Pick Up The Pieces

Pick Up The Pieces                                                                                         21 February 2020

Having just completed Samia, a 284-unit development in Al Furjan, Azizi Developments has announced that it hopes to finalise a further fourteen of fifty-four ongoing projects prior to the end of the year, including four more in Al Furjan, several in the first phase of Riviera in MBR City, Downtown Jebel Ali and Mina, on the east crescent of Palm Jumeirah. Furthermore, it plans to build a further 100 projects, worth several billion dollars, to be delivered before 2025.

The 340 mt, 81-storey Uptown Tower, located in JLT, is 20% complete and is scheduled for hand-over within two years; construction is being carried out by Six Construct who have already overseen completion of enabling, piling and substructure works. The tower, designed by Adrian Smith + Gordon Gill Architecture, will feature a 188-key luxury hotel and 229 branded residences, to be managed by AccorHotels, as well as extensive conference facilities, Grade A offices and an entertainment plaza, bigger than New York’s Time Square.

Upscale developer Seven Tides has recorded a 70% hike in revenue, to US$ 27 million, over December and January, with its Seven Palm development responsible for a major share of the total; this was a consequence of a rebranding and relaunching at Seven Palm for both its hotel and residential apartments with a scheduled handover this December.

A week after announcing 2019 losses of US$ 60 million, Union Properties confirmed that it had received funding of US$ 55 million for the expansion of Dubai Autodrome, which will see the tracks in the Kartdrome transferred to the Autodrome. According to feasibility studies, the project is expected to raise annual revenue of US$ 80 million, excluding monies from ancillary facilities, restaurants, and auto services associated with the project.

According to Savills Prime Index World Cities report, Dubai posted the global highest rental decline – at 5% – followed by Kuala Lumpur’s 4%; despite this, the emirate still boasts some of the best yield returns in the world – at 4.5%, way above the global 3.2% average.  Dubai was also the third cheapest globally to purchase prime property, at US$ 580 per sq ft, down to the fact because of “oversupply, potential renters have a lot of choice and negotiating power”; only Cape Town and Kuala Lumpur were cheaper. At the other end of the scale, were Hong Kong, at US$ 4,610 per sq ft and New York with US$ 2,510 per sq ft. Dubai’s capital value dropped almost 6% in 2019, with better appreciation found in Berlin and Paris at 8.8% and 6.4%.

The UAE Central Bank Is to cut down on the misuse of home loans. having issued a general notice to lenders “to stop certain unacceptable practices” involving mortgages.  It reiterated that home loans – mortgages – should only be used for “constructing, purchasing or renovating a house for owner occupier or investment purposes.” The warning comes at a time when the property market is into its sixth consecutive year of falling prices – and the possibility of increasing bad loans for the lenders.

Latest CBRE figures indicate that by the end of last year, there were 609k residential units in Dubai, set to grow by 127k (20.9%) over the next four years. It also estimated that selling prices for both apartments and villas in the emirate ranged from US$ 131-US$ 531 and US$ 174-US$ 627 respectively.

JLL is confident that, after a dull 2019, this year will see a bounce in the hospitality sector driven by Expo 2020, (and the anticipated 25 million visitors over the six months from October), and a number of business-friendly initiatives introduced by the government over the past few months; these included moves to expand the number of cruise visitors to the emirate (which will probably top one million by the end of the season), the exemption of the visa fee for transit passengers and the completion of large scale projects. CBRE estimated that the average H2 occupancy rate in Dubai hotels was around 75%, (much the same as in 2018), whilst by the end of the year, supply stood at 122.2k keys, expected to grow by 4.5k keys (3.7%) by 2023. On top of that, the UAE economy is forecast to see 2.2% growth – up from 1.9% last year – and Dubai announced a US$ 18.1 billion 2020 budget, its largest ever.

CBRE estimated that the retail sector could have an over-supply problem which may worsen if the current supply of 53 million sq ft of GLA (gross leasable area) expands a further 21 million sq ft (39.6%) over the next four years. The consultancy noted that many landlords have resorted to measures, including rent-free periods and capital expenditure, to attract anchor tenants, in order to stimulate business; e-commerce continues to move consumer behaviour trends, as an increasing amount of sales, that used to be the domain of retail sellers, is moving inexorably to online platforms.

After closing sixty regional outlets last year, Chaloub Group is set to launch three e-commerce websites in 2020, with no details of which brands will be used for its on-line platforms. It has already opened twelve e-commerce websites for its ME brands – including Level Shoes, Sephora Middle East and L’Occitane.  Concurrently, the region’s largest luxury goods retailer will continue to assess its brick and mortar strategy, deciding which outlets to close and ones in which to reinvest, at a time when e-commerce is gaining increased traction. There is no doubt that Dubai is “over retailed”, as there seems to be mall openings every other month, with the result that supply is currently outstripping demand.

Lulu Group has announced that it will open twenty hypermarkets in the UAE before the end of 2021, including two in Dubai – Dubai South Mall, which has just become the Group’s 186th outlet, and Silicon Oasis.

Of the twelve key Dubai warehousing and industrial micro-markets, in Savills’ Dubai Industrial Market report, seven locations have remained stable, with downward movements in the remining five. Grade B property saw decreases of between 10% – 12% in H2 and this is expected to continue this year, with landlords having to become flexible around lease terms and rental rates. E-commerce is expected to drive up warehousing demand which currently accounts for around 5% of Dubai’s total retail sales; as this ratio is up to 15% in the US and the UK, it is all but inevitable that Dubai will follow suit. Relative newcomers – cloud kitchens and vertical farming – have also started to make a minor impact on Dubai’s warehousing sector.

Local games developer Tamatem has secured a US$ 3.5 million funding round that included Dubai’s Wamda, Saudi Arabia’s Modern Electronics and the UK’s North Base Media. The seven-year-old company started life developing mobile games but now has become the leading mobile games publisher in the Arabic-speaking market. In 2018, the tech start-up raised US$ 2.3 million in Series A Round and will use the latest funds to expand its reach to new markets and increase marketing on current titles, as well as launching an investment and acquisitions fund, targeted at supporting independent developers and studios. By the end of the year, the size of the MENA mobile games market is expected to top US$ 2.3 billion.

W Motors, a Dubai-based luxury carmaker, is considering raising US$ 100 million to back expansion and its push into electric vehicles; it will be spent on a new Dubai factory, inventory, and R&D. The company is the maker of a US$ 3.4 million supercar, the 780-horse-powered Lykan Hypersport, capable of speeds up to 250 mph; only seven have been made so far. It has also manufactured to date ten Fenyr SuperSport, priced at US$ 1.6 million. W Motors is now looking at developing a US$ 600k electric version and hopes to deliver at least five hundred by 2025.

As part of its international expansion drive, Sebia has opened its first ME office in Dubai Science Park. The French company is a world leader supplying electrophoresis equipment, used in the healthcare industry for in vitro diagnostic testing for diseases such as myeloma – a form of cancer – and diabetes. The distribution and marketing office will support regional as well as Turkish and Pakistani operations, whilst its hi-tech training room will enable its company’s business partners to test its portfolio of medical equipment.

Allergan is being sued in a US$ 52 million lawsuit by distributor Dansys Group, alleging fraud and breach of contract. The Dubai-based medical equipment company had the exclusive rights to distribute Zeltiq’s CoolSculpting machines in four ME countries, including the UAE. The US pharmaceutical giant acquired the medical technology company, behind popular fat reducing treatment, for US$ 2.4 billion. Now Dansys is claiming that within two months of the 2015 deal, Allergan and Zeltiq colluded to illegally terminate the company’s contract and that the two companies did not abide by the exclusively agreement, having sold CoolSculpting encryption cards to other parties in the UAE.

In what is their second major tech investment, after acquiring 85% of The Entertainer, Bahrain’s GFH Financial Group bought a 70% stake in FinTech firm Marshal – no financial deals were readily available. Established in 1981, Marshal reckons it holds a majority market share in most of the sixteen countries, in which it operates. A 30-year relationship with Verifone, which has a 40% global share of the point-of-sale device market used for card payments, adds further value to the deal.

Dubai’s Knowledge and Human Development Authority will not allow any hike in student tuition fees in private schools next academic year, based on the latest minus 2.35% reading of the Education Cost Index. However, some schools may be eligible for an exceptional fee increase, based on clear eligibility criteria, as outlined in KHDA’s exceptional fee framework. Latest figures indicate that 2019 saw enrolments 2.9% higher – and 31% higher over the past seven years, comprising 70k students and the opening of 72 new schools since 2012.

Oasis has become the first regional brand to introduce Tetra Pak packages for its water products; from next month, it will be available in Tetra Prisma Aseptic 330ml carton packages selling at US$ 0.41 (AED 1.50). The company, a leading brand of National Food Products Company (NFPC), already uses Tetra Pak for its juices and dairy products. One of the main reasons for the move was the company’s commitment to a sustainable future – the new packaging is 100% recyclable, as well as being UV-protected.

A trilateral agreement between DMCC, Al Khaleej Sugar and Universa Blockchain will result in a new sugar trading platform. Using blockchain technology, traders will now be able to purchase, store, and trade sugar, through smart contracts on a blockchain technology. DMCC will provide the Tradeflow platform that will maintain a central register, confirming sugar ownership, via enforceable warrants, to prove the existence of reserves, enabling secure and transparent international trade. It is hoped that the end result will see Dubai become a major player in global sugar trade.

Following weeks of turmoil, that saw its London shareholding lose almost 50% in the first week of February, NMC Health Plc’s founder and Co-Chairman, Bavaguthu Raghuram Shetty, resigned on Monday, whilst a review is made of his actual holdings in the company, amid concern that it may have been misrepresented; at the same time, Chief Investment Officer, Hani Buttikhi, and board member Abdulrahman Basaddiq, also stepped down. The hospital operator, which operates the UAE’s largest medical network, had been targeted by US short-seller, Muddy Waters, and there had been speculation that its main investors were facing a margin call in which banks seize shares pledged as collateral. Last Friday, the company acknowledged that two GCC banks had obtained 20 million shares from BRS International Holding, an investment vehicle of NMC’s top shareholders, with the bank then selling eight million of them as “enforcement of security”. It was only two months ago that Muddy Waters alleged that NMC manipulated its balance sheet and inflated the prices of companies it had acquired; these claims have been refuted by NMC, with the company hiring former FBI Director Louis Freeh to conduct an independent review.

So as to return to a position, that will permit it to focus on its mid-and-long term strategy, of changing from a ports operator to an end-to-end logistics provider, DP World has decided to become a private company again and delist from Nasdaq Dubai. The move will see its parent company acquiring DP World’s 19.55% stake listed om the local bourse; the offer values the share at US$ 16.75, 28.8% higher than last Friday’s closing at US$ 13.00. Citing that the delisting would be “in the best interest of the company, enabling it to execute its medium to long-term strategy,” “the DP World Board has concluded that the disadvantages of maintaining a public listing outweigh the benefits”. According to Bloomberg, the delisting will help repay more than US$ 5 billion of government-related debt, as its parent will pay DP World US$ 5.2 billion to help repay some of its bank loans.

Dubai Aerospace Enterprise posted a 1.2% rise in 2019 profit to US$ 378 million, although there was a 1.4% dip in revenue to US$ 1.42 billion. During the year, the region’s biggest plane lessor improved its debt-to-equity ratio from 2.57 times p.a. to 2.64, as its unsecured debt, as a percentage of total debt, reached 62% – an improvement on 46% in 2018. Its 2017 merger with Irish-based lessor AWAS has made DAE one of the world’s largest based lessors, with its fleet now standing at 357. In 2020, the company has plans to raise a further US$ 2 billion – US$ 1.5 billion in unsecured debt and the balance from a sukuk issuance to add to its current cash flow of US$ 2.4 billion.

Etisalat posted a 2.0% rise in 2019 consolidated revenue to US$ 14.2 billion, with EBITDA posting a 51% margin at US$ 7.2 billion; last year’s profit nudged 1.0% higher to US$ 2.4 billion, attributable to exploring new growth opportunities and the company’s transition to digitalisation. Its UAE subscriber base topped 12.6 million, as its aggregate numbers came in 6% higher at 149 million. With a US$ 0.109 H2 dividend proposed, it will bring the total 2019 dividend to US$ 0.218, equating to an 80% dividend pay-out ratio.

A double whammy of an 8.0% hike in total income, to US$ 31 million, and a 16.0% fall in expenses, to US$ 14 million, provided the perfect platform for Amanat to post a 40.0% jump in 2019 net profit to US$ 16 million. The 2014 Dubai-listed investment firm, which focuses on acquiring stakes in the education and medical sectors, has a paid-up capital of US$ 681 million (AED 2.5 million), of which about 80% has been invested.  Amanat is planning to invest up to US$ 245 million in the GCC and Egyptian markets in the coming years and is studying whether to acquire a strategic stake in VPS Healthcare. Last March, it bought a stake in the Royal Hospital for Women & Children which is currently in its ramp-up phase – and will start earning profit this year.

Having declared a US$ 70 million profit in 2018, troubled Arabtec posted a US$ 211 million loss last year, all down to Arabtec Construction, as its other three main subsidiaries – Target (industrial), Arabtec Engineering Services (infrastructure) and EFECO (MEP) –  were said to be trading in the black; annual revenue sank 21.0% to US$ 2.1 billion. The main drivers behind the disappointing results were losses from investment in an unnamed associate company, legacy debts, an ongoing slowdown in the realty sector and tight liquidity in the construction field. The company confirmed that discussions were ongoing with Trojan, in relation to a possible merger. Over the past twelve months, its share value has sunk 63.5%, closing on Sunday on US$ 0.20.

The bourse opened on Sunday 16 February and, 104 points (3.7%) lower the previous three weeks, nudged four points higher (0.1) to 2738 by 20 February 2020. Emaar Properties, having shed US$ 0.12 the previous four weeks, was US$ 0.01 higher at US$ 1.06, whilst Arabtec, US$ 0.18 lower over the previous eight weeks, was US$ 0.02 to the good at US$ 0.23. Thursday 20 February saw the market trading 95 million shares, worth US$ 49 million, (compared to 133 million shares, at a value of US$ 81 million, on 13 February).

By Thursday, 20 February, Brent, having gained US$ 0.91 (1.6%) the previous week, was up US$ 2.70 (4.8%) to close at US$ 59.04. Gold, US$ 14 (1.0%) to the good the previous week, gained US$ 42 (2.7%), closing on Thursday 20 February at US$ 1,621.

