Asia News Update
China: Government to take on tidal and wave energy projects
Source: Quartz, 1 April 2014
China has taken on the challenge of generating electricity from the world’s oceans. It is reported that Beijing has invested an estimated USD 160 MN in tidal and wave energy projects since 2010. These include joint venture projects with Lockheed Martin, Israel’s Eco Wave Power, the Netherlands’ Arcadis, and Singapore’s Atlantis Resources to build developments along the country’s 11,000-mile coastline. The ability to harness power from the tides and waves and transforming it into kilowatt-hours or stored electricity has been an ongoing challenge for many, with limited success. Previous plans for ocean energy plants in China have been unsuccessful, with dozens of tidal plants that were built in the 1960s and 1970s being defunct.
China’s latest ocean energy plans are ambitious and disruptive, consisting of massive T-shaped underwater tidal walls spanning 30 kilometers long across the coast, to be located in the Yellow Sea. These plants would cost USD 30 BN to develop but would have the potential to generate as much energy as two nuclear power plants. Despite delays and setbacks met by many countries over the world concerning tidal and wave energy projects, money is continually flowing into ocean energy research, with private investment in European ocean and wave technology energy ventures reaching USD 825 MN over the past seven years. Additionally, the US Department of Energy has also said that it would invest about USD 16 MN in projects along the US coast and waterways.
China: Opel pulling out of market after two decades due to lack of traction
Source: Auto News, 28 March 2014
The company said it will invest in Europe to boost the German car brand’s sales in its home region. Opel, which has been in China since 1993, never grew beyond a low-volume, niche player in the country, accounting for less than 1 percent of GM’s sales in the market last year. The marque will spend 245 million euros ($337 million) to add two models at the main Ruesselsheim factory in the coming years. GM, which in 2013 was outsold by Volkswagen AG in China for the first time in nine years, has been reorganizing brands to give more focus to its global offerings. They will pull the Chevrolet marque out of Europe, where GM is trying to restore profit at Opel and U.K. sister division Vauxhall, and that its Holden unit will stop producing cars in Australia.
“What GM is doing is to try make it clearer who’s responsible for what,” Erich Hauser, a London-based automotive analyst at International Strategy & Investment Group, said by phone. “By pulling Opel out of China, you just make it clear that Opel is a European brand, for the European market and with the aim of making money in Europe.” Opel’s 22 Chinese dealers sold 4,365 vehicles in 2013. That compares with Buick’s 650 sales locations in the country and deliveries last year of 810,000. Opel’s European sales in the first two months gained 2.8 percent to 112,534. “This is a long overdue decision,” Karl-Thomas Neumann, Opel’s chief, said in a statement today. “It would have cost hundreds of millions of euros to raise awareness of the Opel brand and to expand the distribution network. Buick, however, is one of the market leaders in China and we plan to intensify our future collaboration.”
India: Auto part exports increase 4.4% to USD 9.7 billion in 2013
Source: The Economic Times, 30 March 2014
At a time when the Indian auto industry is reeling under a prolonged slump, the component makers have something to cheer as exports grew by 4.4 per cent to touch $9.69 billion in 2013. Despite a decline in import by five per cent to $12.70 billion last year, the country remained a net importer of components. ACMA Executive Director Vinnie Mehtastated "80 per cent of our exports are to global original equipment manufacturers (OEMs) and tier I companies. Growing credibility of domestic component makers have led to many global companies setting up their sourcing centres in India."
There are 35-40 international purchasing offices set up by various global entities in India now, he added. The US remains India's biggest component export market but shipments to the country were down 7.1 per cent last year at $1.98 billion. Exports to Germany, the second largest market, registered 8.6 per cent increase at $780 million, while it was up 3.6 per cent to the UK, the third largest, at 580 million. On the imports front, Mehta said: "The decline in numbers are largely a reflection of the slowdown in the Indian automobile market." In 2013, China continued to be the number one country from where maximum components were imported, valued at $2.62 billion, up 10 per cent from the previous year. India's components imports are mainly in two categories -- high tech parts which come mainly from Germany, Japan, Korea and Thailand; and aftermarket parts which are usually originating from China.
Thailand: February auto sales plummet
Source: Wall Street Journal, 24 March 2014
Thailand's auto production and sales slumped in February as domestic political unrest continued unabated. The Federation of Thai Industries' Automotive Industry Club reported that Thailand's auto production in February contracted 24.3% from a year earlier, but increased 6.67% from January. Surapong Paisitpatanapong, a spokesman for the industry body, said in a statement that the lower production was partially due to the end of government incentives for first-time car buyers, while high household debt and the political crisis were also to blame.
China: Bayer Material Science announces construction of new HDI plant
Source: Chemicals Technology, 25 March 2014
Bayer MaterialScience has announced the start of construction on their new hexamethylene di-isocyanate (HDI) plant in Shanghai. With expected completion to be in 2016, the plant will have the capabilities of producing 50,000t of HDI per year. This move to expand operations will allow Bayer MaterialScience to meet increasing demand from the coatings and adhesive industries, which are to be used in the automotive, construction, textile and shoe industries. The new plant will make use of gas-phase technology, requiring less energy and solvent compared to conventional processes.
