Marriott to buy Starwood for $17b to create world’s biggest hotel chain

Marriott International will buy Starwood Hotels & Resorts Worldwide for $US12.2 billion ($17.2 billion) to create the world’s largest hotel chain with top brands including Sheraton, Ritz Carlton and the Autograph Collection.

The combined company will have over 5,500 hotels with 1.1 million rooms worldwide, giving Marriott greater presence in markets such as Europe, Latin America and Asia and allowing it to better compete with apartment-sharing startups such as Airbnb.

Airbnb, seen as a disruptor for the travel industry, is expected to eat into hotels’ business as it signs up more and more homeowners, analysts warn.

About three-quarters of Marriott’s rooms are in the United States. Markets outside North America had about half of Starwood’s rooms, but accounted for nearly two-thirds of its revenue in 2014.

The deal, one of the biggest since Blackstone Group LP bought Hilton Worldwide Holdings Inc for $US26 billion in 2007, could spark consolidation in the industry as other hotel groups look to gain scale.

Starwood shares fell as much as 8 per cent to $US68.96 on Monday, way below the offer price of $US72.08.

Marriott shares fell as much as 3.2 per cent to $US70.43 amid weakness in stocks of hotels and airlines due to heightened concerns that the Paris attacks on Friday could curb travel.

Starwood’s shareholders will get 0.92 Marriott Class A share and $US2 in cash for each share held. They will also get about $US7.80 per share from the spinoff of Starwood’s timeshare business and subsequent merger with Interval Leisure Group Inc , announced in February.

The company, which had a market value of $US12.67 billion as of Friday, had reached out to InterContinental Hotels Group Plc , Wyndham Worldwide Corp and sovereign wealth funds for a possible deal since July, sources had told Reuters.

Marriott said it expected to incur $US100 million-$US150 million in charges related to the deal and save at least $US200 million annually from the second year after the transaction closes.

SMH

Australian tourism, education, agriculture – new export opportunities in China

Australia has a major opportunity to offer exports to China beyond its traditional role as a quarry. But it can only take advantage if it adopts the right policies for the more competitive services sectors, according to HSBC.

HSBC chief economist Australia and New Zealand Paul Bloxham believes that as China shifts its economy from an investment-led model to become more consumer-driven, there will be big opportunities for Australia to benefit in sectors like tourism, education and agriculture.

“The global perception of Australia is [that] Australia is just a big mine and that with resources prices having fallen and the commodities prices under pressure Australia is going to have a hard time,” Mr Bloxham said after releasing a 40-page report on Australia’s next opportunities in China on Wednesday.

“We are more optimistic. Australia is more than that. Australia is a big services economy…and there is a pick-up going on in the service exports space.”

Services account for 70 per cent of Australia’s gross domestic product and 80 per cent of jobs, versus mining with 10 per cent of GDP and just 2 per cent of jobs.

China is already Australia’s largest market for its services exports, with China accounting for around $8 billion, or 14 per cent of services exports in 2014.

Mr Bloxham said it was important for Australia to take advantage of growing exports from services, now that commodities prices have fallen, although he acknowledged there would be challenges.

“Australia has a clear competitive advantage in producing resources and a less clear advantage in producing services and agricultural products,” he said.

“We need to do more to improve our infrastructure, tax system, competition policy and education policies to improve our competitiveness and productivity.”

Chinese visitors

The HSBC report said in the tourism sector, Australia’s share of the outbound Chinese market should increase beyond the current 0.8 per cent in the coming years supported by rising middle class incomes, a lower Australian dollar and growing population links between the countries driving more Chinese to visit friends and relatives in Australia.

On Monday, the government forecaster Tourism Research Australia predicted the number of Chinese visitors to Australia would overtake New Zealanders to become our top market within the next five years.

HSBC noted Chinese holidaymakers were the biggest spenders per night of any nationality, but they only spent an average of nine nights in Australia compared with the average of 25 for all nationalities.

“Anything to encourage more tourism or longer stays is helpful,” Mr Bloxham said. “It is something Australian policymakers need to be more focused on.”

In education, international student enrolments had fallen when the Australian dollar was above parity with the US dollars, but numbers returned to their previous peak in the first half of 2015 driven by record numbers of Chinese students.

HSBC said the priority from a policy perspective should be to ensure universities had top reputations, as that was highly important in attracting Chinese students.

In the agricultural sector, Mr Bloxham said Chinese demand for meat and dairy products would continue to grow as its citizens became wealthier. But he said consolidation tended to make the agricultural sector more productive and more of it was needed in Australia, even though it was politically unpopular.

“Policies that don’t discourage consolidation would be more helpful,” he said. “Regulations are getting in the way of improving our competitiveness.”

