Asia News Update
China: Accounting scandal hits Alibaba’s new film company
Source: Quartz, 15 August 2014
Alibaba states it has found accounting problems in its newly acquired company, Alibaba Pictures, causing shares to be halted from trading and delaying reported earnings for H1/2014. The scandal questions the company’s due diligence over the course of its transaction. The new management of the company, formerly known as China Vision, uncovers “non-compliant treatment of financial information” and “insufficient provision for impairments of certain assets”. This means that China Vision’s accounting practices were questionable and its balance sheet was not as healthy as it appeared.
Raymond So, dean of the business school at Hang Seng Management College, opines that the public will scrutinize Alibaba’s future M&A more carefully and the company should strengthen its corporate governance to increase checks and balances. Alibaba states that it had difficulties integrating Alibaba Pictures’ financial reporting. The company also claimed that they lack substantial experience in integrating major acquisitions. A separate but major issue that Alibaba should also worry about is how the auditing of Alibaba Group will work. New Chinese regulations may require non-mainland firms audit Chinese firms through cooperation with local Chinese auditors, while Chinese secrecy laws disallow information to be passed to overseas regulators.
Singapore: Greenlots and BMW Group Asia to set up first electric vehicle network
Source: ABR, 13 August 2014
Singapore’s first Home and Public Charging network will be provided as part of BMW’s 360º ELECTRIC program, which includes services attached to the purchase of every BMW i model: Public Charging, Home Charging, Flexible Mobility, and Assistance Services. The network, based on the Open Charge Point Protocol (OCPP), will be provided by BMW Group Asia in collaboration with Greenlots, a global provider of open standards-based technology solutions for electric vehicle networks. It will be available to both BMW i owners and Singapore EV drivers.
As part of the collaboration, ChargeNow, BMW i’s public charging program, will be administered by Greenlots' open standards based, SKY Smart Charging platform by using the BMW i ChargeNow card and Greenlots mobile app. Greenlots expects to have up to 30 L2 (AC) chargers across 20 public locations by the end of 2014. In order to assist BMW i drivers in locating the nearest available charging point, real-time information will be provided through the car’s navigation system. As for Home Charging, Greenlots will manage and install the BMW i Wallbox Pure at the home or office of customers upon the purchase of a BMW i vehicle.
Korea: Domestic automakers facing competition as import sales grow
Source: Livemint, 17 August 2014
Falling shipments to Europe and an unfavorable South Asian environment led to a decline in car exports to 171,274 in April-July 2014 from 180,332 units in the year-ago period. Hyundai Motor, which accounted for 45% of all cars exported from India in 2013, has decided to shift production for the European market from its Chennai plant to Turkey and the Czech Republic, thus reducing the plant’s exports by 25%. These numbers run counter to the country’s objective to become a global hub for small-car exports.
Meanwhile, challenges in neighboring countries have led to lost opportunities worth around USD 2 billion. Exports to Sri Lanka are barred while Bangladesh and Nepal have become second-hand vehicle markets. With the slowdown in the automotive market, the Society of Indian Automobile Manufacturers (SIAM) has announced that it will miss its annual turnover target, as set under the Automotive Mission Plan (AMP) 2006-2016, by USD 35 million. Facing the abovementioned challenges, companies are now paying greater attention to regions with high growth potential such as Latin America and Africa.
China: Mercedes found guilty of price-fixing
Source: BBC, 18 August 2014
Investigators from the anti-monopoly bureau of Jiangsu Province said Mercedes-Benz has been found guilty of using its dominant position in after-market parts to maintain price controls, according to the official Xinhua News Agency. There has been no mention of the likely penalty yet. On 19 August 2014, a Daimler spokesperson said the company was "unable to comment further on what is still an on-going matter”. A growing number of foreign companies, including in the pharmaceutical, technology and food sectors, have recently come under increased scrutiny, as part of an anti-monopoly crackdown which is leading the European Chamber of Commerce in China to openly wonder if foreign companies are being disproportionately targeted.
In the midst of this campaign, foreign car makers have been particularly hurt, with BMW, Audi and Chrysler all facing sanctions. In addition, Toyota recently said its Lexus division was under scrutiny and General Motors had to respond to requests for information by regulators. Foreign car makers seem to be victims of both their success in China and their pricing strategies. As they still maintain a monopoly over high-end models in the country, they have been able to use Chinese consumers’ thirst for luxury to sometimes charge unreasonably high prices.
