AIA, Manulife slump on concern China may curb insurance sales

[SHANGHAI] AIA Group Ltd and Manulife Financial Corp shares slumped in Hong Kong amid concern that China may place restrictions on the buying of overseas insurance. 

PHOTO: BLOOMBERG

FEB 3, 201610:25 AM

[SHANGHAI] AIA Group Ltd and Manulife Financial Corp shares slumped in Hong Kong amid concern that China may place restrictions on the buying of overseas insurance.

Hong Kong-based AIA sank 6.7 per cent as of 9:53 am local time, the most since Aug 24, after people familiar with the situation told Bloomberg that China's State Administration of Foreign Exchange will cap the use of UnionPay bankcards to buy insurance products overseas. Manulife lost 5.6 per cent. Prudential Plc, which operates in 12 markets across Asia, tumbled 8.2 per cent in London on Tuesday, the most since March 2010.

The move comes as China steps up administrative measures to slow capital outflows that Bloomberg Intelligence estimates reached US$1 trillion last year. The tightening marked a reversal after years of easing that spurred global use of the yuan, a trend that turned on China when speculative bets against the currency offshore jumped.

"The offshoring insurance practice is regarded as one effective way for mainland Chinese to transfer" their yuan savings into Hong Kong or US dollar assets, Tang Shengbo and Cao Haifeng, analysts at Nomura Holdings Inc, wrote in a Feb 3 report.

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"We may see increasing risk from potential regulatory changes on limiting mainlanders' offshoring insurance purchases."

The currency regulator is capping the purchases of insurance products overseas using China UnionPay Co debit and credit cards at US$5,000 per transaction effective Feb 4, people familiar with the matter said on Tuesday.

Purchases through UnionPay cards have been exempt from capital controls that limit Chinese individuals to bringing out a maximum of US$50,000 per year. Chinese people have been flocking to Hong Kong to buy insurance policies, which typically come with better service than on the mainland and also offer them a way to skirt controls on how much capital they can move abroad.

Insurance belongs in a category of so-called restricted merchants, that are subject to a US$5,000 payment cap per transaction, UnionPay International said in an e-mailed reply to questions. An investigation by the payments provider found that some overseas merchants hadn't applied the restricted classification to insurance, and UnionPay is asking them to comply with regulations, it said.

Purchases of insurance policies by mainland visitors in Hong Kong reached HK$21.1 billion (S$3.86 billion) last year through September, following a 64 per cent surge in 2014, according to the city's industry regulator.

Annie Choi, Hong Kong's former commissioner of insurance, warned in April last year that the high cash values of such policies being purchased in Hong Kong could be used for money laundering.

"As the term of these policies may range from a few years to several decades, a lot of changes can take place long before a policy matures or the occurrence of the assured event," she said in a speech to a financial crimes conference. "These changes, including advance premium payment, policy loan, lump sum top up, policy assignment, changes in the beneficiary or early surrender, may make it possible for a life-insurance policy to become an unnoticed tool for money laundering." The Safe move also adds to evidence that President Xi Jinping's government is working with increased urgency to rein in risks to the financial system. Besides the action on insurance products, the head of the banking regulator has also warned bank executives that their jobs are on the line unless they control risks.

Below are other measures taken recently by Chinese regulators:

Shang Fulin, chairman of the China Banking Regulatory Commission, told an internal meeting last month that banks would be forced to restructure, inject new capital or change their senior management if key risk indicators fall outside "reasonable ranges," people familiar with the matter said Tuesday. Those indicators include bad-loan coverage and capital adequacy ratios, Mr Shang told the meeting, the people said.

China's central bank has told lenders it will require greater control over the amount of wealth management product funds they give to brokerages and other financial institutions to manage, people familiar with the matter said on Tuesday. The People's Bank of China told banks it will also impose more limits on the amount of proprietary funds managed by other institutions, and that it will tighten control of leverage taken on when buying bonds, the people said.

The central bank said on Tuesday it will allow banks to cut the minimum required mortgage down payment to 20 per cent from 25 per cent for first-home purchases to the lowest level ever as it steps up support for the property market. A rising stockpile of unsold new homes is hampering government efforts to spur investment expanding at the slowest pace in more than five years.

