Asia News Update

Asia: South Korea, China and Japan negotiating trilateral FTA

Source: Sputnik International, 23 November 2014

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

China, Japan and South Korea are negotiating for the sixth round to agree upon a trilateral free trade agreement (FTA) during a five-day session in Tokyo. The talks are occurring after China and South Korea settled a bilateral FTA in mid-November 2014. The proposed FTA has been under discussion since November 2012. The new negotiation process is expected to result in substantial progresses following many Asia-Pacific nations lately focusing on the advancement of several regional FTAs. The previous rounds included topics such as products, services, investment, competition, IP rights, environment and regulations. This round will evolve around issues concerning market liberalization for products, services and investment.

China is currently working on completing trade liberalization with its neighboring countries, as a counter act to the multilateral Trans-Pacific Partnership (TPP) that excludes China. South Korea and Tokyo have been in FTA talks since 2004, but they have been halted due to Japan’s reluctance to increase its agricultural products imports. However, since Japan plans to enter the TPP, South Korea and Japan are closer to coming to an agreement. The trilateral agreement between China, Japan and South Korea is to be finalized in 2015. Furthermore, South Korea is looking to join the negotiations for the Regional Comprehensive Economic Partnership (RCEP), which includes several Asian and Oceanic countries.


Indonesia: Automotive giant Astra supports government fuel subsidy cuts

Source: CNBC, 20 November 2014

Indonesia’s decision to cut fuel subsidies is supported by the country’s largest automobile distributor, Astra International, although it could affect the company’s revenue. The President Director, Prijono Sugiarto believes that reducing fuel subsidies will in the medium to long term benefit the nation’s economy, which will in turn result in an increase in cars and motorcycle sales. He believes the impact of the weakening purchasing power on the automotive market will only be very short term. Moreover, the government reported that there was an approximately 30% rise in subsidized gasoline prices to IDR 8,500 per liter and a 36% rise in diesel prices to IDR 7,500 per liter. An inflation increase to 7.3% this year is also expected.

Astra International has faced challenges with increased competition, a stagnant domestic economy and the effect of the domestic currency’s 21% decrease against the US dollar. Sugiatro is hoping for an improved global economy and is not expecting a turnaround until 2016. He sees the potential in the country’s USD 1.2 million car-market with a GDP per capita of USD 3,500, comparing with China, with a car market of USD 9.7 million when having the same GDP per capita. Furthermore, Boston Consulting Group estimates that Indonesia’s middle class of 70 million will double by 2020. The automotive giant Astra has also entered into other industries including the promising infrastructure sector, mining and palm oil plants.

India: Tesla struggles to sell electronic vehicles

Source: Quartz India, 20 November 2014

Tesla has entered the Indian automotive market, which is to be the third biggest in the world. However, the company has met challenges with selling its luxury electric vehicles in India; its luxury pricing is only engaging a small segment of the car consumers, and the country has been experiencing an energy shortage of more than 42 million kilowatt hours, making electronic car purchases risky. Tesla’s chief information officer Jay Vijayan is still optimistic about the potential in the Indian car market.

The company has been working on a smaller, inexpensive ‘Tesla Model 3’, addressing the price issue and targeting emerging markets. The price of the new model in India will be between INR 1,800,000 (USD 30,000) and INR 2,400,000 (USD 40,000). Nevertheless, it will still be hard to counteract the electricity shortage that makes the electric vehicle sector weak. Furthermore, the Indian electric car-maker Mahindra Reva has been in the market for more than 10 years and is still struggling with only less than 500 sold cars per year. The government’s National Electronic Mobility Mission Plan 2020 includes plans of INR 14,000 crore (USD 2.25 billion) investment into infrastructure construction that are suitable for electronic cars. However, the development has been very sluggish.  

China: Daimler targets China for Maybach revival

Source: Financial Times, 19 November 2014

Daimler aims to revive its luxury brand Maybach by targeting Chinese consumers with a global launch in Guangzhou Motor Show on 19 November 2014. The Maybach vehicle is a high-end version of its Mercedes-Benz sedans and seeks to catch up with Volkswagen’s Audi and BMW. China is an important target as it is the biggest automotive market in the world and is expected to surpass US as the largest premium car market by 2020.

Daimler’s board member Hubertus Troska was sent to Beijing in 2013 to supervise operations in China and reduce the longstanding gap between Mercedes and its two major competitors. Troska states that the sales in China rose 30% year-on-year over the first three quarters of 2014, giving the company a new target for China in 2015 to sell considerably more than 300,000 units. He believes that over the next 10 years there will be a 6% average growth in the Chinese passenger vehicle market where Mercedes is planning to catch up. The carmaker is aiming to place Mercedes as a slight premium above the competitors’ respective cars. However, it is unclear if the new positioning of Maybach as a separate S-Class brand will attract the Chinese consumers.


Malaysia: Verdezyne and Bio-XCell Malaysia to construct renewable chemicals facility

Source:, 20 November 2014

The biotechnology firm Verdezyne has signed an agreement with Bio-XCell Malaysia to construct a renewable chemicals manufacturing facility plant. The new plant will be located in Nusajaya, Iskandar in Malaysia and construction is planned to start in 2015. This will be the first bio-based plant and is estimated to yield 30 million pounds of diacids comprising of dodecanedioic acid (DDDA) a year. The agreement also includes Verdezyne leasing 6.9 acres of land and a USD 75 million loan.

