Asia News Update
Hong Kong/Singapore: Governments take different fiscal paths in plan to combat slowing growth
Source: FT, 25 February 2015
Both Hong Kong and Singapore have revealed their plans to combat rising prices, ageing populations and slowing global growth. But the plans for the financial centers differ. In Hong Kong, the government chooses to use its HKD 63.8 billion (USD 8.2 billion) budget surplus to fund a one-off salary and profits tax rebate, confirming its commitment to low taxes and laissez-faire government. KPMG’s Charles Kinsley said that the move will only be felt by middle and high-income households because poorer people do not earn enough the pay taxes. Hong Kong also announced a fee waiver for restaurants, hotels and travel agents to boost the tourism industry, which has slowed down. Lastly, Hong Kong also earmarked funds to provide relief measures and extra cash for poorer retirees. It did not introduce universal pension and encouraged older people to return to work.
Singapore on the other had chose to raise taxes on its wealthiest residents to fund social welfare, specifically healthcare. The plans also include more generous support for retirees and low-income families, and extra funds for high-skills training. All the planned measures will amount to government spending of up to 19-19.5 percent of GDP by 2020, up from its current 18.5 percent. Singapore finance minister Tharman Shanmugaratnam said, “We have set new directions for the future. We are making fundamental policy shifts to give Singaporeans greater assurance at each stage of life, more opportunities, and a better home for all.”
Southeast Asia: GM to stop production in Indonesia and Thailand
Source: Reuters, 27 February 2015
GM announced it is going to stop producing GM-branded cars in Indonesia, where its market share is below 1 percent. Additionally, it will stop the production of its Chevrolet Sonic and Spin in Thailand, where GM has a 3-percent market share. In Indonesia, GM will stop production of the Chevrolet Spin by the end of June, and it will close a factory in Bekasi that employs around 500 people. GM’s plant in Rayong, Thailand will be scaled down from its current annual capacity of 180,000 vehicles in the middle of 2015. In addition, GM said it would start a "voluntary separation program" for its 3,000 workforce based in Thailand. GM is facing big competition from Japanese carmakers. Additionally, it said the Spin was unsuccessful because its logistics chain was too complex, which made the car too costly.
The US automaker will continue to sell cars like the Cruze sedan in parts of Southeast Asia, while also shifting its focus to push the “American heritage” of its pickups and SUVs. GM will also continue to focus on Indonesia, but it will cooperate with Chinese partners, including SAIC Motor Corp. The restructuring of GM marks a retrenchment in Asia. While its business in China is growing, GM has problems with other parts of its international operations unit.
Indonesia: President Widodo pledges to back Esemka’s new positioning
Source: Jakarta Post, 27 February 2015
President Joko “Jokowi” Widodo said the government will support the locally made car Esemka as the manufacturer will reposition its business. After a meeting between the president, executives of PT Solo Manufaktur Kreasi (Esemka) and top policymakers the agreement was made the reposition Esemka in the market. Instead of competing with automotive giants, Esemka will produce cars for farming and agriculture purposes. More specifically, Esemka will produce small trucks or pickups with low-capacity engines. Coordinating Economic Minister Sofyan Djalil said, “It’s not feasible [for Esemka] to compete with global automotive giants as we lag far behind them,” he told reporters after the meeting. This is why they should tap a new market segment, such as vehicles for agriculture or inter-village transportation purposes.”
The President agreed with the plans and that it should take small steps. The manufacturer expects to produce around 500 vehicles a month. This would be enough for the company to thrive financially and sustain its production capacity in the long-term. The minister said that the initial capital outlay for Esemka to start mass production would be at least IDR 100 billion. The government will prepare a plan to support Esemka and provide it with incentives.
China: Wanxiang plans to rebrand Fisker as Elux and launch it in mid-2016
Source: Reuters, 22 February 2015
Two anonymous sources said, Wanxiang Group, a Chinese auto parts maker, will delay its planned relaunch of Fisker Karma hybrid sports car until mid-2016. Additionally, it plans to rebrand Fisker Automotive as Elux. Wanxiang hoped to relaunch Karma this year. The sources also said that Wanxiang has not yet determent the final production site, which earlier was thought to be in Finland. The sources also said Wanxiang plans to price the car around USD 135,000, which is almost 20 percent higher than the original price for the Karma in 2012. The design of the car will resamble the original design of the Karma. One of the sources said that the company is spending millions to upgrade the hardware in order to compete with the newer vehicles in the market today.
