ASEAN’s Free Trade Agreements With The Asia-Pacific Region’s 5 Biggest Economies

Apart from the ASEAN Free Trade Area (AFTA) between ASEAN member states, the regional trade bloc has signed several FTAs with some of the major economies in the Asia-Pacific region. These include the ASEAN-Australia-New Zealand FTA (AANZFTA), the ASEAN-China FTA (ACFTA), the ASEAN-India FTA (AIFTA), the ASEAN-Korea FTA (AKFTA), and the ASEAN-Japan Comprehensive Economic Partnership (AJCEP). The aim of these FTAs is to encourage and promote businesses of all sizes in ASEAN to trade regionally as well as internationally without tariff barriers. Businesses with operations in ASEAN can use the FTAs to gain easy access to new export markets for their products at low costs, and benefit from simplified export and import procedures.

ASEAN-Australia-New Zealand Free Trade Area

The agreement establishing the ASEAN-Australia- New Zealand Free Trade Area (AANZFTA) entered into force in January 2010. The FTA is the most comprehensive agreement covering a wide range of issues including trade in goods and services, investment, intellectual property, competition as well as economic cooperation. Since its inception, the AANZFTA has encouraged trade in goods and services by removing barriers and reducing transaction costs for companies wanting to do business in member countries. According to the agreement, 99 percent of the Australia-New Zealand trade in goods with Indonesia, Malaysia, the Philippines, and Vietnam will be duty-free by 2020. Upon full implementation in 2025, almost all trade between the member countries will be free of tariff, helping businesses save millions of dollars in tariff duties each year.

ASEAN-China Free Trade Area

Over the past decade, trade and investment between ASEAN member states and China have expanded significantly under the ambit of the ASEAN China Free Trade Area (ACFTA). The Agreement on Trade in Goods was signed in 2004 and implemented in July 2005 by all the member countries. Under the agreement, the six original ASEAN members and China decided to eliminate tariffs on 90 percent of their products by 2010, while Cambodia, Lao PDR, Myanmar, and Vietnam – commonly known as CLMV countries, had until 2015 to do so. Since the signing of the agreement, China has consistently maintained its position as ASEAN’s largest trading partner. In 2015, ASEAN’s total merchandise trade with China reached US$346.5 billion, accounting for 15.2 percent of ASEAN’s total trade. Additionally, ASEAN received US$8.2 billion in foreign direct investment (FDI) from China in 2015, placing China as ASEAN’s fourth largest source of FDI. By 2020, ASEAN and China are committed to achieving a joint target of US$1 trillion in trade and US$150 billion in investment through ACFTA.

ASEAN-India Free Trade Area

The ASEAN-India Trade in Goods Agreement entered into force on January 1, 2010. The signing of the agreement paved the way for the creation of one of the world’s largest free trade area market, creating opportunities for over 1.9 billion people in ASEAN and India with a combined GDP of US$4.8 trillion. AIFTA creates a more liberal, facilitative market access, and investment regime among the member countries. The agreement set tariff liberalization of over 90 percent of products traded between the two dynamic regions. Accordingly, the tariffs on over 4,000 product lines were agreed to be eliminated by 2016, at the earliest.

ASEAN-Republic of Korea Free Trade Area

The ASEAN-Korea Trade in Goods Agreement was signed in 2006 and entered into force in 2007. It sets out the preferential trade arrangement in goods among the ASEAN Member States and South Korea, allowing 90 percent of the products being traded between ASEAN and Korea to enjoy duty-free treatment. The Agreement provides for progressive reduction and elimination of tariffs by each country on almost all products. Under the Trade in Goods Agreement, ASEAN-6 including Brunei Darussalam and Korea have eliminated more than 90 percent of tariffs by January 2010.

ASEAN-Japan Comprehensive Economic Partnership (AJCEP)

The ASEAN–Japan Comprehensive Economic Partnership (AJCEP) came into force in December 2008. The Agreement covers trade in goods, trade in services, investment, and economic cooperation. The FTA provides for the elimination of duties on 87 percent of all tariff lines and includes a dispute settlement mechanism. It also allows for back-to-back shipment of goods between member countries, third party invoicing of goods, and ASEAN cumulation. Both ASEAN and Japan have also initiated several economic cooperation projects that include capacity building and technical assistance in areas of mutual interest. These areas include intellectual property rights, trade related procedures, information and communications technology, human resources development, small and medium enterprises, tourism and hospitality, transportation and logistics, among others.

 

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Catch-22 In The South China Sea: China’s Provocations And ASEAN’s Impotence

Despite upcoming talks, Manila’s deferential stance to Beijing, and wider ASEAN disunity, mean no end in sight for China’s island-building in the South China Sea. Yet those islands will destroy the coral reefs they are built on, and the very fish stocks China wants to control in the first place.

China’s provocations and ASEAN’s impotence

Chinese and Filipino diplomats are still deciding when and where to pick up talks on the South China Sea in 2018, but in terms of substance, the two sides are already on the same page. Li Keqiang of China and Rodrigo Duterte of the Philippines spent the 31st ASEAN summit in October jointly insisting a “code of conduct” could stabilise tensions in the South China Sea – but failed to mask the lack of real progress.

The current state of affairs already represents a major diplomatic victory for Beijing. The Philippines, host of this year’s ASEAN summit, has effectively abandoned an unequivocal 2016 ruling in its favour from the Permanent Court of Arbitration (PCA) over China’sconstruction of artificial islands in disputed waters.

China rejected the validity of both the ruling and the PCA’s authority, but the Philippines and its ASEAN partners also failed to stand by the decision. Among member states, only Vietnam has come out in direct support of the PCA decision. China already ignores a 2002 declaration of conduct applying to the South China Sea. There is no indication any new code would be more binding.

This is unfortunate, because the PCA ruling addressed some of the most urgent ramifications of China’s actions in the region. It was particularly scathing in regard to environmental violations, stating “China had caused severe harm to the coral reef environment and violated its obligation to preserve and protect fragile ecosystems and the habitat of depleted, threatened, or endangered species.”

The inherent irony of the dispute is that dredging the sea floor to construct artificial islands endangers the very fisheries Beijing seeks to control. China’s own territorial waters are dead zones as a result of overfishing and industrial pollution, one of the main drivers for China’s claims in the South China Sea. Despite this, China marked the end of the summit (and last month’s visit from Donald Trump) by launching its new “magic island-maker” in a clear sign the island-building campaign is far from over.

