled people in their list of location criteria," Accenture's Strategy, Digital Strategy MD Bruno Berthon said.


 

China: Alibaba to invest USD 200 million in Snapchat - Source

Source: Reuters, 12.03.2015

According to a source familiar with the matter, Alibaba is to invest USD 200 million in Snapchat, the photo messaging app, as the Chinese ecommerce giant continues to build its portfolio of mobile services. Bloomberg reports that Snapchat is valued at USD 15 billion as a result of the deal. Access to Snapchat is currently blocked in China and it remains unclear how the deal would benefit Alibaba in the short-term. The deal follows Alibaba’s unsuccessful efforts to break into China’s instant messaging app sector, which is still dominated by Tencent’s Wechat.

It was reported by TechCrunch in 2013 that Tencent had also invested in Snapchat. Duncan Clark, managing director of Beijing-based tech consultancy BDA commented, "We know that Tencent powered ahead of Alibaba in mobile with WeChat, so Snapchat as the 'it' company for youth social networks in the West has an obvious appeal." China’s major internet companies continue to make investments in part to guard against similar moves from rivals. They also hope for future partnering opportunities in China, as local regulations allow.


 

Australia: TPG Telecom bids USD 1.1 billion for iiNet

Source: Channel News Asia, 14 March 2015

In Australia, ATPG Telecom announced on 13 March that it is looking to acquire local ISP iiNet for USD 1.1 billion, which could lead to rival Optus joining the bidding. The deal comes as Australia implements an AUD 30 billion national broadband network rollout project, and would make TGP the second largest fixed-line broadband business in the country. Citi analyst Justin Diddams commented, "We believe Optus, as the current No. 2 player in fixed-line, would also be interested in the potential scale benefits provided by iiNet. There's also scope for a counter offer from Optus, given the strategic importance of (iiNet's) customer base."

As news of the deal surfaced shares in both companies soared to record highs, with iiNet and TPG up 27.6% and 17.6%, respectively. As a result of the deal, TPG predicts combined revenues to grow to AUD 2.3 billion and earnings before interest tax, depreciation and amortisation (EBITDA) of AUSD 654 million. The new entity would have a total of 1.7 million broadband services subscribers. Mark Lennox, senior private client adviser at HC Securities commented, "The TPG board are clearly taking the view that size will offer them some level of protection from industry heavyweights such as Telstra and Optus."