Malaysia: Petrofac awarded EPCC contract for PETRONAS’ petrochemical project
Source: BBC, 18 August 2014
UK-based Petrofac was awarded a USD 500 million contract by PRPC Refinery and Cracker, a subsidiary of PETRONAS, to provide engineering, procurement, construction and commissioning (EPCC) services at a petrochemical project at Pengerang in Johor, Malaysia. The contract includes services to be provided by Petrofac for three sulphur recovery units, two amine regeneration units, two sour water stripping units, a liquid sulphur storage unit and a sulphur solidification package unit. Petrofac Onshore Engineering & Construction business managing director Subramanian Sarma said: “This award represents another significant step in building our capability in the Asia Pacific region.”
The largest liquid-based green-field downstream in Malaysia, the project will have a 300,000-barrel per stream day refinery and will supply naphtha and liquid petroleum gas feedstock for the RAPID petrochemical complex. It will also produce gasoline and diesel in compliance with the Euro 4 and Euro 5 fuel specifications. The refinery, which is part of PETRONAS’ larger Pengerang Integrated Complex (PIC) development, is expected to start operating in early 2019.
Australia: Clariant to build masterbatches manufacturing facility in Sydney
Source: Chemicals Technology, 12 August 2014
Clariant, a Swiss specialty chemicals company, is establishing a colors and additive masterbatches manufacturing facility in Sydney to respond to the rising demand on the Australian market. Work on the project has already started and the plant is planned for commissioning in Q4/2014. Working closely with Clariant's New Zealand Albany facility, the site will have color matching and quality control capabilities. Clariant Asia Pacific RBL Masterbatches head Heiner Mehrtens said: "Building a local masterbatches production plant is a key part of providing fast and reliable service to our Australian customer base, as well as to global and local brand owners."
Beyond the Australian market, Clariant is indeed focusing on the wider Asia Pacific region. Executive committee member Mathias Lütgendorf said “The Asia Pacific region is one of Clariant's focal areas for future development. The new Australian masterbatches plant will support our masterbatches business to grow and to increase its customer service focus in the region." Clariant was formed through a spin off from the chemical company Sandoz and later expanded by acquiring Germany-based Hoechst in 1997 and UK-based BTP and Ciba’s Masterbatches division.
Kazakhstan: Sinopec and KPI terminate USD 1.85 billion contract
Source: Chemicals technology, 14 August 2014
Sinopec Engineering and Kazakhstan Petrochemical Industries (KPI) have mutually agreed to scrap a contract signed in June 2013. Under the engineering, procurement and construction deal, Sinopec Engineering was contracted to construct propane dehydrogenation and polypropylene units. However, both parties were unable to reach an agreement on certain commercial conditions and other issues, and the contract was terminated on 13 August 2014.
Sinopec Engineering said: "As the contract had not been implemented yet, both parties had no outstanding liabilities in relation to the contract.” Since KPI had not yet made any payment, Sinopec does not expect the termination to have any adverse impact on its existing operations and strategies. The value of the contract will be deduced from the backlog value, while a disclosure will be made in the 2014 interim report and interim results announcement.
Construction & Property Development
Singapore: Jurong makeover faces obstacles
Source: Channel NewsAsia, 19 August 2014
The Government announced that the Jurong Lake Park, the first phase of the Jurong Lake Gardens project, will be completed by 2017. The renovation of Jurong, intended to imitate popular places such as East Coast and Punggol, will include the integration of the Chinese Garden, the Japanese Garden and the Jurong Lake Park into the Jurong Lake Gardens, as well as new public housing developments around Pandan Reservoir. Currently, the area around the reservoir comprises a mix of industrial offices, commercial buildings and Housing and Development Board flats. Developers are expected to be drawn to the area once the project is carried out. Mr Nicholas Mak, head of consultancy and research at SLP International Property Consultants, said “I think it can potentially be like East Coast, but it will also need a lot of redesign.”
Analysts say congested public transport infrastructure and pollution nearby will require a lot of heavy work, and National Development Minister Khaw Boon Wan acknowledged that the project would take years. Indeed, Pandan reservoir could be affected by pollution from petrochemical plants on Jurong Island, and Ku Swee Yong, chief executive of Century 21 Singapore, said the Ayer Rajah Expressway is often congested and the East-West MRT Line has reached maximum capacity.