Not that China is solely responsible. The failure of ASEAN to present a united front puts the resource-rich waters and the millions who rely on their declining fishing stocks for food and employment at risk. By leaving member states to fend for themselves against China, the bloc is undermining its own commitments to support environmental conservation and sustainability as well as international law.

Political concerns trump environmental imperatives

Preserving fish stocks and the ecological balance of the region as a whole requires concerted multilateral action of the sort current tensions render impractical. As early as 1992, scientists were proposing that the Spratley islands be designated as an international ecological marine park. At that point, the islands were not much more than atolls and rocks incapable of sustaining human habitation.

Since then, attempts at preservation have largely been unilateral and confined to respective Exclusive Economic Zones. As of late 2016, the Philippines intended to declare a marine sanctuary and no-fishing zone in the area that it claimed as its own, in spite of competing Chinese claims.

Worse, the destruction is not exclusive to China. Malaysia, Vietnam, the Philippines and even Taiwan have built airstrips and artificial islands on atolls in the South China Sea, destroying coral reefs in the process. Through its “Island Tracker,” the Centre for Strategic and International Studies (CSIS) has attributed ten such reclamation projects and 120 acres of reclaimed land to Vietnam alone – although it does consider Vietnam’s methods less destructive than China’s.

Even so, the overall ecological costs are substantial. Destroying atolls means destroying natural habitats for over 6,000 species of fish. Thanks to overfishing and environmental degradation, fish stocks in the region have plummeted: overall decline since the 1950s falls somewhere between 70% to 95%. In the 1970s, a Filipino fisher could count on an average daily catch of 20kg. Today, that number stands at less than 5kg.

Coral destruction only aggravates the impact of illegal, unreported and unregulated (IUU) fishing, which CSIS calls “a direct and indirect national security threat” in a report released this month with support and collaboration from the Philip Stephenson Foundation.Chinese fishers have to go farther afield to make a living. Accusations of IUU fishing have followed them, not just in the South China Sea but also in West Africa and South America.

These economic concerns could have serious political ramifications. In an era ofincreasing socio-economic inequality, Beijing obviously seeks to sustain its fishers’ livelihoods. The Chinese fishing industry directly employs between 7-9 million Chinese (in and beyond the South China Sea) and contributes as much as $279 billion USD to the national economy on a yearly basis.

ASEAN fishers are just as vulnerable to the threat of unemployment. The South China Sea may be the conduit for $5.3 trillion in annual international trade, but its struggling fisheries also employ at least 3.7 million people across littoral countries. Duterte’s deference to Beijing may partially be a bid to win concessions for Filipino fishers kept away from key fishing grounds by Chinese encroachment. That strategy has secured at least some successes, such as reopening the Scarborough Shoal to Filipino fishing boats.

Ways forward for preservation

With political and diplomatic avenues coming up short, other parts of the globe may offer alternative ideas on how to proceed. In the less geopolitically sensitive Caribbean, governments and international organisations work with non-governmental organisations (NGOs) to identify and implement proactive solutions.

Examples include Dr. Sylvia Earle’s Mission Blue, a project aiming to create a “worldwide network of marine protected areas.” Together with the Philip Stephenson Foundation, Mission Blue president recently hosted a gathering on the Caribbean island of Petit St. Vincent that promoted the goal of making 30% of the world’s oceans “fully protected” by 2030.

The choice of venue is significant, as these and several other NGOs (including CLEAR Caribbean and the Nature Conservancy) are also involved in coral planting there. Thanks to their political neutrality, environmental NGOs may offer a mutually acceptable path to ecological solutions in the South China Sea.

ASEAN and the Philippines have demonstrated their inability to stand by the PCA ruling. Non-state actors could have an easier time fostering initiatives to save coral reefs and the region’s fisheries. If successful, those projects could constitute the first steps to addressing the legal and geopolitical tensions bedeviling ASEAN governments.

 

 

Nicholas Leong is currently a trainee advocate & solicitor for Messrs Lai Mun Onn & Co in Singapore. As originally appears at: https://globalriskinsights.com/2017/12/south-china-sea-environment-fishery/

 

Vietnam Rises 14 Places In The World Bank’s Ease Of Doing Business Rankings

Vietnam climbed 14 places to 68th amongst 190 economies in the latest World Bank’s Ease of Doing Business 2018 rankings. It ranked fifth amongst ASEAN countries, with Singapore, Malaysia, Thailand, and Brunei leading the group. As per the report, significant improvements were made in the area of paying taxes, trading, enforcing contracts, access to credit, and electricity reliability.

The ranking measure the effectiveness and quality of regulations based on starting a business, resolving insolvency, enforcing contracts and paying taxes, as well as trading across borders, protecting minority investors, getting credit and registering property, along with getting electricity, dealing with construction permits and labor market regulation. The report covers the period from June 2 last year to June 1 this year.

ASEAN Rankings

In terms of the number of reforms implemented, Vietnam along with Indonesia leads amongst the global economies in implementing 39 reforms, the most in the last 15 years. Within the ASEAN region, Vietnam ranked fifth, after Singapore, Malaysia, Thailand, and Brunei.

Cambodia, Lao PDR, and Myanmar ranked the lowest at 135th, 141st, and 171strespectively.

Major reforms

The report highlights significant improvements in five indicators:

Getting electricity

The reliability of power supply has increased due to the implementation of a Supervisory Control and Data Acquisition (SCADA) automatic energy management system that monitors power outages and restoration. The SCADA systems were set up between the subsidiaries of Electricity of Vietnam (EVN) and ABB and Siemens in the last two years. Improving the power network and reliability are key to the 10-year roadmap for smart grid development as laid out by the government in 2012.

Vietnam ranked seventh in getting electricity amongst ASEAN countries, ahead of only Cambodia, Lao PDR, and Myanmar. Malaysia, Singapore, and Thailand led the rankings. In comparison to previous year, Vietnam’s ranking jumped from 96th to 64th, up 32 places, amongst all global economies.

Getting credit

Access to credit was strengthened by the adoption of a new civil code that broadens the scope of assets used as collateral. The new civil code came into effect on 1 January 2017.

Among the ASEAN nations, Vietnam tied with Singapore at the fourth place. Brunei, Malaysia, and Cambodia led the rankings. Since last year, Vietnam jumped three places in the global rankings to 29th.