The new plant represents a major advancement in polyurethane production and is to be built in Shanghai, one of their largest production sites. By building the plant in Shanghai, they expect to make full use of the synergies offered by their global production network. Currently, their operations in Shanghai include all business units as well as one HDI plant, which was expanded in 2013 from its original capacity of 30,000t. In 2013, Bayer MaterialScience had 30 production sites with approximately 14,300 employees globally.
India: Fertilisers and Chemicals Travancore Limited raises target revenue to USD 575 million
Source: The Times of India, 26 March 2014
The Fertilisers and Chemicals Travancore Limited (FACT) targets revenue of USD 575 MN for their 2014-2015 fiscal year, up from the USD 390 MN that was reported during the previous year. The company has also signed a memorandum of understanding (MoU) with the department of fertilizers in New Delhi outlining the production of Factamfos and ammonium sulphate. Based on the MoU, FACT will produce and market 750 thousand tonnes of Factamfos and 200 thousand tonnes of ammonium sulphate. Of the 750 thousand tonnes of Factamfos, 680 thousand tonnes will be produced in the country while the rest will be sourced from abroad.
FACT is moving ahead with the idea of marketing Neera through the dealership network in the state as a short-term measure to turn around the struggling company. They are clear in their plans to give priority in increasing revenues of FACT’s engineering consultancy wing FEDO (FACT Engineering and Design Organization) as well as FEW (FACT Engineering Works), the company’s fabrication division. With new potential consultancy projects worth USD 167 MN expected to come in during the 2014-2015 year, they are expecting it may take another six months for FEDO to be financially stable. Consequently, their next step is to also make FEW an independent organization. According to the company, elections have slowed down the financial restructuring plans of FACT and that the state government has promised the company a waiver on value added tax (VAT), but they are waiting for Union government to act first.
Indonesia: Government to start proposal bid for oil refinery project
Source: Indonesia Investments, 25 March 2014
The Government of Indonesia is in the process of formulating procedures for the submission of a proposal bid that would bring a crude oil refinery construction to Bontang, located in East Kalimantan. The project is based on the public-private partnership (PPP) scheme and also involves The Finance Ministry and Indonesia Investment Coordinating Board (BKPM), who together will formulate the terms of reference. The decision to construct in Bontang is because of supporting infrastructure, in that the area is already adequate and that it is considered a strategic location in the context of distribution and crude oil and derivative products. The government has allocated a 700-hectar piece of land towards this project.
The oil refinery is designed to have a production capacity of 300,000 barrels of oil per day (bpd), and will require investments worth at least USD 100 MN. Investors are invited by the Indonesian government to visit the location in Bontang at the end of March 2014, and there are reportedly 38 international investors who have already shown interest in the project. Currently, Indonesia has six crude oil refineries, which process a combined 1.03 million bpd. Due to lack of investments in oil exploration, Indonesia’s domestic oil production has declined steadily for more than a decade, fueling the need for more oil imports to meet rapidly increasing domestic oil demand. This has put pressure on the country’s trade balance, current accounts, exchange rate as well as government budget balance.
Construction & Property Development
North Korea: Unlikely housing market on the rise
Source: Reuters, 25 March 2014
Although the buying and selling of houses and apartments in North Korea is considered illegal, the practice has become more widespread and the housing market is on the rise. While Kim Jong-un is turning a blind eye, buyers and sellers are offered an opportunity to conduct deals within private markets, potentially upgrading their living conditions. Officially, the socialist state owns all property and is responsible for assigning homes but overspending on military and failure to properly address public housing has caused a property trading market to come in place. Brokers can be found with lists of properties for sale and housing officials are bribed with cigarettes and food to modify and approve residency documents.
Amid the steady rise in housing prices, defectors are now taking this opportunity to send money home for their families in the North to purchase better homes. There is an estimated $10 million in remittance money being routed through agents on China’s side of the border. Deals in the capital Pyongyang are conducted in US dollars, while those along the Chinese border are dealt with in Chinese yuan. The North Korean state is also getting in on the property trade, with recent apartments being built using aid funds from China and Russia. A survey conducted last year on defectors found that 67% had bought their own homes. Comparatively, a similar survey in 2011 showed that only 46% had bought their own homes.
Malaysia: Stable property market to be expected in Miri
Source: Borneo Post, 24 March 2014
Reports show that Miri’s property market is expected to remain stable throughout 2014. While there were decreases in the amount of landed residential transaction activities, the overall property market stability is to remain steady. Landed residential transaction activities were lower than average due to increased housing prices, stricter housing loan requirements and a decline in the real purchasing power of households. Balancing the residential transaction decrease were dominating sales seen from three-story shop offices. With higher demand and corresponding increased supply, shop offices were regarded as an attractive investment, particularly due to existing after-tax incentives.