Having seemingly escaped Japanese justice, fugitive car mogul, Carlos Ghosn is now facing serious charges from French prosecutors, alleging suspected misuse of corporate funds, aggravated breach of trust, document forgery and money laundering. The accusations relate to transfers between Renault SAS and Oman car distributor Suhail Bahwan Automobiles, as well as his spending on events and trips that may have been personal, with several million dollars in costs for the trips and events being covered by Dutch subsidiary Renault-Nissan BV, or RNBV. Another investigation relates his 2016 wedding held at the Versailles Palace and whether it was financed using a Renault sponsorship deal to cover the cost of that private event.  He is also facing further charges involving fees paid to consultants by the Amsterdam-based joint venture.

Morgan Stanley has made a US$ 13 billion bid for the discount brokerage firm, E*Trade Financial Corporation, that comes after a recent merger between competitors Charles Schwab and TD Ameritrade. The deal was the biggest seen in Wall Street since the GFC. Apart from adding 13.3% to its asset portfolio, which now stands at US$ 3.06 trillion, it will also enhance direct-to-consumer and digital capabilities to complement its full-service, advisory-focused brokerage.

As annual profits nose-dived by 33% to US$ 13.4 billion, HSBC announced that it would shed 35k jobs (14.9%) of its current 235k work force, over the next three years, as it targets cost cuts of US$ 4.5 billion by 2022, as part of its restructuring strategy. No retrenchment details were made known, but it is likely that four sectors will face the brunt of the personnel cull – the UK investment bank, the group’s central operations, the US retail banking outfit and those areas where jobs are being replaced by technology. With over 17% of the bank’s staff based in the UK, and most of HSBC’s profit emanating from Asia, it is obvious that the UK and Europe will feel the pinch. The main driver behind the profit decline was US$ 7.3 billion of write-offs, related to its investment and commercial banking operations in Europe.

Another year and yet another appeal by High Street retailers for the government to take action by reforming business rates. The latest is Shoe Zone that will be forced to close 20% of its 500 UK outlets if no change is forthcoming. The retailer indicated that although rents had fallen, its payment of business rates had increased from 26% to 54% over the last decade. The amount of business rates to be paid is based on the property’s rateable value, set by the Valuation Office Agency. In line with many others, Shoe Zone will make a simple calculation every time one of its properties’ leases is up for renewal – if it is not forecast to make a profit, the shop will close. Not only are most retailers hurt by the business rate mechanism, they are also facing the ongoing problem of e-commerce and a squeeze on consumer spending. Most hope that the new Chancellor, Rishi Sunak, will overhaul the system to help traders in his first budget, scheduled for 11 March.

Struggling since the start of the year to secure a rescue deal, the 265-year old Axminster Carpets was forced into administration this week for the second time in seven years. On its appointment as liquidators, Duff & Phelps sold the Axminster Carpets underlay division to Ulster Carpets and laid off 80 workers, retaining some to complete existing contracts. It could also sell Axminster Carpet Shop to Wilton Flooring.  The last accounts available, for 2018, saw the firm lose just over US$ 1 million.

Having confirmed that if it were unable to get the “requisite level of funding” then it would need to “consider all appropriate options”, Laura Ashley shares tanked losing 41% on Monday. H2 sales fell 10.8%, to US$ 142 million, in “challenging” trading conditions, attributable to “market headwinds” and weaker consumer spending. During the 70s and 80s, Laura Ashley, founded in 1953, was an iconic brand and one of world’s leading clothing brands. Since then, it seems not only to have lost its direction but has manged to lose 90% of its share value since 2015. By the end of the week, talks with Wells Fargo proved fruitful relating to a US$ 20 million drawing facility; the market was impressed, with shares rebounding by 45%.

Although UK retail sales bounced back last month by 0.9%, it was not all good news as the three-month figures fell into negative territory; however, January saw the largest monthly rise since March driven by stronger demand for clothes and footwear, up 3.9%, with  “moderate growth” by food retailers, which saw sales rise 1.7% during the period. January also saw a year on year increase in internet sales by 4.9% and department stores, up 1.6%. This come after the British Retail Consortium estimated that 2019 was the worst year since 1995 for the retail sector, as annual sales dropped by 0.1%.

In what was an expected move, Washington introduced tariffs on Airbus and EU aeroplane parts as the dispute over subsidies to aircraft makers took a turn for the worse; tariffs will move from 10% to 15%, with others remaining at 25%. The administration maintained that “the United States remains open to a negotiated settlement that addresses current and future subsidies to Airbus provided by the EU and certain current and former member states”. There is no doubt that the purpose of these extra duties is to target the four countries where Airbus is built – primarily the UK, France, Germany and Spain.

The local doom and gloom merchants who continue to moan about the state of the Dubai economy could do well to take note from latest German figures. Following a revised O.2% increase in Q3 GDP, the country had another very weak Q4, with growth reported at 0.0%, as the annualised growth was only 0.4% (compared to Dubai’s 2.0%). It is obvious that trade tensions, exacerbated by the on-going US-Sino tariff war, has played its part in a marked decline in exports growth last year, with investment in machinery and equipment also “down considerably”. Because of its position as the world’s third largest exporter, and that it relies more on its manufacturing (which accounts for 20% of its economic activity), than say the US or the UK (at 10% and 9%), any slowdown in global trade has a bigger impact on the German economy vis a vis  most other countries. If Donald Trump went ahead with his threat of introducing tariffs on EU cars, it would prove devastating for Germany, already reeling from aluminium and steel tariffs. On the back of Germany’s plight, the eurozone is also in a pickle, posting 0.1% Q4 growth, with both Italy and France seeing their economies shrink.

There is now every chance that the Johnson government will cement a trade deal with the EU by the end of the year. As seen last year, EU officials will act tough but when push comes to shove, the UK government will walk away with almost all of what it wanted at the beginning of negotiations. As the UK economy will record a bigger expansion to what is expected in the EU, not helped by a German economy in a rut, it seems that sterling, currently hovering around the US$ 1.30 level to the greenback, could gain a further 10% by year end, as the bloc’s economy continues to soften. It is inevitable that the new Chancellor will introduce fiscal stimulus, including major infrastructure expenditure, to boost the UK economy. It is likely that GDP growth will be around 1.4%, along with inflation at 1.8% – still lower than the Bank of England’s target of 2.0%.

UK employment seems to hit new highs every quarter, as employment jumped another 180k to 32.93 million and the number of women in work rose by 150k to 15.61 million – both new records – with weekly pay at US$ 663, its highest since March 2008; earnings have risen 3.2% over the twelve months ending 31 December 2019. Based on these figures, the Bank of England will put any rate change on hold, at its March Monetary Policy Committee meeting.

Driven lower by weak global growth, Typhoon Hagibis in October and an ill-advised sales tax hike, from 10% to 12%, Japan’s Q3 economy shrank at the fastest rate in five years, with annualised GDP slumping 6.3% – more than expected. Now with the coronavirus outbreak, and its impact on tourism and bi-lateral trade, with many Chinese factories closing down, it is all but inevitable that the country will be in recession in Q1. Prime Minister Shinzo Abe did finally realise that the economy was in trouble, by approving a US$ 120 billion stimulus package in December, but it may be too late for him to Pick Up The Pieces.

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Love Is In The Air

Love Is In The Air                                                                                            13 February 2020

Luxhabitat estimated that last year 1.5k villas and 16.5k apartments were transacted in Dubai’s prime residential market, equating to a 23.0% rise in value to US$ 11.5 billion. Taking in the overall prime residential market, the average price per sq ft dipped 3.7%, with villas at US$ 367 and apartments at US$ 473. There was a marginal 1.0% decline in the volume in the secondary market to US$ 5.3 billion, with the most popular areas being MBR, Downtown and Palm Jumeirah, with totals of US$ 1.03 billion, US$ 844 million and US$ 736 million respectively. In the off-plan prime market, registration volumes almost doubled, whilst transaction volumes jumped 36.1% to US$ 5.5 billion. The consultancy reckoned that the average villa price was US$ 1.1 million and for apartments US$ 681k.

Another study has concluded that the rate of decline in Dubai property prices has slowed markedly in H2, with more interest by buyers taking advantage of the value to be found in the market. Property Finder also forecast that prices will stabilise further this year with a possibility of some sort of recovery in 2021, as new supply falls, with new launches having all but dried up. The UAE-based property portal estimated that average villa prices slowed from 4.3% in H1 to 3.2% in H2, with apartments faring better with declines of 3.9% followed by 1.1% in H2. Bigger than average H2 price falls for apartment were found in Barsha Heights, Jumeirah Lakes Towers, Damac Hills, Discovery Gardens and Dubai Marina– by 13.4%, 11.9%, 9.7%, 7.7% and 7.0% respectively. In relation to villa prices, the three big losers in H2 were JVC, Jumeirah Village Triangle and Motor City – by 8.7%, 4.6% and 4.5%. In 2019, of the 42k overall real estate sales transactions, 23.7k were off-plan sales and 18.3k for secondary properties. It also estimated that this year will see 61.6k new units added to Dubai’s portfolio – 26.5% higher than in 2019. Whether this happens by December remains to be seen.

According to Knight Frank’s latest report, Dubai’s 2019 residential sales prices continued to spiral downwards, falling 6.0% in the year, although it noted that the market was showing “very early signs of recovery as we begin to see a sustained increase in transactions volumes”; there was a 26% increase over the year. It cited the major problem facing the sector was the large volume of new supply – this, estimated to be 63k – although by year end actual handovers will be somewhat less.

Kiklabb: Licensing & Workplaces has opened its 25k sq ft flagship office in the QE2 hotel, moored at Mina Rashid terminal. The project will see Kiklabb providing workplace solutions, co-working spaces and desk choices to customers, as well as the option of trade licences, (either from Dubai Free Zone or Dubai onshore). Data from Colliers estimates that there are 650k sq ft of flexible and co-working space in the emirate and, that within five years, 60% of all GCC office demand will be for such flexible spaces.

Emirates has signed a five-year deal with French football club, Olympique Lyonnais, to become its main sponsor starting next season; no financial deals were readily available. Apart from having its logo -“Fly Better” – on the club’s kit, it will have highly visible branding across Groupama Stadium, as well as hospitality, ticketing and other marketing rights. In 2012, Emirates became the first regional airline to connect Lyon to the MENA region. The airline already has an extensive exposure in sponsoring European clubs, including Arsenal, Benfica, Hamburg, Olympiakos and Real Madrid, as well as being the title sponsor for the Emirates FA Cup in England since 2015.

DP World will soon finalise agreements on the construction of a new port and economic zone in Dakar, which will transform the Senegalese capital into a major logistics hub and gateway to west and north-west Africa. Port de Futur, located adjacent to the new Blaise Diagne International Airport, will become a multi-purpose port including economic and logistics zones. The Dubai-based port operator already has an African presence in Algeria, DRC, Egypt, Mozambique, Rwanda and Somaliland.

Serco Middle East will continue their long association in Dubai, going back 70 years, and has been awarded a major four-year contract for frontline hospitality services for both of the emirate’s airports; no financial details were made available. The agreement will see Serco employ 1k to ensure that hospitality and passenger processing services meet the airports’ exacting international standards. It has also been involved with maintenance of its large buildings and infrastructure portfolio, as well as providing a full range of engineering and estates services for both terminals 1 and 2 and to other cargo and ancillary buildings at Dubai International.

Less than a year since its formation, Dubai-based online marketplace Seafood Souq is already planning to expand its operations later in 2020, beginning in Oman and Saudi Arabia. The start-up is keen to develop the seafood sector by enhanced traceability between suppliers and buyers, as well as improved transparency leading to better pricing. Technology has helped all stakeholders to track, in real time, when an order was placed and when the fish were harvested, packaged, transported to Dubai and delivered; it will also help with food safety by avoiding mislabelling which is a bugbear in the industry with reports indicating that 20% of samples of seafood have shown this problem. One of the main aims of the company is to prove “that you can build technology out of this region that is not mimicking technology from somewhere else,” with an IPO not out of the question.

AWJ Investments runs eight F&B concepts across 24 outlets in the Middle East including Operation: Falafel which is now being rolled out in New York in Q2, as well as in Paris and London. Over the next two years, Operation: Falafel, known for its modern twist on casual ME street food, will open 400 shops around the world, with selected franchise partnerships. The company is keen to work with the right investors and operators so as to ensure the quality of their food and to ensure that both the consistency and quality are maintained.

At least nine UAE banks are targeting Indian nationals who have returned home leaving behind bank debts, with defaulters estimated to owe US$ 7 billion in debts. With the recent introduction of a new Indian reciprocal agreement, the banks can now service notices and approach the Indian court system to help with any redress. To date, most of the cases appear to be chasing corporate loans but without doubt, the number of individual cases attracting the banks’ attention is bound to increase. Because of the difficulty of following up with Indian debts and the time- and money- consuming bureaucracy of the legal system, most debts were left outstanding. Now that the Civil Procedure Code allows the decrees of certain UAE courts in civil cases to be enforceable in India, the rules have changed in favour of the UAE financial institutions and there are many worried former expat Indians expecting the worst.

This week, the federal government gave approval for Aster DM Healthcare to hold a 100% equity stake in its Dubai-based subsidiaries, which had previously been capped at 49%, in line with local ownership rules. The group, with 20.5k employees, (including 3k doctors) and one of the largest and fastest growing healthcare chains in the MENA region, is in the process of obtaining approvals for hiking this 100% stake to its subsidiaries in the other six emirates.

Having lost 46% of its share value in London last week, after being targeted by short seller Muddy Waters Capital LLC, NMC Health Plc saw its shares bounce back 18% on reports that it had received approaches from private-equity firms, including Kohlberg Kravis Roberts & Co and GK Investment. The operator of the UAE’s biggest network of hospitals has also carried out a review which indicates that the actual shareholdings of Chairman Bavaguthu Raghuram Shetty and Vice Chairman Khaleefa Butti Omair, along with other investors, have been incorrectly reported; both have been requested by the board not to attend any board meetings until the anomaly is settled. Its share value had slumped 80% since December, when Muddy Waters questioned the validity of the company’s financials, hinting to the possibility of potential overpayment for assets, inflated cash balances and understated debt. Last week, it published a tweet asking if the major shareholders were not selling shares because of margin calls and that NMC’s margins are “too good to be true” relative to peers.

Because of accumulated losses of US$ 417 million, Deyaar’s board has recommended a capital reduction to offset the amount. Majority-owned by Dubai Islamic Bank, and listed on the DFM, the developer posted a 6.2% decline in 2019 revenue to US$ 164 million, with a US$ 19 million profit. However, 2020 is shaping up to be a better year for the Dubai-based developer, as the handover of its second of six districts in its Midtown master development. Afnan, is currently in progress, whilst work on its three hospitality projects (with 1k keys) has started. Furthermore, the handover of Bella Rose project is expected by the end of the year.