Wanxiang bought the assets of California-based Fisker Automotive in a US bankruptcy auction in 2014. The car was an early competitor of Tesla Motors Inc. but failed in 2013 despite the backing of the US government and private investors. Wanxiang also acquired the developer and supplier of the car's battery pack A123 Systems, which also went bankrupt. Wanxiang did not respond to the news story.
Japan: Mitsui Chemicals to restructure operations of its chemicals business unit
Source: Chemicals Technology, 25 February 2015
Mitsui Chemicals is preparing its restructuring of its operations of its functional chemicals business unit. The restructuring should accelerate new product development and business strategy. The move is part of Mitsui’s 2014 mid-term business plan, which was designed to simplify each business sector. The company said the restructure would strengthen business support function and accelerate decision making, as well as improving operational efficiency and reducing interdepartmental coordination.
Mitsui functional chemicals business sector's fine and performance chemicals division and licensing division will be nestled under the company’s basic chemicals business segment and petrochemicals business sector, respectively. The Mitsui Chemicals Agro operations will be transformed into a business sector. The functional chemicals business sector will be renamed to 'Health Care Business Sector'. The company also plans to make an R&D center to combine all Mitsui’s R&D functions and encourage cross-laboratory cooperation, which should lead to creation and commercialisation of new business and products. The restructuring will also affect its production and technology centre, safety and environment division, RC and quality assurance division, internal control division, SCM division, and corporate performance management division, as well as several business supporting divisions like accounting and communication.
Thailand: DIC plans to build a polymer technical facility
Source: DIC press release, 25 February 2015
DIC announced that it will establish a new polymer technical facility in Thailand. The purpose of the new facility, the Polymer Technical Center–Asia Pacific, is to reinforce DIC’s ability to provide polymer products refined to meet the needs of customers in the Asia–Pacific region, excluding China and Japan. DIC aims to create a service framework that will allow it to respond swiftly to local market requirements and accelerate efforts to expand overseas sales of polymer products, a key strategic focus. The new facility will also be important from a human resources perspective, enabling DIC to train local technical staff. The Polymer Technical Center will be situated in the Bangpoo Industrial Estate, Samut Prakan province. The facility will be operational in H1/2015.
The Polymer Technical Center–Asia Pacific will oversee and direct technical aspects of the DIC Group’s polymers business in the Asia–Pacific region. As such, the facility will promote R&D in line with themes tailored to the needs of regional customers. The DIC Group will continue to establish new and enhance existing R&D facilities in its various businesses, thus reinforcing its ability to customize products to local needs.
Malaysia: BASF and PETRONAS to build 2-Ethylhexanoic acid production plant
Source: BASF press release, 18 February 2015
BASF and PETRONAS Chemicals Group Berhad (PCG) will build a new production plant for 2-Ethylhexanoic Acid (2-EHAcid) at the site of their existing joint venture, BASF PETRONAS Chemicals, in Kuantan, Malaysia. The plant will be the first of its kind in the ASEAN region. The plant, with a total annual capacity of 30,000 metric tons of 2-EHAcid, is expected to start production in Q4/2016. The new plant will benefit from backward integration into the site, allowing high delivery reliability and maximizing efficient use of energy and feedstock. Stefan Blank, President, BASF Intermediates division, said, “With this new plant, we are responding to our customers’ growing demands in Asia Pacific. Through this additional capacity BASF will become one of the leading suppliers for high purity 2-EHAcid in the region.”
In addition to the proposed plant, BASF PETRONAS Chemicals Sdn Bhd is also building an Integrated Aroma Ingredients Complex at its Kuantan site for the manufacturing of citronellol, L-menthol as well as citral and its precursors which are widely used in flavour and fragrance industry. Groundbreaking for the USD 500 million integrated aroma ingredients complex was done in April 2014 and the first plant is scheduled to come on stream in 2016.