Notable projects for the past year include MYY Mall, with three levels of retail outlets and one level of office space; The Wharf, a 24-story luxury hotel with 10 units of three-story shop offices; The Arcadia Square, a mixed development project with 142 units of four to five-story shop and retail units; and Miri 101 Commercial Centre, a commercial centre with 54 units of three-story shop offices under a tenure of 99 years. Also worth noting is the increase in industrial transactions due to limited supply of industrial units.
Taiwan: Homeowners expected to pay 9% increase in property taxes
Source: Taipei Times, 31 March 2014
In an attempt to increase holding costs for homeowners, particularly in upscale neighbourhoods, The Taipei City Government has raised property values in 99 locations across the capital. As a result, value reassessments conducted every three years will reflect this upward change, increasing property-related taxes by an average 9% and involving roughly 66,000 homes. The areas most affected include Yongkang, Wenchang, Yanji, Ruian and Lishui streets as well as Siwei, Anhe and Daan roads, with value increases of up to 10%.
The adjustments are to take effect next year, generating an expected NT$130 million (US$4.25 million) per year for city reserves. The Government claims that the move will have limited impact on the housing market as homeowners will not feel the effects until paying annual housing taxes or capital gains from home transactions. Besides heavier house and capital gains, however, homebuyers will also have to pay larger contract taxes on closing deals due to the value adjustments. In 2011, a similar adjustment was made, with 454 locations affecting 370,000 households experiencing a property value hike. In that situation, the market proved resilient to value adjustments, emerging unharmed.
Consumer & Retail
Singapore: Changing consumer tastes will benefit Singapore
Source: Channel NewsAsia, 25 March 2014
Shoppers in Southeast Asia are developing tastes for greater sophistication and quality, with changing consumer preferences set to provide greater opportunities for retailers in the region. Singapore’s retail landscape is especially likely to benefit due to their reputation for quality, high-end products and continued practice of ensuring that all goods are authentic. With a rising middle class emerging from a population of 600 million, consumers in Southeast Asia are developing a preference for quality goods, particularly relating to personal health and wellness.
Singapore’s retail landscape is poised to benefit from greater affluence in the region, with the country significantly moving towards the high end in terms of luxury products. Opportunities exist for Singapore retailers to focus on the high-end market in order to differentiate themselves from their neighbouring countries, where consumers may instead be looking for cheap deals or volume shopping. Growth prospects also highlighted in economies such as the Philippines, India and Indonesia, due to favourable demographics and economic growth. The Philippines is one of fastest growing economies in Asia, with GDP growing at 7.2% in 2013. E-commerce in Asia is also expected to grow by an average annual rate of 20% for the following five years.
Japan: Dip in consumer spending expected, amid increased sales tax
Source: The Economic Times, 31 March 2014
Japan’s core consumer prices rose for the ninth straight month and labour demand have improved, showing further evidence that the economy is slowly bouncing back from years of deflation and stagnation. Data from Ministry of Finance shows weakened household spending and retail sales as recent snowstorms kept consumers home, but signs of acceleration are already appearing, with shoppers rushing to beat a sales tax hike scheduled for April 1. Expectations are that consumer spending amid the rise of sales tax from 5% to 8% will rebound in July-September after a temporary slump in April-June. Retail sales grew by annual 3.6% in February, exceeding median estimates for 3.2% annual gain, but below January’s 4.4% as snowstorms hit.
A gradual increase in prices is consistent with a narrowing in the negative output gap, meaning that the economy is performing closer to full capacity. There was a 1.3% annual gain in core consumer price, which includes oil products but excludes volatile fresh food prices. This gain had followed a 1.3% rise in January and December, the quickest since the 1.9% seen back in October 2008. Likewise, the narrower inflation index, which excludes food and energy prices rose 0.8% in the year to February, matching a high last hit in April 1998 – a sign that Japan is pulling further away from deflation. Similarly, housing spending tumbled 2.5% after inflation in the year to February. Japan’s jobless rate has also fallen to 3.6 percent in February, the lowest in more than six years.
Malaysia: Rakuten Shopping sets its sights on Malaysian consumers
Source: The Star, 29 March 2014
Japanese-owned Rakuten Shopping is looking to expand operations in Malaysia. While the online shopping trend has become more popular in Malaysia, a survey revealed that 71% claimed to have regretted their purchases online in the last 12 months, often due to mismatched expectations. Rakuten is looking to improve the experience, through improvements in Internet penetration, and the mode of payment and delivery. Other factors Malaysian consumers look for include a secure website, easy transactions, price differences between merchants, quality products and detailed photos.
First founded in 1997 by Chairman and CEO Hiroshi Mikitani, the company has grown to include more than 90,000 products from over 300 merchants, with selections ranging from electronics gadgets, computers and IT to healthcare, fashion apparel, jewelry and accessories. Merchants under the Rakuten banner include Toy “R” Us, Caring Pharmacy, Poh Kong, SKII, Sony, Canon, Olympus and AII IT Hypermarket. As Japan’s largest e-commerce firm and Internet company, they provide a platform with unique business-to-business and business-to-consumer marketplaces, with merchants selling directly to consumers. In 2012, the company’s revenue totaled USD4.6 billion, with operating profit of about USD 244 million. As of July 31 last year, their market capitalization stood at USD 17.9 billion. Last February, Rakuten bought over messaging application Viber, paying USD 900 million for the acquisition.
