International
Thursday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Jun 22, 2006, 08:35

The Irish Independent also reports that more and more investors are taking on riskier commercial property risks in emerging markets as yields in Irish property continue to disappoint.

The Irish Times reports that European Central Bank (ECB) president Jean-Claude Trichet has called on the Government to take steps to ensure the stability of the Irish housing market.

Addressing MEPs on the European Parliament's Economic and Monetary Affairs Committee in Brussels yesterday, Mr Trichet said management of housing markets was the business of EU member states.

"There is a need to issue prudential warnings and messages that, combined with decisions taken at EU level, are incorporated into the economic cycles of EU member states," he said in response to a question from Fianna Fáil MEP Eoin Ryan. "The Irish authorities are aware of their capacity and influence in this respect and we are counting on them."

In response, Minister for Finance Brian Cowen said the Government would have to be careful in implementing any measures aimed at calming the housing market.

"The gradual phasing out of the tax-relief scheme is designed to avoid any sudden shock to the construction sector generally, having regard to the important contribution of this sector to Irish economic growth at present," Mr Cowen said.

He was referring to property-related tax-incentive schemes, some of which include a housing component.

"The Government continues to run a prudent, stability-oriented budgetary policy which gives us room for manoeuvre in the event of an economic downturn," he added.

Mr Trichet's comments come as a new review of the housing market shows house-price inflation rose to 13 per cent last May, compared with about 5 per cent last autumn.

It is now at its highest level since 2000, according to the review published yesterday by Permanent TSB.

The Opposition has rounded on the Government's handling of the housing market.

"Ireland is going closer and closer to the high-risk zone in relation to the economy's dependence on the construction sector," Labour's spokeswoman on finance Joan Burton said. "The Government are aware of that and are terrified.

"Fianna Fáil is so closely allied to political support in the construction sector that I'm not sure the Government can stand back and fine-tune the kind of change that would give the sector a soft rather than a hard landing," she added.

Fine Gael's finance spokesman Richard Bruton said the Government was threatening the economy's stability by ignoring calls for more stable management of the property market.

"The call from respected international bodies to manage pressures in this market more prudently are going unheeded," Mr Bruton said.

"A budget which raises spending at twice the rate of projected tax-growth increases pressure, so does release of SSIA money."

The Irish Times also reports that Eircom's new owners, led by Australian fund Babcock & Brown, plan to sell off a stake in the company or float its shares on the stock exchange within the next three to five years, according to a circular on the current €2.36 billion takeover deal to members of Eircom's employee share ownership trust (Esot).

While the deal will increase the Esot's stake in Eircom to 35 per cent, the trust told its 14,400 members in a circular on the deal that there would be "more risk" in their investment after the takeover than the risk in their current stock market stake in the company.

However, the trust said the tax-free dispersal by June 2009 of €300 million in preference shares in the bid vehicle, BCM Ireland Equity, would compensate for that increased risk. It also said bank guarantees on the preference shares and a reduction in the employee share ownership plan (Esop) loan to €27 million from €105 million would also compensate for the increased risk.

There is no detail in the circular about the timing of any sale or flotation, although the document makes it clear that such developments are already on the agenda. While stating that there is no market in ordinary shares in the bid vehicle, the trust cited such a liquidity event as one of four mitigating factors.

"BCM (ie Babcock & Brown) and the Esot intend to effect a listing or trade sale of BCM Ireland Equity shares in three to five years," it said.

Preference share distributions were listed as another mitigating factor. According to the document, a distribution of €80 million to Esot members next November will be followed by another €80 million distribution in June 2007 and two distributions of €70 million in June 2008 and June 2009.

"The distributions of preference shares in accordance with the redemption schedule. . . would mean that participants with full notional allocations would each receive approximately €30,000 by June 2009," the document said.

The other mitigating factors were the Esot's €70 million stake in Vodafone, which dates back to the sale of Eircom's former mobile unit Eircell, and the Esot's right after three years to convert its shareholding each year to Babcock & Brown shares in Australia.

Esot members must vote on the transaction by July 7th. The Esot recommended the takeover to its members, but the deal cannot pass without a simple majority of the trust's members.

In a letter to Esot members, the trust chairman Jerome Barrett said the offer would fail without support of the trust members and said such an outcome "would potentially be seriously adverse to the interests of participants".