Paying taxes

Paying taxes were made easier with the abolishment of the mandatory 12-month carry forward period for Value Added Tax (VAT) credit. In addition, the introduction of an online platform for filing social security contribution boosted the rankings. This year was the fourth year in a row that recognized the progress in tax reforms. Components of the indicators include the number of tax payments, time, total tax rate, and post-filing index (VAT refunds and corporate income tax audits).

Vietnam ranked fourth amongst its ASEAN peers, with Singapore, Thailand, and Malaysia leading the ranks. Paying taxes witnessed the highest growth amongst all indicators. Out of the 190 economies, Vietnam ranked 86th globally, a significant jump of 81 places from its previous year’s ranking at 167th.

Trading across borders

Import and Export procedures were made easier with the upgrading of the automated cargo clearance system and increasing the operating hours of the customs department. This has led to shorter customs clearance times and more transparency in customs procedures. This indicator also jumped last year with the implementation of an electronic customs clearance system.

In trading across borders, Vietnam follows Singapore, Thailand, and Malaysia at fourth place. Vietnam slipped one place in its global ranking to 94th.

Enforcing contracts

Enforcing contracts were made easier with the adoption of a new code of civil procedure and a new law on voluntary mediation. The commercial mediation law, which came into effect on 15 April 2017, has simplified the mediation process without the need for complicated legal procedures.

Singapore, Thailand, Malaysia, and Brunei lead the ASEAN rankings, with Vietnam in the fifth place. In comparison to the previous year, Vietnam’s global rankings increased from 69th to 66th.

Other indicators

Dealing with construction permits

In dealing with construction permits, Vietnam’s rank jumped four places to 20th, with the only change being in cost, which is calculated as a percent of warehouse value.

Registering property

Registering a property rank dropped from 59 to 63.

Protecting minority investors

The rankings jumped from 87th to 81st  this year, with minor changes in the sub-indicators.

Need to do more

The country ranked the lowest in resolving an insolvency and starting a business at 129thand 123rd respectively. Both indicators dropped since last year from 125th and 121strespectively. However, both witnessed a climb in scores.

For starting a business, the cost of official fees and fees for legal or professional services has increased from 4.6 percent to 6.5 percent of income per capita. However, the number of days to register a firm has reduced from 24 to 22.

With respect to resolving an insolvency, only one sub-indicator has changed in comparison to previous year. The recovery rate has changed from 21.6 to 21.8 cents on the dollar. The recovery rate calculates how many cents on the dollar secured creditors recover from an insolvent firm at the end of insolvency proceedings.

Going forward

According to the World Bank’s report, in 2003, an average businessperson in Saigon spent 61 days and 31.9 percent of their per capita income registering a new company. Now, it’s just 22 days and 6.5 percent of per capita income. This has been the result of numerous reforms aimed at streamlining business regulations. Vietnam along with Indonesia leads amongst the global economies with 39 business reforms, the highest in the last 15 years.

Going forward, the focus should be on improving the public infrastructure, increasing support for the development of the domestic private sector, and reducing the regulatory and administrative burden on enterprises.

 

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

ASEAN’s Anti-Terror Coordination Problem

ASEAN member states gathered last month to define and strengthen the bloc’s position on counter-terrorism. However, differences between members and the principle of non-interference are among the biggest obstacles to a coordinated strategy.

Rising number of attacks

Southeast Asia has seen several attacks by IS-affiliated groups this year, highlighting its vulnerability to terrorism. New trends are emerging, such as transnational collaboration among militants: in the Philippines last May, local groups joined forces with foreign fighters from Malaysia, Indonesia and other ASEAN countries, in an attempt to attack and claim Marawi as the “first IS province” in the region.

Attacks are expected to affect the region at an increasing rate, especially as the Islamic State seeks to attract support beyond the Middle East. Southeast Asia is particularly vulnerable to the transnational nature of contemporary terrorism, as fighters are likely return to the region to continue their campaign, fueling violence and diminishing stability.

Furthermore, existing conflicts, racial and religious tensions and pockets of instability in ASEAN countries provide the ideal conditions for the expansion of IS-inspired ideology.

A step in the right direction

On 20 September, Ministers from the respective member states gathered in Manila, The Philippines, for the Eleventh ASEAN Ministerial Meeting on Transnational Crime (11thAMMTC) to consolidate and further strengthen regional cooperation in combating transnational crimes, including terrorism. In addition, one day prior to AMMTC, the Second Special ASEAN Ministerial Meeting on the Rise of Radicalization and Violent Extremism (2nd SAMMRRVE) took place in order to exchange views and best practices in combating the rise of radicalization and extremism.

These two meetings are a step in the right direction to strengthening cooperation on counter-terrorism issues among ASEAN members as well as between the bloc and relevant third parties such as China, Japan and South Korea. Members highlighted the need for mutual information sharing, exchange of best practices, resource sharing and improving states’ capabilities to combat terrorism.

Challenges to co-ordination

Effective cooperation amongst ASEAN members has been extremely challenging. One of the main difficulties in designing a common counterterrorism strategy has been attributed to the member states’ significant developmental, economic, political and social discrepancies, which result in different approaches to combat terrorism at the national level.

Diversity among ASEAN members is likely to generate unequal results from the adoption of a more comprehensive regional counter-terrorism strategy. Members such as Malaysia, Indonesia and the Philippines share strong geographical bonds and are affected by extremism to a similar degree; thus, increasing cooperation in order to tackle the transnational movement of terrorists between them is an obvious priority.

However, it is unclear whether other member states would benefit to the same extent. For example, countries such as Laos or Cambodia may face economic difficulties in complying with stricter counter-terrorism rules dictated by ASEAN, both due to budget constraints and to the likely extensive legislative changes that such a strategy would entail.

Secondly, ASEAN is based on the principle of non-interference. Ensuring that coordination between its members can be carried out without foreign intervention in the internal affairs of each country has been a pillar of the ASEAN project since its inception.

Individual frameworks

As a result of ASEAN’s emphasis on non-interference, each country has been encouraged to develop its own framework to combat terror and militant groups. However, in practice this has hindered the creation of strongly needed joint operations, such as troop sharing and implementation of other regional counter-terrorism programs.

