Asia News Update

China: Japanese Itochu and Thai CP Group in talks to acquire major stake in China’s Citic

Source: The Wall Street Journal, 04 December 2014

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



Japan’s Itochu Corp. and Thai Charoen Pokphand Group have shown interest in buying a significant stake in the state-owned Chinese Citic. Citic previously traded assets from its unlisted Beijing parent company to its Hong Kong-listing that funded the USD 37 billion transaction by placing shares with 27 new investors, where they could purchase into entire operations. This is unusual for state-owned enterprises, making it a breakthrough for reforms and an example for boosting transparency and financial discipline in the state sector in China.

The potential investment in the Chinese state-owned company by Itochu is unusual for Japanese firms, and may therefore mark a further improvement of the relationship between the two nations. The three companies are among the largest in their respective countries and they all have aims of intensifying their operations across different sectors in Asia. The investment could strengthen the three companies as partners since they all have different core business – Citic in financial services, Itochu in natural resources and energy, and CP Group in food and retail services across the region. There is already a cross-shareholding agreement between two of the partners, where CP group owns 4.9% stake in Itochu and Itochu owns 25% of CP Group’s CP Pokphand Co.

Automotive

India: Leading car manufacturers record higher November sales

Source: The Wall Street Journal, 01 December 2014

Some of India’s top car manufacturers recorded improved sales for November 2014, marking a sign for revival in the country’s demand. The biggest carmaker by volume, Maruti Suzuki showed an increase in sales in November 2014 by almost 20% to 110,147 vehicles year-on-year, while the second largest producer Hyundai surged 8.7% to 54,011 vehicles year-on-year in its November 2014 sales. The surge in demand has been boosted by the companies’ latest models: Maruti Suzuki’s Ciaz, Alto and Celerio hatchbacks, and Hyundai’s Excent compact sedan and i20 Elite hatchback. Additionally, the improved consumer sentiments and falling prices in local fuel and global crude oil have also driven demand.

Over the past fiscal years in India, sales have dropped due to stagnating economic growth, high prices of fuel and expensive loans, but the November 2014 sales have shown a changing outlook for the market. Furthermore, sales for Honda and Toyota in India for vehicles rose 64% to 15,263 and 11% to 14.134 vehicles year-on-year respectively. In addition, Tata Motors passenger vehicle sales also increased by 16% to 12,021 autos. Meanwhile, India’s biggest sport-utility vehicle maker recorded a drop in sales by 18% to 13,765 vehicles.

Thailand: Eco-car scheme to revive automobile industry in 2015

Source: The Bangkok Post, 02 November 2014

Thailand’s industry minister Chakramon Phasukvanich announced that the country’s automotive industry is to go through a transitional phase in the beginning of 2016 following the new excise tax and car manufacturers starting the production under the second stage of the eco-car scheme. The output in 2015 is expected to record 2.2 million vehicles, improving significantly from the forecast in 2014 of 1.9 million. Moreover, as farmers will be aided with a THB 1,000 handout and novel projects will be implemented, economic growth in 2015 is expected to range from 3-3.5%.

Once the new excise tax for vehicles begins in 2016, the retail prices will be cheaper for environment friendly vehicles such as hybrids and eco-cars. The new tax regime will be based on CO2 emissions, fuel efficiency and E85 compatibility, where eco-cars with CO2 emissions below 100 mg/km will be taxed 12-14% instead of the current 17%. Hybrids on the other hand will still be taxed 10%. The nation’s car output is expected by Thailand Automotive Institute to grow by 500,000 vehicles in 2015. Furthermore, for 2014 it is projected that Thailand will produce 2.1 million vehicles regardless of the slow local sales and exports. The output for 10M/2014 recorded a fall by 25.9% to 1.57 million, while domestic sales fell by 36% to 719.171 autos year-on-year and exports dropped 1.25% to 932,365 vehicles.  

China: Nissan, Honda report further sales drops, but Toyota bucks the trend

Source: The Wall Street Journal, 02 December 2014

Nissan Motor and Honda Motor recorded a fall in China sales in November 2014 for the fifth straight month, indicating a decelerating Chinese car market following a sluggish economy and intensified competition. The carmakers’ sales in the period dropped 12% year-on-year, representing 116,200 cars for Nissan and 72,973 autos for Honda. Nissan claims the sales were hit by increased competition and slow light commercial vehicle sales amid the weakening Chinese economy. Meanwhile, Toyota Motor experienced an increase by 2.9% to 92,300 autos following the launch of its two improved compact sedans.

According to analysts the sluggish car market in the country has been affected by the tighter credit conditions and economic uncertainties. In October and September 2014, new passenger vehicles sales experienced the lowest year-on-year growth since February 2013 with 6.4%. Japanese carmakers are especially having a challenging outlook, as their retail sales have shown a slower growth than the overall industry since April 2014. Japanese car sales in China started to drop two years ago due to the territorial dispute between the countries, but it improved after the Japanese automakers introduced models adapted to Chinese tastes and giving compensation to owners for damage caused by anti-Japanese demonstrations. Furthermore, the Japanese labels recorded a decrease in passenger vehicle market share from 15.6% to 15.2% year-on-year, while German and US manufacturers experienced growth of 21.1% and 12.8%, respectively. In addition, Nissan and Honda had to reduce their 2014 sales forecasts for China to 1.27 million cars and 900,000 cars, respectively.

