Don’t Turn Around

sven-dubai-alnasrThe on-going mortgage lending saga took another turn this week with reports that the Central Bank Governor, HE Sultan Nasser Al Suweidi, has advised that changes to the mortgage cap were not imminent and would not go ahead without consultation with the country’s commercial banks. Because of this, any possible amendments would probably take until Q4 to bear fruition.

The debate on mortgage capping is a consequence of the recent spikes in the prices of property and rentals with 2012 estimated increases of 17% and 14% respectively. To some observers, this could have been the beginning of another property bubble, four years after the last one that brought the Dubai economy to its knees. The other impact that this may have on the local economy is rising inflation – indeed 2013 may see rates turning out higher than the 1.5% which some analysts have predicted. (This year it is estimated that 18k new residential units and 550k sq mt office space will come on line).

2012 property sales rose by 8% and topped US$ 42 billion with nearly 42k transactions, according to Dubai Land Department. The 1,282 villa sales accounted for only US$ 1.4 billion of that total of which 671 were mortgages valued at US$ 545 million.

The Department of Economic Development has released 2012 figures showing that its export promotion agency, Dubai Exports, facilitated US$ 1.36 billion of trade through local companies – a 66.7% jump on the previous year. Over 50% of the business was with Saudi Arabia. In H1 2012, 210 companies participated in exhibitions and trade fairs arranged by the agency.

Although highly commendable, this is small change when one considers Dubai’s non-oil exports / reexports for the first ten months of 2012 which increased by 15.7% to US$ 114.4 billion (whilst imports hit US$ 165.9 billion – a 10.9% jump).

One company that is taking advantage of the local economic boom is Canadian convenience store chain, Circle K.  With 29 shops currently  in the UAE, it plans to spend US$ 55 million to open a further 500 outlets over the next four years. There is no doubt that groceries are big business in this country with 9,400 such shops generating a massive US$ 9.5 billion in sales.

After recently receiving US$ 100 million funding from private equity firm Olympus Capital Asia, Dubai-based DM Healthcare is looking at acquiring two southern Indian hospitals. By 2015, it hopes to quadruple the number of beds in India to 4,000 and, at that time, to consider an IPO either in London or Mumbai. This is in addition to its US$ 300 million regional expansion plans that will see new facilities in Dubai, Sharjah, Saudi Arabia and Qatar.

Just as borrowing costs are at their lowest (currently at 211 basis points), the Dubai government is looking at a potential US$ 1 billion Islamic bond in the very near future. The government’s last foray in this market was in April 2012 when its US$ 1.25 billion sukuk was well oversubscribed. Which comes first – this issue or the planned US$ 1 billion DEWA sukuk – remains to be seen.

The government’s direct debt is currently US$ 33.2 billion with US$ 1.8 billion maturing this year. The emirate’s primary investment fund,  Investment Corporation of Dubai, has a US$ 29.5 billion portfolio with US$ 5.6 billion in listed shares and US$ 23.9 billion in unlisted companies, including Emirates airline.

Notwithstanding all the country’s troubles, development work in Lebanon is progressing with news that Dubai’s Majid Al Futtaim Properties have just been awarded a US$ 225.0 million contract to develop Waterfront City in Beirut in a JV with Arabian Construction Company and Matta et Associes.

In the apparent wake of possible future sanctions, and the corresponding negative impact that this would have if the company were to seek external investment, MAF have spun off its Syrian and Lebanese portfolio directly to its owner, Majid Al Futtaim. In 2012, the company issued bonds to the value of US$ 900 million. (His holding company has also announced that 2012 Revenue surged 10% to US$ 5.88 billion with EBITDA up 7% to US$ 817 million).

The UAE’s well-earned victory in the Gulf Cup last Friday resulted in huge celebrations over the length and breadth of the country. The team has been showered with praise and cash rewards with at least US$ 50 million gifted by the emirates’ various ruling families and other supporters.  Also on the football and money sides, it was interesting to see that Dubai’s own “fake sheikh” has returned – this time as technical director of local side, Al Nasr. Former England coach, Sven Goran Eriksson, reiterated that he was not here for the money!