This project is part of Verdezyne’s Asia expansion strategy and is a big step towards the company’s goal of exchanging petroleum-derived chemicals with renewable drop-in replacements, and participating in the innovation of the industry, says Verdezyne president and CEO William Radany. The plant will produce commercial diacids with Verdezyne’s yeast fermentation technology to manufacture nylon and other polymers that are used in carpets, athletic clothes, automotive parts, toothbrush bristles and engineering resins. Furthermore, Bio-XCell Malaysia CEO Rizatuddin Ramli believes that this project will enhance the company’s position as a regional bioprocessing and bio-manufacturing hub.

Vietnam: Petrovietnam adds 11% stake in USD 4.6 billion petrochemical complex

Source: Chemicals-technology, 19 November 2014

Petrovietnam, which is a state-owned oil and gas firm, has acquired an 11% stake from Vietnam National Chemical in the USD 4.6 billion Long Son petrochemical complex located in Ba Ria-Vung Tau province in Vietnam. The additional stake increases Petrovietnam’s project share to 29% and is part of the country’s plans of restructuring state-owned enterprises. This will help consolidate the financial resources and further implementation of the construction. The rest of the stakes are held 46% by Siam Cement and 25% by Qatar Petroleum.

Petrovietnam is currently in talks with engineering, procurement and construction partners, as developers are working on site approval. The construction of the petrochemical complex is occurring near the Long Son oil refinery located in the Long Son Industrial Zone. The complex is expected to be the largest in the country and will go into commercial activity in the middle of 2019. The Long Son will use propane, ethane and naphtha to produce 2.7 million tons of polyethylene and polypropylene, 700,000 tons of compounds for the manufacturing if polyvinyl chloride and 840,000 tons of other chemicals used in chemical and petrochemical industry. In addition, the complex will also provide plastic resins to meet the increasing domestic demand.

Australia: Orica’s chemicals unit to be acquired by Blackstone private equity firm for USD 654 million

Source:, 19 November 2014

Orica Chemicals has signed a USD 654 million agreement with America-based private equity firm Blackstone to sell its chemicals units. The transaction involves units in Australia, New Zealand and Latin America, including the Australian Chloralkali production facility and Bronson & Jacobs, which is a supplier to nutrition food, personal care and health industry. The deal is part of the company’s plan to detach the business by demerger or sale. The transaction is also to offer higher value and outcome for its shareholders, says Orica managing director and CEO Ian Smith.

Orica will maintain its legacy environmental remediation commitments of the chemicals industry. The company’s chemicals unit is positioned well, with Blackstone endorsing that it will continue to provide top service and safety, claims James Carnegie, Blackstone senior managing director and Australia private equity head. The agreement is estimated to be finalized in the beginning of 2015 as it is awaiting approval from both the Australian Foreign Investment Review Board and the New Zealand Overseas Investment Office.

Construction & Property Development

Singapore: Malaysian developers struggle in the Singaporean property market

Source: Asia One, 17 November 2014

Singapore’s property market is posing challenges for Malaysian developers like IOI Properties Group, YTL group and Selangor Dredging Properties. The recent price decreases in the market are affecting the developers who have not been able to sell their units earlier. Selangor Dredging Properties has spaced out its five projects that are almost completely sold and is looking for land for new projects. YTL’s two projects in Sandy Island and Kasara are aimed to be exclusive and have been fully sold, but its Orchard Boulevard project is subject to the weak market situation. The company planned to inaugurate a new ultra luxury condominium in 2015 and also purchased former Westwood apartments at a new record price. However, the launch has been delayed for an unknown period of time.

IOI also has projects, including joint ventures, in Orchard Boulevard but started them earlier than YTL, but it may face challenges there too. IOI’s strategy differs from others as it uses Singapore as a platform for ventures overseas and has numerous projects ongoing simultaneously. IOI’s Jalan Lempeng development is planned to be finished in 2017 and is less than 30% sold. A source reports that the group’s Seascape project with Ho Bee Investment launched in 2011 has sold a third. IOI recognized that its ventures abroad are facing foreign exchange fluctuations and market conditions that might affect the group financially. Maybank Kim Eng Analyst Ng Wee Siang says the property market is subject to increased vacancy rates for non-landed private homes to 8.3%, high rental yield spreads may reverse when interest rates increase in 2015, and decreasing prices due to the excess supply of new homes.

Japan: Blackstone to buy properties for USD 1.61 billion

Source: Bloomberg, 21 November 2014

Blackstone has signed a JPY 190 billion (USD 1.61 billion) agreement to acquire GE Japan Corporation’s residential property business, including more than 200 properties with more than 10,000 residential units located mostly in Tokyo, Osaka, Nagoya and Fukuoka. Blackstone’s acquisition stands for around 45% of the portfolio Japan’s biggest residential REIT, Advance Residence Investment Corp. Overseas buyers have shown great interest in the Japanese residential market after government’s promises to end the deflation that has lowered the real estate prices. The domestic currency has been decreasing 14% against the dollar over the past four months, making investments in Japanese properties cheap where international buyers can secure the return with low interest rates. The agreement is part of GE’s plans to diminish its equity investments in global real estate, as it builds its debt business.