Chemicals

South Korea: Hanwha acquires Samsung’s chemicals and defense units for USD 1.7 billion


Source: Chemicals-technology.com, 26 November 2014

Samsung Group signed a USD 1.7 billion agreement with Hanwha to sell its chemical and defense operations. Hanwha will acquire a 57.6% stake in Samsung General Chemicals for USD 900.8 million, and a 32.4% stake in Samsung Technwin for USD 756.6 million, from Samsung Electronics and Samsung Corporation. Additionally, Samsung will sell its interest in the joint ventures of Samsung Thales and Samsung Total Petrochemicals to Hanwha. Samsung Electronics announced that around USD 685.5 million of the sale is to be used to fund new businesses.

Hanwha’s purchases are part of the company’s plans to facilitate the structure of its shareholding and to increase its focus on technology financial services, shipbuilding and construction. Further, Hanwha’s petrochemical and defense units will be strengthened and contribute with sales worth around USD 10.8 billion. The transactions of the deal are to be concluded in the middle of 2015, due to regulatory approvals and some closing conditions. Moreover, Samsung will still run its operations that manufacture parts for rechargeable batteries and liquefied crystal displays.


India: Hyderabad Chemical sells significant stake to Japan’s Nihon Nohyaku


Source: Chemicals-technology.com, 28 November 2014


Nihon Nohyaku, a Japanese fine chemicals producer, signed a deal to buy a 74% stake in Hyderabad Chemical, where promoters of the company will own the remaining 26% stake. The companies chose to not disclose the sum of the acquisition. Hyderabad Chemical is an Indian agrochemical company that makes products for crop protection and chemical intermediates for agrochemical production. The company recorded revenues of USD 65 million for the fiscal year ending on 31 March 2014.

The Japanese chemicals maker believes that Hyderabad Chemical’s production is cost competitive. The purchase is part of Nihon Nohyaku’s plans of boosting its businesses across its markets, as it has been looking for direct sales and production operations in India for its two products Applaud (buprofezin) and Phoenix (flubendiamide). Furthermore, the latest transaction is estimated by experts to be worth USD 72.9 million and be concluded by the end of January 2015. The Indian agrochemical market is estimated to be worth USD 1.7 billion, according to Nihon Nohyaku.

Australia: Axieo acquires Nuplex’ distribution and plastic additives units for USD 107.9 million


Source: Chemicals-technology.com, 01 December 2014

Nuplex Industries, a specialty chemical firm, has sold its distribution and plastic additives operations in Australia and New Zealand to Axieo, following an agreement made in October 2014. The Australian Champ Private Equity is the owner Axieo. The sale was worth USD 107.9 million and included units of Nuplex Specialties and Nuplex Masterbatch, where the transaction for the Vietnam operations of Masterbatch is estimated to be finished in the first six months of 2015.

Nuplex claims that the sale will not downgrade its growth prospects and it is expecting to provide improved returns and growths in earnings in the short to medium term following the company’s previous strategic initiatives. Furthermore, personnel from Nuplex Specialties and Nuplex Masterbatch will be transferred to Axieo. The proceeds from the deal will be reported in Nuplex’ financial results in February 2015, and is planned to be used to pay down debt. The specialty chemicals firm declared that it is currently looking to improve its strategy for maximizing shareholder value, which will be finished in late 2015.

Construction & Property Development

China: Real estate investors avoid Chinese cities amid weakening economy and excess supply


Source: The Wall Street Journal, 04 December 2014

Investors that are searching for real estate deals in the Asia-Pacific region prefer countries such as Japan and Australia, to most Chinese cities. Investors are avoiding China following its sluggish economy, poor returns and its property surplus, according to Urban Land Institute’s survey. The cities Guangzhou, Shenzhen, Hong Kong and ‘secondary Chinese cities’ were ranked in the bottom for investment prospects among the 22 Asian cities that were included in the survey. Investors were concerned about the growing supply of office space and failed land auctions in the Chinese cities. Japan’s Tokyo and Osaka came at the top following the country’s stimulus package that has contributed to the boost of investment and interest.

The property market in China has contributed to the weakening of the economy, yet there has been indications that the slow market is restraining subsequently, with some mortgage regulations alleviating and interest-rate reductions. For the seventh month in a row in November the average price of new homes in China have dropped, and housing sales declined 9.9% year-on-year in the first 10 months of 2014. In addition, Hong Kong’s policy restrictions in lending and decreasing prices have also made its property market unattractive. Furthermore, second-tier cities in China that used to have cheap land prices have now been excluded in the survey following its worsened prospects as local governments sold too much land too fast causing excess supply. The report states that these cities are currently struggling with dried up liquidity and countless developers that are undercapitalized trying to pay debts by selling off properties.

Malaysia/Taiwan: IOI Properties to acquire USD 790 million stake in Taipei Financial Center

Source: Reuters, 05 December 2014

Malaysia’s IOI Properties Group announced that it is to purchase a 37% stake in Taipei Financial Center Corporation, which is the owner of the Taipei 101 skyscraper. The stake in the deal is valued at USD 789.74 million. The purchase will provide IOI Properties with a steady rental income from the iconic Taipei 101 skyscraper, according to Lee Shin Cheng, who is controlling the company. The transaction is predicted to be finished in the first quarter of 2015.