China: Property sector continues to decline in July
Source: CNTV, 18 August 2014
Data from the National Bureau of Statistics (NBS) show that out of 70 major Chinese cities, 64 saw prices for new homes decline in July, compared with 55 in June. Xiamen and Dali were the only two cities to see m/m gains in new home prices. For existing homes, 65 major Chinese cities reported price drops in July, up from 52 cities in June, Xining being the only city recording month-on-month price gains. Such data confirms previous signs that China's property market is experiencing a downturn after years of expansion.
Growth of property investment indeed slowed down for six months straight starting in February, with property sales dropping 7.6% y/y during January-July 2014. Monthly property sales in July represented a m/m drop of 34%. Liu Jianwei, a senior statistician at the NBS, said home buyers were now cautious due to uncertain market prospects. Meanwhile, the removal of purchase restrictions on multiple homes seen in second- and third-tier cities is unlikely to be efficient, but the credit policy and discounted mortgage rates offered by commercial banks to first-home buyers might have a positive impact.
Australia: ‘Phenomenal’ Chinese demand for property to intensify
Source: Sydney Morning Herald, 15 August 2014
New research by CLSA concludes that Chinese investment in the Australian property market will continue “for at least three years”. China is already the number one source of foreign investment in the local real estate market and although some in Australia worry about foreign investors pushing up property prices, the influx of Chinese money might help the economy transition from the mining boom by generating growth in the building and construction sector. The prospect of one day moving to Australia seems to be the main rationale behind the growth in Chinese investment.
The rise of apartment construction activity will in turn boost the bottom lines of the country’s biggest listed property developers. As a result, the CLSA analysts are encouraging clients to buy stocks in companies such as Lend Lease, Mirvac, Goodman Group and the dual-New Zealand listed Fletcher Building. Researchers also believe that significant changes in local foreign investment rules and new Chinese restrictions on outbound capital are unlikely. The rules that have allowed the recent trend in Chinese investment will most likely face very few changes in the near future.
Consumer & Retail
India: Top spot in Nielsen's global consumer confidence
Source: Zeenews, 18 August 2014
The country’s ranking in Nielsen’s Global Survey of Consumer Confidence and Spending Intentions in Q2/3014 increased seven index points to 128, overtaking Indonesia and reaching first place among 60 countries. Piyush Mathur, president of Nielsen India, said "Consumers in India have indicated increased levels of confidence in the second quarter when the country’s general elections were taking place in the country." The survey revealed that 83% of Indian consumers said they feel optimistic about future prospects, with the country’s job sentiment improving by 20% points.
Nielsen also said global consumer confidence in Q2 reached the highest level since Q1 2007, marking an end to the stagnation witnessed throughout 2013. Consumer confidence was highest but stable in the Asia-Pacific region: China held steady while confidence increased in the Philippines and Malaysia. North America and Europe also reported slight increases from Q1.
Thailand: July consumer confidence index highest in 15 months
Source: Pattaya Mail, 16 August 2014
As people expect the National Council for Peace and Order (NCPO) to improve the country's economy, a nationwide survey of the Trade Policy and Strategy Office of the Ministry of Commerce showed that the confidence index rose from 38.4 in June to 41.4 in July. These numbers stand in stark contrast with those witnesses in the previous year, thus recording a new high in 15 months.
However, the forecast index for consumers' confidence in the next three months remains below 50, at 45.4. This indicates that consumers still have concerns, especially about the cost of living. While spending on consumer products is declining, farmers indeed suffer from low rice prices and declining rubber and palm oil prices. As a result, household debt is likely to grow.
Malaysia: Inflation and sales tax hurt booming economy
Source: Campaign Asia, 18 August 2014
Strengthening exports and increased government spending allowed Malaysia’s economy to grow by 6.2% in Q1/2014, its highest growth in five quarters. However, rising inflation, mainly caused by government subsidies, is having a negative impact on consumer confidence. The Nielsen’s Consumer Confidence index for Malaysia was at 92 in Q1/2014, slightly below the global average and 15 points lower than in Q1/2013. Rising inflation is also impacting consumer spending, as 83% of consumers have reduced their spending on household expenses in the past year. The contraction is likely to continue, especially since a new sales tax is expected to be introduced in 2015. Shopping habits are also evolving in the country. Online retail and minimarkets are growing quickly and Nielsen’s advertising expenditure services recorded a rise of 13.6% y/y in H1/2014. Companies should take into account the polarized nature of Malaysian consumers and cater to not only the few affluent consumers but also to the lower income earners.