The principle of non-interference also resulted in the creation of a “comprehensive security approach”, which is widely adopted by the bloc. It highlights the role of the nation-state in providing security and focuses on non-military dimensions of terrorism and crime, while encouraging cooperation built on shared norms and trust between its members. While such an approach can be effective in addressing the root causes of insurgency, its critics point out that its state-centrism and focus on trust-building are inadequate to fighting transnational terrorism.

Furthermore, ASEAN still lacks the enforcement mechanisms that would be necessary to translate the bloc’s legal commitments into concrete measures. For instance, in 2007 the ASEAN Convention on Counter Terrorism (ACCT) was signed by all Member States, and was ratified as late as 2013. While the ACCT is a significant achievement for the bloc’s counterterrorism efforts and deepened regional cooperation, it does not specify mechanisms for enforcement. The implementation of earlier instruments, such as the 2002 ASEAN Declaration on Terrorism faced very similar obstacles, reducing the effectiveness of these regional efforts.

Cautious optimism

The latest bloc meetings leave some room for cautious optimism. For instance, on 13 September, an Improved Database System was launched for ASEAN National Police (ASEANAPOL) in order to improve connectivity and information exchange regarding terrorism and organized crime. While the web-based system was launched in 2006, the new version contains new features such as a discussion forum, which would allow law enforcement officials to share best practices, intelligence information and trends in crime and terrorism in an efficient and secure manner.

Enhanced information sharing on counter-terrorism issues is particularly necessary due to weak border security: ASEAN’s porous borders facilitate  smuggling networks and unchecked regional movement of people and weapons.

Indeed, members have been adopting more multifaceted approaches to counter-terrorism that seek to address terrorism as well as human trafficking, migrant smuggling and money laundering. These approaches could be emulated by other Member States in the bloc. Malaysia successfully developed four proposals to tackle transnational crime and terrorism.

Finally, Indonesia, Malaysia and the Philippines are considering creating a trilateral task force aiming to counter IS-affiliated terrorist groups, focusing on stricter border controls in the Sulu-Sulawesi Sea, as well as sharing intelligence and curbing terrorism financing. Other regional initiatives such as the Southeast Asia Regional Centre for Counter Terrorism (SEARCCT) are expected to gain importance by becoming a regional centre in counter-terrorism training and research. All of the above initiatives and proposals will do much to foster regional integration and create a comprehensive ASEAN counterterrorism strategy.

 

Benedetta Di Matteo is an Analyst for Global Risk Insights. As originally appears at: http://globalriskinsights.com/2017/10/asean-anti-terror-coordination-problem/

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Overlooking Widespread Human Rights Abuses In ASEAN Could Trigger Destabilization

Less than a month after the Association of Southeast Asian Nations (ASEAN) celebrated its 50th anniversary in Manila, Philippines, the UN Security Council called on the government of Myanmar to end its military campaign against the minority Rohingya Muslims. If the region continues to overlook widespread human rights abuses, political stability and economic growth will be at risk.

Each year, tourists descend on the many resorts, shops and convenience stores that have come to form the backbone of the beach town of Bangsaen, Thailand. In 1967, however, Bangsaen was an isolated, little-known village on the brink of becoming a landmark of Asian diplomacy. It was here that five foreign ministers from Indonesia, Malaysia, the Philippines, Singapore and Thailand negotiated and signed the Bangkok Declaration for the foundation of ASEAN, with the purpose of ensuring the stability of the entire Southeast Asian region.

Fifty years later, the organisation has ten members, and ten additional dialogue members that include India and China. Asian economic growth consistently leads global figures, and its populations and enterprises are projected to continue to prosper for decades to come. On its silver jubilee, ASEAN remains firmly dedicated to boosting security in the region, with ongoing tensions over the South China Sea and immediate nuclear threats from North Korea forming the pillars of member discussions. Even so, the organisation has thus far failed to address pervasive human rights violations committed by member countries, with critics warning of rising authoritarianism in the region.

Increasing rights violations

In Myanmar, this month has seen longstanding ethnic tensions erupt into bloodshed after minority Muslim Rohingya fighters attacked police posts and prompted a military crackdown that has seen over 370,000 Rohingya flee their homes. The Rohingya face widespread discrimination and violence at the hands of a Buddhist majority, though the group had received chronically little press attention before recent weeks. Adding to their isolation, the government has repeatedly refused to permit UN investigators entry to the country. Even so, the Rohingya have been labelled the most persecuted minority in the world, at risk of genocide, with the community fleeing in the thousands to Myanmar’s neighbours- especially Bangladesh, Malaysia, Indonesia and Thailand. Despite this, host countries typically refuse to grant Rohingya refugees any legal status; in the weeks before the current escalation, India was in talks with Myanmar and Bangladesh to deport 40,000 Rohingya Muslims.

In the same vein, the Philippine President Rodrigo Duterte has refused to discuss the topic of human rights abuses with the US Secretary of State and, given the US-Philippine partnership targeting a military insurgency in the Philippines’ southern island, social justice advocates would be foolish to hold their breath. This despite the fact that since Duterte’s so-called war on drugs began last year, widespread violence has resulted in the deaths of some 5,000 to 8,000 people. Duterte has also blocked the UN from conducting an independent investigation into the violence, thus far labelling his critics “crazies” and insisting that he shouldn’t be trivialised by upholding human rights standards. With sustained approval ratings, his campaign to reintroduce the death penalty may indeed be successful; the violence continues unchecked.

In Vietnam, authorities have broadened a crackdown on dissidents in recent years. In July this year, prominent human rights defender and activist blogger Tran Thi Nga was sentenced to nine years in prison on charges of conducting propaganda against the state in accordance with the controversial Article 88 of the penal code. The law has proven an effective tool of the government in silencing activists, along with reports of government sanctioned harassment and intimidation techniques.

ASEAN values versus national actions

Authoritarianism in the region runs counter to the otherwise liberal economic goals of Asia’s rising tigers: Vietnam has embarked on a decade-long campaign of labour and market reforms in a bid to attract foreign capital, with FDI flows rising as much as 6 percent in the first half of 2017 to $6.15 billion. At the same time, the Philippines’ Duterte is embarking on an ambitious goal of infrastructure spending at 7 percent of GDP, valued at $160 billion, by 2020. Bordering Bangladesh, China, India, Laos and Thailand, Myanmar represents a mammoth of untapped economic potential, but FDI flows will remain volatile as long as the bloodshed continues.