The Esot cited the rise in its shareholding "and increased influence the Esot will have over the business of Eircom". The offer "represents an attractive price for Eircom ordinary shares compared with the price prior to speculation about a Swisscom approach, and lock in a bid premium of 35 per cent. . . worth over €100 million to the Esot", it said.

The Irish Examiner reports that defined benefit pensions have shown a significant improvement in solvency with two-thirds now meeting that test, against 50% a year ago.

However, the number of plans closing to new employees has hit 40% and that figure is projected to rise to 60% within the next three years as companies reduce their exposure to the pressures of long-term funding.

To deal with that employers have been forced to double their contributions with the average now at 17%, compared to 9% of salary in 2000.

The findings are contained in a new Mercer HR Consulting report, just published.

Workers have also had to raise their financial input to ensure their pension plans deliver over time.

Although poor investment performance has in the past been blamed for high contribution rates, Michael Madden, European Principal with Mercer, said: “This is only part of the picture. People are living longer and the return available on bonds, which drives liability values, is very low by historical standards. Both these factors make pensions more expensive to provide”.

He noted that a even a marginal increase in longevity of one or two years can add 10 to 12% to the long-term liabilities of a fund.

The net result is a growing increase in defined contribution plans, he said.

Other key findings of the report were:

Employees are also paying more, with 23% of schemes reporting an increase in the last three years and a further 18% either imminent or expecting increase in next three years.

Extra contributions are ranging from 1% to 3% of pensionable salary.

Investment in bonds is increasing as employers seek to reduce risk.

“A move from a defined benefit pension scheme to a defined contribution pension scheme transfers a significant amount of risk from employer to employee. In order to understand these risks, and ensure that their retirement savings are adequate, members need good communication and education in a DC scheme,” he said.

Mr Madden said employees needed to be trained to ask basic questions about their new plans.

“‘How much do I need to invest and how much will I get when I retire,’ are basics issues that each worker needs to address for his or herself,” he said.

Because many firms are now running DC schemes in conjunction with original plans, workers are inclined to believe that they are still taking full responsibility for the new fund, which is clearly not the case, he said.

In that sense the current generation needs to be re-educated to the changes that have taken place regarding their pension entitlements, he said.

The Financial Times reports that Laurence Parisot, president of Medef, France’s main employers’ association, warned on Wednesday that the “acceleration of crises” in the country over the past year and the current political turmoil was damaging the economy.

In a television interview, Mr Parisot said that rejection of the European constitutional treaty in last year’s referendum, the outbreak of widespread rioting in urban ghettos in October, and the mass protests against the government’s youth labour law this spring had unsettled French business.

“Over the past year we have seen a succession, an acceleration of crises, which is very worrying for the stability of our country, for economic growth,” she said.

Dominique de Villepin, prime minister, has come under increasing pressure to resign having lost the confidence of much of his centre-right parliamentary party, the UMP, for his maladroit leadership of the government. Yesterday, Mr de Villepin attempted to defuse a potentially explosive row that had erupted on Tuesday in the National Assembly, the lower house of parliament. The prime minister withdrew remarks accusing François Hollande, leader of the opposition Socialist party, of cowardice and said he regretted any personal offence he had caused.

However, some UMP deputies said Mr de Villepin’s provocative stance had reinforced concerns about his suitability for the job and repeated their appeals to President Jacques Chirac to dismiss him. They appear to be growing increasingly alarmed that the stand-off at the heart of the government between Mr de Villepin and Nicolas Sarkozy, the president of the UMP, could cost them their jobs in next year’s parliamentary elections.

They also fear Mr Sarkozy’s chances of winning next year’s presidential elections could be fatally undermined by continuing political turmoil giving Ségolène Royal, the frontrunner from the Socialist party, a free run for the presidency.

The clashes among the political elite in Paris are also being exploited by populist hardliners, such as Jean-Marie Le Pen, the leader of the National Front, who are presenting themselves as tribunes of angry and confused provincial voters.

“While these derisory polemics are amusing the gallery, the self-destruction of France is taking place on every front with criminal indifference among those who are in charge of the country’s destiny,” Mr Le Pen said in a statement.