Blackstone is continuing to purchase residential properties due to its expectation of excess demand for rental housing and has already invested USD 8 billion into acquisition of US foreclosed houses. Blackstone’s USD 13.3 billion real estate fund is currently mainly represented by US rental homes. The company’s Asia property fund has raised USD 4 billion moving towards its USD 5 billion target, says Blackstone’s global head of real estate Jon Gray. He believes that Asia will become a very large part of the business in the long term. Tokyo’s central apartment rents increased 2.9% year-on-year on the second quarter. Due to the up-coming 2020 Olympic Games to be held in Japan, construction costs and competition for development land has increased.

Myanmar: Philippines' Ayala Land partners with Myanmar City Mart to enter growing property market

Source: Asia One, 20 November 2014

Philippine’s’ Ayala Land Inc. has signed an agreement with Myanmar’s City Mart Holdings to enter Myanmar’s booming property market, which is part of Ayala Land’s plans of expanding in Southeast Asia. The company has currently found concrete projects but still has to finalize details in the agreement. Ayala Land has considered mixed-use developments in Myanmar and Vietnam but realized that these would still be very small compared to the group’s standing businesses. City Mart is currently operating numerous retail formats in Myanmar and will through the partnership, according to the “supermarket queen” Tint, commence projects in the capital city of Yangon.

Ayala Corp’s head of corporate strategy and development group Paolo Borromeo believes that finding strong local partners is fundamental when entering countries where the group does not have any knowledge. The partnership helps to increase Ayala group’s Myanmar presence, which has recently experienced sharp increases in property prices and rental rates after the domestic supply not keeping up with the demand. This shortfall has therefore made the Myanmar property market attractive to developers such as Ayala. The group is also looking to expand to Vietnam and Indonesia.

Consumer & Retail

Indonesia: Local startup aspires to become the e-commerce giant of Southeast Asia

Source: The Wall Street Journal, 21 November 2014

The fast-growing e-commerce start-up Lazada Indonesia is looking to become the of Southeast Asia, but it has faced obstacles since its 2013 launch of a large warehouse. A refrigerated room had to be implemented after perfumes evaporated in the heat and a special ceremony had to be held, as the staff feared the warehouse had ghosts. The Indonesian e-commerce market is small, but Lazada is working fast to get a head start before overseas e-commerce giants enter. The company is already attracting more visitors than other similar sites in Indonesia with 6.6 million visitors a month. By contrast, Alibaba’s has 3.9 million and eBay has 2.2 million.

Lazada acknowledges the growth opportunity in Indonesia, as it is the third most populous country in Asia, and in 2013 e-commerce represented 0.1% of the overall Indonesian retail with a value of USD 100 million. As the middle class in the country is rising and low-cost smartphones are increasing, the country over the next few years could experience an e-commerce share rising to 8% of retail sales, which would make Indonesia’s e-commerce market the biggest in Southeast Asia worth USD 8 billion. Meanwhile, Indonesia’s population wealth is rising, with 74 million living in households that spend more than USD 200 a month, a figure likely to double by 2020, according to Boston Consulting Group. Lazada is growing rapidly, from five employees two years ago to 700 now, and every six months doubling sales in Indonesia. A cash-on-delivery payment system is offered, as 94% does not use credit cards. Lazada has also coped with the unreliable shipping network by hiring several hundred employees to deliver the products by motorbikes and trucks.

Thailand: Billionaire Dhanin may repurchase Tesco's USD 10 billion operation

Source: Reuters, 18 November 2014

Thailand’s second-richest man Dhanin Chearavanont, is considering to buy back Tesco Lotus, valued at USD 10 billion. The supermarket chain has 1,737 shops, representing a majority of all Asia outlets. The interest in purchasing is deriving from Dhanin’s optimistic belief in the Thai retail sector and economy to bounce back after the pressure following political unrest. The purchase would be made through Dhanin’s Charoen Pokhand Group, which was Tesco’s partner two decades before.

Tesco has not announced any plans of exiting any markets in Asia, however as the retailer has had 80% of first-half profits consumed by interest payments, it could be strained to sell assets in order to repay debts and escape downgrading of its credit rating. There could be interest from other parties to place bids on Tesco. This leaves a dilemma for the British retailer to either hold on to Thailand’s growth market or sacrifice that for cash. Tesco has already reduced its Asia presence as it spun off China units to an individual joint venture. The retailer is currently ranked second in Thailand, with a 3% revenue growth in 2013, according to Euromonitor International. It is also expected that by 2019, the grocery market in Thailand will rise 35% to THB 2.355 trillion (USD 72 million).

Singapore: Singaporeans shop most online in Southeast Asia region says Visa survey

Source: Channel NewsAsia, 20 November 2014

Visa Consumer Payment Attitudes Study 2014 surveyed 500 Singaporeans and found that they shop online the most in Southeast Asia, with 26% shopping online a minimum of once a week, 56% shopping online a minimum of once a month and 50% who would do all their shopping online if it was practical. The most frequent age group to do online shopping was between 25-44 years old, where 53% in the age group was 25-34 and 44% in the age group was 34-44, conducting online purchases at least several times every month. It was also found that 30% of those who shop online use mobile devices to shop at least once a week.

