Asia Pacific Business Prospects for 2018

Asia Pacific Business Prospects for 2018

By Paul Errington CEO, Connaught Finance, Hong Kong

The multi-cultural diversity of the Asia Pacific region brings many trade opportunities but also many geo-political problems.

One of the major influencers for business prospects could be seen as the US vision for trade in the region. Trump has just concluded an Asian tour visiting Japan, China, South Korea, Vietnam and the Philippines where he attended the ASEAN Summit Conference. Expectations were high (by some) that the Trump vision of “America First” would show some detail on this policy and therefore how it would impact Asia. Unfortunately, little or no details were forthcoming.

The only significant change was that some months ago, Trump pulled the US out of the Trans Pacific Partnership (TPP) a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. But as the American position in Asia is on the descent so is the Chinese position on the ascent.

China already has it’s own trade program in place the Regional Comprehensive Economic Partnership (RCEP). America is playing directly into the hands of China who encourages multi –national trade agreements whereas America is looking for only bi-lateral agreements, unfortunately not many nations are stepping up for such agreements at the moment.

When in China last week, Trump was “managed” by the Chinese who knew exactly how to pander to the billionaire’s ego with flattery and over the top pageantry. But the conflicting interests between Washington and Beijing remain with very little being achieved from the meetings with Xi Jinping, China’s President. Deals have subsequently been announced for US$250 billion but again little information on any details.

Overall, the “unknown” Trump vision in Asia is expected to have little impact on business growth in the region as China’s economy continues to grow as does their influence in the region.

Locally, there are other issues that will or could impact business growth, such as the increasing tensions with North Korea, the South China Sea territorial disputes, the Rohingya ethnic cleansing in Myanmar and the military junta government of Thailand going to elections in 2018.

It is expected that the North Korean situation will impact foreign investments next year into South Korea as confidence on stability is put in question. However, outside of the Korean peninsula there appears to be a “business as usual” approach although concerns do remain high.

Overall, what impact will these matters have on trade and business growth in 2018? Generally we are expecting a positive growth to the economy in Asia Pacific. The automotive industry is ever increasing in China but Singapore will drop off drastically as the government implement a “no new cars” policy from February 2018 (only a small market of 600,000 cars in 2016 and China has 172 million) The mining industry in the Philippines and Indonesia will be set to grow after some clarifications on trade regulations for both countries.

Infrastructure will be one of the largest growth sectors, in our opinion, along with logistics.

Another market indicator are the number of IPO’s waiting to list on the Hong Kong Stock Exchange now reaching some 2,500 companies. This is equal to the entire number of companies listed on the Shenzhen Stock Exchange.

For more information and contributions from other Asian business leaders follow this link to Asset Finance International and the White Clarke “Global Auto and Equipment Finance Report 2018

http://www.assetfinanceinternational.com/index.php/countries/surveys-europe/country-europe-downloads/16450-global-auto-equipment-finance-report-2018

 

KPMG’s Special Situation Forum: China 2017

KPMG and China Money recently held a seminar in Hong Kong entitled “Special Situations Forum: China 2017”

Guest speakers were from Bain Capital Credit, UBS and Poseidon Capital to name but a few.

 

Paul Errington, the CEO of Connaught Finance attended the Forum and had this to say: The groups focus was on the Non-Performing Loans (NPL’s) market in China, how banks were trying to dispose of these to other companies and how to restructure these.

KPMG alone, helped dispose of CNY 342 billion across 567 NPL portfolios.

But one of the major questions is who is buying these portfolios and basically this is other funders / banks within China, so as far as “disposal” is concerned it is not strictly correct as they are being moved within the domestic banking market. This situation will continue as long as foreign investors have government restrictions imposed on them coming into China.

 

Another point of discussion was the official level reported of NPL’s. Many portfolios have been addressed by wrapping around them financial structures that allow them to be accounted for as “investments” and not NPL’s hence it is difficult to tell the actual percentage of NPL’s in China.