Construction & Property Development
Thailand: Thai builders are set for growth due to government infrastructure projects
Source: Bangkok Post, 27 February 2015
UOB Kay Hian Securities (Thailand) Co said that Thai builders are likely to benefit from the government plans to increase infrastructure spending to spur the economy. Thai builders are lacking behind their Indonesian and Malaysian peers because projects got delayed or canceled in the six months of political protest that ended with a coup. The government has released a THB 3 trillion investment roadmap through 2022 that includes plans to build roads, railways, transit systems and airports. Kowit Pongwinyoo, an analyst at UOB Kay Hian, said, "Thai construction companies have been battered by missed opportunity as political chaos and legal disputes derailed infrastructure development. The golden year should be coming as the military government has strong intentions to push through some delayed and new projects."
Prime minister Gen Prayut has met Chinese Premier Li Keqiang in December 2014 to discuss a rail-and-port project. The construction of the project is expected to begin in October, according to Transport Minister Prajin Juntong. Next month, officials from Thailand and Japan will discuss the joint development of other train projects. The Thai economy is expected to expand as much as 4.5 percent this year, according to government forecasts. Most of the growth will come from public works spending.
Indonesia: Survey shows Asian companies are keen to expand into Indonesia
Source: Jakarta Post, 25 February 2015
UOB Indonesia states in their report, UOB Asian Enterprise Survey 2014, that companies from Singapore, Thailand and China embracing new business opportunities in Indonesia as a result of the country’s rising middle class. According to the report, Indonesia has more than 90 million people in its middle class, around 40 percent of the total population. This is attracting businesses from Singapore (26 percent), Thailand (25 percent) and China (21 percent) to Indonesia. Iwan Satawidinata, UOB Indonesia deputy chief executive officer of business, said, “As incomes rise and urbanization continues apace, companies that offer products and services that meet the new needs of Indonesia’s middle class will be well positioned for sustainable growth. It is through seizing the opportunities that are now opening up in Indonesia that these Asian businesses are fueling their next phase of growth.”
The survey continues to state that other Asian enterprises are interested to build infrastructure in Indonesia. UOB Group senior economist Ho Woei Chen, said, “Construction spending to meet Indonesia’s infrastructural needs will also open up investment and business expansion opportunities for related industries such as the logistics, food and beverage, and hotel industries. To facilitate more foreign direct investment, government trade agencies are working across all ministries to reduce bureaucracy and to enhance Indonesia’s attractiveness as an investment destination.” The survey states that construction companies from Malaysia (50 percent), Singapore (40 percent), Thailand (33 percent) and Hong Kong (33 per cent) are most interested in the projects.
Singapore: Developers to get help to meet new construction requirements
Source: Channel News Asia, 27 February 2015
Singaporean developers could soon get help in meeting the new construction requirements that were introduced in November last year. On Friday 27 February 2015, Grace Fu, Minister in the Prime Minister's Office and Second Minister for the Environment and Water Resources, said at the annual Chinese New Year celebration lunch, which is organized by the Real Estate Developers' Association of Singapore, that details about the help will be released next month.
The new construction requirements require companies to adopt more labour efficient construction methods and technologies. The construction requirements are aimed at increasing the productivity in the construction sector. Minister Grace Fu said that developers played a major role in increasing the productivity in the construction sector. The Minister said, "As developers, you have an important role in driving productivity in construction. From 2010 to 2013, worksite productivity had improved by about 1.2 per cent per annum.” She continued to say that, “Our target is 2 to 3 per cent per annum and we need to do more to achieve higher productivity gains in the next few years.”
Consumer & Retail
Japan: Consumers are unconvinced by Bank of Japan’s stimulus; household spending continues to decrease
Source: Channel News Asia, 27 February 2015
As Japanese households continue to cut spending, retail sales in January decreased for the first time in seven months, signaling that consumers are not convinced by the bank’s stimulus program. Although Japan came out of the recession in Q4/2014, the weak consumer mood in casting doubts on the strength of the recovery. Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said, "Household spending is recovering but only very moderately because income hasn't risen much yet. There's no doubt the economy will recover as the lower cost of oil is clearly positive for growth. If March wage negotiations lead to higher base pay, that's also good for consumers. It just takes time for all these factors to help consumption."
In January, factory output is likely to have rise 2.7 percent m/m, according to a Reuters poll. The poll also showed that household spending is likely to fall by 4.1 percent in January and retail sales are forecasted to decrease by 1.3 percent. In addition to the mixed data, the weak oil prices further pull inflation away from the Bank of Japan’s 2 percent target. The BOJ thinks that the falling oil prices will allow households and companies to spend more on other goods, thus boosting the economy. Analysts however are suspicious whether the BOJ can meet the inflation target in April since they expect it takes at least six months for the benefits from the lower oil prices to boost growth.
