Business Report Wednesday

Power cuts turning investors off Indonesia Agence France-Presse . Jakarta
Foreign investors are shying away from Indonesia due to chronic power outages, the chairman of the country’s business association said Tuesday as Jakarta prepared for two weeks of blackouts. Businesses are bracing for millions of dollars in losses when the capital and its densely-populated surroundings experience rolling power cuts of eight hours a day for two weeks from Friday. The cuts are officially due to maintenance work which will interrupt gas supplies to two state-owned generating stations in North Jakarta, but analysts have blamed the country’s crumbling infrastructure. ‘If the power cuts continue foreign investors won’t come to Indonesia. They will choose China instead,’ Indonesia Business Association chairman Sofjan Wanandi told AFP. ‘As long as our infrastructure is not ready, foreign investors will think twice before they invest in this country,’ he added.
Japan’s bankruptcies rise in H1 of 2008 Agence France-Presse . Tokyo
The number of corporate bankruptcies in Japan rose 11.6 per cent in the first half of 2008 with the number of cases related to higher material prices hitting a record high, researchers said Tuesday. Bankruptcies for the first six months totalled 6,022, while combined liabilities climbed 17.4 per cent to 3.019 trillion yen ($28b) compared with the same period last year, Teikoku Data Bank said. June saw 1,065 bankruptcies leaving liabilities of at least 10 million yen each, up 7.1 per cent from 994 cases in May, the research firm said in its monthly report. However, combined liabilities in June was down 1.9 per cent from the previous month to 471.92 billion yen, but was still 40.3 per cent up on the same period last year, it said. Bankruptcies in construction stayed at a high level due to declining orders for public works and rising material prices, the report said. The number of business failures related to the recent surge in raw materials costs reached a record high of 54 cases in June, when oil prices hit a record high of 140 dollars, up 40 per cent since early 2008, it added. Corporate failures are expected to continue to increase and the pace accelerates, which will severely impact small and mid-sized firms, the research firm said. Japan has since 2002 been in its longest post-war economic expansion, but that ‘is about to end,’ Teikoku Data Bank said. ‘In addition to the construction industry, small retailers are expected to face a period of tough conditions... as recent consumer surveys show household spending expected to decline,’ it added. ‘Demand from overseas is falling, meaning more manufacturers are expected to go out of business.’ Top Japanese executives are at their most pessimistic in almost five years as soaring costs, a slowing global economy and a stronger yen pile pressure on profits that are expected to drop this year, the central bank said last week. kdf/dan
Thailand revises down tourism projections Agence France-Presse . Bangkok
Thailand revised down its projected tourism earnings for next year, saying high oil prices and political instability were hurting one of the kingdom’s biggest industries, an official said Tuesday. The Tourism Authority of Thailand expects 16 million foreign visitors to bring in 630 billion baht ($18.66b) next year. That would mean revenue growth of five per cent, lower than originally predicted. ‘TAT lowered the projection for 2009, down from our earlier prediction of 10 per cent growth, because various factors needed to be considered,’ a TAT spokeswoman told AFP. ‘High oil prices and the current political uncertainty are major factors,’ she added. Thailand’s government has faced nearly seven weeks of street protests and is fending off a slate of court cases that have raised fears of new political instability in the kingdom. Record oil prices have already prompted flag carrier Thai Airways to scrap its direct flight to New York and cut its daily direct flights to Los Angeles to five days a week.
HSBC award winners visit Hong Kong Business Desk
The Hongkong and Shanghai Banking Corporation in Bangladesh recently arranged a study tour in Hong Kong for the HSBC Young Entrepreneurs Awards 2008, the Gold, Silver and Bronze winners. HSBC Young Entrepreneurs Award is a regional business plan writing and presentation competition which was launched seven years ago in Hong Kong. The PANDORA, the gold team from Bangladesh, participated in the YEA regional grand final round in Hong Kong recently. Symphony, the gold team from Thailand, won the prestigious ‘Best of the Best’ and ‘Best Presentation Award’ along with a cash prize of HKD 100000, said a press release. In the final, the PANDORA competed against the other gold teams from Thailand, Brunei, Hong Kong, Malaysia, Philippines and Vietnam. The students attended a seminar on Entrepreneurial Skills Development and their study tour included a visit at the Ocean Park, Cathay Pacific and Calbee Four Seas.
