Football’s Coming Home!

There has been a 20.1% H1 decline, to 9.4k units, in the number of Dubai off-plan sales transactions (with values 28.0% lower at US$ 3.3 billion), despite a June boost when 2k units were sold. The two top performing locations were Meydan and Jumeirah Village Circle that recorded 1.1k and 0.9k sales respectively. There was more encouraging news on sales for ready property, only dipping 11.8% to US$ 2.8 billion. The market may worsen as mortgage rates start moving north – up 75 bp already this year.

With a US$ 156 million contract awarded to Majed Hilal Contracting, Azizi is expected to start work on phase 4 of Azizi Riviera. Located in Meydan 1, the contract, to build eleven canal-side buildings, comprises over half of phase 4 of the development that will add 4.8k residential units to its flagship project.

Although the offices and commercial side of the iconic Opus building, designed by the late Zaha Hadid, has received their first tenants, it is reported that the opening of the Me by Melia hotel has been delayed twelve months and set to open in Q4 2019. The property – which encompasses 19 floors, including 98 serviced apartments and 19 rooms – would have been the brand’s eighth global location. Melia also announced that it had taken over the running of the Desert Palm Dubai Hotel, formerly managed by the Per Aquum brand by Minor Hotels.

With the market becoming increasingly competitive, as well as hotel revenues and occupancy rates heading south, Rotana is taking active steps to remain viable. The hotel group, with 65 regional properties, has introduced a strategy of cost-cutting and rejigging expansion plans in a bid to stop a decline in revenue levels.

HH Sheikh Mohammed bin Rashid Al Maktoum approved a new human resources law that will see increased annual leave for government employees, by a further three days, with grade 8 employees and above having 25 days’ leave a year; employees will also be entitled to overtime compensation in some cases, have the option to work remotely and receive ticket allowances for all offspring under the age of 21.

In a move to boost customer numbers, Dubai Parks and Resorts have teamed up with Emirates to offer a special two-day access to all four of its theme parks for only 42% of the price. The offer is open to anyone with an Emirates booking.

As part of a new phase of last July’s code-sharing agreement, Emirates and flydubai will utilise the same customer loyalty program, Skywards, from next month. To date, the airlines have a joint network of ninety shared destinations in 48 countries, with a 220 target by 2022.

By acquiring a further 40% stake in Airport Handling, dnata becomes a majority 70% shareholder in the Milan-based ground handler. It manages the passenger, ramp and baggage services to sixty airlines at the city’s two airports, Malpensa and Linate.  The Dubai-based airport operator, with 300 airline customers in 130 airports, made its first investment in the four-year old company in 2016.

Because of the holy month of Ramadan starting in mid-May, monthly traffic at Dubai International was 3.8% lower, at 6.6 million, than in the same month last year; YTD figures of 36.9 million passengers are 0.1% lower than in 2017, whilst figures for the past twelve months are 2.6% higher at 88.2 million. Monthly cargo traffic of 221.4k tonnes was 4.9% down, with YTD returns 3.1% off. Although flight movements have fallen by 5.6% to 32.6k, efficiency has improved, with each flight taking 2.0% more passengers – 209 per flight in May; YTD, a fall of 3.5% resulted in 169k flight movements over the past five months.

It is reported that local ride-hailing service Careem is in talks with Uber about possible collaboration that could take many forms. Uber could try for an outright 100% bid or be satisfied with a majority shareholding or Careem could manage the local business. Uber has been cutting back on business interests outside its core markets in anticipation of a 2019 IPO. It has sold operations mainly in China, Russia and SE Asia but has also retained a share with Russia’s Yandex NV and holds a 27.5% stake in Singapore’s Grab Holdings. Meanwhile, the Dubai firm is a market leader in almost all the ten countries in which it operates and has a regional presence in seventy locations.

Yet again, Dubai scores well in another global poll. According to a recent study by the Boston Consulting Group, Dubai came in sixth in the world that people would move to for work. Cities ahead of the emirate included first place London, New York, Berlin, Barcelona and Amsterdam.

A BMI Research study expects the ME e-commerce sector to expand 80.7% from this year’s total of US$ 26.9 billion to US$ 48.6 billion by 2022. The region’s top two markets are the UAE and Saudi Arabia, where the 20-39 year-old sector account for 50% and 36% of the total population respectively.

Having just extended its title sponsorship of the Irish Open for four more years, Dubai Duty Free has become an Official Partner to the European Tour. It joins a list of well-known global brands – including BMW, Hilton, Rolex and Titleist – that see major golf events as a beneficial marketing tool.

To facilitate logistics to landlocked African countries, DP World will set up a facility in Ethiopia. Goods will be shipped in and out of that country and then transported from there to inland areas. This development will open a whole new trading link that will be a win-win situation for all stakeholders.

The Central Bank reported that for the first five months of the year, 12.1 million shares were handled by the Clearing Cheque System, valued at US$ 161.3 billion; of that total, 4.27% in numbers (515k) and US$ 7.1 billion (4.43%) ‘bounced’. Over the same period in 2017, 12.9 million cheques, valued at US$ 175.4 billion, were cleared and there were 546k cheques not honoured, totalling US$ 7.9 billion (4.48%).

In April, the Central Bank injected US$ 3.8 million into the banking system, reducing its certificates of deposits to US$ 32.2 billion; a month later, in May, it withdrew US$ 1.9 billion excess liquidity from the local market to restore its CD balance to US$ 34.1 billion.

A Truth Economic Consultancy report shows that the country’s s real estate and construction sector added US$ 94.3 billion to the GDP – up 5.9%, compared to a year earlier; it also accounts for almost 31% of UAE’s GDP. Total bank loans to the commercial and industrial sectors rose by 3.4% in the first five months of 2018 to US$ 211.0 billion, equating to 48% of total bank lending.

The Dubai Financial Services Authority has questioned senior executives, including founder Arif Naqvi as well as co-chief executives Omar Lodhi and Selcuk Yorgancioglu, about the alleged misuse of investor funds at Abraaj. In June, the Dubai-based private equity firm stopped fund raising activities and filed for provisional liquidation in the Cayman Islands. Since then, it has been trying to sell the firm’s assets in an orderly manner including its investment management arm to Colony Capital. However, more pressure on the embattled Abraaj came with news that Colony Capital’s deal to take control of four of the buy-out firm’s funds is facing investor resistance.

This week, the DIFC Courts have ruled against the former deputy chief executive of GFH Capital, David Haigh, who was ordered to repay US$ 6 million plus costs; having led GFH Capital’s purchase of Leeds United in 2012, he was convicted of fraud and embezzlement in 2015. He served two years in prison from 2014 and was subsequently deported from the UAE after being convicted for faking some one hundred invoices, with monies being paid into at least four banks here and in the UK. Sir Jeremy Cooke said in his summing up “the court… is satisfied on the evidence that the defendant is a fraudster who caused to be paid into his own bank accounts and that of his close friend, monies belonging to the claimant.   .   .” GFH will now go to the UK courts to try and enforce the judgement.

The number of H1 traded contracts at the Dubai Gold and Commodities Exchange hit a record level of over 11.3 million, valued at US$ 250 billion. DGCX, a derivatives exchange, is a subsidiary of the DMCC.

ServeU will launch its IPO, and be registered on the Dubai Financial Market, in September. There were no further details relating to the size and value of the listing. The Union Properties’ subsidiary, one of the country’s leading five facilities management companies, is also expecting to double the size of its workforce to 10k over the next two years, as its client base expands along with possible local acquisitions.

It seems that troubled retailer, Marka, which has suspended trading on the DFM since late April, will not resume until at least 04 September at which time a restructuring plan will be discussed at a shareholders’ meeting. Since its 2014 establishment, the company, which has exclusive Gulf rights to Real Madrid products, has yet to show any profit returns.

The DFM opened on Sunday (01 July) on 2821, having shed 262 points (8.6%) the previous two weeks, regained some ground, up 59 points (2.1%), closing the week, on 05 July 2018, at 2880. Both Emaar Properties and Arabtec were trading higher on Thursday 05 July by US$ 0.05 to US$ 1.39 and US$ 0.04 to US$ 0.56 respectively. Volumes were lower, trading 226 million shares, valued at US$ 64 million, (compared to 306 million shares, worth US$ 123 million, the previous Thursday – 28 June).

By Thursday 05 July, Brent Crude, having gained US$ 4.80 (6.6%) the previous week, lost some ground down US$ 1.46 (1.9%) to close on US$ 77.39, with gold climbing back, after shedding US$ 52 (4.0%) the previous fortnight, up US$ 8 to US$ 1,259.

Mining giant Glencore is being investigated by US authorities in a money laundering probe relating to business deals over the past decade in Nigeria, Democratic Republic of Congo and Venezuela. The company, which expects to make an annual profit of up to US$ 3.2. billion, saw its share value slump 12% to nearly US$ 4.00, after it was ordered to hand over specific documents.  A day later, the mining giant announced that it would buy back up to US$ 1 billion of its shares – a move that may go some way to placate shareholders who had seen US$ 5 billion written off its market value; shares jumped 4.7% on the news.

After winning a US$ 200 million tank contract with the US Marine Corps last week, BAE Systems has hit the jackpot. It has been awarded a US$ 26.5 billion Australian government contract to build a new generation of warships. Part of the deal is that the frigates will be built down under.

In a two-prong strategy move, Boeing is forming a US$ 4.8 billion 80:20 venture with Brazil’s Embraer SA, that will result in an expansion into the smaller jetliner market, as well as giving it an overseas manufacturing base. It will also help the US company expand into the ever-growing market for 100-seater planes and levels the playing field somewhat with Airbus who, on 01 July, took over control of Bombardier C series jets.

Because of Pratt & Whitney failing to meet an engine delivery deadline, Airbus will supply up to forty less A320neo planes this year and now expects to hand over 170 planes by the end of the year; well-publicised problems have seen a three-month delay that could result in customers claiming penalties. For example, Indigo, the plane maker’s largest customer, with a 430-jet order, has incurred extra costs by having to lease aircraft on short-term contracts. In turn, the Toulouse-based company has had to park planes, without engines, in places such as China, Germany and the US, adding to their costs.

This week has seen the proposed merger between the Indian-owned Tata Steel and Germany’s ThyssenKrupp move a step closer, with the new entity to be known as Thyssenkrupp Tata Steel. The merger will create Europe’s second biggest steelmaker (after Arcelor Mittal) and will lead to a reduction in the combined 48k workforce, in both administration and production; cost savings of up to US$ 580 million are expected. In the UK, Tata employs 4k at its Port Talbot operation and 3k at Deeside. The steel industry will be facing pressure on three fronts – Donald Trump’s introduction of 25% tariffs, dumping by China and the possible fall-out from Brexit.

Although still wearing Nike shoes, Roger Federer has moved his allegiance to Fast Retailing Co.’s Uniqlo, 24 years after signing his first sponsorship deal with the Oregon-based athletic-wear conglomerate. The agreement will see the 36-year old Swiss tennis star earn US$ 300 million over the next decade.

After discovering financial irregularities late last year, Steinhoff International has written off US$ 14.5 billion, emanating from inflated asset deals and other trades “not at arm’s length”. The owner of Conforama in France, Mattress Firm in the US and Kika/Leiner has restated its 2017 figures which saw asset values fall US$ 14.5 billion to US$ 26.1 billion – and the calculation process is still on-going. Little wonder that its shares have fallen 97% since the scandal was discovered and the company is trying to negotiate a US$ 11.0 billion restructuring programme with its creditors. Former chief executive Markus Jooste is being investigated by a South African anti-corruption police unit.

DB, a US subsidiary of troubled Deutsche Bank, was found to have “widespread and critical deficiencies”, as it failed the second part of the US Federal Reserve’s annual stress tests. This news comes after S&P had cut its rating and questioned its plans to return to positive trading. Last month, it did pass a stringent phase 1 test measuring its capital levels against a severe recession. The end result is that the bank, with US$ 133 billion in assets, may cut back on its US operations and that it will need the Fed’s approval to make any distributions to its German parent. Deutsche Bank, has seen its share value fall by over 43% so far in 2018.

June’s IHS Makit Eurozone Manufacturing PMI registered 54.9 – its lowest level in eighteen months – driven by a continued softening in both production and new order intakes. Output and new orders both registered their weakest pace of growth since November 2016 and August 2016, respectively. Consequently, business optimism has slumped to its lowest level in thirty months, whilst the rate of expansion in outstanding business is at a 22-month low. The threat of a trade war will exacerbate the problem of ongoing, weak economic data. Unemployment levels in both the EU28 and the eurozone remain flat at 7.0% and 8.4%, with Czech Republic and Germany posting the lowest levels of 2.3% and 3.4%, with Greece (20.1%) and Spain (15.8%) at the other end of the spectrum.

Strong economic data keeps coming from the US, with the Institute for Supply Management’s June PMI climbing 1.5 to 60.2, partly due to a quickening in production growth from 61.5 to 62.3, whilst the new orders index dipped 0.2 to 63.5. Just as in Europe, there is concern what impact a trade war would have on the economy.

How the mighty have fallen! Worth more than US$ 35 billion only six years ago, Brazilian magnate, Eike Batista, has seen his empire built on oil and mining collapse. He has been found guilty of handing the former Rio governor, Sergio Cabral, US$ 16 million in bribes to secure lucrative projects. It is apparent that his fortune was down to corruption and bribing top officials for their favours.