 

Nearly 90% of all NPL’s are property based and taking control of these can often prove legally difficult but over the last 10 years the government have made massive changes and inroads to assist the legal structure within the courts and without a doubt this has helped the market.

 

Cali-Mex Bar and Grill

 

 

 

Over the last few years the food and beverage industry has seen a new and exciting entrant into the market of Hong Kong – Cali-Mex.

This new client for Connaught, not only provides excellent Mexican food but a true Mexican experience at their Bar & Grill outlets.

Now with 17 stores across Hong Kong island and Kowloon, Cali-Mex opened their flag ship in Lan Kwai Fong in late September 2017.

Photos are from their Grand Opening Party which hosted some 350 guests who enjoyed all things Mexican in the entertainment and the Tequilas.

 

 

Jeff Moss – CEO of Cali-Mex & Paul Errington – CEO of Connaught Finance.

 

Asset Finance International

Connaught was recently asked by a world renowned Online Finance Magazine, Asset Finance International to contribute to their “Asia Pacific Country Report”.

Paul Errington, the CEO of Connaught based in Hong Kong, writes numerous industry articles on project finance and equipment finance for the Asian region.

For the full article, follow the link:

http://assetfinanceinternational.com/index.php/countries/surveys-asia-pacific/country-asia-downloads/15344-asia-pacific-asset-auto-finance-country-survey-2017

Asset finance trends in Asia Pacific

Local and global political winds are blowing through the finance markets of the Asia Pacific region. The repercussions of the Brexit vote followed by the election of Donal Trump have the potential to impact the economies in the region, while escalating tensions between the United States and North Korea add troubling uncertainty.

The two biggest economies in the region, China and India, appear to have the size and momentum to withstand whatever happens on the world stage, and both hold enticing prospects for asset finance companies.

“Both economies are showing political support through tax breaks and economic zones that will assist asset finance growth,” said Paul Errington, chief executive officer of Connaught Finance Investments, based in Hong Kong.

While the decision of the US to end its involvement in the Asia Pacific Trade Agreement at the start of 2017 may jeopardise smaller economies, the impact on China appears limited.

“China already has the Regional Economic Partnership, which can easily replace the USA based agreement and attract stronger regional trade,” said Errington.

He sees the political stage as having the greatest impact on growth in the region, with economies adjusting to new elections over the last three years in Hong Kong, Philippines, Sri Lanka, Myanmar, Thailand, Laos and Nepal.

“Political risk is always a factor in any economy and some far more than others,” said Errington. “In the region the Maldives and Myanmar are probably the highest risk of economic implosion through political machinations.”

These, though, are tiny economies compared to some of their neighbours, and investors would be wise to view Asia-Pacific as a hugely diverse region, where a broadbrush approach is in danger of missing significant local differences in critical measures like per capita income and the penetration of connected devices.

Connaught has divided the region into tiers, ranked one to six, grouping countries according to how established each national asset finance market is, as well as factors such as size by GDP, GDP growth, population, industry growth and political risk (see table 1).

With an umbrella view of the region, the Asian Development Bank forecasts GDP growth for Asia Pacific of 5.7% in both 2017 and 2018, as controlled growth in China is balanced by more dynamic growth elsewhere.

“Growth is picking up in 30 of the 45 economies in developing Asia, supported by higher external demand and rebounding global commodity prices,” said the ADB.

The bank anticipates authorities in China maintaining financial and fiscal stability as the country rebalances its economy from industry to services, with domestic consumption driving growth. This in turn will reduce China’s reliance on exports.

But it is the economic development of India that excites so many experts. Measures of GDP per capita, oil demand and even the flourishing new car market remind specialists of China a decade ago, and if India can follow a similar economic trajectory, the Asia Pacific region will have two titans of the global business world.

“Government deregulation and reform of taxes on goods and services, among other areas, should improve confidence and thus business investment and growth prospects [in India],” said the ADB. “Growth is expected to edge up to 7.4% in 2017 and 7.6% in 2018.

Hill Dickinson Event

The CEO of Connaught Finance, Paul Errington, was pleased to attend the recent celebration of the final bringing together of two law firms.