Dubai Islamic Bank posted a 2.0% rise in 2019 net profit to US$ 1.4 billion, on the back of a 17.0% hike in revenue to US$ 3.7 billion. Operating expenses remained relatively stable at US$ 640 million, with cost to income ratio 1.4% lower at 26.9%. Customer deposits were up 5.1%, topping US$ 44.7 billion, whilst its high margin sukuk portfolio came in 6.5% higher at US$ 9 million. DIB’s non-performing financing ratio and impaired financing ratio stood at 3.94% and 3.89% respectively.

Commercial Bank International posted a 50.2% slump in 2019 profits to US$ 30 million on the back of a 15.9% fall in annual net operating income to US$ 212 million. However, there were Q4 increases in both profit and revenue by 22.6% to US$ 10 million and 3.6% to US$ 55 million respectively. In what the bank described 2019 being “a challenging year for the banking industry, due to the challenges in the global economy and markets.”, CBI noted an 8.1% fall in expenses to US$ 102 million, as capital adequacy increased by 1.4% to 15.4% at year end.

As mobile revenues lost 8.0% to US$ 1.8 billion, Du posted a 6.2% dip in total 2019 revenue to US$ 3.4 billion, with annual profit 1.3% lower driven by a decline in mobile prepaid and handset sales, along with higher investments to roll-out 5G faster; like for like profits soared 9.0%. Although Q4 revenues declined 6.0%, profit skyrocketed by 30.0%. The telecom has proposed an annual dividend of US$ 0.0926, of which US$ 0.0354 has already been paid out last August. In 2019, capex rose 46.8% to US$ 409 million, mainly because of the investment in 5G network.

Damac Properties posted a 27.9% decrease in 2019 revenue to US$ 1.2 billion, resulting in an annual loss of US$ 10 million, (for the first time in a decade), following a US$ 411 million profit a year earlier. The developer has cut back on the number of new launches in 2019 so as to focus on selling completed and near completion inventory. Last year, it delivered 4.7k units and booked sales of US$ 845 million.

There were disappointing 2019 results from Union Properties, posting a 29.7% slump in revenue to US$ 208 million whilst falling into a US$ 60 million loss, (following a US$ 17 million 2018 profit), with bank financing costs related to subsidiaries’ loans having “contributed significantly” to achieving net losses last year, “which are currently being settled,” Last month, the developer issued a turnaround plan, focussing on a US$ 54 million expansion of Dubai Autodrome, converting three of its entities to standalone companies and tying up  with China National Chemical Engineering Ltd for future expansion plans.

With 2019 revenue 4.3% lower, at US$ 6.7 billion, profits at Emaar Properties nudged 1.1% higher to US$ 1.7 billion, driven by costs being cut by 7.0% and other income up 3.0% to US$ 250 million; however, income tax related expenses shot up from just US$ 3 million to US$ 83 million. UAE sales contributed US$ 4.1 billion to the top line, whilst 72.1% of its sales backlog is in the country. The developer confirmed that 70% of its twenty-two 2019 off-plan releases have been sold and that it had 30k homes under development. International operations contributed 18% of the total turnover, at US$ 1.2 billion, led by Egyptian and Indian operations. US$ 2.0 billion revenue was derived from its recurring revenue from hospitality and leisure, entertainment, and commercial leasing along with Emaar Malls. Namshi, the e-commerce fashion and lifestyle platform, fully acquired by Emaar Malls in 2019, posted a 21% hike in revenue to US$ 278 million.

Despite the doom and gloom surrounding the Dubai retail sector, Emaar Malls still posted increases in 2019 revenue (by 5.0%) to US$ 1.3 billion and net profit by 2.7% to US$ 624 million; the twin drivers behind the improvement were a strong performance of its shopping malls and online retail business. Over the year, the addition of the Zabeel Extension at The Dubai Mall and the complete acquisition of Namshi, posting a 40% hike in Q4 profits to US$ 92 million on sales of US$ 280 million, helped push figures northwards.  Occupancy levels in the malls continued at around 92%, whilst footfall totalled 136 million, of which 84 million visited The Dubai Mall. Two new developments are expected to start business later in the year – the 200 million sq ft Dubai Hills Mall (with 500 outlets and parking for7k) and the refurbishment and expansion of its Springs Mall.

Although still making a loss, DXB Entertainments, narrowed its 2019 deficit by 65.8% to US$ 233 million, with the theme park operator posting a positive Q4 unaudited EBITDA – earnings before interest, taxes, depreciation and amortisation. (However, the 2018 adjusted loss was US$ 272 million, as figures had been distorted because of impairment charges arising from the cancellation of a Six Flags theme park and a reduction in the value of the property). Total revenue came in 9.2% lower at US$ 134 million, split four ways – theme parks (US$ 84 million), hospitality (US$ 23 million), retail (US$ 14 million) and other revenue streams (US$ 13 million). The operator did actually see Q4 with a marginal profit – its first ever quarterly surplus.

With fewer trades over the year, and revenue 2.7% lower, Dubai Financial Market posted a 3.9% decline in 2019 net profit to US$ 33 million as revenue dipped 2.7% to US$ 86 million; despite the figures, a US$ 54 million dividend has been proposed. Q4 saw better results as both revenue and profit headed north by 2.0% and 15.0% to US$ 20 million and US$ 7 million. During the year, the index was 9.3% higher, whilst trading value shed 12.5% to US$ 14.4 billion. Transactions from foreign investors totalled US$ 768 million and owned 17.35% of total market valuation.

The bourse opened on Sunday 09 February and, 68 points (2.4%) lower the previous fortnight, lost more ground, down 36 points (1.3%), to 2734 by 13 February 2020. Emaar Properties, having shed US$ 0.08 the previous three weeks, was US$ 0.04 lower at US$ 1.05, whilst Arabtec, US$ 0.15 lower over the previous seven weeks, was down a further US$ 0.03 to US$ 0.21. Thursday 06 February saw the market trading  133 million shares, worth US$ 81 million, (compared to 108 million shares, at a value of US$ 59 million, on 06 February).

By Thursday, 13 February, Brent, losing US$ 12.90 (19.0%) the previous five weeks, finally gained a little traction up US$ 0.91 (1.6%) to close at US$ 56.34. Gold, US$ 6 (0.4%) lower the previous week, gained US$ 14 (1.0%), closing on Thursday 13 February at US$ 1,579.

On the international stage, coronavirus claimed its first major casualty, with the cancellation of the Mobile World Congress in Barcelona, which would have attracted 100k visitors at the end of this month. Despite medical assurances that it would be safe to go ahead, the organisers bowed to the inevitable, as a mass exodus by exhibitors, including Deutsche Telekom, Vodafone, BT and Nokia, would have had decimated attendance numbers. There would have been an estimated 6k Chinese attendees. Further bad news for the organisers was that they would probably not be covered by insurance unless restrictions were imposed on public gatherings in the country on health grounds. The impact on the MICE sector in Dubai remains to be seen.

Although the coronavirus crisis has already battered oil prices, the damage will be more pronounced in the GCC as 20% of the bloc’s oil production goes to China; the position is exacerbated by the fact that China is also their main trading partner, with non-oil trade topping US$ 200 billion last year. Now COVID-19 has seen many Chinese factories closed which in turn cuts their energy and commodities’ demand. The clout of China has on the global economy is well documented and any downturn in that country has a knock-on effect which will see a slowdown in worldwide trade, tourism and industry. This week has witnessed major events and trade exhibitions – from phones to watches, planes to jeans, F1 to rugby – called off because of corona virus.  More and more organisers will pull events over fears of spreading the deadly virus. Dubai is not immune, and its economy will suffer, in line with many other countries, as COVID-19 could trigger a major global economic downturn.

Cryptocurrencies continue their 2020 upward trend, with Bitcoin already 40% higher this year topping US$ 10k for the first time since October. The rally comes at a time when the market seems to expect that coronavirus will not be as serious as first expected (and will not impact global growth) and that there will be some form of settlement in the US-Sino trade war. The on-line currencies could well have benefitted being seen as a safe haven amid ongoing global geopolitical concerns. Bitcoin should continue its upward spiral but at a much slower pace and by June could be trading 10% higher at US$ 11k.

This week, Barclays hit the headlines for all the wrong reasons, as it chief executive, Jes Staley, said he “deeply regrets” his connection with Jeffrey Epstein, with UK regulators investigating his links with the disgraced sex offender. He has admitted that he maintained contact with Epstein, who he knew from when he ran JP Morgan private bank from 2000, for seven years after his conviction. The probe by the Financial Conduct Authority and Prudential Regulation Authority will focus on Mr Staley’s “characterisation to the company of his relationship” with Epstein. This is not the first time that the Barclays banker has locked horns with regulators – in 2018, he was disciplined and fined US$ 830k for inappropriately pursuing a whistle blower, whilst his bonus was cut by US$ 650k; the bank was also hit with a US$ 20 million penalty for breaching rules. There is no surprise to see that he has the “full confidence” of the board – a portend that he may have to go this time, not helped by its market value having lost 25% during his reign at the top.

More bad news for major tech conglomerates with US reports that the Federal Trade Commission is requesting the likes of Amazon, Apple, Alphabet, Facebook and Microsoft to hand over details about a decade of deals. They are under closer scrutiny as regulators investigate whether they may have stifled competition by buying up smaller rivals. This is but the latest government investigation into whether their practices harm competition. If anything untoward is found, then there is every chance that “offending” companies could be forced to unwind deals or break off parts of their business.

Meanwhile, Google has started its appeal process at the General Court in Luxembourg relating to the 2017 US$ 2.6 billion fine imposed by the EC over its alleged abuse of power in promoting its own shopping comparison service. The tech giant has argued that the case has no legal or economic merit and that not only had it fulfilled its legal obligations, to allow rivals access to its products, but also that shopping ads had helped people find the products they were looking for quickly and easily, and helped merchants to reach potential customers. Over the past three years, the EC has dished out fines, totalling US$ 8.2 billion, all relating to Google’s alleged abuses of power.

T-Mobile has been given judicial approval to go ahead with its massive US$ 26 billion takeover of the SoftBank-owned Sprint which would leave only three major players – Verizon, AT&T, and the new T-Mobile – in the US mobile phone market. Although a group of Democrat states argued that this deal would result in higher prices and would break anti-competition laws, the federal judge thought otherwise. When news broke, the markets went into a spin with Sprint shares up 80% (and increasing its market cap by US$ 15 billion) whilst in Tokyo, SoftBank closed 15% higher.

A US$ 10 billion merger between Australia’s third- and fourth-largest telecommunications companies looks set to go ahead despite objections from the Australian Competition and Consumer Commission. ASIC had argued that the merger of Vodafone and TPG would lessen competition in the country’s mobile market and that it would further concentrate the already tight telecommunications sector dominated by the Big 3 – Telstra, Optus and Vodafone – who control over 90% of the domestic market.

Nissan has estimated that the cost to the firm of Carlos Ghosn’s “corrupt practices” and “years of his misconduct and fraudulent activity” to be in the region of US$ 90 million. The carmaker’s former chairman, who escaped house arrest in Japan and now resides in Lebanon, faces multiple charges of financial misconduct including “the use of overseas residential property without paying rent, private use of corporate jets, payments to his sister and payments to his personal lawyer in Lebanon”. Ghosn denies any wrongdoing claiming that Nissan executives were concerned he was moving the firm closer to French partner Renault, part of a three-way alliance with Mitsubishi Motors.

A planned US$ 1.4 billion takeover by Edgewell Personal Care for millennial razor brand Harry’s, founded in 2013, has been abandoned because the threat of legal action by the US Federal Trade Commission (FTC) had caused too much “uncertainty”; it had warned that the deal would harm competition and hurt consumers. The six-year old newcomer, with 2.0% of the total men’s grooming market in the US, valued at US$ 2.8 billion, has taken on the sector giants including Edgewell, which owns brands such as Wilkinson Sword, and Proctor & Gamble.

The day Boris Johnson was in the middle of a major cabinet reshuffle, his next-door neighbour at No 11 Downing Street, Sajid Javid, surprisingly quit as Chancellor of Exchequer; he was quickly replaced by Chief Secretary to the Treasury, Rishi Sunak. It was reported that the incumbent, who was due to deliver his first Budget in four weeks’ time, was not prepared to fire his team of aides, as requested by the Prime Minister, who wanted to replace them with No 10 special advisers to make it one team. Several high-profile ministers were shown the door including Culture Secretary, Baroness Morgan, Northern Ireland Secretary Julian Smith, Environment Secretary Theresa Villiers, Business Secretary Andrea Leadsom, Attorney General Geoffrey Cox and Housing Minister Esther McVey. However, with the likes of Dominic Raab, Matt Hancock, Priti Patel, Michael Gove, Ben Wallace and Jacob Rees-Mogg maintaining their key portfolios, this reshuffle did not turn out to be a Valentine Day’s Massacre.

Tomorrow. Friday 14 February, many will celebrate Valentine’s Day, bringing a welcome boost to the retail sector. In both the US and the UK, it is estimated that 50% of the population will celebrate, even those without significant others. With prices tending to spike on such occasions, US consumers are expected to spend US$ 27.4 billion on the day – a 6.0% hike on last year. Interestingly, not only will US$ 358 be spent on wives and US$ 206 for husbands but on other loved ones including children, girlfriends and even themselves – shelling out US$ 280, US$ 232 and US$ 235. Cats and dogs also receive extra goodies worth US$ 96 and US$ 82 and manage to get in on the day when Love Is In The Air.

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Just Hold On!

Just Hold On                                                                                                  06 February 2020

Luxhabitat has released figures indicating details of the top selling properties in Dubai last year, starting with a 22.9k sq ft villa in Mohammed Bin Rashid City, selling for a cool US$ 25 million, as MBR also claims fifth position with US$ 16 million property changing hands. The second costliest realty transaction was a US$ 20 million deal for a penthouse on The One at the Palm. Emirates Hills and Downtown came in third and fourth, with both transactions around the US$ 17 million mark. Even “old” Dubai got in the top ten with an Umm Suqeim villa going for US$ 14 million.

Property Finder estimates that last year 41.1% of Dubai property sales, equating to 15.5k of the total  37.8k, were for less than Dhs 1 million (US$ 272k), reflecting a market shift from the traditional more expensive units; most units under this price would normally be either studio or 1 B/R apartment – a segment popular with first-time buyers and investors. The property portal notes that rental yields can be as high as 10% in this segment. The top such five locations were Jumeirah Village Circle (1.5k sales), International City (1.4k), Meydan (1.1k), Business Bay (1.0k) and Jumeirah Lakes Towers (0.9k); the average sales price in JVC was estimated at US$ 160k.

Property broker Allsopp & Allsopp reports that last year it moved 4k families into homes and saw revenue 40% higher, with Downtown the most popular area for sales, whilst Dubai Marina took the top place for rentals. It pointed out that the emirate saw property handovers 52.4% up, year on year, to 32k, with a similar percentage increase expected in 2020 to over 49k. With prices still heading south, there are potentially more first-time buyers in the market, as well as existing buyers/tenants upgrading their living arrangements.