To ready themselves for an upcoming battle with Amazon, supermarket giants, Tesco and Carrefour, have formed a buying alliance which could result in an annual saving of well over US$ 500 million. The US “invader” spent US$ 14.2 billion last year for niche retailer Whole Foods Market, which already had seven supermarkets within the M25, as well as becoming involved in on-line sales with Morrisons.

The Financial Reporting Council is looking into KPMG’s audit of ex-Bargain Booze owner Conviviality, which went into administration in April. Only last month, the financial watchdog criticised the firm for an “unacceptable deterioration” in the quality of its audits and took the unusual step saying it would inspect 25% more of its audits in the 2018-19 financial year. Earlier in the year, it was also censured over its audit of collapsed construction firm Carillion and, last month, fined over US$ 4 million relating to the audit of insurance firm Quindell.

Turkey’s June inflation level rose by 15.39%, its highest level since January 2004, driven by a slumping currency and hikes in transportation (up by 24.26%) and food products such as non-alcoholic beverages rising 18.89%. The Central Bank has lifted its 2018 forecast to 8.4% but expects a dip next year to 6.5%. Consequently, it is all but inevitable that there will be a rate hike, that could be as high as 100 bp (1%) later this month.

Theresa May will have all her cabinet locked up for the day tomorrow as she tries to agree a united blueprint for the UK’s relationship with the EU post Brexit. This week, several major players have gone out of their way to warn of the catastrophic impact that leaving the EU will have on the UK economy. This is almost a rerun of the many establishment disaster-day comments made before the referendum including Mark Carney’s warning that the risks of leaving “could possibly include a technical recession”; the then Chancellor, George Osborne said that leaving the EU would tip the UK into a year-long recession, with up to 820k jobs lost within two years.

Now, we have the ADS chief executive, the Jaguar boss and the Airbus chief executive all scare-mongering with dire warnings once again. Paul Everitt has said that a no-deal Brexit would be a “worst case scenario”, that could ground aircraft made with UK-made parts. Ralf Speth, of the country’s biggest carmaker, has also warned that a “bad” Brexit deal would threaten US$ 106 billion worth of investment plans for the UK and may force it to close factories. Paul Enders has indicated that the plane-maker could leave if the UK were to leave the single market and customs union without a transition deal.

This is just what the government wants to hear to “soften up” the electorate that has been bamboozled by both sides of the argument. On 27 June 2017, almost one year after the referendum, this blog wrote about Mrs May that:

This his time last year, she was steadfastly in the “Remain” camp but soon moved her position to appear pro-Brexit. The same can be said of her cohort, Chancellor Phillip Hammond as both canvassed for a “Hard” exit after the referendum. Now it looks as if the debate will go full circle and both turncoats will opt for a very soft Brexit resulting in the UK retaining more than one foot in the EU – so much for the PM’s battle cry of “no deal is better than a bad deal”

Since then nothing seems to have changed and the government is no further down the road with its Brexit plans. Instead of worrying about their political careers, it is about time some politicians considered their electorate and the UK population.

Contrary to popular belief, the UK service sector continues to gain momentum with the latest HIS Markit CIPS PMI increasing 1.1 to a healthy 55.1 – the 23rd consecutive month it has stayed above the 50 level which marks the difference between growth and contraction. Positive influencers were the general upturn in demand, a rapid increase in new business inflows and improved economic conditions. Even the Bank of England governor has more confidence in the economy, indicating that weak Q1 figures were down to the weather, and that household spending and sentiment had “bounced back strongly”. With the favourable weather conditions and England’s progress in the World Cup, the feel-good factor will feed into July results, moreso if the team goes all the way – Football’s Coming Home!

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

White Flag

There seems to be no stopping Azizi Developments, as it announces that it will deliver five additional projects in the Al Furjan community by the end of this year – having already handed over twelve projects. The extra five – Shaista Azizi, Samia Azizi, Azizi Star, Farishta Azizi, and Azizi Plaza – will add a further 1.7k residential units and bring the developer’s total to over 3.6k, valued at US$ 1.1 billion.

It is reported that the Jumeirah Group is planning to add the Burj Al Arab brand to its portfolio; based in global gateway cities, the first will probably be located in Europe, where some room prices could be in the US$ 2.2k bracket. The Burj itself is to undergo renovation in the summer of 2019. The Group is scheduled to open six new Asian hotels, including in Bali, China and KL, over the next three years, and will see two new properties – next to Jumeirah Beach Hotel and in Abu Dhabi – later this year.

Emaar Hospitality has signed an agreement to expand into the Sub-Saharan Africa’s hospitality market, with its first deal being to operate the 256-key Address Hotel 2 Février Lomé Togo. The Emaar Properties’ subsidiary has also signed five other international agreements – in Bahrain, Egypt, Saudi Arabia, The Maldives and Turkey.

Over the next two years, Novo cinemas expect to open 19 new cinemas across the region, that will see a 26.6% increase in the number of screens to 200 by 2020.

Apart from a place next to Sepp Blatter, the Fairmont Dubai has probably the most expensive seats to view the World Cup Final on 15 July. At a cost of US$ 27.2k, guests can stay in the 548 sq mt Imperial Suite which will be transformed into a grass football field. The six guests will be picked up in a stretch limo, watch the game on a103” LED TV and have their dedicated butler, barman and chef, along with a photographer, available 24/7. After the match, they will have their own VIP table at the hotel’s circus-themed club Cirque Le Soir. Celebrations begin next day, with a live-breakfast station in their own jacuzzi area, and continue into the morning before their afternoon departures in a range of super cars, including McLarens and Lamborghinis.

In 2015, jeweler, Ramachandran, with debts of US$ 150 million, was forced to close thirty of his 48 Atlas shops and served two years in jail. The former film actor has seen the value of his company jump 26% this month alone and has indicated that he has received investment proposals from several private equity parties, who would also pay off his debts. He now plans to open up to ten stores, over the next two years, with the first one in Dubai.

It is likely that some Etihad pilots will be joining Emirates on a two-year secondment which would entail them receiving their salary and benefits, per an Emirates package, but retaining their Etihad job ranking on their return. This move allows both airlines more flexibility in managing their pilot resources at a time when Etihad is restructuring its business model that have resulted in closing some routes and reducing its freighter fleet. It is inevitable that more cooperation between the carriers will continue to take place.

As from 31 March next, year, Virgin Atlantic will no longer operate its London-Dubai route because it has become economically unviable due to a combination of factors.

July fuel prices are set to drop on Sunday, with Special 95 down US$ 0.016 (2.4%) to US$ 0.668, whilst diesel will retail US$ 0.136 lower at US$ 0.725.

In a move that will boost its current level of supplying 2.8 million US gallons of jet fuel daily, Emirates National Oil Company has signed a strategic partnership with Australian-based Raven Energy. The deal will see ENOC expanding its Nigerian operations, as well as enhancing infrastructure in the UAE and improving productivity.

The Dubai World Trade Centre Authority has announced up to 70% reductions on licensing and incorporation fees in a bid to boost business growth; the state-owned convention centre also hopes that it will benefit inward FDI (foreign direct investment).

Figures from the Knowledge and Human Development Authority (KHDA) indicate that Dubai private schools’ 2017 revenue, from tuition fees, was 10.3% higher at US$ 2.0 billion, and 59.6% up from returns five years ago. Although the average school fee is US$ 7.3k, there are some – including GEMS World Academy, King’s School Nad Al Sheba and Repton – charging over US$ 27.2k, with the most expensive being the recently opened North London Collegiate School at fees up to US$ 35.4k. The 194 private schools have an “occupancy rate” of 85.3%, with 281.4k enrolled students. Five countries – India (33.9%), UAE (10.9%), Pakistan (8.0%), Egypt (5.5%) and UK (4.7%) – account for 177.4k (63.0%) of the private student population. When it comes to higher education, enrolments last year were 4.8% higher, with 30.4k students attending the emirate’s thirty-two free zone universities.

To the surprise of some, Dubai has fallen seven places and is now the 26th most expensive location according to the latest Mercer ‘Cost of Living’ survey. It estimates that a two-bedroom apartment monthly rental in Dubai is US$ 3k, compared to New York (US$ 5.7k) and London (US$ 4.3k). One of the main reasons for the decline is attributable to the softening US$ last year. The survey also concludes that because of the lower cost of living, the emirate will continue to attract top talent from around the world. Hong Kong, Tokyo, Zurich, Singapore and Seoul are the top five countries, based on cost of living.

Dubai family conglomerate Majid Al Futtaim has signed a US$ 13 billion JV with the Oman Tourism Development Company to develop a mixed-use community in the western area of Madinat Al Irfan. The development, which will see 30k jobs created in the country, will encompass 11k residential units, 100k sq mt of retail and 700k commercial space. The massive project, to be built in three phases and covering 4.5 million sq mt, will take twenty years to complete.

After divesting the bulk of its investment business to Colony Capital, Omar Lodhi and Selcuk Yorgancioglu, the co-chief executives of Abraaj Investment Management (AIML), have stepped down from the board of the unit. There are also reports that a Sharjah-based prosecutor has issued a warrant against the founder, Arif Naqvi, currently in the UK, in relation to bounced cheques issued as a security for two loans – one for US$ 54 million to the firm and the other for US$ 27 million to the founder – both from the UAE-based Al Jafar family. The case is expected to be tried in his absentia and a conviction could lead to a jail term. He is charged along with fellow director, Muhammed Rafique Lakhani,

The court liquidator is also seeking funds to arrange payroll payments, that could total up to US$ 20 million, to the firm’s ninety employees. On top of that, there are bound to be other indirect overheads that require settlement.

As it tries to consolidate its market position, Amanat is reportedly buying troubled Abraaj’s share in Middlesex University’s Dubai campus for around US$ 100 million. If the sale goes through, Amanat would have 100% ownership in the 13-year-old asset, with 3k students, that has annual revenue of around US$ 40 million. Later in the week, the GCC’s largest healthcare and education investment firm also completed the purchase of London Collegiate School (NLCS) Dubai for US$ 98 million from the Sobha Group; it also committed a further US$ 12 million to its future expansion plans. The Dubai-based firm also has 35% in Abu Dhabi University Holding Co and 21.7% in Taaleem Holdings and has a reported war chest of US$ 490 million to spend in the regional healthcare and education sectors.

Shuua Capital’s board has agreed to repurchase 10% (US$ 30 million) of its shares in order to reoffer them. The Dubai-listed investment firm has a market value of US$ 313 million and posted a 52.9% decline in Q1 profit to just over US$ 3 million.

Monday was a bad day for both the local bourse and Drake & Scull. The DFM shed 2.1% to close at 2868 – its lowest level since January 2016 – whilst the troubled contractor saw its share value slump 10% on the day, the maximum daily decline permissible. Some analysts are of the opinion that stocks, which in the main are attractively valued, are being dragged down because of issues involving corporate governance and a lack of transparency.

The DFM opened on Sunday (24 June), having shed 155 points (5.0%) the previous week, lost a further 107 points (3.7%), closing the week, on 28 June 2018, at 2821; over the past year, the bourse has lost 12.2% in market value. Both Emaar Properties and Arabtec were trading lower on Thursday 28 June by US$ 0.08 to US$ 1.34 and US$ 0.04 to US$ 0.52 respectively; over the past twelve months, these stocks have lost 31.22% and 32.77% respectively.  Volumes were flattish, trading 357 million shares, valued at US$ 97 million, (compared to 306 million shares, worth US$ 123 million, the previous Thursday – 21 June).

By Thursday 28 June, Brent Crude, having declined US$ 9.22 (6.0%) the previous five weeks, headed in the other direction up US$ 4.80 (6.6%) to close on US$ 78.85, with gold continuing on its slippery slope, down another US$ 20 (US$ 32 the previous week) to US$ 1,251.

At last Friday’s meeting, OPEC agreed to cut the compliance level to the production-cut agreement from May’s 152% to 100%; in effect, it gives the cartel flexibility to boost production levels but no specific figures were made available. A day later, non-OPEC producers endorsed a nominal output increase of one million bpd, equivalent to about 600k.

21st Century Fox won US Department of Justice approval to acquire Disney, subject to Disney selling 22 regional sports networks, now owned by Fox. Its rival Comcast could still gazump Fox’s US$ 71.3 billion bid, with the cable and media conglomerate considering a potential partnership to up the ante.

Even the country’s largest coffee chain, with 2.4k shops, Costa is serving fewer customers, as the falling numbers on UK high streets continue to bring misery to many retailers. The coffee chain, owned by Whitbread, reported a 2.0% decline in Q1 like for like sales, although revenue was 5.2% higher because of new openings. It joins many other big names, with falling revenue – including Byron, House of Fraser, Jamie’s Italian, Maplin, Marks & Spencer, Mothercare, New Look, Poundworld, Prezzo and Toy R Us, all of which have closed outlets or shut down completely.

Three other retailers have joined this long list. As part of its company voluntary arrangement, the House of Fraser has received 75%+ creditors’ approval to close 31 of its 59 stores, resulting in 6k job losses, 2k which will be direct staff and 4k across brands and concessions. There is every possibility that C,banner, owned by Hamleys, will buy 51% of the “new” business and invest US$ 94 million in a move that has annoyed some landlords; they argued that they will take the biggest financial hit amongst stakeholders, with the new arrangement favouring the retailer that will have a new lease of life with this investment.

Since arranging a Company Voluntary Arrangement in April, Carpetright has begun to close 81 of its stores and also raised a further US$ 87 million from shareholders. This week, the UK retailer posted an annual loss (to 28 April) of US$ 95 million, with like for like sales 3.6% lower. The underlying loss came in at US$ 11 million (when one-off restructuring costs are taken off), compared to the previous year profit of US$ 19 million; its net debt was 540% higher at US$ 71 million.