Currently operating as Hill Dickinson Hong Kong LLP in association with Laracy & Co, the transition will marry the two firms together as one single Hong Kong firm under the name Hill Dickinson Hong Kong, taking effect from 1 April 2017.

http://www.hilldickinson.com/insights/news/hill-dickinson-set-complete-successful-transition-hong-kong

Now, this truly international firm offers a full range of legal services with offices in London, Singapore, Greece, Monao and Hong Kong.

http://www.laracyco.com/

December News Letter

Is Regional Politics in Asia putting the brakes on Equipment Leasing?

Political fragility whether real or perceived will always impact foreign investment as well as domestic growth and hence equipment leasing. The recent US election also casts a shadow of doubt over the region as president elect Trump currently advocates an approach of isolationism and moving away from Obamas policy of a Pivot in Asia for the USA. Trump has threatened to pull out of Trans Pacific Partnership which plays directly into China’s hands as they have their own regional trade agreement called the Regional Economic Partnership (RCEP)

Chinas regional investment grows rapidly along with their own domestic leasing market (2015 US$115 billion)

We have chosen 4 countries in Asia as all have had elections of some sort, democratic or otherwise in the last 12 months.

Thailand, Philippines, Myanmar and Maldives are all suffering from their own political fluctuations but the initial impact on investment and growth varies from country to country.

GDP Growth Rates (source CIA)

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In Thailand the recent passing of their King caused some immediate market reactions but in preparation for this, the Junta held a referendum in August which offered only semi-democracy and in fact tightened their own position in the country. The time frame between now and when the Prince takes the throne may continue to be a volatile time in the markets.%e6%9c%aa%e5%91%bd%e5%90%8d

Like most leasing emerging markets there are very few solid statistics to review and as such it is more speculation about the leasing growth. Connaughts, “on the ground” experience indicates that the political uncertainties have not had a negative impact on the equipment leasing market. But from a tax point of view, withholding tax (5%), VAT (7%) and Specific Business Tax (SBT 3%) continue to cause difficulties in the market.

New finance companies are entering the market which is always a good sign and traditional funders are being forced to consider different finance structures to meet the market demand as well as to match their competitors product range.

However, the same cannot be said for the vehicle leasing market which has been impacted by the lowering of family incomes and political uncertainties. This has resulted in a 20% to 30% rise in vehicle repossessions. (source White Clark Group)

The 2016 election of President Rodrigo Duterte in the Philippines was greeted enthusiastically by the citizens but his abrasive commentary and war against the drug lords caused international concern. As he pointed out himself “the UN, USA and other countries cannot be involved in domestic matters, this is our sovereignty” The rhetoric between Duterte and the Obama administration has pushed the Philippines towards China for trade and investment. They recently secured US$24 billion worth of investment and financing from Chinas President Xi Jinping.

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Whilst international opinion may be against Duterte the economy is very healthy with GDP growth in Q2 this year at 7%, the highest it has been since 2014. Thailand only grew by 3.5% in the same quarter and China by 6.7%. What does this mean for equipment leasing? Domestic and foreign banks and finance companies are growing their leasing portfolios with marked increases in vehicle finance (26% increase in auto loans to US$5 Billion) and in mining equipment with such companies as Marubeni being a major lender.

 

Myanmar underwent a transition from military dictatorship in November 2015 to their first elected government in decades. President Htin Kyaw, the proxy of Nobel laureate Aung San Suu Kyi, is struggling for reform as the military still hold a substantial number of seats and therefore control in the government.

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International sanctions are gradually being lifted and foreign investment is increasing with international banks such as ANZ from Australia, Singapore’s OCBC and Japans Sumitomo Mitsui gaining their licenses in the last 12 months. But recent human rights are carefully watching the military action of violent discrimination causing a major refugee crisis against the minority Rohingyas of western Myanmar.

Myanmar has recently entered into talks with Thailand to grant access to designated banks in each others countries. Myanmar’s largest lender, Kanbawza Bank, opened a representative office in Bangkok in August, becoming the first Myanmar bank to venture abroad.

