China's Internet trio wields US$80b deal firepower in 2016

DEC 11, 20154:15 PM

[TAIPEI] China's three biggest Internet companies could be set for another record year of deals as their cash piles swell, unprofitable startups sell out and consolidation sweeps the crowded industry.

Alibaba Group Holding, Tencent Holdings and Baidu could draw on more than US$80 billion for mergers and acquisitions in 2016, according to analysts at BNP Paribas SA. That could enable them to easily surpass the record US$30 billion spent this year according to Bloomberg data, as they buy their way into so-called online-to-offline Web services such as delivery services and physical retailing.

With the market for such services potentially worth more than US$1 trillion in coming years, a shake-up is in the offing. The trio's deals should quicken a consolidation along the lines of the US$15 billion merger of group-buying sites Meituan.com and Dianping.com and the creation of taxi-hailing giant Didi Kuaidi, both of which involved Alibaba and Tencent.

The triumvirate known as BAT are seeking out new markets to move beyond core businesses of e-commerce or advertising. Alibaba alone would be able to spend as much as US$38 billion on deals next year, analysts at BNP Paribas calculated based on available cash, its ability to take on debt and projected cash flows. By the same measures, Tencent could deploy US$35 billion and Baidu about US$15 billion, analysts led by Vey-Sern Ling wrote in a report Thursday.

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"There's definitely potential for many more deals to happen," said Michelle Ma, an analyst at Bloomberg Intelligence. "BAT are consolidating and they're going after smaller players which may struggle to survive on their own." Alibaba, Tencent and Baidu are rapidly emerging as go-to buyers, with venture financing becoming more difficult to obtain in a slowing economy. Many startups that had been burning cash through big incentives to draw customers are now facing pressure from their investors to cut their losses.

Alibaba declined to comment on BNP's calculations, while Tencent didn't respond to an e-mailed request for comment. Baidu doesn't earmark a budget for deals, which can be done with cash or equity or both, Baidu investor relations official Sharon Ng said in an e-mail.

"We need to see strong strategic rationale,' she said.

China's burgeoning market for "O2O" - online services delivered or fulfilled in the physical world - is crammed with hundreds of small players providing everything from massages and food delivery to handyman services. In the rush to grow their user base, most, including Alibaba- and Tencent-backed operators, eschew profits and resort to heavy subsidies and marketing.

The overall market could be worth 10 trillion yuan (S$2.25 trillion) eventually, HSBC analysts led by Chi Tsang wrote in a November report.

Tencent, the maker of the WeChat and QQ messaging apps, is ahead in deals this year, taking part in 37 completed or pending acquisitions totaling US$16.3 billion, according to data compiled by Bloomberg. Alibaba is close behind, with 27 deals that total US$15 billion, while Baidu trails at 15 acquisitions for US$878 million.

"Consolidation favours the strong," BNP analysts led by Vey-Sern Ling said in a 40-page outlook on China's Internet industry. "The merged entities benefit from reduced competition, while BAT get to further their strategic goals and still benefit from a broadened ecosystem."

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Barclays CEO Staley said to extend hiring freeze into early 2016

Barclays Plc has extended a freeze on hiring new staff until March as new Chief Executive Officer Jes Staley deepens cost cuts to boost profitability at Britain's second-largest lender, according to people with knowledge of the decision. 

PHOTO: BLOOMBERG

DEC 11, 20158:02 PM

[LONDON] Barclays Plc has extended a freeze on hiring new staff until March as new Chief Executive Officer Jes Staley deepens cost cuts to boost profitability at Britain's second-largest lender, according to people with knowledge of the decision.

A previous ban, implemented by Chairman John McFarlane in September until year-end, was due to be reviewed in January, said one of the people, who asked not to be identified because the move isn't public. There are exceptions to the freeze such as some executive positions considered critical to the business, UK branch staff and low-cost positions, according to the person. Joanne Walia, a spokeswoman at Barclays, declined to comment.

Staley, who took charge on Dec 1, is considering whether to cut an additional 20 per cent of staff at the investment bank, the lender's most expensive and least profitable division, people familiar said last week. The heaviest losses will come in Asia and the global cash equities business, which are not considered competitive enough, according to the people, as the company focuses on businesses in the UK and the US.

Staley, 58, a former JPMorgan Chase & Co investment banker, inherited a strategy from his predecessor Antony Jenkins that involved cutting 19,000 jobs across the lender by 2016, including 7,000 at the investment bank. Barclays in October cut its return on equity target, a measure of profitability, to 11 per cent from 12 per cent for 2016 partly because of rising restructuring charges and misconduct fines.

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Shares of Barclays have extended their loss to about 11 per cent this year.

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Bank of England gives banks until 2020 to build buffers to prevent future taxpayer bailouts

Britain's banks will have until 2020 to put in place an extra buffer of funds that will be tapped in a crisis to shield taxpayers from having to bailout failed lenders again, the Bank of England said on Friday. 