Global shares plunge on fresh fears for banking Agence France-Presse . London
World stock exchanges suffered sharp falls Tuesday on fresh fears for the banking sector, with the French market hitting a three-year low following big losses in Asia and the United States, dealers said. In morning trade in Paris, the CAC 40 index slid 2.73 per cent to 4,224.08 points, its lowest reading since July 2005. French banking shares were under heavy pressure, with declines of 3.63 per cent at Societe Generale, 3.37 per cent at BNP Paribas and 4.26 per cent at Credit Agricole. Investors were reacting to negative comment on the sector from US investment bank Lehman Brothers. Lehman warned that the big US mortgage re-financing groups, Freddie Mac and Fannie Mae, could have to raise a combined 75 billion dollars to meet their commitments. Elsewhere in Europe on Tuesday, London’s FTSE 100 was down 2.69 per cent at 5,364.60 points and Frankfurt’s DAX 30 shed 2.35 per cent to 6,245.51. ‘Asian stock markets have also been hit by the fear that the turmoil in the financial sector is not over yet,’ said ABN Amro analyst Melinda Smith. Wall Street stocks fell Monday following sharp market swings as investors fretted about the second quarter earnings season, sensing major banks could unveil further losses, dealers said. Large American corporations start revealing their latest quarterly results this week and some analysts believe that bank earnings will sustain further hits from a lingering credit crunch. The leading US Dow Jones Industrial Average on Monday dipped 0.50 per cent to close at 11,231.96 points following a late recovery. ‘Everyone is reassessing the widely-held view that the worst of the credit crisis would be over by now, and coming to the same conclusion: The worst may not be over and it might last well into 2009,’ said Ed Yardeni of Yardeni Research. Japanese shares closed 2.45 per cent lower on Tuesday after briefly falling below 13,000 for the first time in nearly three months. Hong Kong lost 3.16 per cent, South Korean equities shipped 2.9 per cent and Sydney fell by 1.4 per cent in value. Investors were nervous ahead of key second quarter earnings reports from major US banks, which are due to reveal further write-downs on their assets and securities due to the subprime-related credit squeeze, dealers said. On other financial markets Tuesday, oil prices steadied after sliding further away from record highs a day earlier as traders banked profits. Eight of the world’s most powerful leaders called Tuesday for efforts to cool sizzling commodity prices, warning that soaring fuel and food costs were a threat to world economic growth. The Group of Eight rich nations said it was ready to take action to cushion global growth from runaway commodity costs. But they stopped short of announcing concrete steps in a joint statement on the economy released on the second day of a summit in northern Japan. G8 powers — Britain, Canada, France, Germany, Italy, Japan, Russia and the United States — said they remained positive about the long-term resilience of their economies, noting that emerging economies were still growing strongly. But the world economy was ‘facing uncertainty’ and risks to growth remained. They expressed ‘strong concern’ about oil and food prices, which they said ‘pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable and increase global inflationary pressure.’ The statement made no mention of the weakness of the US currency, although US President George W. Bush told fellow G8 leaders that he was committed to ‘a strong dollar.’ In foreign exchange market activity, the dollar fell slightly against the euro on Tuesday.
More airlines fold as fuel prices soar: IATA Agence France-Presse . Geneva
Twenty-five airlines went bust or stopped operations in the first six months of this year and more could fold as fuel prices soar, a spokesman for aviation industry association IATA warned. ‘In the last six months we suspended 25 airlines from the settlement system. Suspension occurs when an airline goes bankrupt or ceases operations. This is more concentrated than at any time in the history of the system,’ IATA spokesman Anthony Concil told AFP. The list included airlines big and small from all regions, such as Cameroon Airlines, Denver-based Frontier Airlines and UK-based business class airline Silverjet. In comparison, in the six months following the attacks in New York and Washington on September 11, 2001, only eight airlines folded, including Swissair, Belgian flagship carrier Sabena and Australia’s Ansett. While Concil would not speculate on airlines that were vulnerable to bankruptcy in the coming months, he said: ‘Certainly the high price of fuel is having an enormous impact on the industry and we do expect the list of 25 will grow.’ The IATA payment system is used by most of the carriers that are part of the association. When a customer buys an airline ticket from a travel agency, the agency pays IATA, which then credits the account of the carrier in question. But when an airline is threatened with bankruptcy, it is suspended from the system in order to ensure that funds are available to reimburse customers when necessary. With the explosion in fuel prices, airlines are increasingly finding themselves on the line. Concil said that every dollar increase in crude oil translates to 1.6 billion dollars in additional costs to the aviation industry. Brent North Sea crude has soared from about 75 dollars in July last year to a high of 146 this July. Consequently, the price of jet fuel has also surged. For the week ending June 27, jet fuel prices were 171.90 dollars per barrel, or almost twice that of a year ago. While fuel prices used to make up just 13 per cent of airline costs, they were now fast reaching 35 per cent of costs, estimated IATA.
UK economy facing serious risk of recession Agence France-Presse . London
Britain’s economy, buckling under the credit crunch and a slowing property market, faces a ‘serious risk’ of recession as firms face soaring costs and falling orders, according to a survey published Tuesday. The British Chambers of Commerce, which represents the country’s business interests around the world, made the claim in a quarterly economic survey that polled almost 5,000 large and small businesses. In the second quarter of 2008, companies working in the services sector reported ‘alarming’ falls in orders, which sank to the lowest levels since 1990, according to the BCC. Confidence among service companies was also at the lowest point since 1990, undermined by the soaring cost of energy and raw materials. ‘The second quarter results signal a menacing deterioration in UK prospects,’ said BCC economic adviser David Kern. ‘We are now facing serious risks of recession.’ The definition of a recession is when an economy faces contraction for two or more quarters in a row. British businesses are facing the prospect of sky-high energy bills after crude oil prices hit record highs near 147 dollars per barrel last week. At the same time, the ongoing worldwide squeeze on credit has left many businesses struggling to raise capital. ‘These results show a real risk of recession in the coming months,’ said David Frost, BCC director general. ‘This is obviously deeply worrying, not just for business but for the consumer too, with both manufacturing and services reporting negative results.’ The BCC added Tuesday that the balance of manufacturers intending to raise their prices had reached an all-time high for the third quarter in a row, which could further fuel inflation in the coming months. Despite the downbeat survey, the Bank of England was expected to hold British interest rates at 5.0 per cent on Thursday, as it seeks to combat soaring inflation, economists said. The survey is the latest piece of downbeat economic news that points towards a potential recession in Britain. The country’s manufacturing output shrank in May, according to official data published on Monday. Manufactured production declined by 0.5 per cent in May from April and dipped by 0.8 per cent on a 12-month basis. A wider measure of industrial output, which includes mining, quarrying and energy, sank 0.8 per cent in May from April, driven by sharp falls in the machinery and energy sectors.