BLOOMBERG

    
 

Fallen angels incoming as US$23b of China bonds near junk

FEB 3, 201610:48 AM

[HONG KONG] Investors need to watch out for so-called fallen angels from China as a slowing economy prompts debt rating companies to cut more investment-grade issuers to junk.

Standard & Poor's has downgraded 15 Chinese companies this year and upgraded one, the worst ratio in Bloomberg data going back to 2006. Some US$22.6 billion of offshore bonds from the nation are now rated one step above junk by any of the three major rating agencies, Bloomberg-compiled data show. 

Hong Kong-based commodity trader Noble Group Ltd's 3.625 per cent 2018 notes nosedived 18 cents on the dollar since its senior debt was cut to junk by Moody's Investors Service on Dec 29.

"I won't be surprised to see more companies downgraded to junk," said Raymond Chia, head of credit research for Asia ex-Japan in Singapore at Schroder Investment Management Ltd with assets of about US$446.5 billion under management.

"Clearly fallen angels have impact on markets, for instance funds with high- grade mandates could be forced to reduce junk holdings. Most importantly, investors have to do a lot more fundamental work for those names."

Chinese corporations, the largest international bond issuers in Asia with US$373 billion securities outstanding, face more challenges servicing their debt amid the weakest economic growth in a quarter century.

The yield premium on the 7.25 per cent 2024 notes of Dalian Wanda Commercial Properties Co, which is controlled by China's second richest man Wang Jianlin, spiked 47 basis points after S&P cut the debt to junk Tuesday. The firm forecast sales will fall 32 per cent this year.

The credit agency changed Sino-Ocean Land Holdings Ltd's outlook to negative from stable last week on potentially weaker financial leverage and interest coverage ratios. About three quarters of BBB-rated Chinese notes are from the nation's developers.

"Credit quality for Chinese companies will continue to deteriorate this year," said Christopher Lee, managing director of corporate ratings for Greater China at S&P in Hong Kong.

"Many sectors are experiencing weak cash flows and pressure on debt servicing because of softer pricing caused by overcapacity, and a slowdown in China's economy."

China's central bank on Tuesday said it will allow banks to cut the minimum required mortgage down payment to 20 per cent from 25 per cent for first-home purchases as it steps up support for the property market.

Reviving investment in real estate is crucial for the government, which cut interest rates six times since late 2014.

Shanghai government-backed Greenland Holdings Corp Ltd is one of two Chinese issuers that Moody's has rated at the lowest investment-grade with a negative outlook. The other firm is state-owned China National Gold Group Corp.

Moody's currently rates 20 Chinese companies one level above junk. Among them, 20 per cent had negative outlook or were on review for downgrades compared with 5 per cent at the end of 2014.

"Fallen angels are a major risk for investors this year," said Owen Gallimore, a credit analyst at Australia & New Zealand Banking Group Ltd.

"What's surprising the market is that the actions rating agencies are taking are dramatic and may not end there. There is a mini panic."

Some 40 per cent of 2015 downgrades on China credits happened in the fourth quarter for Moody's, according to Clara Lau, group credit officer for credit policy at the agency in Hong Kong.

"We believe the downgrade trend will continue due to our negative outlook for China's economy," Ms Lau said.

BLOOMBERG

    
 

Swiss say Malaysian Prime Minister Najib not accused in 1MDB probe

Malaysian Prime Minister Najib Razak is not among those accused of wrongdoing in an investigation by Switzerland's chief prosecutor into alleged corruption involving the 1Malaysia Development Berhad (1MDB) sovereign fund, a Swiss official said on Tuesday. 

PHOTO: AFP

FEB 3, 20168:43 AM

[WASHINGTON] Malaysian Prime Minister Najib Razak is not among those accused of wrongdoing in an investigation by Switzerland's chief prosecutor into alleged corruption involving the 1Malaysia Development Berhad (1MDB) sovereign fund, a Swiss official said on Tuesday.

The Swiss attorney general's office said last Friday that it had identified four cases of alleged criminal misconduct in the suspected misappropriation of about US$4 billion from Malaysian state companies.