PHOTO: REUTERS

DEC 11, 20157:26 PM

[LONDON] Britain's banks will have until 2020 to put in place an extra buffer of funds that will be tapped in a crisis to shield taxpayers from having to bailout failed lenders again, the Bank of England said on Friday.

The BoE was setting out its new rules for how 400 banks and building societies will have to hold an additional cushion of loss-absorbing bonds on top of their core, mandatory capital requirements.

The rules, published for consultation, are based on a European Union law that will require all banks across the 28-country bloc to hold the extra buffer known as minimum requirement for own funds and eligible liabilities or MREL.

The central bank estimated that the net shortfall of such funds is currently 26 billion pounds (S$55.5 bilion) for the biggest banks such as HSBC, Lloyds, Barclays and RBS, for whom it will cost some 1.4 billion pounds a year to service.

The vast majority of MREL requirements will be met by re-issuing existing debt at banks.

The new rules are seen by policymakers as the final piece of banking regulation since the 2007-2009 financial crisis to end so-called "too big to fail" banks. "The implementation of MREL is a crucial step forward to ensuring that any banks, large or small, carries sufficient resources to be resolved in an orderly way, without recourse to public subsidy and without disruption to the wider financial system," BoE Governor Mark Carney said in a statement.

The aim is to ensure that the shareholders and bondholders of a bank bear the losses when a lender goes bust.

The BoE said that depositors could, in some circumstances, also bear losses on amounts held in accounts above the 75,000 pounds that is automatically insured under EU rules.

Banks will be told in the second quarter of 2016 what is the indicative amount of MREL they must hold by January 2020.

The lenders will be given some flexibility as to how they will reach that level, the BoE said.

HSBC, Lloyds and Barclays have already been deemed to be among the 30 global systemic banks who must hold a layer of bonds, know as TLAC.

The BoE said their level of MREL will not be higher than the globally-set TLAC but they must comply with a 2019 deadline.

REUTERS

      

China securities regulator to step up inspection of OTC equity markets

DEC 11, 20155:50 PM

[BEIJING] China's securities regulator said on Friday that it would step up supervision of regional over-the-counter equity markets for possible illegal activities.

China Securities Regulatory Commission (CSRC) has found that some companies illegally sold shares to investors, and promised fixed returns, claiming that they would soon be traded on OTC exchanges, according to a statement posted on CSRC's official microblog.

CSRC said it has asked local governments to help crack down on such illegal activities.

Separately, Deng Ge, a CSRC spokesman told a press conference in Beijing that the watchdog has completed spot checks on bond issuance businesses.

REUTERS

IEA releases Oil Market Report for December

Indications of slowing growth in current quarter confirm 1.2 mb/d increase in demand forecast for 2016

11 December 2015

World oil demand growth of 1.2 million barrels per day (mb/d) is forecast in 2016, as first signs of a slowdown appear, the IEA Oil Market Report (OMR) for December informed subscribers.

The confirmation of the IEA outlook of the previous two OMRs comes as early indicators for the current quarter show growth easing to 1.3 mb/d from a year earlier, from a peak of 2.2 mb/d last quarter. The resulting annual growth of 1.8 mb/d for 2015 is led by China, the United States, India and – somewhat surprisingly – Europe.

Slightly higher OPEC crude output accounted for the lion’s share of the 50 000 barrels per day (50 kb/d) increase in global oil supply in November, to inch up to a total of 96.9 mb/d, or 1.8 mb/d above a year earlier. Non-OPEC supply held at 58.5 mb/d in November, and annual growth slowed to below 300 kb/d from 2.2 mb/d at the start of 2015.

OPEC crude output edged up to 31.73 mb/d as record production from Iraq and higher supply from Kuwait offset losses from African members. The OMR’s “call on OPEC crude and stock change” for 2016 was unchanged from the November issue at 31.3 mb/d – a substantial rise of 1.6 mb/d on this year.

OECD commercial stocks drew for the first time in seven months in October to stand at 2 971 mb at the end of the month. Global inventories are set to keep building at least until late 2016, but at a much slower pace than observed this year. New and spare storage capacity should be able to accommodate the projected extra 300 mb of stocks.

Global refinery runs rose by 1.4 mb/d in November to 79.9 mb/d as the maintenance season drew to a close. Margins in November remained healthy, though lower in the United States, supported by gasoline and naphtha. Product cracks and margins, however, took a hit in early December.

The December OMR  features a focus on how heady growth in vehicle sales is supporting strong growth in Chinese gasoline demand. Another article available to subscribers examines the divergence between inland and coastal European refinery stocks because of difficulty in draining product held in tanks in the Amsterdam-Rotterdam-Antwerp, or ARA, region to supply demand centres in central Europe. A third article details the effect of Russia’s latest export duties reform on oil product exports.

The Oil Market Report (OMR) is a monthly International Energy Agency publication which provides a view of the state of the international oil market and projections for oil supply and demand 12-18 months ahead. To subscribe, click here.

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