For the past four years the QE2 has been in Dubai limbo after its 2009 retirement following 39 years sailing six million miles and crossing the Atlantic over 800 times. Now after much conjecture, it seems that the grand old lady will become a luxury floating hotel with 500 rooms. Although there will be a Dubai shareholding in the new consortium, it seems strange that its final destination will be the Far East – rather than here.

Sofitel has announced its expansion in the region with 2013 additions of eight properties to their portfolio of which two will be located in Dubai. With an additional 1,200 rooms, the two hotels will be in Downtown Dubai and Palm Jumeirah whilst the operator has plans for a further opening in JBR. According to the developers, Enshaa, the 217-suite and 169-apartment Palazzo Versace will be completed this year. This project also includes the 80-floor D1 Tower and is located in Cultural Village.

Despite making a Q4 US$ 7.5 million profit, Tamweel’s full year return fell 28.9% to US$ 19.8 million. The Islamic mortgage lender is the subject of a take-over from its major 58.2% shareholder, Dubai Islamic Bank which is offering one of its shares for every 1.8 Tamweel shares. The latter’s share value is currently at US$ 0.31 – 99% up in the past year; what happens when it starts making reasonable profits?

Meanwhile, Dubai’s much-troubled property developer, Nakheel, declared a 57% jump in 2012 profits to US$ 549 million on a 91% surge in Revenue at US$ 1.12 billion. The company is confident that it will be able to meet its debt obligations which is said to be US$ 3.32 billion with US$ 2.18 billion owing to banks and US$ 1.14 billion in sukuks. Some analysts still have their doubts however.

Despite a 3.7% hike in profits to US$ 232 million, Commercial Bank of Dubai’s year end results fell short of estimates. Despite the market’s disappointment, its shares rose 4.8% to US$ 0.83 in Wednesday trading and shareholders received a 10% dividend yield of US$ 0.08.

The Dubai Financial Market Index had another shortened trading week closing on Wednesday almost 1% up at 1792, having opened on Sunday at 1775 points. In the first 23 days of the year, the market is already 10.46% higher and a creditable 33.68% up over the last 52 weeks. The Dubai bourse is running in tandem with the likes of the FTSE, S&P and All Ords  all with recent stellar performances that may be a precursor of a stock market bubble.

This week was not a good one for the Anglo-Australian mining conglomerate, Rio Tinto, which was forced to write off US$ 14 billion in its investments in failed aluminium and coals projects in Mozambique. Two senior executives, CEO Tom Albanese and Doug Ritchie, the “brains” behind these two acquisitions, have been forced to stand down. This is another blow for the mining giant which has seen several big projects put on hold as a result of a Chinese slowdown and the continuing economic debacle in Europe.

The global economic landscape shows little signs of improvement with Europe the biggest obstacle to any turnaround. Having gained 3% in 2011, growth in Germany slowed considerably to 0.7% whilst its eurozone partners continued in recession with governments having to slash spending amid increasing austerity programmes.

Any reports that the worst is over need to be treated with caution. The latest IMF prediction is for slower growth indicating that the two-speed global economy will continue with the emerging economies outpacing the high-income countries, where business and consumer confidence are in tatters. Whilst record numbers are on the dole queues, it is impossible for any economy to recover. Then there is the possibility of the eurozone crisis moving north and dragging the likes of Germany and France deeper into the malaise whilst the US debt mountain will not go away and will bring more uncertainty into the economic arena.

The US leads the world in cranking up its money printing presses to  keep its economy ticking over and is now seeing Japan following suit. 2013 may be the year that the world economic problems are exacerbated by currency wars as certain countries intentionally try to devalue their currencies to revive their flagging economies.

In contrast, Dubai has ticked all the right boxes since its well-publicised problems following the GFC. Now it has more than regained its credibility with the investment community and is looking at growth rates in excess of 4% this year. Not only is it considered as the safest haven in the MENA region, Dubai is indeed the financial capital of the wider region. Don’t Turn Around could be a theme for an emirate that has always looked forward and never has had to rest on past laurels.

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