Energy, Resources & Environment
Malaysia: Malaysia and Brunei partner up in plan to enhance energy efficiency
Source: New Strait Times, 26 March 2014
Malaysia and Brunei are looking to increase cooperation in energy efficiency processes within the ASEAN framework. Malaysia is looking to learn from what Brunei was doing in the energy efficiency area concerning the encouragement of youth to have careers in the oil and gas and energy sectors. Brunei has been extremely successful in its industry-driven training for youth, matching the human resource capabilities for its oil and gas industries. Brunei on the other hand, is looking to learn from Malaysia’s expertise in the renewable energy products, including hydro-electricity.
Brunei has proposed to export electricity to Sipitang in Sabah from a hydropower plant to be built in partnership with the Sarawak state government. The bilateral collaboration would promote inter-connectivity between the two countries, which have always been on friendly neighbouring terms. Many of the ASEAN countries have stepped up cooperation in the energy sector with various initiatives promoted, including the ASEAN Plan of Action for Energy Cooperation for 2016-2020. Connectivity projects like the Trans-ASEAN Gas Pipeline would also connect Sabah and Sarawak with Brunei and Indonesia to form a Pan-Borneo electricity network that would forge a closer bilateral relationship between the three countries.
Indonesia: Geothermal energy to reduce greenhouse gas emissions
Source: International Construction, 31 March 2014
Indonesia has a development underway that is part of the country’s attempt to reduce greenhouse gas emissions. The 320 MW Sarulla Geothermal Power Development Project in North Sumatra, has been supported by a USD 1.17 BN loan package from international investors. Of the total loan, USD 350 MN has been provided by The Asian Development Bank (ADB), while six other commercial banks – Bank of Tokyo-Mitsubishi UFJ, ING Bank, Mizuho Bank, National Australia Bank, Société Générale, and Sumitomo Mitsui Banking Corporation are also involved in the co-financing of the 30-year energy sales deal.
ADB finds that Indonesia currently uses coal and oil to produce 65% of its electricity to fuel its economic growth. As part of their environmental efforts, the country has vowed to make changes in its primary energy supply, with the share of renewable energy to increase from 5% in 2010 to 25% by 2025. This change would reduce greenhouse gas emissions by 26% in 2020. Typically, geothermal plants produce less than 10% of the greenhouse gas emitted by fossil-fuelled thermal plants.
Vietnam: Challenges arise in bid to reduce greenhouse gas emissions
Source: Vietnam Plus, 1 April 2014
Vietnam has made a point to target green growth and a low carbon economy, in response to sustainable economic development and environmental degradation. The national strategy on green growth projects that by 2020, they will reduce greenhouse gas emission intensity by 8-10 percent compared to the 2010 level, reduce energy consumption per capital by 1-1.5 percent per year, and cut greenhouse gas emissions from activities that use energy by 10-20 percent compared to the 2010 level. In addition, greenhouse gas emissions will be reduced by 1.5-2 percent per year by 2030. By implementing this strategy, Vietnam hopes to utilize natural resources economically and efficiently, encourage the development of green industries, develop agriculture with environmentally friendly equipment and technologies, develop natural capital, and actively prevent and treat pollutions.
Over the past decade, climate change has caused damages worth roughly 2-6 percent of Vietnam’s GDP, with government spending at about USD 1 BN per year on climate change programs. Currently, Vietnam needs USD 30 BN in order to reduce greenhouse gas emission intensity by 8-10 percent compared to the 2010 level. In a bid to raise funds, the country needs to integrate the green and sustainable growth demand into its economic development program for five to ten years. Experts suggest that Vietnam needs to carry out pilot projects to encourage private sector investors to participate more actively in green growth and that regular coordinate mechanisms need to be drafted between related agencies, integrating climate change programs in plans and strategies.
Singapore: Banks in Singapore found to be more defensive than those in Hong Kong
Source: Singapore Business Review, 25 March 2014
According to Barclays, non-housing personal loans in Singapore are overall more defensive compared to those of the Hong Kong banks. Generally, Singapore banks are largely secured and have greater pricing discipline. Growth in non-housing personal loans has historically been on a secured basis, backed by deposits or investments, while unsecured personal lending rates have been extremely high at 11% and higher. In addition, there are several contrasts that can be made between the restrictions and rates in the two areas.
The MAS restricts loan sizes of unsecured personal lending to 4 times monthly salary whereas Hong Kong’s non-housing personal loans are mostly unsecure for lending rates as low as 2-3%. In addition, loan sizes can be up to 18 times monthly salary. Additionally, Singapore households have higher savings rates and access to pension funds; Singapore has high savings rate of 24% while Hong Kong has a rate of 14%. While Singaporeans have the ability to access pension funds for the repayment of mortgage debt, Hong Kong denies this ability. Singapore households also hold a higher proportion of liquid household assets, with 19% in cash and deposits. Moreover, despite Singapore’s higher consumer debt to GDP ratio relative to Hong Kong, their household debt to GDP is not high by historical standards.
