Let’s Hang On To What We’ve Got

beckham-emiratesThe week started with HH Sheikh Mohammed bin Rashid Al Maktoum’s directive that work should commence on two major Nakheel developments on Palm Jumeirah. Nakheel Mall, located at the bottom of the trunk, will cost US$ 680 million whilst The Pointe – comprising a marina and retail outlets – will expend US$ 218 million. The debt-ridden developer will have a busy 2013 handing over 3,000 residential units plus other new projects totalling US$ 1.8 billion coming on line over the next three years.

Sunday saw the close of the Dubai Shopping Festival. Since its 1996 inception, visitor numbers have risen threefold from 1.6 million to this year’s estimated 4.8 million. It is projected that DSF 2013 Revenue will add US$ 4.8 billion to the emirate’s coffers.

Weeks after the Ministry of Economy announced it was fixing the 2013 prices of 2,000 basic food items, there was further good news for the consumer. This time, the Ministry of Health has been directed to ensure that prices of some 6,600 imported medicines be reduced by up to 40%.

Latest IATA figures show the influence the ME carriers have on the global airline sector.  According to their latest figures, 2012 saw a 15.4% growth in passenger numbers (8.9% in 2011) with a 12.5% capacity expansion and a much improved load factor of 77.4%. Cargo in the region grew by 14.7% (8.2% in 2011). The sorry state of the global economy can be gleaned from the fact that worldwide figures showed passenger growth at 5.3% and cargo actually falling by 1.5% – a variance of 10.1% and 16.2% on ME returns. Based on these figures, it will be very interesting to see what Emirates report for their 31 March year end results – surely higher than last year’s profit of US$ 620 million.

By the time David Beckham had signed  for Paris St Germain, Emirates has already finalised a further five year shirt sponsorship deal with the French club. No figures are readily available but it could be less than the recent Arsenal shirt extension (to 2018-19) which was valued at just under US$ 240 million. Among other European clubs bearing the Emirates logo are Real Madrid, AC Milan and Olympiakos.

To expand their sponsorship reach even further, the airline has signed a 5-year deal with Formula 1 to sponsor fifteen races a season at a rumoured annual cost of US$ 55 million. That being the case, it will see their sponsorship expenditure rise to over US$ 270 million in 2013. It is difficult to think of one sport in which Emirates are not involved.

On the subject of cars, Dubai boasts the world’s biggest Bentley workshop. ME sales of the luxury vehicles were up 44% in 2012 – a sure sign of the bounce back of the local economy.

In Q2, DubaiSat-2 will be launched and will be able to take better quality photographs than its predecessor which is still operating in space. This year, Eiast, the Dubai-based government entity, will start work on a facility to manufacture satellites in the UAE with plans to launch DubaiSat-3 by 2016.

One company taking advantage of the favourable conditions in Dubai is Transworld Group which is planning to expand its shipping fleet by three bulk carriers and three container ships at a cost of US$ 100 million. The 45-year old locally based shipping service provider already had a fleet of 27 vessels.

There was further news on Dubai Group’s US$ 10 billion debt – US$ 6 billion of which is owed to a consortium of 35 banks. Although some of these creditors – including RBS, Standard Chartered and Standard Bank – may have settled on an 18.5% arrangement, it seems that over half are looking for a total settlement over 12 years. The sooner an amenable restructuring scheme is in place, the better for the emirate.

The Emirates Bank Association has formally requested the UAE Central Bank to cap mortgages for expats at 75% and for Emiratis at 80%. Last month, the Central Bank had suggested LTVs at 50% and 60% so an obvious compromise will be reached by Q3 at the latest. The bankers have also suggested that the total loan value should not be more than 7 years’ salary for expats (8 years for UAE nationals).

Following the GFC, the Central Bank ploughed over US$ 19 billion into local banks. Now it appears that much of the money, that was converted into 7-year bonds in 2009, will be repaid this year as cheaper forms of financing become available to these financial institutions.

The Dubai bourse succumbed to a little profit taking and gave up some of its recent gains dropping 1.5% over the week to close on 1860 points. Its daily turnover is over US$ 100 million and so far this year it is still ahead by 14.61%!

The 2012 reporting season continues with a further flurry of pleasing results especially from two local banks. Mashreq, Dubai’s second largest bank, had a stunning Q4 which saw its profit jump six fold from US$ 17.4 million to US$ 109.0 million. Year on year, the bank saw its net profit up 67% from US$ 223.4 million to US$ 373.0 million. Not bad for a bank that saw its credit rating cut one notch to Baa2 in December. In line with the generous dividends paid previously by CBD and Emirates NBD, a cash pay-out of 38% has been proposed, subject to approval.

Meanwhile Dubai Islamic Bank saw its 2012 profit increase by13.3% (US$ 38.1 million) to US$ 324 million. During the year the bank saw total assets up by 5.3% to US$ 26 billion whilst its impairment provision fell from 12.1% to 9.8% – still relatively high.

Some international banks are in for a well-deserved torrid time and have been called to book for their dubious methods of generating revenue. For example, RBS, 81% owned by the British taxpayer, became the third bank penalised for its role in colluding with other financial institutions to rig Libor rates. Fined US$ 625 million, it joins Barclays (US$ 450 million) and UBS (US$ 1.47 billion) in the hall of shame with many banks set to suffer the same consequences for their fraudulent behaviour and cavalier attitude to their stakeholders.

Barclays is in the firing line once again – this time for misselling loan insurance designed to protect borrowers. All it seemed to do was to make money for the bank and left many of its customers worse off. To date, they have provided a reserve of over US$ 4.0 billion for potential claims but that seems to be on the light side. Another potentially bigger problem for the bank could become their Qatargate as authorities are investigating a US$ 5.3 billion investment by Qatar Holding in June and October 2008.

BP is still paying for the 2010 Deepwater Horizon incident in the Gulf of Mexico. So far it estimates that this disaster has already cost the company US$ 42.2 billion which included an additional US$ 4.1 billion Q4 provision for its settlement agreement with the US authorities. To add to their woes, they could be exposed to further massive costs as the civil cases are scheduled to start later in the month.

One of the smaller members of the Eurozone is embroiled in the bloc’s economic malaise with its banking system in tatters. Cyprus may require US$ 14 billion to keep its banks afloat with the money coming out of the EU bailout fund. Interestingly, the largest foreign investors in that country are the Russian Federation whilst the largest foreign investor in Russia is Cyprus.

Nearer home, Egypt’s woes continue with the political turmoil, civil unrest and economic uncertainty responsible for a further dwindling of the country’s currency reserves. In January, there was a 10% fall from US$ 15.0 billion to US$ 13.6 billion. Before the ouster of former President Hosni Mubarak, the foreign reserves stood at US$ 36.0 billion. (As an aside, a recent Transparent International report indicated that 99% of Egypt’s military spend was secret).

The problems in Spain just deteriorate by the day and probably the last thing needed was for the Prime Minister, Manoj Rajoy, becoming embroiled in a corruption scandal. Nearly a million Spaniards have now signed a petition calling for his resignation after allegations of secret cash payments to him and fellow members of his Popular Party. Not surprisingly he has rebuffed these claims as totally false.

Unfortunately there is always the possibility that the UAE may suffer as a consequence of the global crisis whether it be eurozone, US, China or regional political issues. For example, if the US were to go into recession, the global economy, including Dubai, will be affected. Not only will trade and tourism fall but the emirate’s ability to source international funds will inevitably dry up.

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