Alibaba plots comeback from biggest market-value wipeout

It took less than a year for Alibaba Group Holding to turn from a stock-market darling into the biggest source of shareholder losses worldwide.

PHOTO: EPA

AUG 12, 20157:29 AM

[HONG KONG] It took less than a year for Alibaba Group Holding to turn from a stock-market darling into the biggest source of shareholder losses worldwide.

Now, China's biggest e-commerce operator is plotting its comeback. This week's purchase of a stake in Suning Commerce Group - chairman Jack Ma's largest deal ever - is part of the company's push to reach millions of new customers in rural China and abroad through a bigger logistics network.

Mr Ma is counting on expansion outside China's largest cities to offset a slowdown in sales growth that helped erase more than US$90 billion of market value since Alibaba shares peaked in November. While the strategy may take time to bear fruit, Wall Street is keeping its faith before the release of Alibaba's quarterly results on Wednesday. Share-price forecasts tracked by Bloomberg imply a 35 per cent rally over the next year, the second-biggest projected return among the world's 25 largest companies.

"Rural and overseas businesses present a great opportunity, but they take time to grow," said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong.

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Alibaba's fiscal first-quarter sales are projected to climb 33 per cent, the weakest pace in at least three years, to 21 billion yuan (S$4.65 billion), according to the average of 26 estimates compiled by Bloomberg. That compares with a mean growth rate of 56 per cent for the previous 12 quarters.

Alibaba shares closed Tuesday at US$77.34, down 35 per cent from their Nov 10 high. While the stock is still trading above its initial public offering price in September, the company has lost the equivalent of Goldman Sachs Group Inc.'s entire market capitalization since its peak - the world's biggest destruction of market value. The Hangzhou-based company is now ranked 24th worldwide with a value of US$194 billion.

After its record US$25 billion IPO and 75 per cent surge in the first two months of trading, Alibaba has been hit by a succession of bad news.

It faced a scathing report from the Chinese government about its business practices in January, was sued in May by the maker of Gucci handbags over claims the e-commerce platform facilitates sales of counterfeits and agreed to sell its US website 11 Main two months ago amid criticism from American merchants.

Perhaps most importantly, Alibaba is grappling with weak growth in larger cities as new customers become harder to find and China's economy heads for its slowest annual expansion since 1990.

Despite the setbacks, Mr Ma sees room for growth. Monday's agreement to spend 28.3 billion yuan for a 20 per cent stake in Suning Commerce adds more more than 1,600 electronics stores in about 290 cities and enables its Cainiao logistics affiliate to cover almost all of the 2,800 counties and districts in China.

The acquisition is Alibaba's biggest-ever, excluding a US$7.1 billion share buyback in 2012 from Yahoo! Inc.

This month, Alibaba tapped former Goldman Sachs partner Michael Evans as president to help the company reach a target of getting more than half its revenue from outside of China.

Through its AliExpress platform, Alibaba has become the top shopping site in Russia and Brazil. It accounts for about half of online goods purchased in Russia, according to Maria Gracheva, the chief executive officer of Yandex Money, a payments processor for Alibaba's online sales in Russia.

Within China, Ma plans to build a delivery network that can spirit packages between 100,000 villages, which account for less than 10 per cent of online purchases on Alibaba's retail platforms.

Among the 18.9 million new Internet users in China in the first half, more than 48 per cent came from rural areas, according to the China Internet Network Information Center. Alibaba's partnership with Suning will expand the company's reach in those fast-growing areas, according to Cynthia Meng, an analyst at Jefferies Hong Kong.

The deal gives Alibaba "much strengthened logistics and delivery capability, especially in lower tier markets," Ms Meng wrote in an Aug 10 report. She has a buy rating on the stock, with a price target that implies 22 per cent upside.

BLOOMBERG

    

In race with Japan, China sweetens bid for Indonesia railway

AUG 11, 20158:41 PM

[JAKARTA] China has sweetened its bid in a race with Japan to win the construction contract for a high-speed railway connecting Jakarta to the city of Bandung, Indonesia said on Tuesday.

President Joko Widodo told reporters on Tuesday the government had hired private consultants to consider the rival proposals for Indonesia's first bullet-train connection and would announce the winner at the end of the month.