The company also believes that since the building is in a strategic location, there are possibilities for capital appreciation. The Taipei 101 skyscraper rents office space to large companies including Google Taiwan, KPMG, BNP Paribas and Taiwan Stock Exchange. It is also one of the tallest buildings in the world. IOI properties announced that it would finance the stake acquisition with funds that are generated internally and/or with bank loans. Furthermore, the Malaysian real estate firm has an estimated market value of USD 2.25 billion.

Singapore: Country places 9th in Asia-Pacific for development prospects and property investment

Source: Channel NewsAsia, 06 December 2014

According to Urban Land Institute and PwC’s report ‘Emerging Trends in Real Estate Asia Pacific 2015’, Singapore is the ninth most attractive city for real-estate investors for 2015. The Republic lost two places from the ranking for 2014 where it was number seven, indicating that it is becoming less attractive for investments in real estate and development prospects. The decline in residential and commercial transactions in Singapore is due to the combination of the government’s efforts in restricting price increases and the growing attractiveness of overseas markets. However, Singapore’s real estate industry still has essentials that maintain the sector attractive and strong, according to PwC.

The report also found that the Singaporean investors are still investing greatly in properties in foreign markets, especially in the UK, US, Japan and Australia. This is due to the fact that the wealthy Singaporeans can afford to invest beyond Singapore and use a wait-and-see approach, says PwC Singapore’s Real Estate and Hospitality Leader Yeow Chee Keong. He adds that they expect that there will be a re-calibration in terms of Singapore’s general cooling measures and in the anticipations of the sellers.

Consumer & Retail

Southeast Asia: Indonesia leads the region’s ecommerce boom

Source: The Bangkok Post, 04 December 2014

There is an online shopping boom in Southeast Asia, with Indonesia coming out on top, with increased Internet access and high levels of investments to larger amounts of new e-tailers. The growing web access and the availability of inexpensive smartphones in the region are changing the emerging middle class’ consumer habits. The consumer online shopping in Southeast Asia is projected to grow at a minimum fivefold by 2020 to USD 35 billion annually, says UBS’ latest report. While Thailand and the Philippines are also expecting strong growth, Indonesia is the most promising following its projections of a sharp increase in Internet users from 55 million in 2012 to 125 million by the end of 2015 along with the growing middle class.

Indonesians have over the past two years begun to increase their online purchasing, as they are less concerned about fraud and opt ecommerce, says the head of Indonesian ecommerce association Daniel Tumiwa. The nation’s current ecommerce leader is the marketplace Tokopedia that permits users to start online shops and control the transactions. Other popular ecommerce sites include Kaskus and Olx, as well as e-tailer Lazada, which recently secured an USD 250 million investment. Meanwhile, analysts believe the ecommerce sector in the region still has a long way as it is currently representing 0.2% of retail sales, compared to China’s 8% and 8.7% in the US. In addition, other challenges that face the Indonesian ecommerce sector are the government’s recent decision to hinder foreigners from doing investments in ecommerce, and difficulties for startups to secure funding in an underdeveloped market.

Indonesia: Lazada Group secures USD 249 million funding from Temasek and current investors

Source: The Wall Street Journal, 01 December 2014


Lazada Group, the ecommerce startup that started in 2012 and operates across six countries in Southeast Asia, has secured a USD 249 million investment. The company is looking to become the biggest e-tailer in Southeast Asia. Moreover, Temasek Holdings led the funding, followed by Lazada’s current investors including Rocket Internet, Investment AB Kinnevik and Verlinvest that contributed to the new funding round. Lazada Group has now raised total funding worth USD 647 million. The CEO of Lazada Group, Maximilian Bittner said that the money will be used to improve its IT, logistics and payment infrastructures.

Temasek, a Singapore state investment firm, chose not to unveil the sum of its investment or the aim of the funding. The company’s portfolio is worth USD 178 billion and has a wide range of industries such as consumer goods, transportation and financial services. Furthermore, analysts project the Southeast Asian ecommerce sector to experience rapid growth over the next couple of years, following the nation’s emerging middle classes and the increase in smartphone users.

Thailand: Weakened consumer sentiment in November 2014, recent survey shows

Source: The Wall Street Journal, 04 December 2014


Thailand’s consumer confidence index for November 2014 has decreased to 79.4 from 80.1 in October 2014, following anticipations of deteriorated growth and concerns over high costs of living, shows a survey by the University of the Thai Chamber of Commerce. Also, Thailand’s changed projection of the GDP for 2014 from 1.5%-2.0% to 1.0%, as well as lowered farm income following low agricultural prices, have contributed to the decay.

The decline in confidence is a sign of the country’s economic revival coupled with a military-run government maintaining weakness after months of slowdown. Thailand’s economy was close to recession earlier in 2014, before a military coup in May 2014, and since then the government has tried to revive the economy with a USD 11.2 billion stimulus package, reducing prices in retail fuel and cooking gas and the capping of prices of consumer goods. Furthermore, the GDP for Q3/2014 increased 0.6% year-on-year, while exports experienced its largest growth in almost two years by 3.97% in October 2014. However, the nation’s economic growth is not on a one-way upward trend yet, states TISCO Financial group economist Sarun Sunansathaporn.