According to Valustrat, Dubai property price declines slowed again in January, by an average 0.9%, continuing an eight-month trend; over the past twelve months, prices have fallen 10.3%. All locations posted monthly declines, with Discovery Gardens and Dubai Production City registering a 1.3% drop, whilst in The Meadows, Al Furjan and The Lakes, the decline was lower at 0.7%. In August, the weighted average residential price fell below the psychological level of Dhs 1k (US$ 272) per sq ft and since then it has declined to US$ 259 – this being similar to the figure some eight years ago, as the market then came off the bottom to start its three-year bull run. As seen last year, the number of off-plan sales transactions continued to decline – 20% month on month – while ready home volumes moved in the opposite direction, up by 37% since December.

Ellington Properties has announced that all 283 1–2 B/R apartments in its two developments have been sold. Wilton Terraces I and II, located by the Dubai Water Canal, comprise two 12-storey towers interconnected by a single podium and surrounded by 2.4 million sq ft of greenery in Mohammed Bin Rashid City. Its newest project, Wilton Park Residences, is also located in MBR City.

Sobha is forecasting that its revenue this year will top US$ 680 million, (25% higher than in 2019), mainly from its eight million sq ft Sobha Hartland community, initially launched in 2014. Located in MBR, the developer sold 1.5k units in 2019, with Creek Vistas being its most popular cluster.

JLL is confident that the realty sector will get a boost from recent major government and pro-growth initiatives that could see higher demand. They include the likes of boosting residential demand from overseas investors, and developers introducing various initiatives, such as paying off the 4% registration fees and offering attractive monthly payment schemes. Furthermore, the September 2019 formation of a new Real Estate Planning Committee will also help. Developers will inevitably witness the launching of fewer new projects, whilst focusing on the sale of existing inventories. Acknowledging that both apartment and villa rents and sale prices continued their downward trend last year, by 8% and 5%, and 8% and 10% respectively, it expects some improvement in 2020. The consultancy reckoned that 35k units were handed over in 2019 and that a massive 83k could be the figure this year – it does however expect this to be far lower, come December; the number of Dubai residential units is expected to top 638k by then. (The official count as at the end of 2018 was that the emirate had 486k apartments and 111k villas, making a total of 597 residential units, along with a population of 3.192 million; by 01 February 2020, this had increased by 5.5% to 3.366 million).

This year, the hospitality sector is set to improve, as demand recovers with several initiatives including large-scale projects, new visa rules, the increasing popularity of cruise tourism and Expo 2020. Last year, 7.2k rooms were added to Dubai’s portfolio which is expected to top 151k by the end of the year; major additions will be Artesia in Damac Hills and Royal Atlantis in Palm Jumeirah.

The office market will remain, for want of a better word, dull, with another year of tenants holding all the cards. Q4 saw Dubai Grade A rents in the CBD fall by 13% to US$ 370 per sq mt, with average vacancy rates increasing by 3% to 14%.

Both the 279-key Mövenpick Grand Al Bustan, which opened in 1997, along with Swissôtel and Swissôtel Living Al Murooj, (with 251 rooms and 285 extended-stay apartments), will now be managed by Accor, the world’s largest hotel operator. Both properties are owned by Dubai Developments, the privately held development company established by Dubai’s Deputy Ruler, Sheikh Hamdan Bin Rashid Al Maktoum. Both properties will undergo major three-year refurbishment and upgrades. These additions will see Accor with 17k keys across sixty hotels in the country – and 280 properties, with 61k keys, in the Middle East & Africa.

Currently operating thirty cloud kitchens, (for restaurant delivery), and hoping to add a further 100 globally this year, Dubai-based Kitopi has raised US$ 60 million in a Series B round. The extra money will also be used “in software technology to help build much more efficient operations.” The company operates cloud kitchens in five locations – UAE, Saudi Arabia, Kuwait, the UK and the US. Founded in January 2018, it previously raised US$ 2 million in a pre-seed round and US$ 27 million in series A funding, bringing its total to date to US$ 89 million. The smart kitchen network partners with more than a hundred restaurants to cook and deliver to customers on their behalf.

The Dubai Autism Rocks Support Centre, which provided support for children on the autism spectrum and their families, has closed. Sanjay Shah, who established the UK-based charity in 2014, is now accused of defrauding Danish taxpayers out of nearly US$ 1.2 billion. Although he has not been charged by the Danish courts, the claims are subject to a civil case in London brought against Shah by Denmark’s tax authority. Consequently, it is believed that his assets in the UK and the UAE have been frozen by the High Court of Justice in the UK. Agencies in various other jurisdictions, including Belgium, Germany, Norway, UK and US, are reportedly investigating the UK multi-millionaire businessman, who was living on The Palm. (A recent blog – ‘Leave the Light On’ – indicated that in Australia, some 400 suspects were being investigated for their roles in “cum-ex trades”, where two parties simultaneously claim ownership of the same shares and therefore claim tax rebates they are not entitled to). The multi-millionaire denies all allegations in this complex tax fraud often associated with specialised stock dividend trades, also known as “dividend stripping”. In 2015, his Dubai-based private investment house Solo Capital Partners was wound up, amid reports the company was one of several being investigated by Danish authorities. Earlier this week, Denmark’s serious economic and international crime police department seized a US$ 19 million mansion near Hyde Park.

This year, ENOC plans to open twenty-two new service stations throughout the UAE, including nine in Dubai, as well as expanding its retail network, Zoom, by 16.2% to 158 stores.

Despite the number of passengers using Dubai International in 2019, declining 3.1%, year on year, to 86.4 million, the airport was able to retain its position, for the sixth consecutive year, as the world’s busiest hub for international passengers. The main factors behind the unexpected decline have been laid at the doors of the global grounding of Boeing’s 737 Max, the bankruptcy of India’s Jet Airways and the 45-day closure of the airport’s southern runway for repairs. The number of aircraft movements fell 8.6% to 373k flights, while the average number of passengers per flight increased 5.8% to 239. Over the year, cargo volumes headed south, 4.8% lower at 2.514k tonnes – and by 7.0% to 659k tonnes in Q4. India, Saudi Arabia and the UK remained the top three destination countries, with 11.9 million, 6.3 million and 6.2 million passengers, with the top three cities being London (3.6 million), Mumbai (2.3 million) and Riyadh (2.2 million).

The latest IHS Markit UAE Purchasing Managers’ Index crossed the “50 Line”, the threshold that indicates either expansion or contraction, and pushed the UAE economy into negative territory. A reading of 49.7 finally ended ten years of growth in the country, mainly driven by continuing employment losses (at one of the fastest monthly rates on record) and a decline in new orders. Another disturbing factor was that selling prices were reduced for the sixteenth straight month. Like most global economies, the UAE is suffering from regional geopolitical problems, sluggish world trade and weak domestic demand. There is hope that the upcoming six-month Dubai Expo, starting in October, could be a catalyst to kick start the local economy.

In another mega project involving Abu Dhabi and Dubai entities, following the 2018 US$ 8.2 billion agreement between Emaar and Aldar Properties, it has been announced that Adnoc and Dubai Supply Authority will jointly develop a gas reservoir, called “Jebel Ali Project”. Spread over 5k sq km between the two emirates, around Saih Al Sidirah and Jebel Ali, it could generate 80 trillion cu ft of gas, once the development reaches full speed; to date, Adnoc has already dug ten wells. This new find moves the country one place to sixth in the world, in terms of oil (at 105 billion barrels) and gas reserves, with 273 trillion cu ft of conventional gas and 160 trillion cu ft of standard non-conventional gas resources. Dusup will be responsible for “providing energy for Dubai by sourcing and distributing natural gas and LNG” to fuel the generation of power and production of water.

According to the RTA, construction progress on the three bridges, of six lanes in each direction, leading to the entrance of Deira Islands, has reached 75%; completion is timed for June. The project, comprising four man-made islands and spanning 17 million sq ft, will eventually be home to 250k residents and 80k employees; construction will comprise hundreds of hotels, furnished flats, mixed-use buildings and marinas.

At Wednesday’s meeting of the Dubai Executive Council, the waiving of a new package of government fees for Dubai government services was approved; this will undoubtedly help to reduce the costs of doing business in the emirate. Services, that have been included in this decision, include those provided by the health, economic, marine, social, leisure and infrastructure sectors. The decision also aims to promote economic growth in the emirate, attract more foreign investment and position Dubai as a hub for business, by reducing administrative costs and fees.

In what was described as a “challenging year”, precipitated by the US-Sino trade war and regional geopolitical conflicts, DP World reported almost flat 2019 global container volumes at 71.2 million 20’ equivalent units; Q4 volumes were 0.4% lower at 17.7 million TEUs. On the local front, Jebel Ali Port posted an annual 5.6% decline and a Q4 6.2% drop in volumes to 14.1 million and 3.4 million TEUs respectively. Much of the local decline was put down “due to the loss of low-margin throughput, where we remained focused on high-margin cargo and maintaining profitability.” On the positive side, increases were seen in both the US and Australian sectors – up 0.2% and 4.5% – but being pulled lower by a 2.1% decline in Europe, Middle East, and Africa.

S&P Global Ratings is confident that UAE banks will remain resilient in a tough operating environment, helped by Abu Dhabi’s US$ 13.6 billion Ghadan 21 stimulus package and Dubai’s pre-Expo infrastructure spending. Although lending growth, in the nine months to September, slowed to 4.5% on an annualised basis, the ratings agency is looking at 5% – 6% growth in 2020 and a “mid-single-digit net lending expansion”. Its average long-term rating for local banks moved one notch higher to ‘A’ in 2019 and has a stable outlook on UAE bank ratings – a sign that they expect no significant changes this year.

Six-year old Dubal Holding and Electricite de France have agreed to explore collaboration in developing sustainable energy solutions and green business opportunities in the GCC and Brazil, focussing in areas of thermal power plants, technical support services and district cooling. The wholly owned subsidiary of the Investment Corporation of Dubai owns 50% of EGA, which produces up to 2.6 million tonnes of primary aluminium every year and is also the country’s largest industrial company outside the oil and gas sector.

Troubled Drake & Scull International completed two separate engineering and construction projects in Kuwait – the Sheikh Saad Al Abdullah Al Salem Al Sabah Indoor Sports Complex (worth US$ 19 million) and a US$ 55 million project at Sabah Al Salem University City. In its home base, it has struggled of late, and by the end of 2018, it was carrying a US$ 1.2 billion deficit. It is pursuing legal action against its former chief executive, Khaldoun Tabari and has also filed fresh criminal complaints against him, his daughter and other former executive managers with the Abu Dhabi Public Funds Prosecutor’s office.

Following Khaldoun Tabari’s claims that Drake & Scull “owes him several million US dollars – a claim confirmed by a recent Dubai Court judgement,” Tabarak Investment Co hit back saying that the former CEO’s claims are “totally false”. DSI’s major shareholder, which invested US$ 136 million in the firm two years ago responded by saying that “the truth is that the Dubai Court ruled in favour of Tabarak, sentencing Al Tabari to pay Tabarak a total of AED 105,624,199 (US$ 29 million) plus 9% daily penalties”, adding that “previous charges field by Al Tabari against Tabarak were dismissed by the DIFC court.”

The recent acquisition by Dubai Islamic to acquire Noor Bank has received final approval from the relevant regulatory authorities. This tie-up resulted in a bank, with total assets exceeding US$ 75 billion, being one of the largest global Islamic financial institutions. After weeks of discussion between both parties, it is reported that 4.9% of the combined total of 10.3k employees (9k of which worked for DIB and the balance with Noor) could be retrenched, as part of a cost cutting exercise.

Mashreq reported a 1.9% year on year hike in 2019 net profit to US$ 572 million, helped by a significant increase in investment income from US$ 7 million to US$ 29 million and non-interest income to operating income ratio remaining high at 38.2%; Q4 posted a 1.5% rise in profit to US$ 85 million. During the year, there was growth across the board, including customer deposits 9.3% higher at US$ 24.8 billion, total assets up 11.8% to US$ 43.4 billion and loans/advances moving up 10.0% to US$ 20.8 billion. With non-performing loans (NPLs) to gross loans ratio standing at 3.6% at year end, the bank’s total provisions for loans and advances reached US$ 1.1 billion, equating to 116.8% coverage for NPLs.

The Commercial Bank of Dubai posted a 20.5% hike in 2019 net profit to US$ 381 million on an 11.3% rise in operating income to US$ 826 million, driven by broad based business improvements; over the year, net interest income was 2.8% higher, fees/commission by 21.3% and other operating income by 31.2%. Total assets moved 18.8% higher to US$ 24.0 billion, net loans/advances by 18.1% to US$ 16.4 billion and customer deposits by 19.1% to US$ 17.2 billion.

The bourse opened on Sunday 02 February and, 48 points (1.7%) lower the previous week, lost more ground, down 20 points (0.7%), to 2770 by 06 February 2020. Emaar Properties, having shed US$ 0.07 the previous fortnight, was US$ 0.01 lower at US$ 1.09, whilst Arabtec, US$ 0.11 lower over the previous six weeks, was down a further US$ 0.04 to US$ 0.24 (dipping below the Dhs 1.00 mark for the first time to close on 87 fils). Thursday 06 February saw the market, short on liquidity and investors, trading only 108 million shares, worth US$ 59 million, (compared to 308 million shares, at a value of US$ 119 million, on 30 January).

By Thursday, 06 February, Brent, losing US$ 9.93 (14.5%) the previous four weeks, continued to sink faster than ever losing a further US$ 2.97 (5.1%) to close at US$ 55. 43. It is inevitable, at least in the short-term, that Opec and other producers have to introduce significant production cuts to prop up these ailing prices. Gold, up US$ 99 (6.3%) the previous seven weeks, finally headed in the other direction, shedding US$ 6 (0.4%), closing on Thursday 06 February at US$ 1,565. Over the month of January, Brent collapsed slumping US$ 10.05 (15.1%) from its 01 January opening of US$ 66.67 to US$ 56.62 by 31 January, with gold steaming in the other direction US$ 72 (4.7%) higher from its month opening of US$ 1,517 to US$ 1,589.

Driven by falling energy prices, BP posted an almost 30% slump in annual net profit after tax at US$ 9.4 billion – not a happy ending for long-time chief executive Bob Dudley, who has been replaced by Bernard Looney. Recently, the UK entity, like its major competitors, Royal Dutch Shell and Total, began to focus on cleaner energies, as carbon emissions and climate control came more into the public arena and became subject to more government scrutiny. Indeed, BP predicts that renewable sources could account for 15% of global energy consumption within the net twenty years. It also sees a big future for electric cars, having bought out the UK’s largest electric vehicle charging firm Chargemaster in 2018.