In most cases, human rights abuses are tied to failings in judicial independence, indicative of state support of illegal activities and poor protection for firms who seek to conduct transparent operations. Moreover, repression of the media and journalists frequently goes hand in hand with unsustainable, unbalanced economic development, such as a dependence on raw materials and energy resource revenues.

Poor governance throughout the Asian region, combined with skyrocketing economic growth and a burgeoning middle-class, sets the stage for political and social discontent to emerge in the near term. As the ASEAN community has become more integrated over the past fifty years, there has been increased pressure to implement the organisation’s vision of a “people-centred” community of nations. The finalisation of the ASEAN Charter at the end of 2008 sparked debate about utilising grassroots participation and bolstering civil society groups- in response, the group articulated the ASEAN Vision 2015, setting lofty goals for the widespread protection of human rights in a just, democratic environment. The stark reality of 2017 shows a clear trend in the opposite direction, and a disturbing reticence on the part of ASEAN’s leadership.

 

Article as appears on Global Risk Insights: http://globalriskinsights.com/2017/09/seeking-stability-human-rights-failures-asean/

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

India’s Ambitions To Establish Foothold In Myanmar Risk Being Jeopardised By Kaladan

India’s ambitions to establish a foothold in Myanmar and strengthen ties with Southeast Asia risk being jeopardised by the ongoing Kaladan project. This ambitious venture exposes India’s overseas infrastructure failings, and thus its inability to push rival China aside.

Long deterred by Myanmar’s status as a military dictatorship, India has only relatively recently built substantial strategic and economic ties with neighbour Myanmar. With China becoming increasingly assertive in that region, Myanmar now forms an important part of India’s ‘master plan’ for ASEAN connectivity. India’s government is ready to exploit the opportunities afforded by Myanmar’s more democratic, liberal regime. Nevertheless, the long-mooted Kaladan Multimodal Transit Transport Project, intended to integrate India’s traditionally underdeveloped northeast with Myanmar’s southwest, is yet to materialise.

Since the 1990s, Indian trade with ASEAN has grown steadily, and ASEAN is now India’s fourth-largest trading partner. India has progressively built up an economic, political and security alliance with that regional bloc. But China is vastly more experienced with its overseas infrastructure dealings, and for this reason many Southeast Asian leaders have placed their eggs in China’s basket. If India fails to deliver with Kaladan – and similar overseas projects – then this Sino-oriented status quo will remain untouched.

India’s concerns

India is naturally concerned about China’s Belt and Road Initiative (BRI). As previously argued, BRI is important for the enhanced political and economic clout that China is demonstrating across the Asia-Pacific. Malaysia  and others are developing unsustainable debt with China, which translates into growing regional influence for the Asian behemoth.

According to The Diplomat, Chinese investment in Myanmar dwarfs India’s. During fiscal year 2015-16, China invested US$3.3bn, whereas India invested just US$224m. It is a similar story for the other Southeast Asian countries, for China’s GDP is almost 5 times that of India. Although doubtless that China’s intentions are not entirely altruistic, such gargantuan foreign investment reflects an offer that each ASEAN member cannot refuse.

India’s move closer to Myanmar reflects its ‘neighbourhood first’ policy, which prioritises building diplomatic ties with its geographical neighbours. Aside from providing a gateway to Southeast Asia, through Myanmar, western ally India seeks to become a more assertive regional player, countering China’s influence.

For Myanmar, as for its neighbours, diversifying its economic interests vis-à-vis greater Indian involvement will help reduce China’s overwhelming influence over its economy. Concern has grown over China’s extensive involvement in upgrading Myanmar’s ports, roads and bridges, and its appropriation of Myanmar’s gas and oil reserves.

The Kaladan project

Signed in 2008, the Kaladan Multimodal Transport Project is the first major Indian-funded project in Myanmar. It is named after the River Kaladan, which originates in Myanmar’s Chin state, flows through Mizoram state in India, and joins the Bay of Bengal. A total distance of 907km, the project will connect Mizoram state with ports in Kolkata and Rakhine state capital Sittwe. Allowing trade to bypass the Siliguri Corridor (see below) is of high economic and strategic importance. The project ought to transform Mizoram and northeast India into a trade corridor for Southeast Asia, allowing it to connect with ASEAN and establish links to Singapore and key cities across Thailand, Cambodia and Malaysia.

Maritime trade between Kolkata and the new port in Sittwe will bypass the Siliguri Corridor (circled in red), a sensitive political region bordering Nepal, Bangladesh and Bhutan.

The US $500m project is being implemented in four phases: (1) construction of a deep sea port at Sittwe; (2) dredging and modernising of a 158km section of the Kaladan waterway between Sittwe and Paletwa in Myanmar, and construction of a jetty at Paletwa; (3) construction of a 109km stretch of road from Paletwa to Mizoram on the India-Myanmar border; and (4) extension of the Indian National Highway #54 to the Myanmar border.

The project will connect India’s Mizoram state (highlighted in red) with the town of Paletwa and the city of Sittwe (image retrieved from Google Maps)

Phases 1 and 2 were initially handled by the Inland Waterways Authority of India (IWAI), but later subcontracted to Essar Group, an Indian infrastructure conglomerate. Phases 1, 2 and 4 are near completion. Phase 3, essential to the functioning of the entire project, is only due to start in October because of difficulties experienced finding a suitable contractor. Although India recently donated six vessels to the new Sittwe port, the full transit route will not be open for years. Despite the initial June 2015 deadline, in October 2015 it was extended to 2019 and the estimated budget increased sixfold.

Implementation problems

Putting aside immovable financial constraints, Kaladan has been hindered by inadequate time and resource management; inadequate fund allocation; a lack of accountability; and other planning failures like poor quality control. Unfortunately, such poor project management fits India’s track record for overseas infrastructure ventures.

The initial feasibility study, completed by the state-run Rail India Technical and Economic Services (RITES), contained several flaws. Errors include: an underestimation of the road lengths in Myanmar; ignorance of Myanmar’s Ministry of Power’s plans to construct hydroelectric dams on two tributaries of the Kaladan river (which would subsequently affect the Kaladan project); and a lack of knowledge of shipwrecks on the Kaladan riverbed (which delayed dredging). A host of land compensation claims in Mizoram have also created hindrances.