Energy, Resources & Environment

Asia: Russia to increase crude oil supply to Asia


Source: The Wall Street Journal, 04 December 2014

Russia has plans to continue its increase of oil exports to Asia, despite the declining oil prices, Western sanctions, shortage of sufficient supply infrastructure and investment, and reaching record levels of oil exports (820,000 barrel a day) to the region in 2014. The strategic pump up follows the recent deteriorating demand from European markets due to strained relationships following Russia’s role in the Ukraine conflict. Furthermore, the surge in Russian crude oil exports to Asia helps reduce the dependence on Middle Eastern oil providers and contributes to Russia reaching its goal of distributing a third of its crude exports to the region by 2020. The oil exports are being supplied through the East-Siberia-Pacific Ocean (ESPO) pipeline that feeds directly into northern China and to the port of Kozmino in Eastern Russia where the rest of Asia is supplied. This pipeline system toward Kozmino is being expanded to increase its capacity from 50 million tons a year to 80 million tons by 2018.

Alexander Gladkov, director at the oil and gas production and distribution arm of Russia’s energy ministry, claims that that the oil prices should not affect the production output as the oil exports from Russia were based on a price much lower than USD 100 a barrel. He adds that the expansion plans are related to the readiness of a range of oil fields that is feeding or will possibly feed into the system. The reserves in western Siberia are slowly draining and the country’s main oil producing region is now east Siberia, where energy supply is aimed at Asia. Most recently, Russian oil-producer Rosneft signed a USD 270 billion agreement with China National Petroleum Corp. to raise the oil supply twofold by 600,000 barrels a day by 2018 for 25 years.

Australia: Breakthrough makes it possible to achieve 40% efficiency for converting sunlight into electricity

Source: Business Insider, 08 December 2014

Solar energy researchers in Australia have discovered how to convert over 40% of sunlight touching a solar system into electricity. The 40% mark is the highest reported efficiency and was accomplished in tests in Sydney and then confirmed by the National Renewable Energy Laboratory in the US independently. The research was financed by the Australian Renewable Energy Agency and supported by the Australia-US Institute for Advanced Photovoltaics. This breakthrough makes it possible to transform this level of solar light at a commercial level in the field subjected to normal conditions.

Focused sunlight is the foundation for the new findings, which is especially relevant to photovoltaic power towers that are being developed by ReyGen Resources in Australia. The company contributed to design and technical support for the high efficiency prototype. In addition, US-based Spectrolab supplied some of the project’s cells. The prototype’s fundamental part is a custom optical filter to seize sunlight that is usually lost by commercial solar cells and transforms it into electricity at a greater efficiency than the solar cells normally do. These filters reflect specific wavelengths of light and transmit others. CEO of the Australian Renewable Energy Agency Ivor Frischknecht hopes that the next step of the new results will be to expand it into pilot scale demonstrations, which will end in more efficient commercial solar plants that make renewable energy more inexpensive, thus increasing its competitiveness.

Singapore: BW Pavilion LNG to launch two new eco-friendly LNG vessels following growing demand in the region

Source: Channel NewsAsia, 03 December 2014

On 03 December 2014, the joint venture between BW Group and Temasek’s Pavilion Energy, BW Pavilion LNG, held a ship naming ceremony for the two additions of Singaporean liquefied natural gas (LNG) newbuildings, BW Pavilion Vanda and BW Pavilion Energy Leeara. The event took place at the Hyundai Heavy Industries Shipyard in Busan, South Korea. The new environmentally friendly additions will join BW Pavilion’s current fleet on water and is part of the company’s plans of becoming an LNG integrated and support optimizing procurement and trading operation across the world.

BW Pavilion Vanda will be launched on 15 December 2014, while BW Pavilion Leeara will begin commercial activity by the end of March 2015. The vessels will be able to carry LNG of nearly 162,000 tons around the region. BW Group Chairman Andreas Sohmen-Pao states that the vessels will cater to Sinopec for a few years. They will also ensure the energy security of Singapore’s future, enabling the Republic becoming an important hub for worldwide LNG as it currently has 50% of LNG cargos in the world passing through. Moreover, the vessels are to meet the growing LNG demand in Asia as it now represents around two-thirds in the world and is anticipated to surge, coupled with economic development and shifting to clean energy. This causes new trade flows and markets where industry players aim to construct an Asian LNG Hub to facilitate the trading of LNG in Asia.

Financial Services

South Korea: Financial Services Commission to launch independent consumer financial protection agency

Source: Yonhap New Agency, 04 December 2014

South Korean financial regulator, Financial Services Commission (FSC) has announced that an independent state-run agency for consumer financial protection will be launched in 2015. This follows the government’s strategy to refurbish the financial regulatory system and strengthen the consumer protection functions by building an open and trustworthy financial environment. The new agency will enforce rules for the whole process of financial consumption, consisting of the sale of financial products to compensations for financial losses. FSC acknowledges that consumers are seeing increasingly more complex financial institutions.