Energy, Resources & Environment
Taiwan: Ma strives for diverse and feasible energy mix
Source: Eco-Business, 18 August 2014
President Ma Ying-jeou of Taiwan reaffirmed the government’s commitment towards a diverse and safe energy mix during an energy summit held in Taipei City, in order to ensure the nation’s sustainable development. He reiterated the government’s policy of “no nuclear safety, no nuclear power” and stressed that Taiwan should adopt a practical approach on the development of nuclear power, increasing the use of nuclear energy as a mature technology to substitute fossil fuel and lower carbon emission. With regard to the development of renewable energy, the Ministry of Economic Affairs has set up an implementation mechanism to further advocate optimal energy mix based on the Renewable Energy Development Act of 2009.
Taiwan imports 98% of the energy-related resources, of which 18.8% are nuclear power, which is parallel to the situation of Japan. Therefore, the government places emphasis on the use of solar panels and wind turbines, aiming to stimulate renewable energy by 27% (10.9 to 13.8 gigawatts) by 2030 and reduce the carbon dioxide emissions to the 2000 level by 2025 to align with the standards of UN Framework Convention on Climate Change and the Kyoto Protocol.
Japan: Nuclear restart remains at a standstill
Source: The Washington Post, 18 August 2014
After the meltdowns of Japan’s Fukushima Daiichi nuclear power plant caused by the March 2011 earthquake and tsunami, the restart of atomic energy program remains stagnant. Although it is estimated that 25 to 30 reactors would restart in the next five years, none of these are expected to be new plant and all nuclear plants are suffering from financial distress. Moreover, the meltdown of Fukushima Daiichi nuclear power plant forces Japan to import alternative resources with higher price. For example, 26% increase in fossil fuel in 2013; USD 13.99 higher than other countries to import natural gas.
Even though safety regulations are in place for nearby town and Nuclear Regulation Authority (NRA) employed strict civil servants to manage the industry, the number of people who support increasing the number of nuclear power plants is declining and 60% of respondents are against the restart of the Sendai nuclear plant. However, the Abe cabinet still advocates for the restart of existing nuclear reactors and residents within 5km of the nuclear site can benefit from financial support from the central government.
India: Eyeing for energy trade with Central Asia
Source: The Diplomat, 18 August 2014
India, which is the 4th largest energy consuming country, could see the new Modi administration having the opportunity to make diplomatic breakthroughs in securing energy resources in Central Asia, such as the CARs, Pakistan and Afghanistan. Although the “Connect Central Asia” policy helps to push for more cooperation in education, medicine and IT, the trade in energy sector remains weak. India’s trade with its CAR neighbors stands at USD 500-760 million.
In order to improve India’s competitiveness, India has to foster better ties with Pakistan for the convenience of fluid cross-border trade with Pakistan. In addition, India requires good relation with Afghanistan for the pursuit of energy diversification and energy trade. India can build an alliance with Russia to stabilize Afghanistan, as well as spreading financial risk along with humanitarian aid and infrastructure assistance. However, India can only improve its energy trade with Central Asia by making real progress on the above intensive cooperation.
Indonesia: OJK to draw up five-year blueprint to boost Islamic banking
Source: Reuters, 18 August 2014
Otoritas Jasa Keuangan (OJK), Indonesia’ financial services authority, is devising a five-year plan to boost the country’s Islamic finance industry, which could include incentives to help revitalize the local market for Islamic bonds. According to OJK, Islamic banking asset accounts for 4.8% of total banking assets in Indonesia, with a 16.5% y/y growth rate.
OJK encourages coordination of Islamic finance among government bodies and the private sector to have local and federal regulations. The blueprint will also aid the sector enforce regulations that require Islamic window operations to be spun off from their parent banks and floated on the local exchange by 2022. In addition, the plan is seeking to recover an Islamic bond market which has seen no corporate issuers so far in 2014. The OJK remained confident that the tax neutrality is already in place for corporate Islamic bonds created by existing laws. It has also offered incentives for the Islamic bond market in the area of fees.
Singapore: Financial services industry serving more SMEs
Source: Channel NewsAsia, 11 August 2014
The financial services industry is serving more small- and medium-sized enterprises (SMEs) by offering additional necessary expertise and funds. The latest statistics from the International Finance Corporation show that more than half of the SMEs in Asia Pacific are underserved in terms of financing. American Express places more emphasis on corporate clients and particularly SMEs, for instance, providing preferential rates and grants. American Express is providing grants of SGD 5,000 to SGD 50,000 in total from 1 August to the end of 2014. Meanwhile it is seeking for more productive measures to boost the efficiency of SMEs.