Ms Parisot also criticised the government’s indecisive meddling in the corporate restructuring that is currently sweeping the eurozone’s second biggest economy. “The state cannot be a player, the state cannot be the one capable of deciding everything, or knowing how to do everything when it comes to management and the economy.

Eric Chaney, Europe economist at Morgan Stanley, said: “In a rapidly changing world where France has to catch up with its peers in terms of reforms, a weak and paralysed cabinet is the last thing we need.”

The FT also reports that Gordon Brown gave his most symbolic indication yet on Wednesday night that he will not move Labour to the left if he becomes prime minister by pledging fully to replace Britain’s Trident-based nuclear deterrent.

In a move that will acutely anger leftwing Labour MPs who hope he will ditch Tony Blair’s commitment to reform, the chancellor used his Mansion House speech to the City of London to declare that Trident will be fully replaced if Britain’s military chiefs so wish.

About 100 Labour MPs are preparing to battle the government on whether the Trident submarine-based deterrent should be continued when the current system expires in 2025.

Some argue that Britain must move to a cheaper form of missile delivery – launched from land or aircraft – when Trident is phased out. Other Labour MPs want Britain’s nuclear deterrent scrapped.

The government is to indicate its preference at the end of this year, beginning a two-month public debate in early 2007.

But, seeking to entrench his commitment to national security, Mr Brown on Wednesday night signalled that he was prepared to back the full retention of a submarine-based system, a move that would cost £20bn in the years to 2025.

Mr Brown told his City audience that he believed in retaining the UK’s independent nuclear deterrent in “the long term” – words that go beyond Labour’s commitment to retain the deterrent only for this parliament.

“In an insecure world, we must and will always have the strength to take all necessary long-term decisions for stability and security,” Mr Brown said.

Mr Brown’s allies later sought to underscore that his words reflected a firm commitment on Trident. “Gordon is in no doubt that if the military chiefs recommend a full replacement for Trident then that is what we must deliver,” said a close ally of Mr Brown.

Mr Brown’s commitment to replace Trident fully, if implemented, would have no immediate implications for public spending. Most of the £20bn replacement costs would have to be faced in the middle of next decade. Whitehall officials said the question of how that cash would be found – be it from the Ministry of Defence or other budgets – would only be answered well into the next decade.

However, the commitment is politically symbolic. Mr Brown has been under pressure from the Conservatives and Mr Blair’s allies to prove he is not a left-leaning figure and a “roadblock to reform.” Wednesday night’s commitment is a powerful expression of how much he wants to distance himself from the Labour left. He also used the speech to stress his commitment to modernisation of public services, saying it was wrong “for political parties to cling to the past”.

It was unclear on Wednesday night whether Mr Brown’s announcement on Trident had been made in agreement with Mr Blair.

The New York Times reports that even as diabetes rates reach epidemic levels worldwide, four new drugs are generating optimism among doctors as well as Wall Street analysts.

New drugs alone will not reverse rising rates of Type 2 diabetes, a condition that affects about 20 million Americans and is closely tied to obesity and lack of physical activity. And doctors caution that for the foreseeable future, diabetes will remain a progressively worsening disease that can cause devastating complications.

But doctors say the new drugs are important additions to the treatment arsenal because they work differently from existing diabetes medicines and have relatively mild side effects.

With the annual market for diabetes drugs expected to reach at least $25 billion worldwide by 2011, up from $15 billion today, drug makers have been investing heavily in new approaches to treating diabetes. And data presented at the American Diabetes Association's annual scientific conference last week suggested they are having at least some success.

One of the four treatments, Byetta, given by injection, is already on the market. Another, Exubera, an inhalable form of insulin, has been approved and will reach pharmacies next month. The other two, Galvus and Januvia, both taken as pills, are awaiting approval from the Food and Drug Administration, which analysts expect by early next year.

"There's cause for tremendous optimism," said Dr. John Buse, the director of the diabetes center at the University of North Carolina School of Medicine and the vice president of the American Diabetes Association. "We have the drugs to basically control diabetes in 90 percent-plus of patients." Dr. Buse said he had consulted for the manufacturers of all the new drugs.

Byetta, introduced in June 2005, has stirred especially high hopes. The drug causes significant weight loss in many patients — in contrast to most existing diabetes treatments, which cause weight gain that can potentially worsen the disease. In addition, some data in animal studies hints that Byetta may help the pancreas regrow the cells that produce insulin, a crucial process in slowing the course of diabetes.