China: Property slump intensifies debt default concerns
Source: Financial Times, 31 March 2014
Real estate in China has appeared to slump during the month of March, compounding investor concerns that weaker property developers may be at risk for debt defaults. Sales volumes during the first 23 days of March were down 34% from the same period a year earlier. The weak sales volumes corresponded with a 21% rise in floor space available for sale compared to March last year, increasing real estate developers to cut prices and shift apartments. As a result, fund managers are increasingly wary of Chinese property developer equity and bonds. While larger developments with good cash flow are likely to weather current adverse market conditions, smaller developers in second and third tier cities may not be so lucky.
It is recommended that investors need to be more selective than last year in choosing developer bonds listed in Hong Kong. Recently seen through real estate developer, Zhejiang Xingrun Real Estate Company’s struggle to pay RMB$3.5 billion in debt, China is faced with a chronic oversupply of residential and commercial space. Reports of discounting by developers in an attempt to shift inventory are proliferating, with some districts slashing prices by up to 17%. Residential housing transactions in Beijing plunged by 65% in the first quarter of the year while Shanghai and Guangzhou also saw a sharp plunge in property sales. Policymakers have urged accelerated implementation on major investments projects and with the recent disappointment are likely to support new policies that will stabilize economic growth.
Malaysia: Banks show resilience to severed credit and market losses
Source: The Star, 27 March 2014
Malaysian banks are resilient to sever credit and market losses and are able to withstand a scenario worse than the 2008-2009 global financial crisis. Results of a stress test scenario conducted by Bank Negara Malaysia (BNM), show that banks are well capitalized and are credit positive, due to resilience to severed credit and market losses. Additionally, the aggregate total capital ratio of Malaysia’s banks would be 10% under the central bank’s adverse stress scenario, while their common equity Tier 1 (CET1) ratio would be 7%. The scenario included severe loss assumptions such as a six-fold increase in probability of default to around 11.6% and a severe drop in real estate prices of up to 30%. As of September 30, Moody’s rated Malaysian commercial banks an average CET1 ratio of 9.5%, making them way above the minimum requirement of 4.0%.
Banks such as HSBC Bank Malaysia Bhd, Malayan Banking Bhd and Hong Leong Bank Bhd would better withstand unexpected losses due to their higher capital buffers. Under Moody’s adverse scenario, the aggregate total capital ratio for Malaysian banks fell to around 12.5% from 14.4% as of the end of December 2013, while the CET1 ratio decreased to 10.3% from 12.1% over the same period. As with other ASEAN markets, Malaysian banks’ asset quality is vulnerable to a shit in interest rates and the negative after effect of higher rates on borrowers. In addition, the leverage of households is a particular risk, with 87% of GDP at the end of 2013.
Logistics & Transportation
China: World Bank approves USD 600 million for infrastructure in the North
Source: KHL, 31 March 2014
The World Bank has approved loans totalling USD 600 million to support upgrades to public transport services in two major cities in China’s northeastern Heilongjiang Province. The funds will also be used to expand railway capacity along a key transport corridor in Heilongjiang, and increase gas usage in Shanxi Province. Harbin and Mudanjiang in Heilongjiang Province are set to benefit from the Heilongjiang Cold Weather Smart Public Transport System Project, financed in part with a loan of USD 200 million.
This project aims to improve pavement conditions, install bus stops, provide heated indoor bus waiting facilities, construct passenger hubs, terminals, bus depots, and facilities for maintenance. Meanwhile, the HaJia Railway Project, also in Heilongjiang Province, will be boosted by a USD 300 million loan. This will support a construction of a 343 km double-track, electrified, mixed-use (passenger and freight) railway line between the cities of Harbin and Jiamusi. The project will include construction of twelve new stations and upgrading of the existing Jiamusi station. Planned for completion in 2019, the World Bank said the new line would reduce the rail distance for passengers as well as freight between Harbin and Jiamusi by about 164 km – from the existing 507 km to 343 km – with passenger trains operating at 200 km per hour.
Myanmar: Country aims to reduce transport infrastructure gap through investment
Source: Hellenic Shipping News, 31 March 2014
While progress to date has been slow in part due to limited financing options, local players believe the investment environment is improving as a result of recent legal changes. “The government’s drive to improve the legal framework in the fields of finance and ownership will widen the range of funding options going forward,” U Aung Zaw Naing, Group CEO of Shwe Taung Development Company, told OBG. “We expect this process of economic and legal reforms, together with the inflow of funds from foreign investors, to facilitate financing activities for developers and contractors in the near future.”
The expansion of local capital markets is expected to help, as well. The first phase of construction of the Thilawa Special Economic Zone (SEZ), a project jointly led by the Myanmar and Japanese governments, is set to be financed by a public offering in March. Situated 20 km outside the commercial hub Yangon, the SEZ aims to raise $21m from the sale of shares, which will be available only to local citizens and businesses. While financing options have improved, the surge in building activity has raised new challenges. With construction of infrastructure and industrial facilities on the rise, including three major airport projects, numerous industrial zones, and large areas of the country being explored for oil and gas, the demand for resources has pushed up prices.