OCBC bank serves over 40% of the SMEs in Singapore and launched its Business First Loan for SMEs with funding up to SGD 100,000. It is reported by Asian Development Bank that SME loans accounted for 25% of the total bank lending in Asia Pacific in 2012. McKinsey forecasts revenue from SME loans to grow to over SGD 180 billion between 2010 and 2015.
China: China Finance Online launches first integrated, web-based securities trading platform
Source: Market Watch, 18 Aug 2014
China Finance Online Co., Ltd, a top web-based financial services company providing Chinese retail investor to use stocks, commodities and wealth management products, announced the first independent web-based securities trading platform in China called “Zhengquantong” (or “Securities Master”) and form partnership with CITIC Securities. Securities Master is a fully integrated securities-trading platform for investors to access market information, open accounts and trade in real-time and manage their finances effectively via computers, smartphones, tablets, and smart TVs.
Most importantly, the partnership with CITIC helps China Finance Online to stimulate the brokerage services and internet finance as well as building the collaboration with our partners in wealth management, investment consulting and internet finance service products. The Company’s portals, jrj.com and stockstar.com can help to transfer the current large user bases (tens of million by each month) to online securities and attract new users by offering reliable, consistent and correct information.
Logistics & Transportation
Vietnam: Domestic logistics firms losing competitiveness against MNCs
Source: VietNamNet Bridge, 17 August 2014
According to the Ministry of Transport, nearly 800 Vietnamese logistics firms are in operation currently but they account for only 25% the market share due to majority of them being small-sized and lacking in capital to expand their businesses overseas, in particular cargo shipping. Therefore, multinational companies (MNCs) hold an edge globally commanding a larger market share. Large proportion of the overseas logistics work is given to agents of MNCs, and capital limited local logistics firms could only settle for second- or third-tier agent roles for foreign partners.
There are three main reasons limiting the growth of Vietnam’s local logistics firms. Firstly, local exporters favor free-on-board (FOB) and free-carrier (FCA) shipping modes, allowing foreign purchasers to select their preferred transport companies. Secondly, many foreign firms have gained the upper hand in the Vietnamese import market, as they are both direct investors and major importers in the country. Lastly, most local logistics firms could neither provide value-added services nor develop a competitive supply chain, as they only have sales divisions to manage import-export operations and no logistics departments.
Indonesia: Government aims to cut logistics costs to 23.6% of GDP in 2015
Source: Jakarta Globe, 17 August 2014
Indonesia aims to cut its spending on logistics to 23.6% of GDP, according to the draft 2015 state budget prepared by the outgoing administration. Comparatively, the nation’s logistics costs were 25.2% of GDP in 2013. The government intends to increase the Transportation Ministry budget from IDR 36 trillion to IDR 44.6 trillion (USD 3.8 billion) to improve infrastructure and hence reduce logistics spending.
The Public Works Ministry will be allotted IDR 74.2 trillion for building roads, irrigation systems and dams under the draft state budget. The funds will be spent on constructing 5 new airports, building and renovating 25 seaports and adding about 240 km of roads and 265 km of railroad tracks. However, the Indonesian Chamber of Commerce and Industry’s Chairman Suryo Bambang Sulisto has deemed the improved infrastructure budget unsatisfactory, blasting the outgoing administration’s reluctance to slash the energy subsidies despite not having to worry about being unpopular. The planned fuel and electricity subsidies for 2015 will amount to IDR 363.5 trillion, up 4% y/y, tripling the funds allocated for the nation’s infrastructure development.
Australia: Toll Group wins marine logistics service contract from Chevron
Source: Logistics Business, 18 August 2014
Toll Group, an Australian logistics and transport company, has signed a contract with Chevron Australia to provide services to its operations in Western Australia, including its LNG plant on Barrow Island. This deal will generate 50 new job opportunities and would add approximately USD 100 million in revenue for Toll over the next five years.
In order to enhance the supply chain of Chevron, Toll Group is constructing three new landing craft tank (LCT) vessels. According to Toll’s Managing Director Brian Kruger, the innovative design will improve interaction between the crew and the cargo, thus enhancing safety in loading, sailing and unloading of the vessels. In addition, the three-container stacking capabilities create larger vessel capacity and these vessels are safer and more eco-friendly due to the design of double hulls and automated gauges. Toll will begin operating a vessel for shipping fuel to Barrow Island by September 2014.