India: Economic Survey predicts the e-commerce space to grow by 50 percent in the next 5 years
Source: India Times, 27 February 2015
The Economic Survey, a government document, stated that internet penetration in India is on the rise and that the e-commerce sector is likely to experience a growth of over 50 percent in the next five years. The Economic Survey 2014-15, tabled in Parliament on 27 February 2015 by Finance Minister Arun Jaitley, also mentions hurdles. "Inventory management, logistics planning and resource availability are important hurdles for online retail in India… Consumer safeguard being another concern for consumers of eCommerce, the government proposes including sufficient provisions in the ongoing amendment to the Consumer Protection Act, 1986."
Prime Minister Narendra Modi created a Task Force in 2014 to develop plans to increase revenue of India Post with several services including eCommerce. The Task Force released a report that recommended creating a company under the Department of Posts that offers banking, insurance and e-commerce services. It added that rural India should be the main target area. PwC said that the eCommerce sector has grown by 34 percent (CAGR) since 2009 to USD 16.3 billion 2014, and is expected to increase to USD 22 billion in 2015. The Internet and Mobile Association of India states that India has 278 million internet users as of October 2014.
Australia: Scentre forecasts 3.5 percent growth in earning in 2015; upgrades malls to attract consumers
Source: Sydney Morning Herald, 24 February 2015
Scentre Group is reviewing new offering with its tenants such as its click and collect customers, integrated apps and other expanded concierge and common malls services. The offerings are in place to attract shoppers to the centers as the company forecasts a 3.5 percent growth in earning for 2015. The new initiatives, worth more than AUD 500 million in mall upgrades, are part of the company’s AUD 3 billion development pipeline. Recently, it has completed an AUD 475 million upgrade of Westfield Miranda in Sydney, with Scentre’s being AUD 328 million.
Scentre said that the asset sales, including the office towers above Westfield Sydney will only happen when cash is needed. The company will receive about AUD 700 million from the sale of its remaining New Zealand malls in 2015. Its first results for six months ending December 31, 2014 were Funds from Operations (FFO) of AUD 578 million, which is in line with the forecast the company made after the demerger in June 2014. The forecast growth in FFO came from better market conditions from the new international retailers, better rents from new tenants, and expanded malls, such as the redeveloped Westfield Miranda.
Energy, Resources & Environment
Southeast Asia: Thai utility Ratchaburi plans to invest USD 1.5 billion to increase capacity to 9700 MW by 2023
Source: Reuters, 26 February 2015
Ratchaburi Electricity Generating Holding Pcl, Thailand's largest private power producer, said it plans to invest THB 13 billion (USD 399 million) this year to expand its power business in Thailand and Southeast Asia. CEO Pongdith Potchana said the plan is part of a plan to invest USD 1.5 billion to increase its electricity generating capacity by 37 percent to 9700 MW by 2023. The company is studying nine new projects, which are mostly located in Myanmar and other Southeast Asian countries. CEO Pongdith said it will also cooperate with Electricity Generating Authority of Thailand to expand its business in Thailand.
CEO Pongdith said, "Myanmar is our top priority." The company is expected to sign an agreement for a 2640 MW coal-fired plant in November. Additionally Ratchaburi and PTT PLC jointly study the construction of an LNG terminal in the country. Ratchaburi plans to acquire commercially operated power plants to increase its earnings growth and cash flow. The company plans, through several investments, to have an enterprise value of THB 133 billion in 2015, an increase of THB 12.8 billion.
Japan: LED light bulb helps Japan decrease energy consumption
Source: Bloomberg, 26 February 2015
Since 2012, 73 million LED bulbs have been sold in Japan, about 30 percent of all light bulbs sold in the country. Because LED consumes about a fifth of normal light bulbs it is helping Japan become a more energy efficient country. The Fukushima nuclear meltdown caused many of Japan’s reactors to close, which caused an drive to reduce energy consumption through better insolation of homes to using the energy of subway cars breaking to power the train stations. In addition, subsidies for renewables have increased.