The prospect of a fully functioning port, with navigable waterways for cargo ships, and ports linked to new highway connections, remains a long way off. Given the difficulty of modernising the terrain and the absence of viable road networks in this region, concerns will have always existed around the value of such a huge investment. Yet one journalist described India’s approach as ‘lackadaisical’, when set against China’s BRI, warning the project risks were becoming a white elephant.

Ongoing tensions in Rakhine may also create potential obstacles further down the line – although theoretically, developing this peripheral borderland should help negate the attraction of insurgent activity. According to India’s ambassador to Myanmar, ‘India intends to develop the project to give job opportunities to Rakhine people and bring development to the state’. But here a coordinated bilateral effort is essential, and theavailable evidence suggests otherwise. Such an environment is far from conducive to promoting a healthy industrial culture.

Overall, Kaladan has suffered from a lack of coordination between the different implementing bodies: public sector departments, private contractors and external agencies. Admittedly, it is easy to underestimate the time and difficulty of forging strong bilateral cooperation. Similar problems face the equally ambitious – and significant –Trilateral Highway project, which draws together India, Myanmar and Thailand.

For India to gain regional influence – and be taken seriously as an alternative partner to China – it must take action to rectify these infrastructure-related woes. When completed, the project should help India to begin to counterbalance China’s ever-expanding regional trade network. The current disparity is vast: in 2015, ASEAN-India trade stood atUS$58bn, whereas ASEAN-China trade was US$345bn. A white elephant would not only mean economic loss for India. Through Kaladan, India has staked its reputation as a new regional partner; failure to deliver could further entrench Beijing’s influence over the region.

 

Alexander Macleod is a doctoral researcher at Newcastle University with a focus on Southeast Asian politics and geography. Article as appears on Global Risk Insights: http://globalriskinsights.com/2017/09/kaladan-reflects-frustrated-indian-vision/

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

3 Airline Stocks To Ride The Travel Boom in Southeast Asia

Rapid Advancement of low-cost carriers in ASEAN has led to a travel boom

The ASEAN region (AAXJ)(ASEA) has witnessed an explosion of low-cost airlines in the past ten years, leading to a surge in demand for travel. The International Air Transport Association (IATA) forecasts it to be the fastest-growing region with 10.4% revenue-passenger kilometer (RPK) growth expected in 2017.

Rapid economic growth in the ASEAN region has in fact been driving a surge in demand for air travel for the past two decades. Despite unfavourable external shocks, the air travel industry has grown at a CAGR of 5.4%, nearly twice the average global GDP.

Rising per-capita income and affordability of air travel combined with the rise of low-cost carriers has been key to traffic growth in emerging markets in Asia and has, in turn, spurred demand for aircrafts. Liberalisation and favorable policies like ASEAN open skies and easing of visa regulations have also driven growth in air traffic in these countries. By 2036, Asia will be the world’s largest aviation market as it continues with growth at a CAGR of 5.7%, higher than the world average growth rate of 4.7%.ASEAN airline capacity growth is also expected to ramp up in 2017 following a stellar year for the industry last year.

ASEAN airline capacity is also expected to ramp up in 2017 following a stellar year for the industry last year. Passenger growth in Malaysia, Singapore and Thailand posted encouraging growth numbers in the first half of 2017, signaling a rebound in tourism and travel in this region. Thailand and Indonesia specifically stand out in the region due to high travel demand fuelled by large tourism arrivals, mainly from China.

In 2016, Indonesia had 96.5 million air passengers while Thailand had 60.5 million passengers.

A recent survey by the Financial Times indicates rising demand for air travel in Indonesia, Malaysia, the Philippines, Thailand and Vietnam over the next 12 months. The increased demand for air travel in the ASEAN region is directly correlated to planned capacity expansion this year by major airlines. This comes after two years of stagnation in aircraft expansion. Low-cost carriers plan to expand their capacity most aggressively. Malaysian airline giant AirAsia will add 29 aircrafts to its fleet as part of its ambitious target to fly 323 aircrafts by 2021. In 2016, Air Asia operated 174 planes.

Rise in travel demand has particularly benefitted dominant low-cost carriers operating in the ASEAN region like Malaysia’s AirAsia, Indonesia’s Lion Air, and Philippines carrier Cebu Pacific. As a consequence, traditional carriers like Singapore Airlines, and Thai Airways are losing out. Both these companies are currently losing market share in the ASEAN region and are formulating strategies to realign their operations. 

Airline stocks to depart on

Year to date, the MSCI World Airlines Index has surged 15.83% while the Global US Jets ETF (JETS) has gained 2.1%. The Global US Jets ETF (JETS) invests 3% of its portfolio in Asia Pacific equities but does not provide direct exposure to ASEAN airline stocks. This ETF is primarily focused on US aviation stocks. The only ASEAN-based stock forming part of the JETS portfolio is Singapore based chief ground-handling and in-flight catering service provider SATS Ltd (S58.SI).

The largest ASEAN airlines by market capitalization are Singapore Airlines, Air Asia (5099.KL), and Philippines Airlines. Year to date, shares of these companies have returned 8.8%, 48.1% and -1.7% respectively.The largest ASEAN airline companies by revenue are Singapore Airlines (C6L.SI), Thai Airways (THAI.BK), and Garuda Indonesia (GIAA.JK). In 2016, these companies have generated revenues of $10.7 billion, $5.1 billion and $3.9 billion respectively.

By fleet size and number of passengers carried, the largest ASEAN airlines are Air Asia, Lion Air and Garuda Indonesia.

Singapore Airlines is losing altitude

Singapore Airlines is the largest airline carrier in the ASEAN region in terms of market cap as well as revenues. The company reported revenues of $10.8 billion in 2016. Since 2014, number of passengers served by Singapore Airlines has remained stagnant, even though air travel demand in Asia Pacific has increased 11.2%.In 2016, the airline carried 22.8 million passengers. Singapore Airlines owns 107 aircrafts and flies to 62 destinations currently.

Regional low-cost carriers including Thai Airways and Garuda as well as Middle Eastern carriers Emirates, Etihad and Qatar Airways are challenging the company. While the company claims intensifying competition and an unfavourable political and economic environment is driving losses,  in reality, the airline is losing out to the emergence of low-cost carriers, new premium carriers and the renewed strategies of traditional long haul competitors such as Thai Airways and Garuda Air. Singapore Airlines is trying to strengthen the positioning of its low-cost regional and long haul brands, Tiger Air and Scoot.