The consumer financial protection agency will assess and monitor banks and non-banks, and gather and track consumer complaints to outline an assessment test of consumer protection for financial businesses. While the new consumer protection law is still pending in parliament, it is expected to be passed in the near future. There have been discussions for a long time about separating the Financial Supervisory Service (FSS) that has until now been supervising the financial institutions as well as been in a peripheral role in protecting the consumers’ rights. However, the FSS has been criticized for preventing irregularities and corruption in financial institutions that have caused great losses for smaller investors. For instance, Tong Yang group sold nonperforming debts to more than 40,000 individuals in 2008, resulted in them loosing investments worth USD 1.8 billion.

China: Hong Kong IPOs are losing bets as the majority keep underperforming

Source: The Wall Street Journal, 30 November 2014

Hong Kong’s IPOs have in recent years become a losing bet for investors in a market place that used to be one of the top IPO venues thanks to its Chinese listings. Investors over USD 300 million did worse than the benchmark index in the first year they listed, according to S&P IQ. Hong Kong is now ranked as fourth among global IPOs in 2014, where in the first 12 months, 67% of IPOs underachieved. In addition, 77% of 2013’s IPOs and 75% in 2014 caused losses for investors. The Hang Seng Index, which is Hong Kong’s benchmark, increased 2.9% in 2014, following a 2.9% increase in 2013. Andy Mantel, founder and CEO of Pacific Sun Advisors, says that purchasing companies after being Hong Kong listed and then waiting for a good entry point is better, since there are excess Chinese stocks resulting in less of a novelty factor.

Bad bets of Hong Kong IPOs include YuanShengTai Dairy Farm and China Huishan Dairy Holdings Co., which plummeted 65% and 33% respectively in the 12 months since 2013. Moreover, China’s recent weakened economy has made investors more cautious as they favor companies that are direct recipients of China’s policies, adds David Suen head of equity capital markets for Asia (excluding Japan) at J.P. Morgan Chase & Co. Meanwhile, clean-energy and health-care firms are recognized among fund managers to benefit from Beijing’s efforts in reducing pollution or cater to the aging population. Alex Au, managing director of Alphalex Capital Management says that most Chinese sectors have experienced overcapacity or are listing when their days of high growth are over. On the other hand, successful IPOs in Hong Kong are often those that benefit from China’s emerging middle class or the nation’s efforts to enhance health care, such as Luye Pharma Group, which had shares growing 80% after being listed in July 2014.

Japan: Citigroup offered joint bid for its credit card business from three companies

Source: Reuters, 05 December 2014

Shinsei Bank, together with the department store operator Shinsei Bank Ltd and the credit card service provider JCB CO Ltd, have shown interest in acquiring Citigroup’s credit card operations in Japan. The main purchaser will be Shinsei, followed by JCB providing account settlements and Isetan Mitsubishi assisting with department store services to cardholders. The sum of the bid has not been set yet, but the price of the sale is estimated to be around USD 247.2-411.9 million. Citigroup is expected to sign a deal with a buyer for the Japanese operations in December 2014.

The auction is part of Citigroup’s plans to discard retail businesses in 11 markets where Japan is included. The group is withdrawing its consumer banking in Japan after 100 years, as it has been experiencing weak loan demands and declining interest margins. There were previously four banks that were anticipated to partake in the second bid round, including Sumitomo Mitsui Banking Corp (SMBC) and Shinsei. Citi’s consumer banking operations are estimated to have USD 9 billion worth of dollar-denominated deposits.

Logistics & Transportation

Australia: SingPost’s Quantium Solutions to acquire CouriersPlease for AUD 95 million


Source: Channel NewsAsia, 03 December 2014


On 03 December 2014, Singapore Post announced that is has entered into an agreement with the New Zealand Post Group. Singapore Post’s wholly owned Australia-based company Quantium Solutions will acquire New Zealand Post Group’s parcel delivery firm CouriersPlease Holdings. The acquisition is worth AUD 95 million and is part of the group’s strategy to expand its ecommerce logistics operations across the Australian region.


The national mail carrier Singapore Post sees CouriersPlease as one of the top players of the metropolitan small parcel delivery companies in Australia. Furthermore, CourierPlease has a widespread countrywide network consisting of 575 franchisees with depots situated largely in the south and east of Australia, which cover most of the nation’s delivery market. The group CEO of SingPost, Dr Wolfgang Baier believes that the acquisition agrees with the company’s ambitions of becoming the top regional company in ecommerce logistics. He further says that the company has improved its capabilities in a wide array of areas including warehousing and fulfillment, customs and regulatory management, freight-forwarding, front-end web-solutions, and last-mile delivery and returns.


China: Biggest auto logistics provider enters into strategic partnership with UTi Worldwide

Source: JOC.com, 03 December 2014

UTi Worldwide and the biggest provider of auto logistics in China, Beijing Changjiu Logistics, have entered into a strategic partnership to position them for an anticipated surge in the exporting of completed vehicles to foreign markets. The agreement will support the global automotive OEMs’ supply chain requirements and suppliers in the growing Chinese automotive market. The two companies will provide end-to-end services for automotive customers comprising of customs brokerage, freight forwarding, production logistics, inland transportation, and order management.