Equipment leasing does exist here for those banks and finance companies that have representation, otherwise the only alternative option is cross border structures backed by letters of credit. Possible repossession of equipment is seen as an issue even when government owned borrowers are involved.

The major set back to leasing is the lack of regulations and little legal framework. Talks are expected to start in the near future to address these issues says the IFC. As with all emerging countries the funders are starting with vehicle leasing or Hire purchase. Connaught are in the process of finalizing a cross border lease through Singapore for IT equipment to the value of US$12m.

The idyllic island nation of the Maldives had a brief brush with democracy but elected President Mohamed Nasheed was ousted from power (and arrested) in 2012 to be replaced by Abdulla Yameen Gayoom. (Widely regarded as dubious) He recently announced that they will be leaving the Commonwealth amid rumors of an impending coup and allegations of money laundering.

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Investment in this tiny nation is mostly for the tourism industry and their fishing industry but recently China invested US$800m for the expansion of the airport and are in talks to link the airport island to Male, the capital island with a bridge.

Of the four countries in this article, the Maldives probably has the greatest political instability but also has the least demand for equipment leasing due to its size and geography.

In summary across these four countries there has been a noticeable trend of finance suppliers either entering a country or expanding. Specifically, these are the Japanese funders such as Orix, Mitsubishi UFJ Lease and Finance, Century Tokyo Leasing, Sumitomo Mitsui Finance, Hitachi Capital and NEC Capital. Some of these companies are still weighed down with legacy policies and lack any regional management structure or standardisation in products but others are more open to different structure to achieve a finance solution for clients.

Thailand and the Philippines are gradually moving away from only lending 80% of asset values and accepting the importance of the borrowers strength and not market value of equipment as the driving factor for credit approval.

Interest rates also vary drastically across these countries and not just with the base currency being either local or US$ but the perceived risk profile of the client, economy, politics and lastly the possible residual value of equipment on the market.

This is like stepping back in time to when leasing of IT equipment started, the funders were concerned about there being no second hand market value. We are now seeing this frequently when it comes to financing of green energy products. Waste to power, recycling of electronic waste, bio-mass power all fit into this category of concern for future value of equipment. The same will occur as it did with IT and funders will gradually recognize that this market for Green equipment is not going away and they need to get on board.

Written by

Paul Errington

CEO

Connaught Finance Investments

Hong Kong

www.connaughtfinance.com

Star Prototype

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Connaught are pleased to welcome Star Prototype to their ever expanding list of clients.

Star Prototype was founded in 2005 by British engineer Gordon Styles and it continues to be 100% owned by him. Gordon is an expert in rapid prototyping and 5 axis CNC machining.

Star Prototype specialize in rapid prototyping, rapid tooling and low volume production of custom parts. Their international team of engineers and technicians use advanced equipment and techniques like 3D metal printing, multi-axis CNC machining and plastic injection molding, to turn client’s designs into reality quickly and accurately.

At a recent site visit to their manufacturing plant in Zhongshan, China, Paul Errington, CEO of Connaught, stated “ I was impressed with the company on many levels, not just the exceptional cleanliness of the work areas but also the equipment quality and more than anything else the team spirit amongst the international and local engineers”. Paul met with Gordon Styles and Jon Ross the company CEO as well as many of the divisional leaders of Star.

Connaught provided a funding solution to assist with the rapid company growth.

For more information on Star Prototype pleas go to their website:

www.star-prototype.com

 

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Mongolian Investment Summit 2014

Mongolia-Projects-Investment-Summit-HK-2014-18-19-Nov_950x152The Mongolia Investor Forum 2014 was held recently in Hong Kong to attract further FDI in this emerging economy.

Mongolia has one of the richest untapped natural resources in the world.  Development of the economy requires substantial investment not only in mining and equipment, but also infrastructure, construction, logistic and major railway projects.