Corrine Png, an analyst at Crucial Perspective, expects Singapore Airlines to gain nearly 1.5 million passengers traveling between APAC and the United States, as many will need to switch their airline carriers due to the ongoing diplomatic rift between Qatar and other Middle East nations, barring Qatar Airways from using their airspace. Singapore Airlines is likely to be the key beneficiary from this potential traffic diversion among the Asia Pacific carriers,” Corrine stated.

Singapore Airline also plans to cut down on its workforce to combat top line pressures. Bloomberg reports that Singapore Airlines chief executive Goh Choon Phong hinted at job cuts at an IATA meeting in Mexico recently. Singapore Airlines employed nearly 24,000 workers as of the end of March 2017. Year to date, shares of Singapore Airlines have returned 8.8%.

Air Asia

Air Asia is the largest low-cost carrier in the ASEAN region by number of passengers carried. The airline currently flies to 165 destinations across 25 countries in Asia. AirAsia operates with the lowest per unit cost of $0.023 per available seat kilometer and a phenomenal turnaround time of 25 minutes. AirAsia has consistently been named as the world’s best low-cost carrier for 8 years in a row in international travel and airline awards.

AirAsia operates through its low-cost budget carrier, also named AirAsia, on short-haul routes and AirAsia X on longer haul routes. AirAsia commands nearly 50% market share in Malaysia’s domestic and international travel markets.

The airline is now expanding to new markets and eyeing new routes, including China. The company is also negotiating a joint venture in China with a domestic airline.

AirAsia is also contemplating vertical integration by launching a mobile payment system similar to China’s Alipay. The company also plans to integrate all its Malaysian, Indonesian, Thai and Philippine operations to list as a single company in future.

However, Goldman Sachs believes Air Asia’s dominance in ASEAN could be challenged by the Value Alliance. Value Alliance is a partnership of eight Asian low-cost carriers – Cebu Pacific, Jeju Air, Nok Air, NokScoot, Scoot, Tigerair Singapore, Tigerair Australia and Vanilla Air formed in May 2016 with a ticketing system. According to Goldman Sachs, 51% of Air Asia’s capacity is exposed to the routes covered by the Value Alliance network.

Air Asia is listed on the Malaysian Stock Exchange along with its long haul arm Air Asia X (5238.KL). Shares of these companies have surged 48% and 6.9% respectively in 2017 so far.

Thai Airways

Thai Airways is the largest aircraft carrier in Thailand and the second largest by revenues. Thai Airways currently flies to 84 destinations in 37 countries, using a fleet of over 90 aircrafts. Thai Airways was the first airline carrier from Asia-Pacific to serve London’s Heathrow Airport and it currently has the largest operations in Europe among its Asian peers. However, Thai Airways’ financial turnaround strategy has taken a beating after the company reported losses for the first two-quarters of the year.

In the quarter ending June, the airline reported losses of $157 million, 79% higher than a year ago. In 2016, Thai Airways reported profits of $14.1 million (THB 47 million).

Nomura analyst Ahmad Maghfur Usman forecasts Thai Airways’ earnings to pick up next year as tourist arrivals improve. He estimates 40% earnings growth for Thai Airways in 2018 and has upgraded the stock from neutral to buy. His target price of THB 23.72 implies 41% upside from Thai Airways’ last closing price of THB 16.8 (as on August 24).

The analyst also believes Thai Airways could benefit significantly from restructuring and privatization. In an investors’ note, he stated, “The proposed mega-state holding of Thailand SOEs could be a key catalyst for radical positive change in Thai Airways, paving the way for a potential privatization. The proposal of setting up a National State Enterprise Corporation could bring radical positive change for the better of Thai Airways, once legislation goes through (no official timeline on this). This initiative, under the purview of the State Enterprise Policy Office, has been long delayed. Should this materialize, we believe it would bring positive change in terms of flexibility, reform cost efficiencies and structure to Thai SOEs. We also do not rule out that Thai Airways is one potential candidate for privatization prior to a full-scale restructuring implementation, as was the case with Malaysia Airlines.”

Analysts opinion

Sell side analysts remain bullish on ASEAN low-cost carriers like Thai Airways, Cebu Air and Lion Air on rising air travel demand.

Nomura analyst Ahmad Maghfur Usman recently upgraded Thai Airways from neutral to buy on favorable tourist arrivals. His target price of THB23.72 a share implies 17% upside. Thai Airways has received 3 buy ratings, 6 sell ratings and 8 hold ratings.

Daiwa analyst Koh Sin Yee recently downgraded Air Asia X to sell on concerns of higher jet fuel prices, rising competition and a weaker ringgit along with the company’s lower than expected first quarter earnings. AirAsia is currently rated buy by 16 analysts, sell by 4 analysts and hold by 4 analysts, while Air Asia X has received 2 buy ratings, 4 sell ratings and 3 hold ratings.

Singapore Airlines has received 4 buy ratings, 2 sell ratings and 12 hold ratings. Whereas, and 4 hold ratings and VietJet Aviation has received 2 buy ratings and 4 hold ratings.

Valuations

Valuations within the ASEAN Airline sector are stretched with average one-year forward PE ratio of 31.1x.

Air Asia, Cebu Air (CEBUF) and Vietjet Aviation are the most attractively priced airline stocks based on their cheap valuations. These stocks have one year forward PEs of 5.4x, 9.8x and 14.2x and are trading at the steepest discount to their peers. Meanwhile, Singapore Airlines, Bangkok Airways (BA-R.BK) and Asia Aviation (AAV.BK) are currently expensive.

Why Chinese Tech Companies Are Now Pivoting Aggressively Toward Southeast Asia

Chinese tech investments are turning towards the ASEAN

Chinese (FXI)(MSCHI) tech companies are shifting their focus to new markets to seek growth as competition in home markets intensifies. Chinese giants like Alibaba (BABA), Tencent (TCHEY)(0070.HK), Didi Chuxing, JD.com (JD), and WeChat are turning towards high-growth markets in Southeast Asia, home to the largest Chinese diaspora in the world, in search of international customer acquisition. Southeast Asia is twice as populated as the United States, and the IMF expects the ASEAN countries of Indonesia, Malaysia, the Philippines, Thailand and Vietnam to all grow at 5% annually through 2022. Further, soaring mobile and internet penetration in these markets present a huge opportunity for these tech companies.