Byetta has become so popular that its makers, Amylin Pharmaceuticals and Eli Lilly, are having trouble meeting demand for it. Last week, the companies began asking doctors not to start patients on Byetta until a new manufacturing plant goes into operation, a process that may take several months.

Analysts are optimistic about the commercial prospects of all four of the drugs, forecasting that they will become blockbusters, with more than $1 billion in worldwide sales each.

The new drugs will probably cost $1,500 to $2,000 a year per patient, more than existing treatments, analysts say. Still, Byetta, won coverage relatively easily from most insurers, and Galvus and Januvia will probably follow because the complications of diabetes are so expensive, making drug treatment relatively cost-effective, said Richard Evans, an analyst at the Sanford C. Bernstein & Company investment bank.

Mr. Evans said that Exubera might have a harder time winning insurance coverage, since it was merely a new form of an existing treatment. Injectable insulin typically costs about $1,200 a year per patient.

Patients with Type 2 diabetes slowly lose the ability to produce insulin, a hormone secreted by the pancreas that controls the amount of sugar in the blood, even as their bodies grow steadily more resistant to the insulin they do make. The complications of late-stage diabetes can be devastating, including blindness and amputations.

Current diabetes drugs work by lowering blood sugar, either by sensitizing the body to insulin or by encouraging the pancreas to make more insulin. But over time, the conventional therapies tend to lose their effectiveness, and most patients must eventually inject themselves with insulin. That is why the new drugs, with their new approaches, are generating such interest.

Galvus, from the Swiss drug company Novartis, and Januvia, from Merck, raise the levels of a naturally occurring hormone that is released in the stomach and intestines during eating. The hormone, called GLP-1, causes the pancreas to produce more insulin while simultaneously discouraging the liver from producing sugar.

Both Galvus and Januvia, which are sometimes called gliptins, appear to have few side effects and work well with existing diabetes drugs, according to papers presented at the A.D.A. conference. While the F.D.A. has still to finish its review of the drugs, they are almost certain to be approved, Mr. Evans of Sanford Bernstein said. Doctors are optimistic, too.

"They are another class of drugs that will help us," said Dr. Joel Zonszein, the director of the clinical diabetes center at Montefiore Medical Center in the Bronx. Dr. Zonszein said he had been paid in the past to speak for Merck but has not been a consultant to it or any other company.

Galvus and Januvia do not appear to be quite as potent at lowering blood sugar as metformin, the existing first-line diabetes drug. But because of their mild side effects, they will probably be given as an adjunct to metformin, replacing an older group of diabetes drugs — known as sulfonylureas — that are given to patients as a second- or third-line treatment, Dr. Zonszein and other doctors said.

The sulfonylureas cause weight gain in many patients and have a high risk of hypoglycemia, or low blood sugar, a potentially dangerous condition that can occur when insulin levels rise too quickly.

Wall Street analysts are bullish about Galvus and Januvia, predicting that each drug could have annual sales as high as $2 billion.

The fourth new drug is Exubera, Pfizer's inhalable insulin, which the F.D.A. approved in January and Pfizer plans to begin marketing this month. Insulin, the standard treatment for late-stage diabetes since the 1920's, is the most potent method of controlling blood sugar and is used by about five million Americans every day.

But until now it has been available only via injection. Pfizer argues that Exubera will attract patients who should be taking insulin but have not wanted to inject themselves.

"No other medicine can get all patients to their goals as insulin can," said Dr. Michael Berelowitz, a senior vice president of Pfizer who is an endocrinologist.

Still, some other doctors and analysts say that Exubera's benefits have been overstated, especially because clinical trials have shown that the drug slightly reduces patients' ability to breathe.

"Patient and doctor will have to weigh very carefully what the benefit and the risk really is," Dr. Buse said.

The success of Byetta, meanwhile, has caused some doctors to question whether diabetes patients fear injections as much as Pfizer claims. Like insulin, Byetta must be injected. But unlike insulin, Byetta causes significant weight loss in many patients and seems to pose very little risk of causing hypoglycemia. Byetta's most common side effect is nausea, which can be severe.