The Jakarta Post reported that Japan, which began talks several years ago on building the 150-km line, had estimated the cost at at least US$4.4 billion.

Oura Daisuke, a representative with Japan International Cooperation Agency in Indonesia, told Reuters that Japan had offered a 40-year loan at a 0.1 per cent interest rate and with a 10-year grace period. He declined to reveal the loan amount.

China has now improved its initial bid, offering a US$5.5 billion loan with a 50-year tenure, a 2 per cent interest rate and a grace period, Indonesian Development Planning Minister Andrinof Chaniago told reporters on Tuesday after meeting China's Minister of the National Development and Reform Commission, Xu Shaoshi.

China had initially proposed a US$4 billion loan with a lending period of 25 years and an annual interest rate of 2 per cent, the Jakarta Globe reported.

"There are a lot of changes making (the new proposal) better," Mr Chaniago said.

Mr Xu met Mr Joko on Monday and China Railway Corporation is due to hold a high-speed train exhibition in Jakarta on Thursday. "Our proposal is better," Mr Xu said in a press conference after meeting Mr Joko.

"We promise we can deliver this project in three years starting with groundbreaking in August ... and it will be completed in 2018."

Mark Giblett, Group Head of Asia Project Finance for Sumitomo Mitsui Banking Corp, said several high-speed rail projects would be coming up in the years ahead, including one connecting Kuala Lumpur and Singapore.

"As such, it is likely that Japanese and Chinese companies will be bidding quite aggressively on the early projects so that they can secure a 'first mover' advantage in the market," he told Reuters by email.

REUTERS

    
 

Malaysia's Hong Leong Bank plans up to US$757m rights issue: sources

      

Hong Leong Bank Bhd is planning to raise up to 3 billion ringgit (S$1.06 billion) in rights issues this year to strengthen its capital, two sources with direct knowledge of the matter told Reuters. 

PHOTO: BLOOMBERG

AUG 11, 20156:37 PM

[KUALA LUMPUR] Hong Leong Bank Bhd is planning to raise up to 3 billion ringgit (S$1.06 billion) in rights issues this year to strengthen its capital, two sources with direct knowledge of the matter told Reuters.

The bank, Malaysia's fifth largest by assets, is the last of its peers to bolster its capital to meet more stringent central bank requirements under the global Basel III framework, the sources said.

Analysts had earlier said Hong Leong Bank's core capital, measured by its common equity tier 1 ratio, was one of the lowest among local banks at 8.1 per cent and that the bank was seeking to increase that level to at least 10 per cent.

A Hong Leong spokeswoman did not respond to repeated requests for comment. The sources declined to be identified as the matter remained confidential.

The bank's parent, Hong Leong Financial Group, would be the issues' main subscriber and would raise up to 2 billion ringgit through a separate rights issue this year, the sources said.

Malaysia's central bank has set a 2019 deadline for local banks to comply with the Basel III requirements.

In April, fourth largest lender RHB Capital Bhd announced plans to raise 2.5 billion ringgit in a rights issue, which is expected to be completed year-end. Larger peers CIMB Group Holdings Bhd and Public Bank Bhd have also raised capital since last year.

A slowing economy and weaker currency are pressuring profit growth at Malaysian banks, reducing loans and consumer spending. Analysts said this pressure on profits was likely to continue, as the outlook for the economy remains weak. "I think the moderating trend will continue," said Julian Chua at Nomura Holdings Inc. "It will gradually trend lower because I think business and consumer sentiment is still pretty weak."

REUTERS

    

China bank lending up in July on stock market rescue

China's bank lending rose in July, the central bank said on Tuesday, as money poured into a massive rescue for the country's stock market.

PHOTO: AFP

AUG 11, 20151:32 PM

[BEIJING] China's bank lending rose in July, the central bank said on Tuesday, as money poured into a massive rescue for the country's stock market.

Domestic banks extended new loans of 1.48 trillion yuan (S$327 billion), up from 1.27 trillion yuan in June - almost twice the estimate of economists surveyed by Bloomberg News - the People's Bank of China (PBoC) said.