In 2013, the country’s GDP grew by 17.5%, one of the largest in the world at that time. Due to change in legislation, the country’s largest mine, Oyu Tolgoi came to halt. In 2012, the country’s GDP only grew by 7.6%.  The importance of OT to the economy was obvious and it was essential to have the legislation changed to allow phase two of the mine to commence.

At the investor forum last year in Hong Kong, this legislation was apparently imminent and expected within a month.  At the investor forum this year, we are still talking about when the legislation would be forthcoming. The Mongolian government last month voted their President out with a vote of no confidence and this could be viewed as a positive step toward passing the required legislation.

Although the importance of Oyu Tolgoi is not disputed for the country, there are many projects, mines and construction which can be supported with additional FDI. Hopefully the country would take this opportunity to build upon their infrastructure to allow movement of products by roads and rail.

Equipment leasing is therefore and integral part of this growth.  High interest rates domestically are forcing borrowers to look for cross border transactions. There are numbers of problems facing the growth of equipment leasing in Mongolia today. This includes the political instability, the lack of a registration system for movable equipment and transparency of financial accounts.

In my previous article on equipment leasing in Mongolia written 4 years ago, this was exactly the same problem. At some point, an emerging market needs to do just that, emerge. Unfortunately, Mongolia is still held back by the same factors which were there four years ago.

When and if, Oyu Tolgoi commences phase 2 of its mining project, demand for equipment leasing will increase substantially. The question is still remaining – if the domestic funders have the knowledge and financial capacity to respond to such demand. We can only hope that at the investor forum next year we will not be having the same discussion.

Wing Ding 2014

The annual charity squash Wing Ding competition was played this month at the Hong Kong Football Club. Connaught Finance participated for the sixth year in a row, which last year raised HKD $2.1 million for the children in need of Hong Kong.

The game format is that each team is given a color and must then choose a fancy dress outfit to match, in which they then have to play squash.

This colorful event consists of 14 teams of ten players. Each participant plays against his equivalent in the opposing team for 3 minutes. Then they run to the next court for further 3 minutes non-stop  if you get to the next court first you start serving for points.

This spectacle sees outfits such as chickens, monks, cowboys and Vickers running from court to court, pushing their squash limits to help to raise funds for the charity.

All funds are fed into operation Santa Claus which is also supported by the other events in Hong Kong operated by Standard Chartered Bank, JP Morgan and HSBC.

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Sri Lanka

The FDI (Foreign Direct Investment) between January and August 2014 reached US$1.06 billion in Sri Lanka (+22.2% YOY) and with government expenditure to reach record highs in 2015, the recent visit of the Chinese President Xi Jinping, all bodes well for the blooming economic future.

Minister for Petroleum    In a recent visit to Colombo, the CEO of Connaught Finance, Paul Errington, met with the Minister of Petroleum Industries, Anura Priyadarshana Yapa, to discuss the future of the oil and gas industry in the country. Paul was accompanied by the Reverend Wijayapura. The existing oil refinery’s are going through major upgrades with new pipeline being laid across the country to increase efficiencies and Connaught Finance hope to assist with the development.

 

 

PereraOther government meetings were held with the Secretary for Transport, Dhammika Perera, for infrastructure growth discussions. Mr Perera has many business interests in the country which stretch from hotel chains and finance companies to casinos.

Another reflection of the economic performance is the growth in tourist numbers, with an increase of 13.8% (YOY) in August, according to the Sri Lankan Tourist Development Authority. China became the third largest source of tourists, surpassing Germany. The new airport in the south of the island is ready for the anticipated surge in volumes over the next 12 months.

In any growing economy the need to finance is essential and not just for SME’s but also the listed companies, multi –nationals and government bodies. Equipment finance is therefore integral to growth right across the market sectors, whether in tourism, infrastructure, green power or tea production and manufacturing.

One of the major issues holding back this development through local banks is their willingness or lack thereof, to look at product development. FDI is increasing but will the local banks miss out due to their preference to stay within their comfort zone of financing vehicles.

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Reverend, Galagama and his associate met with the CEO of Connaught Finance on the arrival of Colombo.