Hiroshi Amano, who shared last year’s Nobel Prize for physics, said the LED can cut Japan’s annual electric spending by JPY 1 trillion (USD 8.4 billion) within five years. Although LEDs cost more than normal light, the LED compensates this through longer life and lower power usage. The Institute of Energy Economics estimated in 2011 that switching all Japan’s lights to LED could save the country 92.2 terawatt hours of electricity, about 9 percent of the total annual consumption. In 2013, LED sales reached USD 3,2 billion. A government task force concluded that power used by the nine regional utilities fell by 10 terawatt-hours in July and August, compared to the same period before the Fukushima disaster. The decrease was thanked to energy conservation measures.
South Korea: Nuclear regulator renews operating license of the second-oldest nuclear plant
Source: Japan Times, 27 February 2015
The Nuclear Safety and Security Commission has renewed the operating license of the Wolsong No. 1 until 2022. The decision is the first since the Fukushima disaster. The plant is located in in Gyeongju city. Most of South Korea’s 23 nuclear power plants are located in the southeastern coast and provide about a third of the country’s electricity. The commission said that the plant was able to withstand natural disasters. The plant also complied with other legal standards. Seven of the nine commissioners voted to restart the plant. Two commissioners, who asked for more time to review the safety, abstained from the vote.
South Koreans are divided about the plant. Residents of the city and members of environmental groups were protesting against the restart of the plant. Suh Kune-yull, nuclear engineering professor at Seoul National University, said, “I think there could be a backlash to the nuclear energy industry. It will become increasingly difficult to extend the life span of other nuclear plants or to build new ones.” South Korea’s oldest nuclear plant will be reviewed next year. The plants operator must decide by the end of this year if it wants to renewal its license. The government plans to build more nuclear plants.
China: Postal Savings Bank of China mulls stake sale in pre-listing funding
Source: South China Morning Post, 24 February 2015
Postal Savings Bank of China is reportedly in talks with potential investors over a minority stake sale before a possible listing. The bank is one of China’s largest lenders. Sources familiar with the bank argue that introducing foreign capital from strategic investors prior to share offering is a crucial step before public offering. A potential share sale by the bank is estimated to be worth as much as USD 25 billion, according to Financial Times reporting. Potential investors include a financial unit of Alibaba Group, a US private equity firm and Asian sovereign wealth funds.
In banking, the cost of borrowing has created an uneven playing field for state-owned and private companies. According to Boston Consulting Group, the cost of capital for state-owned enterprises is around 7-9%, versus well above 10% for privately held firms. As one of the giants in commercial banking, Postal Savings Bank of China chairman Li Guohua has urged the need to focus on lending to small businesses to help them overcome difficulties in obtaining finance and raised the idea of establishing a peer-to-peer lending platform by commercial banks.
Malaysia: Currency hit by concerns over 1MDB fund bailout
Source: Bloomberg 27 February 2015
Speculations over 1Malaysia Development Bhd., the state investment fund’s ability to service its debt struck the ringgit currency another blow. The ringgit is currently Asia’s worst-performing currency, languishing at its weakest level since 2009, hit by plunging crude prices. The ringgit plunged 7.4% over the past three months and touched a low of 3.6460 against the US dollar on February 23. The weakened currency has driven up the cost to repaying external debts. Further deterioration in currency value may drive more investors away from Malaysian assets.
1MDB was reportedly in need of a USD 832 million (MYR 3 billion) cash injection from the government to repay its debt, according to a report published in Malaysia’s Edge newspaper on February 23. Just two weeks ago, 1MDB repaid MYR 2 billion in overdue loans. The Malaysian Insider news website alleged the proposal for aid was turned down by the cabinet. Despite remaining unresolved, the 1MDB issue is expected to cast a long shadow on the Malaysian currency.
South Korea: Samsung Electronics prepares for won-yuan direct trade
Source: Reuters, 25 February 2015
South Korea-based Samsung electronics Co Ltd is set to start trading Chinese currency yuan for domestic currency won from the market in Seoul. Details into the direct trade have yet to be announced. It is unclear how much trading volume Samsung can generate on its own. The company uses the currency market to settle direct transactions between its headquarters and its foreign subsidiaries. However, Samsung’s entry is expected to give a major boost to the yuan-won market, which opened in December 2014.
South Korean government has been encouraging domestic firms trading with China to settle transactions in either yuan or won instead of the US dollar. The country posted a USD 55 billion trade surplus with China in 2014. In Q4/2014, 3.6% of South Korean exports to China and 2.3% of imports were settled in won or yuan, according to the Bank of Korea.