India: PSA International makes comeback
Source: Port Finance International, 24 February 2014
PSA International of Singapore has made a big splash and comeback in India, winning the right to build and operate the country’s largest container terminal at JNPT (Nhava Sheva) besides bagging the operations and maintenance contract for five box berths at Kolkata. PSA also operates container terminals in Tuticorin (V.O. Chidambaranar) and Chennai. All these ports are located on India’s east coast, except Jawaharlal Nehru Port (JNPT) in Nhava Sheva, south of Mumbai, on the west coast. JNPT officials confirmed last week that PSA’s offer of 35.7% revenue share was the highest for the Rs80 billion ($1.3bn) fourth container terminal, the biggest box port project in the country. The facility is expected to give Nhava Sheva an additional annual capacity of 4.8M TEUs.
Adani Ports, which recently won the concession to operate a container terminal in Ennore, was the second highest bidder in JNPT, offering a revenue share of 29%. This is the second time that PSA is winning the concession for the same project at JNPT. The first time, in a consortium with ABG Ports, it had offered a whopping 50.8% revenue share that had stunned port analysts. Later however, it had refused to sign the concession agreement, citing technicalities. And the JNPT administration had to re-tender the project. At the time, JNPT officials had mulled blacklisting the major international operator for withdrawing from the project. But PSA’s repeat success has ensured its comeback in the expanding Indian ports sector.
Manufacturing & Industrial
Japan: February industrial production drops 2.3%
Source: RTT News, 30 March 2014
Industrial production in Japan contracted a seasonally adjusted 2.3 percent on month in February, the Ministry of Economy, Trade and Industry reported. Falling for the first time in four months. The headline figure was well shy of forecasts for an increase of 0.3 percent following the 3.8 percent increase in January. On a yearly basis, industrial production added 6.9 percent - also missing expectations for 9.9 percent following the 10.3 percent jump in the previous month. Upon the release of the data, the METI maintained its assessment of out, saying: industrial production continues to show an upward movement.
Industries that mainly contributed to the decrease included transport equipment, business oriented machinery and communications equipment. Commodities that mainly contributed to the decrease included large passenger cars, drive transmissions and motor vehicle engines. According to the survey of production forecast in manufacturing, production is expected to increase 0.9 percent in March and decrease 0.6 percent in April. Industries that mainly contributed to the increase in March include communications equipment, electrical machinery and others.
China: Manufacturing output remains weak in March 2014
Source: BBC, 31 March 2014
Official data from the Chinese government showed that manufacturing expanded slightly in March. A final reading of the official purchasing managers' index (PMI) was 50.3 in March, up from an eight-month low of 50.2 in February. Any reading above 50 indicates expansion. However, a separate survey by HSBC and Markit saw a contraction in Chinese manufacturing activity, with a reading of 48.0 - the lowest since July. The figures underscore a growing concern among investors, analysts and government officials that the Chinese economy is slowing. Last week, China's premier Li Keqiang acknowledged that there were "difficulties and risks", as rising debt and ongoing pollution problems cloud China's economic outlook.
Both Hong Kong's Hang Sen and the Shanghai Composite index declined slightly after the data was released, before recovering. Separately, a long-awaited tax increase took effect in Japan on Tuesday. It is the country's first tax increase since 1997. The move, which will see sales tax rise from 5% to 8%, is intended to combat the country's rising debt as its population ages. Prime Minister Shinzo Abe has said the move is necessary, even though many analysts have warned it could lead to a slowdown in the world's third-largest economy. Separate data on Tuesday on business sentiment indicated that those concerns are shared by the Japanese business community.
Singapore: Manufacturing output increases 12.8% year on year in February 2014
Source: Channel News Asia, 26 March 2014
Singapore's manufacturing output grew 12.8 % in February from a year ago -- the fastest pace of expansion since December 2011. The growth was boosted by strong expansion in the production of pharmaceuticals and petrochemicals. On a month-on-month basis, manufacturing output rose by 6.2 per cent. February's growth was largely in line with market expectations. Factories in Singapore turned out more goods last month. According to the Economic Development Board, manufacturing output rose 12.8 per cent on-year in February, compared to the 4.4 per cent growth in the previous month. February's expansion was driven by growth in all clusters.
Biomedical manufacturing gained 19.3 per cent, boosted by pharmaceuticals, which grew 20.2 per cent. Electronics production rose 14.8 per cent, while the output of the transport engineering cluster increased 11.1 per cent on-year. Some economists said the sharp increase in manufacturing output last month was due to the low base in February 2013, where some factories were shut and manufacturing activity was lower due to the Lunar New Year holidays. In February 2013, industrial production had declined 15.5 per cent on-year. United Overseas Bank expects manufacturing output to come in at an average of 4.6 per cent a month in the next few months. Economists said the pace of growth in February is not likely to be repeated anytime soon.