Last week, Airbus agreed to pay US$ 4 billion in fines to settle accusations of corruption following a lengthy investigation by US, UK and French agencies. This week, AirAsia has come out to deny that it was paid US$ 50 million to buy 180 of the European planes. Nevertheless, shares in Asia’s biggest budget airline slumped 11% on Monday after Malaysian regulators confirmed that they had started investigations into the deal; Malaysia’s Anti-Corruption Commission is working alongside Britain’s Serious Fraud Office (SFO) probing the claims. Tony Fernandes has stepped aside, for at least two months, as the chief executive of AirAsia while authorities probe bribery claims. Sri Lanka and Ghana have also started enquiries into corruption claims surrounding Airbus – the former involving its national airline and the other the purchase of three military aircraft.

As a result of stellar Q4 results, Jeff Bezos saw his fortune jump 11.4% to US$ 129.5 billion when his value of Amazon shares surged 12%, with the company now worth over US$ 1 trillion; Bezos owns about 12% of Amazon’s outstanding stock. Of the other tech billionaires, both Bill Gates and Elon Musk benefitted from better than expected Q4 results., with Elon Musk seeing US$ 2.3 billion added to his personal wealth, only for Tesla shares to lose 17% in one day following concerns that car production at his Shanghai factory  would be hit by the coronavirus. The only exception was Mark Zuckerberg who “lost” US$ 4 billion after Facebook shares slid on its slowest-ever quarterly sales growth.

Mike Lynch, the founder of UK software firm Autonomy, who sold the company to Hewlett Packard for US$ 8.4 billion in 2011, has given himself up for arrest as part of a US extradition, over charges of conspiracy and fraud. Lynch has been accused by HP and US prosecutors, alleging that he and other former Autonomy executives artificially inflated the software company’s revenues and earnings between 2009 and 2011, resulting in HP overpaying for the firm; Dr Lynch “vigorously rejects all the allegations”. Having been released on bail of US$ 13 million, he has been facing civil charges, instigated by HP, at the High Court in London, as well as separately by the US Department of Justice who are pursuing criminal charges against him. It has to be noted that the UK’s Serious Fraud Office investigated the deal in 2013 but dropped the case because of “insufficient evidence”.

Following a damaging spy scandal, Credit Suisse’s Tidjane Thiam has resigned to be replaced by Thomas Gottstein, with the bank also announcing that its chainman Urs Rohner, has its full backing. This is significant because there was a major conflict between him and the outgoing CEO over the spying incident with the shareholders siding with Thiam, whilst urging Rohner to back Thiam or step down himself. The troubles started in September when it emerged that the bank spied on its star banker Iqbal Khan after he announced he was joining UBS. An internal probe by Credit Suisse concluded Tidjane Thiam did not know about the spying, and that Chief Operating Officer Pierre-Olivier Bouee, who was subsequently dismissed, was responsible.

Reports from London show that Paras Shah has paid a high price for stealing his sandwiches from the Citigroup staff canteen in London. The senior trader, who was pulling in a reported US$ 1.3 million a year working with the investment bank, has been suspended and has been removed from his post as head of high-yield bond trading for Europe, the Middle East and Africa. Unfortunately for him, his departure came weeks before the bank was due to pay annual bonuses to senior employees.

IATA has noted that global air freight demand declined  by 3.3%, year on year, last year, for the first time since 2012, mainly attributable to the trade war between the US and China; it was also the weakest performance in the cargo market since the 2009 GFC, when air freight markets contracted by 9.7%. December saw a 2.8% increase in capacity, whilst cargo volumes were down 2.7%. Now that it seems that there is a significant easing of US-Chinese trade tensions, the sector is being impacted by the coronavirus and the forlorn hope is that this will be a short-term problem.

Despite stringent restrictions on cash withdrawals in place, it is estimated that US$ 1 billion has been transferred out of cash-strapped Lebanon. There are indicators that the capital flight could have been politically motivated and, with the protest-hit country facing a liquidity crisis, an official enquiry has been launched. However, many believe that a combination of bankers, senior civil servants and suspect politicians have been able to bypass the restrictions and transfer money overseas. Indeed, a Carnegie think tank in November concluded that nearly US$ 800 million left Lebanon between October 15 and November 7, when most citizens could not access their funds because banks were closed due to protests

A report in the National Institute Economic Review reckons that the UK is going through its worst slowdown in productivity growth in over 250 years, at the time of the Industrial Revolution, and 20% lower than pre- 2008 GFC. It blames three factors for the slump – the end of the information and communications technology boom, the financial crisis and Brexit. It conceded that technology at the beginning of the century pushed productivity higher but, over the past decade, it has contributed less than a quarter of that. The hope that a new era utilising AI will have a marked effect on the UK’s future productivity.

As part of its trade truce with the US, China indicated that it would halve tariffs on US$ 75 billion-worth of US imports, in a move that was also meant to calm the global markets, worried by the deadly coronavirus; US is expected to reciprocate by halving tariffs on US$ 120 billion worth of Chinese goods. The same time that Donald Trump hailed relations with China as the “best” ever, it seems that talks towards a wider agreement have gained increasing traction. Last month, another agreement saw Beijing agreeing to buying an additional US$ 200 billion in US goods.

China pumped in an unprecedented US$ 16.3 billion into its economy on Monday in a bid to counteract the negative impact of the coronavirus outbreak, with the twin aims of ensuring enough liquidity in the banking system and helping provide a stable currency market. It also unexpectedly lowered short-term interest rates as part of its attempts to relieve pressure on the economy. At the moment, the analysts expect only a “short-term” impact on the slowing economy but that growth figures would be lowered if it were to last longer. Many factories have already suspended production and offices have closed but the main economic damage has been seen in the country’s travel and tourism sectors. On its first day open after the Chinese New Year, the market was spooked as the Shanghai Composite index closed almost 8% down – its biggest daily drop in more than four years, with the only sector moving higher being healthcare shares.

Another country that will suffer economically is Australia – and this comes in the midst of the bushfires which have already cost lives and wreaked huge economic damage. UBS has warned that the group travel ban, introduced by the Chinese government, could cost the country up to US$ 1 billion in services exports to China. The most directly affected sectors so far appear to have been airlines, airports, casinos, (that could lose up to 50% of its VIP volume), educational facilities, luxury retailers and travel agencies. If this epidemic has the same impact that SARS had on Asia-Pacific travel, Qantas and Virgin could lose US$ 350 million and US$ 45 million in revenue, with Sydney airport shedding 5% of its operating cash flow. Listed education-based companies like IDP Education, along with universities, could be badly hit by any substantial reduction in Chinese students. If large sections of Chinese industry continue to be closed, then there would be an obvious hit for the miners, especially iron ore and coal, as prices would decline, and demand weaken; however, gold miners may receive a boost if investors chase gold as a safe haven investment. The medical profession will also benefit with more visits from worried patients and more demand for medical supplies such as vaccines, protective clothing and related equipment such as ventilators. During these troubled times, the message is that things will get better and now is the time to Just Hold On!.

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Leave A Light On

Leave A Light On                                                                                           30 January 2020

Asteco expects that a further 50k residential units, (along with 2.5 million sq ft of office space), will be added to Dubai’s property portfolio this year. Because development costs are approaching their lowest practical level, the property consultancy expects an easing in sale prices for new projects but predicts further falls in the secondary market. The newly formed higher committee, set up by HH Sheikh Mohammed bin Rashid Al Maktoum last September, will no doubt tackle the market’s supply issues and work towards greater collaboration between government-related entities and private-sector companies.

Another consultancy is seeing the first signs of growing market confidence, as rents begin to stabilise and declines in apartment sales prices have slowed to 2% in Q4. Chestertons report that in Q4, the market saw a 60% year on year increase in transaction values, whilst off-plan units recorded a 99% increase; volume-wise the numbers were up 39k and 68k. The firm also expressed concern relating to over-supply, indicating, that this year, twice the amount of units are scheduled to be completed, compared to 2019’s figure of 45k which was the highest annual number in five years. However, 2020 should be a better year for Dubai realty, as rental rates are beginning to level out, whilst there has been a slowdown in sales price declines.

With regard to apartment prices, Chestertons indicated that prices (per sq ft) were flat at US$ 281, US$ 272, US$ 231 and US$ 191 in Dubai Marina, Business Bay, The Greens and Dubailand. On the downside, there were Q4 falls noted in JVC and Motor City – down 9% to US$ 187 and 7% to US$ 159 per sq ft. Meanwhile, average Q4 villa prices were 3% lower. Including Jumeriah Park, The Meadows and The Lakes declining 8% to US$ 202, 3% to US$ 224 and 2% to US$ 271 per sq ft respectively. Arabian Ranches nudged up 1.9% to US$ 220 per sq ft.

Data Finder estimates that Emaar registered 8.6k off-plan property sales in 2019, equating to a 36% market share – a 260% year on year increase; this figure does not include Emaar’s two new launches. The next three developers were Damac accounting for 8.9% of the market – with 2.1k transactions – followed by Dubai Properties and Azizi Developments, with shares of 8% and 6% respectively. Just when most of the developers were battening down their hatches in 2019, focussing on deliveries and selling existing inventory, Emaar continued with major launches including its US$ 6.8 billion project, The Valley, and phase 3 of Arabian Ranches. In the secondary market, Emaar was again at the front with 2.3k transactions last year, followed by Nakheel (2.0k) and Damac.

In relation to the apartment rental market, only Downtown posted an increase in returns, whilst the likes of DIFC, Discovery Gardens, Dubai Silicon Oasis, Dubailand, International City, and The Views remained flat in Q4. Likewise, in the villa segment, rates remained static, including popular locations such as Al Furjan, Jumeirah Golf Estates, Jumeirah Islands, JVT Palm Jumeirah, The Lakes and The Meadows; this is probably an indicator that the market may well have finally bottomed out. However, rents did drop further in Victory Heights and The Springs – down 4% to US$ 34.1k and 3% to US$ 38.5k for an average 3 B/R unit.

Samana Developers’ second Dubai project is a two-year US$ 27 million development in Arjan, adjacent to Dubai Miracle Gardens. Saman Hills, to be built by Atcon Construction, will comprise 250 studio – 2 B/R apartments, with studio prices beginning at US$ 109k and 1 B/R at US$ 163k. Work has already started on its first entrée into the market – the US$ 21 million Samana Greens at Arjan – and handover is expected by the end of March.

In a bid to revolutionise Carrefour’s online orders, MAF has joined up with the US Tech company, Takeoff, as the new venture plans to build several automated micro-fulfilment centres (MFCs), at select stores, over the next two years; the new small warehouses will process online orders, (replacing the current manual method), so that goods can be picked up or readied for delivery. The technology can deal with 2k daily orders.

In line with its improved funding structure and liquidity, Moody’s has upgraded Dubai Aerospace Enterprise’s corporate family rating to ‘Baa3’ from Ba1 and also its senior unsecured rating of subsidiary, DAE Funding LLC, to ‘Baa3’ from ‘Ba2.’ The credit rating agency noted that DAE’s lower leverage and timely repayment of a loan from its parent, the Investment Corporation of Dubai, were reasons for the credit upgrade. In 2018, increased its portfolio to 125 aircraft, valued at US$ 3.5 billion and also issued US$ 1.9 billion of new unsecured debt.

For yet another month, UAE fuel prices have not changed. The Fuel Price Committee has decided that Special 95 remains at US$ 0.578, although diesel goes up US$ 0.005 (0.1%) to US$ 0.654.

Latest news in the Drake & Scull International sorry saga sees the company filing criminal complaints against its former CEO, Khaldoun Tabari, and his daughter, Zeina, both currently in Jordan. The former founder was arrested in Amman, at the Queen Alia International Airport, following an arrest warrant filed by UAE authorities and the issue of an Interpol red notice earlier in the month. Since then, DSI, which confirmed that it had discovered several instances of fund misuse by the previous management, has filed new complaints against the former CEO, his family members and other former executive managers.

2020 has started badly for Bavaguthu Raghuram Shetty, as the Indian billionaire has not only seen shares in his UAE-based hospital operator NMC Health slump, after an influential US asset manager, Muddy Waters Capital, issued a report criticising NMC’s accounts and disclosing a short position, but that the Shetty family had pledged more than 50% of their stake in Finablr to secure loans. The Shetty-backed payment processor’s shares have lost over 34% in value since a cyberattack rocked one of Finablr’s popular brands – Travelex. Overall, it is reported that Shetty may have seen US$ 1.5 billion disappear from his family fortune, as their US$ 3 million stake has been halved since the recent troubles hit.

Fears that the recent escalation of tensions between Iran and the US would have a negative impact on the local aviation sector have proved unfounded. According to the Emirates COO, Adel Ahmad Al Redha, the airline has not been affected by the latest spat and that its capacity remained “healthy” in January – there being no decline in traffic as average seat factor was in excess of 80%.

Saif Al Suwaidi, director general of the UAE’s General Civil Aviation Authority, is “not very optimistic” about the Boeing 737 Max’s return to UAE skies by the middle of the year, the latest target set by the US plane maker for its grounded jet. Once Boeing and the US Federal Aviation Administration have completed their own checks and reviews, the GCAA will conduct its own safety assessment. To date, the local regulator has yet to receive Boeing’s entire fixes to its flight control software, which was implicated in both crashes. Meanwhile, Boeing’s second biggest Max customer, Flydubai, with 250 aircraft on order, will probably have to lease more jets after the latest delay.

Troubled Union Properties is planning a US$ 54 million expansion to Dubai Autodrome and is in the “final stages” of signing a preliminary agreement with China National Chemical Engineering. It also announced that it was considering turning three of its units – ServU, The Fitout and Dubai Autodrome – into private joint stock companies. Its newly appointed chief executive, Khalifa Al Hammadi, has a major challenge to restructure and manage UP’s accumulated losses, as latest results showed Q3 losses expanded by 32% to US$ 22 million on the back of lower revenues; they were down 29% to US$ 30 million, with losses being incurred on some of its investments.

A week after announcing that it will pull operations in Oman, because of “the absence of the regulatory factors that provide us with a healthy investment environment”, Careem confirmed that it was cutting its payroll numbers by 5%, (estimated to be 200), and, at the same time, reassigning a further 10% to new roles. The ride-hailing firm, which recently finalised its US$ 3.1 billion takeover by Uber, indicated that it was “modifying the shape and skills of the team so we can operate even more efficiently to simplify and improve even more lives.”

Following an agreement in Davos, with CV VC and CV Labs, the DMCC is to launch the world’s largest ecosystem for cryptographic, blockchain and distributed ledger technologies – Crypto Valley. The ecosystem will support start-ups and will introduce co-working facilities, innovation services for corporate clients, training (in blockchain and entrepreneurship), mentoring and funding. The three partners will also collaborate on a comprehensive blockchain strategy, aligned with the Dubai Blockchain Strategy.