Manufacturing & Industrial
India poised to become Asia’s next manufacturing juggernaut – Deloitte
Source: India Briefing, 18 August 2014
Deloitte’s Global Manufacturing Competitiveness Index has ranked India the 4th most competitive manufacturing country globally, and the country is forecast to rise to 2nd spot by 2018. The main advantage of India lies in its low cost of labor. However, in recent years, the country’s poor infrastructure and complicated regulations have hampered its development. Policy and labor reforms, investment incentives, and improvements of transportation and power supply networks are key issues likely to be addressed by Narendra Modi’s new administration. These actions will undoubtedly boost India’s competitiveness in the manufacturing sector.
The manufacturing sector, which currently accounts for 15% of India’s total GDP, has grown at a solid CAGR of 17.1% between 2006 and 2011. The McKinsey Global Institute estimates the sector will create up to 90 million new jobs and account for 25%-30% of total GDP by 2025, reaching USD 1 trillion in value. The cost of labor in India is consistently the lowest in the global market. Data from the Bureau of Labor Statistics shows that the average labor compensation in India’s organized manufacturing sector merely increased from USD 0.68 per hour to about USD 1.50 per hour during the past 15 years. Comparatively, the average compensation in China’s manufacturing sector is USD 3.00 per hour.
Philippines: Economy to grow 7% in Q2/2014 on robust manufacturing sector
Source: Malaya, 19 August 2014
According to the Philippines’ Chief Economist Gil Beltran, economy could grow 7% in Q2/2014 due to the manufacturing sector’s good performance. The increase from 4.3% in Q1 to 13% in Q2 of factory output indicates a possible growth rate of 7% in Q2, said Beltran. Additionally, production output in Q2 grew nearly thrice the Q1 level, and sales increased by 1.5 times the Q1 growth.
In Q1/2014, the Philippine economy grew 5.7%, which is slower compared to 7.7% posted in Q1/2013 because of the influence of super typhoon Yolanda on the agriculture and industry sectors. For H1/2014, the manufacturing output and sales grew 8.62% and 15.47% respectively. Growth in output is lower y/y but sales grew at the same level. In June 2014, 14 out of 20 manufacturing sectors registered positive growth. The printing sector, leather products, and fabricated metal products grew 153.8%, 4.5% and 39.8% respectively while food manufactures, the largest sector, achieved 13.1% y/y growth, continuing its growth for two successive months. For H1/2014, several sectors saw significant increase in output, led by printing (135.4%), followed by furniture and fixtures (67%), machinery excluding electrical (52.2%) and fabricated metal products (50%).
Japan: Industrial production fell at a revised rate of 3.4% in June
Source: The Japan Times, 12 August 2014
The Ministry of Economy, Trade and Industry (METI) has downgraded Japan’s industrial production to a seasonally adjusted 3.4% decline in June 2014 from an initial reported decrease of 3.3%. The index of production at factories and mines stood at 100.0 against the base of 100 for 2010.
The initial report published on July 30 did not reflect a fall in output from the transport equipment makers, explained METI for the downward adjustment. The index of industrial shipments was down 1.9%, same figure as the initial report. The index of inventories grew 2%, upgraded slightly from the initial 1.9% increase.
Pharmaceuticals & Healthcare
South Korea: Pharma market to reach USD 24.3 billion by 2020 – MarketOptimizer.com
Source: PR Newswire, 18 August 2014
CPhI Korea, an upcoming event which will be held on 2-3 September 2014 in Seoul, will help to develop a comprehensive platform for pharmaceutical supply chain sourcing and partnerships. The South Korean pharmaceutical market value is predicted to reach USD 24.3 billion by 2020, according to a report by MarketOptimizer.com. Further solidifying South Korea as one of the largest pharmaceutical markets in Asia, the country's "Pharma 2020 vision" is seeing the government committing USD 8.9 billion to drug development by 2020. CPhI Korea will serve as a central hub for the region, granting key delegates and industry leaders from Japan, China, India and Hong Kong access to this growing market.
Throughout the two-day event, CPhI Korea and co-located event ICSE will provide pharma manufacturers with access to global suppliers across different aspects of the pharma supply chain, such as raw materials, API's and contracting services. Running alongside the exhibition, high-level conference programs will offer valuable insights from key government, industry and academic opinion leaders. The agenda is set to include topics such as strategies for entering or expanding business in the growing Korean pharma market, and drug registration in the Korean market.