The e-commerce transactions from Singaporean Visa cardholders are growing 19% year-on-year, by contrast the domestic in-store Visa transactions in October 2014 increased 6% year-on-year, says Visa Country Manager for Singapore and Brunei, Ooi Huey Tyng. She also sees an increasing trend of shoppers spending more time and money on e-commerce, which is boosted by evolving technology and businesses expanding to e-commerce platforms. The survey also showed that 38% of Singaporeans shopped online because it was convenient, cheaper and direct delivery was offered. The most common purchase Singaporeans made online was travel where more than 51% bought flight tickets and 46% purchased travel accommodation. The second most common purchase is concert and sport tickets. Moreover, 46% responded that they were more likely to go back to a retailer if their personal details were saved for a quicker checkout. Lastly, the most expensive item bought online had an average cost of SGD 2,887.

Energy, Resources & Environment

China: Country places coal consumption limit by 2020 to reach recently announced target

Source: The New York Times, 20 November 2014

China plans to reduce coal usage at 4.2 billion tons and having coal consumption at no more than 62% of the major energy mix by 2020. These plans are part of the country’s efforts in achieving its newly declared target of carbon dioxide emissions peak by around 2030. Industrial coal burning is the largest source of carbon dioxide emission and catalyst of global climate change. China is the world’s largest greenhouse gas emitter, with annual coal consumptions being equivalent to the rest of the world combined. The coal consumption might rise beyond 2020, however there are researchers that believe coal use is deteriorating in the coming years and will peak by 2020 following recent economic trends.

Environmental advocates believe that China would make a greater effort on reducing emission by capping coal consumption earlier or aiming at a lower level. The Chinese government has announced in 2013 that populous provinces in eastern China would try to cut coal usage. The first nine months of 2014 might have decreased by 1-2% year-on-year, according to Greenpeace East Asia analysts. China consumed 3.61 billion tons of coal in 2013 with coal comprising 66% of the primary energy mix.

Australia: Standoff threatens to hinder expansion in LNG developments

Source: Financial Times, 23 November 2014

Canberra’s AUD 200 billion investments in liquefied natural gas (LNG) developments is an attempt to differentiate Australia’s exports and strengthen its economy. Australia is the world’s fourth biggest LNG exporter and is estimated to become the largest by 2018. Recent LNG projects in Australia include Origin, ConocoPhillips and Sinopec’s AUD 25 billion LNG project on Curtis Island, Queensland, scheduled to start production in 2015. Two additional LNG facilities on the island operated by BG Group and Santos are to begin gas exports in 2014/2015. Chevron, Shell, ExxonMobil and Osaka Gas’ USD 54 billion LNG plant on the west coast will go online in 2015. The Inpex of Japan’s LNG plant on the north coast will start gas exports in 2017.

The Australian LNG production is expected to increase more than threefold to 85 million tons by 2018 and is becoming the third largest export in 2014 in Australia, according to Appea. The country’s plentiful natural resources, its closeness to fast growing Asian markets and a well defined regulatory and tax system makes the country’s growth potential substantial. However, the global LNG demand and commodity prices are deteriorating, which may impact further developments. In addition, the US is posing as competition with its new LNG export sector following a recent shale gas revolution that is expected to triple LNG production by 2035. Investors have postponed more than AUD 100 billion Australian LNG projects due to increased construction costs. Nevertheless, US LNG supply will probably not meet global demand, where the standoff between sellers and buyers might create a supply crunch in the beginning of 2020s.

Indonesia: Fuel subsidy scrap threatens Asian fuel profits

Source: Bloomberg, 19 November 2014

Indonesia’s decision to cut energy subsidies is aiming to reduce the country’s demand for imported supplies, decreasing profits from producing fuels in Asia. The president of Indonesia, Joko Widodo has increased retail gasoline and diesel by more than 30% in order to fund development projects. Morgan Stanley reports that the country’s oil consumption decreased by 2% for every 10% increase in fuel prices. Indonesia imports around 20% of diesel and more than half of the gasoline it uses. The president said the fuel subsidies will be cut, despite the decreasing oil prices. This will affect the regional market negatively for at least the coming 12 months, says Energy Aspects analyst Richard Mallinson.

The nation’s average gasoline demand was 515,000 barrels a day the first seven months of 2014 and it used 480,000 barrels a day of diesel. The demand for gasoline will drop by around 10% and gasoil usage will fall 5% in 2015, reports Energy Aspects. In the 2015 budget, Indonesia has kept IDR 276 trillion for fuel subsidies prior to 17 November 2014. The current-account deficit has been contributed by oil imports. Indonesia’s oil trade deficit will be reduced by 0.3% of gross domestic product following the rise in fuel prices. In 2013, gasoline at the pump had been increased from IDR 4,500 a liter to 6,500. The price increase will result in changed consumption where Energy and Mineral Resources Minister Sudirman Said believe that the misuse of fuel will decline radically. Mallinson forecasts growth trends will appear in the country in 2016 or 2017.