Andre Marty, spokesman for the office of Swiss attorney general Michael Lauber, said in an emailed response to a Reuters query on Tuesday, "In the ongoing criminal proceeding of the OAG (Office of Attorney General), Mr Najib Razak is not one of the public officials under accusation."

Lauber's office announced last August that it had opened criminal proceedings related to 1MDB, whose advisory board is chaired by Najib.

Late last week, Lauber's office issued a statement in which it said it had formally asked the attorney general of Malaysia for assistance in Switzerland's investigation.

It said the investigation related to possible bribery of foreign public officials, misconduct in public office, money laundering and criminal mismanagement and that the criminal investigation involved two unnamed "former officials" of 1MDB and "persons unknown".

The statement came days after Malaysia's attorney general cleared Najib of any criminal offenses or corruption, declaring that US$681 million deposited into his personal bank account was a gift from Saudi Arabia's royal family.

Najib has consistently denied wrongdoing, and said the funds were a political donation and he did not take any money for personal gain.

The Malaysian attorney general's office said on Saturday that it would take all possible steps to follow up and collaborate with its Swiss counterpart, but said the investigations into donations made to Najib were entirely separate from those into 1MDB.

REUTERS

    
 

UK economy stays on growth path in 2016 despite global upheaval: NIESR 

[LONDON] Britain's economy is unlikely to be dented this year by the latest signs of a slowdown in global output, a think-tank said on Wednesday ahead of the latest forecasts from the Bank of England.

PHOTO: BLOOMBERG

FEB 3, 20168:15 AM

[LONDON] Britain's economy is unlikely to be dented this year by the latest signs of a slowdown in global output, a think-tank said on Wednesday ahead of the latest forecasts from the Bank of England.

The National Institute of Economic and Social Research expects the economy to grow by 2.3 per cent this year, unchanged from its previous forecast which was made in November and picking up a bit of speed from growth of 2.2 per cent in 2015.

Inflation will rise to just 0.3 per cent this year, it said, underscoring why the BoE is unlikely to raise interest rates any time soon.

Inflation in 2015 was zero, according to official data.

NIESR's growth forecast for 2016 is slightly weaker than estimates of 2.4 and 2.5 per cent from the government's official budget watchdog and the BoE respectively.

Those forecasts were made three months ago, before the latest upheaval in financial markets over concerns about a slowdown in growth in China.

Economists are waiting to see if the BoE cuts its growth forecast for Britain in 2016 in response to lower demand from emerging economies and other factors when it publishes its latest outlook on Thursday.

NIESR said an expected fall in demand for exports from emerging market economies would be offset by the boost to domestic consumption from falling oil prices.

Britain's economic growth has slowed since hitting 2.9 per cent in 2014 but it remains among the fastest-growing major advanced economies.

The country's finance minister George Osborne has warned of a "dangerous cocktail" of risks from the global economy this year.

REUTERS

      

Banker to Jho Low, 1MDB units seeks to unfreeze US$10m in S'pore

By

Anita Gabrielanitag@sph.com.sg@AnitaGabrielBT

As the multiple probes into Malaysia's troubled 1Malaysia Development Berhad appear to switch into high gear, particularly abroad, the first legal case linked to the high-profile scandal is set to take place right here in Singapore. 

PHOTO: REUTERS

FEB 3, 20165:50 AM

Singapore

AS the multiple probes into Malaysia's troubled 1Malaysia Development Berhad appear to switch into high gear, particularly abroad, the first legal case linked to the high-profile scandal is set to take place right here in Singapore.

In a move that may lift the veil on what has mostly been a confidential probe by the Singapore authorities into possible money laundering offences, a senior private banker at BSI Singapore has filed a criminal motion in the High Court seeking the release of his frozen bank accounts that hold some S$10 million.

The Business Times understands that the accounts of Yak Yew Chee, the banking executive who is the relationship manager of Malaysian tycoon Low Taek Jho or better known as Jho Low and several key entities linked to 1MDB, were frozen last September amid the probe by the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD). The 1MDB entities that Mr Yak had serviced as clients, sources said, include 1MDB Global Investments Ltd, Aabar Investment PJS Limited and SRC International Sdn Bhd.

SRC, a firm once wholly-owned by 1MDB but now under the Ministry of Finance, had transferred funds totalling over RM40 million to Malaysian Prime Minister Najib Razak's bank accounts. Last week, the country's Attorney-General had cleared the leader of any criminal wrongdoing in the matter.