Each company will enjoy the cross selling of each other’s core capabilities to worldwide automotive clients, which will allow them to be a service provider leader in Asia-Pacific. On the one hand, UTi will benefit from the deal with the increased presence in the Chinese market, access to Changjiu’s customer base, cultural understanding and governmental connections. On the other hand, Changjiu will achieve a more rapid entry into foreign markets via UTi’s global network of transportation services and supply chain. Moreover, Changjiu expects to obtain value for global corporations importing into China, but that may not be easy. Chinese logistics provider profit margins recorded around 4% in 2013, which is below average compared to other sectors. Meanwhile, the nation’s increasing costs for labor and transport make profit levels and OEM demands of price reductions unmaintainable. The rapidly growing size of the market is also generating new opportunities for auto logistics providers, creating a need for the expansion of production facilities in production hubs.

Indonesia: Maritime program to reduce national logistics costs, increasing competitiveness of domestic companies

Source: Indonesia Investments, 30 November 2014

Indonesia’s maritime program ‘the sea toll road’ may decrease the nation's logistics costs by 10-15%, according to Nofrisel, the Secretary of the Expert Team of the National Logistics System. The logistics costs in Indonesia currently constitute 18-22% of the firms’ production costs, making the domestic companies less competitive compared to other countries in the region with less than 10% costs. The national logistics costs represent 26% of Indonesia’s GDP, hence putting the nation as 53rd in the ‘Logistics Performance Index’, compiled by the World Bank.

Indonesia’s President Widodo wants to establish a global hub for sea trade in country, as it has a strategic location, with large vessels currently only passing its waters to get to major hubs in Japan, Australia or Singapore. Indonesia therefore has potential to become a global maritime player, as the government is planning to develop or update 24 seaports to improve the domestic maritime connectivity. Also, industrial development close to these ports need to be implemented. Furthermore, the Indonesian products have to become more competitive internationally before 2015 when the trade bloc ASEAN Economic Community (AEC) will take effect.

Manufacturing & Industrial

India: Country records its highest manufacturing activity in 21 months for November 2014

Source: The Wall Street Journal, 01 December 2014

India’s Manufacturing Purchasing Managers’ Index improved from 51.6 in October 2014 to 53.3 in November 2014, which is the highest number in 21 months, according to a survey conducted by Markit. The price pressures have also increased, which have enforced the Indian central bank to cease its lowering of interest rates. The Indian manufacturers have been receiving more orders than expected from domestic and foreign customers, with ‘consumer goods being the best performer of the surveyed subsectors’, says HSBC. In addition, the strengthened demand made it possible to pass on increased costs for raw materials to the customers.

The high manufacturing activity in November 2014 indicates optimism among businesses as well as an increase in consumer spending, which ought to help boost the growth of the south Asian economy. In addition, India’s GDP increased 5.3% for Q3/2014, which is better than expected as it passed 5%, two months in a row. However, the Reserve Bank of India (RBI) may not reduce interest rates following concerns over inflation still not being in control. RBI has been pressured by the government and industry lobbyist to lower the rates, but has refrained to do so until it there is more evidence that inflation will keep falling.

Singapore: Country should keep manufacturing as key sector and continue overseas investments, says analyst

Source: Channel NewsAsia, 03 December 2014

Singapore must keep manufacturing as a key industry and increase its productivity in order to be able to compete with its regional peers, acknowledges economic commentator David Pilling at the Future50 talks organized by the Singapore Institute of International Affairs in conjunction with SG50. Singapore is leading in GDP per capital where it records USD 55,000, and it is one of the world’s most manufacturing-intense economies. Pilling therefore believes that manufacturing is very important and often underestimated, as countries that give away their manufacturing will likely not get it back again. The Republic needs to keep moving upwards in the value chain to stay ahead of countries with low labor costs.

Singapore currently has a manufacturing sector that represents 20% of its entire economy. Moreover, Pilling defined Singapore’s threats and trends that may affect its prospects including the low birth rate, the rise of technology, the financial market’s condition, and environmental restrictions. Since Singapore is dependent on trade, it will be dependent on the functioning of trade routes notwithstanding tension from territorial disputes. The economist commentator also expects the Republic to invest more as it has a wealthy economy with plenty of know-how to place bets on other companies and technologies in overseas markets. He stresses that this hedging process of turning savings into a stream of income will become increasingly important.

China: Manufacturing activity at an eight-month low for November 2014

Source: Channel NewsAsia, 01 December 2014

The National Bureau of Statistics has released China’s Purchasing Managers’ Index (PMI) that measures manufacturing activity, which showed that the index has decreased from 50.8 in October 2014 to 50.3 in November 2014. The findings showed a manufacturing growth that had slid to an eight-month low, indicating that authorities might take further actions to simulate the nation’s economy. The PMI drop was caused by new orders and output. The growth decline helps explain the People’s Bank of China’s decision to reduce the benchmark interest rates in November 2014, which may have been an effort to shore up weakening growth and help complications such as weak exports and the slowdown in the huge property market.