Financial Services

Japan: Weak currency poses challenges to country’s growth revival

Source: The Wall Street Journal, 21 November 2014

The Finance Minister of Japan says the country’s weak currency is posing challenges to Japan’s efforts in restoring growth. The yen’s recent rapid fall, with a 9% fall in three weeks, is due to the discrepancy between the Japanese and US monetary policy. The US Federal Reserve is planning to tighten its policy in 2015, while Bank of Japan is looking to increase the yen into the financial scheme. On 20 November 2014, USD 1 was traded for JPY 119, which is the yen’s lowest level in more than seven years. Due to the weak currency is there fear from foreign officials of Japanese exporters grasping market share. Partly because dollar is increasing is the Federal Reserve planning to cut the projections for mid-term growth.

Prime Minister Shinzo Abe has been driving down the country’s currency because of domestic businesses not being able to compete with the previous strong yen, resulting in job losses. However, Abe’s economic policies have caused decreases in the standard of living, as costs of imports and national sales taxes have augmented. On the other hand, some believe that JPY 120 to USD 1 is acceptable or even optimal, which will likely occur in March 2015. Norinchukin Research Institute chief economist Takeshi Minami suggests that Abe should have either sacrificed his 2% inflation goal and make the BOJ reduce its easing measures, or allow the finance ministry directly intervene in the market to buy yen by selling dollars. However, the yen’s levels might have been too weak for some consumers and hence beneficial for Japan’s export-led economy, making intervention not possible.

India: Finance minister promises reforms to revive the economy

Source: Channel NewsAsia, 23 November 2014

The Finance Minister of India Arun Jaitly is to introduce a series of ‘second-generation’ reforms in order to revive the nation’s economy. The new reforms will be announced in the 2015 budget that would help India reach a 6% growth in 2015-16. Jaitley says that the country is in need of bigger growths in more sectors and is optimistic about the country’s outlook, as foreign direct investments have increased in India. In Q1/2014 was there a 5.7% growth in the economy, which was driven by businesses increased confidence after Bharatiya Janata’s election victory. Even though some reforms have been introduced already, they have not been sufficient to enhance investment and manufacturing.

The government is also considering changing its subsidy policy, as subsidies are currently not being enjoyed entirely by those who are entitled to it, says Jaitly. Under the previous left-winged government was there a fivefold increase in the subsidy bill following the introduction of policies to purchase agricultural commodities at certain prices and allocate low-cost grain to the poor. In order to decrease the nation’s energy bill has the government recently elevated control on diesel price.

China/Australia: Countries sign FTA, creating new opportunities for financial services

Source: The Sydney Morning Herald, 18 November 2014

China and Australia have signed a historic free trade agreement (FTA), leading the way for banks to collaborate by allowing increased trade and investment flows between the countries. The FTA provides new opportunities for financial services where Australian banks will be able to develop branch networks in China. Fund managers may invest for Chinese institutional investors, and Australian insurers will be able to provide Chinese third-party motor vehicle insurance contracts. The China banking licenses have previously been very limited for the Australian banks.

At the moment Westpac, ANZ Banking and National Australia Bank are already in talks with some of China’s biggest financial institutions. The FTA permits Australian banks to take Chinese deposits, offer foreign exchange and make loans. Thanks to the FTA, both nation’s economic capacity and growth will be improved, says ANZ Banking CEO Mike Smith. Australian banks will now be able to enter Chinese markets through joint ventures, which also permits underwriting of Chinese equities issuance. There will also be increased opportunities for Australian businesses to develop organizations focused on Asia.

Logistics & Transportation

Southeast Asia: Menlo Logistic plans to expand services and regions to further boost growth

Source: SupplyChain, 23 November 2014

The Con-way subsidiary, Menlo Logistic continues to grow significantly in South Asia in 2014 and is planning to expand in Malaysia and Thailand. The company experienced a growth of more than 10% year-on-year in Q3/2014, and has introduced 27 new projects and increased its clientele significantly, says Menlo’s VP of marketing and sales Robert Bassett. The growing trend was driven by Menlo’s large investments in new advanced facilities in Singapore, Malaysia and Thailand.

As a result of Singapore growing as a strong regional logistic hub with world-class port facilities, Menlo has been able to become more efficient, says South Asia Managing Director Desmond Chan. The region’s logistics marketplace has been boosted by macro-economic trends such as an increasing population, growing wealth resulting in increased consumption, enhanced infrastructure and expanding manufacturing capacity. Menlo is currently operating in five countries comprising of Singapore, Malaysia, Thailand, India and Australia. The company provides specialized services for its main industries including automotive, aerospace, high-tech, consumer and industrial, and wine and spirits. It plans to expand its capacity in 2015 into health care and oil and gas development, as well as increased support for clients in the automotive and industry sector in India and Thailand.

South Korea: South Korea, New Zealand sign FTA to improve supply chain synergies

Source: SupplyChain, 17 November 2014

South Korea and New Zealand have signed a free trade agreement (FTA). The FTA is to permit more South Korean students to work and live in New Zealand and increase access for farm exports for New Zealand. The deal will allow New Zealand to become more competitive globally by being on a level field with the other FTA partners of Korea such as Chile, the US and the EU, as well as to enhance the two nation’s supply chain synergies. The FTA would allow South Korean students to get learning opportunities and service-sector jobs in New Zealand. In addition, restricted remaining tariff of top exports from South Korea to New Zealand may be cut, involving fuel, machinery, vehicles, steel and iron items and home appliances.

