Dispatch (Asia edition)
| by Peta Tomlinson, Nazatul Izma Abdullah, Sonia Kolesnikov-Jessop 31 Jan 2007 Topic: Dispatch |
|
Outside influences have always been the ‘unknown unknown’ of Hong Kong’s economic prospects, but now it seems the real threat could lie closer to home. A growing groundswell of high-level opinion warns that if the city cannot fix its air pollution problems, Hong Kong will not only lose foreign investment, but some of its top talent too. That this warning is supported by one of Hong Kong’s greatest allies, the American Chamber of Commerce in Hong Kong (AmCham), makes it even more worrying. AmCham, one of the biggest American chambers outside the US, has been championing Hong Kong as a premier international business centre for almost 30 years. Now, it seems members have lost the faith. Startling results from an AC Nielsen survey commissioned by AmCham show strong concerns about the effect of Hong Kong’s air quality on members and their children. A staggering 78% of executives surveyed said they were either thinking of leaving, or had already left Hong Kong because of it. Almost all (95%) were personally worried, or very worried, about Hong Kong’s worsening pollution. The chair of AmCham’s Environment Committee, Alan Seigrist, said: ‘This survey reinforces AmCham’s concern that air pollution not only threatens our health, but Hong Kong’s pre-eminent position as the financial services capital of Asia. This is especially true when many leaders in financial services have young families – the main concern of being based in Hong Kong is their own children’s health.’ Stories of a mass exodus abound in the city, where everyone knows someone who is leaving or has left. The Government points out that this is purely anecdotal, citing sustained high levels of foreign direct investment (FDI) and no drop in new arrivals. Jim Thompson, CEO of the international relocation firm Crown Worldwide, says his business figures confirm that the people are still coming. But even he, a 30-year Hong Kong veteran and former AmCham president, admits that ‘something really has to be done – something dramatic’. The Government is responding on various fronts, introducing a raft of emission-reduction and energy-saving measures, and urging responsible stewardship by Hong Kong owners of factories in China’s Pearl River Delta, from where much of Hong Kong’s foul air emanates. In November, the Government began considering 14 Better Air Quality Recommendations put forward by the Council for Sustainable Development, covering the energy generation, transport and industry sectors. It is to be hoped that a solution is in the wind because many residents share Jim Thompson’s sentiments. While Hong Kong is still the greatest city on earth, he says, it is ‘pretty miserable to wake up to this stuff [smog] day after day’. Malaysia slips in global graft index Malaysia slipped five places to 44th among 163 countries surveyed on Transparency International’s 2006 Corruption Perceptions Index (CPI), down from 39th position last year, scoring five out of 10 points compared with 5.1 points last year. A score of 10 points denotes a ‘clean’ economy and one point refers to a highly corrupt state. Top-ranked Finland scored 9.6 points in comparison, whereas bottom-ranked Haiti amassed just 1.8 points. Malaysia ranked 10th out of 25 economies in the Asia Pacific region. Singapore, Hong Kong and Japan led the Asia Pacific rankings for least corrupt countries, and Myanmar was at the bottom of the pack. However, Malaysia was still ahead of China, India, Indonesia, Thailand and Pakistan. Transparency International Malaysia’s President, Tan Sri Ramon Navaratnam, pinpointed certain weaknesses in the study methodology. For instance, Malaysia’s CPI score was based on a composite of corruption indicators from nine institutes, while some other countries’ scores were based on fewer studies. The results were also disappointing, said Navaratnam, given the Government’s concerted efforts to combat corruption, which include establishing the Malaysian Institute of Integrity, the Anti-Corruption Agency Academy and the National Integrity Plan. To heighten investor confidence, Navaratnam conceded that declining perceptions of transparency needed to be arrested through measures like making the anti-corruption agency more independent. The Real Estate Investment Trust (REIT) sector in Singapore is seen as having huge growth potential and could benefit further from possible changes in regulations making the listing of initial public offerings (IPOs) in Singapore speedier. The total market capitalisation of the sector has grown from about S$500m four years ago to around S$15bn today and could grow to S$50bn within the next four years, according to UBS Investment Bank CEO, Huw Jenkins. Singapore is home to 13 REITs at present. The latest one, Cambridge Industrial Trust, was listed in July, and a few more are on the way, including CapitaLand’s CapitaRetail China Trust, the Lippo Group’s First Real Estate Investment Trust, two Fraser & Neave listings for its industrial, office and serviced-apartment properties, and the rumoured listing of the first property trust for Indian assets, due to be launched early this year when business park developer Embassy Group spins off buildings in a Singapore IPO. But companies planning to list a REIT currently face a lengthy process, as the IPO can take from four to six months to be launched. A shorter timeframe would entice more cross-border and third-party REITS to come to Singapore, professionals say. Right now, vendors and REITs have to address the possibility of exchange rate fluctuations, which make it less interesting to list here. A REIT is also required to declare the assets in its portfolio during its initial submission to the Singapore Stock Exchange (SGX). Since the REIT might be hoping to use its IPO proceeds to pay for its acquisitions, vendors who agree to sell their assets to the REIT have to be willing to accept completion of the sale up to six months later. Professionals point out that third-party vendors are unlikely to be willing to wait that long, making a third-party REIT more likely to consider listing elsewhere. Cross-border REITs, which go into a listing with a portfolio of assets across many countries, typically bought from many different vendors, face the same problem. The Monetary Authority of Singapore has assembled a taskforce to look at making the listing prospectus shorter and clearer, one move that should speed up the listing process on the SGX. investors bask in Australian sun Australia’s private equity (PE) and venture capital (VC) industry is basking in a growth spurt, notching up a second year of record fund-raising. Despite the relative youth of the industry, consecutive