SMH

Zero deposit loans for Chinese investors to spur Australian property market

One of China’s biggest financial institutions is offering zero-deposit home loans for off-the-plan apartments in Melbourne and the Gold Coast, a practice at odds with efforts by Australian regulators to tighten lending standards and cool the property market.

The banking division of PingAn Insurance, which has a listing in Hong Kong, was spruiking the loans to Chinese investors at a conference in Shanghai last week.

“Become an Australian property owner with zero down payment,” said one slide displayed at the conference. “Join hands with PingAn and realise your overseas property dream,” said another.

PingAn and property marketing group Austpac are offering Chinese investors the zero-down-payment option for apartments in Melbourne’s West Brunswick and Hope Island on the Gold Coast.

“It will open up the Australian property market to a whole new class of investors,” said Eddie Yuen, the Shanghai-based manager of Austpac. “Investors may not have the cash now, but they can still buy a property in Australia.”

The aggressive lending practices being promoted by PingAn come amid efforts by the Australian Prudential Regulation Authority and the Reserve Bank of Australia to cool the overheated property market.

APRA has forced banks to tighten lending practices for property investors, including tougher income assessments and higher down-payment requirements.

AFR

On track for biggest year ever in global M&A

Those elusive “animal spirits” may be returning, at least globally, with 2015 shaping up to be the biggest year ever for global merger and acquisition activity.

Already, in the 10 months to October, 2015 is the second-biggest merger and acquisition year in history, behind 2007. If the trends continue it will be the biggest, Citi says.

“Global deals announced so far this year amount to $US3.1 trillion … the biggest if we annualise year-to-date activity,” Citi said in a paper.

So far, global deals were up 38 per cent over the same period in 2014, it said.

“We see it as a logical catch-up. Cheap borrowing rates, modest global economic growth and reasonable chief executive confidence should continue to boost activity into 2016, providing further impetus for this global bull market.”

However, the rise has not been equally spread throughout the world. “The pick-up has been strongest in the US and the UK,” the paper said. “These are also the only major markets where M&A activity this year has exceeded the 2007 peak.”

Citi attributed the rise in M&A to a number of factors.

“Record low interest rates make debt financing cheap and cash hoards dilutive. The economics of debt-financed M&A look compelling,” it said. “Additional support for M&A activity comes from ongoing, though not especially strong, economic growth.

Financial Review

China’s Leaders Shift From Short-Term Stimulus to Five-Year Plan

China’s leaders gathering in Beijing this week to formulate the 13th five-year plan confront an era of sub-7 percent economic growth for the first time since Deng Xiaoping opened the nation to the outside world in the late 1970s.

Old drivers such as manufacturing and residential construction are spluttering, and new areas like consumption, services and innovation aren’t picking up the slack quickly enough. While President Xi Jinping’s blueprint for 2016-2020 will seek to map out the structural change needed to propel the next leg in China’s march toward high-income status, a more immediate fix has been delivered with the sixth interest-rate cut in a year.

“Defensive economic stimulus is needed to ensure that structural reforms maintain their momentum,” said Stephen Jen, co-founder of London-based hedge fund SLJ Macro Partners LLP. “If growth slows too much, the pace of structural reforms in China will also need to be curtailed. The government wants to conduct reforms before the macro conditions get worse.”
Late Friday, China announced it would cut benchmark interest rates, stepping up the battle against deflationary pressures and easing the financing burden on indebted local governments and companies. It also lowered the amount of deposits banks most hold as reserves, adding liquidity that has been drained by intensifying capital outflows since August’s yuan devaluation.

Bloomberg Business

Turnbull government backs Murray Review, setting up major overhaul of Australia’s financial system

Shops, cabs, and other merchants will be banned from imposing unfair surcharges on credit cards, and inactive bank accounts and life insurance policies will be only defined as unclaimed after seven years, rather than three, in a huge overhaul of Australia’s financial system.

The Turnbull government has responded to the Murray Review of Australia’s financial system, agreeing with the vast majority of the review’s recommendations.

The review represents the biggest overhaul of the financial system since 1997, when the Wallis Report on the financial system led to the creation of the Australian Prudential Regulation Authority (APRA), which helped Australia through the financial crisis.

The review touches on everything from credit card fees, superannuation, cyber security, and crowd funding regulation.

It has set also up the next three years of political fighting in Canberra at least, with the ‘point’ of the super system promised to be enshrined in legislation so consumers and industry have policy certainty.

The Turnbull government will ask the Productivity Commission to develop an alternative model for a ‘formal competitive process’ for allocating default super funds to members.

It will also ban merchants from charging surcharges on credit cards that are greater than the cost of accepting payment by card.