Eli Lilly and Amylin, which jointly manufacture Byetta, have not advertised Byetta to consumers, instead marketing it directly to doctors. Still, demand for the drug has soared since last year, growing faster than either analysts or the companies had expected. About 200,000 patients now take Byetta, the companies say, and analysts expect sales of close to $400 million this year.

Meanwhile, the companies are testing a version of Byetta that would need to be injected only once a week, instead of daily. If approved, that drug, currently called exenatide LAR, will easily top $1 billion in annual sales, analysts say.

Dr. Alan Garber, a professor of medicine at Baylor University, said that patients do not mind injecting Byetta to benefit from its weight loss effects. In addition, some animal studies appear to show that Byetta may cause the pancreas to regrow beta cells, which produce insulin, Dr. Garber said. Dr. Garber has not consulted for Lilly or Amylin.

Dr. Dennis Kim, the senior director of medical affairs at Amylin, said that his company and Lilly were working on studies to determine whether Byetta could help pancreatic cells regenerate. But doing so will be difficult, Dr. Kim said, because researchers cannot ethically ask volunteers to undergo pancreatic biopsies.

"I'd love to have the data that conclusively shows that this has long-term benefits on people's beta cell function and mass," he said. For now, the theory remains unproved, he said.

Still, Dr. Garber, the Baylor professor, said he hoped that Byetta, especially when given to patients with relatively early-stage diabetes, might be able to halt the progression of the disease or even reverse its course.

"That has the potential to fundamentally change the diabetes paradigm," he said.

The NYT says that Shengda College in central China has a diverse curriculum, foreign faculty members to teach English and a manicured campus, where weeping willows shade a recreational lake.

But many students paid the college's rich tuition — at $2,500 a year one of the highest in China — primarily because Shengda promised that their diplomas would bear the name of its parent, Zhengzhou University, a more prestigious national-level institution, and not mention Shengda at all.

So when the graduating class of 2006 received diplomas that read "Zhengzhou University Shengda Economic, Trade and Management College," students erupted last Friday, ransacking classrooms and administrative offices, shattering car windows, scuffling with the police and staging one of the most prolonged student protests since the 1989 pro-democracy uprising that filled Tiananmen Square in central Beijing.

The protest, still simmering on Shengda's now tightly guarded campus, reflects the reality that the country's exploding population of college students must grapple with petty fraud, substandard instruction and an intensely competitive job market. Students, a traditional bellwether of political volatility in China, have become a fresh source of unrest in a society already angered by land grabs, unpaid wages and environmental abuse.

Once a magic ticket into the government or business elite, college has become an expensive gamble for millions of cash-short families who find that even the most prestigious degrees cannot guarantee success in a market economy.

The number of college graduates has multiplied fivefold in the last seven years, to an estimated 4.1 million this year. But at least 60 percent of that number are having trouble finding jobs, according to the National Development and Reform Commission.

Students at Shengda, a privately run college with 13,000 students outside Zhengzhou, the capital of Henan Province, say they were assured on admission, and repeatedly afterward, that they would get graduation certificates that would appear identical to those issued by Zhengzhou, the top university in the province.

Most Shengda students did not perform well enough on national college entrance exams to enroll at Zhengzhou University itself, where the tuition is about $500 a year. So Shengda's promise persuaded students and their families to pay unusually steep tuition to gain an edge in the job market. What many of them say they did not know is that under a national regulation phased in beginning in 2003, the college is now required to use its own name on diplomas.

When this year's graduating seniors picked up their diplomas on Friday and saw the revised language, the reaction was instantaneous — and incendiary.

"We bought a Mercedes-Benz and they delivered a Santana," said one angry graduate, Wang Guangying, referring to a low-priced Volkswagen sedan made in China. "By that night, school officials had totally lost control."

Beer bottles rained down from dormitory windows, leaving a carpet of broken glass on the walkways. Television sets and washing machines followed, according to students who participated and photos of the post-riot scene.

Groups of students marauded around the campus, smashing cars, offices or any piece of property they felt belonged to someone in power. The front gate and a statue of the college's founder were toppled.

The local police arrived to break up the protest, but they retreated after they were barraged by bottles and rocks. Riot squads from Zhengzhou arrived about 3 a.m. Saturday, students said, after the violence had begun to subside.