As an indicator that investor confidence is returning quicker than thought, Dubai Multi Commodities Centre registered almost 2.0k new companies, (an increase of 5.4%, year on year), in 2019, with Q4 showing the highest quarterly return in four years – 20% higher at 559 companies, including 202 in October. FDI from key global markets, such as India and China, continues to move higher.

Emirates NBD posted a 44.0% jump in 2019 net profit to US$ 3.9 billion, as total income came in 29.0% higher at US$ 6.1 billion, driven by increases in loans, (which resulted in net interest 26.0% higher), and fee income. Core operating profit rose 4.0%, mainly attributable to the bank’s 99.85% acquisition of Turkey’s DenizBank.  During the year, in which total assets grew to US$ 186 billion, the bank was allowed to double its foreign ownership to 40% which also helped to push figures higher.

Its sister bank, Emirates Islamic, posted a 15% hike in total annual profit to US$ 289 million, on an 8% rise in total income to US$ 736 million, driven by increased customer deposits and higher investments in Sharia-compliant bonds. Total assets grew 11% to US$ 17.7 billion, as customer deposits were up 9% to US$ 12.3 billion.

Emirates Central Cooling Systems Corporation posted an 8.3% rise in annual net profit to US$ 237 million on the back of a 7.9% increase in revenue to US$ 597 million. During the year, Empower added more district cooling plants, that now supply 1.2k buildings and a 120k customer base. Last year, the company awarded a US$ 54 million contract to build a district cooling plant in Dubai Production City and also launched what it calls the world’s first unmanned cooling plant at Jumeirah Village Circle.

The bourse opened on Sunday 26 January and, 89 points (2.9%) up the previous fortnight, lost some ground, down 48 points (1.7%) to 2790 by 30 January 2020. Emaar Properties, having shed US$ 0.05 the previous week, was US$ 0.02 lower at US$ 1.10, whilst Arabtec, US$ 0.08 lower over the previous five weeks, was down a further US$ 0.03 to US$ 0.28. Thursday 30 January saw the market trading only 308 million shares, worth US$ 119 million, (compared to 106 million shares, at a value of US$ 49 million, on 23 January). In January, the bourse was 25 points (0.9%) higher, as Emaar remained flat over the month, with Arabtec shedding US$ 0.07 from its 2020 opening of US$ 0.35.

By Thursday, 23 January, Brent, losing US$ 5.95 (9.5%) the previous three weeks, ditched another US$ 3.94 (6.3%) to close at US$ 58.40, not helped by the coronavirus alert that has the potential to further disrupt global trade. Gold, up US$ 93 (6.3%) the previous six weeks, rose a further US$ 6 (0.4%), closing on Thursday 30 January at US$ 1,571.

Blaming lower oil prices, Royal Dutch Shell posted a 32% 2019 decline in profits to US$ 15.8 billion, with its CEO Ben van Beurden saying that 2019 witnessed “challenging macroeconomic conditions in refining and chemicals, as well as lower oil and gas prices”. He also confirmed that the petro giant was still committed to strengthen its balance sheet and to continue with plans to complete its US$ 25 billion share buyback programme.

As expected, the Federal Reserve kept rates unchanged at 1.75%, whilst indicating that it was determined to avoid what has been happening in other global economies – a disinflationary downdraft; this could be a forerunner for the central bank to introduce easier monetary policy sometime this year. What is certain is that there will be no rate hike in Q1.

With the appearance of greens shoots of a possible recovery, the Bank of England has held interest rates at 0.75%, backed by seven of the nine members of the Monetary Policy Committee. Even the outgoing Governor, Mark Carney, has indicated “the most recent signs are that global growth has stabilised and that fewer companies in the UK are worried about Brexit”. However, he did warn that “caution is warranted,” as the “pick-up in growth is not yet widespread” and that an event like the coronavirus outbreak was a “reminder of the need to be vigilant” when “it comes to bumps in economic growth around the world.” However, the Bank’s latest economic estimates suggest the UK economy did not grow at all in Q4.

There was a raft of year-end figures posted during the week, including Facebook which recorded its first profit drop in five years – down 16% to US$ 18.4 billion – as costs jumped 51% to US$ 46.7 billion, driven by burgeoning legal expenses. The tech company has been mired in privacy and content concerns but, despite the decline, 2019 revenue was 27% higher at over US$ 70 billion. However, the market was not happy as its share value dipped 6% on the day. During the year, the tech giant was fined US$ 5 billion by US regulators to settle privacy concerns – and this week, it agreed pay US$ 550 million to settle an Illinois lawsuit over its use of photos for its facial recognition technology. In December, it was estimated that 1.7 billion people were active daily users and that an average of 2.3 billion people were active on its family of platforms each day.

Apple’s latest quarterly net profit jumped 11.3%, year-on-year, to a record US$ 22.2 billion, on the back of an 8.9% hike in revenue at US$ 91.8 billion, driven by enhanced earnings from iPhone, (7.6% up to US$ 56.0 billion), and services; this led to its share value rising 4.3% on the day. Global revenue outside the US accounted for 55% of total revenue, as China sales were 3.1% higher at US$ 13.6 billion. With the tech company aiming to “reach a net cash neutral position over time”, it returned almost US$ 25 billion to its shareholders in the quarter. Apple lost its second place in the global smartphones’ shipment race (with a 12.4% share) to Huawei’s 18.2%, still some way behind Samsung, again leading the pack with 21.3%.

To nobody’s surprise, Boeing posted its first annual loss – at US$ 636 million – in more than two decades, as the fallout from the 737 Max crisis continues to pummel the firm; latest estimates indicate that the bill for the grounding will be more than double that was initially expected at over US$ 18 billion and rising. Q4 sales at US$ 17.9 billion came in 17.5% lower than analysts’ predictions. In the understatement of the week, the newly appointed Boeing head, David Calhoun, said “we recognize we have a lot of work to do.” He has to focus on two major issues – to get the plane back in the air and to restore confidence in a much-tarnished brand. Boeing has a total backlog in orders worth US$ 464.4 billion.

Despite great pressure from the US, the Johnson government is to permit China’s Huawei to be used in UK’s 5G networks, with restrictions that will see the firm from supplying kit to “sensitive parts” of the network, known as the core; one other would be allowed to account only for 35% of the kit in a network’s periphery, which includes radio masts. It will also be excluded from military bases and nuclear sites, to partly placate US concern of a spying risk. The ever-optimistic Foreign Secretary Dominic Raab is confident that it would not affect the UK’s intelligence-sharing relationship with the “disappointed” US and other close allies. His decision was prompted by Beijing warning the UK there could be “substantial” repercussions to other trade and investment plans if no participation were allowed.

All the bad news from the aviation sector has recently pointed towards Boeing but Airbus is likely to have to pay up to US$ 3.3 billion in a settlement agreed with French, British and US authorities, alleging bribery and corruption – and the use of the ubiquitous middleman. Investigations started in 2016 after Airbus reported itself for being involved in “fraud, bribery and corruption”. It requested the regulator to look at documentation about its use of overseas agents in deals involving the use of export credits that were used by many governments to support exporters, including in this case Airbus.

Finally, the Indian government has announced that it plans to sell its entire stake in the national carrier. Although it carries liabilities, in excess of US$ 8 billion, the deal will also involve taking over some of Air India’s debt – US$ 3.2 billion of a US $ 8.0 billion total  – and comes a year after the government offer of only a 76% controlling stake garnered no buyer interest. The airline is but one government asset that is up for sale as the country goes through its slowest economic growth in a decade and needs to offload loss-making companies to improve its balance sheet. The airline, which owns 56% of its 146-plane fleet and has lucrative international and domestic landing and parking slots, employs 14k and faces increased competition from lower cost carriers.

Every week it seems that another sorry story, in one way or another, appears to reflect the dire state of the Australian banking sector. This time it is reported that sixty current and former Macquarie employees, including its current chief executive Shemara Wikramanayake, who was then head of asset management, appear to have been involved into short-selling activities, being named as suspects in a German investigation. A total of some 400 suspects are being investigated for their roles in “cum-ex trades”, where two parties simultaneously claim ownership of the same shares and therefore claim tax rebates they are not entitled to. The practice was banned in Germany eight years ago and authorities are seeking to recover billions of dollars from traders and banks that allegedly profited from such schemes. It seems that Macquarie acted as a lender to a group of funds involved in the share trading in 2011, from which it withdrew in 2012.

Following a global investigation into money laundering and tax evasion, involving an unnamed Central American bank, several hundred Australian tax avoiders are in danger of facing civil or criminal charges. Multi-country raids from a joint task force, including tax agencies in United States, UK, Canada, Australia and the Netherlands has discovered a sophisticated network established to conceal tax and launder criminal proceeds. Now the Australian Tax Office is looking into the affairs of hundreds of Australian individuals (as opposed to companies) suspected of having channelled undeclared income through the scheme.

It is not only the tourist, farming and wine sectors left reeling from the Australian bushfires but also the US$ 2 billion timber industry. For example, almost 50k hectares of pine plantations in the Riverina, owned by Forestry Corporation, were burnt in the Dunns Road bushfire and this could well lead to a shortage of timber, woodchips, and paper. It is estimated that the Riverina region in NSW has seen the loss of 330 hectares.

Friday finally sees the UK exit the EU, a bloc that has deep-seated structural problems and continues to be beset by bureaucracy. One remarkable fact is that the EU accounts for 7% of the global population but is responsible for over 50% of all welfare spending worldwide. Even its flagship member, Germany has been teetering on recession, with any growth progressing at a snail’s pace, not helped by its crisis-hit car industry and disappointing export figures. Two of the other leading economies, France and Italy, are also struggling, with the Macron government facing major problems in its attempt to reform unaffordable pension schemes and streamline the public sector. Meanwhile, Italy has been wallowing in a state of economic paralysis and perma-recession and has the highest debt – at 135% of GDP – in the EU; there is no doubt that this will continue at high levels in the absence of prudent economic management, specifically in relation to pension reform and overhauling trade unions by the Conte government. There is no doubt that the bloc is in a very fragile shape, with growth forecast of only 1.2% this year.

There will be envious eyes looking over the Channel, as the UK starts its new life with the IMF forecasting that it will be the fastest growing G7 economy.  The country will be run by a government, with a heathy mandate to make Brexit work, and no longer having to face an establishment, that ran a fear campaign to try and keep the country in the hands of a meddlesome and unelected EU bureaucracy. It is almost four years since the referendum, following which the doomsayers were forecasting that sterling would sink to be on par with the greenback and that the economy would fall off the cliff.  History shows otherwise. The UK will now be able to set their own trade terms, with the likes of the US, China, India and other fast-growing economies, and not have to rely on bureaucrats and twenty eight other meddling and slow-moving countries to decide for them, most of whom take more from the EU treasury than they put in. Who is going to pay them now that the UK, which pays up to 13% of the bloc’s budget, has left?  Hopefully the EU will Leave A Light On.

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Is This The World We Created?

       Is This The World We Created? 23 January 2020 .

According to Valustrat, the average value of Dubai properties declined 10.4% last year, with larger 15% falls noted in Discovery Gardens and Dubai Production City and single digit declines in four of the twenty-six locations surveyed – villas in the Meadows, Palm Jumeirah and Emirates Hills, as well as apartments in Dubai Sports City. (Strangely, last week’s blog noted that another consultancy indicated that there were price falls of 23.0% and 24.3% in Discovery Gardens and the Meadows respectively – a marked and worrying variance between the two studies). Residential rents were 9.1% lower, year on year, and 3.8% in Q4; the average annual Dubai residential rent was almost US$ 24k ($23,951) – apartments at US$ 18.5k and villas at US$ 57.5k. Valustrat noted that in 2019, “cash sale volumes of ready homes grew 29.7% and off-plan sales jumped 68.3%,” with investor demand boosted by attractive prices, fewer off-plan launches and delayed project completions. It estimated that last year 19.5k apartments and 5.1k villas were completed, making a total of 24.6k residential units.

Azizi Developments confirmed that it has already sold 81% of its inventory, across all 54 ongoing projects in Dubai, whilst projects such as Aliyah in Dubai Healthcare City and Plaza in Al Furjan have seen 90% of units sold prior to completion. To date, the developer has sold 12k units, and delivered 14 projects across Palm Jumeirah, Dubai Healthcare City and Al Furjan, valued at a total of over US$ 680 million.

Emaar’s latest Chinese foray sees the developer signing a MoU with Chinese giant Xiaomi to launch ‘Emaar Smart Home’, The latest smart home technology, powered by AI, will be launched in an exclusive set of digitally enabled Emaar residential developments and will offer “connectivity, comfort and convenience for the customers of tomorrow, today;” it will be controlled and monitored through Xiaomi’s Mi Home app.

According to Knight Frank’s latest Global Residential Cities Index, Dubai was ranked 146th out of 150 countries surveyed, with an annual 7.3% price drop in the twelve months to 30 September 2019 – and some 30% off since 2014. Budapest led the field with residential price rises of 24%. On average, the index rose 3.2% – its weakest annual rate since Q2 2015.

Emirates NBD is seeking to sell an undeveloped plot in the Dubai International Financial Centre, after becoming frustrated by the pace of assets sales under Al Jaber’s debt restructuring, according to people familiar with the matter and an enforcement letter sent by the bank; the land, valued in the region of US$ 70 million, was used as collateral for a loan which has yet to be paid off. In 2019, it was agreed that Al Jaber would raise up to US$ 445 million from asset sales, with other stakeholders pledging a further US$ 210 million. The Group, involved in sectors such as in construction, engineering and shipping, ran into trouble following the 2008 GFC; last year, the company agreed to restructure about US$ 1.5 billion. Lenders, including Abu Dhabi Commercial Bank and First Abu Dhabi Bank, have already recouped some money by forcing through the sale of the Al Jaber family-owned, 42-storey Shangri-La hotel in Dubai. operated by Hong Kong’s Shangri-La Group, which sold for US$ 191 million.

It is reported that the 800 MW phase 3 of the Mohammed bin Rashid Al Maktoum Solar Park will become operational in April.  By 2030, and costing US$ 13.6 billion, it will become the world’s largest single-site solar park, with a capacity of 5k MW. The first two phases became operational in 2018, with phases 1 and 2 having capacities of 200 MW and 300 MW.

Fajr Capital has divested its major minority share in Brunei’s largest bank, Bank Islam Brunei Darussalam to Brunei Investment Agency. The Dubai-based asset management company acquired its share in 2010, with the aim of transforming Brunei’s largest bank into a world-class financial services institution. Over the recent past, Fajr has exited its stakes in GEMS Education and National Petroleum Services.