Grace Xia, Tencent’s senior director of corporate strategy and investment stated, “The opportunity in Asia is just unparalleled.” These Chinese tech companies believe they can replicate their success stories from China in South East countries. Poshu Yeung, Tencent’s vice president said, “What we have learned in China, we can apply the fastest in Southeast Asia.”

China invested $37.8 billion in technology abroad last year, nearly double that of 2015 as per data from Pricewaterhouse Coopers.

E-commerce giant Alibaba is leading the way for Chinese tech companies in Southeast Asia. The company raised its stake in Lazada Group that it acquired last year to 83% in June 2017, just ahead of Amazon’s entry into Singapore. Alibaba’s acquisition of Singapore based Lazada Group was the largest tech deal in the Asia Pacific last year at $1 billion and gave Alibaba access to the Philippines, Thailand, Indonesia, among Vietnam among other APAC countries. The combined entity is now the leading e-commerce player in the region. Alibaba has also invested in fintech players in Thailand, the Philippines and Singapore to create a strong network in these countries. More recently, Alibaba invested $500 million in Indonesian e-commerce player Tokopedia.

Tencent Holdings, the company behind WeChat and web portal QQ.com invested $100 million into Indonesian ride-hailing startup Go-Jek in May this year and is also a large stakeholder in Sea Ltd, regarded as Southeast Asia’s most valuable start up. The company also holds equity in ABC360 – an educational tech company based in the Philippines as well as Thailand’s Ookabee U and Sanook.

Matthew Wong, senior analyst at CB Insights stated in an interview with Nikkei Asian Review, “The reality is that China’s leading internet giants need to look outbound for untapped markets.” He continued, “Southeast Asia thus represents a market that China’s internet giants see as attractive for reasons including growing mobile penetration, a younger population, and a cash-heavy society that can leapfrog into mobile payments.”

As per a report by the Wall Street Journal, Southeast Asia was the third largest region for technology deals by Chinese companies last year. Data from Dealogic indicates deal values in the region climbed to $1.9 billion in 2016, from $193 million in the previous year.

Some experts believe this region still presents a huge opportunity for consolidation and acquisitions. Even though Grab, Go-Jek, Tokopedia and Lazada have a significant presence, no single player occupies a dominant market share in any segment. Comparatively, in China, Tencent, Baidu (BIDU), Alibaba and Didi are dominant players in their respective segments.

Will 7-Eleven’s New Aggressive APAC Expansion Strategy Bear Fruit Or Will Local Competition Bite?

Expansion plans

Japanese (EWJ) convenience store chain 7-Eleven is expanding aggressively. The chain currently operates 62,000 stores in 18 countries across the globe through license and master franchise agreements.

7-Eleven recently laid out its strategy for expansion the US (SPY) and Asia (AAXJ). In the US, the company plans to grow its number of stores to 20,000 from the current 8,500. In Japan, the company plans to open nearly 1,000 new stores in the next one year, while in Vietnam (VNM) the country will open 1,000 stores in the next ten years. The company entered into a master franchisee with Seven System Vietnam to build stores across the country.

In the Philippines, 7-Eleven (EPHE) will open 412 new stores. 7-Eleven operates in Philippines under Philippine Seven Corp. (PSC) the company’s listed local franchise holder. In Thailand, CP All operates 7-Eleven 9,500 stores, the largest network after Japan.

Why focus on Asia?

Asia is a key area of focus for 7-Eleven’s growth. Of the company’s 62,000 stores across the globe, over 30,000 are located in Asia- ex-Japan. 7-Eleven expects to grow its APAC store count to 80,000 by 2020.

The ASEAN is the world’s third largest consumer market, just behind China and India. Nomura, the Japanese investment bank forecasts spending in the five largest ASEAN countries can grow by 50% by 2020. This equates to an annual spending growth of nearly 17%.

“I can tell you (Asia has) been quite attractive and a number of licensees are growing,” 7-Eleven spokesperson Margaret Chabris said. 7-Eleven’s President Kazuki Furuya also dismissed concerns about a slowdown in Japan’s retail sector. “If convenience stores continue to evolve, there will be chances (to grow),” he said.

In the US

7-Eleven is eyeing opportunities for aggressive growth in the United States as well. In May 2017, it acquired 79 convenience stores from CST Brands Inc. for $408 million. More recently, 7-Eleven acquired nearly 1000 gas stations and convenience stores from Sunoco (SXL) as part of its aggressive plan to expand its footprint in the United States. This acquisition will cost $3.3 billion and is expected to boost the company’s operating profits by 6%. One of the largest acquisitions by 7-eleven, this deal would boost the number of stores in the US and Canada to 9,815. By fiscal 2019, the company targets increase its store count in North America to 10,000

Rising threat of competition

Competition is heating up for 7-Eleven as it tests the water in new markets. In markets like Malaysia (EWM), Singapore (EWS), Thailand (THD), Philippines and Indonesia (EIDO), the company has marked its presence and occupies a large market share. However, in newer markets, the company faces growing threats from local players. In Vietnam, prior to 7-Eleven’s entry local real estate company Vingroup came to market with convenience stores named Vinmart+. Furthermore, rising competition from online-retailers like Amazon and Alibaba is threatening 7-Eleven’s market share in established countries.

Is 7-Eleven’s stock running out of gas?

7-Eleven is currently publicly listed in Japan, the Philippines, Thailand and Malaysia. Year to date, shares of the Japanese parent company Seven & I Holdings have gained 7% while its Malaysia counterpart, 7-Eleven Malaysia Holding Berhad have lost 4.9%.  In the Philippines, the company is operated by PSC All, while in Thailand it is run by CP All. Shares of the companies have returned 24% and -1.2% in 2017 so far.

Recently, CIMB Research re-iterated their “reduce” rating on 7-Eleven Malaysia Holding Berhad on expensive valuations and the company’s rights issue. “7-Eleven is currently trading at 37 times FY17F and 33x FY18F P/Es, which, in our view, seems rather excessive against its modest three-year EPS compounded average growth rate (CAGR) of 11.5%,” it said.

“We are negative on this as we estimate that the proposal will be dilutive to our FY18F EPS forecasts by c.15% (assuming full warrant conversion) due to the expansion of share base and the exercise price of the warrants is 32% below 7-Eleven’s theoretical ex-rights price of RM1.48, based on the announcement.”