Sources say that Mr Yak is seeking to release some of his bank accounts to pay taxes, legal fees and basic expenses.

According to the Supreme Court schedule for the week, the criminal motion will be heard on Friday morning. The respondent in the hearing is the public prosecutor. Mr Yak, who was understood to be on long leave last year, will be represented by senior counsel Roderick Martin of Martin & Partners.

"This is an extraordinary step," said a lawyer. "In most cases, generally speaking, the person would want to get his or her money back but very few actually go to court and would choose instead to wait for the process to be completed."

That Mr Yak is believed to be the private banker for 34-year-old Mr Low as well as 1MDB-linked entities also brings to light for the first time an indication of a possible connection between the Penang-born tycoon and the scandal-torn state-owned company.

BSI Singapore, the local branch of the Swiss private bank which is owned by Brazilian investment bank BTG Pactual, is where 1MDB had said early last year that its wholly-owned Brazen Sky was keeping US$1.103 billion cash that was part of the US$2.3 billion redeemed from its controversial investments in Cayman Islands funds. 1MDB later clarified that the US$1.103 billion was in "units", confounding observers.

In the past, Mr Low has consistently denied any involvement in 1MDB except for providing early advice during its inception in 2009. Last December, the Malaysian Anti-Corruption Commission said that its officers had travelled overseas to record statements from Mr Low and directors of SRC International in a seven-month probe into the transfer of huge amounts of funds into Mr Najib's accounts.

The report was handed over to Attorney-General Mohamed Apandi Ali, who last week cleared Mr Najib of US$681 million graft allegations and shut down MACC's probe without elaborating on his decision, sparking public obloquy. It also raised deep concerns over the standard of governance in the country's top institutions.

Days later, the Swiss Attorney-General's Office issued a statement that its criminal investigation involving the 1MDB money trail had unearthed "serious indications" of misappropriation involving a whopping US$4 billion.

This was followed by a joint statement by CAD and MAS on Monday that they have been "actively investigating" possible money laundering and other offences carried out in Singapore involving 1MDB.

They also revealed that they had seized a "large number" of bank accounts and were continuing to seek information from several financial institutions while interviewing various individuals and were cooperating closely with relevant authorities in Malaysia, Switzerland and the United States.

The events over the past week led prominent Malaysian banker Nazir Razak, Mr Najib's brother, to liken the unfolding of the protracted 1MDB saga to the popular HBO series Game of Thrones in an Instagram post, where he said that the future "terrifies" him as he can't see "how our institutions can recover" and the "political atmosphere can become less toxic".

Indeed, the toxicity of the controversy has rubbed off on the country's currency which fell 1.5 per cent to 4.2157 against the US dollar on Tuesday.

"It appears that the dust is being kicked up on 1MDB all over again," said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd in a Bloomberg report. "Downside pressures for the ringgit could re-emerge."

    
 

Wine tourism in South Africa may double by 2025 as rand tumbles

FEB 2, 20169:38 PM

[JOHANNESBURG] Tourism based on South Africa's wine industry has the potential to more than double in size in the next nine years as the declining value of the rand makes the country increasingly attractive to visitors, according to an organization representing producers.

The market could grow to 15 billion rand (US$930 million) in 2025 from 6 billion rand now, said Rico Basson, managing director of Vinpro, which has 3,600 wine producers and cellars as members. It's among local groups supporting the Wine Industry Strategic Exercise, or WISE, to develop the economic potential of wine tourism in South Africa, which is growing by 7 per cent a year, according to Basson.

The market for international visitors "is a focus area which could easily double and grow exponentially, especially with the weak rand," Basson said by phone from Paarl near Cape Town. The currency has slumped 28 per cent against the dollar in the past 12 months.

The world's seventh-largest producer, South Africa has almost 100,000 hectares (247,000 acres) of vineyards, mostly in the Western Cape province. The country's first wine was produced in 1659, according to industry group Wines of South Africa, and the industry now employs about 300,000 people.

Among the goals of WISE is to expand wine tourism from the key markets of the US, China and countries in the rest of Africa, Basson said.

BLOOMBERG