John Lewis Partnership, including John Lewis and Waitrose, is also warning that H1 profits may be “close to zero” after posting a US$ 35 million surplus last year. The Group will close five of its 353 Waitrose operations but retain its 50 John Lewis department stores.

One of India’s biggest property developers, Ireo Management, has been accused by two high profile hedge funds of a US$ 1.5 billion fraud. It is alleged that its MD, Lalit Goyal, created a web of shadow companies to siphon money from funds in what could be one the country’s largest ever private equity scams. Some of the investors involved include the UK’s Axon and Children’s Investment Fund Foundation, Notre Dame University and Stanford University.

The Indian rupee is on some kind of free-fall (driven by the hike in energy prices and the global sell-off in emerging markets) and the signs are not looking good for an early improvement. With the currency falling a further 0.7% on Thursday (28 June) to 69.09 to the greenback, bonds were hit, as the benchmark 10-year yield jumped to 7.93%. As the country, the third highest global oil user, imports nearly 70% of its fuel needs, any price increase will have a negative impact on its current account with a net capital outflow. It is estimated that a US$ 10 hike in fuel prices will see India’s GDP contract 0.4% and inflation rates 0.4% higher.

It has indeed been a volatile and eventful six months and from the table, it can be seen that of the 17 listed economic indicators, only four have headed north, with the most notable being the 19.2% increase in Brent. The other three were coffee, the S&P 500 and the ASX All Ord – up by 9.6%, 1.6% and 1.9% respectively. The biggest losers were Bitcoin, DFMI, CSI300 and copper – with double digit deficits of 55.8%, 16.3%, 12.9% and 10.3%. As can be seen, this blog expects minor improvements almost across the board over the next half year. Time will tell.

31 Dec 18 Unit 30 Jun 18 31 Dec 17 31 Dec 16 31 Dec 15 31 Dec 14
1,365 Gold US$ oz 1,254 1,305 1,151 1,060 1,186
67.50 Iron Ore US$ lb 64.80 71.28 75 47 73
84.00 Oil – Brent US$ Bar 79.44 66.62 56.82 36.40 57.33
115.50 Coffee US$ lb 114.90 126.2 133 124 161
89.50 Cotton US$ lb 86.03 78.5 69 64 62
17.00 Silver US$ oz 16.16 16.99 16.00 13.82 15.77
3.05 Copper US$ lb 2.96 3.30 2.48 2.14 2.88
0.77 AUD US$   0.74 0.78 0.72 0.73 0.81
1.34 GBP US$   1.32 1.35 1.24 1.48 1.53
1.15 Euro US$   1.17 1.20 1.05 1.09 1.21
0.015 Rouble US$   0.016 0.017 0.016 0.014 0.017
7,600 FTSE 100     7,637 7,688 7,142 6,242 6,548
3,450 CS1300     3,511 4,031 3,310 3,731 3,532
2,680 S&P 500     2,718 2,674 2,238 2,044 2,091
3,050 DFMI     2,821 3,370 3,531 3,151 3,774
6,200 ASX All Ord     6,290 6,171 5,665 5,345 5,415
6,150 Bitcoin US$   5,791 13,081 998 427 302

In its attempts to control leverage and encourage SMEs, China’s central bank has reduced the required reserve ratio for some financial institutions by 0.5%, equivalent to US$ 108 billion extra cash being made available to the market. This move will give a boost to the economy at a time when there are indications that it is slowing, as a result of US trade sanctions and the government’s policy to clean up the shadow banking sector.

Greece has finally convinced its eurozone creditors for more time to repay a US$ 115 billion debt, with little or no interest, as well giving the country a stop-gap US$ 18 billion loan to help in paying its bills. It has been the recipient of three separate bailouts since 2010 because of continuous massive budget deficits and has faced a series of tough economic reforms and unpopular austerity measures. Although the EU seem to be patting themselves on the back, the country still has problems with 20%+ unemployment, debt equivalent to 180% of GDP and the IMF expressing worries about the long-term situation.

Having borrowed US$ 465 billion from the ECB, at a current minus 0.4% rate, eurozone banks are expected to pay back only US$ 12.8 billion (2.75%), two years ahead of schedule. The idea of the four-year loan facility (known as a targeted longer-term refinancing operation) was to pay the banks a small amount of interest as long as they met their quota of loaning to the real economy. The 2016 TLTRO, the ECB’s second encompassing four tenders, was part of a strategy aimed at fighting off the threat of deflation and boosting growth. It has turned out to be a long and expensive exercise with the banks, once again, the only real winners.

Following a 3.7% decline last month, US new home sales bounced back in May to an annual 6.7% rate of 689k, (with market expectations of only 1.5%), driven by a 17.9% surge to 409k in the South. Median sale prices at US$ 313k were down 1.7%, month on month, and 3.3% on an annual basis.

Driven by several key factors – including its economic diversity, policy flexibility, resilience and the fact that it is the issuer of the world’s leading reserve currency, S&P has affirmed the US ‘AA+’ sovereign credit rating. Whilst pointing out certain difficulties, such as slower decision-making, caused by disagreements across and within the two political parties, as well as the high level of public debt, the agency still forecasts growth this year at 3.0%. Despite all the hot air arising from the President working towards fairer global trade agreements, with the resultant uncertainties and tensions, the agency also expects the general pattern of trade in goods and services will remain broadly unchanged.

The latest salvo in the trade war sees the US threatening a 20% duty on EU imported cars, unless the bloc removes import duties and other barriers to US goods that saw US$ 3.3 billion tariffs placed on US imports to the EU. Last year, the US imported up to US$ 50 billion in vehicles and auto parts from the EU, with almost half from Germany and 18% from the UK.

The 117-year old Harley-Davidson company has upset the US President by announcing plans to move more of its manufacturing overseas. It seems a short-term solution (and a possible excuse to move jobs overseas) as the motorcycle producer is using the higher steel costs (as a result of the Trump tariffs) as well as retaliatory action, making their bikes more expensive in overseas markets, as the main factors for the decision. For example, the EU has hit the company with a 31% extra duty (up from the earlier 6%) which pushes the average price in Europe up by an additional US$ 2.2k. However, if one assumes that the situation is a short-term problem, and that moving production lines can take up to eighteen months (and a probable US$ 100 million), then one has to question their reasoning. No wonder that the President tweeted his surprise that “Harley-Davidson, of all companies, would be the first to wave the White Flag.”

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

Whatever It Takes!

Revolution Precrafted has signed an agreement with Bahrain’s Property One Investment Company to supply five hundred modular “eco-villas” for its development on The World Islands. It is estimated that the 4-B/R villas, measuring up to 200 sq mt, will have prices starting at US$ 320k and all should be completed by 2023. The Filipino company already has a massive US$ 3.2 billion contract with Seven Tides to supply and install 2-3 B/R condominium apartments and villas in the same Dubai-offshore location.

Despite the dismal news surrounding the realty sector, Danube reported that almost 85% of its recently launched Jewelz project has been sold. Work on the US$ 81 million development of 393 studio, 1-2 B/R units will start in Q3 and is expected to be completed within two years. Jewelz takes the developer’s total portfolio to 3.7k units (valued at US$ 855 million), of which 22.5% have been handed over, with a further 23.6% to be delivered by year-end.

The latest Rove hotel is to be built in Dubai’s newest beachfront – La Mer. Located in Jumeirah, the 366-key property, a JV between Emaar Properties and Meraas, will be ready in time for Expo 2020.

Jumeirah Group has unveiled a new strategy for its F&B sector that will see the appointment of Michael Ellis in the new position of chief culinary officer. The former Michelin Restaurant and Hotel Guides executive’s brief is to launch new restaurant concepts, introduce culinary talent and enhance/freshen existing outlets.

EY’s latest report points to continuing high occupancy levels in Q1 for Dubai hotels, up 0.8% to 86.9%, with healthy average room rates and RevPAR figures of US$ 293 and US$ 255. Beach-side properties performed even better, with ARR levels topping US$ 559.

With 15.8 million visitors last year, Dubai has secured fourth place in the world when it comes to tourist numbers. It expects to top 20 million by the time Expo starts in 2020 which would indicate an annual 8.2% growth level in numbers over the next three years.

Dubai’s commitment to alternative energy sources is apparent by the fact that the emirate has already committed nearly US$ 5.5 billion to solar power development, with a further US$ 8.2 billion forecast to be spent over the next decade. DEWA has estimated that the emirate will require a production capacity exceeding 42k MW of clean and renewable energy by 2050, of which 5k MW will be provided by the Mohammed bin Rashid Al Maktoum Solar Park within a decade. Meanwhile, FEWA (the Federal Electricity and Water Authority) is to build a 45 million Imperial Gallons per Day (MIGD) Sea Water Reverse Osmosis (SWRO) project to help secure future water supply.

DP World seems intent to go down the legal route – and is not considering an out of court settlement – in its spat with the government of Djibouti over control of the port at Doraleh. There is an ongoing case being heard by the International Court of Arbitration in London, relating to the 2006 concession agreed by both parties.

The ports operator is again active on the world stage – this time, announcing terms of the next Canadian expansion in its Prince Rupert Fairview Container Terminal. Last year, phase 2A saw the terminal’s capacity increase by 58.8% to 1.35 million twenty-foot equivalent units and over the next four years this will rise to 1.8 million TEUs, as well as result in a 37.1% hike in on-dock rail capacity to 24.7k sq ft. This new infrastructure will see Dubai investment boost Canada’s trade and economy – a pity that the country does not make use of similar Dubai-based investment opportunities such as additional Emirates’ links.

Temasek Holdings, one of Singapore’s giant sovereign wealth funds, is reportedly looking at a joint bid with EQT, the Swedish private equity firm, to acquire Cognoita. The UK-based schools’ operator, valued at US$ 2.7 billion and with forty UK schools along with others overseas, is also attracting reported interest from other rivals, including GEMS and Nord Anglia Education.

HSBC is to open its new US$ 250 million Dubai HQ next month, located in Downtown. HSBC Middle East had earlier transferred its place of incorporation and head office from Jersey to Dubai.

The Central Bank has stepped in to cap fees on 43 different types of bank charges, including set maximum limits on home loans and late fees for credit cards, in the latest government move to attract foreign investment and diversify the economy from a reliance on oil revenues. Some would say not before time.

In 2017, the UAE grabbed 67.0% (US$ 10.35 billion) of the GCC’s “pie” when it came to total foreign investments, followed by Oman (12.1%) and Saudi Arabia (9.2%). The country came second among investment attractors, equating to 23.3% of foreign investments, which is set to rise, following recent incentive measures introduced by the government.

Not renowned for their accurate forecasts, the IMF expects the country’s growth to be 2.0% this year and then an annual 3.0% for the ensuing four years. Over the next five years, it is forecast that UAE’s GDP, at constant prices, will grow 16.1% from US$ 389.6 billion to US$ 452.3 billion. The world body estimates that inflation will stabilise to a manageable 2.2%.

Depa Interiors has been awarded a US$ 22 million Saudi Arabian contract to implement a large transport project. This is the second such deal in that country for the Dubai-based company but no further details were made available.

Dubai-listed Air Arabia saw its share value fall over 7% on the first day of trading, following the Eid break, on the back of concerns of the budget airline’s exposure to troubled Abraaj. Confirming that it “has an investment in Abraaj funds”, the Sharjah-based carrier, which has the asset manager’s founder, Arif Naqvi, on its board, confirmed that it had appointed a team of experts, who are actively engaged with all stakeholders and creditors involved with the matter to ensure Air Arabia’s investment and business interest is protected.”

The Grand Court of the Cayman Islands has approved a provisional liquidation of Abraaj Group that should go a long way to ensuring the protection of stakeholders’ rights. Liquidators from PwC and Deloittes have been appointed to manage Abraaj Holdings and its fund management business respectively, in a move that should have a minimum impact on the firm’s day to day running. It should also help in an orderly disposition of assets, rather than a liquidation-triggered fire sale.

Colony Capital has agreed to buy Abraaj’s Latin America, sub-Saharan Africa, North Africa and Turkey Funds management business, as well as to oversee the group’s funds that it is not acquiring. This is just part of the troubled firm’s liquidation and restructuring plan, following court action by stakeholders in the Cayman Islands. The firm, that once managed more than US$ 14 billion of assets, has debts estimated at over US$ 1 billion.

The DFM opened on Monday (18 June), after the Eid holiday break, at 3083, and, having gained gaining 262 points the previous six weeks, lost 155 points (5.0%), closing the week, on 21 June 2018, at 2928. Not surprisingly then, to see both Emaar Properties and Arabtec trading lower on Thursday 21 June by US$ 0.12 to US$ 1.42 and US$ 0.06 to US$ 0.56 respectively. Volumes were higher, trading 306 million shares, valued at US$ 123 million, (compared to 131 million shares, worth US$ 82 million, the previous Thursday – 14 June).

By Thursday 21 June, Brent Crude, having declined US$ 3.4 (2.2%) the previous three weeks lost a further US$ 2.91 (3.8%) to close on US$ 73.05, with gold sinking US$ 32 lower to US$ 1,271.

With oil producers meeting this week to discuss lifting output quotas and the impact of US trade sanctions taking effect, the price of oil has plummeted. The big players, including Saudi Arabia and Russia, were looking for increased oil production, whereas the likes of Iraq and Venezuela want the status quo to remain. On the trade front, US has introduced US$ 50 billion of tariffs, scheduled to start early next month, with China responding in kind.

