Issue 36

China pledges another $60bn to Africa in bid to win allies

Chinese President Xi Jinping offered Africa $60 billion in economic support at a summit that opened here on Monday, seeking to win over countries amid ongoing trade frictions with the U.S.

This year's Forum on China-Africa Cooperation brings together 53 African countries, represented by heads of government and senior officials. The aid announced by Xi includes $15 billion in grants, interest-free loans and concession loans, as well as at least $10 billion in investments by Chinese companies.

China also pledged $60 billion in assistance at the last forum in 2015 -- the triennial gatherings date back to 2000. China kept that promise, he said, disbursing or earmarking all the money.

Alluding to the trade war with the U.S., Xi said China is committed to multilateral trade and will oppose protectionism. He touted the Belt and Road infrastructure initiative and welcomed African nations aboard the "express train" of China's development.

Where Western countries may withhold assistance to African nations over human rights concerns, Xi drew a contrast with Beijing's approach. China's investment in Africa comes with "no attachment of political strings" and does not interfere in countries' internal affairs, he said.

Nonetheless, deepening ties with China carries risks for African countries. Many worry that cooperative arrangements could be tilted toward Chinese businesses or result in massive debts to China, for instance.

Addressing these concerns, Xi said that Africa's least-developed and poor countries would have their interest-free Chinese government loans exempted, referring to debt maturing by the end of 2018. The Chinese president has met with representatives of more than 30 countries since Thursday as part of trust-building efforts.

China has strengthened ties with other countries amid tensions with the U.S. Asia's largest economy has held ministerial-level meetings with Latin American and Arab countries this year. China and Africa are "natural allies" with common aspirations, official Chinese media have quoted Foreign Minister and State Councilor Wang Yi as saying.

The absence of the former Swaziland from the forum highlighted Beijing's stance on Taiwan. Recently renamed eSwatini, it is the only African nation that still has diplomatic ties with Taipei rather than Beijing.

Xi welcomed Burkina Faso and two other countries that have restored diplomatic ties with China in the past three years, underscoring the economic benefits of having ties with Beijing.

As the forum concludes on Tuesday, participants will adopt a joint statement laying out an action plan for the next three years. Xi and South African President Cyril Ramaphosa are scheduled to hold a joint news conference afterward.

  From – Nikkei Asian Review

Lyft just pulled ahead in the ridehailing IPO race

Lyft has started working with IPO advisor Class V Group to prepare a public offering that could come as soon as March or April 2019, as first reported by Bloomberg.

Hiring the advisor is reportedly part of Lyft's efforts to beat chief US rival Uber to the public markets. The two ridehailing companies have been mainstays in the IPO rumor mill in recent months, and both are prime candidates to go public sometime soon, though it would be something of a surprise if Lyft beats Uber to the punch, considering that the latter is older, holds more market share and is much more highly valued on the private markets.

However, those last two points have slowly been shifting. Lyft, founded in 2012, reported earlier this year that its market share in the US had reached 35%, up from 15% in January 2016. And reports have indicated the company is on track to pick up record bookings this year. That's likely thanks in part to Uber running into struggle after struggle over the last few years, from sexual harassment allegations to the ouster of founder Travis Kalanick.

Uber, founded in 2009, is the most valuable private company in the US, with a valuation that hovers around $70 billion. But while Lyft is still far behind, with a $15.1 billion valuation, the company is still one of the most valuable companies in the country. And it has momentum: Lyft's valuation has nearly tripled since the beginning of 2016, when it was worth $5.5 billion.
This is the latest development in Lyft's road to an IPO. A full year ago, reports emerged that Lyft was close to choosing an advisory firm for its upcoming listing. At the end of 2017, the San Francisco-based company brought on Kristina Omari as its first VP of corporate development and investor relations, a role that could have been created to work on a public offering. And early this year, Lyft hired Jon McNeill, a former Tesla executive, as its new COO. Then, of course, there's the company's improving market share and positive financial indicators.