Pharmaceuticals & Healthcare
China: Bayer Healthcare increasing production capacity in China
Source: World Pharma News, 01 April 2014
Bayer HealthCare is expected to invest around USD 137.5 MN to significantly increase production capacity of its plant in Beijing, in preparation for increased demand. An agreement was signed in Germany during the visit of the President of the People’s Republic of China, Xi Jinping by the CEO of Bayer AG, Dr. Marijn Dekkers. The planned capacity expansion is designed to ensure a reliable supply of high-quality products to meet China’s domestic demand for Bayer HealthCare’s products, particularly the company’s cardiovascular and anti-diabetes products. Expansion will include logistic areas for fully automated material handling, analytical laboratories, and high-speed production network.
The investment will make Beijing the largest pharmaceutical packing site in Bayer HealthCare’s global production network, demonstrating their strong commitment to China. Bayer is currently the fourth-largest multinational pharmaceutical company in China, with more than 7,000 employees and production sites in Beijing, Guangzhou, Chengdu and Qidong. The company already has established a centre for research and development in Beijing with investments of around USD 137.5 MN. For the Bayer Group, Greater China is the largest single market in Asia, accounting for sales of around USD 5.1 BN in 2013.
Australia: People pay more for health care than in France and UK
Source: Yahoo, 24 March 2014
Australians are paying much more for health care than people in France and the UK, consumer advocates say, amid debate over a proposed Medicare co-payment. Further, 17 per cent of healthcare expenditure in Australia is already being funded by individual co-payments, and any extra fee will create major barriers to accessing health care, a report by the Consumers Health Forum suggests. The proposal to charge patients a $6 fee for bulk-billed GP visits was raised in late December by a health consultant who said it was a reasonable measure to keep the Medicare system going.
Health Minister Peter Dutton has flagged major changes to the system, saying he wants to have a frank and fearless conversation about co-payments. But the forum, the national peak body representing the interests of Australian healthcare consumers, says if the $6 co-payment proposal was implemented, low-income earners would be hit hardest, along with the chronically ill and the elderly. The forum's chief executive, Adam Stankevicius, says consumers should not be slugged with more fees. "We want to have an evidence-based discussion as to what it is that's going to make the biggest impact in terms of better financially managing the sustainability of our healthcare system," he said.
Vietnam: Students fighting for improved health care in rural areas
Source: The Badger Herald, 31 March 2014
Students with a background in medical-related fields and a strong connection to Vietnamese culture will have an opportunity for promoting public health in Vietnam through the Vietnam Health Project (VHP). Each year, the non-profit organization sends a group of students to Vietnam with a mission of improving health care situations in rural areas. This year, they will be returning to Hai An City to work in a clinic and perform medical care tasks, including youth health education programs, dental care and comprehensive exams. In exchange, the students will be able to learn about Vietnam’s health care system and some of the alternative medicines that are in use.
One of VHP’s major goals is to get people in rural areas proper medical care. Due to lower-incomes and limited access to vehicles, people have fewer capabilities for medical attention in clinics. Some of the organization’s accomplishments to date include providing water filters for a community living near a landfill, building a playroom in a pediatric hospital and rebuilding homes affected by Agent Orange, a chemical that was used in the Vietnam War. Many of the participating students are those with Vietnamese backgrounds looking to get back in touch with their roots and are looking to have careers in medical-related fields. This year’s trip will include at least 21 students going for at least a month.
China/India: Private equity firms looking east for healthcare investment
Source: Healthcare Finance News, 31 March 2014
Global private equity investment in the healthcare industry has been shrinking for years, but the drop-off has particularly been felt in Europe and the US. Asia-Pacific, on the other hand, is seeing a tremendous increase in private equity investment towards their healthcare industries. The total value of the world’s healthcare private equity deals decreased significantly from USD 57.7 BN in 2007 to USD 19.8 BN in 2013. In Europe, deal activity decreased by 30.5%, from 59 deals in 2012 down to 41 in 2013. Likewise, North America has witnessed only a minor 2.5% growth from 80 deals in 2012 to 82 in 2013. Meanwhile, private equity investment in emerging markets such as India and China have grown. Volume of healthcare private equity investment in Asia-Pacific has increased by an astounding 125.8% between 2011 and 2013.
There are multiple factors responsible for the reduced average value of completed PE-backed deals, particularly over the past three years in U.S. and Europe, including ongoing healthcare reform, pricing pressures caused by budget deficits, high healthcare expenditures, and growing national debt. This year is expected to be particularly crucial for US healthcare sector because most of the Affordable Care Act’s provisions will become effective; investors are therefore being cautious putting money into US healthcare industry. For firms that do choose to invest in US sector, healthcare service providers, such as clinics and managed care facilities are emerging as “relatively safer” risk options.
Japan: Tax increase will potentially affect private equity deals
Source: The Wall Street Journal, 28 March 2014
Japan’s tax hike on consumable goods are threatening the country’s growth and could potentially hamper private equity deals, particular for small to midsized companies. In 2012, consumer deals accounted for 40% of the USD 5.6 BN private equity backed buyout deals. Last year, the proportion declined to 13% of USD 3.4 BN in total transaction. Starting April 1, consumable goods or service from clothes, travel, restaurants to food will incur a consumption tax of 8%, up from the previous 5% tax rate. The tax rate is expected to rise to 10% by 2015.