                 Financial Review

China’s Economy May Be Even Bigger Than You Think

With China set to announce its third-quarter gross domestic product report on Monday, skepticism over its economic data is arising anew.

Recall that Bill Gross has described China as “the mystery meat of emerging-market countries.” Premier Li Keqiang, before taking that post, said he didn’t rely on official statistics. He preferred things like rail freight and electricity use to gauge activity.

So is China about to puff up its economic report card once more?

Quite the contrary, according to one of the world’s foremost emerging market investors, Mark Mobius.

“I know there’s a lot of debate as to whether the numbers are true, whether it’s really 7 percent, but our numbers indicate that it is at least that,” the chairman of the emerging-markets group at Franklin Templeton Investments  said in a recent interview with Bloomberg TV. “We think that a lot of the economy is not really being counted because China is being converted from a manufacturing-oriented economy to a service economy.”

That gels with the view of Rhodium Group analysts in a September report for the Center for Strategic and International Studies.

Their 200-plus page study found China’s GDP methodologies are largely in line with international practices and charges that estimates are sheer fabrications are “misinformed.” Still, they acknowledged that Chinese statistics and their transparency are “sometimes shaped by political interests.”

China’s economy is bigger, not smaller than official data suggests, the analysts found, with the services sector the hardest to measure and real estate even more important than currently reflected.

Bloomberg Business

Australia’s largest and oldest dairy has been sold to Chinese interests

The Van Diemen’s Land Company (VDL), is one of Australia’s oldest companies and also one of the nation’s largest dairies running 25 farms in Tasmania’s north-west region.

For many years it has been controlled by the New Plymouth District Council (NPDC) based in New Zealand’s North Island near Taranaki.

But The Australian reports this morning that control of the company is about to change hands to Chinese interests with companies associated with Herman Shao-ming Hu and Kenny Zhang buying 35% each from NPDC for $220 million.

The other 30% is being purchased by “the Lempriere Capital equity managers, linked to the Melbourne-based Lemp­riere family, noted wool traders”.

The deal also looks set to both benefit from the upcoming vote in Federal Parliament on the China Australia Free Trade Agreement (ChAFTA) and the burgeoning demand from the growing Chinese middle class for dairy products.

The Australian says that even though neither Hong Kong-based Hu or mainland China-based Zhang have any previous agricultural interests but they do have access “to distribution and marketing channels in China and Hong Kong, where any food and farm products they produce in Australia can be sold directly”.

Business Insider

China’s Landbridge wins Port of Darwin for $506m

Chinese energy and infrastructure group Landbridge will consider opportunities to build hotels in the Northern Territory after paying $506 million for a 99-year lease for the Port of Darwin.

Landbridge will invest $200 million in the port over the next 25 years to boost trade and tourism links with Asia, including improving cruise ship facilities. The port is an emerging destination for cruise ships, with 65 cruise ship visits in 2014-15, the highest number in six years.

Landbridge will invest $200 million in the port over the next 25 years to boost trade and tourism links with Asia, including improving cruise ship facilities. The port is an emerging destination for cruise ships, with 65 cruise ship visits in 2014-15, the highest number in six years.

“Landbridge intends to grow two-way trade between Australia and Asia, leveraging Landbridge’s existing port and logistics businesses and firmly putting Darwin on the map for Chinese business,” said Landbridge Infrastructure Australia’s director, Mike Hughes.

 The Chinese group is also understood to be keen on building new hotels in the city. The Northern Territory government is considering a luxury hotel development in Darwin.

Northern Territory chief minister Adam Giles said the Territory would benefit from Landbridge’s “position, networks and experience” in Asia.

Trade to China is expected to receive a further boost when the China-Australia Free Trade Agreement comes into effect.

Financial Review

 

China’s ‘Golden Week’ Sales Shows Consumer Spending Strength

China’s restaurant, cinema and travel sales surged in the ‘Golden Week’ national holiday, an indication that robust household spending remains a prop for a slowing economy.

The Oct. 1 to 7 holiday to celebrate the Communist Party’s founding of the People’s Republic in 1949 came this year after a period of historic volatility in China’s financial markets that rattled global confidence in the world’s second-biggest economy. While economists fretted, China’s workers splurged.

More than 750 million trips were taken in the seven days according to the official Xinhua News Agency’s website, citing estimates from various government ministries.

Traffic gridlock and a cacophony of car horns marked the period as 639 million of the trips were on the road, according to the Ministry of Transport.

Sales at restaurants and retailers amounted to 1.082 trillion yuan — that’s about equivalent to Kuwait’s total economic output in the whole of 2014 — during the seven days, according to the Ministry of Commerce. That was an 11 percent jump from a year earlier.

Bloomberg