Logistics & Transportation
Thailand: Ministry seeks USD 1.2 billion overseas funding for road projects
Source: Reuters, 25 February 2015
Thailand is to tap overseas funding of USD 1.23 billion (THB 40 billion) for road construction. The proposal will be delivered to the cabinet for approval next week, according to Deputy Prime Minister Pridiyathorn Devakula. The project covers road construction and upgrades.
As a part of the ministry’s broader USD 2.46 billion (THB 80 billion) plan to revive the country’s economy, the project aims to help spur domestic economic activities. The planned spending is on top of the country's annual budget.
Japan: Japan Post acquires Toll Holdings for USD 5.07 billion
Source: Port Technology, 23 February 2015
Japan’s state postal service Japan Post has announced a USD 5.07 billion buyout of regional logistics operating Toll Holdings, marking the second major Japanese logistics acquisition after Kintetsu World Express’s takeover of APL Logistics. Toll is known to have a strong presence in the Asia-Pacific region. The acquisition of Toll Holdings will allow Japan Post to unlock a region in which it has registered steady growth.
Toll Holdings CEO Brian Kruger says, “Combined we will have an expansive geographical footprint with Toll providing expertise in the global logistics and transport markets. Japan Post will bring extra capability, financial strength and significant scale to accelerate growth.” Following the deal, Toll will continue to use its name and current management.
China: First Silk Road deals to be signed next month
Source: South China Morning Post, 28 February 2015
China is to sign agreements with countries including Kazakhstan and Pakistan on the creation of a New Silk Road economic corridor come March, Shanghai Securities News reported. Aiming to stimulate economic development, the government announced a USD 40 billion infrastructure fund earlier this month to support the New Silk Road running overland as well as a maritime version. According to internally circulated sources, the project would involve more than 20 Chinese provinces and cities, with the Xinjiang region developing five economic centers along the western corridor. Shen Jianguang, chief China economist at Mizuho Securities Asia, says some of the investment agreements would likely be announced after the annual parliamentary session next month.
Meantime, China has extended its cooperation with Kazakhstan in the logistics sector with the inauguration of a rail link from Lianyungang in Jiangsu province to Kazakhstan. Upgrades on railways between China and Pakistan would be discussed in the new round of agreements. In 2013, President Xi Jinping called for a revival of the land-based Silk Road and the establishment of a maritime silk route. The New Silk Road will run across Central Asia and South Asia and end in Australia. The maritime version will cover major seaborne trade routes and link Chinese ports to the Belgian port of Antwerp.
Manufacturing & Industrial
Malaysia: Ministry targets USD 15.5 billion infusion into manufacturing
Source: The Rakyat Post, 26 February 2015
Malaysia aims to bring in USD 15.5 billion (MYR 56 billion) worth of investment in the manufacturing sector in 2015. The target is relatively modest compared with a 38% y/y growth at MYR 71.9 billion worth of investment last year. Investment target for the services sector, excluding real estate, is set at MYR 64.5 billion. International Trade and Industry Minister Datuk Seri Mustapa Mohamed expresses cautious optimism over the investment climate in Malaysia despite a challenging external environment.
To support industry development, Malaysian Investment Development Authority (MIDA) CEO Datuk Azman Mahmud says the agency will continue to focus on an ecosystem approach to attract investments in the targeted industries. The agency will work towards strengthening the coordination of investment promotion activities, enhancing facilitation of approved investments, and improving the compilation and dissemination of investment statistics.
Singapore: Manufacturing output up 0.9% y/y in January
Source: Channel NewsAsia, 26 February 2015
Singapore posted 0.9% y/y growth in manufacturing output in January, according to Singapore’s Economic Development Board (EDB). Output remains unchanged y/y excluding biomedical manufacturing, of which output grew 5.3% y/y. Medical technology was up 12.2% due to a strong demand for new medical devices, while pharmaceuticals grew 3.6%. Output of precision engineering expanded 4.1%, driven by a 9.7% growth in the precision modules and components segment.
Meantime, electronics cluster output remained unchanged. Output in general manufacturing industries fell 0.3%, hit by a 3.1% drop in the food, beverages and tobacco segment. Some experts attribute the slow output growth to sluggish external demand and internal economic restructuring. Jeff Ng, Asia global research economist at Standard Chartered Bank noted a slow growth momentum across Asian economies like China, Japan as well as in Europe.