In an interesting move, Mohammed Al Shaibani, CEO of Investment Corp of Dubai and director general of the city’s ruler’s court, has taken over as chairman of developer Nakheel. The current incumbent Ali Lootah, who had been in the position for the past decade, resigned this week after having steered the state-owned developer through a US$ 10.5 billion debt restructuring during his tenure. Al Shaibani is also joined by three other new board members – former Nakheel chairman Sultan bin Sulayem, Khalifa Al Daboos, and Issam Galadari. Nakheel, currently with billions of dirhams of projects and infrastructure development in progress, posted a 2018 US$ 1.2 billion profit, down 22.8%, year on year.

With banks having to follow what some might consider tight regulations when it comes to residential lending, it seems that some private developers are becoming de facto mortgage providers. As an example, Pantheon is offering ten-year plans for its Jumeirah Village Circle project, due to be delivered by mid-year. Their rates appear to be lower than traditional banks on a 30:70 payment plan, (30% to be paid, usually in instalments, by handover). Likewise, Samana has been offering 50% finance for its soon-to-launch project in Dubai Studio City. These come at a time when the UAE Central Bank has withdrawn the 20% upper limit on banks’ exposure to the real estate sector.

Next month, Meydan will host The Girlgamer Esports Festival World Finals a first for the ME area. The Government of Dubai Media Office is supporting the event as part of its strategy to drive the development of the region’s esports industry and to put Dubai firmly on the global map for competitive esports. The event, with a US$ 100k prize pool, is to be organised by Galaxy Racer Esports, in partnership with Evoloop and presented by Grow uP eSports. Nine of the world’s best all-female gaming teams will be participating, with Team Dignitas favourites to win for the third year in a row.

This week, Dubai Government professional employees have been awarded a pay rise of between 9% – 16%, under a new salary scheme that will also introduce flexible working hours, telework and part-time employment, as well as specifying a minimum wage for Emirati graduates. Furthermore, Sheikh Hamdan bin Mohammed, the Crown Prince, also approved the formation of a career-grade placement committee, to be chaired by Abdulla Al Falasi, which will approve the career-grade placement lists based on the grades and salaries.

Dubai welcomed a record 16.73 million international overnight visitors – a 5.1% increase in tourism volumes. Its top six source markets were India, Saudi Arabia, UK, Oman, China and Russia — delivering over seven million visitors; the top nine countries each attracted more than 500k visitors, as India retained its top position with over two million.

Following directives by the Crown Prince, Sheikh Hamdan bin Mohammed, camping will be allowed on Dubai beaches, designated for this purpose; on-line permits, from Dubai Municipality, will be required but there will be no charges. It has been more than a decade since beaches became no-go areas for camping enthusiasts and caravan owners.  Further good news on the waterfront was that all Dubai public beaches have attained the international accreditation of the Blue Flag programme,

Shuaa Capital reported that that one of its offshore units has finalised a deal to manage an investment portfolio of assets worth US$ 400 million which increases its total to US$ 13.4 billion. Last August, the Dubai-based investment bank completed a merger with Abu Dhabi Financial Group and this helped it post a Q3 profit, helped by a US$ 8 million contribution from its new owner.

DP World continues its recent acquisition foray, with buying a 44% share in Swissterminal Holding, a container terminal operator in Switzerland;  no details were made available except that the founders, the Mayer family, remain the majority shareholders.  The Swiss company operates three terminals, connected to Europe’s major container ports in Rotterdam and Antwerp, along with other ports. Last year, the port operator bought the likes of UK transport and logistics company P&O Ferries, Indian rail logistics company Kribhco Infrastructure and Chilean ports operator Puertos y Logistica; it currently has 150 operations in more than fifty countries.

Dubai Aerospace Enterprise has signed a US$ 300 million, four-year unsecured loan with China Construction Bank (DIFC Branch) and China Construction Bank (Asia) Corporation Limited; this could rise by a further US$ 200 million, if required. The funds will be used to support DAE’s future financing needs. The Dubai-based leasing company serves 125 global airlines from its seven locations in Dubai, Dublin, Amman, Singapore and the US.

With the latest news from Boeing that the 737 Max is unlikely to get approval to fly until the middle of this year, it is reported that their second-biggest customer, flydubai, is considering leasing more jets. With a timeframe that may go into Q3, the Dubai airline is “looking at short to medium-term leasing options to add more capacity for the coming few months”. The grounding has already cost Boeing more than US$ 9.0 billion.

The bourse opened on Sunday 19 January and, 79 points (2.9%) up the previous week, was  a further 10 points (0.3%) higher to 2838 by 23 January 2020. Emaar Properties, having gained US$ 0.06 the previous week, was US$ 0.05 lower at US$ 1.12, whilst Arabtec, US$ 0.06 lower the previous four weeks, was down US$ 0.02 to US$ 0.31. Thursday 23 January saw the market trading only 106 million shares, worth US$ 49 million, (compared to 175 million shares, at a value of US$ 84 million, on 16 January).

By Thursday, 23 January, Brent, losing US$ 3.69 (5.4%) the previous fortnight, shed US$ 2.26 (3.5%) to close at US$ 62.34 Gold, up US$ 84 (5.8%) the previous five weeks, rose a further US$ 9 (0.6%), closing on Thursday 23 January at US$ 1,565.

2019 was a record year with a 5.8% increase, to US$ 7.4 billion, being spent on global transfers in men’s football. The FIFA report noted that although English clubs were the biggest single spender in the market, at over US$ 2.0 billion, the figure was down 22.1% on the year. Of the 18k global moves during the year, involving 15.5k players of 178 different nationalities, only 18.6% were permanent club-to-club transfers, whilst the most common type of transfer saw 64.3% of the total players out of contract. In terms of net value, Portugal generated the most with US$ 503 million, as England came in worst in that category with minus US$ 715 million.

There is still no news when Travelex’s main UK website will return to service, following a cyber-attack on New Year’s Eve; however, it seems that the system used by staff is back in operation. A gang of hackers, known as Dodinokibi, has since held its systems to ransom, and are demanding a US$ 6 million repayment to unlock digital files that it had earlier encrypted. Until the impasse is resolved, customers will be unable to order currency online, either from Travelex itself or through the network of banks that use its services.

Following a Deloitte investigation, troubled Ted Baker has confirmed that it had overstated the value of its stock by over US$ 75 million, somewhat higher than the US$ 33 million estimate made in December. The fashion retailer has yet to confirm how the stock discrepancy arose but with its former boss of over thirty years, Ray Kelvin, stepping down over misconduct claims; it has seen sales and H1 profits slump from a US$ 32 million profit to a US$ 30 million deficit. It seems that its auditors, KPMG, had uncovered mis-statements but concluded they were too small to affect the fashion label’s accounts.

As its share value has doubled over the past three months, Tesla has pushed its market value to over US$ 100 million and, in doing so, displaced Volkswagen as the world’s second most valuable carmaker behind Toyota, with a market value of US$ 230 million. The other three companies, making the top five list, are Volkswagen, GM and Honda with stock values of US$ 89.7 billion, US$ 49.9 billion and US$ 49.7 billion respectively. In 2018, Elon Musk’s company delivered more than 367k cars, 50% higher than a year earlier, but still miles behind Volkswagen and Toyota with their numbers of 11 million and 9 million for the first eleven months of 2019.

As a result of ongoing economic uncertainty, with slower than forecast rates of growth for its Evoque and Discovery Sport models, Jaguar Land Rover is cutting 12.5% of its Halewood plant payroll to 3.5k; this is part of the carmaker’s strategy to cut 4.5k global jobs in a bid to save US$ 3.3 billion to reverse recent losses. With this latest “fresh blow to the car industry”, the UK’s industry continues to experience severe challenges.

In the midst of a major financial crisis, South African Airways has reportedly cancelled nine of its total of thirty domestic and international flights. In December, the national airline was placed into bankruptcy protection and is expecting to receive a US$ 138 million government finance package to enable the airline to keep flying. It has not made a profit since 2012 and has been bedevilled by not only running an aging, expensive to run and inefficient fleet but also by high taxes, political interference and corruption scandals.

The fall-out from the 2018 Royal Commission on Banking continues unabated with the latest being the National Australia Bank’s superannuation trustees, (MLC and NULIS Nominees), being charged with a new class action for allegedly ripping off more than 330k clients by failing to move them into lower cost default products. It seems that the greedy financial institution left clients’ money in funds with higher fees and lower returns – obviously failing to act in their clients’ best interests The Commission had earlier castigated the trustees’ parent company NAB for repeated breaches of superannuation laws. It is reported that the trustees failed to transfer US$ 4.5 billion of clients’ retirement funds to the low cost default MySuper in a timely fashion, leaving them in “idling in products” with higher fees and commissions to financial advisers that are outlawed.

AMP is another company in trouble because it reported that it has delayed returning money to clients it “stole” in the fees-for-no-service scandal. The wealth manager has written to former clients informing them their refunded fees had been placed in new AMP superannuation accounts, including its Eligible Rollover Fund, which according to Super Consumers Australia has underperformed to comparable funds; although this does not charge entry and exit fees, it does have administration and investment fees. The Australian company has been forced to refund hundreds of millions of dollars following revelations at the royal commission. Despite this, last year they wrote to clients advising then they were owed money, because of these irregularities, and instead of asking them where they would like the money sent, AMP opened a new super account in their name.

Despite her fall from grace, Isabel dos Santos is still Africa’s richest woman  and now it seems that the daughter of Jose Eduardo dos Santos, the former president of Angola,, has made her fortune by exploiting her own country and corruption; her father had a dictatorial grip on the country for 38 years until his 2017 retirement – enough time to plunder the oil-rich country. His daughter was given enough slack to take basically what she wanted and had ready access to lucrative deals involving land, oil, diamonds and telecoms and was allowed to buy valuable state assets in a series of suspicious deals. In 2016, her father decreed that she be put in charge of the country’s struggling state oil company Sonangol. On the day she was fired by the new president, Joao Lourenço, she approved fifty invoices totalling US$ 58 million of suspicious payments to Matter Business Solutions, an off-shore company, run by her business manager and owned by a friend. It seems that they included two identical invoices for US$ 676k for exactly the same work on the same day.

This week also saw two other related events, the first was the sudden deathofNuno Ribeiro da Cunha,a banker implicated in the embezzlement and money-laundering case against Isabel dos Santos; he managed the account of oil firm Sonangol, formerly chaired by Ms Dos Santos, at the small Portuguese lender EuroBic. Earlier Angolan prosecutors named him as a suspect. It was also reported that a top PWC executive had left the firm after revelations of PwC links with Isabel Dos Santos, with the firm involved with auditing, consultancy and tax advice for her companies.

A recent World Economic Forum study has stressed the importance of countries Increasing their social mobility – defined as providing people with equal opportunities to raise their living standards, regardless of their socio-economic background. 82 economies were analysed and measured against five key criteria, including health, access to and quality of education, technology, work conditions and inclusive institutions. It considers that countries such as China, US, India, Japan and Germany, would stand to benefit most from upward social mobility. It states that if developed and emerging economies, that lag in four areas, (low wages, poor education, inadequate working conditions and lack of social protection), improved and lifted their social mobility score by just ten points, global GDP would jump by 4.4% by the end of the decade.

Latest figures from down under sees the top 1% of Australians (250k) having more than double the wealth (US$ 1.6 trillion) of the entire bottom 50%. The country has seen the number of billionaires decrease by seven to 36, year on year, but they grew their average wealth by an average US$ 460 million in 2019. (Globally, the wealthiest 1% of people have more than double the wealth of 6.9 billion people and the 2.2k billionaires have more wealth than 4.6 billion people). Oxfam note that the rich are getting richer and the poor poorer and that the richest 22 men in the world own more wealth than all the women in Africa, whilst half the world’s population have to survive on less than US$ 5.50 a day. The two most telling facts, in the Oxfam study, are that taxing an additional 0.5% of the wealth of the richest 1% over the next decade is equal to investments needed to create 117 million jobs in education, health, elderly care and other sectors to close care deficits. The other was that developing countries lose an estimated US$ 100 billion a year in tax revenue, as a result of tax avoidance by multinationals. Is This The World We Created?

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Hey Ho Silver Lining!

Hey Ho Silver Lining!                                                                                    16 January 2020

The latest study from Core indicates that 32k units were brought to the market last year and that a further 8.9% 49k units this year will bring Dubai’s total residential stock to 600k. The real estate firm estimates that the market oversupply in the emirate looks likely to continue, with the three top locations for the new supply being MBR City, Dubailand and Dubai South. But to the optimistic observer, a pick-up in global trade, the current regional geo-political uncertainty stabilising and the Expo halo may see the demand needle moving in the opposite direction. Interestingly, there was a 58% decline in the number of new launches in 2019, year on year; that will surely see a much-needed slowdown in the supply chain.

As property prices continue to scrape the bottom, allied with historically low interest rates and more accessible bank financing, the knock-on effect is that the number of mortgage enquiries jumped 59% over the year. Mortgage Finder also found that there was an 11% inquiry increase from those earning between US$ 2.7k – US$ 3.3k (AED 10k – AED 12k) and that the average property price, that those in this bracket consider, is US$ 217k (AED 795k).

Bayut.com estimate that Dubai Marina, with apartment prices per sq ft 11.7% lower on the year at US$ 361, was the most popular location in Dubai for new buyers, whilst Palm Jumeirah attracted the highest number of buyers and investors for villas, where prices fell 16.6% to US$ 380 per sq ft.  Last year, sales in Dubai Marina were 59.5% higher at US$ 2.2 billion. With prices continuing to head south, allied with mortgage rates decreasing, Dubai is still a buyer’s market as the number and value of property transactions increased in 2019. There were marginal 5% declines recorded in Business Bay, whilst JVC posted average 13.8% declines to US$ 163 per sq ft. The more popular locations in the secondary market were found in Palm Jumeirah, Dubai Marina, Downtown Dubai and JVC, whilst the primary segment saw Dubai South, MBR City and Dubai Hills come out in front.

HH Sheikh Mohammed bin Rashid Al Maktoum has enacted the DIFC Leasing Law No 1 of 2020, stipulating requirements that provide a protection framework for owners and tenants in the financial hub. It is hoped that the new law “will enhance the DIFC’s property market and reflect the centre’s commitment to maintaining a legal and regulatory framework, aligned with international best practice”. Among the new regulations are a maximum 10% limit on security deposits of the annual rent of a residential lease and that the landlord has to give a tenant written notice of a proposed rent increase at least ninety days prior to the expiry of a lease. There are also other guidelines, including the introduction of a tenancy deposit scheme, and residential leases to be administered by the registrar, requiring the production of condition reports, and specifying provisions relating to the termination of leases.