For Lyft, there are pros and cons to going public before its biggest rival. It would be the first US ridehailing company to hit the public markets, which would mean it can set expectations for the industry and attract investor interest early. But Lyft, as the less valuable of the two, could also lose out on investors who are holding out for Uber's IPO.

Uber CEO Dara Khosrowshahi has said his company will likely go public in the second half of 2019.

From – PitchBook

Tencent-Backed Meituan Starts Taking Orders for $4.4 Billion IPO

Meituan Dianping, the Chinese restaurant reviews and delivery giant backed by Tencent Holdings Ltd., started taking orders for a Hong Kong initial public offering that could raise as much as $4.4 billion.

The company is offering 480.27 million new Class B shares at HK$60 to HK$72 apiece, according to terms for the deal obtained by Bloomberg on Tuesday. Five cornerstone investors including Tencent have agreed to buy a combined $1.5 billion of stock in the offering, the terms show.

Meituan’s IPO will bankroll its costly expansion into businesses from ride-hailing to finance as it pursues an ambition to become a super-app in the vein of Tencent’s own WeChat. That sets it up for a clash with Alibaba Group Holding Ltd., which is spending billions to try and seize control of China’s $1.3 trillion food delivery and online services industry.

In ride-hailing, it’s taking on Didi Chuxing, the startup that defeated Uber Technologies Inc. in China. Meituan’s IPO filings show a company growing rapidly but also hemorrhaging cash: it lost $2.9 billion in 2017 alone.

Tencent has committed to buy $400 million of stock in in Meituan’s IPO, while Oppenheimer agreed to invest $500 million, the terms show. Darsana Capital Partners will purchase $200 million of shares, while fellow hedge fund Landsdowne Partners agreed to invest $300 million. The China Structural Reform Fund committed to purchase $100 million, the terms show.

Meituan expects to take investor orders through Sept. 12 and price the offering that day during U.S. Eastern hours. It aims to start trading Sept. 20, the terms show. Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. are joint sponsors of the offering, while China Renaissance Holdings Ltd. is sole financial adviser.

Chief Executive Officer Wang Xing founded in 2010 as a group-buying site similar to Groupon Inc. before a 2015 merger with Dianping, which provided reviews of restaurants and other local businesses. Wang will remain controlling shareholder after the company lists, according to Meituan’s preliminary prospectus.

Meituan would be only the second company to list with weighted-voting rights in Hong Kong, after smartphone maker Xiaomi Corp. priced a $5.4 billion share sale in June. The city’s market regulators tweaked rules this year to try and attract more of China’s tech darlings, which like Alibaba have previously favored the U.S.

It’ll try to get investors to focus on its rapid top-line expansion, in the tradition of Inc. and other fast-growth firms that bled money for years. It remains to be seen if the market will overlook its significant spending on marketing.

From – Bloomberg

A $14 Billion Mobile Stock Sell-Off in Japan Makes a U-Turn
NTT Docomo Inc. shares gained seven of the past eight trading days, rebounding after a two-day plunge triggered by a government official’s comment suggesting Japan’s mobile carriers have room to slash customer bills.

Investors have seen this movie before: A Japanese government official says mobile phone bills are too high, and the three big carriers’ shares tumble, only to recover within days or weeks.

Prime Minister Shinzo Abe’s administration began the campaign to push wireless tariffs down in 2014. Since then, the three big carriers have added about $113 billion in market value, even though their shares slumped each time officials called for lower rates.

The latest installment debuted Aug. 21 when Chief Cabinet Secretary Yoshihide Suga said carriers have room to cut bills by 40 percent. In response, investors lopped more than $14 billion off the combined market value for the companies over two days. Since then, the shares have partially recovered, adding back about $8.3 billion. If history is any guide, they’ll recoup the rest and then gain some in coming weeks and months.

