Month: April 2014

Leading Singaporean bank offers $5bn for Wing Hang

Posted on by Ashton Wenborn

Singapore’s Overseas-Chinese Banking Corp (OCBC) has offered $5bn in a bid to take over Wing Hang Bank, in Hong Kong. The deal would be the biggest in the island since 2001, and could signify an entry for the Singapore lender into the greater Chinese market.

Wing Hang Bank is one of the last remaining family owned banks in Hong Kong, and a deal with OCBC has been on the cards for a number of months. The acquisition will be fundamental for OCBC, as Wing Hang has branches in Shenzhen and Guangzhou, and solid growth potential for expansion within Mainland China.

Wing Hang Bank is one of the last remaining family owned banks in Hong Kong, and a deal with OCBC has been on the cards for a number of months

Around six percent of the OCBC’s pre-tax earnings in 2013 came from the Greater Chinese area, a share which would have risen to over 16 percent, had it owned Wing Hang, according to internal calculations by the Singapore lender.

The last major takeover of a Hong Kong-based lender was in 2001, when DBS Holdings, another major Singapore-based player and OCBC’s main competitor, took over Dao Heng Bank for $5.3bn. Today, Dao Heng is Hong-Kong sixth largest bank by assets.

OCBC has preliminary approval from the Hong Kong Monetary Authority for the acquisition, sources related to the deal told Bloomberg. But negotiations between the two institutions have been extended twice, before major shareholders, including the founding family, agree to a sale.

“The deal ultimately will also depend on whether the other shareholders will accept this at this price or not,” OCBC CEO Samuel Tsien told reporters in Singapore. “We are of the opinion that the price to be paid is fair and equitable.”

According to Tsien, OCBC sees China as the driving force behind Asia’s economic growth, and is keen to expand in the country, rather than invest in other Southeast Asian, he told Reuters at a recent ASEAN summit.

“Wing Hang is already profitable so if there is no equity raising obviously it would add to the earnings immediately,” OCBC CHFO Darren Tan told a news conference in Singapore. “Now for an acquisition of this size, sort of a cross-country acquisition, and the price that we pay for it, three years is a reasonable return period.

Sales tax in Japan rises to 8%

Posted on by Ashton Wenborn

In the first such increase for 17 years, Japanese Prime Minister Shinzo Abe has once again underlined his dedication to reviving the world’s third largest economy. The move, first announced in October last year, is believed to be an attempt at reducing Japan’s public debt problem which, at 240 percent of GDP, is the largest of any developed economy.

The tax increase has proven controversial, with many claiming that reduced domestic demand will harm the economy more than the increased levy will help it. There are fears that the increase could reduce consumer spending and set the economic recovery off course. The New York Times reports that yesterday saw a last-minute rush to buy essentials such as toilet roll and instant rice in anticipation of the rise.

Previous increases of consumption tax have been the death knell for former Japanese leaders

The benefits of the tax increase are much needed, however; Business Week reports that the tax increase will represent an extra 4.5trn yen ($43.6bn) in Japan’s pockets, or one percent of GDP.

Previous increases of consumption tax have been the death knell for former Japanese leaders. The man who presided over the last increase in 1997, Ryutaro Hashimoto, quickly lost favour and was no longer in office the following year.

Analysts say that Abe may yet survive the increase, but that he must decide by the end of the year whether to increase the tax yet again, to 10 percent from October 2015, as outlined by his predecessor Yoshihiko Noda. Noda’s Democratic Party laid the groundwork for the increase in 2012, shortly before the party fell from power.

Japanese banks have backed the increase. Speaking to Bloomberg, Nobuyuki Hirano, chairman of the Japanese Bankers Association said that there was a “good chance” that the Japanese economy would survive the increase and that any negative effects would be temporary.

Meanwhile, disappointing industrial output figures in February have underlined the fragility of Japan’s recovery. Industrial output fell by 2.3 percent, surprising economists who had predicted a 0.3 percent increase. Speaking to the Wall Street Journal, economist Takeshi Minami blamed heavy snowfall and bad weather, saying that the country “had quite strong figures in January, but unusually heavy snow also disrupted supply of parts”.

History’s biggest election gets underway in India

Posted on by Ashton Wenborn

In a process that is expected to last up to six weeks, 814 million Indians have begun voting for a new government. The country’s election represents the world’s largest democratic election – and the biggest recorded in history. It is expected to see voters kick out the incumbent Congress Party in favour of the Hindu nationalist Bharatiya Janata Party (BJP).

Congress’s last decade as the ruling member of a coalition government has been beset by corruption scandals and criticisms of indecision. When the party returned to power after an eight-year absence in 2004, Congress was expected to oversee a period of record economic growth, establishing India as one of the leading global markets.

However, while growth has been relatively high, many see the last few years as a missed opportunity for India. Accusations of elitism have also beset the party, with the choice of Rahul Gandhi as its leader being seen as yet another example of the Nehru-Gandhi dynasty carving up the political landscape for itself.

[Modi] even likened the suffering of Muslims as inconsequential as that of a puppy being run over

With voters fed up with Congress, the BJP are widely believed to seize control of government. Modi is seen as the most pro-business candidate around, with his governing of the state of Gujarat’s economy widely praised. However, he is also a hugely divisive figure, especially with the country’s large Muslim community.

His failure to condemn the anti-Muslim riots of 2002 in Gujarat that saw almost over a thousand people die have made him hugely unpopular with many. The vast majority of those that died were Muslim, and Modi has done little to assuage the community’s fears that a government led by him will do much to help them in the future.

He even likened the suffering of Muslims as inconsequential as that of a puppy being run over. Despite some backtracking, the offense has stuck. There are also concerns over what a Modi-led government would do for India’s already difficult relationship with Muslim-dominated neighbour Pakistan.

Certainly India needs to reform its immensely confusing bureaucracy if it is to match up with the loft expectations of many global economic observers. Investors across the world have for a long time wanted to see India rival China as Asia’s economic powerhouse, but corruption and heavy regulations have hampered its potential for too long.

However, it remains to be seen whether the social implications of such a divisive figure as Nahendra Modi will do more harm than good.