But total social financing, an alternative measure of credit in the real economy, hit 718.8 billion yuan last month, down from 1.86 trillion yuan in June and short of economists' forecast of 1.0 trillion yuan, according to Bloomberg.

"China's new yuan loans rose sharply ... as stock market rescue policy lifted new loans," ANZ economists Liu Li-Gang and Louis Lam wrote in reaction to the data.

Authorities have been aggressively supporting shares after China's key Shanghai stock index plunged more than 30 per cent over three weeks from a June 12 peak before rebounding on the official intervention measures.

For the first seven months of this year, Chinese banks extended a total of 8.04 trillion yuan in new loans, up 2.15 trillion yuan from the same period last year, the PBoC said.

An unnamed central bank official said in a statement that government support for the stock market was one reason for the year-on-year spike.

"China's capital market had some volatility in recent days," the official said. "Monetary policy and the banking system took some temporary measures in July and the relevant operations had some impact on credit growth." The state-backed China Securities Finance Corporation, tasked with supporting the stock market, received about one trillion yuan in loans as part of the effort, Nomura economist Zhao Yang said in a comment on the lending data.

US investment bank Goldman Sachs estimated last week that the Chinese government has spent up to 900 billion yuan in the last two months to try to prop up stock prices.

Also on Tuesday, China's central bank devalued the yuan currency by nearly two percent against the US dollar, a surprise move marking the biggest decline since the currency was unpegged from the greenback in 2005.

Shanghai shares fell 0.40 per cent by the midday break despite the PBoC yuan move, which dealers said could boost exports and the overall economy.

AFP

    

Hackers stole secrets for up to US$100m insider-trading profit

A man types on a laptop computer in an arranged photograph taken in Tiskilwa, Illinois, U.S., on Thursday, Jan 8, 2015. 

PHOTO: BLOOMBERG

AUG 12, 20157:15 AM

[NEW YORK] An alliance of mainly US-based stock traders and computer hackers in Ukraine made as much as US$100 million in illegal profits over five years after stealing confidential corporate press releases, US authorities said on Tuesday.

Prosecutors announced charges against nine people in an insider-trading case that marks the first time criminal charges have been brought for a securities fraud scheme involving hacked inside information, in this instance 150,000 press releases from distributors Business Wire, Marketwired and PR Newswire. "This is the story of a traditional securities fraud scheme with a twist - one that employed a contemporary approach to a conventional crime," FBI Assistant Director-in-Charge Diego Rodriguez said at a news conference.

Prosecutors said Ukraine-based hackers improperly accessed press releases before the distributors planned to release them to the public. The traders gave the hackers "shopping lists" of releases, prosecutors said.

The hackers created a "video tutorial" to help traders see the stolen releases, and were paid a portion of the profits from trades based on the information in them, prosecutors said.

Nine people were indicted by grand juries in Brooklyn, New York, and in Newark, New Jersey, on charges that they made US$30 million in illegal profits starting around February 2010.

Five were arrested on Tuesday, and international arrest warrants were issued for the other four.

A related US Securities and Exchange Commission civil lawsuit charged 17 people and 15 corporate entities, and said that thefts of inside information resulted in more than US$100 million in illegal profit.

The SEC said the network included traders in New York, Cyprus, France, Malta and Russia. It is seeking civil penalties, and has already obtained court-ordered asset freezes.

Law enforcement officials have warned companies for years about securing their computer networks against hackers, whose victims over the past two years have included leading retailers and US government personnel. "This case illustrates how cyber criminals and those who commit securities fraud are evolving and becoming more sophisticated," US Attorney Paul Fishman in New Jersey said at the news conference. "The hackers were relentless and they were patient." Mr Fishman said the distributors, who were not charged with wrongdoing, provided "fabulous cooperation" in the probe.

The breaches could put more pressure on the business, which was founded decades ago before the ubiquity of the Internet and which depend on clients trusting them with sensitive information. In recent years, major US companies including Google, Microsoft, Wal-Mart and Tesla have started to publish important information on their own websites or social media platforms, reducing their dependence on the wires.

The three companies all released statements touting their cooperation with authorities and their security measures.

Business Wire, a unit of Warren Buffett's Berkshire Hathaway Inc, said it hired a security firm to test its systems. "Despite extreme vigilance and commitment, recent events illustrate that no one is immune to the highly sophisticated illegal cyber-intrusions that are plaguing every aspect of our society," it said in a statement.