According to HH Sheikh Mohammed bin Rashid Al Maktoum, “We, at Dubai Council, will double our work in the next period — 2020 will be the year of major changes and real transformations in our journey towards the next 10 years”.  He was speaking as Dubai set up a new “economic district” on SZR for the next generation of businesses – much similar to the way the DIFC free zone has become one of the major global financial centres over the past two decades from ground zero. The government is planning a US$ 545 billion (two trillion dirhams) trading hub over the next five years; in H1, trading volumes totalled US$ 184 million. The District will have a “future economies” research centre and be a base for business incubators and financing institutions for New Economy enterprises. It will be no surprise to see the Dubai Ruler’s tweet – “We are the new capital of the New Economy” – soon become reality. He has also issued a directive to further enhance Dubai’s presence on the world stage by setting up fifty global offices for promoting Dubai’s commercial, tourist and investment position.

The UAE has bailed out the US by deciding to finance the world’s biggest economy’s Expo pavilion, after Congress failed to approve federal funds to construct the US$ 60 million pavilion; the US bars public financing for such international gatherings. Secretary of State, Mike Pompeo, was a keen supporter for US participation at the world fair fearing that the country’s absence would demonstrate weakness at an event where an increasingly powerful China would showcase its technological prowess in a key region – whereas US would have lost out “to showcase American freedom, ideals, enterprise, culture and global leadership.” The US building will demonstrate 3-D printing for prosthetics and organs, a journey to Mars and an idealised future city with minimal traffic.

A report from investment advisory, Julius Baer, has ranked Dubai as 17th out of 28 countries as the most expensive for luxury goods and services – and sixth from twelve countries in the EMEA region. The three most expensive global cities were Hong Kong, Shanghai and Tokyo – with Mumbai coming in the lowest at 28th; London, Paris and Milan were akso among the most expensive for luxury goods and services. Dubai is the most expensive place in the Europe, Middle East and Africa (EMEA) region to buy a lady’s handbag or a piano, whereas it is the cheapest for a wedding banquet – 89% lower than it would cost in New York. When it comes to prime residential property, (only 9% of that in Monaco, the most expensive in the survey), business class flights (55% of Sydney prices) and cars (64% cheaper than Singapore), Dubai scored well. If nothing else, the survey debunks the myth that the emirate is such an expensive place to live in or visit, compared to other global cities.

Business activity in Dubai’s December non-oil private sector economy saw a month on month 1.2 dip to 52.3 – a figure that still indicates that business activity remains strong; the market is forecasting that the level of investments will improve on the back of Expo 2020, with higher sales expected. There appears to be a lot of hope being put on the world fair, starting in October, to boost both investment and spending in the emirate. However, new order growth did come in at its slowest rate in nearly four years. The month also saw a weaker increase in new orders, driven by the fact that the slow economy negatively impacted on clients’ spending power. On the plus side, employment increased for the fourth month in succession.

This week, Sheikh Ahmed bin Saeed Al Maktoum, chairman of Dubai Silicon Oasis Authority, laid the foundation stone for W Motors – a US$ 100 million investment for the seven-year old high-performance luxury sports cars facility. The 120k sq ft project will be built in three stages, with phase one comprising a workshop, assembly area, and a “concept and prototype” manufacturing zone. Production of all W Motors vehicles will now take place in DSO, including its limited series Fenyr SuperSport.

DMCC reported that the number of newly registered companies last year was 5.4% higher, year on year, bringing the total to over 17k. Over 100k people live and work in JLT, which has quickly become a major global hub for trade and an interconnected business district.

Dubai Economy estimates that over 184k new jobs were created last year, as it saw new business licences jump 90.8% to 38.4k, year on year.; over 2019, the number of licences cancelled was down 1.7% to 4.9k. These figures seem to indicate that there has been a marked uptick in the emirate’s economic competitiveness and that the recent Foreign Direct Investment Law has enhanced overseas business interest.

For the sixth time, a tribunal of the London Court of International Arbitration has found in favour of DP World, in their case against the Government of Djibouti over the Doraleh Container Terminal. On this occasion, it was found that Djibouti had acted illegally when it forcibly removed DP World from management of the terminal in February 2018 and was ordered to restore the rights and benefits, under the 2006 Concession Agreement to DP World, by the end of March or pay damages. It has been estimated that the Dubai port operator has incurred losses of over US$ 1 billion. The Doraleh Container Terminal, a third owned by DP World, is the largest employer and biggest source of revenue in the country and has operated at a profit every year since it opened.

According to the General Civil Aviation Authority, the UAE has thus far invested US$ 272 billion in airport infrastructure development projects, spanning development projects across the country, and a fleet of 884 commercial aircraft. As the industry grows, (with latest numbers indicating 4.4.% growth in global passenger numbers this year to 4.72 billion), there is the need to keep up with the latest developments, especially in the ME which is one of the world’s fastest expanding markets.

An interesting statistic from Dubicars.com sees used car values rising for the first time in the UAE – up by between 4% – 10% – while sales are accelerating. The study, analysing three million searches, also shows dealers selling vehicles 7.5 days faster than in 2018 and privately-owned cars are selling in 17.8 days, from 24.4 days. It also indicated that a new car will experience a drop in value of between 15% – 30%, within the first year,but that used cars are not depreciating as fast they used to. There is no doubt that sales of new cars over the past four years have slumped by up to 40% and that the average age of a car on Dubai roads is eight years. This shows that consumers are holding on to their cars longer, rather than trading in for a new model, which in turn has increased the demand for used cars and have started to push their prices upwards.

The founder and former CEO of embattled Drake & Scull International, Khaldoun Al Tabari, has been arrested in Amman, after failing to turn up before Abu Dhabi’s Public Funds Prosecution over criminal charges filed by DSI for fund mismanagement/misappropriation. This arrest will send shock waves for those corporate chiefs and senior personnel who have carried out financial misdemeanours in the past. It is believed that DSI itself hasfiled “15 criminal complaints against the previous management, members of the previous board of directors and some of their family members.” It has been reported that accumulated losses at DSI top US$ 1.1 billion and that their scale and nature were kept secret by previous management. The UAE authorities had issued a directive to freeze the bank accounts of Al Tabari and his wife, as well as to seize properties registered under their names.

There are reports that Amanat Holdings is considering a potential acquisition of a strategic stake in the ME operations of VPS Healthcare. If this were to go ahead, it would be in line with the ethos of the Dubai-based healthcare and education investment company to buy into established platforms to grow and scale profitably. VPS was founded in 2007, by Dr Shamsheer Vayalil, and is now an integrated private healthcare service provider in the UAE, with a growing foothold in Oman. Interestingly, Dr Vayalil is also Vice Chairman and Managing Director at Amanat Holdings but will not be involved in any discussions regarding this particular deal.

The bourse opened on Sunday 12 January and, 21 points down the previous week, was up 79 points (2.9%) to 2828 by 16 January 2020. Emaar Properties, having lost US$ 0.03 the previous three weeks, was US$ 0.06 higher at US$ 1.17, whilst Arabtec, US$ 0.06 lower the previous three weeks, was flat at US$ 0.33. Thursday 16 January saw the market trading only 175 million shares, worth US$ 84 million, (compared to 164 million shares, at a value of US$ 61 million, on 09 January).

By Thursday, 16 January, Brent, losing US$ 3.15 (2.6%) the previous week, shed US$ 0.54 (0.8%) to close at US$ 64.60. Gold, up US$ 80 (5.4%) the previous four weeks, rose a further US$ 4, closing on Thursday 16 January at US$ 1,556.

Following the death of Sultan Qaboos, his cousin Haitham bin Tariq has been sworn in as the new sultan of Oman. “After a meeting of the family which decided to appoint the one who was chosen by the sultan”, the 65-year old was sworn in on Saturday, a day after Sultan Qaboos, the longest-reigning leader of the modern Arab world, passed away. Having died unmarried and leaving no children or heir apparent, and following royal protocol, the royal family had three days to determine the successor and if they had failed to agree, the person chosen by Qaboos in a letter addressed to the family would be the successor. Many had theorised that another cousin, Asad bin Tariq, was the favourite to take over.

Abu Dhabi Crown Prince, Mohamed Bin Zayed Al Nahyan, has been appointed to chair a panel to oversee the construction of a new Indonesian capital, with SoftBank chief executive and founder, Masayoshi Son, and former UK Prime Minister, the ubiquitous Tony Blair. The appointment was made by the Indonesian President, Joko Widodo, on a state visit to Abu Dhabi.  The panel will advise on building the new US$ 34 billion capital, to be located on the island of Borneo, to ease the burden on the sinking and congested current capital Jakarta, with a thirty million population. SoftBank has already shown interest in part financing the establishment of a smart and green city and investment deals, worth an impressive US$ 22.8 billion, were signed between companies from the UAE and Indonesia.

2019 plane sales at Boeing slumped to just 380 jets – its lowest level in eleven years, as its main protagonist, Airbus managed to deliver more than twice that number at 863. Bearing in mind that orders – which deduct cancellations in their calculations – reported that new orders in 2019 were a miserly 54, compared to its European rival’s 768 planes. The main driver behind the dismal news was the grounding of its 737 Max in March, following two fatal crashes; ten months later, there is still no concrete news on when the model will fly again. Boeing has an order backlog of 5.4k, across its range of jets, as at the end of 2019. It is estimated that the US plane maker is bleeding US$ 1 billion a month and posted a US$ 3 billion negative cash flow in Q3. It will also face astronomic penalties and compensation payments in the months ahead.

2020 started no differently for the UK High Street which has been in the doldrums now for several years. Beales, founded in 1881 and one of the country’s oldest department stores, has warned that it could collapse into administration. If that were to happen, twenty-two stores and 1k jobs will be at risk if a buyer cannot be found; the company is in talks with two potential buyers – a rival retailer and a venture capital investor – and is also in negotiations with landlords regarding rent reductions. This week has also witnessed Debenhams closing nineteen shops and Mothercare’s 79 UK stores ceasing trading.

There was no surprise to discover that 2019 was the High Street’s worst on record, with retail sales falling for the first time in twenty-five years, declining 0.9% over the last two months of the year. Two major players have issued warnings. Superdry said that its profits could be wiped out after sales fell sharply over Christmas. Meanwhile, John Lewis has warned that its staff bonus may be in doubt, as Christmas sales, at its department stores, were 2% lower for stores open at least a year.

Having opened its first store in 1972 in Perth, the Australian-founded, Hong Kong-owned denim label Jeanswest is in a crisis that could see the end of the iconic brand and the closure of its 146 outlets in its home country.(Its overseas operations, in countries such as China, Hong Kong, Vietnam, Russia and Indonesia, are not affected by the administration). Two other retailers are closing stores – Bardot with 58, over the next two months, and Harris Scarfe closing 21. Meanwhile Mosaic, with brands such as Noni B, Rivers, Millers and Katies clothing chains, noted that its sales took a hit in H2, especially in the 32% of its stores in regional areas, where the company said “consumer confidence has been particularly fragile”, being “directly impacted” by the bushfires. Its share value sank 20%, in two days’ trading, on Tuesday and Wednesday. Any upward movement in economic growth has been hampered by weak household consumption, with latest ANZ data seeing Christmas period sales 5% down year on year.

YTD, the Australian stock market has proved to be the best performing global bourse, as the ASX jumped 5.3% to exceed the 7,000 barrier (to 7,048) for the first time, driven by record interest rate lows and a recent improvement in US-Sino trade relations. The Central Bank has had to slash rates last year in a bid to stimulate a sluggish Australian economy. With investors earning next to nothing on cash, but being able to borrow cheaper money, they are turning to the share market which has meant that the ASX has a very expensive 18.2x price-to-earnings ratio. One consequence of this has seen the total Australian superannuation portfolio reach US$ 2.1 billion (AUD 3 billion) – up 13.8% on the year – with the average super fund returning 15.2%, the best since 2013. It has to be noted that because the local financial markets are relatively small, an increasing amount of “Australian money” is to be found invested in international markets.

Aided by enhanced household spending, the German economy managed to grow by just 0.6% in 2019 – its weakest performance in six years – as Q4 is expected to see growth of between 0.1% – 0.2%. There were weaker returns in business investment for machinery/equipment and an 0.5% decline in industrial production, excluding construction, whilst exports grew at a lower rate (0.9%) than in recent years. Despite marginally better returns in Q4, having nearly moved into recession the previous two periods, there is no doubt that Europe’s mainstay economy is struggling to generate growth.

A monthly 0.2% decline in December’s inflation rate to just 1.3%, (its lowest rate in over three years), makes am increase later in the month much more likely, as it is well below the Bank of England’s 2.0% target. There were price falls noted for women’s clothes and hotel room costs, although energy prices climbed 4.9% in December. However, with the UK economy barely crawling forward, there is little immediate chance of rates returning to the 2.0% mark in the near future.

A third member of the nine-man Bank of England’s Monetary Policy Committee has come out indicating a willingness to cut interest rates further depending on how the economy has performed since the December election and whether economic weakness persists. Currently, the rate is at 0.75% and there is now the possibility of this being reduced to 0.50% when the next MPC meeting takes place on 30 January.

Positive news from Washington should help ease the tensions between the US and China, as regulators reversed their earlier decision to brand the world’s second biggest economy a currency manipulator, following an agreement that the yuan would not be devalued so as to make Chinese exports cheaper on the global stage. The facts that the Chinese currency had appreciated since August, at the height of the trade war, and the IMF confirming that the yuan was valued fairly, may have helped the decision. The Treasury Secretary, Steven Mnuchin, confirmed that “China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability.”

Subsequently, the two superpowers signed a pact that was well received by both parties, with Donald Trump saying it would be “transformative” for the US economy and Chinese leaders calling it a “win-win” deal, that would help foster better bi-lateral relations. Part of phase 1 of the deal sees China agreeing to boost US imports by US$ 200 billion above 2017 levels and strengthen intellectual property rules, with the US agreeing to halve some of the new tariffs; the four way split will see manufacturing, energy, services and agriculture benefitting by US$ 78 billion, US$ 52 billion, US$ 38 billion and US$ 32 billion respectively. The two-year tit-for-tat trade war has seen tariffs of more than US$ 450 billion being levied on traded goods, with a negative impact on global economic growth and trade.

A Cavendish Maxwell report concludes that the falling prices in a sluggish property market represent a “silver lining”, with more buyer interest being generated by lower prices. The consultancy estimated that 2019 apartment declines averaged 15%, although some areas, including Discovery Gardens and JVT, posted bigger falls of 23%. Price declines for villas and townhouses averaged 18%, although bigger ones were noted in the Meadows (24.3%), JVT (22.8%) and Victory Heights (22.3%). In a simple equation, with incomes nudging higher (or even remaining flat) as property prices sink (and supply increases), the customer base is expanding. Add to the mix Expo, and more potential buyers, along with lower mortgage rates, then it is only a matter of time before equilibrium returns to the Dubai property sector. Hey Ho Silver Lining!

 

 

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SO you Win Again

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