India: Top 20 pharmaceutical makers’ capex to swell by 40% – CRISIL
Source: Economic Times, 13 August 2014
According to credit rating agency CRISIL, the top 20 pharmaceutical firms in India would increase their capex by 40% to over INR 50,000 crore by FY2018, compared with about INR 36,000 crore seen in the last four fiscals. CRISIL attributed the increase to heavier focus from the companies on regulated markets such as the US market, in order to exploit the anticipated sizeable patent expiries in the medium term, as well as an impressive continuing demand for generics. The companies have to upgrade their facilities to meet the US Food and Drugs Administration (FDA) regulations. Moreover, Indian manufacturing facilities have increasingly drawn FDA’s scrutiny lately.
8 out of these 20 companies whose revenues already command a lion’s share domestically, would nearly double their capex by FY2018, growing at a more rapid rate compared to other counterparts who have already shifted their attention to regulated markets. These companies’ capex will jump by about 200 basis points to 8% of operating income from the current 6%, said CRISIL’s President Ratings (Large Corporates) Ramraj Pai.
China: Calls for greater use of domestic medical devices
Source: Reuters, 18 August 2014
China will use incentives to encourage domestic hospitals to use locally produced devices to stimulate the local market and reduce healthcare costs for patients. To make this possible, China plans to speed up the development of its medical device, posing protectionism concerns and threats to global firms who dominate China’s growing medical sector. According to figures from Hong Kong Trade and Development Council (HKTSC), international medical device makers dominate 75% of China’s USD 34.51 billion (RMB 22 billion) medical device market, especially United States, Europe, and Japan.
Li Bin, head of China’s National Health and Family Planning Commission, states that they are pushing top-level class III hospitals to use domestically made products. Miao Wei, head of China’s Ministry of Industry and Information Technology (MIIT) states China needs to raise the level and quality of locally grown medical devices to create incentives for medical institutions to use locally produced products. China’ s local companies such as Mindray Medical International Ltd and China Resource Wandong Medical Equipment Co Ltd are currently competing against Siemens AG, General Electric Co, Koninklijke Phillips NV, Johnson & Johnson, and Medtronic Inc. According to HKTDC, hospitals account for almost 80% of the medical device market.
Private equity’ growing taste for wine
Source: Globe and Mail, 11 August, 2014
Treasury Wine Estates Ltd, a struggling vintner facing global oversupply, announces it has received a second offer from Forth Worth at USD 5.20 per share. The non-binding offer matches that of Kohlberg Kravis Roberts & Co. LP in partnership with Rhone Capital. The winner could profit by spinning-off the better performing parts of the business or by refocusing on the marketing of brands that have become undervalued. The major problem for Treasury is that the market for low priced wines is highly competitive and stagnant while the market for wines above USD 15 is very small but has great potential.
The global wine industry has seen a shift with European sales declining as consumers turn to other beverages while North America’s wine consumption has grown. However, Treasury Wine has recently been affected by the US government’s crackdown on gift giving. Treasury also faces an image problem on its Australian wines and managing supply struggles with cheaper wines that do not get better with age. Tony Correia, founder of Correia Company, states that some new, effective, strong management would be needed to turn Treasury back into a highly profitable company.
South Korea: Private equity has the lowest return among alternative assets for Korea Investment Corp.
Source: The Wall Street Journal, 15 August 2014
Korean Investment Corp’s recent annual report shows that its private equity investment generated an 8.6% return during 2013, the lowest among all alternative classes the wealth fund invests in. According to the report, private equity investing has generated lower returns than real estate and hedging funds. In 2013, KIC’s hedge funds reported returns of 9% while its real estate investment reported returns of 9.5%. The report also shows that wealth funds are increasingly flexing their muscle in the private equity industry both as investors and direct dealmakers.
Private equity generated a 1.1% three-year annualized return and a 6.4% annualized return since inception. These numbers are lower than hedge funds and real estate investments. Heungsik Choo, KIC Chief Investment Officer, states that they cannot determine the reason for relatively lower returns of private equity investments. It is difficult to compare private equity returns among sovereign wealth funds because wealth funds do not report the performance of their private equity investments. Choo states that KIC plans to increase exposure in China while increasing its allocation on alternative assets in general.
China: Carlyle participates in USD 200 million plus funding for Chinese Classifieds Co.