PR Newswire, a unit of UBM Plc, said it also takes security very seriously, while Marketwired said it is protected by world-class security, monitoring and prevention practices.

SENSITIVE CORPORATE NEWS

The indictments said the news releases included sensitive corporate information such as financial results that would later become public. Foreign shell companies were used to share the money made from the insider trading, officials said. "The traders were market-savvy, using equities, options and contracts for differences to maximise their profits," SEC Chair Mary Jo White said at the news conference.

Authorities said the scheme involved trades on such companies as Acme Packet Inc, Align Technology Inc, Caterpillar Inc, Dealertrack Technologies Inc, Dendreon Corp, Edwards Lifesciences Corp, Hewlett-Packard Co, Home Depot Inc and Panera Bread Co.

The indictment in Brooklyn charged four traders: Vitaly Korchevsky, 50, a former hedge fund manager from Pennsylvania; Vladislav Khalupsky, 45, of Brooklyn and Odessa, Ukraine; and Leonid Momotok, 47, and Alexander Garkusha, 47, of the US state of Georgia. The charges included securities fraud, wire fraud and money laundering conspiracy.

Korchevsky appeared without a lawyer in Philadelphia federal court. He was released on a US$100,000 bond and told to surrender his passport.

A prosecutor told the court that Korchevsky was a flight risk with US$5 million at his disposal and that he had traveled abroad 42 times since 2010. Korchevsky's wife told the judge that 99 per cent of her husband's travel was in his role as a pastor. Later, prosecutors asked another judge to revoke the first judge's release of Korchevsky.

A separate indictment made public in New Jersey charged Ivan Turchynov, 27, and Oleksandr Ieremenko, 24, two purported hackers who live in Ukraine; Pavel Dubovoy, 32, a trader from Ukraine; and Arkadiy Dubovoy, 51, and his son Igor Dubovoy, 28, traders from Georgia.

Arkadiy and Igor Dubovoy appeared in Atlanta federal court, and will appear there again on Thursday, including over whether they should defend themselves in New Jersey.

One indictment quotes online chats in which Ieremenko told Turchynov on March 25, 2012, that he had "bruted" the log-in credentials of 15 Business Wire employees, and told an unidentified recipient in Russian on Oct 10, 2012, that "I'm hacking prnewswire.com." SEC investigators found the traders by using technology that identified both suspicious trading and relationships among traders, White told reporters.

She said those charged "went to great lengths to evade detection" and the SEC sorted through millions of traders, thousands of earnings announcements and gigabytes of data on IP addresses.

REUTER
S

China policy lenders to issue 15 bln yuan in bonds offshore

China's top economic planning agency approved two policy lenders - China Development Bank Corp (CDB) and Agricultural Development Bank of China - to issue renminbi-denominated bonds offshore, the National Development and Reform Commission (NDRC) said on Tuesday. 

PHOTO: EPA

AUG 11, 20151:25 PM

[BEIJING] China's top economic planning agency approved two policy lenders - China Development Bank Corp (CDB) and Agricultural Development Bank of China - to issue renminbi-denominated bonds offshore, the National Development and Reform Commission (NDRC) said on Tuesday.

CDB, the country's biggest policy lender and responsible for funding large infrastructure investment, has been approved to issue 5 billion yuan (S$1.1 billion) in yuan bonds in Taiwan, the NDRC said.

Reuters reported in June that Chinese regulators would allow mainland financial institutions to directly issue bonds in Taiwan, in another step towards deepening the pool of offshore yuan in Taiwan and to reinforce financial relationships between Beijing and Taipei.

Taipei Exchange Chairman Wu Soushan told Reuters in June that Taiwan's yuan bond market will likely reach 35 billion yuan in 2015, above the 30 billion yuan forecast earlier.

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Agricultural Development Bank, China's major lender for the rural sector, has been approved to issue 10 billion yuan in yuan bonds offshore to fund major water power projects and to support cotton, grain and oil purchases and sales, the NDRC said in a separate statement on its website.

It did not specify in which markets the Agricultural Development Bank bonds would be sold.

REUTERS