There was more bad press for Tesla, with news that one of its electric vehicles burst into flames on Santa Monica Blvd in Los Angeles and that it was investigating “an extraordinary unusual occurrence”. Unfortunately, the car was being driven by high profile UK TV director, Michael Morris, and there was instant and dramatic video available. Meanwhile, Elon Musk has accused one of his employees of “extensive and damaging sabotage” who forwarded sensitive data to unnamed third parties and also made unspecified coding changes to its manufacturing operating system. The company is also to lay off a further 3k employees – equivalent to about 9% of the payroll; the retrenchment will not affect factory workers but will focus on salaried staff.

In a shock move, Rupert Stadler, Audi’s chief executive, has been arrested in relation to an on-going investigation into the diesel emissions scandal. Munich prosecutors took this step, as they considered that the executive may suppress evidence. Last year, 850k Audi vehicles were recalled and, only last month a further 60k A6 and A7 models were found to have emission software issues.

Lufthansa is the latest airline to show interest in acquiring Norwegian Air Shuttle ASA, only weeks after BA’s owner, IAG SA, bought a 4.6% stake in the fast-growing Scandinavian discount carrier. With a market value of US$ 1.5 billion, and having already rejected two bid approaches from IAG, the airline, which has extended its low-cost operations to the Americas and Asia, will not be short of interested suiters.

As expected, Rolls Royce is to retrench 4.6k, with its Derby base and middle management level being the main targets. The engineering firm has intimated that the process, that will cost US$ 675 million, will take up to two years to carry out and that it will be concentrating more in the future on civil aerospace, defence and power systems. Once implemented, there will be expected annual cost savings of US$ 540 million.

CYBG, the owner of Clydesdale Bank and Yorkshire Bank, is to pay US$ 2.3 billion to acquire Virgin Money, which will result in it becoming the UK’s sixth largest bank. As a result of the deal, Virgin Money shareholders will own 38% of the new entity, which will shed 13.6% of the current workforce to reduce numbers to 9.5k.

The company Iceland, with 905 UK stores, is not performing as well as Iceland, the football team. Owing to a slowing grocery market, rising staff costs and increased competition, it expects H1 earnings to be lower than in 2017. The supermarket chain noted that although overall revenue levels in the year to 30 March grew 8.0% to US$ 4.1 billion, like for like sales actually contracted. However, it does expect that Q3 will see a “strong scope for profit recovery”. Meanwhile, Tesco, with a 27.7% market share, posted a 1.8% underlying growth figure – its strongest performance since 2011 – on the back of lower prices.

For the third time this year, Debenhams, which runs 182 shops, has issued a profits warning – this time that pre-tax profits will be between US$ 47 million – US$ 54 million, well down on earlier US$ 68 million expectations. (Just five years ago, profits were nearly four times higher at US$ 202 million). Despite the introduction of a turnaround plan, that was expected to hike profits by boosting sales and cutting costs, the retailer continues to blame “increased competitor discounting and weakness in key markets” for the trading slowdown.

Shares in Debenhams fell by over 16%, when the news was released but this fall was nothing compared to sportswear retailer Footasylum, whose market value almost halved, after reporting a decline in revenue growth and indicating that profits would be lower, as it doubles the number of stores to 130 and expands online shopping.

The malaise in the retail sector seems set to continue following store closure announcements earlier in the year by House of Fraser, Marks & Spencer, New Look and Mothercare. All the possible negative factors are coming into play at the same time to create the perfect storm. These include competition from online retailers, higher import costs due to the weaker pound, a rise in business rates and squeezed household incomes which have all combined to make times tough for High Street stores.

Political opposition to reforms to the Indian public banking sector is not helping the government’s bid to clean up the activities of the 21 lenders which, one way or another, have a huge US$ 150 billion bad debt burden. The Modi government is planning to privatise Mumbai’s IDBI which last year posted a US$ 1.2 billion loss and has seen its bad debt balance double to US$ 8.1 billion. Earlier in the year, the country’s second largest state-owned lender, Punjab National Bank, was involved in a US$ 2 billion scam involving billionaire diamond jeweler, Nirav Modi. One major problem, that the government may face, would the possible lack of suiters interested in taking over such problem institutions, without any sovereign backing.

In April, there were conflicting data from European trade balances – the Eurozone return was 6.4% higher, at US$ 19.4 billion, than a year earlier but the EU28 (the 28 members of the EU) posted a US$ 1.2 billion deficit, with exports 6.8% higher, at US$ 179.8 billion, and imports also rising 6.6% to US$ 181.0 billion. Eurozone exports jumped 8.0% to US$ 212.3 billion, as imports were up 8.1% to US$ 192.9 billion. Inflation levels in both zones moved higher – eurozone 0.6% higher to 1.9% and the EU28 touching 2.0%. Within the bloc, inflation was the lowest in Ireland (0.7%) and Greece (0.8%) with Estonia’s 3.1% and Romania (4.6%) at the other end of the spectrum.

The latest from the ECB’s President Mario Draghi indicates that there will be no rate hikes until at least Q3 2019 but that it plans to close its bond purchasing programme by year-end. It is noted that the ECB is still trying to reach its 2.0% inflation target, even after five years of drastic monetary policy, but now expects to hit the mark in 2020.

May was a stellar month for US privately-owned housing starts which rose 5.0%, month on month, to 1.35 million – and a massive 20.3% higher than a year earlier. When it comes to completions, the May figure of 1.291 million was 10.4% higher than in May 2017.

It seems that the trade war has started in earnest, with the EU planning to implement US$ 3.2 billion worth of tariffs next week which sees some US imports, (ranging from agricultural goods to motorbikes), being subject to a 25% tariff; this is in retaliation to the earlier 25% and 10% levies on EU aluminium and steel imports. The European bloc is also considering the feasibility of imposing further tariffs totaling US$ 4.2 billion “at a later stage”.

China responded aggressively to Trump’s decision to push ahead with hefty duties on US$ 50 billion of their imports. One of many sectors that will receive more than a slap in the face is oil; this follows recent growth that has seen a tenfold increase, over the past eighteen months, to US$ 1 billion a month. With US petroleum becoming more expensive in China, expect OPEC (and maybe Russia) to jump in to fill the breach – and global energy prices to head north.

Last year, the US trade deficit widened to its biggest annual level since pre-GFC in 2008, ending the year with import values being US$ 566 billion higher than export levels (and 12% higher compared to a year earlier). Actually, the shortfall for goods was US$ 810 billion offset by a US$ 244 billion trade surplus in services.

A perusal of three of the leading trading blocs – China, The EU and Japan – will put the problem in perspective when they respectively account for US$ 375.6 billion, US$ 151.3 billion and US$ 68.9 billion, equating to US$ 595.8 billion (73.6%) of the trade deficit for goods. US exports to these three blocs of US$ 480.8 billion were a long way short of their imports totalling US$ 1,076.6 billion.  Who can blame Donald Trump for wanting to reduce this to a more manageable and equitable level? It seems most of the world!

It is rather ironic that the Xinhua news agency, in a rare attempt at sarcasm, commented that “the wise man builds bridges, the fool builds walls”. It is about time that the nation, responsible for building the Great Wall, takes a more even-handed and pragmatic approach in its trade dealings, especially with the US. There is no doubt that the situation has deteriorated and that nobody really wins from a trade war. To solve this impasse, all stakeholders should do Whatever It Takes!

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

Peace Will Come According To Plan

With three projects – Binghatti Crystals, Binghatti Vista and Binghatti Jewels – due for completion this month and a further three (Binghatti East and West, Binghatti Sapphires and Binghatti Stars), ready by year end, the developer will have completed a credible US$ 300 million worth of projects. Before the end of 2020, Binghatti Developers hope to have handed over more than fifty other developments, with a value of US$ 1.6 billion.

An Arabtec subsidiary has been awarded a MEP works contract in Emaar’s Dubai Creek Harbour Development by the main contractor, AFC. Creek Horizon Plot 19, comprising 130k sq mt, will feature 550 contemporary apartments and should be ready for hand-over by Q1 2020.

The RSG Group has appointed Al Habbai Contracting for its 54-floor SZR building to be completed prior to Expo 2020. The US$ 136 million Sabah Rotana development will comprise a five-star hotel and hotel apartments.

Damac has awarded a US$ 20 million road and infrastructure contract to China State Construction Engineering Corporation, in relation to its massive Akoya Oxygen project which brings the total spend on this particular project to US$ 1.5 billion. Located adjacent to the Tiger Woods-designed Trump International Golf course, the development encompasses 55 million sq ft, with the first residents moving in by year-end.

Nakheel has received eleven proposals for the construction of its twin building residential complex at Dragon City, the lowest of which is US$ 177 million. Linked directly with Dragon Mart, the project will encompass 1,142 1-2 B/R apartments and is slated for a 2021 completion. The developer also announced an 80% completion of the construction of the third expansion at Dragon City – a US$ 46 million showroom and car park complex.

Wade Adams Contracting has been awarded a US$ 122 million Nakheel contract to build a 12-lane, 600 mt bridge connecting Deira Islands (the developer’s new15.3 sq km waterfront city) with the mainland. Work has already started and should be completed within two years.

There will soon be yet another tourist attraction for the emirate – the Dubai Wharf Green Wall, the region’s largest living green wall. The vertical garden, 210 mt long and six mt high, will feature 80k plants with a leaf canopy area equivalent to that of 200 trees. The Dubai Properties’ development, located in the heart of Culture Village, aims to promote sustainable living and will offset an estimated 4.4 tonnes of carbon dioxide annually.

DIFC is to build a state-of-art mosque in Gate Avenue, the heart of its new premium urban retail, leisure and cultural development. Covering 14.5k sq ft, the mosque will offer a modern, non-conformist facility that will host up to 500 worshippers.

Al-Futtaim Automotive International has announced that it has bought a plot of land in Faisalabad’s M-3 Industrial City to construct an assembly plant, capable of building 50k Renault vehicles annually.

A recent CarSwitch report (of 7k seller requests) confirms that Toyota and Nissan – each with an 11% market share – are the most popular car makers when it comes to resales; Ford (8%) and BMW (7%) come ahead of Mercedes. The most popular used car for sale continues to be the Mitsubishi Pajero, with a 3.6% share, but not surprisingly, Toyota models – Civic, Corolla, Camry, Prado and Yaris – take five of the top ten spots in the survey. A further breakdown sees sedans (47%) and SUVs (45%) dominate the used car market which at the end of the school year traditionally reaches its peak.

Last year, Dubai World Trade Centre’s events added US$ 3.4 billion to the emirate’s economy, equating to 3.3% of GDP; the location also captured 56.4% of the total return of major events held in Dubai which totalled US$ 6.0 billion – an 8.0% increase on the previous year. The growing importance of the MICE (Meetings, Incentives, Conferences and Exhibitions) sector to the Dubai economy can be seen from the fact that for every US$ 1 spent in this sector, US$ 4.31 is generated in overall non-trade business activity; furthermore, by supporting 84.2k jobs over the year, DWTC events also produces disposable household income of US$1.1 billion.

In its latest attempt to try and boost the economy, by reducing the cost of doing business in the emirate, the government is to cut Dubai Municipality fees on sales at local restaurants and hotels from 10% to 7%. Some properties in the sector, which adds 4.6% (US$ 40.9 billion) to the national economy, are indeed struggling as RevPAR (revenues per available room) dip for the fourth straight quarter. This follows recent decisions that have seen a 50% reduction in DM’s “market fees” and the freeze on private education fees.

In another bid to stimulate business growth and economic development in the emirate, the Department of Economic Development (DED) has launched a package to help businesses clear fines and renew licences in monthly instalments, rather than in one ‘hit’. This new initiative – which also includes giving businesses the ability to freeze their trade licence for a year, as well as seek amicable settlements with the DED for commercial violations – comes a month after companies were granted exemption from administrative fines for the rest of year. There is no argument that the local economy has gone through a troubled recent past, but recovery has already started with the UAE’s growth this year likely to be 2.7% (up from 1.5%) and 3.1% in 2019.

To reduce corporate costs further, the UAE cabinet has adopted a number of strategic decisions over foreign workers’ insurance in the private sector, as well as introducing measure in relation to the issue of visas. The mandatory US$ 817 deposit per employee will be replaced by a new US$ 16 new insurance policy that will allow businesses to recoup US$ 3.8 billion in previously tied-up cash with the bank.

There will be no charge for transit tourists staying for less than 48 hours, with a further two-day extension to cost US$ 13.62. Furthermore, anyone overstaying their visa will have the option of leaving the country voluntarily without a “no entry” passport stamp – and job seekers, who have overstayed their visa but wish to work in the UAE, will have access to a new six-month visa. There will also be the option of adjusting a person’s visa status, for a minimum fee, without the need for leaving the country. as was the case in the past.

Because of the recent government decision to freeze private education fees for a year, GEMS Education is reportedly planning to delay its London IPO. The Group, which includes Bahrain’s Mumtalakat Holding Co, Blackstone, Fajr Capital and founder Sunny Varkey, is studying the impact of the freeze on future earnings.

After three months of decline, Dubai’s inflation pushed above the 2% level in May (2.01%), driven by the introduction of VAT and year on year price increases of 73.4%, 10.8% and 10.1% in tobacco, restaurants/hotels and transportation respectively.