South Korea recently signed a deal with China to reduce or cut tariff of most goods traded between the nations. Furthermore, New Zealand exports to South Korea in 2013 included farm and industrial products with a total value at USD 1.6 billion. New Zealand’s exports are promoted as being manufactured in a natural and clean environment and consists about two-thirds of dairy, logs, meat and other soft goods. The deal will reduce the 40% tariff on New Zealand products. In comparison, US products have 32% tariffs that are decreasing. Since South Korea recently has signed deals with Canada and Australia, New Zealand would not be able to compete in the South Korean market without the new FTA.

China: DHL Supply Chain invests GBP 173 million to develop logistics infrastructure

Source: SupplyChain, 24 November 2014

DHL Supply Chain has decided to invest an additional GBP 90 million into logistics infrastructure in China. This addition to the company’s previous GBP 83 million investment in 2013 makes a grand total of GBP 173 million. Six new advanced facilities will be constructed in Guangzhou, Wuhan, Hangzhou, Shenzhen, Shengyang and Shanghai Waigaoqiao Free Trade Zone, which are planned to be finished by 2020. The company is growing strongly in Asia-Pacific region where China is the key market, and its strategy is increasing traction. Thanks to the company working close with clients, allows it to grasp the exact locations and services that are demanded, says DHL Supply Chain Asia-Pacific CEO Oscar de Bok.

DHL announced that over the next three years will there be more than 50% expansions of warehouse facilities and transport capacities. The logistics company recently inaugurated its strategically located state-of-the-art facility in Chengdu in west of China, which will boost DHL Supply Chain’s economic growth in this region. The new 54,000 sqm facility helps clients within a wide range of industries and functions as a multi-user cross-dock to deliver across the Western region. DHL Supply Chain’s China expansion also helps the nation to reduce logistics costs and increase Chinese businesses’ competitiveness. The company has implemented new facilities in Tier 1 cities including Beijing, Shanghai, Shenzhen and Guangzhou.

Manufacturing & Industrial

Thailand: WHA to acquire Hemaraj and become the country’s largest factory and storage operator

Source: Reuters, 17 November 2014

WHA has announced its plans of acquiring Hemaraj Land and Development PCL for up to USD 1.34 million, which would enable the company to become Thailand’s biggest fully integrated factory and storage operator. Hemaraj operates mostly in industrial areas in the east including the provinces of Rayong and Chonburi, where Ford Motor General Motors are located. WHA announced that it plans to purchase 22.53% stake in Hemaraj for THB 4.50 per share, and will buy the rest of the shares at the same price. The acquisition is going to be finalized in March 2015.

WHA CEO Somyos Anantaprayoon believes it will acquire more than a 50% stake in Hemaraj and is looking to raise THB 8.8 million via rights issue and seek loans of minimum THB 14 billion from Siam Commercial Bank to finance the acquisition. WHA CFO Arttavit Chalermsaphayakorn expects the company’s profit and revenue to double after the acquisition, making combined revenue worth THB 14 billion. Moreover, WHA has recently purchased Major Development’s Equinox office building for THB 2.05 billion and is looking to expand in Myanmar, Laos, Malaysia and Cambodia.

South Korea: Chaebol-dependent growth model running out of steam

Source: The Financial Times, 19 November 2014

South Korea’s big conglomerates, usually referred to as chaebol, such as Samsung and Hyundai, have become global leaders in their sectors and have driven the country’s growth and industrialization over the past fifty years. However, increasing competition from China is testing that model and many now wonder whether big export-based manufacturers can face up to the challenge. As China’s manufacturing industry gradually moves up to high-value-added goods, it directly competes with South Korea’s manufactured exports in sectors such as steel, ship and electronics. For instance, Samsung Electronics’ operating profit fell 60% in the third quarter, a three-year low, due to the rise of China-based Huawei and Xiaomi. Meanwhile, Hyundai Motor’s net profit plunged nearly 30%.

These trends have generated doubt regarding the country’s chaebol-led economic model and have sparked calls to restructure the economy by supporting small and medium-sized businesses and focusing on the service industries. However, political efforts have so far had limited consequences and President Park Geun-hye’s promise to promote a “creative economy” has led to few changes. South Korean service providers also struggle to expand internationally. Experts say that medical tourism and IT services should develop abroad rapidly and that the government should increase the service sector’s productivity through deregulation.

China: Manufacturing falls to six-month low in November

Source: The Wall Street Journal, 20 November 2014

The preliminary HSBC China Manufacturing Purchasing Managers Index released on November 20 fell to 50.0, indicating that Chinese factory activity has been flat in November. The index adds to a series of numbers indicating that the Chinese economy has continued to weaken in the fourth quarter. GDP growth has been decreasing while credit, investment and loan growth have all slowed. Combined with uncertainties in exports and the property market, these indicators strengthen demands for stimulus policies through expansionary monetary and fiscal measures.

Authorities in Beijing, however, are expected to maintain their current fiscal and monetary policy, focusing instead on innovative measures such as the use of the country’s foreign exchange reserves to support the real economy. New measures to increase credit access and lower cost for smaller companies have also been unveiled. Although the situation has generated concerns, good employment numbers and improved liquidity in money markets have given authorities some leeway before they are forced to commit to large-scale stimulus measures, which many fear would increase misallocation of capital and generate overcapacity.