While the tax increase will help Japan’s central bank reduce its outstanding debt, the growth of consumer businesses will be put into question. Private equity firms will be closely watching how the sales tax hike affects consumer behaviour. Past consumer-related deals include Permira’s acquisition of Japanese sushi chain Akindo Sushiro Co. for USD 1 BN from domestic firm Unison Capital, as well as Kohlberg Kravic Roberts & Co.’s purchase of Panasonic Corp.’s health-care unit for USD 1.7 BN. The last time the consumption ta was raised in Japan was in 1997, when it rose from 3% to 5%. The fallout was severe, with consumption dropping and the country falling into recession soon after.
Asia: Private equity in Asia outperforms North America and Europe
Source: Finance Asia, 1 April 2014
Current prevailing perceptions are that cash distributions from private equity in Asia are slowing down, and that investors are instead focusing on US private equity. Despite this, a select group of Asian private equity managers have shown to be distributing more capital than ever before and market conditions for investing are positive. Instead of pulling back, investors such as limited partners should be growing their presence in Asia, while remaining highly selective and long-term oriented. Asian managers have been able to provide a better return multiple by an average of 60 basis points in the first half of last year, compared with the same period in 2012. Emerging markets in Asia have also outperformed North America and Europe, based on five-year comparative net returns.
Asia Private Equity Review (APER) has reported a total of USD 25.4 BN returned to investors in 2013, with the amount being higher than the previous two years, mostly in part to higher investment exits in Japan, Australia and Indonesia. The total number of portfolio companies exited decreased, suggesting larger sums of capital have been returned from larger transactions. In addition, the increased rebound of exits through public markets are expected to continue throughout 2014, supported by reopening of the Chinese market for initial public offerings and increased exit conditions for trade sales. For 2014, expect to see an increase in exit values with anticipated rebounds in exits via public markets, particularly in China and continued increase via trade sale and secondary transactions across the region.
Telecommunication, Technology & Media
China: National search platform ChinaSo officially launched
Source: China Daily, 22 March 2014
National search engine platform ChinaSo has officially been launched starting March 21. Preparations for its arrival began last October, with the search engine set to provide news, media, picture, video, map and website navigation. ChinaSo, operated by ChinaSo IT Corporation is an Internet enterprise founded together by China’s seven major news organizations: People’s Daily, Xinhua News Agency, CCTV, Guangming Daily, Economic Daily, China Daily and China New Service. They are committed to building a communications platform dedicated to advance Internet culture as well as to strengthen China’s transmission capabilities.
China’s search engine market is having a positive outlook as the number of Internet users increased to 618 million at the end of the previous year. Leading the pack was Baidu, accounting for 81.4% of market share. Google on the other hand, suffered a decline of 12.3% in market share. Additionally, Qihoo 360 the relatively new search engine launched in 2012 is seeing growth potential as their market share inched up to 1.6%. The rapid increase in mobile search engine users is also expected to prompt a surge in the market.
Japan: Aeon offers cheaper alternative to mobile users
Source: Reuters, 31 March 2014
Aeon plans to offer a cut-rate smartphone service for about half the monthly fees charged by the country’s three dominant operators. Currently, Japan’s smartphone services for light users are particularly expensive compared with other developed markets. In order to provide a cheaper alternative, Aeon announces that it will offer its service in partnership with Japan Communications, a mobile virtual network operator (MVNO) that rents access to other companies’ networks and typically offers less expensive mobile plans. Users of MVNO service have been growing sharply in recent years in Japan.
Aeon’s monthly charge for a two-year contract including cost of phone will be USD 28.95, excluding tax, for unlimited data services. This compares with about USD 54.95 a month for basic smartphone plans currently offered by all three of Japan’s leading wireless carriers NTT DoCoMo, KDDI’s au and SoftBank. The company will sell Google Nexus 4 smartphones manufactured by South Korea’s LG Electronics, offering slower speeds and limited web-surfing functions in order to keep prices down. The initial sales target is a modest 8,000 units to first gauge demand before considering their next step.
Indonesia: Step backwards for Indonesia’s IT education system
Source: Tech in Asia, 19 March 2014
Indonesian schools have stopped offering IT courses from their school curriculum since last July. It has been a year since the revision to the curriculum and the government has already been receiving complaints to bring back the subject to Indonesian schools. While IT is no longer an individual subject, the government is starting to encourage schools to conduct education inside the “IT environment” process, by letting students use computers and conduct online research inside the classroom.
One of the reasons for the subjects initial removal was the fact that the program had not been updated in seven years, still teaching students basic skills such as how to turn on computers, using Microsoft Office and understanding basic graphic design tools. Now that students are learning how to use the Internet and software applications, a lot of the IT curriculum was becoming irrelevant. Some changes that the newly-formed national association of IT teachers want include a renewed focus on the ethics and dangers of using the Internet, creating compelling presentation slides, practicing blog posts and creating digital media. With this change in curriculum, there is becoming a bigger disparity among schools, with resource heavy schools being able to provide better IT programs.