On the other hand, HSBC’s PMI figure for November 2014 came at 50.0, lower than October 2014’s 50.4, which was the weakest since May 2014 figure by 49.4. There was sluggish growth in demand and new export order, where further monetary and fiscal easing measures are predicted to counterbalance downside risks to growth, says HSCBC’s chief China economist Qu Hongbin. Moreover, it is expected by Nomura analysts that there will be more measures in 2015, including further interest rates reductions and cuts in reserve requirement ratios. However, the China economist at Capital Economics Julian Evans-Pritchard claims that overconfidence in the cuts in benchmark rates will underpin growth, unless other measures will be followed such as loosening of quantitative lending controls.

Pharmaceuticals & Healthcare

India: CRAMS expected to grow to USD 8 billion next year

Source: Pharmatech, 04 December 2014


CPhl, together with Global Business Reports (GBR), has issued a report on pharmaceutical sector trends in India. In volume terms, the nation contributes nearly 10% to the pharmaceutical market worldwide and ranks among the top two to three pharmaceutical producers, notably when it comes to genetic drugs. Outside the US, India is said to have the most number of FDA-approved sites. Currently, there are 10,500 manufacturing plants, including 1400 GMP approved output facilities, and over 3,000 pharmaceutical enterprises growing at an notable rate. The big domestic players are set to experience growth in contract research and manufacturing services (CRAMS) for patented products.

India Brand Equity Foundation (IBEF) has forecasted that the nation’s CRAMS sector will grow from USD 4 billion in 2012 to USD 8 billion next year. It is forecasted that more collaborations between big pharmaceutical companies and Indian CDMOs will be formed. Even though growth has primarily been driven by generic drug output, the larger local companies are now starting to take on R&D projects principally focused on advanced drug delivery systems, formulation and manufacturing technology, and biosimilars. Interest in creating new chemical entities (NCEs) is also rising. Daara Patel, secretary general of the Indian Drug Manufacturers’ Association (IDMA) believes India could come up with new molecules in the short-term as pipelines are drying up and enterprises are now investing more in R&D.

Malaysia: Asian Healthcare Group pursues USD 219 million IPO

Source: Reuters, 02 December 2014

The Asian Healthcare Group Bhd in Malaysia announced it seeks to raise up to MYR 750 million (USD 219.17 million) with a special purpose acquisition company (SPAC) to meet the increasing demand for private healthcare from Asia’s rising middle class. According to the draft prospectus filed with the Securities Commission, the SPAC will utilize at least 95% of funds raised from the IPO to purchase at least one hospital offering secondary or tertiary care with a capacity of 100 to 500 beds.

Asian Healthcare Group reported it seeks to retain Malaysia as its main focus in the forthcoming years, before looking for venture partners in Indonesia, Thailand, and Singapore. The group will offer 80% of its shares on the open market, while the remaining 20% will de held by Chia, Beh, Negrita Holdings – a firm in which Chevy Beh, BP Healthcare’s executive director, is the majority shareholder.

Australia: Estia Health shares debut at AUD 4.98, 13% discount to issue price

Source: Reuters, 04 December 2014

Estia Health’s shares debuted at a 13% discount to their issue price on 5 December after it raised AUD 725 million (USD 608 million) in Australia’s fourth-largest IPO in 2014. Estia shares first traded at AUD 4.98, in comparison to their AUD 5.75 issue price. The shares dropped as low as AUD 4.73 before recovering slightly to AUD 4.88 – the larger market was 0.7% lower.

Evan Lucas, IG markets strategist, said: “It looked fairly fully valued, the question you’ve got to ask yourself is where’s the growth. It’s also a down market and there’s low liquidity in the market so that’s not helping either.” The performance hints demand for the domestic health listings may be easing after the industry accounted for nearly 66% of the total value of the country’s IPOs this year. The listing gives the firm a market capitalization of AUD 860 million. Its owners, Quadrant Private Equity and the firm’s founders, sold 70% of the Enterprise in the IPO.

Private Equity

India: Private equity funds await for a chance to sell

Source: The Wall Street Journal, 03 December 2014


Even though Indian stock investors are highly optimistic about Modi’s administration, private-equity funds, who have invested in India, don’t feel the same way yet. Various are still having difficulty getting out investments they made five to eight years ago. Prateek Dhawan, managing director at Everstone Capital, said: “ The biggest issue we’ve had is, return of capital has been really, really slow.” Due to an economy that slowed to its worst pace in 10 years and a severe drop in the rupee, Indian private equity firms haven’t had high returns as global investors anticipated.

Investors have noted they expect that as the domestic economy gains strength and firms sell new shares, private equity firms will be able to sell their stakes, return money to their investors, recover their confidence and raise capital for new investments. As the new government that came to power in May has placed the country back on investors’ map, they are not rushing to commit new money. Renuka Ramnath, founder of Multiples Alternate Asset Management Pvt, said that if the domestic private equity firms learned from their previous mistakes and the local economy started to grow again, the private-equity sector in India could grow to USD 100 billion by 2020.