Pharmaceuticals & Healthcare

Singapore: AbbVie acquires new biopharmaceutical manufacturing site

Source: PBR, 21 November 2014

US biopharmaceutical firm AbbVie has acquired a new 120,000m² molecule active pharmaceutical ingredient manufacturing site in Singapore's Tuas Biomedical Park. The API facility, which is scheduled to be fully operational by 2016, will provide increased capacity for compounds for both immunology and oncology. AbbVie Operations senior vice-president Azita Saleki-Gerhardt said: "The Singapore site will help to strengthen our global manufacturing capabilities, offering a higher degree of flexibility and scale. The facility will support new technologies and the growth of our pipeline in immunology and oncology, helping us to address significant unmet medical needs for patients around the world."

AbbVie also plans to build a bulk biologics manufacturing facility on the property, schedule to start operations in 2019. The firm currently has thirteen manufacturing sites internationally in addition to partnerships with manufacturers. Singapore Economic Development Board executive director of Biomedical Sciences and Consumer Businesses Kevin Lai said: "Singapore offers a neutral and trusted location for pharmaceutical companies to orchestrate and expand their operations across the region. We continue to see strong growth in biopharmaceutical manufacturing as companies, such as AbbVie, choose Singapore to launch and manufacture their high value-added products for the region and beyond."

Japan: Baring Private Equity Asia buys Bushu Pharmaceuticals for USD 670 million

Source: FinanceAsia, 17 November 2014

Baring Private Equity Asia has agreed to buy Bushu Pharmaceuticals, which makes drugs for third parties on a contract basis, from Tokio Marine Capital for JPY 77.3 billion (USD 670 million). Since 2005, Japanese license holders are allowed to outsource all drug manufacturing but contract manufacturing accounts for only 8% of overall drug manufacturing in Japan, as opposed to 18% globally. Baring Private Equity Asia expects that percentage to grow and Jean Eric Salata, chief executive and founding partner, said that Bushu “is well positioned to expand through production capacity increases and expansion into new market segments”.

Founded in 1998, Bushu was a subsidiary of Shionogi and was bought by Tokio Marine, a unit of Tokio Marine & Nichido Fire Insurance, in February 2010. Bushu focuses on Solid Forms, Packaging and Injectibles and can be contracted for both formulation and dosage form design. It competes with Fujimoto Pharmaceutical, Otsuka Holdings and Takeda Pharmaceutical, among others. In March 2014, Bushu bought a plant in Misato in Saitama prefecture from Eisai, expanding its capacity to 10 billion tablet dosages per year.

Australia: Medibank’s IPO to raise AUD 5.7 billion

Source: Reuters, 23 November 2014

Finance Minister Mathias Cormann said that 40% of the 2.7 billion Medibank shares on offer to institutional investors were sold at AUD 2.15 each. Retail investors will receive 60% of the shares on offer at AUD 2 a share. The state-owned health insurer will thus be listed with a market capitalization of AUD 5.679 billion (USD 4.9 billion) in what is set to be Asia's biggest IPO in two years and Australia’s largest since 1997. The shares were initially expected to sell for between AUD 1.55 and AUD 2, but the range was raised to AUD 2.00 to AUD 2.30 due to strong demand. Retail investors, who have received the shares at a discount of 7% to institutional investor, can expect a strong initial performance.

Cormann said: "The outcome of the offer is excellent and the level of interest in Medibank Private, both here in Australia and from global investors, positions the company well for its debut." He added that local brokers would get 22.9% of the shares, which debut on the Australian Securities Exchange on November 25, while overseas institutional stockbrokers would get 17.1%. The year's listings in Australia have so far been dominated by health-related companies, which have made up about 75% of the cash raised in 2014 IPOs. Healthscope raised AUD 2.25 billion in the year's previous biggest listing.

Private Equity

Japan: Private equity firms bullish on investment opportunities

Source: The Wall Street Journal, 13 November 2014

Private equity firms investing in Japan are bullish about opportunities in the country, despite slow GDP growth and uncertainty regarding Prime Minister Shinzo Abe’s economic reforms. However many investors remain skeptical. For instance, when CSLA Capital Partners recently closed its second midmarket Japanese fund with only about USD 210 million, Managing Director Megumi Kiyozuka partly blamed low investor interest in Japan. Bill Conway, co-founder of Carlyle Group, echoed this sentiment when he said that, due to the same reason, the firm expects to raise less for its latest Japanese buyout fund than previously.

And yet, players targeting small and midmarket deals have been more successful. J-Star, for instance, collected USD 102.7 million earlier this year for its second Japanese buyout fund. Smaller deals tend to be less heavily auctioned than larger ones, which often leads to better valuations. Also, private equity firms see an opportunity in the fact that many family-owned companies now face the challenge of succession as their founders age. The number of private equity deals in the country so far this year is higher than that of last year at the same period, but the total of USD 2.8 billion invested falls far short of the USD 4.7 billion invested over the same period in 2013.