Emirates SkyCargo has signed a deal with Alibaba to deliver packages across its extensive network of 160 destinations, using Dubai as a hub – one of six that the Chinese e-commerce company plans to develop to expand its global reach. The world’s second biggest airline, after FedEx, is set to benefit from the growth in e-commerce, at a time when the global market appears to be dipping. (Meanwhile, neighbouring Etihad reported that it there had been a narrowing of its annual losses last year from US$ 2.0 billion to US$ 1.5 billion, as its cash flow and revenue streams improved on the back of its expansive turnaround plan, introduced by new management in 2017.

Noon, a US$ 1 billion JV e-commerce site between Mohamed Alabbar and Saudi Arabia’s sovereign wealth fund, is to tie up with eBay which will allow its customers greater access to access products internationally. As regional online shopping is beginning to expand, albeit from a small base, this agreement will see Noon capitalise on this growth trend as well as utilise the US company’s marketing and operational experience and expertise. (The Emaar Chairman has also acquired 51% in online fashion retailer Namshi last year, via Emaar Malls Group, but lost out to Amazon to buy outright. He has a stake in Middle East Venture Partners, through one of his funds, whilst Noon also bought market platform JadoPado last year).

Last week, it was Kuwait’s Public Institution for Social Security (PIFSS), starting legal action against embattled Dubai-based Abraaj and now Auctus is the second creditor to seek the restructuring of the private equity firm’s liabilities. At the same time, Abraaj, with debts of US$ 1 billion, is reportedly filing for provisional liquidation in the Cayman Islands. The trouble started late last year when four major investors, including Bill & Melinda Gates Foundation, voiced concerns on how money in a US$ 1 billion global billion healthcare fund was being used. With the region’s largest private equity firm, denying any wrongdoing, a Deloitte report points to the firm “comingling” investor money with its own.

Last month, Dubai Islamic, the country’s largest sharia-compliant lender, increased its capital base, via a rights issue, by 19.5% to US$ 8.5 billion. Consequently, a bullish Moody’s report expects the bank’s credit growth to be up 15% this year, giving DIB strong capital and liquidity buffers until at least the end of 2019, with stable liquidity levels of above 20% of tangible banking assets.

The Investment Corporation of Dubai posted a 13.8% increase in 2017 revenue to US$ 54.7 billion which pushed profit 11.6% higher to US$ 6.7 billion. The main drivers behind the impressive returns included contributions from new acquisitions, as well as improved figures from banking/financial services and transport sectors. Over the year, ICD’s assets rose 9.4% to US$ 23.0 billion and liabilities 10.0% up at US$ 4.6 billion.

The DFM opened on Sunday (10 June), at 3042, and, having gained gaining 180 points the previous four weeks, gained a further 41 points (1.3%), closing the week, on 14 June 2018, at 3083. Emaar Properties was up US$ 0.03 at US$ 1.54 whilst Arabtec jumped US$ 0.12 to US$ 0.63. Volumes were flat, trading 131 million shares, valued at US$ 82 million, (compared to 132 million shares, worth US$ 51 million, the previous Thursday – 07 June).

By Thursday 14 June, Brent Crude, having declined US$ 1.74 (2.2%) the previous fortnight shed a further US$ 1.60 (2.1%) to close on US$ 75.96, with gold US$ 2 lower at US$ 1,303.

Offering a 33% premium, CK Infrastructure Holdings has made an audacious US$ 9.8 billion bid for APA Group, Australia’s biggest gas pipeline company. If successful, it would make the Hong Kong company the leading player in the country’s s east coast gas pipeline network but any deal may have problems clearing Australia’s competition and national security regulators.

In a move to cut costs (and improve the bottom line), as well as restructure the company, Tesla is to retrench about 10% – or 3k – of its labour force. Most of the lay-offs will be salaried employees, rather than factory workers.

A US federal court judge has approved the US$ 85 billion merger between AT&T and Time Warner that will have a major impact on the sector, as well as being a blow to the government who had claimed that the tie-up would harm competition. The administration had argued that the pay-TV market would be less competitive if the merger between the largest US pay TV operator and the media entertainment giant went through.

The AT&T court victory was seen as a green light for Comcast to submit its expected bid which almost immediately renewed its interest in 21st Century Fox’s entertainment businesses, with a US$ 65 billion cash bid – much higher than rival Disney’s US$ 52 billion stock offer. The US cable giant was unsuccessful in a previous offer last year. In the UK, Disney and Comcast are currently battling to take over Sky plc, the owner of Sky News, with authorities there clearing Comcast’s US$ 30.7 billion offer for the 61% of Sky that Rupert Murdoch does not own.

A major South Korean hack has led to a US$ 46 billion sell-off in Bitcoin this week, just when the cryptocurrency was showing signs of relative market stability; over last weekend, it lost over 11% in value to be trading at US$ 6.8k on Monday morning. Estimates put the current value of all cryptocurrencies at US$ 249 billion, well down its January 2018 peak of US$ 830 billion. Now its many critics are claiming, on social media, that the currency is becoming increasingly prone to money laundering, manipulation and outright theft.

In a bid to entice Saudi’s Aramco US$ 2.0 trillion 5% float of its shares on the London Stock Exchange next year, regulators are looking to exempt state-owned entities from rules that apply to privately-held companies; this will give investors the same protections offered by a premium listing. It removes a major obstacle for state-owned companies wanting to list on the LSE and means that Saudi Aramco no longer needs to operate at arm’s length from its biggest investor; this gives the London bourse more than a fighting chance to beat off New York and Hong Kong for this lucrative deal.

A PwC partner, responsible for leading the audit of BHS before its sale by Sir Philip Green, has been hit with a US$ 675k fine, by the UK’s Financial Reporting Council, and a 15-year ban that removes him from the register of statutory auditors. This follows a two-year probe into the audit of the retailer which subsequently collapsed into liquidation in 2016.

Trouble in the UK high street continues unabated with the latest being New Look, reporting an 11.7% fall in UK revenue and its net loss jumping from US$ 23 million to US$ 316 million. The retailer is confident that its turnaround strategy, that will see a change of focus from edgy fashion to basic cheaper clothes, along with the closure of 60 outlets, will result in “significant progress”. Interestingly, it also reported a 19.2% fall in on-line sales at a time when online retailer Boohoo, with brands such as Pretty Little Thing and Nasty Gal, posted a 49% Q2 increase in online UK sales.

Although it will add billions to FIFA’s coffers, this year’s World Cup is unlikely to break any profit records. Furthermore, Russia’s US$ 11.6 billion investment in the tournament is less than the US$ 15 billion expended on the last World Cup in Brazil and a lot less than the US$ 51 billion spent on the Sochi Winter Olympics by the Putin government. Overall income for the four-year commercial cycle tied to the event will be marginally higher than Brazil’s US$ 5.7 billion overall income. However, the footballing body is still recovering from the toxic, corrupt and scandal-ridden Blatter era which has had such a negative impact on mainline sponsorship. With several US, European and Japanese companies pulling out, FIFA have only 12 deals (out of 14) in place for their Partner and Sponsor categories. It was also looking at a further 20 backers in its third-tier category (four each from the five global regions) but have only seven in place (four from Russia and three from China). This time round, FIFA has struck lucky because of the boom in the broadcast rights market. Sponsorship returns are unlikely to improve for the Qatar World Cup in 2022.

Despite its troubles, Turkey’s economy continues to outpace most of the world, with Q1 annual growth of 7.4%, as its GDP topped US$ 207 billion, driven by a 10.0% rise in the value-added services sector, as well as 8.8% and 6.9% increases in its industrial and construction sectors respectively.

It seems likely that embattled Argentina will receive a US$ 50 billion loan to support its battered economy, as the peso hit an all-time low last week. Part of the deal will entail a cut in public spending, slashing the fiscal deficit to zero by 2020 and a new strategy to tackle its double-digit inflation; only last month, interest rates were hiked three times in one week from 27.2% to 40.0%. President Mauricio Macri’s decision to request a loan brings back unhappy memories for some who remember the international body pulling the plug on the country in 2001 which led to an economic collapse.

Despite recent monthly declines, the UK inflation level in May remained at 2.4% with the downward trend abruptly halted by a 3.8% hike in fuel prices – its biggest monthly increase since 2011 – to US$ 1.692 per Litre (UAE – US$ 0.717 – Super 98). The reading was not helped by the strengthening greenback but the good news was that wage growth remains ahead of the inflation level. However, the country’s quarterly industrial production growth, ending April, eased, declining 0.5%, whilst month on month there was an 0.8% fall in total production – the largest decrease since October 2012.

Despite the Trump administration removing a trading ban on China’s tech giant, ZTE, it had a harrowing day on the Hong Kong bourse on its return, after its 17 April 2018 suspension – it shed 39% of its market value. The initial ban saw it being prevented sourcing US parts and supplies after it had been found violating trade bans by dealing with companies in Iran and North Korea.

With public spending outpacing revenues, the US government posted an 8-month deficit in May of US$ 532 billion – 23% higher than the same period in 2017 – and a 66% month on month shortfall of US$ 147 billion. The main driver behind the figures is attributable to the Trump tax cuts late last year. May saw the country’s inflation rate move higher, at its fastest pace in six years – up 0.2% month on month and at an annual 2.8% – whilst wage gains remained flat, despite an 18-year low in unemployment figures; average hourly wages, adjusted for inflation remain static year on year as annual nominal pay was at 2.7%.

As expected, the Federal Reserve lifted its benchmark overnight lending rate 0.25% to a 1.75%-2.0% range and signalled the possibility of a further two rate hikes this year. It also indicated a change in policy that sees it no longer keeping rates low enough to stimulate the economy “for some time” and that it will allow inflation to remain above the 2.0% level until 2020. It noted that “the labor market has continued to strengthen … economic activity has been rising at a solid rate,” and that “household spending has picked up while business fixed investment has continued to grow strongly.”

The US President turned the table on his six colleagues as he attended the first part of Friday’s G7 summit. In a surprising change of face, which would have startled the other six leaders, he suggested the elimination of all barriers to international trade, a complete turnaround on the accusers who have been reproaching the US of wielding protectionist policies. In a later press conference, he once again emphasised “no tariffs, no barriers, that’s the way it should be, and no subsidies.”

Veni, Vidi, Vici – Donald Trump’s truncated visit to the Q7 meeting was not the main event of the week as he was off to Singapore for his historic ‘one-time shot’ meeting with North Korean leader Kim Jong-un. Unlike previous presidents, who have all shied away from addressing the main issue, the denuclearisation of the Korean peninsula, he has gone into talks saying “I think I’m very well prepared, I don’t think I have to prepare very much. It’s about attitude.”

Prior to the meeting, Mr Trump promised that if North Korea gave up its nuclear programme, he would provide “protections” for Mr Kim and his government and that the likes of South Korea, China and Japan would be prepared to invest in the North to boost its besieged economy. Once again, the US President has gone to script and has done what he promised to do in the months prior to his 2016 election. There are not too many world politicians who can claim to have kept to their campaign promises. Hopefully, the outcome from the historic meeting of probably the world’s two most despised leaders is that Peace Will Come (According To Plan).

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

It Takes Two

The Crown Prince, HH Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, made many parents happier this week by announcing that there will be no price hikes in any of the emirate’s private schools this 2018-2019 academic year. He tweeted that the aim was to “relieve the financial burdens on parents”, with immediate effect. (Latest figures from Colliers indicate that revenues in the emirate’s K12 education market nearly touched a staggering US$ 1.9 billion last year, with enrolments growing at an annual 8.4% over the past five years).

Nshama has reappointed Engineering Contracting Company (ECC) to lead on a US$ 84 million contract for the design and construction of 192 studios and 764 1 B/R apartments in Town Square. Covering 90k sq mt, UNA will feature a digitised all-purpose 2k sq mt lobby lounge, a focal point for the community as well as acting as a licenced co-working space.

The MAG Group is set to launch two projects – MAG 612 and MAG 614 – in Jumeirah Village Circle; both will have 20 storeys, with the former, covering 280k sq ft, comprising 223 studio – 2 B/R apartments and the latter, over an area of 251k sq ft, with 144 1-2 B/R units, of which 100 are 1 B/R. Both will include a health club and pool.

The second hotel of Jumeirah’s new brand, Zabeel House by Jumeirah, has opened in Al Seef. Located on the south banks of the Creek, and adjacent to Zabeel House MINI by Jumeirah, it has 200 keys, with room rates starting at relatively Dubai-low of US$ 81.

Following the New Year’s fire on 31 December 2015, the refurbished Address Hotel has reopened for business. Emaar Hospitality Group has reopened its doors has added extra rooms and suites, as well as two new dining venues – Turkish restaurant The Galliard and American steakhouse STK. The electric fire resulted in an insurance claim payment of US$ 332 million.

Union Cooperative has issued a tender to build two new centres – in Warqa’a and Jumeirah First – and two additional branches in Nad Al Sheba and Palm Jumeirah.

The London listed real estate broker, Savills has taken over Cluttons Middle East for an undisclosed fee. Although the business will be rebranded later in the year, no retrenchments for the 190-staff involved are expected. Although the sector has seen recent lean times, the UAE property market is expected to recover, boosted by the increase in energy prices, the Expo 2020 factor and an improving global economy.

Emirates confirmed that because of the seasonal reduction in demand, up to twenty of its fleet have been temporarily grounded at Maktoum International.

In what could be seen as a major blow to Airbus, two unwanted A380s from Singapore Airline will be stripped for their parts, as no buyer could be found for the decade-old aircraft. The number of airlines using the superjumbo has never reached expectations and with many of them preferring the smaller twin-engine variety, the market for both used and second-hand super-jumbos seems to be evaporating. Emirates is responsible for 48.9% of the planes’ 331 firm orders to date and has already received 102 of the 162 ordered.