The authorities sealed the campus and prevented most students from leaving. But marches and sit-ins continued in front of college headquarters through Wednesday, students said. Protesters shouted, "Give back my Zhengzhou University diploma!" Others demanded a refund or a discount on their tuition and a full apology from the headmaster, Hou Heng.

They scored at least a partial victory. Mr. Hou said Wednesday in a telephone interview that he had resigned after being told to do so by his superiors at Zhengzhou University.

He acknowledged that some promotional literature had "failed to state clearly" that Shengda would amend its diplomas. He denied that Shengda had intentionally provided false information but said he had to take responsibility for the unrest.

"I'm fulfilling the wishes of the people above," he said.

Shengda's problem with diplomas is not unique. In 1998 the government encouraged a vast expansion in college-level education. Hundreds of new colleges were founded almost overnight to accommodate millions of new students thought to be needed as engineers, bankers, traders and marketing experts in the fast-growing economy.

Under the regulations, new colleges had to find "mother schools" to supervise them. They used that link to their advantage. New colleges charged higher tuitions than the mother schools charged — Shengda's fees are nearly five times those of state-run Zhengzhou University — because they gave students who did not test highly the chance to affiliate themselves with a top college or university.

Not all of them went as far as Shengda in issuing diplomas that carried the name of the mother school, but some did. And when the authorities put an end to the practice, students reacted harshly.

In the northeastern city of Dalian, for example, some 3,000 students at the East Soft Information Institute, set up jointly by Northeast University and the East Soft Group Company, attacked campus facilities in December, sending several teachers to the hospital. They rioted after they were told that the word online would distinguish their diplomas from the regular ones issued by Northeast University.

At Shengda, the downgraded diploma struck some students as a body blow, one that could cripple their chances of securing a good office job.

"There are not many positions open in the business world compared with the number of applicants, and they all go to the national-level university graduates," said a Shengda junior studying transportation, who asked to be identified only by his surname, Wang, to avoid angering college authorities.

Mr. Wang, who spoke by telephone from inside the sealed campus, said he came from an impoverished farming community in Henan. His parents devoted their savings and borrowed heavily from friends and relatives to pay his tuition, which he said greatly exceeded his family's annual income.

"I do not support violence, but the spirit of the students just collapsed," he said. "The school must admit its error and refund our money."

His anger stems partly from the fact that most fresh college graduates will not find work that comes close to meeting their expectations, meaning they will have to struggle to pay off the debts their relatives shouldered on their behalf.

By the government's tally, China's economy, though growing by about 10 percent a year, will add about 1.6 million positions for people with college degrees this year. The country produced 4.1 million new college graduates.

A growing cadre of highly educated but underemployed urbanites is tailor-made to cause alarm in Beijing, which has always feared student unrest above nearly all other forms of social discontent.

Disgruntled students have often taken the lead in national protests against corrupt, inefficient or repressive officials. They have also inflated seemingly minor grievances affecting their personal prospects into broader political campaigns, as they did during the student-led pro-democracy demonstrations in 1989.

One of the Communist Party's greatest successes since that upheaval has been to create strong support for the market economy among urban residents, intellectuals and their children.

That bond has held strong for more than a decade, even as China has been engulfed in other types of unrest, including nearly 80,000 mass protests recorded in 2005 alone. Most such events involve peasants, migrant workers or workers laid off from state enterprises, who often lack media-savvy leaders and rarely demand substantive political change.

The situation could change if large numbers of students got involved, though there is no sign that the scattered protests at colleges will lead in that direction anytime soon.

Even so, China's cabinet announced new policies in May to enhance the value of degrees from vocational schools and high schools. The measures are aimed at reducing college enrollment, the cabinet said in a statement, without specifying a target.

"This is a good step for gradually solving conflicts in universities, especially to relieve the pressure on graduates finding jobs," the statement read.

In the short term, at least, college campuses are like kindling awaiting a spark. Even as the protests at Shengda were under way, thousands of students at the Jiangan campus of Sichuan University hurled bottles and barrels out their windows to protest the lack of electrical power at night.

Some students said they needed electricity at all hours to study for annual exams. But according to The Sun, the Hong Kong newspaper that first reported on the incident, the main grievance was that students needed power through the wee hours so they could watch live broadcasts of the World Cup soccer tournament.