India: Private equity investors skeptical about Prime Minister Narendra Modi

Source: The Wall Street Journal, 13 November 2014

Although Indian Prime Minister Narendra Modi has generated a lot of confidence in his ability to boost and reform India’s economy, many Indian private equity experts remain skeptical that his policies will have a real near-term impact on the industry. Some private equity managers are indeed hesitant to invest in sectors that many hope will be boosted by Mr. Mody’s reforms, betting instead on sectors with less government involvement. The recent revival of Indian private equity is the result of a cyclical revival rather than a positive consequence of new policies.

As the industry still lacks evidence that Mr Modi’s reforms are helping companies on a micro level, it still focuses mostly on information technology, education and financial services, sectors that are relatively less dependent on those reforms. Indian private equity has been boosted in the last year by stronger capital markets and a related rise in the number of IPOs. With this increase, private equity investors have had the ability to make higher returns for their investors, while exits had been centered on sales to strategic buyers or other private equity firms in recent years, leading to longer hold times.

Taiwan: Oaktree Capital exits Fusheng Group in strategy shift

Source: The Wall Street Journal, 19 November 2014

Oaktree Capital Group has hired UBS AG to sell its 48% stake in Fusheng Group, its flagship Asian private-equity investment. The deal could value Fusheng at about USD 1 billion, up from USD 850 million when Oaktree bought it in 2007. A provision negotiated in the original deal allows Oaktree to sell its stake and “drag along” the Lee family, its majority partner, in a sale of the business. There are now three options: buyers could purchase Oaktree’s shares only, they could buy all shares of the business or the Lee family could increase its ownership. The sale process will offer bidders two separate assets, one focused on golfing equipment and electronics and another focused on air compressors.

The sale is part of Oaktree’s strategy shift in Asia, with the firm seeking more distressed investing opportunities and putting less focus on control-oriented, private equity-type investment in the region. This shift is partly due to a potential explosion in bad debt in the region cause by years of easy lending. As part of its shift in strategy, Oaktree bought a USD 53 million stake in China Cinda Asset Management last year, a state-controlled debt-clearing agency, pledging to invest up to USD 1 billion with the firm.

Technology, Media & Telecommunications

China: Alibaba issues bonds worth USD 8 billion

Source: FinanceAsia, 21 November 2014

On November 21, Alibaba raised a USD 8 billion six-part bond, receiving USD 55 billion in orders globally. A source familiar with the matter said: "This is the biggest trade out of Asia ever. Alibaba is positioned as a top global technology company and priced well inside any Chinese comparables, including Chinese state-owned enterprises." The deal was rated A+ by Standard & Poor’s and Fitch, and A1 by Moody’s, and it comes two months after the firm completed its IPO in a record USD 25 billion public stock sale. On November 21, the stock was trading at USD 110.81, up 63%.

Alibaba has USD 11 billion in loans and credit lines. By using the USD 8 billion to refinance the loan it obtained in May 2013, it could amend covenants on another USD 3 billion revolving facility. Alibaba is now China’s largest listed company, with a market capitalization of USD 283 billion, ahead of China Mobile’s USD 249.8 billion. Its ratings reflect its dominant market position, recognizable brand name, research and development capabilities and e-commerce infrastructure. The firm is expected to continue to fund its business through the capital markets.

India: Tech Mahindra acquires US-based Lightbridge Communications for USD 240 million

Source: Live Mint, 20 November 2014

Tech Mahindra has acquired a 100% stake in global telecom network services provider Lightbridge Communications Corporation. The deal, which is expected to close by Q4 2015, still requires regulatory approvals. It will add 20 to 30 clients to Tech Mahindra and will help increase the firm’s presence in the US and its play in the network services space. Tech Mahindra’s third acquisition this year, the deal comes after the acquisition of the information technology services arm of BASF Business Services Holding GmbH in February and that of big data start-up FixStream Networks in April.

As part of the new deal, Tech Mahindra will take on 5,700 employees from Lightbridge, raising the total combined workforce to approximately 100,000. The acquisition of Lightbridge, which is expected to deliver revenue of USD 430 million by the end of the current calendar year, will take Tech Mahindra closer to its target of USD 5 billion in revenue by 2017. Tech Mahindra is India’s fifth largest software services exporter, with revenue of USD 900 million in the quarter ended 30 September, still far away from Tata Consultancy Services and its USD 3.93 billion in revenue in the same period.

South Korea: KakaoTalk messaging app fastest-growing tech firm in Asia

Source: The Wall Street Journal, 19 November 2014

According to a new survey by Deloitte, the Korean messaging app KakaoTalk is the fastest-growing technology company in the region, with revenue rising from USD 1.6 million in 2011 to around USD 190 million in 2013, surging more than 116 times. However, Kakao, which merged with Daum earlier this year to become Daum Kakao, saw a drop in active users in the third quarter to 48.4 million from 48.9 million a year earlier, mainly because of concerns related to security issues. The firm also swung to a net loss.

Kakao was launched in March 2010 and has been earning its revenue by offering additional services such as games. Although the games are free, virtual items and optional features within them are not. Users can also pay for some of the emoticons and cartoon images they can send to each other through the app. After Kakao, China-based green technology firm Telison ranks second with a growth rate of 9,793% while Technology Group, a Chinese company in the semiconductor, components and electronics sector, ranks third with a growth rate of 9,710%.