Hong Kong: China’s new Silk Road to benefit manufacturing businesses
Source: South China Morning Post, 27 February 2015
Hong Kong manufacturers could capitalize on China’s new export strategy, the new Silk Road economic corridor, which would improve China’s transport links to its neighbors in central Asia. With the development of the corridor, Hong Kong manufacturers could move their operations overseas to avoid rising cost on the mainland, argued Pauline Ngan Po-ling, honorary chairwoman of the Young Industrialists Council. Additionally, manufacturers could tap into new export markets.
Ngan urges the Hong Kong government to maintain close ties with the central government of China, as Hong Kong’s economy still relies on the mainland to a large extent. Benefits of China’s new strategy would extend to the financial services industry as well as other professional services. However, questions have been raised over whether Hong Kong enterprises would be placed on the same footing as their powerful mainland counterparts when taking part in a national initiative.
Pharmaceuticals & Healthcare
Singapore: Japanese pharmaceuticals expand R&D operations
Source: Channel NewsAsia, 25 February 2015
More Japanese pharmaceutical companies are ramping up their research and development (R&D) operations in Singapore. Currently, eight out of the top 10 Japanese pharmaceutical companies have set up their regional headquarters in Singapore. Singapore stood out to be the preferential location for Japanese firms mainly because of its strong connectivity to other Asian markets. A transparent regulatory environment also plays an important role.
Takeda is the latest Japanese pharmaceutical firm to set up an office in Biopolis of Singapore, which will house its vaccine development activities, the Emerging Markets Business Unit and its regional R&D center. Meantime, another Japanese firm, Chugai Pharmaceutical, has also announced plans to invest an additional USD 203 million (SGD 276 million) to its antibody engineering lab in Singapore in 2017-2022.
India: Healthcare sector lobbies for right to quality healthcare
Source: Channel NewsAsia, 27 February 2015
India’s healthcare sector is lobbying to make health a fundamental right and urging for increased government spending on medical equipment and research initiatives. The healthcare sector is undergoing a major transformation as the growing effluence of India’s middle class, coupled with the influx of medical tourist has driven up demand for quality healthcare. However, a lack of infrastructural capacity and skilled workers remains a challenge in the country. In December, authorities cut the health ministry budget by 20% to meet its fiscal deficit target.
However, what remain more concerning than the lack of funds are the utilization of funds and the implementation of welfare schemes. On the other hand, analysts are generally optimistic about the new government and Prime Minister Narendra Modi’s campaign to improve healthcare. They expect the new government to allocate a fair sum of resources towards research initiatives, establishing medical colleges, health tax benefits and providing comprehensive health insurance for the poor.
Japan: Nikon taps into medical sector with Optos acquisition
Source: Reuters, 27 February 2015
Japan-based Nikon is moving into the medical sector with the takeover of UK-based retinal imaging firm Optos for USD 400 million (GBP 259.3 million). Kazuo Ushida, president of Nikon, says the company would expand the medical business further in the future. Optos is the market leader in retinal imaging, with its ultra widefield technology producing images that cover more than 80% of the retina, greater than any other device. Retinal imaging has become a booming business due to ageing populations.
Toshiba plans to become one of the top three manufacturers in diagnostic imaging systems by 2017. The new Penang plant of Toshiba also fits with Malaysia's efforts to attract more health care companies and manufacturing since the country are trying to foster new industries and employment. Malaysia expects to create 181,000 jobs in healthcare sector by 2020. On the other hand, Penang is an attractive location for Toshiba, which would offer good logistics and proximity to target markets.
Asia: Baring Asia raises USD 4 billion for deals
Source: VC Circle, 25 February 2015
Baring Private Equity Asia (Baring Asia) has raised USD 3.98 billion in its new flagship fund, Baring Asia VI, believed to be the largest PE Fund ever raised by an Asia-based PE firm. The new fund takes Baring Asia’s total assets under management to around USD 9 billion. The fund attracted institutional investors from across the globe including North American pension funds, Asian and Middle East sovereign wealth funds, endowments and fund-of-funds.