Source: The Wall Street Journal, 13 August 2014
Carlyle Group and Tiger Global Management has just closed a Series E round of funding worth more than USD 200 million with a Chinese online and mobile based classified listings operator, Ganji.com. Carlyle was given a minority stake in the Beijing-based company. Even though taking minority stake in Chinese start-ups has been common for investors, there is an increasing bias to seek out majority holdings in businesses. This was what Lunar Capital did. Fund managers are eager to become majority stakeholders so that they can gain more control over how the business is run and to determine how they will exit their investment.
Currently, aside from Carlyle, Sequoia Capital and Citic Private Equity are among Ganji.com’s existing investors. Together as a group, investors hold the majority stake in the business. Ganji.com will use the new financing for marketing, research and development, and to expand its share in the mobile market. Mark Yang, Chief Executive of Ganji.com, states that the new funding will support the business as it has decided to delay a potential initial public offering for another year. The decision to delay the potential IPO was made after numerous Chinese companies struggled to go public last year.
Technology, Media & Telecommunications
Indonesia: Samsung plans to set up phone factory
Source: Reuters, 18 August 2014
Samsung Electronics Co Ltd announced that it plans to set up a factory to produce mobile phones mainly for Indonesia, one of the fastest growing markets for mobile devices in the world, to meet local consumers’ demand more effectively. Budi Darmadi, director general of high-tech industry at Indonesia’s industry ministry, states that Samsung plans to build up a factory at West Java that will start at a monthly capacity of 100,000 units this year and slowly reach up to 900,000 units per month in the future. Currently, it is unclear whether Samsung will also be producing only cellular phones or smartphones, or both, at the factory.
Indonesia’s youthful population, low smartphone penetration, and higher disposable income make the country an attractive market for smartphone manufacturers. Currently people under 30 make up over half of Indonesia’s 240 million population, and only 20% use smartphones. It is estimated that before the end of the decade, smartphone usage will rise to 50%. Samsung’s investment in Indonesia is made a few months after Joko Widodo was elected as president of Indonesia. The Indonesian government is considering imposing a 20% tax for smartphones retailing at USD 428.38 (IDR 5 million) and above.
India: Samsung leads smartphone market
Source: The Hindu, 18 August 2014
According to the International Data Corporation, the Indian mobile phone market could see a reshuffle in the top five-vendor pecking order in the coming quarters. Jaideep Mehta, Vice-President and General Manager of South Asia IDC, states that while Samsung has been the leader in the market, Mircomax is currently growing faster. Samsung needs to address the low-end market more aggressively and introduce a new fascinating product in the high-end market to gain its leadership position back. Data released by Counter Point Research shows that Mircromax overtook Samsung as the number one mobile supplier in Q2/2014.
Overall, the Indian smartphone market has grown by 84% y/y for Q2/2014. Data shows that vendors shipped a total of 18.42million smartphones during the same period, compared to 10.02 million a year ago. ICD also reports that Micromax and Lava outstripped the market growth at 18% and 54% in Q2/2014. Results of the smartphone market show that Samsung has a market share of 29%, Micromax 18%, Karbonn 8%, and Lava 6%. The sub USD 200, low end, category of smartphone market is also rising in terms of shipment and market share and will become crucial in the future. The Indian smartphone market is expected to more than doubly by 2018 as cellphone users shift from feature phones to smart phones. South
Korea: Samsung acquires home-automation startup SmartThings
Source: The Globe and Mail, 15 August 2014
Samsung Electronics Co Ltd will acquire a startup, backed by PayPal co-founder Max Levchin, SmartThings. Samsung is exploring ways to integrate connected household gadgets such as thermostats and lights with mobile applications, a trend known as “Internet of Things”. TechCrunch reported that Samsung was going to pay more than USD 200 million for a two-year-old start up with 55 employees. SmartTech has raised USD 15.5 million in venture capital from Greylock and Yuri Milner.
SmartThings states that it has 5,000 developers building devices that connect to its open platform. A number of technology executives anticipate that the market for ‘smart’ home devices will soon explode while large technology players are currently drawing up alliances to create common standards for gadgets. Apple has introduced HomeKit, a framework to communicate with devices at home, Google Nest has partnered up with Whirlpool Corp and LIFX to integrate products with thermostats and smoke detectors, while Samsung has partnered up with Intel Corp and Del Inc., which already makes internet connected washing machines and refrigerators.