“The government’s pressure this time is just the same as in the past -- it’s not drastic,” said Shinji Moriyuki, an analyst at SBI Securities. “People in the market knew this, and that’s why the telecom shares are bottoming out.” His rating on NTT Docomo shares is one of 9 buys, compared with 12 holds and one sell among the 24 analysts tracked by Bloomberg. Among those covering the company, none downgraded their rating after Suga’s remarks last month.

Mobile stocks’ resilience has come in part as they have been able to increase annual revenue even while adding lower-priced service plans. The carriers have focused on making it easy to buy the latest premium smartphones that are good for playing games, streaming video and participating in social media -- uses that can push up data consumption and spending.

That has helped NTT Docomo raise average wireless revenue per user to the highest since 2013 in the quarter ended June, a 20 percent increase from the first quarter three years earlier. KDDI has raised revenue per account about 44 percent since the fourth quarter of 2014.

Investors have rewarded those gains, along with SoftBank’s investment moves.

SoftBank Group Corp. shares are up 15 percent this year as of Monday’s close, while NTT Docomo has advanced 8.7 percent and KDDI Corp., 5.4 percent, compared with a 0.3 percent drop for the Nikkei 225 Stock Average.

From – Bloomberg

AirAsia's $100m China hub deal collapses as bilateral relations cool

A deal for an AirAsia hub in China supported by Malaysia's previous government has ended with no prospect for renewal, the budget carrier said on Thursday.

The airline once touted the planned hub in the central Chinese province of Henan as the "final piece of the puzzle" for its Asian presence.

Malaysia-based AirAsia gave no reason for the new development other than to say the estimated $100 million deal "has now lapsed as per the terms of the MOU [memorandum of understanding] and will not be extended," according to a stock exchange filing.

The announcement comes amid the suspension of $20 billion worth of China-backed infrastructure projects on the order of Prime Minister Mahathir Mohamad. Malaysia's new leader seeks to review dubious deals made under predecessor Najib Razak, who faces corruption and money laundering charges.

The airline group signed a memorandum of understanding in May 2017 with Henan Province and Everbright Financial Investment Holding, a unit of state-owned China Everbright Group, to form AirAsia China.

Najib, then Malaysia's prime minister, witnessed the signing while attending the inaugural Belt and Road Initiative conference in Beijing upon an invitation from Chinese President Xi Jinping.

The deal involved building a dedicated hub at Zhengzhou Xinzheng International Airport, the gateway to the Henan capital of Zhengzhou. The plan also called for establishing an airline crew training center as well as maintenance, repair and overhaul facilities.

China has always been on AirAsia's radar as it eyes the untapped low-cost market to diversify away from competition in Southeast Asia. China once contributed about 40% of sales across the group, even though Chinese cities account for only about 15% of AirAsia's destinations. The airline also has operations in India, Indonesia, Japan, the Philippines and Thailand.

Mahathir, who met Xi in Beijing recently, said the Chinese leadership "understood" the need for Malaysia to halt the projects, which include a rail link and gas pipelines.

The carrier said Thursday that net profit swelled 147% on the year to 361.8 million ringgit ($88 million) for the April-June period. Revenue grew 10% to 2.6 billion ringgit on 13% growth in passenger traffic, even as the load factor -- a measurement of the number of seats sold -- declined by 3 percentage points to 86%.

AirAsia carried 10.8 million travelers during the second quarter, over two-thirds of them through its operation in Malaysia. Load factor for each unit in the region declined or stayed flat amid a 17% increase in seat capacity, suggesting strong competition in the company's six markets as fuel costs rose 28%.

For the first half of 2017, group net profit nearly doubled to 1.5 billion ringgit on revenue of 5.2 billion ringgit.

But AirAsia warned of "headwinds" approaching in the form of high fuel prices and weaker regional currencies, even as demand remains strong. The airline projected a lower load factor of 83% in the third quarter based on booking trends in Malaysia, Indonesia and the Philippines.

From – Nikkei Asian Review
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