The history of Baring Asia’s investment in the region dates back to 1997. The firm currently has 30 portfolio companies across Asia with sales of approximately USD 30 billion in 2014. In recent years, Baring Asia has concluded two deals in India, including a control deal involving public listed IT services firm Hexaware and a stake in Indian unit of cement major Lafarge. Its latest mega fund follows several large funds for the region raised by other global funds, including Carlyle’s USD 3.9 billion fund closed in September and TPG Capital’s USD 3.3 billion Asia-focused buyout fund in March 2014.
Australia: Private equity to enter mining
Source: The West Australian, 23 February 2015
Industry watchers anticipate an influx of private equity into the mining sector in 2015 as asset sales activities bottom out. Mining merger and acquisition activity hit a 10-year low in 2014, both globally and in Australia, according to EY’s Australian mining transactions leader Paul Murphy. EY’s annual mining M&A report showed Australian deal-flow fell to 144 deals worth USD 4.7 billion in 2014 from 178 deals worth USD 4.5 billion in 2013. With industry majors looking to sell assets in exchange of returns to shareholders, private equity players are well positioned to enter the market.
Meanwhile, EY expects to see significant industry restructuring. In additions to outright acquisitions by players such as Mick Davis’ X2 Resources, industry majors may tap strategic partnerships and investment deals with trading houses and consumers of raw materials as a means of to helping secure long-term supplies.Barrick Gold and Newcrest Mining have already put three regional gold mines on the market so far this year. Meantime, BHP Billiton is likely to remain open to offers for its Nickel West.
India: TPG to scoop up Manipal Health stakes for USD 146 million
Source: Reuters, 26 February 2015
US private equity fund TPG Capital Management is set to take up a minority stake in India’s private hospital operator Manipal Health Enterprises Ltd for USD 145.86 million (INR 9 billion). Manipal Health, part of Manipal Education and Medical Group, owns and operates 10 multi-specialty hospitals across five states in western and southern India.
India's private hospital operators have become attractive PE target as a growing number of patients are willing to pay for better-equipped clinics and higher quality healthcare. TPG and Malaysia's IHH Healthcare Bhd have expressed interests to buy a controlling stake in India's Global Hospitals.
Technology, Media & Telecommunications
China: Draft anti-terrorism law unsettles foreign tech firms
Source: Reuters, 27 February 2015
A draft counterterrorism law published by the National People’s Congress has sparked criticism and concerns from foreign technology firms over its far-reaching regulations. The initial draft requires technology firms to hand over encryption keys and install security "backdoors", keep servers and user data within China, supply law enforcement authorities with communications records and censor terrorism-related internet content.
The implications for foreign technology firms have set the stage for another confrontation over cybersecurity and technology policy. Market participants criticize the government for making it more difficult to do business in China. Some call it protectionism and favoring Chinese companies. China has geared up its cybersecurity measures in the wake of former NSA contractor Edward Snowden’s revelation of US spying techniques. The financial sector was the first to adopt new rules outlining security criteria on tech products adopted by banks.
India: Technology sector receives record funding
Source: The Financial Times, 26 February 2015
India’s technology companies have seen a fresh influx of funding from global venture capital groups in recent years on the back of a booming internet economy. A total of USD 2.7 billion worth of PE funding went to e-commerce groups in Q4/2014, exceeding the previous record high in 2012, according to PwC data. Deals in the period include a USD 700 million funding round led by Tiger Global in December for Flipkart at an estimated valuation of round USD 11 billion.
Majority of the investment came from the US and Japan, as investors eyes India’s e-commerce as the next big market to grow after China. The number of Indians connected to the internet is forecast to expand from 300 million to more than 500 million by 2018, according to Morgan Stanley. However, some analysts have raised concerns over the steep valuations on some lossmaking technology startups.
South Korea: LG Electronics looks for partner in OLED TV business
Source: Wall Street Journal, 24 February 2015
LG Electronics is searching for partners to join the still-nascent OLED TV business. LG, currently a lone player in the global market for TVs using OLED technology, or organic light-emitting diodes, is betting on the new technology and plans to double the number of TV models to 10 this year. The company is considering forming an alliance with select Japanese and Chinese firms in jump-starting demand for the next-generation TV, according to LG TV unit head Brian Kwon.
Sony Corp. and Panasonic Corp.’s previous attempts in developing large-screen OLED TVs were not met with success due to manufacturing difficulties. Sony rolled out the first 11-inch OLED set in 2007, but struggled to produce large models efficiently. Korean counterpart Samsung Electronics has no plans to enter the market yet as market interest remains low and technology limited.