Australia: Pacific Equity and Bain Capital offer AUD 872 million for Bradken

Source: The Wall Street Journal, 04 December 2014

Pacific Equity Partners and Bain Capital LLC have offered nearly AUD 872 million (USD 731 million) for Australia’s Bradken Ltd – a manufacturer that has been greatly affected by a decline in miner’s spending. On 28 November, Bradken stated the two private-equity firms made a nonbinding offer for 100% of the company at AUD 5.10 a share – a premium to the previous day’s AUD 3.32 closing price. Yet, that was well lower than the AUD 6 Bradken said the firms had announced in August they were willing to pay. The confidential bid lead the way for the private equity firms to conduct due diligence, however no company offer followed.

Bradken’s shares have dropped nearly 45% in 2014 as declining demand, especially from the mining sector, affected revenues. Bradken makes different products for the mining, energy, and freight-rail sector, such as ingot molds, and the large buckets and blades on mining trucks and diggers. From January to June, Bradken’s profits declined 68% due to the one-off costs for restructuring and a drop in sales, primarily to the local hard-hit coal sector. Nearly 50% of Bradken’s revenue comes from Australia and New Zealand, yet it also sells to North America, Europe, Africa, and parts of Asia.

Asia: Private equity receives less following insurers seeking diversification, says recent survey

Source: The Wall Street Journal, 02 December 2014

Blackrock’s survey showed that private equity firms received less as Asia-Pacific insurers diversified their portfolios and drove returns to increase their exposure to short-term private assets. These insurers seek to grab real estate and infrastructure, but private equity will experience a slowdown in allocations over the coming three years. Of the surveyed investors, 40% reported an allocation to private equity, a lesser number had equity investments and infrastructure debt, and almost 50% had an allocation to real estate senior debt investments. A little bit more than 30% stated that they planned to invest or increase their private equity investment over the coming three years. A bigger portion would invest in other private assets, such as energy and power investments, commercial real estate mezzanine debt or infrastructure debt.

It was reported that private equity firms in July 2014 had a record of total capital worth USD 1.16 trillion, indicating that there is a lot to be invested in different sectors. However in Asia, Chinese and Indian general partners have been slow to invest earlier in 2014 due to weak IPOs that made exits complicated hence putting managers off from investing. Insurers in the region also worry about the risks from slow economic growth and inflation. Moreover, the report found that 44 of the Asia-Pacific insurers had a total of around USD 1.3 trillion in assets under management. David Lomas, global head of Blackrock’s financial institutions group says that private equity may benefit from long-term contractual cash flow streams bound to a particular asset, which may offer some degree of return certainty.

Technology, Media & Telecommunications

South Korea: Corning Inc to aquire Samsung’s fiber optics business

Source: Reuters, 02 December 2014


Samsung Electronics Co Ltd has reached an agreement with US specialty glass maker Corning Inc to sell its fiber optics operations. Samsung has abandoned another non-core business to concentrate on bolstering underperforming key areas like smartphones. The firm has been struggling to keep a competitive advantage – its share of the global smartphone sector has diminished year-on-year for the first nine months of 2014.

On October, the firm also announced it will stop its light emitting diode lighting business outside Korea, which is also considered a non-core business. Corning, which provides glass for Samsung and Apple Inc smartphones, reported the transaction will enhance its fiber optics business in the Asian market. No further information of the sale has been disclosed.

Southeast Asia: Uber faces review from government officials

Source: Wall Street Journal, 03 December 2014

Uber Technologies is facing new regulatory barriers, highlighting the extent to which its services are festering governments at home and abroad. In the past few weeks, Uber has come under review in Thailand, Vietnam and Singapore - officials are investigating the service legality. On 2 December, Prajin Juntong, transport minister in Thailand, announced the government would ask Uber to stop its operations in the country because it utilizes private vehicles that lack fare meters, among other issues. In Vietnam, the media noted that officials began fining Uber drivers in the week ended 30 November.

Vietnam’s Transport Minister Dinh La Thang reported regulators will study ways to possibly legalize Uber, according to an announcement posted on a government website. It is uncertain if the service will be permitted to operate in the meantime. A spokesman of Uber mentioned the company continues to operate normally in Thailand and Vietnam. The San Francisco-based startup has operated in Ho Chi Minh City since June and in Hanoi since October. The service was launched in Bangkok in February and in Phuket since November. In Singapore, new laws will be implemented next year, requiring third-party taxi booking enterprises to utilize only licensed drivers and cars and specify fares up front. However, Uber has reported it is already in compliance with such regulations.

Southeast Asia: GrabTaxi secures USD 250 million investment from Japanese telecom giant SoftBank

Source: Techcrunch, 03 December 2014

Japan’s major telecom firm SoftBank has made a USD 250 million investment into GrabTaxi, which is an archrival to Uber. The investment makes SoftBank the biggest investor in the company, which is probably worth more than USD 1 billion. This was the fourth round in 2014 and also the highest funding for a startup in Southeast Asia, totaling a funding capital of USD 320 million, with investors including Tiger Global (USD 65 million), and GGV Capital (USD 15 million). GrabTaxi has been present since 2012 and operates in 17 cities in the Southeast Asia region: Malaysia, Thailand, Philippines, Vietnam, Singapore and Indonesia. It provides an app that connects registered taxis with potential passengers, and claims to have 500,000 active users a month with 2.5 million downloads, which is an increase of 800% year-on-year. Other competitors include Hailo in Singapore and Easy Taxi in a handful Southeast Asian markets.

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%.