Local interest rates nudged higher this week with the Central Bank raising both the one-year EIBOR (by 17 notches to 3.22%) and the one-night EIBOR 23 bp higher.  A similar increase in US$ EIBOR is expected which will have a knock-on upward effect on local rates.

The country’s 2017 public spending deficit came in at US$ 899 million, with public spending at US$ 111.2 billion being marginally higher than the revenue figure of US$ 110.3 billion. Revenue was helped by a 53.4% hike in tax receipts (and this even before the introduction of VAT in January 2018) to US$ 45 million.

Last year, Dubai saw a 7.1% increase in inward foreign direct investment to US$ 7.4 billion and by around 50% in project numbers to 367, as it becomes an increasingly attractive global hub for technology and technology transfers which accounted for 60% of total investment. The government is targeting the non-oil sector to contribute 80% of the emirate’s GDP by 2021 – up from its current 70% mark. Accordingly, it has taken action to boost FDI by the introduction of measures such as lower registration costs, simplifying regulations and relaxing corporate ownership laws.

Neighbouring Abu Dhabi announced a massive US$ 13.6 billion stimulus package which will surely have a welcome knock-on effect for Dubai, with the Crown Prince, HH Sheikh Mohammed bin Zayed al Nayahan, giving officials just three months to come up with a plan of execution. The package includes ten initiatives, including allowing people to work from home, updating building regulations and improving payment times for contractors, with the aim of speeding up economic growth.

Troubled equity firm Abraaj Group continues is divestment of assets by selling its 35% share in Egypt’s Investment & Real Estate Development Co for Social Impact company for over US$ 20 million, caused also by a conflict between both parties on the percentages and valuation of converting a loan into equity. The Dubai firm has over US$ 500 million invested in hospitals and clinics in North Africa and any talk of an early IPO has been put on hold until at least Q4.

On Monday, Abraaj Group held a meeting for stakeholders, including shareholders and lenders to discuss their restructuring plans going forward, as it continues to face a barrage of negative press over allegations of misused funds. Concerns on the viability of the ME’s biggest buyout firm are growing as on Sunday it was reported that the firm could not repay a US$ 100 million loan, plus US$ 7 million interest, to Kuwait’s Public Institution for Social Security, an unsecured creditor. Although it seems that the secured creditors agreed to a 90–120-day debt freeze, the Kuwaiti creditor decided to go for the liquidation process. The move to add this to the equation will impact on the fair asset value of its assets and interested parties may lose out if a fire-sale takes place.

At the meeting, it was also reported that Cerberus Capital Management offered US$ 125 million to acquire the firm, (but not existing liabilities of both the fund-management business or holding company), which has a possible total debt of around US$ 1 billion.

An internal investigation by Drake & Scull has concluded and all detected violations by its previous management have been forwarded to the competent authorities to commence the required legal procedures. YTD, it has lost nearly 31% in its market value, closing Thursday on US$ 0.316.

The DFM opened on Sunday (03 June), at 2944, and, having gained gaining 82 points the previous three weeks, jumped 98 points (3.3%), closing on 3042 by Thursday, 07 June 2018. Emaar Properties was up US$ 0.09 at US$ 1.51, whilst Arabtec edged US$ 0.02 lower to US$ 0.51. Volumes were markedly disappointing, trading only 132 million shares on Thursday, valued at US$ 51 million, (compared to 555 million shares worth US$ 246 million the previous Thursday – 31 May).

By Thursday 07 June, Brent Crude, having declined US$ 1.74 (2.2%) the previous fortnight shed US$ 0.24 (0.3%) to close on US$ 77.32, with gold US$ 2 lower at US$ 1,303.

GitHub Inc, valued at US$ 2 billion three years ago, is to be acquired by Microsoft for a reported US$ 5.0 billion. The code repository company has never made a profit from its service that allows coders to share and collaborate on their work and currently hosts 27 million software developers, working on eighty million repositories of code. The US tech giant is trying to wean itself away from its Windows operating system dependence to relying more on in-house development on Linux.

Amazon is to increase the size of its UK workforce by a further 10% this year to 27.5k by adding software developers, engineers and technicians “with all levels of experience”. Although not known for paying too much in UK taxes in the past, the tech giant estimates that it has invested US$ 12.5 billion in the country.

DS Smith, which is Amazon’s exclusive provider of cardboard in the UK, is to spend around US$ 2.7 billion (including debt) to acquire its Spanish rival, Europac, operating in its home country, Portugal and France. The new entity will employ 30.8k across 223 locations in nearly forty countries. The packaging industry is in the throes of rapid global consolidation, as the demand for packaging continues its upward curve.

Just a week after losing to Fulham in a Wembley play-off final, dubbed the most lucrative football match in the world, Aston Villa face a possible HRMC winding up order for non-payment of taxes, due for settlement last week. If this were to happen, one of the founding members of the Football League in 1888 could go out of existence. The club, owned by Chinese businessman, Tony Xia, since 2016, has reportedly been up for sale with discussions taking place with potential buyers over the last few days. It does seem incongruous that the club cannot pay a US$ 5.0 million tax bill but could give 37-year-old John Terry almost the same amount

Deloitte’s latest football report has the five major European leagues generating a record US$ 17.0 billion in 2016-17 revenue – up 9.0% from a year earlier – and that their combined market value is almost US$ 30 billion. The EPL is the market leader contributing 35.7% of total revenue, at US$ 6.1 billion, (with the other three English leagues’ revenue at US$ 1.3 billion), which is 86% larger than the next in line – Spain’s La Liga – followed by Serie A, the Bundesliga and France’s Ligue 1. Because of the increase in broadcasting rights, all twenty EPL clubs posted annual profits – compared to 60% of them incurring losses just ten years ago.

Alteri Investors, who looked likely to take control of struggling Poundworld, has pulled out of a potential rescue deal that would have saved 5.3k jobs and averted the closure of 100 shops. Although there. are discussions with other interested parties, it seems likely that the company could go under or sold through a pre-pack administration.

It has been a torrid time for the UK retail sector this year with the likes of Maplin, Toys R Us UK and others hitting the buffers. Some have gone the way of attempting restructurings, via a legally binding agreement with creditors known as a Company Voluntary Arrangement. The latest high street chain that could go down the CVA route is the House of Fraser.

As it implements a global overhaul of its properties, Marriott, the owner of the Sheraton brand, expects to lose about 4% of its hotels over the next two years, as some of their owners will fail to invest. Part of the new brand strategy is to introduce “clear standards and to hold everyone accountable to those standards”. Since 2016, seventeen hotels (6k rooms) have left, with a further 2k rooms expected to leave this year; over the same period 5k new rooms have been added.

Following the government’s decision, there would be no objection to Rupert Murdoch’s Fox buying Sky provided that he divests Sky News to a third party so now he can focus on battling Comcast for the European pay-TV company; the media mogul, who already owns 39% of Sky, first launched his bid in December 2016 and has spent the past eighteen months to get to this stage. Previously, the Sky’s independent board members backed Fox’s offer but withdrew this recommendation in April, following an offer from Comcast. Whatever happens, Murdoch has already agreed to sell many of his TV and film assets, including Sky, to Walt Disney Co in a separate US$ 52 billion deal.

Goldman Sachs is take part in a second round of bidding for the Lloyds Banking Group’s US$ 147 billion investment management contract. The Wall Street bank will join three other firms – Blackrock, JPMorgan Asset Management and Schroders – in an attempt to take over the management contract, following Aberdeen Asset Management’s termination after its 2017 merger with Standard Life.

The owner of the Clydesdale and Yorkshire bank brands has increased its bid to US$ 2.3 billion, as it continues in attempts to merge with Virgin Money. If successful, the new national bank would be valued at US$ 5.4 billion, with Virgin shareholders having a 38% stake. With significant cost savings, in areas such as IT infrastructure and infrastructure investment, redundancies could be expected.

Last week ANZ was courting trouble – this week it is Australia’s Commonwealth Bank being hit with a US$ 530 million fine for breaching anti-money laundering and counter-terror financing laws. Most of the “offences” involved deposits of money into ATM machines accepting up to more than double the accepted US$ 7.5k limit. The case involved some 53k suspect transactions that were not immediately reported to authorities and comes at a time when the country’s financial sector is at the centre of a national inquiry into misconduct. Some of the alleged violations included the bank collecting fees from customers who were known to have died and losing bank records of several million.

There are reports that two of Europe’s larger financial institutions – Italy’s UniCredit SpA and Société Generale SA – could merge. The current political turmoil in Italy could slow down negotiations, which are at a very early stage, but any merger would not be seen before 2020. The combination of France’s second largest bank with Italy’s largest would be an interesting development and could be a portent for other European mergers.

Despite the strong dollar, higher energy prices and regional problems, IATA expects ME airlines to post a 30% hike in net profits to US$ 1.3 billion this year, with the net margin per passenger up 22.5% to US$ 5.89. Although higher oil prices add to airlines’ running costs, it also helps the top line with more people flying because economies are growing and most people have a higher level of disposable income. On a global scale, profit will fall 12% to US$ 33.8 billion.

Fitch issued a warning this week that China’s attempt to cut corporate debt could not only pose a major risk to its economic growth, but also to that of the global economy. It estimated that growth could fall to 4.5% and commented that its corporate debt to GDP is at an alarmingly high 168%.  In attempting to reduce this to a more manageable figure, the impact could result in an annual 1% decline in growth. Any slowdown will have a negative effect on countries with significant commodity dependence (as prices could fall at least 10%) or close trade ties with China.

May growth in the eurozone private sector grew at its slowest pace in eighteen months, with the composite output index 1.0 lower month on month to 54.1. The services Purchasing Managers’ Index was 0.9 off at 53.8, with Germany and France posting their lowest returns in twenty months at 53.4 (54.6 April) and sixteen months at 52.1 (53.0 – April) respectively. At the same time, retail sales nudged a disappointing 0.1% higher (with forecasts of 0.5%), with annualised growth of 1.7%.

This week, the UK government is to sell 7.7% (925 million shares) of its current 70.1% stake in Royal Bank of Scotland which will raise US$ 3.5 billion for the taxpayer. At this week’s market price, RBS is valued at almost US$ 46 million and it can be seen why some taxpayers are unhappy taking a loss when the government spent US$ 61 billion in November 2008 to bail out the then failing bank.

May’s UK construction PMI came in at a stable 52.5 with the pace of expansion slowing from last month’s yearly high. Although residential work continued its upward momentum there was a slowdown in the rate of expansion, following April’s eleven-month high return with a decline in the inflows of new business. There was also an increase in input cost inflation.

In May, service sector activity in the US expanded at a faster than expected rate with a month on month rise of 1.8 to 58.6 – well up on analysts’ expectations of 57.5. Although there are market uncertainties about tariffs and trade agreements, the ISM report points to optimism about the overall economy and business conditions. A week earlier, the manufacturing PMI also emphasised how well the economy was progressing with a 1.4 monthly hike to 58.7.

There is no doubt that tomorrow’s G7 meeting in Canada will take back seat to the main event of the week – the historic ‘one-time shot’ meeting between the US President and North Korean leader. Even his swathe of critics will have to agree that Donald Trump is the first president to address this issue head on. His unique ways of ‘diplomacy’ are an enigma to many but is hoped that his positive attitude is mirrored by Kim Jong-un and that a solution to the 68-year old problem could be reached. It Takes Two!

Posted in Finance | Tagged , , , , , , , , , , , | 1 Comment

Breakin’ Up Is Hard To Do

The latest Knight Frank’s report indicates that average Dubai office rents have softened 4.3% over the past twelve months, despite a marked upturn in demand, especially in relation to firms’ consolidating their operations. Falls were more prevalent in ‘A’ grade buildings, where rents declined by 7.4% to US$ 41 per sq ft, whilst prime office space was only 1.4% down to US$ 68. As rents continue to come under pressure, some landlords have resorted to offering incentives including rent free periods, delayed price escalations and free parking. Rents are expected to remain under pressure for the rest of 2018, with vacancy levels remaining around 15%.

Developer Seven Tides has announced sales of US$ 82 million for all 661 apartments in phase 1 of its recently launched mixed-use SE7EN CITY JLT development. US$ 62 million of the revenue emanated from the sale of 572 studio apartments. The total US$ 354 million development, to be completed by Q2 2021, will feature 2.6k units, along with the usual add-ons of retail and F&B outlets.

An infrastructure tender for the US$ 1.2 billion MAG Eye Meydan District 7 development has been issued. Slated for completion by Q3 2020, the project encompasses 4.1k studio / 1 BR units and 536 3-4 BR apartments, with starting prices of US$ 133k.

Deyaar Development has announced that 35% of its Midtown development is now complete and will be ready for a Q4 2019 handover. The project encompasses 27 buildings and almost five million sq ft, with 659 apartments in the Arfan district and 579 in the Arnia district.

Despite the papers being full of stories of falling rents in the Dubai housing market, a recent Deutche Bank report ranks the emirate as the fourteenth highest among fifty global major cities. It estimates that the average annual rent for a 2 B/R apartment in the emirate is US$ 21.4k, still some way off the most expensive three of Hong Kong, San Francisco and New York at US$ 44.8k, US$ 44.0k and US$ 34.2k; at the other end of the scale come New Delhi and Bangalore at US$ 4.2k and US$ 3.5k. An interesting fact from the study estimates that US$ 82 billion is spent every year in the UAE on accommodation.

This week, HH Sheikh Mohammed bin Rashid Al Maktoum issued a decree cancelling any fines (covering over sixty different commercial violations) imposed by the Department of Economic Development until the end of the year. It is another step taken to further stimulate business in the emirate and enhance Dubai’s global competitiveness.

Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed, has approved 26 Dubai 10X initiatives (from government departments) that aim to place the emirate ten years ahead of other cities. Two of these originated from the Dubai Airport Free Zone Authority – Dubai Blink, which would be the first global B2B smart commerce platform, and FZExchange. The latter will ameliorate capital investment opportunities for foreign investors, without the need to return to their home base, in a simplified and cost effective regulatory environment.

Meanwhile Dubai Land Department’s contribution to the Dubai 10X initiative is REST (Real Estate Self Transaction), a multiple-user platform for conducting real estate trading and transactions. The new smart system will eliminate paper documentation and simplify brokerage procedures, allowing Dubai properties to be traded at anytime and anywhere around the world.

In April, Dubai International witnessed 7.6 million passengers – almost the same figure as a year earlier – as total YTD numbers of 30.3 million are 0.8% higher than the same period in 2017. 27.4% of traffic emanated from three destinations – India (1.0 million), Saudi Arabia (557k) and the UK (530k). As in previous months, the number of flight movements slowed – YTD by 3.0% to 136k – but the average number of passengers per flight increased by five to 230. Cargo traffic declined – in April by 0.7% to 216k tonnes and YTD 2.6% lower at 832k tonnes. (YTD, Abu Dhabi recorded 193k tonnes and 4.0 million passengers).

Emirates will introduce its long awaited premium economy class on the newly-ordered 380s from 2020.

Dubai Aerospace Enterprise Ltd is to sell sixteen aircraft, valued at US$ 900 million that are currently on lease to eleven different airlines; proceeds will be used to pay down debt, following recent large-scale investments, as well as future expansions.

The world’s fourth biggest ports operator, DP World, is again in acquisition mode spending US$ 316 million to buy Cosmos Agencia Marittima in Peru, a country where it already has container terminals in Callao and Lurin.

It is reported that Dubai-based Landmark Group is considering a US$ 13 million investment in the 19-year old UK Italian restaurant chain, Carluccio’s. Under a CVA (Company Voluntary Arrangement), the company could close thirty of its 103 outlets (in four countries including UAE) as it attempts to slash costs, close non-profit making operations and invest in upgrading the remaining outlets. Landmark took full control of the 19-year old Carluccio’s in 2010, at which time its value was an estimated US$ 122 million.

The Labour Force Survey 2017 estimated that of the emirate’s total labour force of 2.78 million, 2.08 million lived in Dubai and the remaining 25.2% lived outside the emirate; the official Dubai population at 31 December 2017 was 2.98 million. The official unemployment level was given at 0.5%, with the labour market showing a 110k annual addition of workers over the past three years. The official percentage of employed rate, based on the total working age population, was 1% higher at 83.1%, with female workers 4.3% higher at 53.6%. Over 50% of the total were involved in three sectors – construction (27.6%), wholesale/retail (17.9%) and manufacturing (8.0%). 27.8% of all Emiratis worked as technicians/associate professors, with over a third of Emirati females being involved in jobs that required higher education and levels of skill and competency.

According to an International Data Corporation report, there was a significant 9.9% quarter on quarter decline in Q1 imports of mobile phones to the Gulf region to 5.9 million. Smartphone figures were 4.7% lower, (4.6% in the UAE) – the fourth straight quarter of declines, driven by falling consumer spending and the introduction of VAT in January (plus in Saudi Arabia by the new expat dependent tax). Samsung, with a 35% market share, continued to be the leader in the smartphone sector, followed by Apple and Huawei.

Petrol prices are set to rise tomorrow (01 June) with a monthly US$ 0.0381 (5.6%) increase in Super 98 to US$ 0.717; since January 2017, the price has risen 46.3%, from US$ 0.490, driven by the hike in energy prices (01 Jan 2017 – Brent at US$ 56.82, 31 May 2018 – US$ 77.56) and the 5% VAT as from 01 January 2018. Diesel will be 5.9% higher at US$ 0.738.

Having undergone a “comprehensive operational readiness review”, there will be a delay – to at least the end of next year – in the opening of Baraka nuclear energy plant in Al Dhafra. The facility will be the first nuclear power plant in the Arab world.

It seems that the Central Bank is coming to the party to help ameliorate the apparent liquidity problem in the market, by injecting US$ 3.8 billion in cash last month. It is expected that if this continues, it will go some way to boost economic activity and business momentum. The UAE Central Bank of the UAE raised its economic growth forecast for 2018 two notches to 2.7%, and 3.2% a year later, on the back of an expected expansion in the non-oil sector. “Due to improved international economic conditions,” non-oil GDP growth is expected to reach 3.9% – up from 3.4% recorded in 2017 – and 4.3% next year. However, because of a lower oil output forecast for this year, (mainly due to the OPEC quota cuts), there will be a 0.3% contraction in the oil GDP, with a marginal 0.1% expansion in 2019. Inflation levels this year are expected to hit 3.5% before falling to 2.5% in 2019.

52.5% of all Q1 remittances, totalling US$ 11.9 billion, by UAE expats emanated from three nationalities – Indian (36.8%), Pakistani (8.8%) and Filipinos (6.9%). There was a 10% increase in the number of trades carried out at money exchanges which now account for over 70% of the total transactions – a sign perhaps that banks are charging more for services. As these transfers account for 27% of the country’s current account, efforts should be made to reduce this by introducing attractive ways for expats to invest in the country. Naturally more money spent in Dubai will boost the local economy at a time when it is needed.

According to reports, it seems that two recent appointees to the Abraaj Group’s senior management team, COO Matthew Maguire and CFO, Bisher Barazi, have resigned. Apparently, there have been discrepancies found in a number of the firm’s investment vehicles, following irregularities discovered earlier in the year in a US$ 1 billion healthcare fund which had several high-profile investors including the Bill & Melinda Gates Foundation. The company is currently busy reorganising its structure which involves selling off some assets to raise liquidity levels; they include a stake in its fund management unit, its Pakistani utility unit and its shareholding in Dubai’s Middlesex University. There are late reports that Colony NorthStar has ended talks to acquire a major stake in the Dubai firm. (Coincidentally, Deutsche Bank, which is undergoing a massive cost-cutting exercise, is reportedly planning to sell its 8.8% stake in the Dubai firm).

The DFM opened on Sunday (27 May), at 2954, and, having gained gaining 72 points the previous two weeks, edged 10 points higher, closing on 2964 by Thursday, 31 May. Emaar Properties was up US$ 0.01 at US$ 1.42, whilst Arabtec was flat at US$ 0.53. Volumes were markedly higher, trading 555 million shares on Thursday, valued at US$ 246 million, (compared to 321 million shares worth US$ 68 million the previous Thursday – 24 May).

By Thursday 31 May, Brent Crude, having dipped US$ 0.51 (0.6%) the previous week shed US$ 1.23 (1.6%) to close on US$ 77.56, with gold US$ 1 higher at US$ 1,305. For the month of May, Brent traded 2.2% up from US$ 75.92 (and 16.4% YTD from US$ 66.02), with the yellow metal unmoved from its 01 January opening price of US$ 1,305 but US$ 8 lower for the month.

For one day this week, Netflix was the world’s most valuable media company when its market value went north of US$ 153 billion, trading above rivals Disney (US$ 152 billion) and Comcast’s US$ 143 million. So far this year, its share value has risen by more than 80%. The company, founded in 1997 as a DVD rental service, has 125 million streaming memberships in over 190 countries, with daily viewing hours topping 140 million.

Smiths Group, a UK engineering conglomerate with a market capitalisation of US$ 9.2 billion, is reportedly in discussions with US companies, including ICU Medical, about a transatlantic merger of its healthcare business‎. The medical side of the UK business accounts for only 30% of its revenue and, even at these early stages, it is thought that any future business relationship will be a JV rather than a merger. However, Smiths will not be immune from the possibility of some activist group pushing for a break up of its assets.

Pret A Manger is ready to be sold to Luxembourg-based JAB Holdings for a sum likely to be in the region of US$ 2.0 billion. It would net the current owners of the 32-year old UK sandwich and coffee chain, Bridgepoint, a tidy profit, as they paid US$ 472 million for it in 2008. The chain has 530 global outlets which generated US$ 1.2 billion in revenue last year. The new owners already have the world’s second-largest coffee business, controlling both the Peet’s and Espresso House chains, as well as the Kenco and Douwe Egberts brands.

Another UK retailer is facing tough times, with Dixons Carphone warning of a sharp fall in profits to US$ 515 million this year and US$ 405 million in 2019. The company is expected to close 13% of its 700+ stores this year, as it takes drastic cost cutting action to become a much leaner organisation.

It seems likely that the UK government will start selling part of its remaining 70.5% stake in RBS – a 10% divestment would net the coffers US$ 4.0 billion. The government, that has been a majority shareholder in the bank since 2008, will lose money on any sale when the share value in 2008 was at an average US$ 6.78 and at the beginning of this week stood at US$ 3.91- a 42.3% diminution. Earlier in the month, RBS was fined US$ 4.9 billion by the US Department of Justice for the mis-selling of mortgage bonds before the financial crisis.

In the UK, the Financial Reporting Council is to take disciplinary action against the former finance chiefs of Autonomy and Deloitte for their 2011 roles in the sale of the firm to Hewlett Packard for over US$ 10 billion. Within a year, HP was crying foul, amid accusations of a dishonest inflation in the selling price, so much so that it wrote off 75% of the value in 2012. The auditor is accused of failing to adequately challenge Autonomy’s accounting and disclosure of its purchases and sales of computer hardware.

A US court has awarded Apple damages of US$ 539 million against Samsung for copying certain features of the original i-Phone in a case that stretches back seven years. The US tech giant had asked for US$ 2.5 billion, with the South Korean conglomerate arguing that it should only have to pay US$ 28 million for profits directly related to the components or features covered by the patents.

President Trump has now allowed Chinese chipmaker ZTE Corp to remain in business after it had agreed to pay US$ 1.3 billion in fines, changed its senior management/board and provided “high-level security guarantees.” Last week, he intimated that he was doing Chinese President Xi Jinping a favour by lifting the ban that had cost the telecommunications-equipment maker US$ 3.1 billion.

As expected, US authorities have given the green light to Bayer’s controversial US$ 66 billion deal for Monsanto on condition that it sold off parts of its seeds and crop chemicals business; a US$ 8.8 billion sale has been agreed with chemicals producer, BASF. This deal goes some way to allay fears that the merger between the world’s two biggest agricultural companies would stifle competition. The new entity will result in cost savings of at least US$ 1.5 billion.

According to IATA’s April report, ME air freight volumes were 7.3% higher, year on year. On a global scale, April’s demand was up 4.1%, measured in freight tonne kilometres, but the pace in growth demand is still somewhat short of what was happening in 2017. However, it is expected that 2018 growth will be in the 4% region.

The bad loan situation at India’s five major state banks continues to deteriorate as it was reported that bad loans were more than US$ 6.8 billion higher than first estimated. The end result is that 31 March financials were littered with massive losses, as banks had to increase their loan impairment costs substantially. Half of the country’s 22 state banks currently operate under the RBI’s Prompt Corrective Action program that restricts lending and expansion, which then reduces banks’ lending powers which in turn have a negative impact on the Indian economy. Unfortunately, there is worse to come!

With the Indian rupee weakening over 6% YTD to 68 to the greenback -its lowest rate in eighteen months – there are concerns of the negative impact it will have on the economy. A strengthening US$ and a marked improvement in energy prices have a double whammy in that prices inevitably head north because imports, including oil, become more expensive. Furthermore, Q1 witnessed 4.4 billion rupees being taken out of rupee-denominated government and corporate bonds, the highest amount on record. The situation has not reached the crisis level seen five years ago and is unlikely to do so since foreign reserves in 2018 are close to record highs and the current account deficit is significantly smaller than in 2013.

All is not well with Asia’s third biggest economy. In a bid to boost sluggish lending and economic growth, Indonesia raised its benchmark interest rate for the second time in a fortnight, as fears rose of a continuing fragile rupiah (which has been trading at lows last seen in October 2015) and increasing capital outflows, not helped by the improving greenback. The authorities expect that lending growth will improve this year, increasing from the current 8.9% rate to 12% by year end, inflation will stay at the 3.5% mark and that growth will top 5.2%, slightly down from an earlier figure of 5.4%.

Although monthly Japanese producer prices in April nudged 0.1% higher, for the year, there was a 0.9% rise, driven by prices for transportation, advertising, communications and insurance heading north.

Last month, Chinese industrial firms’ profits rose at their fastest pace in six months, reaching US$ 90.1 billion – a massive 21.9% higher year on year and 15.0% YTD. Driven by higher prices and strong demand, the increase is even more impressive, when considering “negative’ factors such as cut-backs by regional governments, recent stringent regulations relating to industrial pollution (leading to many factory closures) and its rocky trade relations with the US. However, companies are seeing their profit margins being squeezed as debt growth slowed to its lowest level since the GFC.

Australia’s scandal-plagued financial sector received another blow this week when the Australian Competition and Consumer Commission confirmed that it would be prosecuting ANZ, Citibank and Deutsche Bank (and several individuals) on criminal cartel charges. The case involves arrangements for the August 2015 sale of 80.8 million ANZ shares worth US$ 1.9 billion.

Australia’s Wesfarmers’ foray into the UK market has ended ignominiously following its sale of Homebase to restructuring specialist Hilco for just over US$ 1 (one pound). It only acquired the DIY chain, with 250 stores and 11.5k employees, two years ago for US$ 460 million and had already converted part of the chain to the Bunnings brand; it has also racked up losses and other costs of some US$ 890 million. This sorry episode will inevitably find its place in future university studies under How Not To Manage a Foreign Takeover 101.