years of robust economic performance have boosted the nation’s status as a world-class investment destination. Australia is also the first choice for PE in the Asia Pacific, accounting for 28% of all funds invested in the region. The Australian Private Equity & Venture Capital Association’s (AVCAL) figures show that in the year ending June 2006 a total of A$4.1bn in new capital commitments was raised by PE and VC funds. This effectively matches the record amount raised over the same period in 2005, and is well in excess of amounts raised in all previous years. AVCAL’s chief executive, Andrew Green, said successful fund-raising activity was dominated by buyout funds which had exited very successful investments such as Pacific Brands, Affinity Health and Austar. There has also been a large number of less high-profile but equally successful exits such as JB-Hi Fi, Vision Group, Invocare, Bradken, Fone Zone and many more. Green put the recent strong performance down to a range of factors. ‘First, there has developed in Australia a strong understanding of the whole private equity process,’ he said. ‘Secondly, the skills now available in the Australian industry are as good as any in the world. Thirdly, the strong returns have enabled managers to raise large amounts of capital. Fourthly, encouraged by the success of the industry, managers of companies across Australia are actively seeking private equity for a buyout of their company, expansion or turnaround.’ VC, characterised in Australia by a handful of skilled managers with a modest amount of capital under management, is also performing well. ‘This is thanks largely to some encouraging exits of companies established by serial entrepreneurs such as Simon Poole and Steve Frisken, who established Engana/Optium with venture capital from Technology Venture Partners, Starfish Ventures and Accede Capital,’ Green said. ‘VC in Australia, as in most global markets, is hard work. The good news is that most companies worthy of venture funding are successful in finding it. This has not always been the case.’ Green added that sound fundamentals indicate a continued positive outlook. ‘Strong returns, a secondaries market, high standards of corporate governance, low sovereign risk and great corporate opportunities make Australia the number one destination in Asia Pacific for PE. The factors driving this are likely to remain positive for the foreseeable future.’ Accounting standards are meant to present a true and fair picture. But a leading low-cost carrier, AirAsia Berhad, is arguing that applying IAS 12 on deferred taxes paints a more accurate picture of its finances compared with the Malaysian Accounting Standard Board’s (MASB) FRS 112. AirAsia announced that it would post a net profit of RM242m for the year ended 30 June 2006 if it adopted IAS 12 but the figure was RM88.4m when complying with FRS 112. What is the bone of contention? The airline’s directors claim: ‘The deviation arose solely from the application of FRS 112 2004 on income taxes which does not recognise re-investment or other tax allowances in excess of normal capital allowances.’ Conversely, in AirAsia’s view, unutilised capital allowances and investment tax allowances available to the carrier are expected to accumulate to a very substantial amount and will shelter it from future tax liability for many years to come. The carrier’s auditor, PricewaterhouseCoopers, confirmed that the tax treatment under IAS 12 permits full recognition of the deferred tax assets. Members of the investing community appear to support full recognition too. In its coverage of the airline, HLG Research noted that AirAsia’s continuous acquisition of new aircraft would provide it with sufficient tax allowances for a zero tax charge in its accounts for at least the next 10 years. However, in an earlier policy statement, MASB’s board had reiterated that the FRS provision on deferred taxes is consistent with IAS. Stalemate? A Business Times report quoting sources said the Finance Ministry had called for a meeting with MASB, the Securities Commission and the Big Four international accounting firms (PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte) to ‘seek a review of local accounting standards for Malaysian listed companies’. Meanwhile, the accounting fraternity and the corporate sector will wait for clarity. Even when the rest of their countrymen were still clad in grey Mao suits, the Shanghainese had an eye for image. Shaped by the Western affluence of the British, French and Americans who flocked to the trading port after the First Opium War, Shanghai has long been the glamour capital of China. Known for its colour and style, the city evoked a Suzie Wong image that has never gone away. Yet all these decades later, is Shanghai over its love of labels? China’s rich list is rising fast in equal measure to its penchant for luxury brands. According to Goldman Sachs, China could be the world’s greatest consumer of luxury brands by 2015, surpassing the US and Japan. A new study by KPMG also shows that the Chinese love of luxury is spreading beyond the major business hubs to the second-tier cities, where people still covet luxury brands, even if they cannot yet afford them. The Luxury Brands in China report shows a widespread willingness to spend on big-ticket items, driven by ‘a desire for status as well as the comforts and trappings of luxury products’. However, consumers who are least likely to buy branded items as a status symbol are those who live in Shanghai. In fact, the study found the Shanghainese to be ‘the most cynical in their attitudes to luxury’. Nick Debnam, KPMG’s partner in charge of consumer markets for Asia Pacific, puts this anomaly down to the sophistication of the Shanghai market, citing ‘a certain amount of brand cynicism’ which is similar to Western markets. ‘Not everyone [in Shanghai] sees luxury brands as the be-all and end-all,’ Debnam said. ‘They’re more likely to perceive luxury brands as being flashy or superficial. A lot of people can afford brands but they don’t see the point.’ Not that the brands have to worry. Shanghai is still the mecca of international brands, and remains the biggest market. But in terms of emerging markets – which is, after all, where growth lies – it is the second- tier cities that are causing the most interest. When you consider that the second-tier means everywhere in China apart from Beijing, Shanghai, Guangzhou and Shenzhen, and that the people surveyed said they expect to buy luxury brands when their salary allows, that is one amazingly widespread potential consumer base.
in brief...
ANZ eyes Malaysia
Chinese firms in control
Banking on banks
Record rally
Singapore growth solid
Retail sector strong
Singapore firms face growing risks | |