In an indicator that the Australian economy may be facing some headwinds, April housing activity slowed, with dwelling approvals 5% off as non-residential permits also weakened. Although on a twelve-month basis they were 2% higher, they are still well down on the double-digit growth seen the previous year. It is obvious that the four-year housing boom has run its course, with home prices in the major cities slowing because of banks introducing tighter lending procedures. Any further softening in this sector will have a negative impact on the country’s US$ 1.4 trillion economy, as consumer spending will inevitable tumble. The annualised growth forecast has declined from the 2.8% trend rate to 2.4% and there is now every chance that rates will be held at the 1.5% mark until early next year.

President Donald Trump has gone ahead with his pre-election pledge of imposing steep import duties on steel (25%) and aluminium imports (10%) from the EU, Mexico and Canada. Undoubtedly, there will be repercussions with tariffs being applied from the ”injured” parties on the likes of agricultural goods, clothes, Levis, JD and Harley Davidsons. The reasoning behind the President’s move is to address an oversupply (and dumping) of the two metals and to protect American jobs.

US Q1 growth was downgraded at 2.2%, 0.7% lower than the previous quarter. Meanwhile, the current dollar GDP was US$ 203 billion higher at US$ 19.96 trillion that was attributable to improvements in many sectors, including exports as well as spending by government and consumers.

Italian government bonds rose to their highest level in over three years to over 3.0%, as political uncertainty continues. Its people will not forget the 2008 GFC which left the economy 6% smaller and added three million to live in poverty. With its national debt equivalent to 132% of national output – second only to Greece – it can ill afford the US$ 20 billion needed to drag many families over the poverty line by raising the basic monthly income to US$ 919.

With the proposed appointment of 81-year-old Paolo Savona as Finance Minister, Italy would have moved one step nearer to leaving the euro. He has been highly critical of the single currency – a “flawed project” –  in general and Germany in particular – which “has replaced the will of military power with economic power”. The markets were indeed worried, with US$ 4.4 billion withdrawn last week from the European equity and bond funds, the country’s MIB recording its third straight week of losses (down 8%) and government bonds at 2.46%, a level not seen for more than a year. Sergio Mattarella, the president of the world’s third-most indebted nation, did not waste any time and blocked his appointment feeling that this appointment could hasten the country’s exit from the euro.

Consequently, a frustrated Prime Minister-designate Giuseppe Conte gave up in his attempts to form a government. Both the far-right League and the 5-Star Movement argued that the president’s actions were unconstitutional and demanded an immediate new vote. By Monday, technocrat and former IMF official Carlo Cottarelli was called in to head a government of unelected technocrats.

Then there is the Spanish fiasco, with the distinct possibility of a no confidence vote, ousting the current Prime Minister Mariano Rajoy to be replaced by the unelected Pedro Sánchez, whose party has only 84 seats in the country’s 350-seat parliament. So much for the democratic process in Europe’s third and fifth biggest economies! Pressure will be mounting in the Brussels corridors of power – Breakin’ Up Is Hard To Do!

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

When Will They Ever Learn?

The big news of the week was that the UAE cabinet approved plans to allow foreign investors 100% ownership in some businesses and grant ten-year residency to selected expatriates, with the ultimate aims to attract international investors and high-skilled professional workers. It will also allow dependent students to extend their visa time after completing their tertiary education. It is expected that the law could be in place by the end of Q3. HH Sheikh Mohammed bin Rashid Al Maktoum has reiterated that “the UAE will remain a global incubator for exceptional talents and a permanent destination for international investors.”

According to the IMD World Competitiveness Center, the country, having moved up from 27th only seven years ago, is the seventh most competitive in the world and ranked number one in twenty-three indicators including “Government Decisions” and “International Talent”.  As the Dubai Ruler said “we have the determination, we have the talent, and we have the resources. Being Number One suits our nation”.

In another busy week, the Dubai Ruler launched the UAE Platform for Scientific Laboratories with the main aim of driving scientific research and development in the country. As well as trying to attract highly qualified scientists to use the country as a base for further studies and projects, its aims are to provide an advanced research environment and outstanding infrastructure. He also launched the construction of the US$ 107 million Shindagha Bridge Project, part of the 13 km US$ 1.4 billion Shindagha Corridor Project; the bridge will feature an iconic design based on the concept of the mathematical infinity sign.

Asteco’s latest report indicates that JBR posted the emirate’s largest annual apartment rental declines (at 15%), closely followed by 14% falls in Deira, Downtown Dubai and Dubai Marina plus 13% declines in Sports City and The Greens. In relation to villas, the three biggest decreases were to be found in Jumeirah Village (15%), Jumeirah Park (13%) and 11% in Arabian Ranches. In Q1, sales prices for both villas and apartments dropped by 1% but over the twelve months the declines were 6% and 9% respectively. The report also estimated that there would be 30k residential units delivered by the end of the year, with 3.7k already handed over in Q1, leaving a further 26.3 k over the next nine months. (This compares to Core Saville’s recent forecast of handovers “may exceed 21.5k)).

Union Properties’ shareholders have approved two motions –  allowing an increase in the foreign shareholding ceiling from 25% to 49% and the launch of sukuk (within the next twelve months), at a maximum value of US$ 272 million, with no more than 9% yield, which is not convertible to shares and will neither be offered publicly nor be listed.

Abu Dhabi-based Manazel Real Estate, in association with Tasameem Real Estate, is to invest over US$ 136 million in three projects, two of which are in Dubai – Dubai Silicon Oasis and Jumeirah Village Triangle. The company is also in discussions with other investors for other similar projects locally and in the wider region.

Seven City JLT is the latest project off the drawing board of property developer, Seven Tides. The US$ 350 million 27-floor development, covering an entire cluster, will include a 2.6k residential building and retail space of 150k sq ft; already 15% completed, handover is expected by Q3 2021.

Colliers International reports that Q1 year on year construction costs and material costs were between 1.8%-2.3% and 3.1 higher respectively, driven by an increase in the price of local and foreign manufactured materials as well as higher Chinese prices as the government there continues to close down illegal factories. The consultancy also predicts that overall construction costs this year will be no higher than 1.8%, based on World Bank predictive prices – copper and crude oil remaining flat and 6.3% and 3.4% declines in iron ore and aluminium. With YTD copper at US$ 3.096 (6.2% lower), Brent’s US$ 78.79, 18.3% up, iron ore at US$ 65.74 – 7.8% off – and aluminium flat at US$ 2,252, the World Bank forecasts could be a little shaky.

A US$ 300 million JV will see Gems Education and EFG Hermes invest in the Egyptian education sector over the next five years. The country has a student population of 21 million, 10% of which are enrolled in private schools.

Amazingly, it is estimated that ride-hailing app Careem creates 80k new job every month, with 800k self-employed drivers (captains), currently using the platform to make a living. Careem, which provides training and other benefits to their drivers, is now available in 100 cities in 14 countries with potential markets such as Sudan, Oman and Algeria in the pipeline.

April data shows that Dubai’s inflation level dropped 0.32%, month on month, to 1.79%, driven mainly by 1.91% decreases in housing, utility and gas/fuel costs, as well as a marked 11.25% slump in entertainment and culture.

The Ministry of Finance has reported that 2017 federal government spending reached US$ 13.2 billion, with two sectors, ‘general public services’ (US$ 4.4 billion) and public order and safety (US$ 2.9 billion), accounting for 54.8% of the total spend.

It seems that worrying times are ahead for Abraaj, the biggest buy-out firm in the ME, with assets under management totalling almost US$ 14 billion, as two separate examinations are reportedly under way into the running of some of its funds. Since the beginning of the yea, and possible problems arising from its running of a US$ 1 billion global healthcare fund, the firm has witnessed its founder Arif Naqvi ceding control of the asset management unit, job cuts including three senior managers, liquidity concerns and asset sales. Reports indicate that it is close to disposing both of its Pakistani utility and a controlling stake in its fund management unit.

In a major deal, Emirates NBD has paid Russia’s Sberbank a reported US$ 3.2 billion to acquire Turkey’s fifth largest bank, Denizbank, which will allow Dubai’s biggest lender to expand its regional reach. With assets of US$ 37 billion, as well as 708 branches in its home country and 43 in five others, it has an 11.8 million customer base. Moody’s maintained a stable outlook the Dubai bank’s long-term deposit rating and confirmed its long-term and short-term foreign currency deposit ratings.

To ramp up its capital base, Dubai Islamic Bank has offered 1.64 billion shares at US$ 0.85 per share (on Thursday its share price on the DFM was US$ 1.30); subscriptions will remain open until Saturday, 26 May.

The country’s largest real estate investment trust, Emirates Reit posted a 23.0% hike in property operating income to US$ 13 million, with EBITDA, (earnings before interest, taxes, depreciation and amortisation), 21% higher at US$ 9 million. The company did not provide figures for net income but its total 2017 dividend payout was US$ 0.022, half of which has already been distributed.

Union Properties’ shareholders have approved two motions –  allowing an increase in the foreign shareholding ceiling from 25% to 49% and the launch of sukuk (within the next twelve months), at a maximum value of US$ 272 million, with no more than 9% yield, which is not convertible to shares and will neither be offered publicly nor be listed.

The DFM opened on Sunday (20 May), at 2913, and having gained gaining 31 points (1.1%), the previous week was 41 points (1.4%) higher, closing on 2954 by Thursday, 24 May. Emaar Properties was up US$ 0.01 at US$ 1.41 whilst Arabtec was flat at US$ 0.53. Volumes were higher, trading 321 million shares on Thursday, valued at US$ 68 million, (compared to 115 million shares worth US$ 55 million the previous Thursday – 17 May).

By Thursday, Brent Crude, having risen 7.6% the previous two weeks dipped by US$ 0.51 (0.6%) to close on US$ 78.79, with gold going in the opposite direction, driven by the cancellation of the North Korean / US nuclear summit, to move US$ 15 (1.2%) higher at US$ 1,304 by 24 May 2018

Although still posting adjusted net losses of US$ 577 million (18.2% lower than the deficit a year earlier), Uber posted fairly decent Q1 figures, with net revenue 67.0% higher at US$ 2.5 billion on a 55.0% jump in revenue to US$ 11.3 billion. The loss figure did not include the US$ 3.0 billion gain from its sale of its SE Asian sale of Grab and the merging of its Russian business with Yandex. Significantly the company’s market value seems to have risen 29.2% in little over a year to US$ 62.0 billion – the difference between its own valuation last year when it sold a stake to Softbank (US$ 48.0 billion) and its current US$ 62.0 billion, based on a US$ 500 million sale to two current investors.

Despite reports this week of a possible tie-up between Barclays and Tata Steel has acquired a majority shareholding for US$ 5.4 billion in bankrupt Bhushan Steel – the first time that any Indian company has “beaten” the country’s new insolvency and bankruptcy laws, introduced to tackle the seemingly insurmountable US$ 150 billion bad debt problem.

Standard Chartered, it is highly unlikely to take place The British institution, centered on the US/European markets, has a market capitalisation of US$ 49 billion whilst the Asian-centric bank valued at US$ 34 billion. Both banks have their own unique problems – the former with an underperforming investment arm and the other a lack of capital generation to further major expansion activities – which a merger would not help either party.

An Epicor Software’s report indicates that global manufacturing grew 3.7% last year to register 103.7 points on its Global Growth Index, which reports on activity in 14 territories. This comes about despite a challenging economic environment and was driven by investment in new technology. Many of the manufacturers involved in the study reported increases in sales and turnovers (5%) and profit (3%).

Eurozone May manufacturing growth slowed 1.7 month on month to 54.5 – its lowest level of growth in eighteen months and fourth consecutive month of declining growth – with services growth off at 53.9, a sixteen-month low. The final IHS Makit Eurozone PMI (purchasing managers’ index) was 1.0 lower at 54.1. The outlook for business activity levels for both sectors showed was at an 18-month low.

To avoid a possible Trump trade war, China has offered a US$ 200 billion olive branch to reduce its spiralling trade surplus with the US. This will largely be carried out by increasing imports, after the government announced that it would discontinue its anti-dumping and anti-subsidy investigation into imports of US sorghum, citing matters of public interest for their change of heart.

China’s State Information Center expects an annualised 6.7% growth in Q2, as other economic indicators point to a slight loss in momentum following the government’s recent crackdown on the country’s shadow banking industry. Although industrial output headed north, and retail sales and fixed asset investment increased at less than expected rates, property sales dipped for the first time in six months.

There was a marked month on month fall in Japanese consumer prices in April – down almost half to 0.6%.

The UK’s inflation rate continues to fall steadily to its 2.0% BoE target, with April’s return of 2.3% its lowest level in over a year and down from its October peak of 2.8%. The main factor behind the fall was airfares “influenced by the timing of Easter.”

Bitcoin continues to defy its many critics who have predicted it downfall for some time and now they have some ammunition with the cryptocurrency down 23.1% at US$ 7,561 from US$ 9,837 on 05 May 2017. Even more fuel to the doubters is that it is 60.9% lower than its 11 December 2017 peak of US$ 19,357. However, if a longer-term view is taken it is 371.5% higher than it was just twelve months ago when its value was US$ 2,035 and 1,595% higher than its US$ 474 level exactly two years ago. Even then, the doomsayers were on its back and probably will be next year and the year after but to no avail. When We They Ever Learn?

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment